First Charter Corp. of Charlotte is the latest Southeast banking company to warn of potential loan losses related to a western North Carolina real estate development under investigation by the state's attorney general.
The $4.9 billion-asset First Charter announced late Thursday that it had recorded a special $7.8 million loss provision for the second quarter for loans it made for land purchases at the Village of Penland development, which was shut down last month by the attorney general, Roy Cooper.
First Charter now expects to report second-quarter earnings of 25 to 26 cents a share, at least 9 cents below the average analyst estimate reported by Thomson Financial. No chargeoffs were recorded, but First Charter said it expects them in future quarters.
The Attorney General's Office halted the Penland project after concluding that the developer had used "deceptive" practices to sell investors lots that it never intended to develop into properties. Peerless Development Group received about $100 million from investors but did not complete any part of the project and instead used the money to fund other failed developments, as well as expensive vacations for its executives, the Attorney General's Office said.
On July 2, South Financial Group Inc. of Greenville, S.C., said that it would charge off $1.5 million of its $21 million exposure to the Penland project and another nearby in the second quarter. A week later United Community Banks Inc. in Blairsville, Ga., said it would record a special $15 million loss provision for the quarter and classify as nonperforming the full $23.6 million of loans it made related to the developments. It said it expects to charge off some of the loans over the next two quarters.
