Local banks ordered to shore up finances

Regulators act to stop red ink from bad loans

By Todd Wallack
Globe Staff / February 5, 2010

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State and federal regulators reached agreements with two more struggling Massachusetts banks to shore up their finances. The Massachusetts Division of Banks and the Federal Deposit Insurance Corp. ordered Athol-Clinton Co-operative Bank in Athol and Stoneham Savings Bank in Stoneham last month to take steps to safeguard deposits, including by raising more capital and drafting plans to improve their profitability.

The agreements, called consent orders, are the latest indication that the state’s banks haven’t been completely immune from the nation’s housing crisis and economic downturn. Regulators seized 140 banks in the United States last year and 15 so far this year. Though none of the failures have been in New England, some institutions, including Stoneham Savings and Athol-Clinton Co-operative, have posted recent losses because of a surge of foreclosures and other bad loans.

In the last two years, regulators have publicly ordered several other banks, including Community Bank of Brockton and Butler Bank in Lowell, to reinforce their finances as well. Several troubled banks have also been forced to merge, and Butler Bank has said it is trying to find a partner.

In most cases, however, depositors are not at risk, since the FDIC guarantees deposits for up to $250,000 per account. Also, banks chartered in Massachusetts, including Stoneham Savings and Athol-Clinton Co-operative, generally carry additional insurance that covers deposits beyond the federal caps.

As part of the agreements, Stoneham Savings and Athol-Clinton Co-operative will be required to retain banking consultants to review their operations. Stoneham Savings is not affiliated with Stoneham Bank.

Athol-Clinton Co-operative, founded in 1889, has two locations and $95 million in assets. Stoneham Savings, founded in 1855, has seven branches and $417 million in assets.

Stoneham Savings, which was hit hard by delinquent real estate loans after the housing bubble burst, lost $9.2 million last year. But Richard Donovan, the bank’s president, said its operations are steadily improving and that the bank showed a small profit in January.

“We’re settling down,’’ Donovan said. “Our goal is to work with regulators’’ to resolve any remaining issues, he said.

Athol-Clinton Co-operative lost $2 million last year, primarily because of troubled home mortgages. Bank president Wayne Grimes noted the Athol area was hit hard by unemployment.

“Things are looking up,’’ he said, “but it’s a gradual process.’’

Todd Wallack can be reached at