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Miracle, or debacle? Arkansas Federal Savings Bank, the little thrift that thinks it can.

Miracle, Or Debacle?

Arkansas Federal Savings Bank is teetering on the brink of insolvency, already well below net capital requirements and with a sinking bottom line that appears headed for the deep end. Last year, the thrift lost $1.6 million and its net worth is now just one-quarter of regulatory required levels.

But King A. Crow, chairman/CEO and sole owner of the $73-million thrift with branches at Little Rock and Mountain Home, says he is just a few deals away from turning the institution around. The successful sale of some of the thrift's assets will put it squarely on the road to profitability, he says.

That's optimistic talk for a thrift with just $537,000 in net worth. Already, insolvency is a well-worn path for Arkansas' 34 savings and loan institutions, 13 of whom are under federal conservatorship and are up for sale.

Like other thrifts in the state, Arkansas Federal has a severe financial illness, but Crow and his team are nursing the institution in 1990, hoping to buck the same financial winds that have sunk other S&Ls.

Sale of Assets

Crow says he has several sales proposals under review by potential out-of-state buyers. But when pressed for details he won't offer specifics, saying sensitive negotiations could be affected.

Crow claims that planned asset sell-offs will offer two benefits. First, they will earn the thrift a substantial profit. Second, they will reduce total assets, thereby lowering the amount of capital needed to satisfy thrift examiners.

"I think we're going to be a survivor in this state. It's going to be a win for everybody - customers, depositors and the community.

"Obviously, there's a lot of energy being expended. We have a great chance of making it."

Tough Numbers

With a net worth of $537,000 in 1989, Arkansas Federal is barely solvent. (See accompanying chart of call report information for 1987-1989.) Federal regulators require a thrift of its size to have a net worth of 3 percent of total assets, or about $2.2 million in Arkansas Federal's case. Crow says his assets sales, if successful, will meet regulatory goals in 1992, two years ahead of the deadline for all thrifts.

Table : Key Arkansas Federal 4th Quarter 1989 Numbers (Amts. in thousands)

Mortgage Loans: $35,622 Construction Loans: $1,586 Permanent Loans: $33,509


1-4 units: $13,084

More than 5 units: $7,480

Commercial: $9,608

Land: $3,337

Non-Mortgage Loans: $21,698

Consumer Loans: $17,678

Credit Card Loans: $16,312

Total Deposits: $60,391

Less than $100,000: $57,469

More than $100,000: $2,922

Source: Call reports filed with Office of Thrift Supervision

A bank analyst, who declines to be named, says Arkansas Federal's recovery plan is possible, while another analyst is more pessimistic. Net losses in 1989 project a trend toward insolvency in 1990, the first analyst says.

Federal examiners went over the institution's books in December, and the result was a large writeoff of loans that led to net losses of $1.6 million for the year. Neither Crow nor the Office of Thrift Supervision will release current financial data. But Crow says the institution is not under conservatorship, has neither received any cease and desist orders nor entered into any consent agreements with federal regulators.

Stormy Weather

Discussing the institution's plight one morning recently, dark clouds roll in from the northwest toward the building that houses Arkansas Federal. Crow and Greg Young, the thrift's chief financial officer, are guarded in elaborating on their plans, but act upbeat about their prospects.

Hoping to avoid a negative news article, Crow offers to make a deal. In a short time, there will be a more complete picture and better news, so if Arkansas Business waits, it would be given an exclusive article, Crow promises.

Crow's brow, with its receding hairline, occasionally furrows into several lines during the discussion. Treat Arkansas Federal kindly, he urges, so deals in the works will not be upset and the banks' customers will not be alarmed.

(Banking analysts contacted point out that all deposits less than $100,000 are insured by the federal government.)

Crow says he is keeping communications forthright with regulators, prospective dealmakers, customers and journalists. "Never surprise them. Keep them informed. Always tell the truth," are among Crow's rules of banking.

Mortgage Banking Background

Before establishing Arkansas Federal in 1984, Crow worked in real estate in central Arkansas and was VP of the mortgage company owned by Commercial National Bank. He liquidated his real estate holdings to buy First American Savings and institutions were profitable.

Does he consider himself an entrepreneur? "Not any more," Crow says. "I haven't done that in a long time."

What's happened since he bought the thrift? "That's a three-day discussion," he says.

His original strategy was to make small loans to nursing home and apartment developers taking advantage of favorable tax laws, which have since changed.

Most of Arkansas Federal's apartment loans are in Arkansas, while the majority of its nursing home loans are out of state. Besides Arkansas, the thrift concentrates its business on contiguous states.

All of the thrift's loans for apartments and nursing homes range from $250,000 to $1.25 million each, Crow says. There are no problems with insider loans at the thrift, and no borrower has more than one loan.

Repossessed assets, which the thrift takes back when it forecloses on mortgaged property, have been significant in the past two years, but Crow says he is working to upgrade those properties, retain quality tenants and slowly rebuild rent levels to make them attractive for sale.

Crow changed the thrift's strategy about three years ago, and has not made an apartment, nursing home or commercial loan since that time.

Credit Cards To The Rescue

The new emphasis, and one he believes will carry his institution into profitability, is on family banking and consumer loans, such as mortgages for single-family homes, cars, boats and home equity.

At 11.88 percent, Money magazine touts Arkansas Federal as having the lowest rate for Master Card and Visa cards in the nation. Credit cards are a very profitable asset for the bank, Crow says.

"I think consumer/family lending is an excellent way to address the previous problems of savings and loans and to get a risk-adjusted yield that can sustain long-term profitability," Crow says.

Federal officials decline to comment on his plan for restoring his institution's soundness, but Crow says they are watching it closely. "We feel like we have a good, workable plan," Crow says.

While one analyst is cynical about Crow's chances of surmounting the tough hurdles ahead for Arkansas Federal, another analyst says, "We ought to be cheering for him."

PHOTO : HOUSE OF CREDIT: With $73 million in assets, Arkansas Federal Savings Bank of Little Rock is struggling to survive after chalking up $1.6 million in losses last year.
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Author:Kern, David F.
Publication:Arkansas Business
Article Type:company profile
Date:Jul 2, 1990
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