Bankruptcy filing outlines Metropolitan issues

Rogers Bancshares owns 99.75% of Metropolitan Bank, a financial institution that has recorded losses in excess of $98 million since 2009.

But it turns out the bank’s ownership is in even worse shape with debt exceeding $91 million and a single bid of just $16 million to satisfy creditors, according to the firm’s recent bankruptcy filing. The holding company has roughly $60,000 in unencumbered cash.

As the bank’s holding company, Rogers Bancshares is seeking relief in bankruptcy court in hopes that the bank will be sold to a Texas Group with the wherewithal to hoist it out of its distressed state.

Rogers Bancshares said it has spent four years contacting 35 potential investors before a deal was struck with LR Acquisition, a venture co-managed by Dallas-based bankers Gerald Ford and Carl Webb. The deal was announced July 5.

Garland Binns, attorney with Dover Dixon and Horne, said the bankruptcy is necessary to clear the way for the bank sale because the holding company is insolvent.

The list of creditors standing in line include: U.S. Bank and Bank of New York Mellon Trust who hold Trust Preferred Securities, which are instruments banks commonly use to raise capital.

TARP OBLIGATION
The U.S. Treasury Department was also sent notice of the bankruptcy filing, as it holds $25 million in preferred stock issued by the holding company as part of the Troubled Asset Relief Program (TARP).

Technically the Treasury Department is not a creditor of the holding company, but that does negate the fact that the $25 million Rogers Bancshares and Metropolitan National took from TARP bailout has never been repaid.

Metropolitan National came under enforcement actions in the summer of 2008 and still was able to secure funding from the federal government to the dismay of competing banks.

In early 2009, Rogers Bancshares issued $25 million of fixed rate Cumulative Perpetual Preferred Stock, to the United States Treasury Department, funds that were transferred to Metropolitan National Bank.

The holding company notes in the filing that Metropolitan was in “sound shape” when it got the funds. However, the bank reported losses of $41 million in the first half of 2009, escalating to $80 million by December 2009 as regulators turned up the heat.

The holding company has missed 16 dividend payments to the Treasury Department totaling $5.1 million owed to the Treasury and taxpayers on top of the $25 million in un-retired debt.

STAFFING & BRANCHES
While last week’s announcement indicates top management will remain in place, details provided in the bankruptcy filing indicate the bank staffing is high given its size relative to other institutions.

Metropolitan National notes in the filing there are 438 employees for a $1 billion bank. That breaks down to about $2.25 million in assets per employee. Most industry analysts say the metric industrywide is roughly $4 million in assets per employee, and headed to $5 million for more efficient bank operations.

Staff cuts are likely if the new owners seek to normalize employees-per-assets.

Metropolitan’s investment in Northwest Arkansas exceeded $30 million in branch infrastructure between 2005 and 2007. The 14 branches in Benton and Washington counties have a book value of roughly $40 million, according to the filing. But deposits in those branches total just $70 million, making them expensive operations for a bank low on capital.

Any sale or writedowns of these bank-owned, physical assets over the past few years would have come at a loss, which the bank didn’t need on its books.

As with the possibility of staff cuts, it’s possible that new ownership may look to streamline expenses by closing underperforming branches in the Metropolitan system.