TRAVERSE CITY — A national bank evaluation firm downgraded its rating of Northwestern Bank after the local bank posted a loss of more than $900,000 in this year's second quarter.
Other Traverse City area banks held steady in the latest bank ratings released by Florida-based Bauer Financial Inc. But Northwestern slipped to a two-star or problematic rating from Bauer, the second time in the past year it downgraded Northwestern.
Current ratings are based on second-quarter financial data reported to the Federal Deposit Insurance Corp.
Northwestern officials blamed the quarter's losses on a steep increase in nonaccuring loans -- loans in which no interest or principal payments have been made for 90 days and lenders have no collateral to cover the amount owed.
Northwestern's FDIC filings show its nonaccuring construction and land development loans totaled nearly $18.8 million, more than four times what the bank reported a year ago.
Nonaccural loans for commercial properties totaled $16.7 million, while nonaccuring loans for residential construction topped $3.6 million, according to FDIC records.
Another national rating service, BankTracker from American University and news network MSNBC, showed Northwestern Bank's "troubled assets" totaled nearly $70.6 million as of June 30, more than double the $30 million reported a year ago. Troubled assets include loans that customers can't pay off and are secured by collateral that's worth less than the loan.
Northwestern spokesman Doug Zernow said "unusual circumstances" affected the bank's second quarter number. Its $900,000-plus loss was due to the bank boosting its loan loss reserves, a step he described as a "proactive" measure to cover bad loans.
"All businesses in the banking sector and the country are dealing with the challenging economy," he said.
Zernow wouldn't discuss details of Northwestern's escalating loan losses.
"It really wouldn't be appropriate to talk about specific projects or customers," he said.