mischaracterization

By Fred Guarino/Reporter Staff Writer

Federal regulators have accused officers of the First National Bank of Shelby County of illegal activity and mismanagement, according to media reports.

In addition, the reports stated, the bank is expected to sign an agreement for tighter oversight from the Office of the Comptroller General.

William T. Harrison, bank chairman, confirmed an agreement for oversight with the Office of the Comptroller General.

However, he called the term illegal activity a &uot;terrible mischaracterization.&uot;

Harrison said the bank got &uot;sideways&uot; with regulators. However, he said the bank disagrees with a report dated April 2004.

Harrison said FNBSC has been a retail bank dealing with single-family dwellings.

He said the bank decided to get into commercial lending, but after 18 months decided that was a mistake and to get out of it.

He said the bank had $210 million in assets and $16 million in capital at the time.

Harrison said the bank charged off about $2 million in commecial loans and downgraded about 21 other loans.

He also said the bank put about $2.5 million in reserve …

$4.5 million against $200 million in assets.

&uot;While it was a stumble, it took less than 14 months to get out of it,&uot; he said.

Harrison said it normally takes a bank two or three years to get out of such a situation.

He said the bank has returned to retail lending only.

He said claims of illegal activity are a terrible mischaracterizaton. He used an example of one such activity.

Harrison said by including a one-time expense and income from the closing of a business, something not normally counted, regulators said he had a debt service, or debt coverage ratio, of 1.14 on a dump truck business.

He said he sold three old pickup trucks at $30,000 less than payoff. Harrison said had the circumstance not normally considered been excluded, he would have had a debt service of 1.5 which is above the industry standard of 1.24.

While Harrison contended it was a violation of a regulation, it was not illegal.

&uot;We disagree with the regulators’ examination report,&uot; he said.

However, he said, a settlement agreement was reached between the bank and regulators.

He said the agreement with the OCC is for oversight in which the bank will report once a month on certain items.

&uot;Our bank is 110 years old. Even after we charged off all those loans, the bank is stronger than it has ever been. The bank is in good shape,&uot; he said.

&uot;We don’t do illegal stuff. We are going to keep fighting.&uot;

Harrison said one good thing about a lawsuit filed by a shareholder is, &uot;Now we can answer and say what really happened and what has gone on and answer what has been alleged against us.&uot;

As to an OCC allegation that the bank paid officers 185 percent the salary of officers at similar institutions, Harrison said that was actually based on a study the bank itself had done.

He said, however, other reports showed that the bank was not far out of line with other institutions.

&uot;Most of our people have been with the bank a long time.&uot;

He called their increase in pay over the years &uot;salary creep,&uot; and said, &uot;We pay our top people well.&uot;

According to Harrison, most of those employees have been with the bank 15-20 years