First National declares losses

Bank still searching to raise capital

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First National continues to look for capital as they declare losses in the first quarter.

First National Bancshares of Spartanburg, the troubled holding company of First National Bank of the South, has reported a loss of $1.36 million in the first quarter, further erosion of its capital base and uncertainty about its ability to raise sufficient capital to survive.

The first quarter red ink comes on top of a $44.8 million loss in 2008. First National said its provision for loan losses rose to $2.2 million.

First National said the losses have “adversely impacted our projected capital position by eroding our capital cushion” and made the need to raise capital in the short-term “more critical to us.”

First National is operating under a consent agreement with the U.S. Office of the Comptroller, its Washington regulator, to raise enough capital to restore its “well-capitalized” position and to rectify other shortcomings identified by examiners.

The comptroller gave the bank until August 25 to raise enough money to meet the requirement. Failure to do so or to satisfy other regulator demands could put the bank into receivership under the FDIC.

In its first quarter report to the Securities and Exchange Commission dated May 12, the company acknowledged publicly that its application for cash under the U.S. Treasury’s Troubled Asset Recovery Program had not been accepted.

Previously, Chief Executive Officer Jerry Calvert said the company withdrew its application for government help because TARP was not a “good fit” for the bank.

The stated purpose of Treasury’s program was to infuse “healthy” financial institutions with enough capital to withstand further erosion of their balance sheets from the housing and mortgage collapse.

With the bank shut out of TARP, First National said it is “actively pursuing a variety of other capital raising efforts” but that market for new capital for banks is limited.

“Accordingly, we cannot be certain of our ability to raise capital on terms that satisfy our goals with respect to our capital ratios.”

Further, the bank said, “If we are able to raise additional capital, it would likely be on terms that are substantially dilutive to current common shareholders.”

Short of raising money through sale of stock, the company said, it could improve its capital ratios by limiting its growth and/or selling assets.

First National also is struggling under covenant default on a loan of $15 million it took from Nexity Bank of Birmingham, Ala., to help fund the $59.3-million purchase of Carolina National Bank of Columbia. It has used $9.5 million of the credit line.

The holding company pledged all of the stock of First National Bank of the South as collateral. Nexity Bank has agreed to delay taking action, including foreclosure, at least until the end of June to give First National time to get into compliance with the covenant terms or pay the money back.

In its SEC filing, First National said it is “actively considering strategic alternatives to secure additional capital for a variety of corporate purposes, including providing the funds needed to repay the outstanding balance.”

But, the bank said, “If we are unable to identify and execute a viable strategic alternative, we may be unable to continue as a going concern.”

First National Bank of the South has three branches in Spartanburg, two in Greenville, five in Columbia and two in Charleston.

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