Decatur State Bank sale pending

Time was ticking down for Decatur State Bank to raise approximately $12 million in needed capital or marry a suitor to shore up the bank’s wobbly balance sheets resulting from too many non-performing real estate loans in recent years.

In a critical hour on April 12, Sam Mathias, chairman of Mathias Bancshares, also the holding company for First State Bank NWA, came to the rescue.

Larry Olson, CEO and president of First State Bank NWA, confirmed the pending deal at the holding company level.

Mathias Bancshares Inc.has agreed to purchase Decatur State Bank from the Peterson Holding Company for an undisclosed amount, according to Olson.

The deal is pending regulatory approval but local analysts don’t see any major hitches in its completion.

Olson said the applications are being prepared this week and will be sent to the Arkansas State Bank Department and the Federal Reserve Bank for consideration.

Final regulatory approval is expected sometime early in the third quarter, the release said.

In response to the pending transaction, Mathias noted in a press release, “We are pleased at the opportunity to expand our presence in Northwest Arkansas via the acquisition of Decatur State Bank and its existing footprint in Benton County. The bank was chartered in 1954 and has served Benton County for almost 60 years. We look forward to continuing this legacy under our ownership.”

He addressed the Decatur bank’s asset quality challenges saying, “We are obviously confident these problems can be remedied over the next couple years.  A good degree of progress on these challenges has already been made over this past year.  The bank has a good staff which we intend to keep intact to continue the efforts already set in motion to return the bank to a satisfactory and profitable condition.,”

He said once the deal is approved, the customer base also should not notice much change as a result of this transfer in ownership.

“We are hopeful we can obtain the necessary regulatory approval in an expedited manner,” Mathias noted.

The Decatur Bank was one of few locally owned businesses to survive in the farm community in recent years. The Lloyd Peterson family – founder of Peterson Foods – was sold to neighboring Simmons Foods about three years ago, but the family still held a majority of the control in the local bank.

The Peterson Holding Company also owns a sister institution in Grove, Okla, – Grand Savings Bank – and it will retain that instiution in the deal.

Decatur State was critically low on capital at the end of 2011 – with just $6.46 million – down from $19.1 million a year before and $22.6 million at the end of 2009.

The bank came under stern regulatory action in 2011 after charging off $14.65 million in non-performing real estate loans. This hefty loss resulted in a $12.68 million income deficit for the bank in 2011.
  
Industry analysts said Decatur State has been skating on thin ice since the 2011 losses eroded the bank’s equity capital to unsafe levels relative to the risk still evident on the bank’s balance sheet. Equity capital is the lifeblood of a bank. It buffers losses and is essential for bank solvency.
  
The capital shortfall at Decatur State was seen as dire. Analysts say the bank needed to raise at least $12 million in added capital to appease regulators in the coming days or find some way to collect on $20.98 million in seriously delinquent real estate loans.

The biggest problem a bank can face is serious capital deficiencies at a time when losses are escalating, said University of Arkansas banking professor and analyst John Dominick. 

“This looks like the near-perfect solution to the bank’s serious problems outlined in their enforcement action. I think it’s also a slam-dunk with regard to regulatory approval,” Dominick said.

Decatur Bank had a management change in June of last year, promoting Mark Londagin to president and board chairman. Londagin has been serving in dual management roles with the Grand Savings Bank. He said the management team was consolidated as a result of financial problems at Decatur.

Londagin did not return calls Tuesday, but he said a few months back that bank management was working closely with its board to reverse the recent trend that resulted in heavy losses, in addition to raising needed capital reserves.

Olson said the two banks – First State NWA and Decatur State will operate independently but share the same ownership at the holding company level.

First State Bank of Northwest Arkansas- based in Huntsville – reported total assets of $82 million on Dec. 31 and net profits of roughly $870,000 last year.