CertusBank shareholders question lavish expenses

One of the co-founders of a South Carolina bank with Charlotte ties has left the company, as the bank battles mounting losses and shareholder concerns about improper spending.

Charlie Williams, a former managing director at Bank of America who became co-CEO of Greenville, S.C.-based CertusBank, told the Observer on Thursday he left the bank this week.

CertusBank shareholders say they are uneasy about what they perceive to be exorbitant expenses for a bank reporting deep losses each quarter. A letter to other shareholders from New York-based investment manager Benjamin Weinger, obtained by the Observer, cited millions spent on corporate condos, private jet flights, Carolina Panthers tickets and flashy technology at its new headquarters building.

Shareholders also question the size of payments made from CertusBank to Integrated Capital Strategies, a consulting firm owned by bank executives and managed in part by former Charlotte City Council member James “Smuggie” Mitchell.

An investor said he believed investors were now looking to install a new board of directors at the bank’s annual meeting in June.

Williams said his departure is not related to the claims of inappropriate spending. He defended the bank and said the shareholders’ claims were spurred by their desire to force a sale.

Privately owned CertusBank has put together a committee of independent directors to evaluate and respond to the shareholders’ concerns, the bank said in a statement.

“We would urge all interested parties not to rush to judgment, or to form any conclusions until all facts and relevant circumstances are determined,” the bank said. “The company is committed to working collaboratively and constructively with our investors and stakeholders, and we appreciate their patience throughout this process.”

The bank declined to make executives available for an interview.

Buying failed banks

CertusBank dates to fall 2010, when former Bank of America and Wachovia executives from Charlotte – led by Milton Jones, Walter Davis and Williams – obtained a bank charter for their company, Blue Ridge Holdings Inc.

The holding company raised $500 million from investors with eyes on bidding on failed banks in the aftermath of the financial crisis.

Blue Ridge made its first purchase in January 2011, buying the failed CommunitySouth Bank and Trust in Easley, S.C. It reopened as CertusBank. Over the next two years, CertusBank would buy four more failed banks in Georgia and Western North Carolina – growing to $1.8 billion in assets.

The bank was profitable in 2011, earning $59.4 million, according to Federal Deposit Insurance Corp. documents.

But losses quickly began to mount. CertusBank lost $19.9 million in 2012 and $64.3 million last year, according to the federal filings.

Still, CertusBank opened a retail branch in Charlotte in 2012 and bought Myers Park Mortgage Inc. The bank said last year it was looking for administrative offices in the city.

The bank also cut the ribbon on a headquarters building and flagship branch in downtown Greenville in late 2013, featuring “the tallest interactive, multi-touch media wall in the United States,” according to the bank’s announcement.

Shareholders’ questions

A month later, shareholders began to question bank executives’ response to the escalating losses and continued high expenses, including on private jet flights and sporting events.

In his letter, Weinger also questioned why the bank had four senior managers sharing a job he felt should be held by one. Jones, a former Georgia market president at Bank of America, is executive chairman. Davis and Williams were co-CEOs, and Angela Webb is president of the bank. Davis and Webb both were Wachovia executives.

“More than $100 million of equity capital has been erased in the most baseless and irresponsible way – by spending exorbitantly on personal excess masked as corporate expense,” Weinger wrote.

Copies of the letter were distributed to many of the bank’s investors, primarily New York hedge funds. Shareholders had already been concerned about elevated expenses, an investor said.

“The expense levels have been extremely high. Management has spoke of various plans to get them in line. They haven’t been able to do that,” said the investor, who did not want his name used because of the sensitivity of the situation. “I guess we probably weren’t critically evaluating every little piece as we should have.”

Ties to ICS

The letters also question more than $11 million in payments to consultants, including large payments to Integrated Capital Strategies, a financial consulting firm Davis, Jones and Williams had created before founding CertusBank.

Weinger wrote that his review of financial statements showed that ICS was overbilling the bank for its asset resolution services. The bank said it contracted with the company to help deal with the millions of dollars worth of troubled assets it assumed with the failed banks.

In one case, CertusBank paid ICS a total of $537,475 for a year’s work by a contractor, while ICS paid him $150,000, the letter states.

CertusBank senior executives were also paid more than $1.5 million in cash between 2011 and 2013 by ICS, the letter states.

ICS chief executive Sammy Hicks III did not respond to requests for comment. CertusBank said it no longer has a contract with ICS.

Also listed among the management team is Mitchell, the longtime Charlotte city councilman. Mitchell said he was hired by ICS in 2011. He was first elected to the City Council in 1999 and lost to Patrick Cannon in the Democratic primary for Charlotte mayor in 2013.

Mitchell works in ICS’ government services division, which represents and lobbies local governments and helps companies secure government business, according to its website. Mitchell said he works with small towns on issues such as setting up tax collection systems. He said he does not work with the city of Charlotte.

Mitchell is one of five executives named as the company’s leaders. He is listed as a managing partner and managing director at ICS, but Mitchell said he characterizes himself as a lower-level “grunt.” He said he is not familiar with ICS’ work with CertusBank.

Williams departs

Around the time the shareholder letter was written in January, Williams was moved from co-CEO to vice chairman of CertusBank. He told the Observer that he had intended to leave the company as the bank moved away from acquisitions, which are his specialty.

“The role shrank and ended up going away,” he said.

Williams said CertusBank is still well-capitalized, and he said investors knew that the bank would engage ICS and blessed the relationship. He said dissent now is coming from shareholders who are unhappy with the bank’s performance and want the bank sold.

He said the losses are coming from the five failed banks CertusBank bought and that management is working on a plan to improve the bank’s finances.

“They not only have bad assets, they have bad strategies,” Williams said of the failed banks. “You have to have time to work out the assets and then re-grow the bank.”