FDIC sanctions bank in Rogers over loans
Posted on Saturday, September 27, 2008
Parkway Bank of Rogers has been ordered to cease and desist “unsafe or unsound banking practices,” the Federal Deposit Insurance Corp. said Friday.
It is the third bank in Northwest Arkansas in the past four months to see regulatory trouble because of loans in a shaky real estate market.
The Office of the Comptroller of the Currency closed ANB Financial of Rogers in May after it lost $ 120 million in 2007.
Parkway, which has seven offices and $ 150 million in assets, signed a consent agreement with the federal regulator on Aug. 5 without admitting wrongdoing but the order wasn’t made public until Friday.
A cease-and-desist order is the strongest enforcement action the FDIC takes against a bank.
Legacy National Bank of Springdale signed a less severe “written agreement” with the Office of the Comptroller of the Currency in June.
Real estate is “a common problem and we’re working through it,” Parkway chief executive officer, Jerry Sadler, said in an interview. “But we already have a month [of working with the order ] under our belt.”
The Office of the Comptroller of the Currency issued a written agreement against Metropolitan National Bank of Little Rock in June, stemming from problems related to Metropolitan’s real estate loans in Northwest Arkansas.
Timberland Bank of El Dorado received a cease-and-desist order from the FDIC in July. And Southern Bank of Commerce in Paragould entered into a written agreement with the Federal Reserve in December. The orders against Timberland and Southern Bank did not indicate the root cause of their problems.
Ten state-chartered banks have been sanctioned by the state Bank Department, up from eight in June, although at least two of the banks overlap with ones under federal orders. The Bank Department does not disclose the names of the banks it reprimands.
The department sanctioned 30 banks in 2003.
The federal sanctions against Parkway are “pretty severe,” said Tim Yeager, an associate professor of finance at the University of Arkansas at Fayetteville.
“It seems to me that the FDIC found a wide range of problems at the bank,” Yeager said. “And the problems they found seem to be pervasive throughout the bank.”
The FDIC said Parkway, which has been in business four years, has operated: with policies detrimental to the bank and which jeopardize the safety of its deposits, without adequate supervision and direction by the board of directors over management,
with inadequate capital protection,
with inadequate earnings to fund its growth and augment capital, and with an excessive level of adversely classified loans.
The FDIC told Parkway it must either sell new stock in the bank or the bank’s owners must raise cash to help capitalize the bank.
Parkway lost $ 42, 000 through the first six months of the year, down from $ 132, 000 through June last year. It is one of only seven banks in Arkansas to report a loss through June this year.
As of June 30, Parkway had $ 6 million in real estate loans that were 90 days or more past due, and another $ 438, 000 in real estate loans it had already written off its books.
The possibility of selling the bank to resolve some of the problems may not be realistic, Yeager said.
“I don’t think they are going to find an investor in this market willing to do that,” Yeager said.
“They are simply going to have to pony up more cash.”
Parkway also must raise its core capital to 7. 5 percent of total assets by Feb. 4, then to 8 percent by June 30 and to 9 percent before the order will be terminated, the FDIC said.
For a bank that is under such a strong enforcement action, those ratios won’t be easy to reach, Yeager said.
One banking expert who asked not to be identified said it could be a year and a half or more before Parkway can resolve its problems.
“Any [cease-and-desist ] at best is a public relations problem,” the expert said.
“But it is also a time and staffing problem. All of a sudden, it changes your life. It will be a challenge to deal with.”
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