1st American Lost Billion In Deposits After Scandal

WASHINGTON - Depositors pulled almost $1 billion from First American Bankshares Inc. in the third quarter amid the scandal surrounding its parent, the Bank of Credit and Commerce International, a bank official confirmed Tuesday.

"We had a big runoff in late July and early August," said Paul G. Adams, chief operating officer of the Washington-based company. "It was an impact from the seizure of BCCI and the related media attention."

Mr. Adams said the outflow has since stabilized and the amount of deposits has "improved slightly."

Other Deposits Sold

The withdrawals, coupled with the sale of $460 million in deposits at a Tennessee affiliate, resulted in a whopping 17% decline in deposits for the three months, to $7.1 billion from $8.6 billion.

First American, which operates banks in five states and the District of Columbia, said Tuesday that it lost $47.1 million in third quarter.

The deficit, which compares to a $43 million loss in the year-earlier quarter, stems largely from a $51.3 million provision for loan losses. First American has been hit hard by the real estate downturn in the Middle Atlantic states.

The company, which has $9 billion in assets, also expects to post a loss in the fourth quarter, said Mr. Adams, declining to make a specific projection.

Capital Still Strong

Despite its loan problems, First American remains well capitalized. Tier 1, or core, capital equals 8.67% of risk-adjusted assets, more than double the minimum requirement.

Mr. Adams said that the bank is highly liquid and did not have to borrow from the Federal Reserve during the deposit runoff.

But real estate problems and its connection to BCCI are taking a toll. It was disclosed last March that Luxembourg-based BCCI secretly controlled First American in violation of U.S. banking laws. Then in July, BCCI's assets were seized in eight nations after the company was implicated in a massive fraud.

The Federal Reserve System and First American officials have been trying to set up a trust to sell BCCI's 60% stake in the bank, but the process has taken months.

Franchise Held Attractive

Most analyst believe that First American has an attractive franchise, despite the losses.

"If they ever get these issues straightened out as to who owns it . . . I believe there will be spirited bidding," said Edward Furash, president of Furash & Co., a Washington-based bank consulting firm. "But the longer that takes, the more the franchise will devalue."

First American's management, meanwhile, has been trying to consolidate operations by selling assets, such as its Georgia-based bank, which has more than $1 billion in assets.

In September it sold Valley Fidelity Bank and Trust Co., a $553 million-asset company based in Knoxville, Tenn.

Jumbos Were Allowed to Drop

That deal reduced deposits by $460 million and total deposits declined by $1.4 billion in the quarter. Demand deposits fell by $218 million, interest-bearing accounts by $567 million, certificates of deposits by $330 million, jumbo CDs by $247 million, and foreign deposits by $98 million.

Mr. Adams said the company made a conscious decision to run off some of the jumbo CDs in the wake of large loan chargeoffs.

Meanwhile, assets declined by 13% in the quarter, to $8.95 billion from $10.3 billion.

Nonperforming Assets Up

Nonperforming assets increased by 4.2% in the quarter, to $629.3 million. At Sept. 30, nonperforming assets reached dangerously high 11.2% of loans and 7% of assets.

"The commercial real estate market isn't showing any signs of improvement," Mr. Adams said.

For the nine months ended Sept. 30, First American lost $118.8 million, compared to a loss of $65.9 million a year ago.

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