Publish Date: Thursday July 02, 2009
The fate of Southern Colorado National Bank's business relationship with the Pueblo West Metropolitan District grew more tenuous last week.
Metro district officials learned that SCNB, which holds the district's checking account, as well as $3 million in certificates of deposit, had its rating dropped to zero stars.
The situation concerns the metro board members because they fear a bank closure would disrupt the district's ability to pay its bills on a day-to-day basis. Metro board members also pondered pulling all of the district's CDs from SCNB and investing them in a higher-rated, more secure bank during discussions at its June 23 meeting.
Documents on how SCNB came to be the metro district's primary bank in 2005 show the metro board and the district staff may not have followed proper protocol, there may have been a conflict of interest, and the decision-making process may have violated Colorado's Sunshine Law provisions.
Prior to the contract with SCNB, Vectra Bank held metro district accounts. Former metro board member Margaret Eichman worked for Vectra Bank until 2002, when she became vice president and manager of the Pueblo West branch of SCNB.
In 2004, Eichman became chairman of the metro board. Shortly thereafter, on May 25, 2004, former metro District Manager Don Saling gave the metro board a request for proposals for banking services to review. Although the board never approved the RFP, Saling sent it out in a search for bids two days later, according to metro district records.
After delaying a decision in July of that year, metro district Financial Officer Tammy Jameson sent out two letters on Sept. 28, 2004, according to metro records. The first letter said that Wells Fargo and Vectra Bank were the two lowest bidders. Yet, later that same day, Jameson sent another letter saying Wells Fargo was the lowest unless other factors were considered. If those factors were taken into consideration, SCNB was the lowest bidder.
In short, SCNB went from out of consideration to the bid leader after the metro board became aware of the other bids.
On Oct. 1 of that year, in a follow-up to the banking services bid process, the only bank included in the report was SCNB, according to records. At that point, all other bidders had been dropped and it appears SCNB had been chosen, although there had been no public discussion of the selection, according to records.
On Nov. 4 of that year, a letter from SCNB says, "Once again, SCNB would like to thank you and the PWMD for allowing us the opportunity to provide banking services for your organization."
Included in the letter is a memorandum of understanding with a request to return one of the signed copies to the bank.
SCNB sent out another MOU on Nov. 17 with the same request.
It wasn't until Nov. 23 - 19 days after the first MOU was issued - that the metro board voted by motion - not by resolution - to give SCNB the metro district account effective in 2005. Saling signed the MOU the following day.
SCNB's contract was extended in February of 2008 for five years. This time, there wasn't even the formality of a board vote. In fact, the sitting board at that time did not approve it, and the current board members didn't learn of the extension until June of this year.
Although Jameson signed the contract extension for the district, she said she couldn't remember if she did so on her own or was told by Saling to do it. In reality, neither one of them had the authority to extend the contract without board approval.
Jameson said the reason the extension was granted was to allow SCNB time to recoup some of the cost of a program upgrade necessitated by the metro district going to electronic deposit of checks.
"In late 2007, we went to a new system on our water billing program to deposit checks electronically," Jameson said. "That made the funds from these checks available to us sooner."
To interface with the new system, SCNB had to purchase additional software at a cost of around $5,000.
"It was at that time that we decided to go with the extension, to allow SCNB time to recoup the costs of that upgrade," Jameson said.
The deals with SCNB backfired last September when it was one of seven Colorado banks targeted by federal regulators. The regulators found the bank was undercapitalized and over extended. They recommended an infusion of cash and ordered the bank to hire a new officer to oversee some of its operations.
Despite those troubles, Saling moved $1.5 million of the district's money from a higher-rated bank into SCNB - again without board approval - in October of 2008. Saling defended the action saying the money was insured by the federal government and was safe.
Since then, SCNB's President Larry Varner resigned and the bank's rating continued to fall.
The district can end the SCNB contract with 90 days notice on the checking account, but the district may be on the financial hook for its share of the software upgrade purchased by SCNB.
In addition, pulling the CDs (known as CDARS because they are insured by state and federal regulations) could cost the metro district $98,000 in lost interest and penalties, according to Jameson.
The state of affairs at SCNB worried the metro board members. No official from SCNB attended the meeting to answer questions or to assuage the board's fears. However, metro board members were urged by Pueblo West Chamber of Commerce President Chad Heberly, a vice president at Legacy Bank in Pueblo West, not to make any quick moves. Heberly said if SCNB failed or closed, federal regulators would take it over and operations would continue.
"No service has been disrupted in the history of FDIC (the Federal Deposit Insurance Corporation)," Heberly said. "If a bank closes down, government officials will be in there the next day to continue its operations."
One citizen suggested the board look into moving its checking account to another bank and gradually, as each of the CDARS reaches its maturation date, cashing them in at SCNB and moving the money to a higher-rated bank.
"On the CDARS, time is on our side," said metro board member Jeff Sloan. "On the checking account, it isn't."
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