Gamble That Went Bust
ANB's Collapse From Real-Estate Bet Is Ominous for Small, Midsize
Lenders
By ALEX ROTH and VALERIE BAUERLEIN
Bentonville, Ark.
In the Quail Ridge subdivision, for-sale signs have popped up like the
overgrown grass choking lawns of four-bedroom and five-bedroom homes,
costing as much as $450,000, that never should have been built.
Michael Woods/Arkansas Democrat Gazette
Was ANB a "bank on steroids"?
"If you had a tool belt and a pickup truck, you could get a
construction loan," says Robert W. Abercrombie, owner of Betty's Homes
Inc., which built some of the houses in Quail Ridge but filed for
bankruptcy protection in 2006 after sales stalled.
Mr. Abercrombie's company defaulted on more than $2.5 million in loans
from ANB Financial, a local bank known for its enthusiastic lending.
So did another Quail Ridge home builder that borrowed from ANB. By
Friday, an epidemic of bad real-estate loans had overwhelmed the bank,
which was seized by federal regulators in the second-biggest federally
insured bank failure since 2001.
On Monday morning, nine ANB offices reopened as branches of Pulaski
Bank & Trust Co., which took over some of the closed bank's assets and
deposits. The bust is reverberating as a sign of turmoil at many small
and medium-size banks throughout the U.S. that pinned huge hopes, and
capital, on the housing boom.
Delinquencies and charge-offs are rising at lenders that barreled into
real-estate loans but now are feeling a double whammy of the housing
slump and credit crunch. Regulators are bracing for more failures.
Even banks in no danger of collapse will need years to slog through
their lending mistakes.
"People just naturally get ahead of themselves," says Daryl G. Byrd,
president and chief executive of IberiaBank Corp., the Lafayette, La.,
parent of Pulaski Bank. "They get caught up in the growth. They think
it will never end."
ANB was launched in 1994 by Dan Dykema, then 34 years old, who had
been a star lender at Bank of Bentonville, now called Arvest Bank
Group Inc.
Mr. Dykema offered some of the highest interest rates in the country
on certificates of deposit. ANB also aggressively sought deposits sold
through securities firms. By last year, such brokered deposits had
increased to more than 80% of the bank's total.
ANB's swelling deposits were funneled into real-estate loans tied to
the fast growth of northwestern Arkansas. New employees and
transplants lured by Wal-Mart, suppliers such as General Mills Inc.
and Unilever, trucking company J.B. Hunt Trans****t Services Inc. and
other companies turned the area into a sprawl of strip malls,
restaurants and new subdivisions carved from forests and farmland.
By the end of last year, ANB had $1.3 billion of construction and land-
development loans on its books -- and $114 million in conventional
home mortgages, according to financial data filed with regulators. In
contrast, Mr. Byrd says Iberia has 5.5% of its loan ****tfolio in
construction and land development, while ANB's is more than 75%.
ANB also opened loan offices in resort communities such as Jackson
Hole, Wyoming, and St. George, Utah. "One might characterize [ANB] as
a bank on steroids," says John R. Davis, Iberia's senior executive
vice president.
When he wasn't overseeing the lending surge as ANB's chief executive,
Mr. Dykema dabbled in real-estate development. Do***ents indicate he
was involved in various residential and commercial projects, though
his exact role isn't clear. Mr. Dykema also co-owns Bentonville
Butcher & Deli on South Walton Boulevard, according to his business
partner. Mr. Dykema says he was told by his lawyer and the Federal
Deposit Insurance Corp. not to comment.
The strategy backfired when housing sales began cooling in 2006. Soon,
more than a dozen local real-estate developers filed for bankruptcy
protection. In a lawsuit filed in a Benton County, Ark., court this
year, ANB alleged a developer called Zachary Investments had
defaulting on at least $934,000 in loans used to build several homes
in the Quail Ridge subdivision. In response, the developer accused ANB
of reneging on a promise to increase its credit line.
As loan losses ballooned, regulators in June ordered ANB and its
parent company, ANB Bancshares Inc., to slow loan growth, bolster its
capital and develop a plan to control risk.
As of March 31, past-due and nonaccrual loans -- or those for which
full repayment is in doubt -- related to construction and land
development had surged to $732 million from $123 million six months
earlier.
The Office of the Comptroller of the Currency concluded ANB "had
incurred and is likely to incur losses that will deplete all or
substantially all of its capital." The failure is expected to cost the
FDIC's deposit-insurance fund about $214 million.
J. Neal Ethridge, a retired Archer-Daniels-Midland Co. manager whose
family owns a now-worthless 5% stake in the bank, says the OCC field
office that took over supervision of the bank last year "attacked us."
To be sure, like most of its peers, the bank had long been regulated
by the OCC, but there was a change in the tone of that regulation
according to Mr. Ethridge when a new field office took over.
"Those statements are not accurate," says Kevin M. Mukri, an OCC
spokesman. "Our job is to ensure the bank is properly capitalized and
used proper accounting procedures, and that is what we did in this
case."
Write to Valerie Bauerlein at valerie.bauerlein@[EMAIL PROTECTED]
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