“We’re like a lot of banks; people are having a hard time paying loans back,” said Reed Alexander, chairman and CEO of Union State Bank. “But it doesn’t make me feel any better that other banks are having the same problems.”
For the first time in its 107-year-old history, Union State Bank saw capital losses in 2008 of $771,000. Last year, the bank had a $6.9 million shortfall.
Because of the capital losses, Union State Bank and the Federal Deposit Insurance Corporation reached a consent agreement in January to help increase the bank’s capital flow.
The FDIC is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits and examines and supervises financial institutions for safety, soundness, and consumer protection.
“We do not comment about open or operating institutions,” said LaJuan Williams-Young, a spokeswoman for the FDIC. “We let the order speak for itself.”
According to the consent agreement, the FDIC required Union State Bank to hire an independent third party acceptable to the FDIC and the Alabama State Banking Department to help create a strategic plan to increase the bank’s capital.
“There are very few banks out there that aren’t going to receive a consent order,” said Joe Depa, vice president of T. Stephen Johnson & Associates of Atlanta, which is overseeing the capital recovery process for Union State Bank. “Most banks are under some type of regulatory order.”
He said Union State Bank responded in a pro-active manner early and is ahead of the curve in improving its capital flow.
Alexander said the bank began work last summer to improve its capital holdings, before the consent order was finalized in January.
He pointed to the economic downturn for the woes Union State Bank experienced last year.
“It’s not that we were doing a bad job, it’s the economy,” Alexander said. “We’re making progress, and we’re starting to see improvements in the economy.”
He said that because of the historic economic downturn, many people walked away from their loan obligations, and property values dropped, reducing Union State Bank’s capital holdings.
“They (Union State Bank) are in a strong position to move forward when the economic climate improves,” Depa said. “He (Alexander) is sitting on some good property. ... It’s a good problem to have.”
Alexander said problem loans were spread throughout Union State’s banking areas.
Union State Bank has branches throughout Alabama and in Florida.
But Depa said Florida was where Union State Bank suffered most of its capital losses.
“His problem loans were mostly in Florida, not Pell City,” Depa said. “The good news is he didn’t have a lot of loans in Florida.”
He said the loans Union State Bank provided for land development and property purchases were sound investments.
“You would still make those same kinds of loans today,” Depa said. “It’s just the economy, a sign of the times.”
According to the consent order, Union State Bank has until the end of June to increase its capital holdings.
Depa said that deadline is not set in stone.
“Regulators want to see a plan in place and see the bank working toward that goal,” Depa said. “He (Alexander) has a very strong management team in place who have done the right things to address this problem. … We think Union State Bank has a loyal customer base and is in a good position to move forward.”
Alexander said the bank wants to raise capital to help the bank achieve a positive position.
He said there are plans to raise $4 million to $10 million in additional capital through stock offerings.
“I think Union State Bank has a bright future,” Depa said. “With some of the banks we’re working with, I couldn’t say the same thing.”
Union State Bank was founded in 1903 and has 14 banking offices from central Alabama to southwest Florida. The bank employs about 105 employees. Union State Bank has nearly $300 million in assets.