A deal between Mathias Bancshares and Peterson Holding Company that would have transferred ownership of Decatur State Bank was recently nixed by federal regulators.
Larry Olson, spokesman for Mathias Bancshares and CEO of First State Bank Northwest Arkansas, confirmed the application to acquire Decatur State Bank was withdrawn.
“The Federal Reserve simply did not like the way we had the acquisition deal structured, and they expressed that they were not inclined to approve the deal as proposed. So, we withdrew it. However, Mathias continues to be interested in acquiring Decatur State Bank,” he said.
Olson said his group is still considering different options and proposed deal structures.
“It is possible we may be filing a revised application to the respective regulatory approval bodies here shortly,” he said.
Decatur State Bank is one of more than 770 banks across the nation deemed “troubled” by the federal regulators. The bank is operating under a stern “cease and desist” order which requires it to continue charging-off delinquent loans. The charge-off and loan de-valuations will further delete the bank’s equity capital — already beneath the required levels of its enforcement action.
About the only options a troubled bank short of capital has is to get an infusion, which could come from shareholder contributions, the sale of assets or possible merger with another institution, said Dr. John Dominick, banking professor at University of Arkansas and independent banking consultant.
Mathias Bancshares owns Huntsville-based First State NWA and had planned to acquire Decatur State Bank as a sister institution — operating somewhat independently but sharing financial support from the same family tree — Mathias Bancshares.
First State NWA has assets of roughly $83 million with a capital equity base of $11.839 million as of June 30. This bank is highly profitable with an return on assets of 1.37% for the first half of 2012 and net income of $566,000.
In contrast, Decatur State had assets of roughly $146 million with just $2.95 million in equity capital as of June 30. The bank’s capital levels are barely enough to allow operation and any offer to buy the bank should come quickly, according to local analysts.
Tim Yeager Arkansas Bankers Chair at the University of Arkansas estimates the needed capital to fend off closure is roughly $23 million which would get the bank’s critical Tier 1 leverage ratio back up to 6%.
“A hard trigger for bank closure occurs when a bank’s Tier 1 leverage ratios falls below 2%,” Yeager said.
Decatur State posted a Tier 1 leverage ratio of 2.16% as of June 30, according to the bank’s call report with the Federal Deposit Insurance Corp.
Yeager said if regulators know there is a strong buyer interested in acquiring Decatur State they may give the bank some breathing room in the short term, but any deal to purchase should come pretty quickly before the capital ratio falls any lower.
Non-performing loans are a good indication of risk still lurking on bank books which could further erode capital levels.
As of June 30, Decatur State still faced $21.4 million in non-accrual loans with $6.8 million set aside in loss reserves. The bank has also charged off $3 million this year and has nearly $5 million of real estate on the books from loans gone bad.
The FDIC has closed 42 banks this year as of Friday Sept. 14.