Leaders of young Virginia bank pay fines

Federal regulators ordered board members and executives of 1st Commonwealth Bank of Virginia in Arlington to pay thousands of dollars in penalties for deviating from the institution's original business plan.

Eight board members were fined $5,000 apiece, while chief executive Ernest Tressler and Chief Financial Officer Gregory Murray were each hit with $10,000 fines. Rather than spending months fighting the judgment, Tressler said, all parties have paid the penalties.

"We don't feel this was justified," Tressler said. "We had a choice of fighting or paying and moving on to try to grow our bank."

1st Commonwealth Bank submitted a revised business plan to increase mortgage lending in August, which was approved in October, but the fines were already in the pipeline.

The action stems from a case that's been brewing since December 2009. Back then, Tressler says, the Office of Thrift Supervision contacted him with concerns that the bank was growing its residential mortgage business beyond what the agency approved in its May 2008 charter. At the time, 1st Commonwealth had originated roughly $35.6 million in residential loans.

The bank filed its first amended plan in February of last year, but was denied. Instead, regulators handed down an enforcement order in August that said 1st Commonwealth "engaged in unsafe or unsound practices" for, among other things, failing to comply with its business plan.

The agency entered into a supervisory agreement with 1st Commonwealth, requiring the bank to reduce its originations by more than 60 percent to adhere to its original plan. Mortgage lending at the institution slowed to a trickle just as the market, supported by low interest rates, started to take off.

"They got hit with this order just as the refinance market was about to set records in the second half of the year," said David G. Danielson, president of Danielson Associates, a banking consultant firm in Bethesda. "Letting them continue on would have likely allowed the bank to make significant earnings. Instead, you've got a bank that missed the mortgage boom as rates have gone up now."

Officials at the Office of Thrift Supervision did not respond to a call seeking comment.

Unlike many institutions that draw the ire of the regulators, 1st Commonwealth is well capitalized and has no troubled loans. In the aftermath of the financial crisis, however, analysts say regulators are leery of robust mortgage origination. Young banks like 1st Commonwealth are being locked into strategic plans that can prohibit them from taking advantage of changes in the market, Danielson said.

"We were kind of told that we were a victim of our own success," Tressler said. "We made the mistake of exceeding one of the conditions of our approval; the only reason we did it was because the market was so vibrant."

1st Commonwealth closed out last year with $51.7 million in assets, down roughly 15 percent from 2009, according to SNL Financial. Tressler attributes the decline to the retreat in mortgage origination, but expects a reversal of that trend now that the bank is operating under an amended plan.