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Playing in the NBA: North Little Rock bank returns to profitability, but the schism remains.

There was a small celebration in the main lobby of North Little Rock's National Bank of Arkansas on April 16.

The $29.2 million-asset bank finally was back in the black.

But the celebration was decidedly low-key.

Al Harkins, NBA's president and chief executive officer, delivered the good news to the handful of shareholders in attendance.

The directors attending the annual meeting of National Banking Corp. already had seen the numbers and done their celebrating. The other investors, however, learned for the first time that the 11-year-old bank made money during calendar year 1991.

According to Sheshunoff Information Services Inc. of Austin, Texas, NBA's $426,000 profit last year was second only to 1985's bottom-line figure of $450,000.

"It has been a long road, and this year, we've finally seen some results," says Bob Osborne, chairman of NBC and NBA.

Osborne is the largest stockholder.

"We've had enough surprises to last us a lifetime," he says.

Those who have followed the tumultuous history of this little bank with a big name know what an understatement that is.

Last year marked the end of a four-year string of losses totaling more than $2.77 million.

"NBA today represents a model of how to turn around a problem bank," Harkins claims. "We probably have the best story of any bank in Arkansas. This bank is proof that there is no need to close a problem bank or consolidate it if the bank is left in the responsible hands of local people."

Harkins is a salesman at heart.

But the story of the turnaround is anything but tidy. That helps account for the small number of shareholders who attended the annual meeting and the subdued reaction of those who did.

The attrition rate of NBA employees is 84 percent since Harkins replaced Ron Tullos as bank president. Of the 55 NBA employees in April 1989, only nine are still working at the bank.

Staff reductions cut overhead. Perhaps more importantly for Harkins, the cuts removed Tullos sympathizers from the organization.

Assets went from $61.9 million in 1986 to $28.9 million in 1991. Loan losses were responsible for draining NBA's capital base.

Many borrowers were asked to take their business elsewhere.

Harkins resigned as president and CEO of Little Rock's Eagle Bank & Trust Co. to help return the bank to profitability.

"I didn't come over just to clean it up," Harkins says. "I made a career move -- a permanent career move."

By all accounts, the board is pleased with the results so far.

Harkins was hired following a messy power struggle that erupted in 1988 and spilled into federal court. The dispute culminated in a court-ordered shareholders' meeting on March 28, 1989, that filled the NBA lobby with interested parties.

The vote split (52,958 shares to 39,686 shares) in favor of ousting Tullos, the bank's founder and president, along with five of the six remaining directors.

The costly shareholder fight added hundreds of thousands of dollars to NBA's 1989 losses.

The ownership schism and acrimonious relations between the two factions remain to this day. Even though a financial turnaround has occurred, the battle for control of NBA is far from over.

Back In Court

Wounds were reopened in March when NBC and NBA filed a $1.5 million lawsuit against Tullos and eight other former directors. The charges of negligence and breach of fiduciary duties stem from losses suffered by the bank.

Three of the original defendants, who no longer own NBC stock, have been dismissed from the suit.

Lyndell Lay, president of Charter Mortgage Co. of North Little Rock, reached a settlement on April 2.

William G. Thompson of Thompson Salvage in Jacksonville and David Shewmaker, a former loan officer at the bank, reached a settlement four days later.

Tullos and the other five former directors are staying in the fight. They filed a motion for dismissal based on the claim that a three-year statute of limitations had expired.

The other defendants are Justin Matthews III, former head of Metropolitan Trust Co. of Sherwood; Emma Hall, president of Hall Tank Co. of North Little Rock; William H. Moore, president of Moore Enterprises of North Little Rock; Loyd Stanley, president of Stanley Jewelers-Gemologist of North Little Rock; and Joycelyn Elders, director of the state Department of Health.

Bank officials threatened to sue the former directors for months before finally following through.

"I didn't think they would do it," Hall says. "To me, it's a frivolous suit. But we'll see."

The lawsuit's stated objective is to recover money for the bank. The legal action has additional objectives, though.

Ultimatums delivered to former directors indicate the bank's leadership is equally interested in recovering shares of NBC stock.

"They wanted my stock," Stanley says. "They wanted me to forgive a |$9,000~ loan to NBC, and they wanted a small amount of cash."

In exchange, bank officials said they would settle the case against Stanley, who owns the third-largest block of stock. His 7.67 percent stake -- combined with Hall's 5.14 percent, Moore's 5.07 percent and Tullos' 3 percent -- represents a sizable opposition block.

Of the remaining defendants, only Matthews doesn't hold NBC stock.

The new board controls 47 percent of the outstanding shares and needs about 3,000 shares to control a majority.

Don Parks of North Little Rock, a successful Western Sizzlin' Steak House operator, was the largest stockholder until he sold his 19.32 percent stake last year. Parks reportedly took a loss on the sale in order to remove himself from the controversy. It was a strange turn of events considering that his persistence and financial staying power made the 1989 leadership coup possible.

"It's just something I didn't need to be involved in," is all Parks will say these days. "The restaurant business is more of my line."

Some believe Parks became frightened at his lender liability exposure as an NBA director. The legal and financial problems of W.A. "Tony" Rand, who helped Parks gain control of the bank, didn't help, either.

Parks' shares were divided between Osborne, president of Southern Coating & Nameplate Inc. of Sherwood, and Charles "Skip" Davidson, president of the Davidson Law Firm of Little Rock.

Osborne increased his ownership stake from 17.18 percent to about 28 percent. Osborne's first big block of bank stock had come from Rand, a former business associate.

Coupled with some smaller buys, Davidson has increased his holdings from 3.04 percent in 1990 to about 15 percent.

The remaining NBA directors have combined holdings of less than 5 percent.

The red ink spilled at NBA from 1987 through 1990 was so great that it exceeds the combined profits of 1981-86 and 1991.

In the midst of these losses, a small original investor -- Don Parks -- stepped to the forefront. He boosted his holdings to 13.8 percent after buying out Lay and Matthews, who resigned as directors in the fall of 1987.

We welcomed Parks with open arms," Stanley says. "Before his seat on the board was warm, he started polling each of us in an attempt to throw out management -- namely Ron Tullos."

Parks was unhappy with the performance of the bank's executives and began calling in 1988 for Tullos' resignation as president.

Parks is a wealthy, no-nonsense businessman. In his world, someone should be held accountable when mistakes are made. He believed heads should roll because of the bank's losses. If that meant firing Tullos, the man who created NBA, so be it.

At the time, however, other board members believed the worst was over and that problems discovered by regulators had been remedied.

An emotionally charged shareholder battle ensued, led by Parks and ally Tony Rand. Although Parks and Rand are gone, animosity remains between rival factions of shareholders.

Answering The Call

A telephone call interrupts Al Harkins in the middle of his discourse on NBA's financial turnaround.

"Now, there's a small bank for you," Harkins says, hanging up the phone. "Someone calls up with questions about getting a car loan and ends up talking with the president of the bank.

"That's not unusual. I know most every loan in this bank."

With familiarity came contempt for loans made under Tullos' leadership.

"The 'Little Bank With The Big Heart' was doling out money left and right," Harkins says.

Tullos recently returned to North Little Rock from Memphis, Tenn., to practice law. He vividly remembers the final showdown at the bank. The outcome was expected, but Tullos hung around after the special shareholders' meeting to see what would happen next.

The Parks faction realized Tullos wasn't making a move for the door.

Harkins invited Tullos to step into his own office. There, Tullos was told to clean out his desk.

Tullos said he was too physically drained from the day's activities to pack up. He showed up the next night and boxed up his belongings. Rand sat in a nearby chair, watching him closely. Meanwhile, Harkins sat behind a desk lecturing Tullos on leaking negative information about Rand in an attempt to harm Rand's Texas business ventures. Harkins told Tullos the bank would prosecute him on the matter.

Board members lined up to watch Tullos carry out his belongings. Parks was among that group.

"What I said to them that night was, 'See you around boys,'" Tullos now says. "It was a moment of triumph for them and later humiliation for me.

"... It certainly hasn't been forgotten."

Thus Ron Tullos has his own law practice and Al Harkins runs National Bank of Arkansas -- all in the same town. It appears as if legal maneuvers will be a part of life at the little bank with the big name for some time to come.

The Battle At The Bank

North Little Rock's National Bank Of Arkansas Has A Stormy Past

April 1978: Ron Tullos -- an attorney, former bank lobbyist and Dallas banker -- returns home to North Little Rock and rents a one-room office in the Lakewood House. He intends to start a bank focusing on the needs of Pulaski County businesses and residents north of the Arkansas River.

Jan. 2, 1981: National Bank of Arkansas opens its doors following months of opposition from competing banks. Every Pulaski County bank fought Tullos' effort to obtain a charter from the Office of the Comptroller of the Currency with the exception of Commercial National Bank of Little Rock (now First Commercial Bank). The opposition was so fierce that North Little Rock businessman Richard Hall, who helped organize the bank, believed the institution would never get off the ground. Hall vowed to eat his words on television if the group was successful in obtaining a charter. "I always swore he died just so he wouldn't have to do that," his wife, Emma, says.

1985: The bank's holding company, National Banking Corp., converts to a Delaware corporation and adopts a complex set of bylaws designed to ward off unfriendly takeover attempts.

1987: Don Parks of North Little Rocks purchases the shares of two directors who are leaving the board, Lyndell Lay and Justin Matthews III. Parks later joins the board. He begins trying to force Tullos' resignation after the bank reports a $708,000 loss for the year with the expectation of additional losses. Bank regulators examine NBA's books and write a report that is highly critical of the bank's management team.

April 1988: W.A. "Tony" Rand assembles a 15.6 percent block of stock, mostly in buys from William Thompson and John Smith, who had resigned from the NBA board. Thompson was concerned about management practices and lending procedures. Parks and Rand join forces in an attempt to fire Tullos at the annual shareholders' meeting. However, they are unable to obtain the necessary votes.

Oct. 7, 1988: Parks makes a tender offer of $24 per share for NBC stock. Parks owns 13.82 percent of the holding company at the time the offer is made.

Nov. 10, 1988: Parks and Rand hold a meeting of shareholders in an effort to form a voting trust for ousting Tullos.

Dec. 28, 1988: The other board members meet without notifying Parks and unanimously vote to remove him from the board.

Dec. 29, 1988: National Banking Corp. and National Bank of Arkansas file a preliminary injunction against Parks to thwart his attempt to gain voting control. U.S. District Judge Henry Woods of Little Rock later describes the lawsuit against Parks as "a rather thinly disguised and self-serving attempt to cover up and delay discovery of the fact that the bank was poorly managed ... Statements by both sides are exaggerated, and some are in very bad taste ... The fight will continue; may the best side win." Woods orders a special shareholders' meeting for March 1989 to settle the leadership debate.

Feb. 21, 1989: During testimony before Woods, North Little Rock businessman Joe Edd Hawkins is identified as having made an overture to buy Thompson's shares and invest $1 million in new capital stock.

March 28, 1989: Tullos and his supporters on the board are swept out during a special shareholders' meeting. Al Harkins, former president and chief executive officer of Eagle Bank & Trust Co. of Little Rock, is named as Tullos' successor. Tullos later appeals Woods' decision. Oral arguments are made before the 8th U.S. Circuit Court of Appeals. The 8th Circuit rejects the appeal. The day before the shareholders' meeting, Tullos had released information that raised questions about Rand's business practices and financial stability. Harkins defended Rand's reputation. Rand later is convicted of fraud and sentenced to a prison term. Rand's financial problems make it impossible for Parks and him to recapitalize the bank.

March 1992: NBC and NBA file a $1.5 million lawsuit against Tullos and eight former directors alleging negligence. The defendants file a motion to dismiss the suit and fight efforts to have the case transferred to Woods' court. This lawsuit was preceded by Parks filing suit in Pulaski County Circuit Court against NBC and NBA to recover $111,903 in legal costs. Parks spent the money defending himself in the 1988 lawsuit designed to prevent him from gaining control of the bank.
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Title Annotation:includes related article on NBA's history; National Bank of Arkansas in North Little Rock
Author:Waldon, George
Publication:Arkansas Business
Article Type:Company Profile
Date:May 4, 1992
Previous Article:Convention and corporate meeting planner.
Next Article:A rash of robberies: Central Arkansas banks become targets for criminals.

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