Business

LIGHTNING EXCLUSIVE: The rise and fall of Mountain 1st Bank

By Bill Moss, Published: December 1, 2013

Stockholders question director loans

Maher and Albert Ciampi, another disgruntled shareholder, have questioned loans of almost $12 million that the bank made to its directors in 2010. In its 2011 and 2012 proxy statements, the bank disclosed loans to four directors:
• It loaned $2.62 million in seven different transactions to then-chairman McManus or his companies. During 2010, the largest principal outstanding was $6.88 million. That year McManus, the retired CEO of the Hardees fast food chain, paid $3.4 million in principal and interest. The bank said it charged off $693,062 of a loan to a McManus company.
• The bank made six loans totaling $4.13 million to director Bradley Schnyder, a developer who succeeded McManus as chairman. Schnyder had repaid $268,000 in principal and interest in 2010 and $91,000 in 2011. During 2011, the largest outstanding amount of debt was $3.96 million.
• The bank made eight loans totaling $4 million to James C. Kirkpatrick. He had made payments of $401,000 in 2010 and $90,700 in 2011. During 2011, the largest outstanding amount of debt was $4 million.
• The bank made four loans totaling $1 million to John Sheiry, owner of the Waverly Inn. In 2010, Sheiry had repaid $82,200 in principal and interest in 2010, $72,000 in 2011, and $1,100 in 2012. During 2011, the largest outstanding amount of debt was $998,711. The bank said it renewed a $986,000 loan to Sheiry and modified the repayment terms.
Each of the loans, the bank said in its report to shareholders, "continues to be paid in accordance with its terms," the bank said in 2011. By last spring, the bank's assessment was gloomier. "As a consequence of the downturn in the economy and the effect this has had on the value and salability of real estate ... loans made to certain or our directors have been adversely affected," the bank said in an SEC filing in May.
Flynt, the WCU banking professor, said it's understandable that those might raise an eyebrow now. There's nothing illegal about it, he added.
"It's not unusual to loan money to your bank directors," he said. "Having done that for a long time, and had regulators shake their fingers at me, and say 'you should have done that, you should have done this.'
"The bottom line is one of the rationales of creating a little de novo (new) bank that you hope will become a big de novo bank is you're going to have shareholders and directors that are going to be very supportive, they're going to bring you business and make deposits and you're going to lend them money. It's usually at a level of care over and above the standard of care if it's just Joe Smith coming off the street. (But) there's absolutely nothing wrong with making loans to your directors or shareholders."