In February 2007, regulators, noting a sharp increase in Suburban's bad assets, sent the bank a "troubled condition" letter prohibiting it from making new development and construction loans. As property values continued to drop, even borrowers who already had loans say they felt the bank tightening down.
In several cases, developers said, the bank stopped allowing cash "draws" for projects, prompting construction crews to walk away and leave Suburban to foreclose.
John Thompson, a Montgomery County builder, had a $1.575 million loan for a construction project in Potomac but said he had to stop work when Suburban stopped releasing money to him. He blames the bank for not foreseeing the crisis.
FOR THE RECORD - An article Sunday about the collapse of Suburban Federal Savings Bank erroneously included a photo on News page 12 of an Ellicott City home that had no involvement with the failed bank.
THE BALTIMORE SUN REGRETS THE ERROR
"I did everything the bank asked me to do," Thompson said. "I was at risk, and my company was at risk. They hurt a lot of people."
But others say the bank and the developers were caught in the same death spiral as others in the construction and lending business.
"Who in the real estate market believed that this market would drop as it has?" asked Dan Demeria, owner of Potomac Heritage Homes, which developed housing in Montgomery County with a Suburban loan. "If somebody had that crystal ball, and there is a regulator out there that had that crystal ball, I want to hire them."
In August 2007, with the bank's finances deteriorating rapidly, federal regulators and Suburban's directors began negotiating a recovery plan. In March 2008, the Office of Thrift Supervision issued a "cease and desist" order shutting off much of the bank's lending business. Bank officials cooperated in crafting the order, Ward said.
But they hadn't given up, and the bank negotiated with potential buyers and investors to save itself. Dutch insurer Aegon looked at buying the bank in November as a way to access federal bailout funds but eventually decided it didn't need the government aid. A second potential buyer, whom Ward wouldn't name, looked over the bank's books in the days before it was taken over and discussed making an infusion of cash.
The sale didn't materialize, and Ward said it never seemed likely to work. By the fourth quarter of last year, Suburban needed about $20 million in cash to reach the government's threshold for "well capitalized" banks, though it was burning through money so fast that it probably needed closer to $60 million to stabilize the business.
"They still would have been a very troubled institution - likely a failure," said Ward.
