Chambers rescues Decatur State Bank (updated)

On Friday (Dec. 7) Chambers Bank, largely owned by veteran banker John Chambers of Danville, purchased Peterson Holding Company and 100% of Decatur State Bank.

"The regulators have said they approve of the deal and the Decatur State Bank will keep its name," John Chambers said in a phone interview.

He said Bill Donnell was named interim CEO and Joe Mills was named interim president. Mark Londagin resigned from the Decatur State Bank on Friday and returned to managing Grand Savings Bank of Grove Okla., which was also owned by Peterson Holding Company. 

Chambers said the banks will operate as sister institutions, but the acquisition does give Chambers an expanded reach to the Oklahoma line.

Time was ticking down for Decatur State Bank, tagged as the state’s weakest in terms of capital with just 30 banks in nation in worse shape, according to a recent report by SNL Financial.

Sources have said Chambers Bank was already doing business with the Peterson Holding Company ahead of this deal in the way of loans made in the past year or so. That is money which would have been lost in total if the bank had been allowed to fail.

Decatur Bank’s woes have been widely publicized as losses related to real estate loans for the first nine months of 2012 were $3.769 million, on top of $12.133 million lost during the same nine months of 2011.

These hefty loss had eroded bank capital down to near fatal levels, according to regulatory protocol.

The bank’s Tier 1 leverage ratio – a key metric used to determine solvency by regulators – stood at 2.16% to start the third quarter, Oct. 1. The minimum to stay open for business by law is 2%, according to Tim Yeager, Arkansas Bankers Chair at the University of Arkansas.

Decatur Bank owners injected $2.1 million into equity capital since June, which has likely kept the bank afloat and bought it a little more time to find a suitor.

The Tier 1 leverage ratio increased slightly to 2.55% following the recent cash infusion from bank ownership.

In October, Yeager described the scenario as a vessel working to stay afloat in a rough storm, but leaking water from the bottom. He said there is only so long before it sinks, unless help comes to rescue or the leak can be stopped.

Mathias Bancshares expressed interest in acquiring Decatur State in April but withdrew the offer in October saying regulators would not approve the deal as it was written.

The capital shortfall at Decatur State Bank had widened to more than $10 million by Oct. 1 and the bank was still facing $20 million in seriously delinquent loans. The bank had set aside just $5.28 million in reserves, giving it a coverage ratio of about 25%, way short of the normal 80% coverage found in healthy banks.

Non-performing loans are a good indication of risk still lurking on bank books which could further erode capital levels and Decatur State had no wiggle room with just $2.954 million in equity capital as of Oct. 1.

Chambers Bank, while also experiencing heavy real estate losses in Northwest Arkansas, had a healthy capital level of $70.7 million as of Oct. 1.

Chambers Bank returned to profitability in 2012, after losing $5.47 million in 2011, on top of  $17.795 million lost in 2010. Through the first three quarters of 2012 Chambers Bank reported a net income of $900,000, according bank financials on file with the Federal Deposit Insurance Corp.

"Our communities in Danville and Decatur are very similar, primarily agricultural. We have a lot in common," John Chambers said.