LIttle Rock-based Heartland Bank and its holding company Rock Bancshares recently signed a formal consent agreement with the Federal Reserve Bank of St. Louis in an effort to address possible losses resulting from loans made in the oil and gas industry.
The Dec. 13 agreement reiterates many of the issues that the company and the bank have been working closely on with the federal and the state regulators over the last year.
While focusing on the higher level of troubled assets, bank officials said capital levels remain well above the guidelines at 11.46% for the Tier 1 Leverage Ratio. The bank noted in a Dec. 20 release that resolving the troubled assets has been a priority and the necessary steps to guard against future losses are being taken.
“Heartland Bank is committed to maintaining sufficient capital to address the changing needs of the bank in compliance with all regulatory guidelines,” bank officials noted in the release.
The consent agreement requires the bank to submit within 30 days a written plan to manage the holding company’s debt so it can continue to “serve as source of financial strength” for the bank. The bank’s board of directors are being asked in the agreement to improve the bank’s financial condition and maintain effective control and supervision over the bank’s credit-risk management, lending and credit administration, as well as capital earnings, compliance and liquidity. The bank also is required to submit a plan within 60 days explaining how it will improve internal controls and oversight of the bank’s entire lending practices, as well as finding strategies to minimize credit losses and reduce the level of problem loans.
Bank officials were told they could not extend, renew or restructure any credit for loans criticized in an April 11 examination without the majority board approval. The bank was also told to deal with its defaulted real estate holdings and nonaccrual loans, writing down the values and reclassifying the assets and adding to loan loss reserves as necessary.
The bank was told to keep capital levels high and to fully review all compensation paid to personnel noting that raises and bonuses were prohibited to officers, directors and principal shareholders and their immediate family members, without the approval of the Federal Reserve.
Judy Lawton, president of the holding company and bank, signed the agreement and noted in the release that management understands and accepts the agreement and will work in full cooperation with the Federal Reserve to ensure all requirements are met.
Heartland Bank posted net income of $73,000 through the first nine months of 2016, well below the $4.931 million earned in the same period last year. The bank’s profitability fell from an return on assets of 2.72% a year ago to 0.04% as of Sept. 30. The bank’s problem loans ballooned to $31 million, nearly double the $17 million listed a year ago. The bank suffered from $6.899 million in credit losses so far this year and with loss reserves of $4.313 million, there is still a lot of risk exposure from the $31 million in severely delinquent loans.
The bank reported equity capital of $28.636 million in September, much of which could be wiped out if the bank is unable to collect on its problem loans. Heartland is state chartered and a Federal Reserve member bank with assets of $219 million as of Sept. 30.