ANB loans cost bank $35 million in write-off
Posted on Tuesday, May 13, 2008
Fallout from Friday’s failure of ANB Financial of Rogers spread to Missouri on Monday as Great Southern Bancorp of Springfield, Mo., admitted it was forced to write off $ 35 million in loans it made to ANB.
Great Southern, a publicly traded bank with $ 2. 5 billion in assets, said its $ 30 million loan to ANB was the single largest loan the Missouri bank had.
Great Southern shares closed down $ 1. 41, or almost 10 percent, at $ 13. 15 in heavy trading on the Nasdaq exchange.
The Office of the Comptroller of the Currency closed ANB, which had $ 2 billion in assets, on Friday, and the Federal Deposit Insurance Corp. was appointed as receiver. ANB’s nine branches in Northwest Arkansas opened as Pulaski Bank & Trust Co. of Little Rock on Monday. Pulaski Bank is a subsidiary of IberiaBank Corp. of Lafayette, La.
IberiaBank closed up 90 cents a share, or 1. 8 percent, at $ 50. 04 in trading on the Nasdaq.
In addition to the $ 30 million loan, Great Southern made other loans to stockholders of ANB, some of which were secured by stock in ANB. At least $ 5 million in loans other than the one large loan were backed with insufficient collateral, Great Southern said in a federal filing.
Meanwhile, IberiaBank said it paid only $ 2 million for $ 213 million of ANB’s most dependable deposits. The purchase price was only one-fourth the average paid by 570 financial institutions who bought deposits in failed banks in the past 16 years, IberiaBank executives said Monday in a conference call.
But even at the low price, some Arkansas banks still chose to skip the chance to buy ANB’s deposits and take over its branches. ANB was founded in 1994.
“[The FDIC ] was lucky to find a buyer,” said one banking expert, who asked not to be identified. “That was a rockbottom price [paid by Iberia-Bank ]. But [IberiaBank ] also is taking on 900 employees, and it has to maintain those facilities and meet payroll. So the cost for acquiring all that could run into millions of dollars [more ] in overhead.” NO GUARANTEE Plus, there is no guarantee that the ANB depositors will stick with Pulaski Bank. They could take their accounts to other banks in the area. One banking insider said that IberiaBank was not among the first banks on the FDIC’s list of possible acquirers but it was included later. Daryl Byrd, chief executive officer of IberiaBank and Pulaski Bank, said IberiaBank believes that it got a great deal.
“This fits many of our strategic objectives,” Byrd said. “[ANB ] was purchased at an exceptional price. There is almost no credit risk. It is a transaction that provides significant flexibility given the unique characteristics of purchasing a failed bank and positions us well for future expansion opportunities.” Pulaski already had a presence in Northwest Arkansas with seven offices of Lenders Title Co. and one Pulaski Mortgage Co. office.
John Davis, IberiaBank’s senior executive vice president, told analysts who follow Iberia-Bank that the bank expects to make the ANB operations successful within months. “We have historically experienced superior double-digit loan growth, so it will only be a matter of time,” Davis said. “Our current projections assume this is a matter of months, not quarters. However, it is too early to state that with any certainty.” IberiaBank closed up 1. 8 percent Monday in light trading on the Nasdaq exchange. Former ANB customers were crowding into Pulaski Bank on Monday. Some had to circle one branch in Rogers a couple of times, waiting for a parking space to be vacated.
STEADY STREAM Mike Fox, owner of Foxy Tees in Rogers, was among the steady number of ANB Financial customers checking on accounts at Pulaski Bank. “I’m just going to see what is going on,” Fox said. He was unsure whether he would move his business account to another bank.
Not long after Fox entered the branch on 28 th Street in Rogers, Byrd walked in to see how employees were coping with the crowds.
Monday was his first opportunity to get inside some of the branches, he said.
“We’re very happy with how it is going,” Byrd said of the attitudes of bank employees and customers.
Other Northwest Arkansas banks said they were seeing some increase in customer traffic and concerned phone calls.
Jason Kincy, spokesman for Arvest Bank Group of Fayetteville, said Arvest customers and customers with other banks were curious about how federal deposit insurance works and how it applies to their accounts.
“We’re being as helpful as we can be to customers who need it,” he said. Arvest does not comment on specific banks, Kincy said. James Taylor, Northwest Arkansas regional president of First Security Bank, said his bank saw a lot of interest from new customers Monday. “We’ve been touting the safety and security of our bank for some time. We have an advertising theme built around the word ‘security’ in our name,” Taylor said. Branch managers also reported more questions about FDIC account insurance, Taylor said.
FDIC PROTECTION Former ANB customers who have less than $ 100, 000 in an account are covered by FDIC insurance, the FDIC says. Only those customers who had funds greater than $ 100, 000 in one account are in danger of losing some money although even those customers could retain most of their funds, the FDIC says.
Shareholders in the private bank will almost certainly lose all their investment in the bank, according to the FDIC.
Until two years ago, ANB was one of the top 100 performing banks in the country, on the basis of its profitability, according to statistics compiled by SNL Financial of Charlottesville, Va.
The risks it was taking for its profitability “turned on them in the last two years,” one insider said.
“You could almost equate it to Bear Stearns,” a large New York investment banker that was near collapse before the federal government rescued it and allow its sale to JP Morgan Chase & Co., the insider said.
IberiaBank’s Davis said a substantial portion of ANB’s loans were with residential construction and development activity outside Arkansas. ANB also had lending offices in St. George, Utah; Jackson, Wyo.; and Idaho Falls, Idaho.
Davis said ANB had $ 1. 8 billion in deposits and $ 1. 6 billion in loans. It grew from just $ 5 million in assets when it was formed in 1994 to more than $ 2 billion in assets when it failed Friday.
“One might characterize it as a bank on steroids,” Davis said.
ANB’s risks were connected to its huge percentage of construction and development loans, one bank expert said. At the end of March, ANB had 15 times more construction and development loans than the average of banks its size.
“And they had rapid growth,” the expert said. “That might have been fine had the economy not tanked and had Northwest Arkansas not tanked. It’s unfortunate because they are not the only people in the country who run this business plan but they are certainly the ones who got caught in it.” Over the weekend, the FDIC had about 150 employees working in ANB’s 13 branches around the country to get the bank in shape for Pulaski Bank to take over on Monday.
“Everything went smoothly, according to plan,” said David Barr, an FDIC spokesman. “We couldn’t have done it without the assistance of former ANB employees, who worked over the weekend. In essence, we were able to put together a merger in 48 hours that normally takes four to six months.
The takeover cost the FDIC about $ 214 million, none of which will be paid by taxpayers. The money comes out of the deposit insurance fund paid by banks in the country.
It seems unlikely that any other Arkansas bank will fail in the near future, several Arkansas bank experts said. But it is very likely there will be more bank failures nationally, they said.
“ Anything can happen, but I don’t see another Arkansas bank failure in the near term,” one insider said. “But I think it’s definitely going to happen in the country again this year.” Information for this article was contributed by Stacey Roberts of the Arkansas Democrat-Gazette.
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