Breaking the banks: risk, recession and regulators all team up to tame the performance of the state's financial institutions.

• Author: Maley, Frank
• Position: FEATURE

There's always room to hope that this year will end up better than last for Tar Heel banks. Things can't get worse, can they? When Wachovia Corp. was snatched from the brink of failure and sold to San Francisco-based Wells Fargo & Co., more than 40% of Tar Heel deposits went with it, along with the headquarters of what had been the state's second-largest financial institution.

Other North Carolina banks once seen as rock-solid started to look brittle. Bank of America Corp. net income plunged 73% last year, and it lost $1.8 billion in the fourth quarter. Its stock plummeted 63% after Oct. 1 to close the year at $14.08--and kept heading south. Two years ago, Blue Ridge Savings Bank, with about $300 million in assets, boasted the best return on assets of any bank among the 100 largest financial institutions based in North Carolina. In 2008, its ROA ranked among the five worst.

At least no Tar Heel banks failed last year. Already in 2009, one--Cape Fear--has, and others--including Blue Ridge--have been warned by regulators to shape up. Even the big banks face challenges. On the day BofA reported first-quarter earnings 11 times better than expected, CEO Ken Lewis sent share prices tumbling with a caveat that "we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment."

Lewis lost one of his titles--chairman--to a shareholder revolt at BofA's annual meeting April 29, and a strong sense of deja vu crept over the Queen City. A year earlier, another Charlotte bank chief executive named Ken was stripped of his chairmanship. A month later, Wachovia's board forced Ken Thompson out as CEO. Four months later came the company's meltdown. Maybe things can get worse.

THE FINANCIAL 100 Rank Headquarters 2008 '09 '08 revenue * (millions) 1 1 Bank of America Charlotte $116,461.3 2 3 BB&T Winston-Salem 10,265.6 3 4 First Citizens BancShares Raleigh 1,115.0 4 5 State Employees # Raleigh 940.7 5 6 First Bancorp Troy 168.9 6 8 Coastal Federal # Raleigh 140.6 7 7 FNB United (1) Asheboro 136.3 8 10 NewBridge Bancorp Greensboro 136.1 9 12 Southern Community Financial Winston-Salem 107.9 10 13 Capital Bank Raleigh 95.8 11 15 Yadkin Valley Financial Elkin 91.8 12 11 Fidelity Bancshares Fuquay-Varina 89.3 13 17 Truliant Federal # Winston-Salem 83.4 14 22 HomeTrust Bank (2) Clyde 80.9 15 14 Bank of Granite Granite Falls 79.5 16 18 Allegacy Federal # Winston-Salem 78.4 17 20 BNC Bancorp (3) Thomasville 76.1 18 16 Southern Bancshares Mount Olive 75.3 19 9 First Carolina Corporate # Greensboro 72.0 20 19 First South Bancorp Washington 69.6 21 21 Macon Bancorp Franklin 69.3 22 24 First National Bank Shelby 68.4 23 23 Peoples Bancorp of North Newton 67.0 Carolina 24 26 Paragon Commercial Raleigh 66.6 25 32 Square 1 Financial Durham 65.3 26 25 Cooperative Bankshares Wilmington 60.7 27 27 Crescent Financial Cary 58.1 28 31 Local Government Federal # Raleigh 55.9 29 29 Marine Federal # Jacksonville 55.8 30 33 Four Oaks Fincorp Four Oaks 53.8 31 28 High Point Bank High Point 53.3 32 30 Citizens South Bank Gastonia 48.1 33 34 ECB Bancorp (4) Engelhard 45.5 34 37 F&M Financial Granite Quarry 45.0 35 38 1st Financial Services Hendersonville 43.2 36 39 Asheville Savings Bank Asheville 42.1 37 35 Piedmont Federal Savings Bank Winston-Salem 41.1 38 36 New Century Bancorp Dunn 37.6 39 45 North State Bancorp Raleigh 37.3 40 43 Carolina Bank Greensboro 36.0 41 42 Waccamaw Bank Whiteville 34.6 42 40 American Community Bancshares Charlotte 33.5 (5) 43 44 MidCarolina Bank Burlington 32.8 44 41 Bank of the Carolinas Mocksville 32.2 45 47 Uwharrie Capital (6) Albemarle 32.1 46 48 NewDominion Bank Charlotte 29.9 47 46 Cape Fear Bank (7) Wilmington 28.9 48 50 First Trust Bank Charlotte 26.4 49 51 Security Savings Bank Southport $25.7 50 -- Greystone Bank Raleigh 22.8 51 52 KS Bank...