Priority Bank-OCC Tiff Takes a Twist

The regulatory tiff between Priority Bank of Ozark and the Office of the Comptroller of the Currency apparently has taken a new turn.

And the turn appears to be in favor of the $89.3 million-asset thrift.

Priority Bank successfully appealed findings contained in the May 9, 2012, notice of charges for an order to cease and desist, according to an insider.

The outcome of that shrouded internal review process indicates the OCC's Office of the Ombudsman ruled in favor of modifying, for the better, Priority's CAMELS examination ratings.

The ratings system is an acronym for key areas of a lender's operations that are graded by regulators to determine its overall condition. Capital, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk are the big six.

Information technology and consumer compliance also are categories graded on a scale from 1 (strongest) to 5 (weakest).

The CAMELS ratings detailed in the OCC's notice of charges: capital, downgraded to 3; asset quality, downgraded to 4; management, downgraded to 4; earnings, "deteriorated" to 2; liquidity, downgraded to 3; overall composite rating, downgraded to 3. The OCC didn't disclose its rating on market sensitivity.

Bank observers were stunned to see the OCC reveal the normally secret ratings in its public order earlier this year.

Outside of regulators, the ratings normally are made known only to a lender's management out of concern that depositors might make a Great Depression-type run on the bank if the ratings are bad.

But the OCC didn't show such restraint when it outlined its position after Trevor Lavy declined to accept the cease-and-desist order from the OCC.

Lavy, owner, chairman and chief executive officer of Priority Bank, is supposed to have his day in court challenging the OCC's order. But the way the weather vane is turning in this matter, a settlement seems to be in the offing.

The jurisdiction for the regulator-lender dispute was transferred out of the OCC's Little Rock field office and its Dallas district office all the way back to headquarters in Washington, D.C. Why?

Priority Bank successfully argued that it was being unfairly treated, and the prejudicial bias flowed from something akin to personal animosity. That, at any rate, is the perspective of an informed source.

Back in our nation's capital, an OCC spokesman said he could neither confirm nor deny the ombudsman action and the change of venue regarding oversight of the dispute.

If a settlement is reached during the next two months, Administrative Law Judge C. Richard Miserendino won't be traveling to Arkansas from the Office of Financial Institution Adjudication in Washington, D.C.

Miserendino was scheduled to preside over the hearing of the OCC-Priority Bank dispute on Dec. 10 at the Sebastian County Courthouse in Fort Smith.

Since 1991, the OFIA is under the umbrella of the U.S. Treasury and is charged with hearing and settling disputes between lenders and the OCC, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp. and the National Credit Union Administration.

Priority Bank, which has ranked among the state's most profitable in terms of return on equity, recorded a $946,000 profit through June 30.

No Deal

The would-be sale of Decatur State Bank to Mathias Bancshares Inc. of Springdale is no more.

Sam Mathias, owner of his namesake bank holding company, and Larry Olsen, president and chief executive of MBI's First State Bank of Northwest Arkansas, couldn't be reached for comment.

The same goes for Mark Londagin, president and CEO of Decatur State Bank, which has been under regulatory sanction with the Federal Deposit Insurance Corp. for nearly a year.

The $134.2 million-asset bank lost nearly $13 million during 2011 and $3.1 million through the first six months of 2012.

The proposed transaction was positioned to be a sale involving zero consideration.

However, the deal fell to less than zero after the bank's holding company invested an additional $1.1 million to replenish capital to $2.9 million.