March 26, 2010

Feds order bank to boost cash holdings

Savings Bank of Maine upbeat despite loan woes

GARDINER -- A federal banking regulator has ordered Savings Bank of Maine to increase its cash holdings by Sept. 30. Otherwise, the 32-branch institution must plan to sell its assets or arrange to be taken over by another bank.

Savings Bank of Maine President Arthur Markos said he's confident the bank can boost its capital holdings by the deadline imposed by the regulator, the federal Office of Thrift Supervision.

"We're very positive about the future," Markos said. "We have a plan, and we are making all of our goals on that plan."

The "prompt corrective action" directive against Gardiner-based Savings Bank of Maine follows a cease-and-desist order the bank received in August 2009. That order imposed tighter lending restrictions and required the bank to restructure internally. The Office of Thrift Supervision issued an amended cease-and-desist order on March 12, the same day it issued the corrective action directive.

"It's part of an ongoing process that we've been going through starting in the spring of last year," Markos said. "The staff here is working tirelessly with both customers and our regulators to get through this."

Regulators use prompt corrective action directives at a late stage in the enforcement process in order to avert a takeover.

Savings Bank of Maine is not facing a takeover, Markos said. "We fully expect to make the goals that are set forth for us," he said.

Regulators can issue prompt corrective action directives to address a range of concerns they have about the banks they oversee, said Gretchen Jones, an attorney with Skelton, Taintor & Abbott in Auburn who specializes in financial institutions and financial services.

"Some of them are more serious than others," she said. "They don't all mean that the institution is on the verge of collapse or disaster."

Even in the case of a collapse, the Federal Deposit Insurance Corp. would insure up to $250,000 in deposits for each account holder through 2013.

Markos said Savings Bank of Maine has posted a profit in recent months -- $500,000 on average after taxes -- and is adding business.

"We initially had some outflows of deposits," Markos said. "Obviously, we were concerned about that. That's not only stabilized, we're going in the opposite direction now."

Still, the bank is having difficulty covering loan losses, Markos said, the result of a weak economy that has hampered many debtors' ability to repay loans.

Those bad loans are spread throughout the residential and commercial markets and throughout the regions where Savings Bank of Maine has offices, he said.

The bank recorded $82.1 million in nonaccrual loans -- loans the institution doesn't expect to be repaid -- at the end of 2009, up from $18.5 million a year earlier, according to Office of Thrift Supervision data.

"It hurts to be where we are," Markos said. "The result of where we are is from trying to help customers who are having a hard time right now with this economy."

Savings Bank of Maine posted $892.5 million in assets as of Dec. 31, 2009; the bank held $64.7 million of that in capital, according to the Office of Thrift Supervision. A year earlier, the bank held $974.6 million in assets with $96.4 million in total equity capital.

The regulator is requiring the bank to double a key capital-to-assets ratio, to 10.76 percent, by the end of September. The bank's capital holdings were 5.19 percent of its assets as of Dec. 31, 2009.

The document also orders the bank to boost another capital measure, its risk-based capital ratio, to 13.78 percent, up from the 7.46 percent it reported at the end of 2009.

Markos declined to discuss the bank's plan for raising capital. The bank does have the ability to issue stock, though it has not to date, according to the Office of Thrift Supervision.

Savings Bank of Maine incorporated in 1834 and has been one of Maine's fastest-growing banks in recent years, acquiring Augusta Federal Savings Bank in 2001, First Citizens Bank of Presque Isle in 2006, Calais Federal Savings and Loan in 2007 and Rivergreen Bank of Kennebunk in 2008.

"These acquisitions have worked out well," Markos said. "They take a little time to work together."

The prompt corrective action directive against Savings Bank of Maine is one of 10 nationally that Office of Thrift Supervision examiners have issued so far in 2010.

The agency's examiners issued an increasing number of prompt corrective action directives as the economy soured, agency data shows. They issued 18 in 2009, three in 2008 and two in 2007.

"That, generally, is typical of any time there's an economic downturn," said William Ruberry, an Office of Thrift Supervision spokesman. "There's an increase in enforcement actions because there's an increase in stress on the institutions."

Matthew Stone -- 623-3811, ext. 435

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