Little Rock bank revises 1Q loss to $7.8M

Heartland report amended Friday

Heartland Bank lost $7.8 million in the first quarter, giving it $15.7 million in losses in the past five quarters, the Little Rock bank said in an amended first-quarter report with federal regulators on Friday.

In its original first-quarter filing last month, Heartland Bank reported that it lost $2.3 million in the first three months of the year.

After filing the April report, Heartland concluded that there was an additional provision for loan-loss reserves that was required on some loans, said Joe Gregory, the bank's general counsel.

"So we made an additional provision to add reserves of $5.45 million," Gregory said.

That extra $5.45 million gave the bank its $7.8 million loss for the quarter, Gregory said.

A bank expert said Monday that it is unusual for a bank to file an amended return. The March 31 report is due each year on April 30 and the second quarter report is not due until July 31.

The expert, who asked not to be identified, said it is possible that bank regulators "disagreed with [the first report] and required the bank to file an amended report."

Gregory declined to comment whether bank regulators had required Heartland to file an amended report.

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The $7.8 million loss lowered Heartland's capital ratios. The bank's total capital ratio was 7.285 percent for the quarter, slightly below recommended levels. The capital ratio is the percentage of a bank's capital to its risk-weighted assets.

The more important tier 1 leverage ratio -- the relationship between the bank's core capital and its total assets -- is at 4.725 percent, which is above required levels, said Randy Dennis, president of DD&F Consulting Group, a Little Rock bank consulting company.

"It's unfortunate for this to happen," Dennis said. "They're not undercapitalized. Heartland is a good Arkansas bank. [Judy Lawton, the bank's president] and [others at the bank] are doing everything they can to help the bank."

The challenge that Heartland faces is that it takes time to collect some of the underperforming loans, Dennis said.

"Basically they are a break-even operation," Dennis said.

The bank and its parent company, Rock Bancshares, have operated under a written agreement with the Federal Reserve Bank of St. Louis since Dec. 13. The Federal Reserve ordered Heartland's board to strengthen oversight of bank management and operations and told Rock Bancshares to submit a plan to manage its debt.

The 2016 loss of $7.9 million was attributed primarily to a $7.2 million loan Heartland made last year to the Platinum Partners Arbitrage Fund of the Cayman Islands. In October, two Platinum Partners funds, including the arbitrage fund, filed for Chapter 15 bankruptcy protection.

The bank has almost $200 million in assets, down from about $205 million at the end of 2016. It had assets of about $225 million in September.

Heartland has the highest Texas ratio among any bank in Arkansas -- 142.89 percent, the only bank in the state with a Texas ratio above 100 percent.

The ratio indicates how a bank's capital is affected by nonperforming loans and other nonearning assets. The Texas ratio is a projection of the likelihood a bank will fail. A Texas ratio above 100 percent is considered a warning sign.

Heartland also is the only bank in the state with a zero star rating from BauerFinancial Inc. of Coral Gables, Fla. BauerFinancial says banks with a zero rating are facing "considerable challenges."

Gregory said he is not concerned that Heartland's problems will cause the bank to fail.

"We remain confident in the bank's recovery," Gregory said. "This is actually one way of stabilizing things, of eliminating some uncertainties and getting our capital back to the well-capitalized level."

Walter Quinn III is the largest stockholder in Rock Bancshares, which owns Heartland Bank. Quinn has 43 percent of the privately owned holding company's stock. Craig Benson of Austin, Texas, is the second largest shareholder with 16.7 percent of Rock Bancshares' stock.

Business on 05/23/2017

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