The continued ownership of Allied Bank by the Lex Golden family is under judicial review after a recent two-day bankruptcy hearing in Fayetteville.
U.S. Bankruptcy Judge Ben Barry will decide in the coming weeks whether Acme Holding Co. should be liquidated, resulting in the sale of Allied, the $111 million-asset bank chartered in Crawford County.
Such a sale would end nearly 30 years of ownership by the Goldens, who live in Little Rock.
The Goldens guided Allied’s rise to a $189 million-asset concern in 2010 and its subsequent fall from fiscal and regulatory grace. The former Bank of Mulberry is Acme’s only significant asset.
Acme filed for Chapter 11 reorganization last April to prevent Chambers Bank of Danville from foreclosing on delinquent loans secured by its ownership of Allied.
Led by Chambers Bank, three of Acme’s four biggest creditors believe a court-ordered sale of Allied Bank would be in their best financial interests. They believe the Goldens submitted a series of inequitable reorganization plans based on unattainable projections.
Lex Golden, chairman and CEO of Acme, and his son, Alex, chairman, president and CEO of Allied Bank, testified that they will have the bank’s balance sheets thoroughly clean by the end of the year.
This will position Allied Bank to restart dividends, with the blessing of regulators, and allow Acme to begin paying Chambers Bank and other creditors under a proposed reorganized debt structure.
“There are $80 million banks in this state that make money,” Alex Golden testified. “There are $20 million banks in this state that make money.”
“I appreciate your optimism,” James Beachboard, attorney for Chambers Bank, told Golden. “Hope springs eternal.”
Allied Bank has posted four consecutive years of losses while the Goldens worked to reduce the size of the bank to bring assets in line with its eroded capital base to achieve regulatory mandates.
The value of the banking franchise deteriorated significantly during 2011-14 as loan losses and more ate into Allied’s capital, which now stands at about $8 million.
The Goldens assert that Allied is worth $10 million based on a 1.25 multiple of book value. That figure differs from Acme filings that cite higher valuations tied to past years and better times.
The collective debt of Chambers, its C Holdings affiliate and Hildene Capital Management represents $9.5 million. The trio advocates a sale or dismissal of Acme’s reorganization.
Of the four major creditors, only Axys Capital Management favors a reorganization. Axys, which is owed $2.2 million, filed an 11th-hour letter of support for the Goldens before the April 2-3 hearing.
During the opening mo-ments of the hearing, Judge Barry referred to the two-page missive as a “hip-hip-hooray-for-the-debtor letter” by Walter Quinn, an owner of the Axys loan to Acme. Quinn is chairman, CEO and a leading investor in Rock Bancshares Inc. of Little Rock, the parent company of Heartland Bank.
“A conversion [to Chapter 7] will likely leave no possibility of a distribution to unsecured creditors because of the likelihood that [Chambers Bank] will merely credit bid all or a portion of its claim and, considering the very limited pool of possible buyers of a state chartered bank, it is unlikely that the stock of Allied Bank would fetch a sufficient sum to provide for a distribution to unsecured creditors,” noted the letter sent on Quinn’s behalf by his attorney, Rick Ramsay.
That is a perspective disputed by Chambers, C Holdings and Hildene.
As with C Holdings and Hildene, the Axys claim against Acme is labeled as unsecured, but the debt is linked with other assets.
Some filings by Acme indicate the Axys loan is secured by 10,000 shares of Community State Bank of Bradley (Lafayette County), the smallest bank in Arkansas with $19.3 million in assets. Community State is owned by Allcorp Inc., a separate bank holding company also controlled by the Lex Golden family.
Allcorp bought the bank for $3.15 million in September 2010. Community State recorded a profit of $323,000 during 2014 and an $18,000 profit for 2013.
Dividends from Allied Bank are Acme’s only meaningful revenue source to pay creditors. However, Allied is prohibited from declaring dividends under the terms of a persistent cease-and-desist order by the Arkan-sas State Bank Department and a supervisory agreement with the St. Louis Federal Reserve.
The third quarter of 2010 was the last time Allied paid a dividend to Acme.
The possibility of reinstituting dividends is subject to regulatory approval and lies somewhere in the undetermined future. It was an important question mark without a definitive answer that was haggled over during the bankruptcy hearing.
Lex Golden was asked if regulators will grant approval to declare a dividend today. “No, but I bet they will next Easter,” Golden said.
Creditors weren’t thrilled at the prospect of waiting 12 months without payment and uncertain dividend prospects thereafter.
Golden alluded to some sketchy communication that indicated federal regulators are receptive to approving dividends to service existing debt. Unanswered was why, if such approval is readily available, it hadn’t already been granted in the face of Acme’s obvious need to service delinquent debt now.
The name of Tim Bosch, a banking supervision and regulation vice president at the St. Louis Federal Reserve, was dropped by the elder Golden during his testimony.
Bosch, contacted by phone after the hearing, wasn’t sure what Golden was talking about.
Testimony by Alex Golden indicated that achieving an 11.25 percent capital-to-assets ratio in the coming months would be an important threshold to gain dividend approval from regulators.
In an interview last week, Bosch said an improved capital-to-assets ratio is no guarantee of regulatory approval to restart dividend payments from Allied Bank to Acme.
“It really depends on what the overall condition of the bank is at the time the request is made,” said Bosch. “Whether the dividends are used to pay shareholders or creditors is immaterial to us. What is important to us is whether the bank is in a position to pay dividends to anyone.”
The most recent 2015 forecast for Allied Bank by the Goldens indicated $21.2 million in classified assets would be erased by year’s end. Zeroing out the combination of nonaccrual loans and other real estate owned this year is considered unrealistic by two expert witnesses who testified on behalf of the creditors.
“To have all that happen in one year is not something I have seen in my experience,” said Landi Mkhize, who participated in two reviews of Allied Bank as an examiner for the Arkansas State Bank Department.
Mkhize, now chief financial officer at Chambers Bank, was asked for his opinion on the feasibility of the reorganization plan.
“It’s not very likely,” he said.
Mkhize noted that inaccurate short-term projections for Allied Bank by the Goldens for the fourth quarter of 2014 and first quarter of 2015 didn’t bode well for future results.
Douglas Southard of Southard Financial in Memphis, also an expert witness for the creditors, was asked if the last amended reorganization plan Acme submitted on March 29 was the rosiest of the three it has prepared for the bankruptcy court.
“It can’t be any rosier than solving all your nonperforming asset problems in nine months,” said Southard.
Acme’s one expert witness testified that loan problems at Allied Bank had bottomed out and operations were improving. But even he hedged when asked if the bank was stable and had turned the corner.
“I couldn’t guarantee that, but it’s a lot more stable than it was,” said John Dominick, a banking and finance professor at the University of Arkansas at Fayetteville.
The trio of creditors also questioned the fairness of the proposed reorganization plan, which would require them to make unequal financial sacrifices for the benefit of the Goldens.
“The shareholders are putting nothing into the plan, no contribution,” Southard said. “If the plan is successful, the shareholders are the only winners.”