Tidelands Bank loses $2.4M in 3rd quarter

The owner of Tidelands Bank reported a $2.4 million third-quarter loss as its investments in two government-seized mortgage financiers plummeted in value and were written down to zero.

Tidelands Bancshares Inc. took a $4.6 million charge-off for shares it owns in Federal National Mortgage Association and Federal Home Loan Mortgage Corp., better known as Fannie Mae and Freddie Mac.

Otherwise, Mount Pleasant-based Tidelands would have posted a profit, the company said Thursday.

"In my 35 years of banking experience, this is the most difficult and unique time that I have ever seen," Robert E. "Chip" Coffee, president and chief executive.

Tidelands' loss for the latest three-month period compared to a roughly $47,000 profit for the same quarter last year.

For the first nine months of the year, the company reported a loss of $2.9 million, compared to net income of $175,000 through Sept. 30, 2007.

The bank said it remains "well-capitalized" as defined by industry regulators. Also, the percentage of delinquent loans and other troubled assets at Tidelands is "very favorable with industry averages," Coffee said.

"We're still lending money and taking deposits," he said.

The bank ran into what Coffee described as "a perfect storm" this year.

Overhead costs at the expansion-minded lender were one factor, as Tidelands added six branches, from the Grand Strand to Buffton. What the bank did not foresee, he said, was the subsequent "precipitous drop" in interest rates.

So while Tidelands was earning less from its variable-rate investments, the cost of retaining and attracting inter

est-bearing deposits remained fairly steady.

"Because there is such fierce

competition for deposits, you can't lower deposit rates that much and expect deposits to grow," Coffee said.

The squeezed margins "put tremendous pressure on our earnings," he added.

Then Fannie Mae and Freddie Mac were taken over, making Tidelands' preferred shares in those companies virtually worthless for now.

Tidelands has not sold the stock, and Coffee said it's possible that the shares could regain some value.

"But that could be easily several years," he said.

The strategy now at Tidelands, as at many banks, is threefold.

"Were focused on managed growth, ... capital preservation and asset quality," Coffee said.

Shares of Tidelands were unchanged Thursday at $4.20, down about tow-thirds from their 52-week high of $13.05.