The owner of Tidelands Bank will shrink its balance sheet but retain all branches and employees under a dramatic financial restructuring announced Thursday.
"This is a rather bold move we're making," said Robert E. Coffee Jr., president and chief executive officer of Mount Pleasant-based Tidelands Bancshares Inc. "It's to control our ability to control our destiny."
The bank parent said it is selling the bulk of its $230 million government bond portfolio and will use the proceeds to unwind other financial holdings that have been flagged as potential liabilities.
Also, Tidelands is moving to reduce its use of certain deposits considered risky by regulators. It plans to let many of those accounts lapse as they come up for renewal.
Looking ahead, Tidelands said it will rely more on ordinary "core" deposits from retail customers such as individuals.
"At the end of the day, we will look like a traditional community bank that is core-funded," Coffee said Thursday.
The new strategy calls for Tidelands to quickly shrink its asset base by more than one-quarter to $550 million, from $760 million as of March 31. As a result, the company's capital levels as a percentage of total assets will rise.
Most of the retooling is expected to be completed by June 30. Customers are not likely to notice any changes.
"Upon completion of these transactions, the bank will remain well-capitalized and in compliance with regulatory capital requirements," Tidelands said in a statement..
Also, no job losses are being proposed.
"We're not closing any offices," Coffee said. "We're not damaging our footprint. ... It's very valuable to us."
The restructuring is aimed at appeasing regulatory agencies, which directed Tidelands to shore up its balance sheet and increase capital last November. Like many banks along the South Carolina coast, the lender been stung by the prolonged real estate downturn and the broader economic recession.
Earlier this year, Tidelands proposed to raise capital by selling stock, but that plan was shelved two weeks ago, partly because of volatility in the financial markets. Also, the offering would have hurt existing shareholders by heavily diluting their ownership stakes, Coffee said.
Tidelands opened in October 2003, and it quickly set up seven offices from Bluffton to Myrtle Beach. To fuel the early growth, it relied heavily on "brokered" or "wholesale" deposits, meaning it paid fees, typically to cash-rich large institutions, for the privilege of using their money for specific periods of time.
Risk-sensitive bank examiners frown on that practice, Coffee said.
"The reason they have taken issue with brokered deposits is that in a lot of areas -- and you can make us an example of that -- a lot of banks grew fast using brokered deposits to fund their asset growth. Regulators don't like that model anymore," he said.
Jim Bedsole, chief risk officer, said Tidelands already had been pruning its exposure to those deposits even before the brunt of the recession set in.
"That wholesale piece of our bank fulfilled a need we had at the outset ... but we don't have that need anymore," he said.
Alan Jackson, chief financial officer, said the bond portfolio being sold is large relative to the bank's total assets. That was by design, he said, as Tidelands needed an income source to cover expenses as it established new branches.
He also said the sale's timing is fortuitous, as Europe's debt crisis has fueled demand for the type of U.S. government securities in Tidelands' portfolio. The proceeds will go toward what are essentially prepayment penalties on other liabilities the bank is shedding.
"On a grand scale, the profit we make on the bond portfolio will offset the expense of the fees we will have to pay to get out of those liabilities," Jackson said.
While Tidelands expects another loss this quarter, officials said the leaner balance sheet will help generate sustainable earnings in the future.
"This is not a death spiral," Jackson said. "We are moving forward, being proactive to get us on firmer ground so that we can move forward with traditional community banking, retail banking."
Shares of Tidelands climbed amid heavy trading volume Thursday. They closed up 22 cents at $1.18.