Demise of Sinclair Bank is Opportunity for Delta

Federal bank regulators shut down the “critically undercapitalized” Sinclair National Bank at Gravette on Sept. 7 and approved the sale of the bank’s insured deposits and two branches to Delta Bank & Trust Corp. of Little Rock.

The bank had been struggling since it was first chartered as Northwest National Bank in October 1996.

Delta Trust had existing offices in Little Rock, Parkdale, Hamburg, Eudora and Wilmot, but the Sinclair branches at Gravette and Bella Vista are the bank’s first foray into Northwest Arkansas. Delta will pay the Federal Deposit Insurance Corp. a premium of $551,000 for the right to assume the bank’s $25.7 million in insured deposits and to purchase $4.9 million of Sinclair National’s assets.

The FDIC, as receiver, will retain the remaining $25.8 million in assets for later disposition.

An estimated $386,000 was in 58 deposit accounts that exceeded the FDIC’s $100,000 limit and will not be assumed by the Delta Trust.

The FDIC estimates the cost of this transaction to the Bank Insurance Fund (BIF) will be $4.4 million. Sinclair was only the third bank and fourth institution insured by the FDIC to fail so far this year.

In a news release, the Office of the Comptroller of the Currency said Sinclair National was “in an unsafe and unsound condition to transact business.” Specifically, it cited the following factors:

• Sinclair shifted its lending focus last year to the purchase of subprime automobile loans and manufactured housing loans, but “lacked a satisfactory infrastructure of policies and monitoring systems to enable management and the board to effectively control the risks associated with its lending activities.”

• The bank had poor underwriting standards and its loan loss reserves were inadequate given the level of substandard and doubtful loans in its portfolio.

• Sinclair’s tangible equity capital was less than 2 percent of its total assets, which were about $28 million as of June 30, according to the OCC.

• The bank failed to maintain the minimum number of directors required under law for a national bank. The 2001-2002 Arkansas Bankers Association directory of financial institutions lists only two directors for Sinclair National Bank: Doug Couchens and state Rep. Kim Hendren, R-Gravette. Hendren is also listed as the bank’s chairman.

On Aug. 9, the OCC issued a directive requiring the bank to develop an “acceptable capital restoration plan” and to correct its safety and soundness deficiencies. Sinclair National, however, failed to submit an acceptable plan “and the OCC determined that it had no reasonable prospect of obtaining adequate capital.”

Northwest National Bank lost money consistently from the time it was founded in 1996. Even though it was still a de novo bank, regulators allowed it to be sold in March 2000 to a rookie principal stockholder, Don Damien.

Damien formed the Sinclair Financial Group in 1993 to buy sub-prime mortgages in bulk acquisitions. Don Gibson, the veteran banker Damien hired to run Sinclair, told Arkansas Business last year that the bank would bolster its community banking business with continued handling of sub-prime consumer paper that had been “seasoned” to reduce the risk.