1Q Past Due Loans Jab Bank Portfolios

(Click here to see a chart detailing past-due bank loans.)

Bankers in Northwest Arkansas may be bullish on the economy, but the loans in their collective portfolios that were not accruing interest at the end of the first quarter was 93 percent higher than a year earlier.
In all, 22 banks doing business in Benton and Washington counties had $189.7 million in loans that had been put into nonperforming status, according to first quarter uniform bank performance reports filed with the Federal Financial Institutions Examination Council.
And one bank, ANB Financial NA of Bentonville, has seen a 920 percent increase in its nonperforming assets compared to a year ago.
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 (also nonperforming) status can be a barometer of a bank’s overall health.
Still, only 1.17 percent of the loans in the total portfolio of those 22 banks are in nonaccural status, which is still a healthy number. And total charge-offs for the first quarter were at $13.5 million, which is about 0.08 percent of the banks’ net loans.
However, many bankers warn against putting too much emphasis on any one quarter because they hope to be able to collect on many if not all of those loans before they have to foreclose on them or charge them off.
Luther Guinn, chief examiner with the Arkansas State Bank Department in Little Rock, said he’s seen some tightening of the belts, but the ASBD isn’t really concerned just yet.
“Most of the banks up there are doing a good job and taking care of their business,” he said.
Randy Dennis is a partner with DD&F Consulting Group in Little Rock. Among other things, the firm advises banks on mergers and acquisitions, performance, and risk management.
“It is not a good thing, it means you’ve loaned money to someone who can’t pay you back,” Dennis said about nonaccruals. The next step is for a bank to help the debtor, foreclose on the collateral or endure bankruptcy.
But, Dennis said, bankruptcies are down since the laws changed recently, so that helps banks.

Northwest Health
Not all of those loan values are from Northwest Arkansas. Several banks have significant loan portfolios outside the two-county area.
Searcy-based First Security Bank, for instance, had $9.2 million worth of loans in nonaccrual status. Though he wouldn’t divulge an exact percentage breakdown, Jim Taylor, Northwest Arkansas division president, said not much of the bank’s nonperforming assets were from this part of the state.
Arvest Bank has significant business in Fort Smith, central Arkansas and Oklahoma, so even though it has the highest nonaccrual status value ($61.3 million), many of those loans are not in its own backyard.
Officials from the bank declined to share how much of its loans were in the two-county market.
National public banks based out of state, such as Regions Bank and Bank of America, were intentionally omitted from the list on Page 16 because their figures would artificially skew the totals.
Also, there are three thrifts doing business in the two-county market, which aren’t required to file UBPRs, so their numbers are not included in the overall snapshot presented.
According to the UPBRs, ANB had the second highest value of loans in nonaccrual status ($57.9 million) for the first quarter, but it’s the bank with the largest total percentage of its loans (6.19 percent) not collecting interest.
Dan Dykeman, chairman and CEO, did not return calls.
In the last two years the bank has opened loan production offices in Wyoming, Utah and Idaho, so part of the bank’s nonperforming assets may be far removed from Northwest Arkansas.
According to the UBPR, 94 percent of ANB’s first quarter loan portfolio was composed of real estate loans, with 55 percent being in construction and land development (other than 1-4 family home construction).

Pertinent Percent
The total percentage of past dues and nonaccruals is significant because Arvest and ANB have similar nonperforming values, but ANB had $1.6 billion in first quarter loans, while Arvest had $6.2 billion.
Therefore ANB’s ratio of problems is higher than Arvest’s.
Guinn said the ASBD likes to see past dues and nonaccruals below 3 percent of a bank’s total portfolio.
Eight of the 22 banks on the list are above that mark and seven of those are chartered in Northwest Arkansas.
Five banks are in the 2 percent to 3 percent window. These numbers may change drastically in the second quarter several bankers cautioned. There will hopefully be some recoveries and some banks that had a good first quarter will suffer some problem loans in the second quarter, they said.
The key to mitigating nonperforming loans is to be judicious with underwriting on the front end, they said.