Heartland Bank lost $7.9 million last year, according to its annual filing Tuesday with federal regulators.
Little Rock-based Heartland made a $7.2 million loan to the Platinum Partners Value Arbitrage Fund of the Cayman Islands last year. Then in October, two Platinum Partners funds, including the arbitrage fund, filed for Chapter 15 bankruptcy protection.
In 2015, a large investor in the Platinum Partners funds sought to redeem its investment, according to an article in The Deal Pipeline, an industry publication. When the investor allegedly wasn't fully paid, it asked the Cayman Islands court to liquidate the funds, The Deal Pipeline reported.
Platinum Partners and its funds also are being investigated on accusations it overvalued its assets, the paper reported.
Heartland put $7.1 million into loan loss reserves at the end of last year, leading to the net loss, said Joe Gregory, the bank's general counsel. For the year, the bank put $10 million in loan loss reserves.
Heartland has $205 million in assets, down from about $220 million at the end of the third quarter.
The bank and its parent company, Rock Bancshares, reached a written agreement with the Federal Reserve Bank of St. Louis on Dec. 13. In the sanction, the regulator ordered Heartland Bank's board to strengthen oversight of the bank's management and operations and told Rock Bancshares to submit a plan to manage its debt.
Despite the loss, the bank is still well-capitalized, Gregory said. Its two primary capital ratios are 10.2 percent and 8.9 percent, above regulatory requirements.
"The good thing for Heartland Bank is some wise decision-making years back by the board put us at a very high capital level," Gregory said. "With that level, we're able to absorb these losses and still maintain a well-capitalized average under the federal guidelines."
Having the high capital level will help Heartland "continue to manage through the remainder of this oil and gas portfolio," Gregory said.
"We know we're not alone," Gregory said. "It's a downturn in the industry that's not been seen in a generation. We're not the only bank or other company that has been affected by the oil and gas market."
Garland Binns, a Little Rock banking attorney, said the bank appears to meet federal standards.
"In spite of the fact that they've added to their loan loss reserves significantly, it sounds like the bank is well-positioned in connection with regulatory requirements for capital," Binns said.
Business on 02/01/2017