A number of “criticized assets,” has forced LifeStore bank of West Jefferson to agree to increased federal scrutiny, according to LifeStore CEO Bob Washburn.
Criticized assets, in this instance, are loans with payments in arrears that are rated by government examiners as substandard, or doubtful.
“If we had gotten this order two years ago, I wouldn’t have been surprised,” said Washburn. “But I am surprised now. We did have a lot of criticized assets, but the trend has been positive for the pat two years.”
An agreement between LifeStore and the Comptroller of the Currency of the United States, the federal regulator that oversees LifeStore’s operations, on May 4 read, “The Comptroller has found unsafe and unsound banking practices relating to asset quality, credit risk management, and earnings and violations of laws and regulations at (LifeStore) pertaining to legal lending limits and appraisals.”
LifeStore management originally signed the agreement on May 4, 2012, but the OCC only made the order public on Friday, June 15. The agreement will allow LifeStore management to control the bank’s day-to-day operations, but would require OCC approval to make major lending decisions or certain management changes, according to Washburn.
LifeStore is required to notify the OCC of proposed additions to its board of directors, or the employment of a senior executive office at least 30 days before such an addition, restricts Lifestore from so-called “golden parachute” payments to departing senior executives, and will prohibit Lifestore from making dividend payments to shareholders, provisions Washburn said were unnecessary because LifeStore doesn’t engage in those practices.
The agreement between LifeStore and the OCC has been termed a consent order by media outlets, according to Washburn, who said, “That is not correct. We have a formal agreement. While the difference may be lost on the majority of the public it is significant. A formal agreement is between the board and the OCC to take certain actions. A consent order is a directive by the OCC to the board to take corrective action that the board consents to.”
Washburn said the OCC may have different interpretations of rules than LifeStore’s previous federal regulator, the Office of Thrift Supervision. LifeStore had previously operated under the OTS until 2011 when new legislation forced LifeStore under the OCC umbrella.
“When you change regulators, the rules don’t necessarily change, but the interpretation might,” said Washburn, ” and we’re one of the first OTS banks to be examined after the switch.”
LifeStore’s troubles began in 2010, according to Washburn, when the company reported a $2.45 million loss, attributed mainly to non-performing loans and Real Estate Owned (REO) properties.
“If you could dissect the loans we had problems with, they more speculative in nature,” said Washburn. “Housing developments, that sort of thing.”
Washburn said LifeStore’s fortunes are tied to its customers.
“If they’re doing great, we do great,” said Washburn. “Unfortunately, the economy has hurt a lot of people. We’ve been very blessed in this area, that our customers are people that will do every thing they can to meet their obligations. They grew up with that attitude, and they honor their obligations.”
Washburn said LifeStore is working to fix its issues as quickly as possible, and is trying to turnover its criticized assets at a faster rate.
“We’re working with our borrowers and trying to work through their issues,” said Washburn. “Our intent is to work with them as much as we can, but also balance the regulators (the OCC) because they want you to move as quickly as possible.”
Washburn said LifeStore’s capital reserves are now well above federal standards and indicates the bank’s stability.
“I’d like to tell our customers that we are required to maintain a certain amount of equity and capital in the bank, and that we are well ahead of where we need to be,” said Washburn. “If you look at banks in our areas that have had issues, it’s their capital levels that have really caused them to put themselves in jeopardy.”
In business for more than seven decades, LifeStore employs 112 across six counties in northwestern North Carolina. LifeStore currently operates four branches in Ashe County, one in Watauga, and another that will operate in Alleghany County through Wednesday, Aug. 22. It also operates life-insurance across the area including in Alleghany, Ashe, Caldwell, Surry, Watauga, and Wilkes counties.
The full PDF of LifeStore’s agreement is available for download at www.jeffersonpost.com