Priority Banks Dispute with Fed Nears Private Resolution

The dispute between the Office of the Comptroller of the Currency and Priority Bank of Ozark is nearing private resolution after a partial public airing.

The Office of Financial Institution Adjudication entered an order of indefinite continuation that postponed an appeal hearing that had been scheduled for Dec. 10. Instead of resolving the disagreement at the Sebastian County Courthouse in Fort Smith, the parties are said to have reached an agreement in principle that soon will produce a formal settlement.

Unlike the OCC’s May 9 charges for an order to cease and desist, the settlement won’t be public. That filing came after Trevor Lavy, owner, chairman and chief executive officer of Priority Bank, declined to accept the cease-and-desist order from the OCC.

As part of the appeal process launched by Lavy, the OCC findings were reviewed by its Office of the Ombudsman. The Ombudsman’s rulings produced mixed results for the $94.8 million-asset thrift.

The Ombudsman ruled in favor of modifying, for the better, Priority’s CAMELS examination ratings in four of the five areas previously downgraded by the OCC. The ratings system, ranging from 1 (strongest) to 5 (weakest), is an acronym for six areas of a lender’s operations graded by regulators to determine its overall condition: Capital, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk.

Capital was downgraded to 3 after the OCC’s 2011 full-scope examination, but the revised notice of charges doesn’t specify the new and improved score.

Priority’s equity capital totaled $7.2 million at year’s end. The number now stands at $7.8 million.

Asset quality and Management, which were given 4s previously, were both bumped up to 3.

Earnings, which had “deteriorated” to 2 by OCC reckoning, returned to 1, although the revised notice of charges didn’t detail that.

Priority produced earnings of $2 million during 2011 when the OCC conducted its examination that produced its cease-and-desist findings. The thrift recorded a $1.3 million profit through the first nine months of 2012. That includes a $372,000 profit during the third quarter.

The Ombudsman upheld the OCC findings regarding Priority’s composite CAMELS score of 3, which was based on “less than satisfactory ratings in asset quality, management and liquidity.”

The Ombudsman also upheld the OCC findings regarding Priority’s downgraded Liquidity rating of 3 and “troubled condition” designation.