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LIGHTNING EXCLUSIVE: The rise and fall of Mountain 1st Bank

Mountain 1st comes in first

Mountain 1st has fallen a long way from its audacious start.
Founded by veterans of the hugely successful MountainBank, Mountain 1st burst out of the gate like a frisky racehorse in May of 2004. When MountainBank was sold to Carolina First Bank, investors in the Hendersonville community bank founded by J.W. Davis cashed in. Mountain Bank raised $6.2 million to start up in 1997. It sold to South Financial (Carolina First) for $155 million in 2003.
A year later, former MountainBank officers Vince Rees and Greg Gibson were on the street rounding up investors for a new community bank with a similar name: Mountain 1st. They were not disappointed. Still giddy from the MountainBank payoff, new investors gladly wrote checks to the next little bank that would take deposits, make loans in a booming real estate market and install tellers who greeted customers by name and offered warm chocolate chip cookies.
The personnel in the front office had changed little from the executive team that led Davis's MountainBank to such dizzying heights at the turn of the millennium. It was the gathering clouds of a real estate bust, unseen at the time, that would change everything for the promising startup.
The title of the new bank's first annual report was a play on words. "A Year of Firsts" boasted the new kid's glorious start. Opening its doors just seven months after announcing its formation, Mountain 1st Bank & Trust became "one of the fastest community startups in Carolinas history," Gibson said. It surpassed $100 million in assets within three months and had piled up $160 million in assets by New Year's Eve of 2004. It was profitable four months after it first opened its doors. It announced a 5-and-4 stock split after seven months.
The real estate market in Hendersonville was at a high point. Developers announced high-end new subdivisions with names like Grand Highlands, Cobblestone, the Homestead at Mills River and, soon, Seven Falls Golf & River Club — platting thousands of large lots for palatial retirement homes.
"Our research indicates that your company had the best performing stock of any new bank in America during 2004," Gibson said in a celebratory report to shareholders.
The investors could be forgiven if they happily glided past the cautionary boilerplate phrase that the 2004 numbers "should not be considered as indicative of future stock performance."
Board chairman Steve McManus promised that the bank's strong start was the building of "a strong foundation upon which it can grow and thrive for many years to come."
Mountain 1st was a star among a then-robust galaxy of de novo banks — new institutions under 5 years old.
"Mountain 1st really got up and running in the middle of the 2000s and began to accelerate growth kind of at the dawn of the Great Recession," said Flynt, the WCU professor. "They grew at a breakneck pace. They grew much faster than typical and that was their strategy and sometimes that works well."
A new bank tracing the same path with the same leaders as the last successful trailblazer is a common model.
"I started three banks myself, and in fact in many cases I had the same employees and a lot of the same shareholders," said Flynt, who has spent more than 40 years in banking in North Carolina and is now associate dean of the business school at WCU. "People see success with a team" and are confident in the new startup.
"There's several things that were going on," the banking professor said. "Generally, real estate values were declining. In many cases banks in the western third of the state were having a very difficult time and most of them are concentrated very heavily on real estate. Any number of banks fill that profile and almost those banks have suffered. The fact that they had grown more rapidly and had the same or greater concentrations of real estate (as other WNC banks) — all those things combined were a pretty awful formula for the bank."
Stock equity soared and the bank continued to make loans for real estate developments. It had plenty of assets, in the form of loans.
"When you're growing rapidly, by intent you're not likely to be generating a lot of earnings," he said. The bank positions itself for future profit by raking in deposits, opening new branches, making lots of loans and promoting the growth as a sign of robust health and big earnings down the road.
"It's not a bad a strategy in most cases," Flynt said. "It just doesn't work well running in the teeth of the Great Recession."