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FDIC releases last-ditch efforts to save First Southern | Business

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FDIC releases last-ditch efforts to save First Southern
FDIC releases last-ditch efforts to save First Southern

By Gwen Moritz, courtesy http://www.arkansasbusiness.com/


BATESVILLE, Ark. - In the days before it took receivership of First Southern Bank, the Federal Deposit Insurance Corp. was pumping out demands that the Batesville bank come up more than $20 million in new capital.

Orders made public on Friday show that the FDIC had placed First Southern in its "critically undercapitalized" category on Tuesday, Dec. 7. That was just 10 days before the bank was closed by the Arkansas State Bank Department and turned over to the FDIC for acquisition by Southern Bank of Poplar Bluff, Mo.

According to the "supervisory prompt corrective action directive" that was released Friday, a Sept. 20 examination of First Southern found the bank not merely undercapitalized but deeply insolvent, with risk-based capital of negative 4.02 percent and tangible equity of negative 3.01 percent.

At the time, First Southern claimed to have $19.25 million in capital for a more-than-healthy risk-based capital ratio of 15.16 percent thanks to an injection of $5.5 million from majority shareholder Kevin Lewis and his PA Alliance Trust. First Southern's had assets of almost $192 million as of Sept. 30.

But the FDIC examination had discovered that the $22.7 million worth of rural improvement district bonds that Lewis had sold First Southern as investment securities were fraudulent.

On that first Tuesday in December, the FDIC gave bank officers three days -- until Friday, Dec. 10 -- to come up with a plan to recapitalize the bank and 10 days to actually have the money in hand. Still, the language of the order made it clear that federal regulators didn't expect it to happen.


"Based on the 2010 examination, the bank’s capital condition is rapidly deteriorating. Further, Bank management has not demonstrated the ability to return the Bank to a safe and sound condition."

On the same day it issued the corrective action directive, the FDIC entered into a consent order with First Southern that set an even earlier deadline, Dec. 15, for restoring the bank's risk-based capital to 11 percent of assets.

Among other things, the consent order ordered First Southern not to purchase any securities, or accept any securities as collateral, that "have not been rated investment quality by two nationally recognized rating services."

At least six other banks in Arkansas are known to have accepted Lewis' bogus bonds as collateral on loans.

(Copyright 2011 Arkansas Business Limited Partnership. All rights reserved.)