Federal regulators have for the first time during this recession issued a formal agreement ordering a Nashville-area bank to improve its operations.

In a wide-ranging memorandum, Fed officials have instructed executives at MidSouth Bank in Murfreesboro to improve the board's oversight of the bank's lending and risk management practices, upgrade its processes for dealing with problem loans and draw up a plan to hold appropriate levels of capital.

MidSouth, which was founded in 2003 and has assets of about $240 million, posted a profit of $554,000 in the first half of 2010, sharply reversing its 2009 performance. The bank lost more than $5 million last year as its number of past-due loans more than triple to almost 7 percent.

Bank President Dallas Caudle said the agreement with the Fed stems from a September 2009 examination and that his team has addressed a lot of the factors turned up at the time.

"Everything we’ve done since that time has been very positive," Caudle said. "We’ve raised capital and cut costs. We’ve done everything the Federal Reserve would expect you to do [...] We’ve got everything moving in the right direction."

MidSouth has sold almost $5 million of stock so far this year, lifting its total capital to about $23.5 million as of June 30. Though execs had initially looked to raise $15 million, the raise lifted their capital ratio well above regulators' standard minimums.

The Fed also has told MidSouth officials to draw up a written plan to get its loan loss reserves in order. In the first quarter, the bank's bottom line improved dramatically in large part because its leaders allocated a much smaller provision to cover future loan losses even though the ratio of noncurrent loans to total loans stayed above 6 percent.