Regulators want hearing on Rockville bank's risky loans

By Danielle Douglas
Monday, December 6, 2010

Colombo Bank of Rockville is facing a regulatory hearing stemming from concerns about its financial practices, including alleged poor loan underwriting and insufficient capital, according to an order recently made public by the Office of Thrift Supervision.

The notice of hearing follows a cease-and-desist order issued by regulators last year that directed the bank to shore up its reserves in light of the mounting troubled loans on its books. A year later, examiners determined the bank needed to boost its capital amid "ongoing core operating losses, high loan loss provisions, and exposure to problem and higher risk loans," based on second-quarter data.

Regulators accused Colombo of, among other things, not establishing specific debt service-to-income ratios for loan types and failing to set income documentation requirements for all borrowers. Regulators also claimed the bank had unsafe concentrations in mortgage derivative products, at 256 percent of total capital. The OTS has yet to set a date for the hearing; the bank has 20 days to file an answer to the notice.

Colombo, which has $169.7 million in assets, has recorded roughly $5.8 million in losses since the start of 2009, according to SNL Financial. The margins of loss, however, have considerably narrowed over the course of the past year. The bank has $16.2 million in delinquent loans and repossessed assets as of Sept. 30, down from $24.3 million at the time of the examination at the end of March.

Regulators consider Colombo to be adequately capitalized, a determination based on leverage and risk ratios, but the agency wants the bank to address its shaky balance sheet.

About eight local banks have been hit with enforcement orders from regulators since the onslaught of the recession. Six of them have since been taken over by the FDIC, including Greater Atlantic Bank of Reston and Germantown's Waterfield Bank.

Colombo has been slapped with three enforcements from the OTS in the past six years. Last year's order effectively stopped a merger with District-based Independence Federal Savings that was arrange by Morton A. Bender, who holds a majority stake in both institutions. Colombo's chief executive Lester Johnson resigned in October and the position remains unfilled. Calls to Colombo were not returned.

Colombo "needs an infusion of capital, plus brand new, capable management," said Lew Sosnowik, a bank analyst at Koonce Securities of Bethesda. "No one is going to be willing to buy this bank because it has very little value."

© 2010 The Washington Post Company