Past Due Loan Values Skyrocket 121 Percent

Twenty-one banks doing business in Benton and Washington counties had a combined $313.8 million worth of loans on their books that were not accruing interest as of June 30.

According to uniform bank performance reports filed with the Federal Financial Institutions Examination Council, the collective value of loans in those banks’ nonperforming columns are up 10.6 percent from the first quarter. That value excludes the $589.3 million of bad loans on ANB Financial’s books before it was shut down by federal regulators on May 9.

If nonperforming assets from the area’s three savings associations are included, the total value of loans not collecting interest as of June 30 is $342.48 million. Another thrift, Pulaski Bank & Trust Co., which purchased many of ANB’s deposits and branches, was excluded because it has only been doing business in the two-county market since May.

Compared to the same period in 2007, past dues at area banks look pretty bleak. In the second quarter of 2007 — excluding ANB’s loans and the three thrifts — the banks had a collective $141.5 million of loan value in nonaccural status, so the June 30 number represents a 121 percent increase in bad paper.

(Click here to see the lists based on past dues from the first and second quarters of 2008.)

The Federal Deposit Insurance Corp. defines nonaccrual assets as, “total assets, which are no longer accruing interest. Total assets include real estate loans, installment loans, credit cards and related loans, commercial and all other loans, lease financing receivables, debt securities and other assets.”

Therefore, nonaccural and nonperforming status can be a barometer of a bank’s overall health. But banks vary drastically in asset size so the ratio of nonperforming assets to loans (including other real estate owned) is more telling than the value of its nonperforming loans.

The 21 banks listed on Page 28 are locally chartered or otherwise Arkansas-based banks with a significant presence in Northwest Arkansas as of June 30. Public banks such as Bank of America NA and Regions Bank were deliberately omitted because local data is not available.

It’s important to note that many banks have a significant book of business outside the two-county region and not all of their nonperforming assets are related to business in Northwest Arkansas.

Of the 21 banks, only four had nonaccrual ratios (excluding OREO) below 1 percent and nine had ratios above 2 percent.

When the nonaccrual ratio includes other real estate owned, presumably most of which has been foreclosed upon, the spread is greater: only two are less than 1 percent and 15 have 2 percent or more.

Nationally the FDIC reports that all insured institutions had a noncurrent ratio (including their OREO) of 1.22 percent as of June 30. The same ratio was 0.58 percent at the end of the second quarter of 2007.

Arkansas state-chartered banks had a collective ratio of 2.38 percent of loans 90 days past due or in nonaccural status (not including OREO) on June 30, up from 2.04 percent for the same period in 2007.

So when will the bloodletting end?

“It takes about 18 months for banks to get a handle on their problems — we’re about a year in to it,” said Randy Dennis, a partner DD&F Consulting Group in Little Rock. The firm advises banks on mergers and acquisitions, performance and risk management.

Dennis said many banks will likely see their OREO column continue to increase for a while.

His sense is that Arkansas bankers are being prudent and working diligently to resolve problem loans.