Feds Rush In (Editorial)

You could see it coming. The financial problems at ANB Financial of Rogers, once one of the fastest-growing banks in the nation, were well known. Multiple newspaper articles had chronicled the looming collapse.

In closing the bank, the Office of the Comptroller of the Currency said ANB, with $2.1 billion in total assets, was undercapitalized and that its “unsafe and unsound practices also weakened the bank’s condition and seriously prejudiced the interests of the bank’s depositors and the deposit insurance fund.”

Randy Dennis, a bank consultant with DD&F Consulting in Little Rock, told us in April that ANB Financial rolled the dice with a high-risk, high-reward strategy.

“I would say they executed a business plan that a lot of banks have done. It’s a non-core funded commercial real estate strategy, and there’s a lot of risk in that,” he said, adding that he still thought ANB’s chief financial officer, Dan Dykema, was a good banker.

“You build your bank on commercial real estate. It makes a lot of money and you don’t have to have a lot of branches … There’s nothing wrong with that strategy as long as things go right.

That’s what happened to ANB. It wasn’t subprime mortgages that got it into trouble like many of the nation’s institutions. Most of ANB’s problem loans were commercial real estate and construction loans.

As long as the economy was booming, ANB’s strategy worked. ANB bought a lot of brokered deposits to feed its commercial real estate lending; $1.6 billion of its $1.86 billion in deposits were parked at ANB simply because it offered the depositors higher interest rates than anyone else. As the real estate market declined, ANB was in the no-win situation of paying the highest possible price for deposits while watching loan after loan go bad.

Some remember the FSLIC takeover of FirstSouth in Pine Bluff as the beginning of a wave of S&L failures, and we worry that ANB could be the canary in the coal mine. The FDIC listed 76 banks on its “problem list” as of the end of December.

That number is likely to grow to more than 100 when the FDIC reports first-quarter numbers on May 29. Some other Arkansas banks are struggling, although none looks so hopeless – from the outside – as ANB.