Business

Mountain 1st shareholders eye lawsuit

Mountain 1st CEO Michael G. Mayer looks out at a questioner during shareholder meeting on Tuesday. [PHOTO COURTESY OF REG SMITH]

By Bill Moss, Published: December 10, 2013

Mountain 1st shareholders approved the sale of the once high-flying Hendersonville bank to Raleigh-based First Citizens on Tuesday, bringing to a close a rocky chapter in local banking history.

Shareholders approved the sale to First Citizens 2.8 million to 786,000. The investors were entitled to one vote for each share of stock they owned.
"This vote is a significant milestone in the process," First Citizens chairman and CEO Frank B. Holding Jr. said in a statement. "We are gratified by the support shown by shareholders of 1st Financial. We look forward to completing the merger and providing Mountain 1st customers with the exceptional service they have come to expect from their financial institution."
The shareholder meeting attracted a relatively sparse crowd to Bo Thomas Auditorium at BRCC. Shareholders posed a number of adversarial questions during the meeting that lasted about an hour. Afterwards, disgruntled stockholders gathered in the parking lot to talk about a possible class-action lawsuit.

Shareholders who paid $11 for stock during the initial offering had to settle for a payment of 39 cents under the First Citizens offer. First Citizens will pay $10 million for the bank, $8 million of which goes to the federal treasury to repay a 2008 TARP loan. Investors who have watched shareholder equity drop by 84 percent have criticized the management by the executives and the directors, the $12 million worth of loans to directors and the "golden parachutes" that top executives were to be paid after the acquisition.
"A lot of charges were made about people running off with all the money," said Reg Smith, one of the investors. "There's a lot deceit. The bottom line is there's going to be a class-action lawsuit."
The disgruntled shareholders have not hired an attorney yet, he said, but will seek to retain one on a contingency basis.
"I stood up and said as a former investigator for Charlotte law firms I can tell you this is class action lawsuit and First Citizens has deep pockets," Smith said. "These kinds of lawsuits are very common. I talked to (Mountain 1st CEO) Mike Mayer all weekend and he's fully expecting this to go to litigation."
Mountain 1st president Vince Rees said the Hendersonville bank had conducted the merger according to all regulations and laws.
"I feel very strongly that we followed the process," he said. "We had our counsel prepare proxy in accordance with SEC guidelines and regulations. We submitted the appropriate information that's required. We followed the process to the letter. I don't know what the basis to the class-action lawsuit would be but I certainly feel like we did the appropriate things, the board took the appropriate steps, hired the appropriate professionals, followed the appropriate protocols and did it to a T."
Bank loans to directors will be treated the same as any other loans, Rees said.
"It's like any other loan contract," he said. "If you borrow money you're expected to pay under the terms of the contract. At the inception of the loan they certainly were well-collateralized. Today you can argue that we wish we had more collateral. But by and large the loans are secured by real estate. Much like the general loan portfolio that banks have been dealing with, there's been a general degradation of real estate. In some cases we've asked directors to pledge additional collateral but the $20,000 question we've been dealing with is degrading real estate values."
Rees was among a handful of MountainBank executives who founded the similarly named but unrelated Mountain 1st. in 2004. The real estate market, not mismanagement, led to the loss of shareholder equity, he said.
"If you talk to (MountainBank) J.W. (Davis) he would very quickly tell you that the economic environment was completely different with Mountain Bank," he said. "I was over there at Mountain Bank and we had a great run, good things happened to us and we felt fortuitous. This had a different outcome. That doesn't mean that this is what we wanted. We had a transaction proposed to us and we put it to shareholders for a vote and they spoke today."
After the merger closes, Mountain 1st Bank branch offices will open as First Citizens Bank branches. Customers should bank as they normally do at their existing branches, the banks said in a news release. Mountain 1st customer accounts are expected to be converted to First Citizens' systems in spring 2014. Customers of Mountain 1st already can use any First Citizens ATM with no surcharge fees on cash withdrawals.
Rees said he had no information on any possible branch closings or job decisions First Citizens might make when it evaluates how many locations it needs.
Mountain 1st now operates 12 branches — two in Hendersonville, and others in Asheville, Brevard, Columbus, Etowah, Fletcher, Forest City, Hickory, Marion, Shelby and Waynesville. It is the last Hendersonville-based bank operating in what proved to be fertile market up until the real estate collapse of 2007-08.
The merger has been approved by the North Carolina Commissioner of Banks. Subject to the FDIC's approval, the merger is expected to become effective on Jan. 1 or soon after.