Special Audit Examines Material Accounting Error at One Bank & Trust

What was behind the regulator-mandated removal of Layton “Scooter” Stuart as chairman, president and CEO of One Bank & Trust?

Senior editor and veteran banking reporter George Waldon has more on this in this issue. But widespread interest in this strange turn of events makes it irresistible to include some of it here in Whispers:

The Sept. 30 quarter call report filed with the Federal Financial Institutions Examination Council shows that $10.6 million was sliced out of One Bank’s equity capital — a 28 percent reduction in capital for the $454 million-asset bank.

The -$10.6 million was listed under the heading of “cumulative effect of changes in accounting principles and corrections of material accounting errors.”

So what was the change on the bank’s balance sheet figure associated with?

Life insurance values.

Three months earlier, in its June 30 call report, One Bank’s reported assets that included more than $6.3 million in separate account life insurance assets and more than $4.2 million in general account life insurance assets.

In the recently released third-quarter call report, those line items went to zero, and the former assets became mathematical liabilities that reduced bank capital to $26.7 million.

You might recall the Office of the Comptroller of the Currency deemed that One Bank was engaging in unsafe and unsound practices and, among other things, ordered a forensic auditor to review the bank books, records and documents from Jan. 1, 2009, forward.

We’re told the special audit is examining what caused the material accounting error and to look for any other surprises.

Stuart couldn’t be reached for comment. A One Bank spokesman said the call report numbers speak for themselves and declined additional comment.

The bank’s third-quarter results also reflect a $1 million addition to the its provision for loan losses and a $760,000 loss from the sale of other assets.

Both those items helped transform a profitable six months ($1 million) into an unprofitable nine months (-$117,000).

Gerald F. “Jerry” Pavlas, most recently the CEO of Southwest Securities of Dallas, has been named president, CEO and director of One Bank.