A Regional Bank Demutualization, An IPO for North Carolina Banking

If you are reading this, chances are extremely high that you have seen the ticker tape bleeding red week after week here in the U.S. equity markets.  So what would you say if we told you that another bank holding company has filed to come public.  Guess who’s coming public?…. A bank is demutualizing and coming public if the filing made today comes to fruition.

In new IPO paperwork, a company called Macon Financial Corp. is going to try to come public.  The company is offering up to 5.75 million shares of common stock at what appears to be $10.00 per share.  The stock sale will fund the conversion of the organization from a mutual company to the stock company.  The issuer expects the shares to be listed on the NASDAQ but no ticker was presented.

According to the filing, a minimum of 4.25 million shares must be sold to complete the offering.  Macon may sell up to 6,612,500 shares depending, in part, on market acceptance.  Raymond James & Associates is assisting Macon in selling the newly issued stock on a best efforts basis.

As of December 31, 2010 the company held $1,022 billion in assets with net worth just shy of $66 million.  For the year ending 2010 the bank showed an operating loss of $14.3 million.  Based on financials as of March 31 and the anticipated sale of 5.75 million shares at the $10.00 offering price, the company will show total deposits of $782.1 million, $80.3 million in borrowings and $110.6 in shareholders equity.

This is a North Carolina regional banking story.  The companies underlying are Macon Financial, Macon Bancorp, and Macon Bank.  The prospectus noted that it was organized in 1922, as a North Carolina chartered mutual savings and loan association. In 1992, it converted to a North Carolina chartered mutual savings bank. In 1997, upon the formation of Bancorp, it converted to a North Carolina chartered stock savings bank.

The bank did mention that it has grown but also faces losses.  It noted, “We grew significantly in the last decade, increasing our loan portfolio from $333.5 million at December 31, 2000, to a high of $832.6 million at December 31, 2007, before declining to $690.8 million at March 31, 2011. Our construction and development loans grew from $12.2 million at December 31, 2000, to $298.3 million at December 31, 2007, before declining to $154.8 million at March 31, 2011, representing the majority of our loan growth. Many of these construction and development loans were collateralized by developments for second homes.” Oh boy.

Non performing assets were noted as, “Accordingly, our level of non-performing assets increased from $4.6 million at December 31, 2000, to $8.0 million at December 31, 2007, and to $96.7 million at March 31, 2011…. The recent increase in our level of non-performing assets resulted in large loan loss provisions, large loan losses and high REO expenses. During the three years ended December 31, 2010 and the quarter ended March 31, 2011, we recorded aggregate net losses of $24.5million. These losses were driven by cumulative provisions for loan losses of $56.8 million over the same period. Our total equity has decreased from $88.7 million at December 31, 2008 to $56.3 million at March 31, 2011.”

OK, so you have a start to a strange story here.  The full S-1 can be read here.  We haven’t and won’t go too deep into this issuer because the size is too small to interest us.  That being said, this one does not exactly sound suitable for widows and orphans.   An image of the regional snapshot has been provided below.

JON C. OGG