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We’ll say it once again … a boom is a lot more fun than a bust.

Another Louisville-area bank is out from under the thumb of federal regulators, regulators who stepped during the dark days of the Recession after both the residential and commercial real estate bubbles burst.

The Federal Deposit Insurance Corp. has terminated its consent order with Citizens Union Bank of Shelbyville after more three and a half years.

This is a notable turn of events because this little community bank was one of the first Louisville-area banks to run into big problems, problems so severe CUB was on everyone’s bank “death watch” list. (In fact, only two Kentucky banks have failed since 2008, one of them – Irwin Union Bank – was only domiciled in Kentucky, with no operations here.)

It’s a brand new day, said David Bowling, CUB president.

“We’re profitable. We’re not totally where we want to be, but we’ve had eight months of profitability,” Bowling said in an interview Wednesday afternoon.

According to BankTracker, an investigative service of American University and NBC News.com, CUB produced a profit of about $455,000 for the first quarter of 2013 compared to a $600,000 loss for the same period last year. That ended three years of losses.

It’s a dramatic turn around.

Bowling said the bank’s “Texas Ratio” of troubled assets divided by its equity and loan-loss reserves once reached 100, or a 1-to-1 ratio, but has since improved to 54. Simply put, the bank has a bigger pot of operating capital and reserves, and a declining amount of troubled assets.

CUB’s capital to risk-weighed assets ratio dropped to 6.99 on December 31, 2009, according to a CUB news release, waaaaay below the FDIC’s requirement of 11.5.

The bank still has between $12 million and $14 million in real estate owned on the books. But interest in those heavily discounted properties “is higher than it’s been in a long time,” Bowling said.

“Getting back to higher (asset) levels has been difficult for us, and I think for all small community banks,” Bowling said, adding that CUB “hasn’t turned its back ” on borrowers, continuing to lend through the crisis.

Community banks, unlike large commercial and industrial banks such as Republic Bank & Trust Co., have a limited number of profit centers – essentially consumer loans, collateralized business loans and real estate.

In the three years, CUB has increased it asset quality while working through non-accural assets.

From the CUB news release announcing the end of the consent order:

Since entering into its Consent Order CUB’s Management has made numerous changes to improve the Bank’s operations and risk management capabilities. They revamped lending policies and procedures, enhanced credit monitoring and control processes, strengthened lending and management staff and worked aggressively to resolve problem loans. Management, along with the Board of Directors, also recognized the need to focus more on business lending and reduce its reliance on residential real estate loans.

CUB’s consent order dates back to January 2010. A consent order is a formal agreement between banks and regulators. FDIC officials give banks lists of required changes to make under tight deadlines including increasing credit quality, capital, earnings and liquidity, as well as – shall we say – pruning back the management that got them into hot regulatory water.

(Only two Louisville-area banks remain under consent orders – Louisville-based PBI Bank and American Founders Bank, based in Lexington.)

As it happens, I wrote about the CUB consent order as a reporter for Business First.

From the post then:

Federal regulators have cited Citizens Union Bank of Shelbyville Inc. for a multitude of problems, including too much concentration in residential real estate and and insufficient capital.

Long-departed CEO Billie Wade told me at the time that CUB was small bank that became too heavily involved in lending to residential real estate developers, especially along the Shelbyville Road corridor, 20 miles east of downtown on the Shelby County/Jefferson County line.

I found CUB’s news release yesterday about the consent order being lifted to be refreshingly clear, detailed and candid:

Here are excerpts from that release, which make extremely interesting reading in the context of the overall economy:

As a result of the “Great Recession” and the following collapse of the housing market, numerous banks throughout the country were placed under formal Consent Orders by the regulators. Many banks were not able to survive and many others continue to operate under regulatory restrictions. At March 31, 2013 there were 612 banks on the FDIC’s “problem bank” list and 444 banks had failed since 2008.

Like many community banks, CUB had historically focused on loans to support the purchase and development of residential housing in the communities it serves. CUB’s Consent Order was primarily the result of the impact the recession had on its borrowers, many of whom were real estate developers, who struggled to keep their loans current when the housing market dried up. CUB incurred losses from 2009 through 2012 and saw its past due loans reach a high of 13.58% of total loans in April of 2010. Regulatory capital, a key measure of a bank’s financial health, also dipped to a low of 6.99% on December 31, 2009.

At June 30, 2013 past due loans were 3.38%, regulatory capital stood at 9.28% and the Bank has been profitable in each month of 2013 earning net income of $859,000.

“It has taken everyone involved for the Bank to recover in such a short period of time” added Darryl Traylor, CEO. “Also, unlike many banks that have gone under Consent Orders, we were fortunate in that we did not have to take TARP money or any other type of government bailout in order to recover.”

The termination of the FDIC regulatory restrictions come as CUB celebrates its 125th anniversary.

“Not many banks can say they survived the Great Depression and the Great Recession but it’s a testament to our employees and our customers that we have made it through successfully,” Bowling stated in the release.

CUB has 186 employees in 15 locations throughout the Shelbyville, Louisville and Central Kentucky areas.

Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.


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