Federal regulators have issued a new enforcement order against San Luis Trust Bank, giving the bank until today to increase its capital through a merger, acquisition or sale to another financial institution.
The Office of Thrift Supervision, a division of the U.S. Department of Treasury and the primary regulatory body overseeing savings banks, issued the mandatory order after finding that the bank was critically undercapitalized.
A bank’s capital (assets minus liabilities) provides a cushion against losses.
The “prompt corrective action directives” are issued when institutions insured by the Federal Deposit Insurance Corp. have deteriorating capital ratios or are undercapitalized to a point where there could be a long-term loss to the FDIC. The latest action requires that the federally chartered savings association take steps to become adequately capitalized and remain so for four consecutive quarters. If it fails to do so, that could lead to the bank being taken into receivership.
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In January, regulators denied San Luis Trust’s capital restoration plan.
The OTS does not comment on enforcement actions, but it explained in the 14-page document issued Feb. 9 that San Luis Trust has been restricted from making, investing in, purchasing, selling, refinancing, extending or modifying any loan secured by real estate. It also has restricted compensation and benefits to directors and placed restrictions on any activities that pose excessive risk.
Bradley Lyon, president of San Luis Trust, did not return a call from The Tribune seeking comment.
This is not the first time that San Luis Trust, founded in 1999, has been scrutinized by federal regulators.
A cease-and-desist order issued by regulators in November 2009 remains in effect. That order requested that San Luis Trust strengthen its capital ratios, maintain adequate short-term and long-term liquidity, revise its policies for modifying loans and reduce its level of classified assets — typically loans for which payments are not being received on time.
In response, San Luis Trust outlined how it would improve. The Tribune reported at the time that the bank had complied with the regulator’s request, increasing its capital ratios and reducing the size of its classified assets. Lyon said then that the bank’s performance had been affected by continued loan loss provisions and short sales.
Lyon said the bank, like many other institutions, “has not been immune to the unprecedented challenges facing the economy and real estate markets.”
San Luis Trust had previously agreed to make changes to its operations in 2006 after regulators examined its lending practices.
San Luis Trust reported $306 million in assets as of Sept. 30, compared with $403 million in the year-earlier period, according to the latest information from the FDIC. It reported a $5.7 million loss in the third quarter, compared with a $3.3 million loss in the year-earlier period. It operates one office at 1001 Marsh St.
— Julie Lynem