The Federal Reserve has ordered Mulberry-based Allied Bank to raise more capital or sell itself.
The order -- a "prompt corrective action" -- was issued Monday, but the Federal Reserve did not publicize it until it issued a news release Thursday. The bank has a month to comply.
"This is the type of directive issued by federal bank regulatory agencies when a bank fails to meet minimum capital requirements required to continue operating," said Garland Binns, a Little Rock banking attorney.
The Federal Reserve said Allied Bank "is critically undercapitalized."
Allied Bank had a capital ratio of 1.8 percent in the second quarter. It is not unusual for a bank to receive such an order when its capital ratio drops below 2 percent. The order is generally considered a last warning from a regulator.
The bank has reported a loss every year since 2011, totaling more than $13 million, including a loss of $3.7 million in the second quarter this year.
The bank's assets have dropped from $175 million in 2012 to $66 million on June 30 this year.
According to the Federal Reserve order, on Aug. 11, Allied Bank's board adopted a resolution directing Alex Golden, the bank's president, to comply with the order.
Unless the Federal Reserve extends the time, the bank has until about Sept. 14 to comply. Unless it increases its capital or finds a purchaser, the bank c̶a̶n̶n̶o̶t̶ ̶a̶c̶c̶e̶p̶t̶ ̶n̶e̶w̶ ̶d̶e̶p̶o̶s̶i̶t̶s̶ ̶w̶i̶t̶h̶o̶u̶t̶ ̶w̶r̶i̶t̶t̶e̶n̶ ̶a̶p̶p̶r̶o̶v̶a̶l̶ ̶f̶r̶o̶m̶ ̶t̶h̶e̶ ̶F̶e̶d̶e̶r̶a̶l̶ ̶R̶e̶s̶e̶r̶v̶e̶ can accept new deposits but cannot pay interest rates on new deposits that exceed the prevailing rate in the area where its branches are located*, and cannot pay bonuses or increase pay to senior executive officers.
Golden did not return a phone call seeking comment.
Candace Franks, commissioner of the Arkansas State Bank Department, declined to comment about the federal regulator's action against Allied Bank.
In April 2014, Acme Holding Co., the parent company for Allied Bank, filed for Chapter 11 bankruptcy protection. In July last year, it converted to Chapter 7 bankruptcy liquidation.
Allied Bank has been in financial trouble since before May 2012, when it was first sanctioned by the Federal Reserve.
Acme and the bank's employee stock ownership plan also were included in the 2012 federal sanction.
The bank's problems were related to the weakening economy and to loans made to Kevin Lewis, a former Little Rock attorney convicted of bank fraud in 2011, Golden said after the 2012 sanction. Lewis' scheme led to the closure of First Southern Bank of Batesville and cost other banks in the state several million dollars.
Allied Bank made loans totaling $3.25 million to Lewis, Golden said. The bank lost a significant amount of that money but not all of it, Golden said in 2012.
Two Arkansas banks have failed since 2000 -- ANB Financial of Bentonville in 2008 and First Southern Bank of Batesville in 2010.
Nationally, only three banks have failed this year.
Business on 08/20/2016
*CORRECTION: As part of a Federal Reserve sanction, Mulberry-based Allied Bank can accept new deposits but cannot pay interest rates on new deposits that exceed the prevailing rate in the area where its branches are located. This article incorrectly described the limitations on new deposits.