Construction stopped at the Little Palm Key subdivision when the Myrtle Beach area real estate market imploded, but the empty lots and streets to nowhere illustrate the troubles now facing Plantation Federal Bank.
The bank in January 2008 gave developers a $5.6 million loan with a future-advance clause that could have increased that debt to $11.2 million to build the proposed 36-home community along 67th Avenue North in Myrtle Beach.
That loan now is in default and Plantation Federal - which has a history of making risky real estate loans, according to federal regulators - faces the possibility of becoming the second Grand Strand bank to fail this year.
Federal regulators shut down Myrtle Beach-based Beach First National Bank in April.
"Since its formation in 1986, Plantation Federal has weathered various economic downturns," said Gary Cooper, spokesman for the Pawleys Island-based bank's board of directors.
Cooper said he is confident the bank will "continue serving our customers and our communities."
That will not be an easy task, experts say, although depositors are not at risk because their money is insured.
The Office of Thrift Supervision, the federal agency that regulates Plantation Federal, issued a cease and desist order against the bank on June 30, citing a laundry list of problems.
Such orders are among the most serious enforcement actions regulators can take.
According to the order, the bank has not set enough money aside to cover potential loan losses; has an excessive level of bad loans and assets; and has been making loans that violate the bank's policies and procedures.
More important for the bank's future, regulators have ordered Plantation Federal to raise its Tier 1 capital ratio - a key indicator of a bank's ability to withstand future losses - to at least 8 percent by the end of this year.
The bank's ratio stood at 5.75 percent on March 31, the most recent financial data available.
Plantation Federal will have to raise about $15 million in the next five months to comply with the order, according to the bank's most recent data.
Put another way, the bank will have to generate nearly half the amount of Tier 1 core capital in the next few months as it accumulated during the first 24 years of its existence.
The most common ways to raise capital are to sell assets or offer more stock shares to investors.
Cooper said the bank has applied for permission to close its Conway branch, which would leave four locations. The OTS is expected to rule on that request next month.
A stock offering seems unlikely in the current economic environment.
Shares of Plantation Financial Corp., the bank's holding company, are not publicly traded on a stock exchange. So-called "gray market," or over-the-counter exchanges, however, list the company's stock value at 50 cents per share. That is down from a 52-week high of $5.50 per share in November.
Cooper said the board of directors believes it can comply with the June 30 order, but he did not give specifics about how the bank will raise capital. If it does not comply with the order, regulators could shut it down.
Plantation Federal embarked on a growth strategy in 2007, Cooper said, that hedged its future on rising real estate prices along the S.C. coast.
"Although the strategy was sound, it ultimately proved to be ill-timed as a result of the economic downturn," Cooper said. "The unexpected real estate market collapse resulted in increased levels of non-performing loans, interest reserves associated with the loans and additional provisions for loan losses, all of which impacted the bank's capital position."
Big bad debt
Little Palm Key demonstrates the bank's failure to anticipate this area's real estate collapse.
The loan for the project - made even as this area's real estate market was crashing - is one of Plantation Federal's largest bad debts in Horry County, according to property records. The loan has been past due since January.
Cooper said he does not know enough about the loan to comment.
County property records show Ford Shelley bought the seven-acre parcel just off the busy Kings Highway thoroughfare in December 2006 for $1.7 million. Shelley then sold the land to Casa de Lago LLC - a corporation he formed with father-in-law Ben Thompson - six months later.
Casa de Lago was to be the developer of Little Palm Key, but the future of the project now is in doubt.
The city approved Casa de Lago's subdivision plans in January 2008, but that approval expired a year later because the developer did not record a master deed with the county.
Casa de Lago would have to go back to the city's planning commission for another approval before construction could resume, according to city spokesman Mark Kruea.
Plantation Federal, however, has said that it plans to foreclose on the property, Thompson said. The bank filed a lis pendens - a court filing that indicates a lawsuit is imminent - in November.
Murrells Inlet-based general contractor R. L. Causey Inc. filed a foreclosure lawsuit against Casa de Lago in December in an attempt to collect on a nearly $23,000 mechanic's lien for unpaid work at the subdivision. That lawsuit is pending.
Despite the subdivision's troubles, real estate agency King One Properties continues to market homes at Little Palm Key.
King One's marketing materials state that the raised, Caribbean- or beach-style homes start at $379,900 for a three-bedroom model that "makes you feel as if you were in a world-class resort in the [Florida] Keys."
Michael King, owner of King One Properties, did not respond to a request for comments. In a video presentation on his website, King describes Little Palm Key as "one of the most incredible properties ever offered in Myrtle Beach."
Thompson agrees with that assessment, calling Little Palm Key "a fantastic piece of property and a great location."
"It was just a casualty of the economic times," he said.
Suffering from the times
The Little Palm Key loan is among nearly $102.2 million in mortgage loans that Plantation Federal reported as being at least 30 days late, according to the bank's most recent financial report on March 30.
That means more than one-fifth of the bank's $474.4 million in mortgage loans is late.
More than half of the late mortgage loans - $58.4 million of them - were in non-accrual status, which means they are more than 90 days late and the money is in doubt of ever being fully recovered.
The bank's loan portfolio is shaky enough that until further notice, regulators have barred Plantation Federal from making any loans unless they are owner-occupied home mortgages or consumer loans of $40,000 or less. Anything else requires prior approval from the OTS.
The bank - which reported $672.6 million in assets as of March 30 - also is not allowed to declare or pay any dividends to shareholders.
Cooper said the bank's troubles stem in large part from the real estate crash, where developers such as Casa de Lago borrowed money but could not complete subdivisions.
"Or they are developed lots where no one is buying because banks aren't lending," he said.
This is not the first time Plantation Federal has run into trouble with regulators.
The OTS first told Plantation Federal that it needs to boost capital to offset bad real estate loans in an April 2009 supervisory agreement.
Ed Norris, the bank's chief executive at the time, said when the agreement was issued that Plantation Federal had been doing business with many of the same builders for more than two decades.
"When they can't pay, then we suffer," said Norris, who now is a consultant with the bank, according to Cooper. "When the real estate market on the coast starts dropping in value, then we suffer."
A spokeswoman for Mark Kiskunas, the bank's interim chief executive, referred all questions to Cooper.
Regulators have been critical of the bank's management and issued sanctions against two employees last fall:
The OTS in October barred Patricia Tyler, the former marketing executive at the Georgetown branch, from holding any office at a financial institution. The OTS said Tyler violated federal law when she notified an individual that they were the subject of a bank investigation and a suspicious activity report filing.
The following month, the OTS issued a cease and desist order against Janet Blackmon, a customer representative at the Georgetown branch. Regulators said Blackmon violated conflict of interest policies by waiving penalties and providing better interest rates for herself and family members.
The bank also was cited by regulators in 2006 for failing to report cash transactions of $10,000 or more, and in 2001 the bank gave $5,000 to Five Rivers Community Development Corp., a Georgetown nonprofit agency whose executives later pleaded guilty to felony theft and embezzlement charges.
The OTS does not comment on specific banks, but its June 30 order was clear: Plantation Federal "has engaged in unsafe or unsound banking practices and has violated various laws and regulations."
Cooper said he and other board members are confident the bank will survive its latest problems. He said the board and management "fully anticipate having a capital solution by the end of 2010" so Plantation Federal can continue serving customers and supporting the community.
"We have done that for almost 25 years," Cooper said. "We plan to continue that service and support."
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