Crisis Persuades Friersons to Sell MidSouth Bank

by George Waldon  on Monday, Apr. 28, 2003 12:00 am  

The pending acquisition of MidSouth Bank in Jonesboro is days away from more than doubling the size of Liberty Bancshares Inc.

The combined total assets of Liberty's Bank of Jonesboro and MidSouth Bank will add up to about $600 million.

Only one regulatory hoop remains to complete the $20 million-plus transaction, according to the chief executive officer and leading shareholder of Jonesboro-based Liberty.

"We have filed our application with the Federal Reserve Bank in St. Louis, and indications are we should have approval this week [April 21-25]," Wallace Fowler said. "Our plans are to close on the transaction within 15 days after we gain approval."

Shareholders of MSB Shares Inc., MidSouth's holding company, will have the option of cashing in their stock for $38 per share or trading it for shares in Liberty Bancshares. All told, the cash/swap is valued at $12.3 million.

The prime beneficiaries are the Frierson family, who stand to receive more than $7.7 million in cash or stock.

Fowler had tried to strike deals with the Friersons before, but it took MidSouth's financial crisis to provide the necessary impetus to sell.

"We've talked with them several times over the years," he said. "But their plans and hopes were to restore the bank's capital."

First National Bank of Wynne had a deal in the works to buy MidSouth Bank, but Fowler was able to come to an agreement with First National and the Friersons to get first crack at working out a transaction.

On the back side of the purchase, an additional 325,000 shares will be issued at $38 per share to inject

MidSouth Bank with $12.3 million in new capital.

The bank recorded a $5 million loss during 2002 after its provision for loan losses ballooned to $15.3 million.

The horrendous year followed a $1 million loss in 2001 and an $8.7 million provision for loan losses.

In February 2002, MidSouth Bank and MSB Share entered a written agreement with the Federal Reserve and

the Arkansas State Bank Department designed to improve the bank's loan portfolio.

At the time, Terry Frierson, a leading shareholder and MidSouth's president and CEO, told Arkansas Business that "2001 was probably the worst year we'll go through."

The bank's performance in 2002 would prove otherwise.

In explaining what went wrong with the bank's loan quality, Frierson said the bank had "tried to keep that small, community-bank feel" by using a less formal, "team" approach to lending.

"But we are now in agreement that we need more structure," he said.

A month later, Frierson resigned from the bank. In March 2003, Frierson was served with a cease-and-desist order by bank regulators.

He was ordered to pay the bank $556,080 and barred from holding a leadership position with any bank. The consent order was made in connection with allegations that Frierson falsified bank records and misapplied bank funds.

Fowler describes the loan problems at MidSouth as spread across the board and that loans of all sorts lacked proper documentation, review and oversight.

He believes the bank is back on the road to profitability.

"It will take a little while to get squared away," Fowler said. "In 12-18 months, we ought to be well on our way."

Initially, MidSouth will operate as a wholly owned subsidiary of Liberty Bancshares. Fowler estimates that within three to six months, MidSouth will be merged into Bank of Jonesboro.

The combination will result in one of the largest banks in Arkansas and a franchise that has a dominating one-third of deposits in Craighead County.

"MidSouth has a lot of opportunities, and we're ready to hit the ground running," he said.

Fowler, who will take over as chairman and CEO at MidSouth, said he doesn't foresee many changes in personnel at the bank. However, he noted, Steve McFerron has opted not to stay.

McFerron, who came from First National Bank of Blytheville, was hired to replace Frierson as president and CEO of MidSouth.

Gary Clark will stay aboard and become president of MidSouth. Clark was brought in as chief lending officer, a position mandated by bank regulator action in 2002, to help shore up MidSouth's loan management problems.

Bank of Jonesboro

After launching a $35 million stock offering, Bank of Jonesboro soon will be issuing an additional $15 million worth of shares.

"We just want to make sure that our capital is in good order and that we keep up with our growth," Fowler said.

After two years of operations, Bank of Jonesboro is at break-even after losing $2.3 million in 2001 and generating a $2 million profit last year.

The leadership of the bank was broadened when John Freeman, former head of Arkansas operations for Union Planters Bank, joined Bank of Jonesboro three months ago as president.

A new 54,000-SF headquarters is moving toward a November completion for Bank of Jonesboro.

While Fowler builds the franchise, a question remains unanswered: When will Liberty Bancshares merge with other bank ventures led by Johnny Allison of Conway and Truman Arnold of Texarkana, Texas?

The former compadres at Little Rock's First Commercial Corp. are believed to aspire to assemble a statewide Arkansas-based banking venture.

Jonesboro Bank Merger by the Numbers

MidSouth Bank of Jonesboro

Seven locations in Jonesboro and two in Monette

Category — 12-31-02 — 12-31-01 — 12-31-00 — 12-31-99 — 12-31-98
Total Assets — $321,160 — $428,606 — $417,265 — $359,287 — $260,830
Total interest income — $23,981 — $31,376 — $30,364 — $23,851 — $17,428

Salaries/employee benefits — $5,294 — $4,999 — $4,350 — $3,649 — $2,508
Number of full-time equivalent employees — 130 — 134 — 121 — 114 — 86
Provision for loan losses — $15,300 — $8,736 — $2,133 — $1,459 — $994
Net Income — -$5,056 — -$1076 — $2,670 — $2,696 — $1,880

All figures in thousands except for employees.

Bank of Jonesboro
Two locations in Jonesboro

Category — 12-31-02 — 12-31-01 — 12-31-00 — 12-31-99 — 12-31-98

Total Assets — $276,624 — $156,569 — $22,209 — $22,338 — $23,223
Total interest income — $11,799 — $4,645 — $1,572 — $1,440 — $1,464
Salaries/employee benefits — $2,854 — $1,888 — $401 — $365 — $420
Number of full-time equivalent employees — 71 — 45 — 9 — 10 — 11
Provision for loan losses — $1,120 — $2,208 — $25 — $25 — $25
Net Income — $2,029 — -$2,386 — $107 — $205 — $184

All figures in thousands except for employees.

Source: Federal Deposit Insurance Corp.

Wallace Fowler bought the dormant charter of The Planters National Bank of Hughes (St. Francis County) for $150,000 in 2000 and converted it into a state-chartered institution.

The bank charter became an expendable asset after Planters National Bank's parent company, Lakeside Bancshares Inc., agreed earlier that year to merge with Carlson Bancshares Inc. of West Memphis.

Renamed Bank of Jonesboro and relocated, the new entity began operations in early 2001.

MSB Shares Inc. Stockholders
MSB is the holding company for MidSouth Bank.

Owner — Shares — Percentage — Position

Carolyn Frierson — 84,700 — 26.06 — former chairman
Terry Frierson — 80,711 — 24.83 — former president/CEO
University of Arkansas Foundation Inc. — 35,333 — 10.87
James Frierson — 20,250 — 6.23
Cherry Frierson — 17,683 — 5.44
MidSouth Bank KSOP Plan — 16,786 — 5.16
Revis Stewart — 10,428 — 3.21 — former director
J.E. Story — 6,000 — 1.85 — former director
Total — 271,891 — 83.65

Source: Federal Reserve Bank

Craighead County Market Share
Ranked by Total Deposits as of June 2002 — Market Share as of June 30

Bank — Deposits — 2002 — 2001 — 2000 — 1999 — 1998

MidSouth Bank — $342,832 — 22.68% — 24.16% — 27.66% — 24.02% — 24.13
Union Planters Bank (Memphis) — 227,114 — 15.03% — 15.63 — 15.77% — 21.16% — 22.83
Bank of Jonesboro — 172,289 — 11.40% — 4.33 — - — - — -
Simmons First Bank — 168,243 — 11.13% — 11.05 — 11.20% — 10.57% — 10.51
Heritage Bank — 141,919 — 9.39% — 11.55 — 9.91% — 5.52% — 2.06
Regions Bank (Birmingham, Ala.) — 138,196 — 9.14% — 13.38 — 15.63% — 13.42% — 9.15
First Community Bank — 133,998 — 8.87% — 5.62% — 3.17% — 2.92% — 2.45%
American State Bank — 100,009 — 6.62% — 7.35% — 5.85% — 4.90% — 0.26%
Bank of America (Charlotte, N.C.) — 68,030 — 4.50% — 5.87% — 7.52% — 7.92% — 11.04%
First National Bank (Paragould) — 13,528 — 0.90% — 0.94% — 0.80% — 0.28% — -
Southern Bank of Commerce (Paragould) — 5,186 — 0.34% — 0.12% — - — - — -

Deposits are in thousands.

Source: Federal Deposit Insurance Corp.

 

 

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