Northwest Arkansas Past Dues Loans Rise 6 Percent in 3Q

Twenty-one banks doing business in Benton and Washington counties had a combined $332.3 million worth of loans on their books that were not accruing interest as of Sept. 30, up about 6 percent from the second quarter.

But the number is 62 percent lower than the $872.9 million that was in that column at the end of March.

The $540 million reduction was a result of the failure of ANB Financial NA of Bentonville on May 9. Most of that bank’s nonperforming loans have since been auctioned off to other entities or otherwise refinanced.

Many of ANB’s deposits and offices were acquired by Pulaski Bank & Trust Co., which is a thrift and is not required to report quarterly numbers the same way as banks, so the quarterly past dues list has dropped to 21 institutions. Comparable numbers for the four thrifts doing business in Northwest Arkansas are on Page 8. Large public banks with relatively small footprints in Northwest Arkansas (Regions Bank, Bank of America, BancorpSouth Bank) were intentionally excluded from the list because their Northwest Arkansas-specific numbers are not available and would skew the data.

According to uniform bank performance reports filed with the Federal Financial Institutions Examination Council and excluding ANB, the collective value of loans in those 21 banks’ nonperforming columns are up 62 percent from $205 million for the same period in 2007.

If all three “problem” columns – loan values in 30-89 days past due, 90 days past due and nonaccruals – are tallied, those 21 banks are dealing with $482.2 million in troubled debt as of Sept. 30. That’s up about 10 percent from $436.9 million at the end of June.

Nationally, the FDIC reported third quarter loans 90 days past due or in nonaccrual status at all FDIC-insured institutions were up 31.4 percent from the same time last year, to a total of $121.5 billion. But the value of those loans only increased 9.7 percent from the second quarter, so Arkansas is at least sticking close to the national averages.

Luther Guinn is the deputy bank commissioner with the Arkansas State Bank Department in Little Rock. He said that any bank with a 1 percent of its loans in 90-day past due or nonaccrual status should serve as a red flag.

Seventeen banks on the list on Page 9 have more than 1 percent of their portfolio in nonaccruals, whereas only two banks have 90-days past due ratios greater than 1 percent.

Guinn said that as of Dec. 4 there were nine banks on the ASBD’s watch list but that he expected to add “a few more” by the end of 2008 or early in 2009.

“I think the climate in Arkansas is still relatively good,” he said. Most banks continue to operate in a safe and sound manner and have involved board members.

“Of course, we’re concerned about liquidity,” Guinn said, but some banks are taking advantage of the Capital Purchase Program from the U.S. Department of Treasury.

Pine Bluff-based Simmons First National Corp. has decided to take part in the program and Little Rock-based Bank of the Ozarks has give a tentative thumbs up to a deal. Home BancShares of Conway has said it is considering participation.

Tupelo, Miss.-based BancorpSouth and Arvest Bank Group Inc. of Fayetteville said they will not participate in the program.

“[ASBD-regulated] banks continue to make good loans,” Guinn said.

Randy Dennis, a partner with DD&F Consulting Group in Little Rock, helps banks with mergers and acquisitions, new charters, risk management and strategic planning.

He said the banks in the state are in better shape than in many other states the firm does business in.
What are his thoughts for 2009?

“I think we’re going to suffer delinquencies and have some more foreclosures,” Dennis said. But, “we have a good sound banking system in Arkansas.”

He said there may be some consolidation, but the portions of the bailout package to help some banks recapitalize are positive moves.

“It’s not a loss leader for the banks … from a banking standpoint, it’s not a giveaway,” he said.

Legacy National Bank of Springdale had more than 10 percent of its loan portfolio in the nonperforming or other real estate owned columns. Presumably, for the third quarter a large portion of that was tied to the Legacy Building in Fayetteville, which the bank purchased on Nov. 13. The bank is under a formal written agreement with the Office of the Comptroller of the Currency, its federal regulator, to tighten controls

Parkway Bank of Rogers had 10.36 percent of its loan portfolio in nonperforming status. The bank entered into a consent order with the FDIC in August. The order said Parkway’s “policies and practices are detrimental to the bank and jeopardize the safety of its deposits” and required the bank to raise more capital.