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Heartland Bank, Stung in NY Bankruptcy, Enters Agreement With Federal Reserve

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Heartland Bank of Little Rock and its holding company, Rock Bancshares Inc., have entered a written agreement with the Federal Reserve aimed at improving their "financial soundness" even as a prominent borrower has filed for bankruptcy protection.

The Federal Reserve on Tuesday released the written agreement, which was signed on Dec. 13 by Judy Lawton, president of both Heartland Bank and Rock Bancshares. Within minutes of that release, Rock Bancshares issued a statement saying that many of the items addressed in the agreement "have either already been resolved, or progress is being made toward their resolution."

The $219 million-asset lender remains well capitalized, the statement said, with tier 1 capital of 11.46 percent ($27.9 million) as of Sept. 30.

Heartland, as Arkansas Business reported in September, and its lead shareholder, Walter Quinn, have suffered from the collapse of the oil and gas industry. Tuesday's statement from Heartland acknowledged as much, saying that "the request from the Federal Reserve to participate in this Agreement was expected based on challenges the bank has faced resulting from a limited number of troubled assets primarily related to the oil and gas industry."

The Federal Reserve action was made public a day after Heartland was mentioned by the Wall Street Journal as a creditor in the Chapter 15 bankruptcy of Platinum Partners Value Arbitrage Fund Ltd. of New York. The hedge fund has been described by federal prosecutors in New York as a $1 billion fraud and a "Ponzi-esque" scheme.

Five top executives of the fund were charged yesterday with securities fraud, conspiracy and other crimes in an eight-count indictment. The Securities & Exchange Commission also launched a civil case against the men.

According to court filings in the provisional liquidation case, Heartland entered into an August 2015 funding agreement of $7 million with a Cayman Islands fund associated with Platinum Partners. The outstanding balance of that debt was more than $7 million as of May 30.

Heartland, in its September 30 call report, said its noncurrent loans totaled nearly $31.2 million. (That number stood at almost $18 million a year earlier.) Meanwhile, its provision for loan losses at the end of the third quarter was $2.6 million.

In its statement on Tuesday, Rock Bancshares said Heartland's "positive earnings performance in 2015 and 2016 year-to-date has allowed the bank to address loan losses aggressively with minimal impact on capitalization."

Heartland posted net income of $237,000, a return on assets of 0.10 percent. Its earnings through the first three quarters of this year are $73,000, while it charged off $6.9 million in loans.

The bank paid out $4.55 million in dividends in 2015 and another $500,000 in the first quarter of 2016. The Federal Reserve agreement forbids Heartland or the holding company from declaring or paying any dividends without regulatory approval.

"The board and management understand and accept the Agreement and will work in full cooperation with the Federal Reserve as the bank returns to profitability and ensure that the company and the bank meet all requirements of the Agreement," the statement from Rock Bancshares concluded.


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