After years of trying to raise 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 the new infusion of capital, completed Monday, is the last step needed to bring the bank into full compliance with a 2011 agreement with federal and state regulators. That agreement called for the bank to bolster its capital and take other steps, such as reducing past-due loans.
Four Oaks CEO Ayden R. Lee Jr. said 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,” he 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 bank unveiled the stock offering in March, when the bank’s shares were hovering just above $1. Its shares fetched more than $14 in early 2007, before the recession took hold.
An existing Four Oaks Bank investor, Kenneth R. Lehman of Virginia, purchased a majority of the shares offered – more than 15 million. 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,” said Lee, the CEO.
Acquiring a stake of greater than 50 percent could have triggered an “ownership change” that would have 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,” Lee said.
In conjunction with completing the stock offering, the bank announced a “tax asset protection plan” aimed at avoiding ownership changes going forward. Lee 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 Four Oaks Bank 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.