Pace of Past Due Loans Slowed in 4Q

When is slow growth good news for bankers? When it’s growth on their delinquent loans and past dues.

Twenty-one banks doing business in Benton and Washington counties had a combined $343.5 million worth of loans on their books that were not accruing interest as of Dec. 31, up 3.3 percent from the third quarter.

It’s the smallest quarter-to-quarter increase in past dues since the first quarter of 2007, the first time the Business Journal examined the numbers.

The nonperforming value is still an 81 percent increase over the values from the first quarter of 2007, but the ballooning effect brought on largely by ANB Financial NA of Bentonville, some market stabilization and many bankers’ hard work to deal with problem loans have slowed the ticker.

The numbers come from Uniform Bank Performance Reports filed with the Federal Financial Institutions Examination Council. The collective value of loans in those 21 banks’ nonperforming columns are up more than 27 percent from $269.7 million at the end of 2007 (excluding ANB’s portfolio at the time).

The Business Journal deliberately excludes large public banks, such as BancorpSouth Bank and Regions Bank, doing business in the two-county area because the majority of their business is done outside the market.

Large statewide banks such as Bank of the Ozarks and Metropolitan National Bank, both of Little Rock, First Security Bank of Searcy and Liberty Bank of Arkansas based in Jonesboro are included because they maintain a significant presence in Northwest Arkansas and, in some cases, have indicated that many of their woes stem from loans made in the area.

MNB Restates
On March 13, Metropolitan National Bank filed an amended year-end call report in which an additional $12.24 million in write-offs and loan loss reserves on commercial real estate loans reduced the bank’s previously reported after-tax income by $7.8 million.

Instead of $2.03 million in income for the fourth quarter, Metropolitan will report a loss of about $5.7 million, CEO Lunsford Bridges told ArkansasBusiness.com.

The restatement was prompted by a routine examination by the Office of the Comptroller of the Currency, which oversees national banks and signed a regulatory agreement with MNB on May 22, 2008. Bridges said the OCC had not yet completed its review of the bank’s books, but the remainder of the examination would not affect the bottom line.

Metropolitan’s statement said its allowance for loan and lease losses had been increased to $31.5 million — 2.79 percent of total loans — as of Dec. 31. That compares with an average allowance in the fourth quarter of 1.56 percent of total loans among similar banks, according to the UBPR.

Metropolitan’s original year-end call report showed an allowance of $19.26 million.

Of that additional $12.24 million, Bridges said, $3.3 million was written off based on the current appraised value of real estate used as collateral. He wouldn’t say whether the write-down was on a single loan or multiple loans.

Earlier in March, Metropolitan announced management changes affecting its presence in Northwest Arkansas.

Bridges said the Northwest Arkansas market seemed to be stabilizing.

“I think it is. There’s some strengthening in some areas of the real estate market up there — stable in a few but very little activity in some areas.”

The “general feeling,” he said, is that “the worst is over in Northwest Arkansas. The real question is the comeback — when and how quickly.”

MNB’s numbers in the chart on Page 51 have been updated.

State Health
Nationally, the FDIC reported fourth quarter noncurrent loans at $230.7 billion, up more than 44 percent from the third quarter. More than two-thirds of that increase was due to loans secured by real estate, the FDIC said.

The Arkansas State Bank Department has said that any bank with 1 percent of its loans in 90-day past due or nonaccrual status should serve as a red flag.

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

A spokeswoman for the ASBD said there are 11 state-chartered banks on the “watch list.”

It was nine as of Dec. 4.

(Gwen Moritz, editor of Arkansas Business, contributed additional reporting for this story.)