A change of ownership is in motion for Little Rock’s One Bank & Trust. The U.S. government has asked for a court-ordered stock sale of controlling interest in the $305 million-asset bank.
No date has been set for the sale, but a proposed order indicates the sale will be held at the Marshals Service office at the federal courthouse in Washington.
Court filings reveal several parties that have expressed an interest in possibly acquiring One Bank: Bank of England, First Financial Banc Corp., parent company of El Dorado’s First Financial Bank; EJF Capital LLC of Arlington, Virginia; Home BancShares Inc. of Conway and Arvest Bank of Fayetteville.
“Half a dozen have looked at the bank,” said Paul Berry, chairman of the board at One Bank. “Some have performed due diligence and some haven’t.
“There are several potential suitors still in play, at least three or four, maybe five.”
For now, ownership of One Bank continues to reside with its insolvent parent company, OneFinancial Corp. The 344,577 shares held by OneFinancial represent a 99 percent stake in the struggling bank.
Rocked by bad loans and mismanagement, One Bank hasn’t produced a normal quarterly profit since the Office of the Comptroller of the Currency ousted Layton “Scooter” Stuart in September 2012.
Stuart, chairman, president and CEO of the bank and OneFinancial at the time, once controlled the shares now in play. He died on March 26, 2013.
The stock has been held in escrow since it was seized by U.S. Marshals on Nov. 3, 2015. The seizure was made in advance of the Department of Treasury obtaining a massive default judgment against OneFinancial on Jan. 11, 2016.
“They are the de facto owner of the bank,” said Berry, a One Bank director since 2001.
Treasury’s $47.9 million judgment represents the balance of a triple-damage award tied to its TARP funding fraud claim.
Under Stuart’s direction, OneFinancial obtained $17.3 million in TARP funds to stabilize One Bank’s deteriorating capital.
The government claimed the bank’s true financial condition was misrepresented to gain the much needed funding and that some TARP money was illegally spent by Stuart.
The TARP debt alone, without the multiplying effect of the default judgment, exceeds the value of the only asset of OneFinancial: One Bank & Trust.
Another OneFinancial liability is $8 million of trust-preferred securities issued in 2004 and in 2006.
TruPS payments can be deferred up to five years without a technical default. The clock on OneFinancial’s deferral runs out this year, said Bob McPherson, managing director in the Memphis office of StoneCastle Financial Corp.
“We will fight to uphold the integrity of the capital structure,” McPherson said. “We make our living investing in banks, not pushing them into bankruptcy or some unrealistic collection effort.”
Jerry Pavlas, CEO of One Bank, believes that if Treasury takes over ownership of the bank shares, it will effectively wash out the TruPS debt and free the stock from any security claim.
“Which we’re good with because this creates a clear path to consummate a deal,” Pavlas said.
In addition to a possible sale, Pavlas has worked on potential deals to recapitalize One Bank with an investment group composed of institutional and private investors.
Pavlas, who was hired to replace Stuart, could reap added reward through stock options granted to the key executive management at One Bank.
“We have stock options that we’ve earned over the past five years,” he said. “We’re minority shareholders.”
But whether that’s 2 percent or 49 percent is unknown. Pavlas declines to disclose the size of the minority position.
Who else was granted options besides Pavlas and Jim Schnoes, executive vice president and chief financial officer?
“I’d rather not say,” Pavlas said.
One Bank & Trust, Little Rock
Full-Service Locations: Little Rock 7; North Little Rock, 1
(All dollars in thousands)
|Quarter Ending on||Total Assets||Equity Capital||Noncurrent Loans*||Net Income|
|Sept. 30, 2012||$454,486||$26,770||$16,287||-$1,154|
|March 31, 2013||$423,098||$19,918||$16,908||-$2,954|
|March 31, 2014||$377,206||$13,763||$8,113||-$1,195|
|March 31, 2015||$332,652||$14,066||$5,611||-$1,474|
|March 31, 2016||$324,365||$16,736||$5,975||-$1,356|
*Loans that are 90 days or more past due.
**Reflects net unrealized loss of $978,000 on available-for-sale securities.
#Reflects a $3 million extraordinary item, money released from seized assets of Scooter Stuart held by the U.S. government. The cash reimbursed One Bank for premiums paid on the life insurance policy of Stuart, former owner and CEO of One Bank.
##Reflects a $1 million settlement the bank received in a lawsuit against Travelers Indemnity Co., an affiliate of St. Paul Mercury Insurance Co. The dispute was tied to One Bank’s efforts to collect $2 million on its financial institution bond for coverage that included “dishonesty of employees.”
+Reflects a $403,000 gain on the sale of mortgages on the secondary market.
++Reflects a $6.92 million extraordinary item, final settlement release of seized assets of Scooter Stuart held by the U.S. government.
Two dormant lawsuits at One Bank were restarted recently. One dates back to 2013 against its former chief financial officer, Tom Whitehead. The other against its parent company, OneFinancial Corp., dates back to 2014.
On March 31, One Bank filed a motion for summary judgment against Whitehead with allusions to and excerpts from his testimony during the October 2016 criminal trial of two former colleagues, Michael Heald and Brad Paul.
Heald, former chief operating officer, and Paul, former executive vice president, were acquitted of charges they helped conspire to defraud the U.S. government in association with obtaining $17.3 million in TARP funds for One Bank. Whitehead was given immunity in exchange for his testimony during the three-week trial.
One Bank’s case against Whitehead, filed on May 20, 2013, began as an $84,000 debt-collection suit and escalated into counterclaims, amended claims and amended counterclaims. One Bank first sought $62,000 owed on a loan and unpaid interest plus more than $20,000 owed on a One Bank Visa account.
Whitehead counterclaimed that the debt was tied to a lease agreement the bank allegedly breached on a Mountain Harbor condominium near Lake Ouachita. One Bank “compelled him” to buy and take on debt associated with the condo for the benefit of the bank, according to Whitehead. The condo debt was to be repaid by monthly lease payments from the bank.
One Bank responded with an amended complaint against Whitehead for aiding and abetting Scooter Stuart in defrauding the bank of more than $2 million. The bank also alleged that Whitehead personally profited from the condo deal.
About a $1 million went to Stuart, the bank claims, and the remainder was tied to alleged damages from two fraudulent loans orchestrated to buy homes for his son and daughter.
In his amended counterclaim, Whitehead alleged the bank owes him $1.5 million from its senior employee retirement plan.
One Bank denied the claim, saying that Whitehead forfeited his SERP benefits when he was fired “for just cause” on Dec. 27, 2012.
The case was put on hold a month before the start of a trial scheduled for May 2015 in Pulaski County Circuit Court. The catalyst for the extended continuance was an expected criminal trial involving Whitehead.
He was indicted with Heald and Paul. However, the charges against Whitehead were dropped as part of his deal with federal prosecutors.
A fourth defendant, former One Bank EVP Gary Rickenbach, was sentenced to two years of probation and 100 hours of community service in December as part of a plea agreement.
Last month, One Bank also renewed its pursuit of more than $700,000 in damages against OneFinancial, the lone defendant remaining in the civil case.
The original defendants in the lawsuit included Rivercity Energy Co., Richard Torti Sr., as successor trustee of the Stuart Family 1997 Trusts, Richard Torti Sr., as personal representative of the estate of Layton P. Stuart, deceased, Tom Whitehead and JAS Properties LLC.
In its original complaint filed after Stuart’s death, One Bank claimed OneFinancial was an alter ego of Stuart that he used to defraud the bank he owned.
A default judgment appears to be a forgone conclusion. The rudderless bank holding company has no money and no one at the corporate wheel.
Pavlas and Berry couldn’t explain what the bank hopes to gain from a judgment against its insolvent parent company. They said it was something that just needed to be done.