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Pair of Mass. banks told to boost reserves

Local lenders had ‘unsound’ practices, regulators say

By Todd Wallack
Globe Staff / July 31, 2009

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State and federal regulators ordered two more struggling community banks to shore up their reserves and make other major changes to regain their financial footing.

In documents released yesterday, the Massachusetts Division of Banks and the Federal Deposit Insurance Corp. said Community Bank of Brockton and Mt. Washington Cooperative Bank in South Boston were engaging in “unsafe or unsound banking practices.’’

Mt. Washington - which recently struck a deal to become a unit of East Boston Savings Bank - was one of two banks in the state that did not have enough money on hand to meet regulatory requirements as of the first quarter of this year, according to data from SNL Financial, a banking research firm based in Charlottesville, Va. The other bank was Butler Bank in Lowell.

No depositors at any of the three banks are at risk of losing their money. The FDIC guarantees deposits up to $250,000, and a state fund insures the rest.

Regulators became concerned about Community Bank of Brockton because a number of its residential real estate development loans were late or in default, raising questions about whether it had enough capital set aside, according to the bank’s president, David W. Curtis.

“We have reasonably conservative underwriting practices,’’ Curtis said, “but the real estate market is in tough shape.’’

Community Bank, which has six branches and $350 million in deposits, unsuccessfully tried to raise $15 million in an initial public offering last fall to improve its financial position, but wasn’t able to go public because of the frozen IPO market.

Curtis said the bank is now trying to become stronger by reducing its loan portfolio and capital spending. In addition, he said, some real estate developers that borrowed money from the bank have had more success selling properties in recent months, which could make it easier for them to pay off their loans.

Mt. Washington, which has six branches, also said some of its loans soured because of the weak economy.

But the bank’s president, Edward J. Merritt, said it expects its financial problems to be solved by its upcoming merger with East Boston Savings Bank, a unit of Meridian Interstate Bancorp Inc. in Peabody, which was announced a week ago.

“We’ve been under regulatory pressure for some time,’’ Merritt said, but “this merger causes all that to go away.’’

The three orders issued against Massachusetts banks this year by the state Division of Banks compare with one last year and none in 2007.

Scores of banks have recently failed across the country because of the housing slump and the recession, though none of those banks have been in Massachusetts.

Todd Wallack can be reached at twallack@globe.com.