Colonial Bank working to boost capital levels

Published 10:23 pm Tuesday, March 10, 2009

Though Colonial Bank received an informal notice calling for tighter federal banking regulations, local depositors likely have little cause for concern.

In their annual report, Banc Group and Colonial Bank said they have entered into an “informal memorandum of understanding” with the Federal Deposit Insurance Corp. and the Alabama State Banking Department to improve capital levels.

The need to boost capital comes after the bank’s stocks traded at less than $1 per share, Tuesday trading as low as 41-cents per share.

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While Superintendent of Alabama State Banks John Harrison said he could not discuss the specific notice with Colonial, he said in general, this type of notice is no cause to lose confidence in local banking.

“Most of the time, its an informal statement with the bank and its board,” Harrison said. “Absolutely no depositor has any risk of loss because of FDIC coverage of any bank in Alabama.”

The annual report stated Colonial Bank had met minimum capital requirements at the end of 2008, but the memorandum will call for an increase in capital by March 31.

Harrison said banks have been finding themselves in this type of situation usually as a result of the national economy, as well as the mortgage and prime lending crises.

The attention comes, as the report reads, after the bank has continued to experience losses and had declining stock prices.

But, Alabama banks, he said, have even less to worry about than others around the country.

“Our banks in Alabama have been very well capitalized historically,” Harrison said. “If you look at some sister states across the states, there have been some institutions that have failed. We do not anticipate that being the case in Alabama at this time.”

But, if Colonial does not meet the capital standards in time, the restrictions on banking could become more strict, becoming subject to greater supervision and additional restrictions, according to the annual report.