Allied Bank, Heartland Bank, Pinnacle Bank delinquency ratios highest in the state

The banking crisis of 2008 is over and profits have rebounded for large and small banks in recent years. But for three Arkansas banks there are still financial troubles brewing, according to their triple digit Texas Ratios as reported as of the end of 2015.

The Texas Ratio is a metric that measures financial soundness which takes the amount of a bank’s non-performing assets and loans, as well as loans delinquent for more than 90 days, and divides this number by the firm’s tangible capital equity plus its loan loss reserve. A ratio of more than 100% or (1:1) is considered a warning sign, according to Investopedia.

Allied Bank in Mulberry had a Texas Ratio of 183% as of Dec. 31, 2015. The rate increased from 153.76% reported Sept. 30, 2015 and remains the highest among all the banks in the state.

Allied Bank’s parent, Acme Holding Company, is in Chapter 7 bankruptcy and the court appointed trustee is looking to find a buyer for the bank. If a buyer can’t be found, the trustee will hold an auction and the bank will go to the highest bidder.

John Dominick, a banking professor at the University of Arkansas and board member at Fayetteville-based Signature Bank, said Allied Bank has faced several unfortunate situations dating back to a fraud case around 2011. He said real estate loans had also been problematic for the Mulberry Bank, some of which were located in Northwest Arkansas. (Dominick advised Allied Bank as a consultant prior to the holding company’s bankruptcy filing.)

Allied Bank had assets of $79.327 million as of Dec. 31. Assets declined from $126.55 million one year earlier. The bank had $8.5 million in seriously delinquent loans as of Dec. 31. The toxic loans grew from $5.5 million in December 2014, according to the banks regulatory filings with the Federal Deposit Insurance Corp.

In Rogers, Pinnacle Bank also has a Texas Ratio well above the normal range at 139.30% as of the Dec. 31. The bank did manage to reduce its Texas Ratio from 145.45% reported in September 2015. Pinnacle Bank posted assets of $88.447 million to end 2015. Assets declined from $90.531 million in the year-ago period.

While Pinnacle’s Texas Ratio is high, the bank continues to write down more than $1.1 million in nonperforming loans which is much lower than $6 million it had in 2011. The bank reduced its other real estate owned to $14.715 million in December. The bank had more than $21 million in other real estate owned two years ago. This refers to the real estate the bank has taken back from borrowers and property it has not yet re-sold.

Dominick said Pinnacle Bank in Rogers has had its share of real estate woes just like nearly every bank with a large amount of loans made during the real estate boom.

“Property values are coming up again, the real estate market and the Northwest Arkansas economy is stronger today, but it can take banks a few years to write down and provide for loan losses made several years ago,” Dominick said.

He expects to see more bank consolidations involving small institutions in the coming months. Dominick said small banks that continue to shrink their assets like Pinnacle and Allied also face other challenges.

“When the good loans in their portfolios pay off, these shrinking banks will see their credit quality continue to decline. It’s a double whammy because bank income can be restricted and provisions to loan losses will likely rise at the same time,” he added.

Heartland Bank of Bryant is new to the triple-digit Texas Ratio list in December. The bank’s Texas Ratio rose to 112.28% from 52.55% in the quarter ending Sept. 30, 2015. The bank reported assets of $242 million at the end of 2015. Assets rose from $218 million at the end of 2014.

A large increase in nonperforming loans is the primary reason the Texas Ratio more than doubled between September and December. The bank reported $36.5 million in non-current loans as the end of 2015, well above the $1.1 million in the year-ago period. The bulk of these non-performing loans were commercial real estate and land development loans and non residential nor non-farm related, according to its federal filings.

Heartland Bank reported net income for 2015 of $237,000, which was 96.8% less than the earnings reported in 2014. These earnings were offset by $5.24 million provision made to loan losses in the fourth quarter. The bank has set aside a total of $8.55 million against delinquent loss risk of $36.5 million.

Bank analysts agree that Heartland will likely see lower earnings for several more quarters as it continues to beef up loan reserves to better match the delinquencies on its books. The bank has capital equity of $29 million.