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Monday, March 30, 2020
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Banking & Finance

McMath Ousted as President/CEO of First National Bank

TBJ Staff

First National Bank of Savannah has replaced founder and CEO Heys McMath with a specialist in reworking troubled commercial loans and regulatory compliance.

Removing McMath and installing banking consultant and former regulator Layne F. Huttenberger is designed to help the community bank dig out of a hole it found itself in after a sinking commercial real estate market diminished the value of its development loans.

The move follows a late September cease and desist order issued First National by the U.S. Treasury Department’s Office of the Comptroller of the Currency, which regulates all national banks.  The order called for the bank to meet aggressive goals for raising capital and evaluating its loan policies and processes in the next 60 to 90 days.

The bank has made “tremendous progress” in meeting the capital mandate, said lawyer Brooks Stillwell, a Hunter Maclean partner and member of First National’s board.

So far this year, the bank has put $6.7 million of its loan allowance into covering the diminished value of loans for real estate activity and projects, Connie Farmer Ray, board chair, said in a Nov. 16 letter to shareholders.

As of the end of September, First National’s core capital, or Tier 1 Leverage Capital, totaled 5.8 percent and Total Risk Capital exceeded 10 percent, Farmer Ray’s letter said. To be well-capitalized under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 capital ratio of at least 6 percent, and a combined Tier 1 and  Tier 2 capital ratio of at least 10 percent.

Farmer Ray said the bank is “adequately capitalized,” and noted two of its three capital levels exceed those to be considered numerically “well capitalized.”

More than 94 percent of First National’s loans involve real estate, and a large percentage of that money is in heavy construction.

More than 11 percent of those assets are considered "non-performing" – at least 90 days delinquent – and 9 percent are in repossession.

First National's dominant funding source complicates the situation. Better than 90 percent of the bank's capital comes from certificates of deposit. CDs are considered unstable funding sources because once they mature, customers often rate shop before investing again.

Those factors prompted the cease-and-desist order.

First National, like many banks around the country that lent heavily during the recent commercial real estate boom, has found itself in a squeeze as many loan asset values fall below the value of the loans.

“What we want to do is work with our customers who can’t afford to pay their loans back,” Stillwell said.

That’s where the expertise of Huttenberger, a 25-year banking veteran, will come in, Stillwell added. He noted the new president and CEO is an expert in reworking troubled real estate deals and working out bank compliance issues.

Huttenberger has been a banker, a national bank examiner and senior examiner with the Office of the Comptroller of the Currency and the Federal Reserve.

“Layne has been working closely with us for the last four months,” Farmer Ray told shareholders.

McMath, meanwhile, will work with the bank during the transition, she said.

McMath, who brought the bank to Savannah a little more than a half dozen years ago, did well in growing the bank, Stillwell said. But in this difficult economic climate, new leadership is needed, Farmer Ray and Stillwell said.

“We felt like we needed a different kind of leadership,” Stillwell said.
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