Federal banking regulators have told Crofton-based Suburban Federal Savings Bank that it must be sold by Friday or face a possible government takeover.
The 53-year-old thrift has been trying to recover from losses on soured real-estate loans. In documents filed last week, the Office of Thrift Supervision ordered Suburban to merge with another institution or accept "appointment of a conservator or receiver."
If Suburban were to be seized, it would be the first bank to fail in Maryland since 1992, the tail end of the savings and loan crisis.
Suburban, which has seven branches and about $354 million in assets, was supposed to submit a binding merger agreement to the OTS by last Friday, but neither the regulator nor Suburban officials would say yesterday whether a plan was submitted.
"I cannot comment at this time," Robert L. Morrison Jr., Suburban's president and grandson of its founder, said in a phone interview yesterday. "However, the bank is in full compliance with the regulatory directive and is taking aggressive steps toward its recapitalization plan."
Janet Frank, an OTS spokeswoman, said the agency could not discuss pending cases.
Suburban accounts with less than $250,000 in them would be fully protected by federal deposit insurance if the bank fails. But amounts over $250,000 may not be protected.
It is unclear how many uninsured deposits Suburban has. As of Sept. 30, the bank had 660 accounts containing more than $100,000 - the amount that was the ceiling for deposit insurance before it was increased last year. Those accounts had $91 million in them, according to the Federal Deposit Insurance Corp.
Suburban had only $4 million in core capital remaining as of Sept. 30 after losing $4.2 million in the third quarter, according to financial statements filed with the FDIC. It should have $14 million in capital to meet minimum standards. The OTS notified Suburban on Nov. 7 that it was considered "critically undercapitalized," which required it to cooperate with regulators' efforts to find a buyer or close the bank, according to the order.
A week later, Dutch insurance company Aegon NV told federal regulators that it was exploring a bid for Suburban as a way to become eligible for the $700 billion bank bailout program. However, it withdrew its application in mid-December. Aegon, which has its North American headquarters in Baltimore, would have had to own a savings institution by the end of 2008 to access bailout funds.
"We looked further at the program and made a decision that this isn't what we wanted," Aegon spokesman Gregory Tucker said in a recent interview. "We decided we didn't want to buy a distressed thrift at this time. Furthermore, we didn't need the capital at the time."
Tucker said Suburban's finances had nothing to do with its decision to drop its application.
Suburban has operated since March under an order forbidding it from writing land, development and construction loans without regulatory approval. The OTS said that Suburban had engaged in "unsafe and unsound" banking practices that included issuing loans without verifying income or assets.
The bank had about $33 million in bad loans as of Sept. 30, about eight times its capital.
If neither Suburban nor the government can find a buyer, the FDIC could take receivership and try to find one or more parties to buy pieces of it. "The desire is to have a whole bank transaction, where the healthy institution takes over the failed institution ... so they've acquired a franchise," said FDIC spokeswoman LaJuan Williams-Dickerson.
Bert Ely, a banking consultant in Alexandria, Va., said it will difficult to find a buyer for Suburban. "It's absolutely amazing they're still open," Ely said. "The capital at the end of September was almost exhausted."
The federal government has seized a string of banks in recent months, many of them about the same size as Suburban, that were crippled by risky lending practices during the housing boom.
The last Maryland bank to fail, in 1992, was Second National Federal Savings Bank, then the largest thrift on the Eastern Shore. Four other Maryland banks were also taken over that year.