Risk to ruin

A fast rise, hard fall

The 55,000-square foot ANB Operations Center opened on the northwest side of Pleasant Grove Road and Interstate 540 in October of 2004.
The 55,000-square foot ANB Operations Center opened on the northwest side of Pleasant Grove Road and Interstate 540 in October of 2004.

The aggressive lending of ANB Financial pushed the value of Lynn Alexander’s stock in the bank to $600,000.

The Rogers resident was a bank vice president and decided early in her career that ANB shares would allow her to retire in comfort.

For most of her 12 years with ANB, her stock value rose alongside the bank’s healthy profits in booming Northwest Arkansas. ANB grew by leaps and bounds, funding key developments and even expanding out West.

“I’d been in banking for over 22 years,” said Alexander, 50. “I thought I’d be secure.”

Now, it’s clear the aggressive commercial lending that did so much to fuel the financial hopes of Alexander and line the purses of many developers and business owners in Northwest Arkansas ultimately caused the bank’s collapse under its own weight.

With concerns mounting about ANB’s bold-but-faltering lending practices, federal regulators shut down the bank in May 2008.

ANB was the third U.S. bank to fail in 2008, and 22 more crumpled before the year was out, Federal Deposit Insurance Corp. records show. In the previous seven years, only 27 banks were shut down.

When the bank shut its doors, 297 customers had accounts that exceeded the $100,000 limit protected by the FDIC, with the uninsured amount totaling $19.8 million. The agency in 2008 guaranteed the protection of an account holder’s first $100,000. Late that year, after ANB and other banks failed, the limit was raised to $250,000 per account.

The financial regulatory overhaul act signed by President Barack Obama on Wednesday made the $250,000 insurance limit permanent and retroactive to the start of 2008. The FDIC already had repaid ANB account holders for about one-third of their losses above $100,000, using money from the sale of bank assets. Now the federal agency will cover the remainder up to $250,000.

The FDIC said 31 of the 297 ANB customers had accounts that exceeded $250,000 and will not receive any money above that amount.

Some people who borrowed money from ANB are mired in bankruptcy and foreclosure after their loans were purchased from the FDIC at fire-sale prices. Huge residential developments in the western U.S. are languishing in one-time boomtowns. And three former employees, not including Alexander, are suing to recover losses after the bank’s stock became worthless.

Former employees, customers and those in the banking community don’t point to any one person for the cause of ANB’s collapse. They say the bank’s assertive stance and growth-at-all-costs strategy crashed headlong into the faltering economy.

Dan Dykema, ANB’s president from its founding in 1994 until its demise, had been a rising star at other Northwest Arkansas banks.

“I’ve always liked money,” Dykema told the Arkansas Democrat-Gazette in 1997. “Maybe that’s why I’m in banking. I just like money.”

Dykema and ANB’s aggressive lending was notable in 2005 when the bank opened a loan production office at St. George, a fast-growing city in southern Utah.

“That was like an ATM down there,” said Tracy Tremelling, a vice president of residential and new construction in ANB’s loan production office in Idaho Falls, Idaho, another place where ANB set up shop. “There was money flying out the door left and right,” and ANB employees weren’t verifying that projects were advancing on schedule.

Banks Crumble

Bank failures increased as the nation’s economic woes spread into 2009 and 2010. There were 140 failures in 2009, and 2010 failures stood at 103 as of Friday.

“Any ship can sink in a hurricane,” said Nat Bothwell, who was an ANB executive vice president for marketing.

ANB failed before the federal government took assertive steps to assist banks. It wasn’t until late 2008 that Congress approved the $700 billion Troubled Asset Relief Program (TARP) that’s often referred to as the “bank bailout.” By then, ANB was long gone.

Tim Yeager, a University of Arkansas banking professor, said the federal bailout wouldn’t have helped ANB survive. The federal money went to the biggest banks, and ANB wasn’t that big.

“They were so far out on the commercial lending curve that they failed before most banks did,” Yeager said. “They were more aggressive than other aggressive banks. That’s why they failed first.”

A strong start

From 1990-96, the U.S. Census Bureau shows that the Fayetteville-Springdale-Rogers metropolitan statistical area grew in population by 23.7 percent. It was the sixth-fastest-growing area of the nation, the bureau said.

ANB’s opening in June 1994 seemed to come at a perfect time as new people arriving to the region would be looking for banks and home loans.

FDIC records show ANB building a substantial share of deposits. It had $99.3 million in deposits by June 1996, a 3 percent share of all bank deposits in the two-county region — considered substantial for a 2-year-old bank.

The rapid growth was noticed by other bankers who suggested in the 1997 Arkansas Democrat-Gazette article that Dykema was a risk-taker. Don Walker, the Bank of Bentonville president at the time, said Dykema was “pushing his attempt to grow to the edge.”

“That can be dangerous, but I don’t think he’s in any serious trouble,” Walker told the newspaper at the time.

Reminded recently of his comments, Walker said it would have been impossible to predict ANB’s demise.

“He’s not a bad banker,” said Walker, now president and CEO of Arvest Bank in Tulsa. “He was comfortable taking more risk than the average banker, and that ultimately did cause the collapse of his bank.

“I will not say that all of the mistakes were Dan’s. Some of the people he hired because it was growing fast were also causes of the bank’s failure.”

Dykema, who lives in a 6,820-square-foot, two-story home on Spring Valley Road in Bentonville, declined repeated requests to be interviewed for this article.

ANB’s deposits had nearly doubled by mid-1998 to $190.5 million, or 4.9 percent of the regional market. The partners who started the bank — Dykema, Debra Jackson, Harry Brown, Bill Fleeman and Victor Evans — appeared to be doing well.

By 2004, ANB had branches in every major city in Benton and Washington counties, and relocated its Bentonville headquarters to a spiffy site in Rogers near Interstate 540.

By then, Dykema ran the second-largest bank in Northwest Arkansas. Only Arvest Bank was bigger.

The ‘Go-To Bank’

ANB quickly earned a reputation as the “go-to bank when you wanted to get something done,” said John Nock, principal of Nock Investments in Fayetteville.

Nock said ANB had financed as much as 30 percent of his real-estate projects — $40 million worth — by the time regulators shut it down.

“ANB had glowing reviews in the preceding years, attracting both new customers and bank participants,” Nock said.

The closure of ANB, however, had a huge impact on the real-estate market. And it’s “cost me, and many others, millions of dollars,” Nock said.

Nock, through the Cosmopolitan Ventures LLC, borrowed $18.375 million from ANB in 2006 to complete a project to renovate the Cosmopolitan Hotel in downtown Fayetteville.

That project to modernize the hotel, which earlier operated under Hilton and Radisson banners, came to a halt after federal regulators closed ANB. Nock and co-owner Richard Alexander spent about $16 million of the loaned amount. Currently 134 rooms of the 235-room hotel are in some stage of renovation.

ANB Ventures LLC, the company created to handle some of the loans after ANB closed, filed for foreclosure on April 19 against Cosmopolitan Ventures LLC. The Fayetteville hotel remains open.

The case is scheduled to be heard Sept. 9 by Washington County Circuit Judge Kim Smith.

The loan to Cosmopolitan was the biggest made by ANB in Benton or Washington counties during the bank’s 14-year history, according to a search of public records kept by WACO Title Co., a Fayetteville firm that tracks public mortgage records. From 2003-08, the bank made 21 loans of more than $7 million apiece in the two counties, the title company’s records show.

Trouble brewing

ANB’s health was deteriorating by 2005.

The post-closure audit made public in November 2008 by the federal Treasury Department’s Office of Inspector General criticized the federal Office of Comptroller of the Currency for taking no “forceful action” against ANB after identifying problems in 2005.

According to auditors, ANB’s nonperforming loans in 2005 were twice the national average when compared with banks of similar size.

The comptroller reprimanded ANB in June 2007, saying the bank engaged in “unsafe and unsound banking practices.” The bank lost $120 million that year, the comptroller said.

The inspector general’s report said poor supervision by the federal Comptroller of the Currency wasn’t the cause of the bank’s failure, however. The reasons listed in the report were “the bank’s strategy of aggressive growth without adequate control; heavy reliance on wholesale funding, including brokered deposits; inadequate risk management ... in commercial real estate; and unsound underwriting practices.” Those practices were aggravated by the unfavorable economy, the inspector general’s report said.

Brokered deposits are obtained through large investment houses by offering clients high interest rates on products such as certificates of deposit.

Despite those troubles that could have caught the attention of the bank’s highest-ranking officers in 2005, ANB was still expanding, though not solely in Arkansas.

Northwest Arkansas was good to ANB for the company’s first decade in business, but three areas in the West appeared to be new, better places for ANB to expand.

Looking West

Joe Renner, who was executive officer at ANB’s branch on 28th Street in Rogers, said the bank’s top brass suspected that Northwest Arkansas’ growth was fizzling out by 2004, and they identified a handful of other areas that seemed to be on the cusp of new growth, including Idaho Falls, Idaho; St. George, Utah; Jackson, Wyo.; and suburbs near Phoenix.

They were like Northwest Arkansas was in about 1999, Renner said.

St. George topped the list. ANB never made it to Phoenix.

The bank set up a loan-production office in 2005 on busy Convention Drive in St. George. Renner eventually went to run the bank’s loan-production office in Utah.

About 120 miles northeast of Las Vegas, St. George was a boomtown for the better part of 40 years. The city’s population of about 75,000 is 10 times what it was in 1970.

That growth, coupled with developers’ willingness to take on multimillion-dollar loans to pursue large residential and commercial projects, was attractive to ANB, former employees said.

“They got off to a quick start,” said Tom Cover, a St. George resident who helped ANB with its marketing in Utah until 2007. “The people from Arkansas said they had a lot of experience with commercial lending, and they felt they had the expertise. It started rapidly and grew much faster than everyone expected.

“I told them it was growing too fast. They said they could maintain the growth. I left them in 2007. I was out of there. It made me uncomfortable.”

The loans ANB made in Iron and Washington counties in southern Utah were far bigger than the ones made in Benton and Washington counties in Arkansas.

ANB’s 21 loans of $7 million or more in Arkansas involved $186.7 million.

The 21 biggest loans in two Utah counties over three years totaled $265.1 million, county records show.

To support that lending, ANB dramatically increased its reliance on high-interest brokered deposits that provided cash that bank officers needed out West.

ANB didn’t provide any immediate financial incentive to encourage loan officers to make good, safe loans, said Chandler Church, who spent three decades in banking before Dykema hired him in 2005 to run ANB’s loan-production office in Jackson, Wyo., near the famous Jackson Hole resort.

“His primary interest in being here was growing the bank into a big bank, bigger than he could grow it in Arkansas,” Church said. “He had targeted growth markets to grow into: St. George, then Jackson, and then the third was Idaho Falls.

“He wanted to make money. I just think he wanted to make more and more money.”

Betting on a new boom

Few seemed capable of seeing that ANB or the economy could falter.

Idaho developer Roland “Rollie” Walker moved quickly when he found out he could buy 2,400 prime acres near Hurricane, Utah, 18 miles east of St. George.

He’d never done business in southern Utah, but he knew many Idaho retirees headed south for the winter and the St. George area was a preferred location for the so-called snowbirds.

The land’s price was steep: $28 million, and the owner wanted to close the deal fast.

“I had to close the deal in 30 days or less so that wasn’t going to work,” Walker said. “We had a huge opportunity so Dan flew in from Arkansas, jumped in a helicopter to review the property and promised to do two days’ work every day on my project.”

Walker’s loan from ANB — $18.4 million in April 2005 — arrived in time.

Out of Walker’s new relationship with Dykema and the bank came a second loan and the biggest one ANB made in Utah. It was for $24 million in December 2007 to pay for sewer lines, waterlines, streets, engineering and design for what’s now Elim Valley. There’s space for 10,400 houses.

The second loan hadn’t been repaid by the time regulators closed ANB. Residential lots expected to sell for $135,000 apiece are being offered now for $35,000.

“Dan was very good and very thorough and very quick,” Walker said. “I have no beef with Dan Dykema. He’s a victim of the economy in a raging market.”

The people in Utah weren’t interested in hearing negative thoughts about St. George’s economy, said Lecia Langston, a regional economist with the Utah Department of Workforce Services. The 1,000 attendees at an economic summit in St. George in January 2005 heard Langston’s comments.

“I was the only voice saying ‘No,’” Langston said. “It was obvious we were in boom status. It was creating a bubble market, and it was going to collapse.”

She drew sharp criticism for her assessment. Scott Hirschi, director of the Washington County Economic Development Council in St. George, thought Langston was crazy.

“I remember coming away from that meeting with ‘What’s she thinking, and what’s she doing?’” Hirschi said. “That prediction will never come true. And within two years, it was obvious she had nailed it.

“But should the management of ANB have realized it? If they had, they would have been a heck of a lot smarter than every bank here. The consensus was there was no end in sight.”

Bank’s big fall

In an audit made public six months after the bank’s shutdown, the federal Office of Inspector General noted ANB’s rapid rise.

“From January 2005 to January 2007, the bank’s real-estate loan portfolio increased from $440 million to $1.6 billion, and its construction and development loans increased from 22 percent to 73 percent of gross loans,” the audit report noted.

Yeager, the UA banking professor, said 73 percent is incredibly high compared with other banks. In 2004, a typical bank put 10 percent of its money into commercial and development loans. The average grew to 16 percent by 2008, he said.

The three ANB offices in the West — St. George, Jackson and Idaho Falls — churned out 63 percent of the bank’s loan portfolio by March 2008, regulators said.

ANB’s commercial lending activities were scattered across the nation, and by 2008, ANB had 39 percent of its commercial loans secured by Utah properties. Another 18 percent were secured by properties in Idaho, Nevada and California, according to regulators.

Lucky westerners

For all of ANB’s loan difficulties in the West, its employees in Utah, Idaho and Wyoming escaped the worst of the harm that came with the bank’s shutdown. Church said that’s because they had far less time to invest in company stock.

ANB’s employees in Arkansas like Lynn Alexander suffered the most because they used a portion of every paycheck for years to buy company stock.

“That’s one of the real tragedies,” Church said.

For many depositors, though, it was business as usual. ANB was closed on a Friday and reopened the next Monday as Pulaski Bank & Trust Co., a subsidiary of Iberiabank Corp. of Lafayette, La. The bank purchased $213 million in ANB deposits. The FDIC later packaged ANB’s unresolved loans and offered them on the investment market.

“I was insured, and I was fine,” said Mildred Eoff, 88, a neighbor of Lynn Alexander and an ANB depositor. “I don’t have that much money.

“But nobody likes to see a bank close. Things are not as good these days as they used to be.”

According to Federal Reserve System records, officers and board members of ANB Bancshares in Rogers owned 61 percent of the bank stock when it closed. Employees owned 18 percent of company shares.

Anita Deen, an ANB employee, said she should have been able to obtain money from the sale of her stock in late 2007. She said the bank didn’t provide the money before it was closed.

After a divorce and a move to Nashville, Tenn., Deen received about $23,000 she had in a 401(k), but the bank didn’t give her about $75,000 for the ANB stock she owned. She asked for the money about eight months before the bank was shut down.

“I blame Dan Dykema and all the people who were supposed to take care of that money for us for losing it,” Deen said. “They misled me.”

That’s also the claim of three other former ANB employees — Jan Taylor, Carla Crosswhite and Laura Godsey — who filed a federal lawsuit to recoup their losses. The defendants are Dykema and the bank’s board members.

The women and many other ANB employees refused to answer questions about their time at the bank or about the lawsuit.

The three are seeking class-action status, which if the federal court authorizes, would allow Lynn Alexander and other former employees to join a lawsuit against the defendants.

Taylor, a Rogers resident, spent nine years with the bank. Godsey, who lives in Centerton, was at the bank for 2 1/2 years.

Crosswhite, who worked at ANB for five years, told attorneys during a legal deposition in March that she rolled over $29,227 from a 401(k) retirement account at a previous job to buy ANB stock.

After she left ANB in 2005, she kept her ANB stock. The last account statement she received showed that the stock was worth about $297,000, she told the attorneys.

“Were there any other reasons why you remained invested in ANB stock after you terminated employment?” asked Gregory Braden, an attorney representing the bank.

Crosswhite repeated a statement she made several times during the deposition.

“It was making money,” Crosswhite replied.

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