September 12, 2008 | last updated March 28, 2012 8:32 am

Breaking News: Medway Bank Takes $6.5M Hit On Fannie, Freddie

Service Bancorp Inc., the parent company for Medway-based Strata Bank, announced today that it expects to take a "major non-cash charge" on its stock in Fannie Mae and Freddie Mac.

Strata, which has branches throughout Central Massachusetts, said its stock in Fannie and Freddie was valued at $7.2 million as of June 30. However, after recent news that the government will take over the two lending giants, that stock has sunk in value to $681,000. That's a difference of more than $6.5 million.

Due to the write down, Strata says it will no longer meet the regulatory capital requirements to qualify as "well capitalized" and will be downgraded to "adequately capitalized."

Strata said it had briefed the FDIC and the Massachusetts Division of Banks and that "it will be developing a plan to restore the bank to a 'well capitalized' status."

A spokesman for the FDIC said the agency does not comment on operating banks, but did provide a recent statement from its chairman, Sheila C. Bair, on how the FDIC is working with banks that have exposure to Fannie and Freddie.

Bair said that the FDIC had identified a "small number of banks" that had significant exposure to Fannie and Freddie and is "working closely with them on plans to restore their capital..."

BauerFinancial, a rating service for banks and credit unions, rates Strata Bank with two stars, which is considered "problematic."

Service Bancorp posted a net loss of $2.5 million for the quarter that ended June 30, compared with a profit of $260,000 for the same quarter last year.

The net loss for the year ended June 30 was $2.6 million, compared with a profit last year of $1.2 million.

The bank had to write off $2.8 million in bad debt on a single residential construction loan that wasn't completed. Strata's remaining construction loan portfolio is $17.6 million, or 5.3 percent of total loans.

Strata Bank officials could not be immediately reached for comment.

Massachusetts Division of Banks Commissioner Steven Antonakes issued a statement reminding bank customers that a majority of the commonwealth's financial institutions are on solid financial footing.

"The Massachusetts banking industry remains healthy and well capitalized," the statement said. "The total cumulative losses that Massachusetts state-chartered banks could take as a result of their stock holdings in Fannie Mae and Freddie Mac amount to a mere one percent of the total capital base of the Massachusetts state-chartered banking industry."

Earlier this year, Strata Bank found itself embroiled in a shareholder lawsuit. For more on Strata Bank's tumultuous year, click here.

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