NWAbizbits

First Federal Bank Posts Record Loss

nwabizbits — Tue, 17 Nov 2009 16:14:00 +0000

Heavy real estate losses blamed on a lengthy recession produced a disappointing third quarter for First Federal Bancshares.
The Harrison-based savings bank lost $23.4 million in the third quarter, compared to $218,000 earned in the same quarter a year ago.
First Federal posted its worst quarterly results in company history — a loss of $4.84 per share — behind a $30.2 million contribution to offset problem real estate loans.
The hefty contribution for loan losses likely eroded any chance for the bank to be profitable this year, analysts said.
First Federal Bank lost $25.7 million in the first nine months of the year, compared with $2.3 million in net income earned a year ago.
“Our results are disappointing and continue to reflect the difficult and turbulent operating environment for banks in general and the economy as a whole,” said Larry Brandt, First Federal chief executive officer, in an earnings release.
Brandt said the vast majority of the bank’s problem loans are secured by property in Benton and Washington counties, prompting as much as $9.6 million recently allocated to offset losses relating to land development loans.
While problem loans weigh down bank profits across the nation, Brandt said First Federal remains well capitalized and can withstand economic challenges.
The bank’s most recent call reports that give detailed capital ratios were not available for public view as of Monday. The reports are filed with the Federal Deposit Insurance Corp.
“First Federal has a strong management team with the ability to work through these trials. Perhaps their conservative nature prompted management to take the shot now as opposed to waiting out the prolonged illness. It looks like the bank is positioning itself for a brighter 2010, after a difficult 2009,” said John Dominick, industry expert and banking professor at the University of Arkansas.
In the quarter ending Sept. 30, loan receivables decreased $63.3 million, or 11.2 percent, primarily due to repayments, foreclosures and fewer loan originations, as well as higher charge-offs and loan loss provisions.
The bank still faces $75.1 million in nonaccrual loans — those delinquent by 90 days or more. Nonaccrual loans increased $53.8 million this year and represent 10.16 percent of the bank’s total assets.
Savings banks, formerly known as savings and loans, by law must have roughly 65 percent of loan portfolios tied to real estate, said Tim Yeager, Arkansas Bankers Chair at the University of Arkansas.
He said this naturally gives First Federal more negative exposure in this market correction, well into its third year.
Net interest income earned in the quarter was $5.1 million, down from $5.3 million a year ago. The difference was attributed to fewer paying loans, offset by a slight decrease in interest rates paid on deposits and other borrowings.
While bank income was down, operating expenses rose 71.6 percent to $9.9 million in the recent quarter. The majority of the increase was attributed to higher deposit insurance premium assessments from the FDIC.
First Federal shares closed Monday at $3, down 4.15 percent following the reported losses. The share price ranged from a high of $9.47 to a low of $2.25 in the past 52 weeks.

BY THE NUMBERS
First Federal Bank
(Sept. 30, 2009, compared to 2008)
Assets $738.6 million, down 7.1 percent
Deposits $603.9 million, down 2.28 percent
Source: First Federal Bank

Banking Woes

nwabizbits — Wed, 04 Nov 2009 04:27:28 +0000

If I told you that a bank was short $20 million in equity capital and also seriously short of the needed reserves to cover its growing delinquent loan portfolio I could be describing the financial situation facing dozens of banks across America. But the bank I am describing is Metropolitan National – Little Rock-based – with a large presence in Northwest Arkansas.

If you ask bank CEO Lunsford Bridges, Metropolitan’s financial woes are actually improving – a statement he made Friday in a press release. However, banking expert John Dominick said he could see no evidence of improvement after reviewing the bank’s third quarter call reports on file with FDIC.

“This is a very serious situation for the bank. Regulators are likely to tighten their grip, not loosen up given the deterioration in the bank’s financial health,” Dominick said.

In the third quarter the bank lost $13.7 million. It has bled losses of $54 million since January. Its equity capital has eroded by some $40 million in the past year despite a $25 million capital infusion from TARP in January.

The bank has been out of compliance with its OCC enforcement action since June. This prompted a second enforcement action by the Federal Reserve Bank in August. The bank’s capital shortfall has worsened from $10 million to $20 million since the third quarter filing.

The FDIC has closed some 106 banks this year, some were healthier than Metropolitan National.

Bridges said the bank has sufficient time to regain compliance with its regulators. Dan Dykema of the failed ANB said the same thing.

The FDIC does have its plate full, but they are also about cutting the losses sooner, rather than later.

I am not saying Metropolitan National won’t work out of this dire situation, but when I asked the bank to share how they plan to return to profitability in 2010, they declined to comment.

The bank charged off $55 million in bad debt in the third quarter and recovered only $134,000. The bank still faces $140 million in nonaccrual loans with only $41 million set aside to cover those losses should be charged off too. The bank’s problem loan-to-asset ratio is 116 percent. The benchmark for failed banks is roughly 100 percent.

http://banktracker.investigativereportingworkshop.org/ is a great site that details the importance of tracking a bank’s troubled asset ratio. While the site has not been updated to include the recent third quarter data, second quarter data is accessible.

Why should we care?

This bank took $25 million in TARP money that it may not be able to repay taxpayers if the troubles worsen.

The bank spent $30 million expanding its footprint in Northwest Arkansas between 2005 and 2006. They built 13 branches in Benton and Washington counties. Local consumers have $100 million in those banks, and dozens of other local consumers borrowed more than $600 million from the bank between 2005 and 2007.

Keep an eye on the Metropolitan National. I plan to.

Window closing on housing tax credit

nwabizbits — Tue, 15 Sep 2009 03:30:53 +0000

Time is quicklly running out for first time home buyers to take advantage of up to $8,000 in free money that can be used as a down payment. The federal government has spent $600 billion buying up delinquent mortgage securites since January. Statisics indicate almost half of the loans restructured by mortgage companies have defaulted again as the jobless rate approaches 10 percent. In my estimation that is huge waste of money that would have been better served by extending the first time home buyer tax credit.

As it stands now the credit will expire Nov. 30. Local real estate brokers say the temporary rise in home sales will likely subside in the next couple of months as the demand is deflated.

Homeowners wanting to take advantage of the credit must be approved for a home loan by Oct. 15 and close the deal by Nov. 30. President Obama and the Democratic congress have been beating the healh care drum, putting the economy on hold. That is not likely to change before the credit expires.

Should government extend the first time home buyer tax credit, afterall they have continued keep the purse open for banks.