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One Bank & Trust Capitalization Plan Forms

4 min read

Little Rock’s One Bank & Trust hasn’t generated a normal quarterly profit since the Office of the Comptroller of the Currency ousted Layton “Scooter” Stuart as CEO in September 2012.

That fiscal situation finally could change during the second half of this year. Resolving debts associated with the bank’s troubled parent company, OneFinancial Corp., are in the forefront. Efforts to recapitalize One Bank to enhance its balance sheet capabilities are following close behind.

“We’re stable today, but we would be a whole lot more stable,” said Jerry Pavlas, brought in as CEO after Stuart’s forced exodus. “We’ve done a lot of the base work, and we already have one or two investment bankers lined up. But you really want to get the BHL suit done.”

The $324 million-asset lender is close to wrapping up one more costly legal entanglement left by Stuart: Delinquent debts owed to the J.B. Hunt family’s BHL Financing LLC for purchasing the bank and more.

Finalizing a settlement involving One Bank, the U.S. Treasury, the Department of Justice and trucking heiress Johnelle Hunt appears to be close at hand.

“We hope to accomplish this by the end of May,” Pavlas said. “We don’t see any issues there. We’re just waiting on regulatory approval. Treasury and Justice need to approve it. Everyone’s working toward the settlement, and it’s very, very friendly.”

After landing a $14.7 million default judgment against OneFinancial Corp. in September, Hunt’s BHL Financing sued One Bank. The action represents a second lawsuit to collect on financial guarantees made by Stuart, who died in March 2013.

The guarantees are tied to an October 2002 reworking of $30 million of debt amassed by Stuart in business dealings with Hunt’s late husband, J.B. Hunt, founder of J.B. Hunt Transport Services Inc. of Lowell.

The debt restructuring was orchestrated through various Stuart-controlled ventures, including One Bank and OneFinancial Corp.

A July 2015 lawsuit brought against the bank and Pavlas by former One Bank Senior Vice President Donna Adams is another legal loose end. Jim Schnoes, One Bank’s chief financial officer, also is named as defendant.

Adams is suing to regain her share of the bank’s supplemental executive retirement plan. She claims the benefit was wrongfully taken from her when she left the bank in January 2014 under duress.

In response, the bank claims Adams lost her SERP benefits because of professional misconduct associated with Scooter Stuart mishandling funds that flowed through the bank.

Post-Stuart operations at One Bank have been hampered by extraordinary legal fees, which topped $800,000 annually 2013-15. The pace didn’t slacken this year, with a first-quarter tab of $258,000.

“We have a real good commercial pipeline that we’re being real careful with now because of the capital front,” Pavlas said. “The other thing is mortgage banking. We had to pare that back, and we’re nowhere near the capacity of what we could do. This bank has a track record of not having hardly any repurchases.”

Adding about $13 million to capital would allow One Bank to reach a 9 percent cap and nearly double its legal lending limit to about $4.5 million.

Additional funds from private investors could be used to pay a final settlement with the U.S. Treasury on money that flowed to the bank from its parent company.

At the last reckoning, OneFinancial could owe as little as $9.6 million to Uncle Sam. However, that figure discounts any interest paid or outstanding interest owed on the $17.3 million provided through TARP’s capital purchase program.

The holding company last made a TARP payment in February 2012.

“We’ve been working with Treasury on the TARP obligation and working with them on recapitalization of the bank,” Pavlas said. “We want to remain an independent community bank. That’s what everyone wants, including Treasury.

“I’m happy with the progress we made. We’ve overcome a lot of hurdles to be where we are.”

What happens to the investors in OneFinancial’s trust-preferred securities who hold an $8 million claim?

“That’s up to Treasury,” Pavlas said. “Legally, there won’t be enough money at the holding company level unless Treasury elects to give them something. Then, the holding company pretty much goes away, with a stand-alone bank or a new holding company formed.”

One Bank & Trust

Jerry Pavlas was named CEO after the Office of the Comptroller forced the removal of Layton “Scooter” Stuart on Sept. 28, 2012.

    Total Assets Equity Capital Net Income
2012 3Q $454,486 $26,770 -$1,154
  4Q $439,726 $22,872 -$4,145
2013 1Q $423,098 $19,918 -$2,954
  2Q $400,793 $18,746 -$707
  3Q $393,018 $16,404 -$1,306
  4Q $378,531 $14,737 -$1,686
2014 1Q $377,206 $13,763 -$1,195
  2Q $374,964 $16,792 $2,399*
  3Q $358,038 $16,855 $106**
  4Q $343,464 $15,578 -$898
2015 1Q $332,652 $14,066 -$1,474
  2Q $326,129 $12,785# $167##
  3Q $329,386 $18,939 $2,919
  4Q $325,945 $17,599 -$2,507
2016 1Q $324,365 $16,736 -$1,356

*Reflects a $3 million extraordinary item, money released from seized assets of Layton “Scooter” Stuart held by the U.S. government. The cash came from the life insurance payout on Stuart, One Bank’s former owner and CEO, which reimbursed the bank for premiums paid on the policy.

**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 net unrealized loss of $978,000 on available-for-sale securities.

##Reflects a $403,000 gain on the sale of mortgages on the secondary market.

Reflects a $6.9 million extraordinary item, money from the final settlement of the life insurance payout on Stuart.

Source: Federal Deposit Insurance Corp. All dollars in thousands.

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