Bank of San Pedro Is Criticized for Unsecured Loans : Finance: Bank’s issuance of more than $1 million in loans to one of its directors draws reproach from federal regulators and shareholders.

The Bank of San Pedro--a prominent financial fixture in that waterfront community--has been criticized by federal regulators for issuing more than $1 million in loans to one of its directors in apparent violation of federal banking laws.

In a detailed disclosure in last month’s annual report to shareholders, the bank acknowledges that director Steven G. Podesta, who holds 14.4% of the bank’s stock, borrowed $1.04 million in six unsecured loans that federal bank examiners cited as apparent violations because they were “substandard”--poor credit risks that could have deteriorated into losses.

For several months, four of the loans totaling $479,000 were in default, according to the bank’s report.

The disclosure has upset several former directors and shareholders, one of whom recently complained in a letter to the bank president that the Bank of San Pedro was established “to service the local area, not to form a ‘piggy bank’ for the directors.”

Podesta declined to discuss the loans, but bank officials have denied any impropriety, saying they have not been penalized and that the institution’s financial standing has not been hurt. The four loans that were in default have been paid off, and payments on the other two are current, according to bank chairman Peter Mandia.

“Mr. Podesta, who was a guarantor of the loans, did what was required,” Mandia said, adding that he believes Podesta came under greater scrutiny because he is a major shareholder and director. “If these loans were made to individuals who were not associated with the bank they would not have been criticized.”

A Federal Deposit Insurance Corp. investigator said that, in general, all substandard loans are criticized but that such loans might not be cited as apparent violations of law if they are issued to ordinary borrowers.

In its Oct. 6 proxy statement to shareholders, the bank also revealed that Podesta and three other directors--Bill A. Moller, Thomas B. Jankovich and his son Thomas J. Jankovich, who stepped down from the board last month--at one time last year held loans from the bank totaling as much as $6.6 million.

That amount is equivalent to 66% of the bank’s equity capital--the money shareholders have invested in the bank. Equity capital is generally considered a bank’s cushion or safety net. The bank reported total assets of $159 million at the end of 1988.

Although state law places limits on the percentage of equity capital that may be loaned to individual directors, there is no limit on what percentage of it may be loaned to all directors as a group. However, banking regulators and experts say that most banks loan far less than 66% of their equity capital to directors.

Said one banking lawyer, asked by The Times to review the disclosure statement: “I wouldn’t run my bank that way, but there are those who would disagree with me. If you look at well-performing, generally clean banks, you’ll certainly find a much lower level of insider transactions.”

Neither the State Banking Department nor the FDIC--both of which regulate the Bank of San Pedro--would comment on their examinations of the bank. The FDIC, which levied the criticism of the Podesta loans, also would not say whether any further action will be taken.

However, bank officials say the matter has been resolved to the FDIC’s satisfaction. Banking industry experts say that if regulators had imposed penalties or issued a formal cease and desist order, it would likely have been disclosed in the October shareholders’ report.

According to the proxy report to shareholders, as of Aug. 31 this year the Jankoviches, Podesta and Moller owed the bank a total of nearly $5 million, an amount that constitutes about 43% of the bank’s equity capital.

Together, the Jankoviches, who operate marine fuel and water taxi businesses in Los Angeles Harbor, owed $1.7 million. Moller owed $1.9 million, and Podesta owed $1.07 million.

In an interview, bank President Lance Oak defended all the loans to directors--including those that banking regulators had criticized--saying the Jankoviches, Podesta and Moller “are all excellent customers.”

He declined, however, to provide details about the six Podesta loans that were declared substandard, except to say the bank did not believe they were substandard when they were issued.

The substandard classification is the least severe of three designations bank examiners use to describe assets that are less than prime quality. The other classifications are “doubtful,” which means there is a 50/50 chance that a loan will have to be written off, and “loss,” which refers to loans that are uncollectible.

Industry sources say the criticism of the Bank of San Pedro comes at a time when bank examiners are placing increasing scrutiny on insider transactions. Since the crisis in the savings and loan industry--which government auditors have said was in part precipitated by insider abuse--government regulators have looked more closely at banks that do business with their own directors and officers.

“A loan to an insider we expect to be squeaky clean,” said Dick Condon, chief investigator in the FDIC’s San Francisco office. “We simply do not like anything that gives the appearance of being self-serving.”

According to banking experts, it is not uncommon for banks to make loans to directors--especially independent banks such as the Bank of San Pedro, where directors are often the major shareholders and largest depositors.

They are also often the bank’s best customers. As one banking lawyer said: “What the regulators look for is to make sure they haven’t overdone it.”

Federal law requires that when banks loan money to directors, they do so on terms no more favorable than those available to the general public. Thus, directors who have good credit are often doing their own banks a favor when they borrow, because they might receive better terms elsewhere. But directors who do not have good credit can put their own bank at risk by borrowing.

Gerry Findley, publisher of the Findley Reports, a respected banking newsletter, said he believes “the best policy is not to make director loans. . . . You really eliminate compromising situations.”

But Findley said he has seen no evidence that insider loans have hurt the Bank of San Pedro, which in 1988 reported $159 million in assets.

For the past nine years, he has rated the bank a “premier performing bank,” based on its loan quality, profitability and growth. About one-third of California’s banks receive that distinction, he said.

* HUMBLE BEGINNINGS

From an inauspicious start, bank became a key player. B8