Struggling Spartanburg, SC-based First National Bancshares got good news Wednesday when it reached an agreement that will help it avoid defaulting on the $54.1 million loan it used to purchase Carolina National Bank last year.
The agreement, which is pending regulatory approval, will allow the holding company for First National Bank of the South to modify its loan agreement with Nexity Bank of Birmingham, Ala., and nullify three covenant violations that arose in April tied to the company’s declining capital position, according to The Spartanburg Herald-Journal.
The announcement came the day after the company replaced it founder and chief executive Jerry Calvert.
The company also said it has reached a verbal agreement with the Office of the Comptroller of the Currency for an extension that will allow it to continue operating for an unspecified amount of time as long as it continues to improve its capital ratios.
“We believe we are on the verge of resolving our loan agreement with Nexity Bank,” said Dan Adams, First National’s chairman, in a press release. “This would remove First National from default and modify its current loan agreement. Upon formal approval, this agreement would clear the way for First National to take actions to improve its capital ratios.”
First National said the agreement is awaiting approval of the State of Alabama Banking Department on behalf of Nexity.
Company spokesman Reed Byrum said First National has already received regulatory approval for the proposed modification, according to The Herald-Journal.
The OCC had set Tuesday as its deadline for First National to meet its minimum capital requirements, otherwise it could have been subject to a federal receivership or sold to another depository institution.
The company also said in its release that each of its board members made an investment in the bank’s future on Aug. 24 by purchasing shares of its common stock in exchange for an aggregate capital contribution of $550,000.
Earlier this month, First National reported that it lost $20 million during the second quarter and that it didn’t expect to meet minimum capital requirements by the deadline set by federal regulators. That deadline was Tuesday. Last year, the company lost $44.8 million and another $1.36 million during the first three months of 2009.
On Tuesday, First National replaced Calvert with Barry Mason – formerly of Arthur State Bank.
First National’s shares more than doubled in price Wednesday, jumping 95 cents to $1.87 per share.