NVSL sells millions in bad loans

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Naugatuck Valley Savings and Loan’s home office on Church Street in Naugatuck. –RA ARCHIVE
Naugatuck Valley Savings and Loan’s home office on Church Street in Naugatuck. –RA ARCHIVE

NAUGATUCK — Naugatuck Valley Savings and Loan took a big step in the second quarter toward cleaning up its portfolio of bad loans.

Naugatuck Valley Financial Corp., parent of Naugatuck Valley Savings and Loan, announced this month it sold $25.2 million in mostly commercial real estate loans during the quarter, which ended June 30. The loans were sold in three separate transactions with investors, helping it achieve the minimum capital ratios imposed recently by the federal Office of the Comptroller of the Currency, bank officials said.

According to the bank, the loans had a book value of $20.8 million, including $15.2 million in “adversely classified” loans. The net proceeds amounted to $15.8 million, or about 76 percent of the book value.

As a result of the loan sales, the bank reduced the percentage of nonperforming loans to 4.46 percent by the end of the second quarter from 6.26 percent at the end of the first quarter, which ended March 31.

The bank also received a $5 million contribution from the parent holding company during the second quarter, which combined with the loan sales to help it achieve a Tier 1 leverage capital ratio of 10.06 percent by the end of the second quarter.

In June, the U.S. Office of the Comptroller of the Currency, an independent bureau within the Treasury Department, imposed requirements mandating the bank to maintain a Tier 1-leverage-capital-to-adjusted-total-assets ratio of at least 9 percent, and a total risk-based-capital-to-risk-weighted-assets ratio of at least 13 percent. The requirements were imposed more than a year after the bank signed an agreement with the OCC in January 2012 to improve its banking practices related to asset quality, management and credit risk.

“Strengthening the bank’s balance sheet and improving its asset quality have been the top priorities for 2013. … We believe these loan-sale transaction were a major and necessary step in formulating a stronger bank and we look forward to building our model to better serve the customers in our market,” William Calderara, the bank’s president and chief executive officer, said in a statement.

For the second quarter, the bank posted a net loss of $4.8 million, or 72 cents per share, compared with a loss of $715,000, or 11 cents per share, during the same quarter in 2012. The bank in the year-earlier quarter had a pre-tax loss of $1.1 million but benefited from a tax benefit worth $410,000.

The $4.8 million loss for the second quarter of this year was largely due to the $3.6 million the bank set aside for loan losses during the quarter, officials said. The bank also had net charge-offs of $7.1 million during the quarter, of which $5.1 million was attributed to the loan sales.

Through the first six months of 2013, it posted a net loss of $5.4 million, or 81 cents per share, compared to a net loss of $3.4 million, or 51 cents per share, through the same period last year. For the first six months of 2012, the bank reported a pre-tax loss of $5.2 million, but that was mitigated by a tax benefit of $1.8 million.

Naugatuck Valley Savings and Loan listed total assets of $510.8 million at the end of June, down about 3 percent from the end of last year.

The bank has 10 locations in eight towns — two offices in both Naugatuck and Southbury, and single branches in Beacon Falls, Cheshire, Derby, Seymour, Shelton and Waterbury.