New First National owner formerly worked at Bank of America

By Dick Hughes  

JULY 17, 2010 1:24 p.m. (0)

Federal regulators Friday put First National Bank of the South into receivership and turned it over to a private equity firm that will reopen branches of the Spartanburg bank Monday.

First National, along with two unaffiliated Florida banks, was taken over by NAFH National Bank of Miami, Fla., a banking arm of a holding company created by private investors led by former Bank of America corporate officers to scoop up failed banks. The holding company is based in Charlotte.

NAFH said First National’s 13 branches will be open for business as usual on Monday.  All employees l remain in place, the company said.

“We are committed to ensuring that there is no interruption in serve and that our service is consistently at the highest levels,” said Gene Taylor, chief executive officer and chairman.

The FDIC said it agreed to absorb a share of any losses on $512.2 million in First National loans, and estimated the cost to the FDIC insurance fund at $74.9 million.  Under the normal arrangement, the FDIC takes 80 percent of the losses and the acquiring institution 20 percent.

“The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The transaction also is expected to minimize disruptions for loan customers.”

The FDIC said First National had assets of $610 million.

While depositors are protected in the transaction, shareholders are not.  Their value was wiped out in the receivership.

In First National’s case, shareholders own stock in the holding company, First National Bancshares, which was not part of the receivership. Nor was it acquired by NAFH Bank.

For all practical purposes, First National Bank of the South was the holding company’s only viable asset and source of income, making any value to common shares, already trading at a low 20 cents per share, problematic.

Insiders, including directors and officers, own 22 percent of the bank’s outstanding shares, according to the last reporting period.  J. Barry Mason, the chief executive officer, owns 250,000. Three directors also are large shareholders: Norman Puliam 236,050, C. Don Adams 204,860 and William Hudson 160,859.

The FDIC advises shareholders they are not able to make a claim on the FDIC and should contact First National Bancshares directly at P.O. Box 3508, Spartanburg, SC 29304.

That First National failed comes as no surprise.   It has been on the brink of insolvency for two years.

The company turned a profit of $3.4 million in 2007, lost $43.7 million in 2009 and $44.9 in 2008.  It lost $5.4 million in the first quarter of this year.

In April 2008, the Office of the Comptroller of the Currency put it under a consent order to raise its capital to the well-capitalized level – essentially to have at least $10 in hand to support every $100 in loans outstanding.

The company turned a profit of $3.4 million in 2007, lost $43.7 million in 2009 and $44.9 in 2008.  It lost $5.4 million in the first quarter of this year. In 2008, the company lost

With the recession taking a brutal toll on its heavy portfolio of its real estate development loans, particularly along the South Carolina coast, First National’s capital steadily eroded.  It also repeatedly failed to make payments on a loan of $9.6 million to Nexity Bank of Birmingham, Ala,

The company announced several plans to raise capital but was unable to carry them out, aggressively tried to unload bad loans and shook up top management.  J. Barry Mason, an experienced banker from Arthur State Bank, was brought in as CEO in August.

Nothing worked and by March the bank’s capital had dwindled to less than $2 for every $100 in loans, the level at which regulators often step in to close banks.

First National of the South was founded in 1999 and enjoyed seemingly great success until the economic downturn crippled credit and real estate. In the first half of 2007, the stock sold for between $15 and $19 a share.  When the end came Friday, it was 20 cents.

First National of the South has branches in Spartanburg, Greenville, Columbia, Charleston and York County.

First National is the third South Carolina Bank to fail this year.  Woodlands Bank of Bluffton also was closed Friday. It was taken over by Bank of the Ozarks of Little Rock, Ark.  Beach First of Myrtle Beach was closed in April.  The FDIC has closed 94 banks nationwide so far this year.

MSFH, which is based in Miami, got permission to use a preliminary charter to operate as a bank just hours ahead of the closing of First National and the two banks in Florida it took out of FDIC receivership.

“NAFH was formed to invest in strategically important franchises that, due to the unprecedented real estate downturn, have been left undercapitalized,” said Christopher Marshall, CFO.

Like the two Florida banks, MetroBank of Miami and Turnberry Bank of Aventura, First National operates in South Carolina markets “with populations and income levels projected to be among the fastest growing in the United States,” he said.

North American Financial Holdings has raised “approximately $900 million of equity capital, which it intends to invest in failed and undercapitalized banks with the goal of establishing a strongly capitalized, high performance regional bank,” the company said.

Taylor, who retired as vice chairman of Bank of America after 38 years with the company, is chairman and CEO.  Christopher Marshall is CFO and R. Bruce Singletary is chief risk officer. They, too, are former Bank of America officers.