The financials at three Springfield-based banks that last year revealed alarming levels of troubled assets have shifted in three separate ways in the fourth quarter.
A national bank research tool indicates Village Bank is on the mend, Citizens National Bank is holding its own but still stressed, and Southwest Community Bank is experiencing severe difficulty keeping healthy capital and reserves on pace with troubled assets.
The Investigative Reporting Workshop at American University in Washington, D.C., created online resource BankTracker to analyze the stress on banks using data reported to the Federal Deposit Insurance Corp. Its troubled asset ratio is an index that compares a bank’s capital and loan-loss reserves to its troubled assets – consisting of loans 90 days past due, nonaccruing loans and other real estate owned, primarily foreclosed properties.
Based on BankTracker’s formula, Southwest Community Bank’s troubled asset ratio skyrocketed to 328.4 percent as of Dec. 31, up from 155.6 percent at the close of the third quarter last year. The national median for banks at the end of 2009 was a troubled asset ratio of 14.5 percent.
Citizens National’s TAR held at roughly 122 percent, between the third and fourth quarters, and Village’s TAR dropped to 85.9 percent in the fourth quarter, from 106.2 percent in the third.
A TAR of 100 seems to be a warning sign for banks. According to BankTracker, roughly 125 of the 140 banks that failed in 2009 had TARs above 100.
Twelve Springfield-based banks showed an average TAR of 58.4, as of Dec. 31. Minus Southwest Community, Citizens National and Village, the local TAR average drops to 13.71.
Because FDIC regulators are privy to the inner workings of a bank, FDIC spokesman David Barr said the agency’s evaluation of a bank’s financial health is more in-depth than tools such as BankTracker’s TAR. The FDIC uses a system called CAMELS, looking at capital, asset quality, management, earnings, liquidity and market sensitivity to assign a rating between 1 and 5 to each component, he said.
“The problem is that (CAMELS statistics) aren’t published, and that makes sense, because the regulators don’t want to see bank runs,” said James Philpot, assistant professor of finance and general business at Missouri State University. “As far as looking at things from the outside, ratios can be useful.”
At the end of 2009, according to BankTracker, 702 banks were on the FDIC’s official troubled list. The FDIC does not release the names of the banks on that list, Barr said.
BankTracker statistics note that 28 U.S. banks have TARs of 400 or higher. To date, 41 banks have failed in 2010, Barr said, and it’s expected that more banks will fail this year than in 2009.
The steps a bank can take to recover from high levels of troubled assets – and the amount of time spent taking those steps – can vary widely, according to Barr.
“There’s no if ‘A’ is greater than ‘B,’ you must do ‘X’. You have to see how everything is related,” Barr said, noting that loan-loss reserves, earnings and capital might all play a role.
Village Bank, which did not respond to multiple interview requests for this story, beefed up its capital and reserves between third quarter 2009 and fourth quarter 2009 by more than $1 million, according to BankTracker. The bank lowered its total troubled assets by $750,000.
While Citizens National’s TAR didn’t change, data shows the components that make up the ratio are shifting. Loans 90 days or more past due decreased to $1.6 million in the fourth quarter of 2009 from $2.7 million in the third quarter. Other real estate owned increased about $2 million to $14.4 million and nonaccruing loans remained relatively flat. Citizens National’s capital and reserves dropped by about $5 million to $23.5 million between the two quarters.
“This didn’t happen overnight, and it won’t be corrected overnight,” said Citizens National CEO Frank Hilton, who in January predicted a 4 percent improvement in the bank’s TAR by the end of 2009. “Now, it looks like it will be the end of the first quarter before we achieve that.”
Troubled assets at Southwest Community jumped to $16.1 million in the fourth quarter from $12.9 million in the third. Its capital and reserves shrunk by $3.4 million in that same timeframe to $4.9 million at the end of the fourth quarter.
In January, Southwest Community President Jeff McNatt recognized the bank’s TAR was concerning, and he told Springfield Business Journal that the bank had sold its Ozark branch to Liberty Bank in an attempt to shore up its reserves. McNatt did not return phone calls for this story. Southwest Community began its rise in troubled assets in fourth-quarter 2008, according to BankTracker.
Also in January, McNatt and Hilton said mergers were considered rescue options, if the financials became bleaker. And Hilton said that option is still on the table.
While residential loans gone sour have weighed down bank balance sheets in recent years, Barr said the FDIC has recognized a shift from troubled mortgages to troubled commercial real estate loans.
“Even though there have been signs of an economic turnaround, you’re still going to see bank failures until that turnaround shows up in the books of the banks,” he said, noting banks tend to lag about six months behind the rest of the economy.
When it comes down to bank customers, an increase in failed banks won’t have much of an effect.
“One thing you have to realize is that that money is insured by the FDIC. In our entire history, not a single customer has ever lost a penny of insured money,” Barr said.
[[In-content Ad]]Troubled asset ratios are determined by comparing a bank’s troubled assets, including past due loans and foreclosure properties, against its capital and loan-loss reserves. Of the three banks with TARs above 100 after September 2009 – Citizens National Bank, Southwest Community Bank and Village Bank – only Village brought its TAR to double digits by December 2009. The average of all Springfield banks’ TARs for December 2009 was 58.4. Minus the three banks’ numbers, that average drops to 13.71.
