Santa Lucia Bank facing regulatory deadlines
May 19, 2011
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.