Three area banks are dealing with quickly rising troubled assets and considering mergers as a solution.
Assets determined as "troubled" by a national research tool rose by millions in 2009 at Citizens National Bank of Springfield, Southwest Community Bank and Village Bank. A review of those banks' financial reports with the Federal Deposit Insurance Corp. show that clean assets and reserves did not grow at a comparable rate.
A leading indicator of the stress on a bank is the troubled asset ratio produced by BankTracker, an online a research tool developed by the Investigative Reporting Workshop at American University in Washington, D.C.
As of Sept. 30, 2009, the most recent data available, BankTracker reported troubled asset ratios of 155.6 percent at Southwest Community Bank, 121.2 percent at Citizens National Bank and 106.2 at Village Bank. As of Sept. 30, 2008, those ratios were 10.1 at Southwest Community, 11.6 at Citizens National and 53.1 at Village. The national median through three quarters last year was 14.1.
While Southwest Community Bank President Jeff McNatt said the bank doesn't specifically monitor the ratio, he recognizes that a high number is cause for concern.
The ratio compares loans past due 90 days or more, loans in nonaccrual status and bank-owned property - mostly obtained through foreclosure - to capital and loan loss reserves.
According to BankTracker, 117 of the 133 banks that failed in 2009 had a TAR of more than 100. Two of those banks, Kansas-based TeamBank and Iowa-based Vantus Bank, were acquired by Springfield-based Great Southern Bank.
Bank officials at Citizens National and Southwest Community point to the real estate crisis as the reason for their steep changes.
"September 2008 was the last quarter before the big dive. That 12-month period is probably the most difficult banks have faced in years," said Frank Hilton, veteran CEO at Citizens National.
As the real estate market faltered, so did the repayment of loans, causing staggering increases in late repayments, nonaccruing loans and foreclosures. Of the three banks with TARs above 100 in 2009, BankTracker research shows only Village Bank reported any loans past due 90 days or more at the end of third-quarter 2008, in the amount of $233,000. Third-quarter 2009 research shows Citizens National reported $2.7 million in loans 90 days or more past due, with late payments to Southwest Community totaling $900,000 and to Village reaching $1.7 million.
Combined, the three banks are reporting other real estate owned- - largely meaning foreclosed properties- - totaling more than $19 million. Citizens National alone holds $12.1 million in other real estate.
"At the end of the day, a lot of troubled assets are made up of real estate," said Hilton, who's been CEO since Citizens National opened in 1989 on the heels of the savings and loan crisis. "(Citizens Bank is) fortunate that a good portion of our troubled assets are in housing that can be sold."
To counter the losses incurred by soured loans, Southwest Community's McNatt said the bank is working on shoring up its reserves and making sure advance rates are appropriate.
"Capital is certainly a challenge for many community banks. It's tough to raise," he said.
One way Southwest Community is increasing its capital is through the sale of its Ozark branch to Liberty Bank, a deal that was struck in November and closed this month, McNatt said.
Village Bank did not return multiple telephone calls requesting an interview about its troubled asset ratio, but in a September interview with Springfield Business Journal, President and CEO George Marino outlined steps the bank was taking to reduce overhead, including the closing of three of its four branches in December.
One of those branches, 1776 E. Independence St., was purchased by Assemblies of God Credit Union on Dec. 14 with plans to open it as a full-service branch in February.
Both McNatt and Hilton said they aren't ruling out the possibility of mergers. That's an about-face for Citizens National, which historically has balked at merger talks. Following a merger by Springfield-based The Signature Bank and Tupelo, Miss.-based BancorpSouth, Citizens National ran a marketing campaign in 2006-07 with the slogan "Merge? No thanks, not us."
"Those were the glory days when things were going well," Hilton said of the pointed campaign.
Hilton said Citizens National has since participated in merger talks, though he wouldn't say if they were ongoing or name the parties involved. McNatt said Southwest Community would entertain a merger.
McNatt and Hilton said their banks were still finalizing year-end numbers. Hilton is predicting a better fourth quarter for Citizens National.
"We're encouraged that our troubled assets are going to improve," he said, estimating a 4 percent improvement in the bank's troubled asset ratio.
