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Mountain 1st sale would close sour banking chapter

First Citizens Bank's purchase of Mountain 1st Bank & Trust Co. would bring to a close a sour chapter of local banking history if Mountain 1st shareholders and federal regulators approve the transaction.


Founded by former Mountain Bank executives and shareholders who had profited handsomely from the success of the earlier Hendersonville startup, Mountain 1st started out strong and looked to be on a similar trajectory for a stock price increase. A year after its founding, a financial research firm called Mountain 1st "the best new bank in America based on stock price performance."
After the bank opened in May 2004, its stock rose from an initial price of $11 to as high as $28, on Dec. 1, 2006. Three years later, after the recession hit and the western North Carolina real estate market sputtered, the stock closed at $2.17. In 2012, it traded as low as 12 cents before recovering this year under the bank's closer scrutiny of loans and other changes. It reached as high as $2.69 in May and it closed at $1.45 on Aug. 20, 10 days before the First Citizens merger was announced.
The real estate crash left Mountain 1st with risky loans and an uncertain future. It had been operating under a consent order since 2010. Mountain 1st borrowed $16 million from the federal TARP program, and the debt is one reason that the bank's shareholders are looking at a minuscule payoff of 38 cents a share for their investment.
The merger agreement commits $8 million of the $10 million price to repay the TARP loan, leaving $2 million for shareholders of 1st Financial, the Hendersonville bank's parent company. The sale of Mountain 1st would become final in the first quarter of 2014 provided its shareholders and federal regulators approve the agreement.
"The bargain-basement sale price of just $2 million to shareholders is a nearly 70 percent discount to the company's market value of $6.5 million," the Charlotte Business Journal reported. "Its shares trade at about $1.25. But the sale to First Citizens allows the bank to escape further sanctions by regulators."
Mountain 1st president Vince Rees said he could not comment on whether Raleigh-based First Citizens will keep its 138 employees and 15 branches.
"First Citizens won't make any decisions as long as we're an independent company," he said.
"We welcome the opportunity to merge into First Citizens," 1st Financial CEO Mike Mayer said in a statement. "Customers will benefit from First Citizens' century-long dedication to safety and stability, a more robust line of products and a greater overall capacity to serve their financial needs. It is an attractive agreement for our company and our constituents."
The loss of Mountain 1st leaves the community without a Hendersonville-based bank for the first time since the mid 1990s, when J.W. Davis started Mountain Bank. Investors saw their shares increase in value as the community bank piled up assets and expanded in the N.C. mountains and the South Carolina Upstate and many realized a handsome profit when the bank sold for $155 million.
Six months after Carolina First bought the Hendersonville startup, former Mountain Bank executives Greg Gibson and Vince Rees and a handful of founding directors envisioned a similar success for Mountain 1st.
"The market is so attuned to what a community bank can provide that the opportunity is just tremendous," Rees told the Hendersonville Times-News in November 2003. The community wants a bank that is "owned locally, operated locally with a local board of directors. We have heard the voice of the community after Mountain Bank's sale and it was pretty unanimous that the community was not excited about losing its local institution."
Among the initial Mountain 1st investors were Catherine Schroader, owner of Schroader's Honda; real estate investor Van F. Phillips; and William H. "Bill" Burton Jr., owner of Fatz Café. All had been major shareholders in Mountain Bank, according to a Mountain Bank SEC filing in April 2003.
Mountain 1st reported in a Securities and Exchange Commission filing recently that "the company's low capital ratios have placed it in a weakened position to respond to adverse unforeseen events in the future," the News & Observer of Raleigh reported.
"As you would imagine, we have pursued every avenue available to us to raise capital," Mayer said in the News & Observer story.
Although shareholders may grumble at the 38-cent-a-share purchase price, they may have little choice but to approve it.
"I can see that most of them paid a lot more for the stock but they'll look at it like at least I'm getting 38 cents," said Don Holder, a veteran local banker who now operates a mortgage company.