In Rare Move, Priority Bank of Ozark Owner Declines OCC Order

Arkansas lenders who have fantasized about standing up to federal regulators instead of meekly signing a consent order now have a champion.

Trevor Lavy, the owner, chairman and chief executive officer of Priority Bank of Ozark, declined to accept a cease-and-desist order from the Office of the Comptroller of the Currency.

Lavy disagreed with the OCC findings that his $90.5 million-asset financial institution engaged in “unsafe or unsound practices” and is appealing the recent order.

His action is an extremely rare move, and the outcome of his tilt will determine whether his cause is foolhardy or righteous.

The dispute stems from an OCC examination on Aug. 17, 2011, and Priority’s lack of response to the regulator’s concerns.

Chief among the OCC grievances is Priority’s management and board of directors refusing to “properly report” $14.6 million of its residential loan portfolio as substandard and doubtful.

The loans are to borrowers who have not paid their property taxes, home insurance or both. What bearing, if any, the Oct. 10 deadline for paying property taxes in Arkansas has remains to be seen.

However, the OCC also classified $573,000 that Priority made in taxes and insurance advances for these borrowers. “The bank did not demonstrate these borrowers have the capacity to repay the T&I advances,” according to the OCC.

The OCC examination determined the loans should be reclassified for the quarter ending Dec. 31, but Priority officials disagreed and didn’t reclassify the loans.

As a result, the OCC rated the lender’s management as deficient along with its deficient rating for asset quality.

Another point of contention is Priority Bank “has failed to implement and adhere to a written, comprehensive conflicts of interest policy.”

This finding is related to William Reich, vice president and director of Priority Bank. Reich owns a controlling interest in five homebuilding companies whose customers apply for permanent loans through the bank to pay off their construction loans obtained by him or other sources.

“The bank does not track the volume of these loans and does not set limits for its exposure to these loans,” the OCC said.

Lavy and Reich bought the $13 million-asset River Valley Savings Bank of Ozark in September 1997 and changed its name to Priority Bank.

The lender, which has nearly doubled in size during the past five years, ranked among the most profitable lenders in the state. Priority Bank reported an 18.91 percent return on equity during 2011.

Lavy, who is girding for his appellate battle before an administrative judge in Fort Smith, couldn’t be reached for comment.

His tiff with the OCC coincides with a changing of the regulatory guard for Priority Bank.
The Office of Thrift Supervision, the chief provider of regulatory oversight for all thrifts since 1989, became part of the OCC on July 21 thanks to the Dodd-Frank Wall Street Reform & Consumer Protection Act.