Rare Removal Causes Shock At One Bank & Trust

by George Waldon  on Monday, Nov. 5, 2012 12:00 am  

It’s a rare day when the board of directors dismisses its chairman and the company’s president and CEO.

It’s an extraordinarily rare day when that action is taken against an executive who holds all three titles and owns 99.9 percent of the company’s voting stock.

Those are the unusual circumstances surrounding the Office of the Comptroller of the Currency ordering the One Bank & Trust board to remove Layton “Scooter” Stuart from his posts on Sept. 28.

The door was opened for this dramatic regulatory decree when the Little Rock bank consented to the OCC reclassifying its status from “adequately capitalized” to “undercapitalized.”

That reclassification opened the door to a great big room of possible supervisory actions, including the OCC-dictated removal of Stuart.

According to the bank’s June 30 call report, One Bank’s capital met the thresholds for “adequately capitalized.”

Total risk-based capital ratio was 13.5 percent, well above the 8 percent demarcation for undercapitalized banks.

Tier 1 risk-based capital ratio was 12.2 percent, well above the 4 percent line for undercapitalized banks.

Tier 1 leveraged ratio was 8.4 percent, more than double the 4 percent marker for undercapitalized banks.

However, those numbers took a dip during the third quarter, apparently due to reclassification of $10.6 million worth of life insurance assets. The change was categorized as “cumulative effect of changes in accounting principles and corrections of material accounting errors.”

Total risk-based capital ratio declined to 10.2 percent. Tier 1 risk-based capital ratio slipped to 9.3 percent. Tier 1 leveraged ratio fell to 5.8 percent.

Even though the thresholds weren’t broken, the OCC push to reclassify One Bank’s status to undercapitalized can be based on concerns rather than hard numbers.

A banking insider said the push to downgrade One Bank’s capital status could be linked to an assessment that the bank’s “risk profile” is such that, in the OCC’s opinion, the bank is not adequately capitalized.

That risk profile is linked with eight categories graded by the OCC: credit, interest rate, liquidity, price, operational, compliance, strategic and reputation.

The regulator for federally chartered lenders assesses the quantity of risk, quality of risk management, aggregate level of risk and the direction of risk for each of the risk categories.

Increased scrutiny of One Bank’s loan operations led to the departure last year of its No. 2 man: Mike Heald, executive vice president, chief operating officer and a member of the board.

Preceding Heald’s exodus, Kelly Harbert was fired as senior vice president and commercial loan officer on June 3, 2010. She was ultimately sentenced to 30 months in federal prison and ordered to pay $441,912 in restitution after pleading guilty to bank fraud, money laundering and using someone else’s Social Security number to make fraudulent loans for her own benefit.

One Bank posted a $4.3 million loss for 2010 and a month later was working under a supervisory agreement with the OCC. That 2011 agreement was renewed in May of this year, four months before the OCC issued its prompt corrective action directive.

The directive led to the ouster of Stuart and the hiring of Gerald F. “Jerry” Pavlas as his replacement. Before accepting the job offer, Pavlas held the post of CEO at Southwest Securities of Dallas. 



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