A bureau of the U.S. Department of the Treasury found the practices in early June at Alabama Trust Bank.
Alabama Trust Bank had “enforcement action” taken against them by the Office of the Comptroller of Currency in June, according to OCC media relations.
Two founding members of the Board of Directors, James Clark and bank president Harold Dickson, resigned 10 days later.
A written agreement between the bank and the OCC, dated June 5, was drawn up to bring the bank into compliance. Article three of the agreement, the Conflict of Interest Policy, dealt with people directly involved with the bank and their “related interests.”
Clark said there had been several loans between a person at the bank and a relative.
“Well, that was identified,” he said. “It had to do with an officer there at the bank and a relationship with a family member.”
When asked if the officer was the man who left the bank the same day, Clark said yes.
Dickson said there was a disagreement between him and others about the loans.
“I don’t believe I did anything inappropriate,” Dickson said.
He declined to comment further on the issue.
Both Clark and Dickson resigned on July 15, according to Clark.
Clark said he elected to resign after speaking with other board members and that it was “not specifically” linked to the practices in question.
“The board, I think they just wanted to go in a different direction,” Clark said. “I had nine years and it was time for me to leave, I felt. 32 years in the industry and nine years there — that was enough.”
The bank has been designated as being in “troubled condition” by the OCC. The agreement cited the violations of two U.S. Codes, 84 and 161, under Title 12.
Code 161 deals with reports that are required to be made to the OCC. Code 84 covers total loans and extensions of credit by a banking association.
Clark said a loan was called into question because of a recent change in the bank’s tax status.
“When the regulators came in there was one loan that was over the legal lending limit of the bank,” Clark said. “That resulted after we elected to go to a Subchapter S, which the [OCC] approved. But that reduced the level of capital that we had, and that’s what caused that loan to be over the legal lending limit.”
A Subchapter S refers to a corporation that has elected a special tax status with the IRS, according to the Web site, legal-database.com. It allows income to be passed on to the shareholders without being taxed twice. Owners also file profits and losses on personal tax returns.
The agreement called for several steps Alabama Trust must take in order to operate in compliance with the OCC.
The June 5 agreement gave the bank 30 days to appoint a compliance committee of at least three members. No more than one could be an employee or controlling shareholder of the bank.
The committee was responsible for monitoring the bank’s activities in accordance to the agreement.
The bank was also given 60 days to implement an “independent, internal audit program.” The program responsibilities would include detecting irregularities and weak practices in operations.
Several other steps were required, including an asset diversification program and a revised lending policy. All requirements had to be met in 90 days or less.
The agreement was signed by board members O. Harmon Allen, C. Michael Billingsly, Billy W. Cosper, Timothy H. Orton, Robert L. Rumsey III, Charles M. Vawter, Clark and Dickson.
Current bank president Dennis Buckner was unavailable for comment on the matter.
As of press time, The Daily Home was unable to confirm if Alabama Trust Bank was in compliance with the June 5 agreement.