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Santa Lucia Bank facing regulatory deadlines

May 19, 2011

By KAREN VELIE and LISA RIZZO

Santa Lucia Bank has been ordered to increase its shareholder equity by $12 million in less than three months in a state enforcement action — a challenge in the face of plummeting stock prices.

The Atascadero based bank’s stock prices have fallen from $8.15 a year ago to a current 42 cents.

The consent order, issued by the California Department of Financial Institutions (DFI), also requires that the bank’s board of directors develop, adopt and submit a plan to correct the financial institution’s under-capitalized condition which could include increasing equity or finding a strategic partner.

The latest regulatory action follows a DFI examination of Santa Lucia Bank’s 2010 fourth quarter financial reports.

In a statement issued on May 6, Santa Lucia Bank said it anticipated the consent order and has been working toward the required goals “for some time.”

However, the statement continued, “While the bank is moving diligently to comply with the order, there can be no assurance that full compliance will be achieved. As a result, the bank could become subject to further regulatory restrictions or penalties.”

In its 2011 first quarter report released Monday to the U.S. Securities and Exchange Commission, Santa Lucia Bank disclosed it lost $409,000 in the January-through-March period, an improvement over the bank’s 2010 losses.

Bank officials said in their filing that the bank’s first-quarter loss narrowed from $1.2 million for the October-through-December quarter compared to a loss of $9.1 million for the same period the year prior.

Santa Lucia Bank, which operates four branches in San Luis Obispo and Santa Barbara counties, reported a 2010 net loss of $14.8 million.

In an agreement with federal regulators signed late last year, the board was ordered to improve oversight of the bank’s management staff, operations, lending, and increase asset quality and capital.

During an examination of the bank last year by the Federal Reserve Bank of San Francisco, regulators discovered that an originally reported loss of $1.9 million for the first quarter of 2010 was incorrect and that the actual amount was approximately $9.1 million.

In the first quarter of 2011, the bank reported it had $25.9 million in non-performing loans, referring to loans in which borrowers were behind on their payments by at least 90 days.

A commonly used measure of a bank’s credit woes, the Texas Ratio, identifies Santa Lucia Bank as at risk of failure.

The ratio is determined by dividing the value of the lenders non-performing assets by its capital and loan loss reserves. The Texas Ratio developer, Gerald Cassidy, used the measure to successfully predict many bank failings early in the 1980 and 1990 recessions. He noted banks tended to fail if the ratio reached 100 percent.

In the last quarter of 2010, Santa Lucia Bank’s Texas ratio was 108 percent.


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The Atascadero based bank’s stock prices have fallen from $8.15 a year ago to a current 42 cents.,,,,,

I wonder how much the CEO took home last year?


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This is what happens when we allow Fractional Reserve Banking – it only encourages greed, always has.


If you really want to sink your teeth into this, check out The Money Masters – but be warned, it’s as scary as it is dry. Quite the eye opener, should one be able to keep them open while viewing!


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This is fact, but in this specific case it’s more than meets the eye. SLNB is a good bank and I have nothing but nice things to say about them. The concern that I have is why are all these other major financial institutions like Citi, BofA, etc.. still allowed to be in operation while the regulators systematically target lower banks which in reality have far better assets. These other clowns are sitting on huge piles of worthless loans still while at least the smaller banks who’ve met with trouble will be able to recover some value.


You’re right in that fractional banking needs to go. It worked like a charm for what it was intended to really do, and as usual the actual steps they are taking to “fix” things is just a thinly veiled attempt at owning *everything.* Drive up the price of the assets, to convince owners to part with property (especially large tracts of land) both because of the property tax pushing from one end and the opportunity to make money on the other. Then make sure that you give as much money as possible to people who won’t be able to repay loans, ultimately causing the market to collapse. Swoop in and buy it up cheap out of foreclosure, mission accomplished.


Are people waking up yet?


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Thanks for the interesting links, r0y.


So if SLNB continues to have problems, I assume that it will enable someone to buy their assets for pennies on the dollar?


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No, the government will step in and liquidate them, taking whatever is owed the government first, then preferred bond-holders/stock-holders. One would hope that any liquidized assets would go to repay/replenish the FDIC coffers which will be tapped when all the account holders come to get their money.


SLNB’s stock is already pennies on the dollar, from what it was; so *IF* they can get out of this mess, it might not be a bad time to invest in said stock. However, it’s pretty risky (but that’s how it goes, no?)


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I sometimes bank with SLNB, which brings the whole issue of bank fumble-dickery and government intervention a little closer to the top of my awareness.


Talk about hitting a guy when he’s down: The feds demand $12 million more “shareholder equity” at the absolute worst time in SLNBs history. The way to get more shareholder equity is to sell more shares, and SLNB is trading at 42¢/share. Wouldn’t it have been better if the feds called for more equity when the shares were trading for 20 times the current price? Ouch.


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This article is so well written, and gives such good info. that I wrote down the “Texas Ratio” and the names of agencies that could actually tell a bank to change their way of doing business! Now, CalCoastNews is out of the “Entertainment” file and into the “Research Resources” file, with a “subindex” all its own. Keep fighting the good fight, techie journalists!


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Captain to the passengers: “Now hear this … now hear this. Prepare to abandon ship!”


First mate to the Captain: “Does that include us too, Captain?”


Captain to the First mate: “Ssssh … not so loud. Meet me at the stern where I’ve tied off a rowboat”


Captain to the passengers: “Now hear this … now hear this. Prepare to abandon ship!”


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Last week, I read a fluff piece in the Tribune about how well Santa Lucia Bank was doing.

San Lucia Bank was supposedly solid and now here are the real facts in CalCoastNews.


The Tribune is constantly misleading the public and it is disgraceful, just like when they bolstered Estate Financial and it’s officers (who are now in prison). They also did the same thing with Kelly Gearhart. Sure everybody, go invest in Santa Lucia Bank.


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I believe this is the bank our dear friends at hurst used, for what that is worth.


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I don’t believe SLB was involved with Hurst. I believe the bank involved was Heritage Oaks. I believe that Cuesta Title was also involved. I could be wrong, I was wrong once about 15 years ago….I bank with SLB so I feel that I would remember if they were mixed up with the Hurst thing but the memory isn’t what it used to be.


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You’re correct, it was HOB.


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Typo is correct, Herritage Oaks was the bank involved with Gearhart. Santa Lucia may have had some sort of secondary connection but nothing they would have had control of.


As for Hurst, he was a hard money lender for private investors.


Either know your facts or have the decency and/or courtesy or keep your anonymous piehole shut. The facts above are from the feds with ever tightening standards. What was OK three years ago, may not be today. As for the motive for tightened standards, don’t forget that responsive smaller community banks kicked the major banks butts all over America over the past 25. The banking crisis has presented a convenient way for the majors too recover market share with bought and paid for regulators.


Be careful what you wish for.


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Wow a little harsh there NorCo. Take a Valium or smoke something and calm down. I don’t believe that anyone deliberately mislead anyone, you’re being petty.


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While a bit edgy, I do think you might be on to something regarding the major banks “culling the herd” of smaller banks who did so well when the big boys got too fat. Interesting, indeed!


I have been quite happy with my local Credit Union over the years, but it does suck to see local (Community) banks in dire straits.


Heh, like that pull? Dire Straits? Money for Nothing? oh well, it just came to me.


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I’ve always like small local banks. I left Mid State and went to Santa Lucia when Rob-a-Bank took over. I will pay more to support local businesses,,,on most things.


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Mod, you overreacted to a simple comment. I did not even imply they are crooks, I just thought they were the bank that the crooks used to do their business. Might be wrong.


I hope you can chill out and after reading my former post and then yours I will accept your apology for flying off the handle and being a hypocrite (almost all of us are anonymous here-as you are).


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I reread my comment and apologize for the harsh comment, it was unwarranted.


I am oversensitive to bagging on small local business without possesing at least the basic facts. Prejudging them here is not the answer.


And, as far as the truth, I’m frankly not sure whom to trust.


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Actually, its Heritage Oaks Bank (only one r) and, no, they were not involved with Gearhart. And Santa Lucia Bank is one of the only banks in this county that didnt need the governments assistance when the Recession started.


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I wish the Tribune would change hands, before all is lost with it. I do not subscribe to the Tribune, but I’ll subscribe to CCN as long as they bring the truth (whether it hurts or not).


Keep up the good work, Karen & Co.


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