In what is not a surprise to anyone watching the Arkansas banking sector, the Arkansas State Bank Department announced late Friday (Sept. 23) that it took possession of Mulberry, Ark.-based Allied Bank, and entered into an agreement with Today’s Bank to acquire Allied Bank’s deposits.
The deal between the state bank agency and Huntsville, Ark.-based Today’s Bank – which has $125 million in assets – protects the depositors with Allied Bank. Depositors of Allied Bank automatically become depositors of Today’s Bank and will be able to access their accounts at the former main office and branch locations of Allied Bank.
Customers of the former Allied Bank can continue to access their accounts through automated teller machine transactions, checks, and debit transactions.
“This transaction in no way reflects a weakened condition of the Arkansas banking system or the Arkansas economy,” Candace Franks, Arkansas Bank Commissioner, said in a statement. “This was the result of poor quality loans and bad business decisions.”
In the statement was also a reminder that depositors are insured by the Federal Deposit Insurance Corp. (FDIC) up to $250,000. Special rules are in place for certain types of accounts that may further expand deposit insurance coverage.
According to an FDIC statement on the transaction, the estimated cost to the Deposit Insurance Fund (DIF) will be $6.9 million.
“Compared to other alternatives, Today’s Bank’s acquisition was the least costly resolution for the FDIC’s DIF. Allied Bank is the fifth FDIC-insured institution to fail in the nation this year and the first in Arkansas. The last FDIC-insured institution closed in the state was First Southern Bank, Batesville, Arkansas, on December 17, 2010,” noted the FDIC statement.
Banking consultant John Dominick said after Friday’s news that Today’s Bank likely got a better deal by waiting and assuming the deposits from the FDIC, given it no doubt got a discounted price along with guarantees and loss share agreements which are typical for banks acquiring failed institutions. Dominick, who in the past has conducted consultant work for Allied Bank, said Larry Olsen and other Today’s Bank managers are good bankers.
“It’s unfortunate for the bank owners, including employees who owned shares through Allied Employee Stock Ownership Plan. When a bank fails the underlying stock becomes worthless,” Dominick, who is a professor at the University of Arkansas and a director in Signature Bank, told Talk Business & Politics.
Allied Bank saw its delinquencies increase to more than $5.13 million as of June 30. The bank incurred a $4.495 million loss in the first half of 2016, more than double the loss the bank took last year. Capital equity fell critically low to $1.321 million in June, putting the capital ratios below the threshold for bank closure.
Dr. Tim Yeager, Arkansas Banking Chair at the University of Arkansas, said when the Tier 1 capital ratio falls below 2% the situation to raise capital is dire from a regulatory standpoint. The 1.8% Tier One ratio of Allied Bank dropped below the 2% mandated level as of June 30. He said in such cases the holding company is mandated to raise capital or the Federal Deposit Insurance Corp. (FDIC) will take control when it becomes clear a bank can’t raise its critically low capital. The bank also is in violation of a cease and desist order from the State Bank Commission which calls for Tier 1 capital to remain above 10%.
Allied Bank’s holding company Acme Holdings is in the midst of Chapter 7 liquidation after failing to reorganize its debts in a Chapter 11 filing in 2014. The bank trustee could be looking for a way to sell the bank to the highest bidder in order to satisfy the secured loans made by the holding company.
Allied Bank’s assets fell to $66.336 million, and as of June 30 the bank has more than $9 million in other real estate owned on its books, in addition to the $5.13 million in delinquent loans. With capital levels down to $1.8 million, and more write downs likely, many in the banking community said such an action was likely.
Allied Bank had previously tried to sell some of its branches to Today’s Bank, which would have raised about $2 million, but Danville, Ark.,-based Chambers Bank objected to the sale. Chambers Bank contested Acme’s bankruptcy filing because Chambers is on the hook for more than $6.013 million in secured loans made to the bank and holding company between 2009 and 2010.