(UPDATED, with comments from bank president Machon) Stonebridge Financial Corp., the holding company that controls money-losing Stonebridge Bank of West Chester and its branch office in Warminster, Bucks County, has filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Philadelphia.

"Nothing changes at the bank. It's business as usual," Stonebridge president Dan Machon told me. "There will probably be a new owner," the president, hired in 2012 to address the company's problems, added. "The new owners will continue as at any company. The goal of the holding-company bankrupcty is to put the bank in a better position and move forward." 

The bank has shrunk to less than one-third its former size since the 2008 financial crisis stalled the real estate developments that are frequent clients for small banks like Stonebridge.

Stonebridge listed $11.2 million in trust-preferred securities the bank had sold in an attempt to raise capital as its major outstanding liability. Stonebridge defaulted on the trust-preferred securities' interest payments, "and has not been able to find a buyer" as it has tried to sell the bank, Adam Stein-Sapir, who analyzes bankruptcy cases for Pioneer Funding Group LLC in New York, told me.

"It's quite difficult to operate profitably for such a highly regulated institution with a very small customer and asset base," Stein-Sapir added. The bank's more than 100 shareholders, mostly individual investors from Chester County, can expect to lose the value of their shares.

Stonebridge, founded in 1999 under Meridian Bancorp veteran Chris Annas (who later left the company and now runs the "new" Meridian Bank), grew in the early 2000s by funding residential and commercial developments, mostly in Chester County, the richest of Pennsylvania's 67 counties, and nearby areas. Assets (including loans and invested capital) peaked at $493 million in September 2008, on the eve of the financial crisis.

But the real estate bubble left suburban lenders with massive losses and forced the sale of several, including the former Wilmington Trust Corp., at deep discounts to their previous valuations. Suburban building has revived, but bad "legacy loans," low lending rates under the Federal Reserve's cheap-money policy, and strict government bank capital rules enacted in hopes of reducing bank failures, have made it tough for stricken lenders like Stonebridge to start growing again.

(Stonebridge accepted federal TARP support funds, but kept losing money. For example: Stonebridge defaults in the news: $2.2 million loan to Bucks County Playhouse here, $1.8 million loan to Atlantic County property owner here, Lancaster-area multi-bank car dealer defaults here.)

Stonebridge has lost money in every year since 2007, with losses peaking at $11 million in 2011. Assets fell to $140 million at March 31, the last date reported by the Federal Deposit Insurance Corp. Similarly, deposits fell from $350 million in Sept. 2008, to $121 million at March 31, and employee headcount fell to 28, from 67, in that same time.

It's unusual for banking companies to go bankrupt -- more often they are sold at deep discounts, like Wilmington Trust -- but it's not unprecedented, notes my colleague Harold Brubaker. He wrote about the bankruptcy of Nova Bank owner Nova Financial Holdings Inc., also of Chester County, in 2012. In that case, the bank was taken over by the FDIC before its holding company owner's bankruptcy.