Out of order: regulators shut Bank of Asheville, though its books weren't as bad as some. Its ex-CEO's behavior may have been worse.

• Author: Campbell, Spencer
• Position: FEATURE

Weststar Financial Services Corp. tried hard to put a happy face on Buddy Greenwood's retirement as CEO of it and its lone subsidiary, Bank of Asheville. It lauded his triumphs--including increasing the bank's assets from $40 million to $225 million during his 10-year tenure--and his character, noting, among other charitable endeavors, his chairing the local Habitat for Humanity. One fact, though, suggested something amiss: It was announced July 1,2010, effective the day before.

The press release, which came the day after the bank's second quarter ended, said nothing about a lawsuit that recently had accused Greenwood of allowing misuse of customer funds or the depths to which its financial condition had sunk. Only the gloomiest of forecasters would have predicted that within a year Bank of Asheville would cease to exist and that Greenwood would be indicted on federal charges of fraud and money laundering.

In fact, on the day he retired, the bank seemed to be on the mend. It had netted $81,248 in the first quarter after losing $73,222 during 2009. But any illusion of recovery was shattered when it filed its second-quarter report Aug. 23. It had lost $14 million--mostly from $13.4 million in loan charge-offs, more than 30 times what it reported the year before. The resulting decline in capital and anticipated regulatory action, "potentially raise substantial doubt about the bank's ability to continue as a going concern," Weststar admitted for the first time. Its stock, which fetched $1.90 a share when Greenwood left, had fallen below $1. The state commissioner of banks issued a consent order Sept. 23 requiring, among other things, that it raise more capital.

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Even then, few outsiders would have written it off. Since the financial maelstrom of late 2008, other sick North Carolina banks have been given lots of time to recuperate. Bank of Granite Corp., based in Granite Falls and once praised by investor Warren Buffett as the best little bank in America, had been operating under a cease-and-desist order--a severe regulatory warning that can foreshadow failure--since August 2009. Asheville-based Blue Ridge Savings Bank Inc., owned by former congressman Charles Taylor, had begun operating under one in November 2008. No North Carolina bank had failed in more than a year, and regulators seemed to be grading on the curve, reluctant to close banks that might have been shut down in a more prosperous era as long as they showed...