The Cotton Boll Conspiracy
Comparing FNSC to failed peers
05/14/2010
As First National Bancshares continues hemorrhaging red ink, one begins to wonder just how much money a financial services company can lose before it fails.
Obviously, that’s dependent on the size of the institution but a comparison with some recently failed peers shows that Spartanburg-based First National could be living on borrowed time.
First National, the parent of First National Bank of the South, has lost nearly $94 million over the past nine quarters. By comparison, Beach First National Bancshares, which saw subsidiary Beach First National Bank seized by regulators last month, lost about $48 million during roughly the same period.
Myrtle Beach-based Beach First, sunk by bad real estate loans, had about $600 million in assets when it went under; First National, also slammed by bad real estate loans, currently has assets of about $676 million.
Beach First’s stock was selling for 57 cents a share when it failed; First National is trading for around 75 cents.
First National also shows some similarities to the two North Carolina bank companies that have failed during the current economic downturn: Cooperative Bancshares and Cape Fear Bank Corp., both based in Wilmington.
Cooperative’s main subsidiary, Cooperative Bank, was closed by the N.C. Office of Commissioner of Banks in June 2009. Cooperative lost more than $43 million from the beginning of 2008 until it was shuttered and had approximately $970 million in assets, according to information filed with the US Securities and Exchange Commission.
Cooperative’s stock was trading for less than $1 a share when it was closed.
The collapse of the local home construction market killed Cooperative. The institution lent heavily to builders and developers in the Wilmington area as real estate values boomed. When prices plunged, builders couldn’t sell their homes and those acquisition-and-development loans tanked. Cooperative’s loan losses climbed and the value of the collateral on those loans – land and empty homes – deteriorated.
Under accounting rules, Cooperative had to write down the value of those assets, sometimes to zero. In the end, Cooperative was left undercapitalized.
Cape Fear’s main subsidiary, Cape Fear Bank, lost a relatively small amount – $5.6 million – through the first nine months of 2008, the most up-to-date information the company filed before it was closed in April 2009 by the N.C. Office of Commissioner of Banks. The Federal Deposit Insurance Corp. had classified the bank, which had assets of approximately $500 million, as undercapitalized.
Stock in Cape Fear Bank Corp. was trading for 50 cents a share when it went under.
All three of the failed institutions were under a variety of consent orders with different regulators, as is First National.
Subsidiary First National Bank of the South entered into a consent order with the Office of the Comptroller of the Currency in April 2009 which, among other things, contained a requirement that it achieve and maintain minimum capital requirements that exceed the minimum regulatory capital ratios for “well capitalized” banks.
As of Nov. 25, 2009, the bank was notified by the OCC that it was significantly undercapitalized.
First National entered into an agreement with the Federal Reserve Bank of Richmond last summer which required it to obtain approval before taking certain actions, including paying dividends; directly or indirectly, incurring, increasing or guaranteeing any debt; and directly or indirectly, purchasing or redeeming any shares of our stock.
Also, First National’s independent registered public accounting firm stated in its March 9, 2010, report that the uncertainty raises substantial doubt about the company’s ability to “continue as a going concern.”
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