oh too bad: Lowell's Butler Bank sets new course after deep

[bferrari]

In case you didn't know, Butler Bank is one of those banks that funnels monies into the New England Fund which is one of the funds approved by the Housing Appeals Committee that funds these ridiculously huge 40B affordable housing projects. Butler Bank did so well with this that they moved from Lowell to Andover but now are suffering due to the current economic crisis. Everyone together now... oh poor baby. The big controversy with the New England Fund was that these banks wanted to loan the money but then they did NOT want to do any due dilligence or oversite of the projects during and after the fact. Typical, they wanted all the gain without the pain. Because of this stance, most 40B developers were using unfettered in their conquests of neighborhoods as the ridiculously lax and incompetent MA Housing Appeals Committee (HAC) and the New England Fund together gave 40B developers unlimited money making capabilities by allowing huge developments in small neighborhoods all at the expense of abutters own home equity (lowering abutting property values).



Lowell's Butler Bank sets new course after deep loan losses
By David Perry, dperry@lowellsun.com
Updated: 06/20/2009 06:37:04 AM EDT

http://www.lowellsun.com/ci_12654735

Butler Bank's offices on George Street in Lowell. Lending practices that worked well for years, helping the bank prosper, backfired in a big way as the economy sank last year. SUN FILE PHOTO

When construction boomed, so did Butler Bank.

In the best times, the Lowell-based bank posted nine consecutive five-star Bauer Financial ratings, the highest marks possible.

But since last June 30, the bank's Bauer rating has been zero. In April, the Federal Deposit Insurance Corporation and the state's Division of Banks slapped Butler with a cease-and-desist order to stop "unsafe or unsound banking practices," and have since been working with the bank to right the ship.

"It's challenging here, no question," said President and CEO Janet Bruno, from behind her desk at the bank's George Street branch. "But I love a challenge."

She stressed that deposits are fully insured up to $250,000, and that Butler remains a visible force in the community, its workers volunteering and staff sitting on boards of local organizations.

"I want to stress that there's no risk for our depositors at all," she said.

Butler is in "rebuilding mode," Bruno said, recovering from a large portfolio of construction loans that quickly turned bad as the economy and real-estate market sank.

Butler's problems arose from "some pretty aggressive and risky business plans, primarily dealing with construction lending," Bruno said. "But it had been a business plan that worked here in the '80s and '90s. But there was involvement in larger projects and lending outside the area that is harder to watch closely. It's better to stay in our market here and in Southern New
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Hampshire. But down the Cape and into Maine? I don't think a bank of our size could handle that."

Butler's problems "became evident in the summer of 2008, really," she said, adding that the risky business plan "ended the day, if not before, I arrived."

Bruno, a 66-year-old Colorado native, has been the face of the bank since the February retirement of John "Jock" Pearson Jr.

The Butler family founded Butler Bank in 1901. Pearson ran the bank for 35 years. His daughter, Ginger Burke, is a vice president and represents the family's fourth generation.

John Pearson would not speak for the record on this story, citing his retirement from the business to concentrate on trademark and patent work with his law firm, Pearson & Pearson, which is in the same building as Butler Bank. In a February letter to customers and the banking community, Pearson, 59, said that as he stepped down as president and CEO he was proud that the bank had grown from having $1 million in assets to about $340 million during his tenure.

But trouble was brewing.

Bruno said Butler is "exploring all options" to climb out of trouble, from raising funds through an investment firm, a merger or partnership with another institution. She has reconstituted the bank's board of directors, reduced its debt and cut back on its construction loans.

Bruno said the bank "has a lot of irons in the fire," with developments she "can't talk about yet."

"We understand we can't do what we did anymore," she said. "FDIC and the State Bank Division don't want anything to happen to this bank, either."

Bruno ran Marlborough Co-operative Bank until its merger with Butler became final last November, following the July 2007 merger of the two banks' holding companies. In addition to its Lowell branch, Butler now has offices in Andover and Marlboro.

Bruno knows the feel of rough turf. When she arrived at Marlborough Co-Operative in May 1993 (following two decades of banking experience in Colorado), it too was under such an FDIC order, dating back to 1991. By July 1994, the order was lifted.

Butler's FDIC/Division of Banks order, the first of the year issued to a Bay State bank, ordered the bank to stop operating with deficient earnings. The order also said Butler had an inadequate system of identifying problem assets, excessive volume of criticized assets and "inadequate management, policies and practices."

Bruno was "not surprised" when the order came down. "I was here already, and pretty much had an idea it would be difficult."

Such an order is "serious, yes," said John Prendergast, the Division of Banks' chief risk officer. "But it's by no means a death knell." It is serious, he says, "from the standpoint that the bank is experiencing stress."

Prendergast said he could not speak about Butler's case specifically, but that a cease-and-desist order offers banks "a road map" to work with officials to straighten out finances.

The bank's Bauer Financial zero-rating is "certainly not a good thing," said Karen Dorway, president of Bauer. "It's not a common occurrence. But over the past year, we've seen more dramatic falls than normal."

She said Butler's last five-star rating was in 2003, and the last time Butler scored a three-star "adequate" rating was in 2007.

"The rating is some comfort to banks if they have a high rating," Dorway said. "And banks can certainly work their way out of their problems, with something like a significant capital infusion or a buyout. I'd say many, if not most, of the zero-rated institutions do find a way out of it."

"I am very optimistic," said Bruno. She said she's refocusing Butler's portfolio to residential and small-business lending, and believes the bank can survive without a federal takeover.

"I feel confident in saying that's not going to happen," she said.

Depositors are not fleeing, the bank's reorganization plan is "solid," and Butler continues to lend to "our good builders," she said.

Bruno also said she is "starting to see some signs" of the home market returning.

"I get out on weekends. I see open houses, and a lot of people looking," she said. "I think people are coming back. People want to buy now, interest rates are way down now, and I think people recognize they won't be this low forever. If that shifts, it would change the game."

Despite what she called Butler's "amazing growth spurt over the last 10 years," a bank portfolio steeped in the construction market sours when home sales slump.

"The thing with the construction-loans market is when you build them, you've got to sell them," says Bruno. "If the builder is unable to sell a home or finish a project, they become collateral-dependent. If you can't sell the property, you can't pay the debt.

"I believe it's turning. We've identified everything and done a number of things to recapitalize this bank. I just can't talk about them yet."

"Given the time and the opportunity, we'll be able to do it," says Bruno. "I'm very confident we can do this."