Heartland Bank of Little Rock recorded a nearly $7.9 million loss for 2016. The lion's share of that loss occurred in the fourth quarter.
"In the last quarter, we took an additional provision to our loan loss reserves," said Joe Gregory, general counsel for Heartland Bank. "It was a prudent thing for the board to do, to guard against potential losses in the future."
The $205 million-asset lender added $7.3 million to its loan loss reserve in the fourth quarter. All told, Heartland increased its reserve against future losses by nearly $10 million during 2016.
"We would've made $2.3 million (without the additional funding to loan loss reserves)," Gregory said. "Our core earnings are still there, and we'll continue to work to build our capital."
The bank's parent company, Rock Bancshares Inc., is in the midst of $3 million stock offering to raise additional capital.
Total equity capital dropped from $29 million to $20 million during 2016. After the capital erosion, the bank's tier one capital ratio stood at 8.9 percent with a total capital ratio of 10.2 percent.
As reported first in Arkansas Business on Dec. 20, Heartland and Rock Bancshares entered a written agreement with the Federal Reserve to improve their financial soundness.
The agreement came weeks after the disclosure of the bank's $7 million delinquent loan in the Chapter 15 bankruptcy of Platinum Partners Value Arbitrage Fund Ltd. of New York.
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 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 in December with securities fraud, conspiracy and other crimes in an eight-count indictment. The Securities & Exchange Commission also launched a civil case against the men.