The bank's ongoing struggles led it to announce Thursday that it has retained an investment bank to “explore our strategic alternatives.”
It didn't share any details. But such announcements generally mean one of three things:
Raise new capital, unload branches or sell the bank, said
Clark Locke, managing director and head of investment banking in Texas for
Hovde Group.
Meanwhile, First National's latest financial results show the red ink keeps flowing, though the loss wasn't as much as in the same period last year. Bad loans are shrinking, too, but still represent nearly one out of every $5 loaned.
A lot of the bank's troubles are the result of soured real estate loans — including some made in San Antonio, where it continues to be dogged by problems.
The beleaguered bank's Tier 1 leverage capital ratio — a measure of financial strength — was 2.39 percent on March 31. That's down from 2.47 percent on Dec. 31; it originally was reported as 3 percent before it was revised two weeks ago.
That means First National remains “significantly undercapitalized” by the Federal Deposit Insurance Corp.'s measures.
“It's very rare for an institution that is still losing money to be able to earn its way out of that level of capital deficiency,” said
Karen Dorway, president of
BauerFinancial Group, a Coral Gables, Fla., firm that analyzes banks. “More commonly, it's going to take some sort of capital infusion.”
First National Chairman and CEO
Saul Ortega told the San Antonio Express-News in January that the bank wasn't seeking capital from investors or looking for a buyer.
In a statement Thursday, the bank said, “Our liquidity remains strong, and we believe we have sufficient liquid resources to meet our cash flow obligations arising from ordinary operations.”
Ortega previously predicted the bank would turn a profit in the first quarter. It actually lost almost $3.4 million, though that was an improvement over a $12.3 million loss in the same period last year. For all of 2012, it lost $136.5 million.
Capital is important for banks to absorb losses and provide protection for depositors.
The ratio, though, has been inching closer to 2 percent. A ratio of 2 percent or less is considered “critically undercapitalized.” Federal banking regulators have been known to commence takeovers of institutions below that level if they can't immediately raise capital.
But
Curtis Carpenter, managing director of Sheshunoff & Co. Investment Bank, said that isn't necessarily true anymore — especially in Texas, which is considered one of the nation's strongest banking markets.
“In Texas, I think there is more patience and less panic because the thought is there probably is a buyer for a
Texas bank,” Carpenter added.
The FDIC protects deposits of up to $250,000 per depositor at insured banks.
Meanwhile, First National continues to have its share of problems in San Antonio.
It's moving to foreclose next week on 70 undeveloped acres along Interstate 10 West, near Camp Bullis Road. Owner 70 Acre Cresta Bella allegedly has defaulted on a $20 million note from the bank.
First National is listed as the largest creditor in last month's bankruptcy of a San Antonio partnership that owns the office and retail building at 8522 Broadway, just north of Northeast Loop 410. The bank is owed almost $8.6 million.
Developer
David W. Monnich, who heads the partnership that owns the building, said last month that he's negotiating with the bank to restructure the debt.
A group of investors in a townhouse project near the
Toyota plant on the South Side and financed by First National are suing the bank for at least $25 million. The case is scheduled to go to trial this fall.
The investors allege the bank continued to loan money to developer
Mauro Padilla despite serious construction deficiencies on the project. They also claim he was not applying a large percentage of the construction draws to the project. Padilla was sentenced to 12 years in federal prison for lying to the bank.
On March 31, the bank had $347.9 million in noncurrent loans, or about 17.9 percent of total loans. It had $363.8 million in noncurrent loans, or nearly 18.2 percent, on Dec. 31. Some of the improvement was in construction and land development loans.
It held $230 million in repossessed real estate at the end of the latest quarter, down from $240.9 million on Dec. 31.
First National had assets of $3.19 billion at the end of the first quarter, down from $3.28 billion at the end of the year.
Despite the bank's difficulties, deposits declined only slightly in the last quarter. It had almost $2.44 billion in deposits on March 31, down less than 3 percent from about $2.51 billion on Dec. 31.
The bank shrank its workforce to 744 in the latest quarter, a 4 percent decline from 777 at the end of last year.
pdanner@express-news.net
