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Two more banks under federal scrutiny Tuesday, Jun 17, 2008 By Kim Souza Southwest Times-Record The federal Office of the Comptroller of the Currency reached formal agreements with Little Rock-based Metropolitan National Bank and Springdale-based Legacy National Bank that require the banks to improve their capital holdings and clean up problem loans. The actions, made public Monday, follow just a few weeks after federal regulators closed down Rogers-based ANB Financial for financial problems resulting from too many bad loans. While the problems with Metropolitan and Legacy are similar to those of ANB, they are not near as bad, say banking experts. Formal Agreements are one of two kinds of orders given out by the OCC and considered less stringent than Cease and Desist orders, according to Dean Marriott, a retired executive from the OCC who lives in the area. Marriott has said heightened monitoring is to be expected following a bank failure such as ANB Financial, and the underlying weakness in the national economy. "Given the slump and high loan losses in the region's real estate market, regulators are screening all banks very closely," said John Dominick, Arkansas Bankers Chair at the University of Arkansas. He said state regulators do not make agreements public, but if these two banks are under order it stands to reason there are also others in the region with similar scenarios. The agreement signed between the OCC and Metropolitan National Bank said regulators found "unsafe and unsound banking practices relating to some aspects of credit risk management and capital adequacy." The bank was ordered to take a more aggressive role in identifying and collecting problem loans totaling more than $47.4 million at the end of the first quarter. The bank was told to ramp up loan provisions promptly. At the end of March the bank had set aside $15.9 million in reserves, about $31.5 million short of their potential bad-loan exposure. Federal regulators also raised minimum capital requirements, as in the case with the failed ANB. Dominick said any time a bank comes under regulatory order, higher capital requirements are usually part of the equation. Tim Yeager said both banks who signed orders appear to have the needed capital reserves to remain in compliance. Metropolitan Bank appears to be in compliance with the higher capital reserves through June 30, but short of the Sept. 30 requirements. Dominick said the agreement appears to be standard in terms of language and expects Metropolitan will recover given its present capital reserves. Bauer Financial Services, a private rating company, recently gave Metropolitan National Bank a rating of 3 stars - a good rating - as of June 16. Bauer criteria includes a review of loans and capital. Bauer rated Legacy National with 2 stars, considered a problematic rating, using the same criteria. Prior to its failure ANB drew a rating of 0 stars. Legacy National Bank also reached a formal agreement with the OCC in recent days. The bank came under scrutiny by regulators for its high percentage of problem loans, although the order did not specify it that found any unsafe or unsound practices. The bank was told to re-evaluate its loans, and all loans above $500,000 must be reviewed monthly. Like Metropolitan, Legacy National was ordered to assess its credit risks and provide prompt reserves to loan losses. At the end of March, the bank reported non-performing loans of $3.64 million and loan loss reserves worth $2.81 million, a deficit of $830,000. Dominick said Legacy likely came under the order because of the $18 million loan tied up in the Legacy Building, a high-end condominium project in downtown Fayetteville, now in foreclosure. Don Gibson, president of Legacy, said previously the bank is prepared to write down the full loan if necessary, though that scenario is unlikely given the bank is expected to reclaim the property through the pending foreclosure. "Legacy has veteran management and more than adequate capital to weather this bump in the road," Dominick said. "The bank reported $32 million in equity capital at the end of the first quarter and has the wherewithal to write down its problem assets." Yeager said both of these written agreements reflect the challenges many banks in the state and Northwest Arkansas are experiencing due to the real estate downturn. |
