Butler Bank posts loss, remains at risk

By Todd Wallack, Globe Staff

Butler Bank, the Lowell community bank that was recently ordered to shore up its capital reserves, is continuing to struggle. The bank reported a $1.7 million loss in the third quarter, while its capital position deteriorated.

In a new filing with the Federal Deposit Insurance Corp., Butler said a key measure of its financial strength, its "tier 1 leverage ratio," fell below 2 percent in the third quarter, meaning it does not have capital as regulators require of banks. Regulators normally require banks to keep the ratio above 4 percent.

In April, federal and state regulators ordered Butler to increase its reserves and make an array of other changes to improve the bank's financial position. Chief Executive Janet Bruno said the bank has been in merger talks for months with a potential partner, but would not give details. "The wheels go slowly,'' Bruno said.

Butler has blamed its problems on construction loans that soured after the state's real estate market slowed, as developers were unable to keep up with their payments. But Bruno said the bank is steadily improving its operations, noting that its third quarter loss was smaller than in the previous two quarters this year. The bank lost $7 million in the first six months of this year.

"It's baby steps,"said Bruno, who became Butler's CEO a little more than a year ago. "We are improving on a day-to-day basis. But working our way out of this is going to be a challenge."

In addition to Lowell, Butler also has branches in Andover and Marlborough.

Severe undercapitalization is often a sign that a bank is at risk of failing. Regulators typically close a bank -- the event is called a bank failure -- when banks become critically undercapitalized or unable to meet their obligations to depositors and creditors. So far this year, 115 banks have failed nationwide, though none in Massachusetts.

Even if the bank failed, Bruno said depositors would not be at risk. The FDIC insures deposits up to $250,000 while additional amounts are guaranteed by the state-sponsored Share Insurance Fund.