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Troubled loans lead to failure of local savings bank

Losses on loans made to investors rehabilitating city homes helped drive to failure a small savings bank founded by immigrants in East Baltimore more than 100 years ago, said the CEO of the bank that acquired much of its portfolio.

Federal banking regulators closed Slavie Federal Savings Bank on Friday after losses on bad loans depleted its capital from $13.4 million in mid-2012 to $2.93 million at the end of March. The Bel Air-based thrift's $111.1 million of deposits and most of its loans were sold immediately to Bay Bank, FSB.

The Office of the Comptroller of the Currency issued Slavie a cease-and-desist order in January for failing to address "unsafe or unsound banking practices," its most severe sanction, laying the groundwork for last week's closure. The bank had agreed to address those issues, and boost its capital levels, in an agreement with regulators in July 2012.

"They've had a lot of losses," said Bert Ely, a Virginia-based banking consultant. "We see this a lot of times in troubled banks, that they keep sliding slowly underwater and at some point they are just taken."

Slavie lost $456,000 in the first three months of this year, following $3.6 million in losses during the fourth quarter of 2013, according to reports filed with federal regulators.

As a savings bank, much of Slavie's $92 million loan portfolio involved residential lending. But as of March 31, it reported more than $17 million in nonperforming assets, including nearly $11 million of loans that were past due and not paying interest and more than $6 million of real estate on which it had foreclosed.

Bay Bank, which itself developed out of a 2010 bank failure, looked at acquiring Slavie about six months ago but decided it would wait until an expected FDIC auction, said Kevin B. Cashen, Bay's president and CEO.

"The investor residential real estate was probably the product that caused them more trouble than anything else," he said. "There were enough issues there that we did not think we could do something without the bank entering into some kind of receivership."

The acquisition increased Bay Bank's assets to about $500 million, Cashen said. Bay Bank is trying to grow to between $1 billion and $3 billion in assets, he said. In April 2013, it acquired the parent of Columbia-based Carrollton Bank. It funded the Slavie acquisition in part by raising $7 million in equity last month.

Cashen said the loans acquired by Bay Bank represent the bulk of Slavie's portfolio, excluding the foreclosed real estate, which was retained by the FDIC. As receiver, the FDIC will sell the remaining assets in the next 12 to 18 months, said FDIC spokesman Greg Hernandez.

The FDIC estimated Slavie's failure will cost the deposit insurance fund $6.6 million.

Slavie became the ninth FDIC-insured institution to fail this year, and the first in Maryland, which has had fewer failures than some other states, such as Georgia and Florida. The last FDIC-insured institution closed in the state was Bank of the Eastern Shore, Cambridge in 2012.

Slavie operated two branches, one in Bel Air and one on Northern Parkway in the city. Both reopened Saturday as branches of Lutherville-based Bay Bank. Former Slavie customers should experience "minimal impact" to service as Bay Bank works to consolidate the two systems, Cashen said.

Bay Bank is trying to decide what to do with the branch in Overlea but plans to close Slavie's Bel Air branch, he said. It has another branch nearby in Bel Air.

Founded in East Baltimore in 1900 by immigrants from Bohemia, now the Czech Republic, Slavie takes its name from the Bohemian goddess of abundance. It was first known as the Bohemian Building, Loan and Savings Association, according to archived versions of its website.

The original branch on Collington Avenue near the Johns Hopkins medical campus closed in 1993 after a string of holdups. In 2001, the bank moved its headquarters to Bel Air. It went public in 2004, selling shares for $10 each. By 2008, the Slavic-American community, once its core clientele, represented about 10 percent of deposits, according to its 2008 annual report.

Attorneys for the 29-employee bank did not respond to calls for comment. Philip Logan, Slavie's chairman, president and CEO since 2001, and another top executive also could not be reached for comment.

Federal regulators often try to pursue legal action against the directors of failed banks to recoup money, said Stuart Greenberg, a banking consultant based in Baltimore.

"There's a lot of reasons why a bank fails," he said. "It's always easy to blame somebody else. Yes, the economy soured. Yes, a lot of people lost a lot of money. Yes, real estate values shrank and everything else, but if I went back and looked at those individual loans, I would be asking why were some of those loans ever approved in the first place."

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