Four Oaks Bank raises $24 million

08/19/2014 4:20 PM

08/19/2014 4:21 PM

After years of trying to raise additional capital to shore up its finances, the corporate parent of Four Oaks Bank has raised $24 million from investors.

Officials at the Johnston County-based bank believe that the new infusion of capital, which was completed Monday, is the last step necessary to bring it into full compliance with a 2011 agreement the bank struck with federal and state regulators. That agreement called for the bank to bolster its capital as well as take other steps, such as improving its situation with regard to past-due loans.

Four Oaks CEO Ayden R. Lee Jr. said that raising the capital is good news for the bank’s customers.

“We’ll be in a position to move forward and start growing our loan portfolio, instead of just maintaining it,” Lee said.

Founded in 1912, Four Oaks has more than a dozen branches and had $833.4 million in assets as of June 30.

To raise the capital, Four Oaks sold 24 million shares of common stock at $1 per share. The stock offering was unveiled in March, when the bank’s shares were hovering just above $1.

But the shares rose after the stock offering was announced. The shares closed Tuesday at $1.38, down 2 cents. Its shares fetched more than $14 in early 2007 before the recession took hold.

An existing Four Oaks investor, Kenneth R. Lehman of Virginia, purchased a majority of the shares offered – more than 15 million shares. That pushed his stake in the bank to just short of 50 percent.

Lehman is a former banking lawyer who has invested in several community banks

“He was called an angel investor when he was introduced to me, and that’s probably a fair term,” Ayden said.

Acquiring a stake of greater than 50 percent could have triggered an “ownership change” that would undercut the bank’s tax loss carryforwards, which reduce future federal income tax liability. The bank has about $36.8 million in loss carryforwards.

“All the existing shareholders want to be able to preserve the deferred tax asset,” Ayden said.

In conjunction with the completion of the stock offering, the bank also announced a “tax asset protection plan” aimed at avoiding ownership changes going forward. Ayden said Lehman was on board with that plan.

Banks found it extremely difficult to raise new capital in the wake of the recession, but the funding environment has improved considerably now that the banking sector is healthier overall, said Bill Wagner, a Raleigh-based investment banker with Raymond James.

“Capital is back,” he said.

Wagner said that Four Oaks also has boosted its cause by the improvements it has made.

“If you look at their level of nonperforming assets, that has diminished significantly in the past few years,” Wagner said. “That gives investors confidence that the company is in better financial condition than it was.”

Raymond James wasn’t involved in Four Oaks’ stock offering, but it has worked for the bank in the past.

Four Oaks’ nonperforming assets, which includes past-due loans, totaled $29.5 million in the second quarter, or 3.5 percent of total assets. That’s down from nonperforming assets of $60.3 million, or 6.37 percent of total assets, at the end of 2010.

Four Oaks generated $2.4 million in net income in the second quarter, reversing its $105,000 loss of a year ago.

In January the bank agreed to pay a $1.2 million civil penalty to settle a civil lawsuit filed by U.S. Justice Department, which accused the bank of facilitating fraud by routing more than $2.4 billion in transactions for “fraudulent Internet payday lenders” through the national money transfer system. The bank didn’t admit to any wrongdoing.

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