UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 11, 2016
HCSB FINANCIAL CORPORATION
(Exact Name of Registrant As Specified in Its Charter)
South Carolina
(State or Other Jurisdiction of Incorporation)
| 000-26995 | 57-1079444 |
| (Commission File Number) | (I.R.S. Employer Identification No.) |
| 3640 Ralph Ellis Blvd, Loris, South Carolina | 29569 |
| (Address of Principal Executive Offices) | (Zip Code) |
(843) 756-6333
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 3.02. Unregistered Sales of Equity Securities.
Closing of the Private Placement
On April 11, 2016, HCSB Financial Corporation (the “Company”) closed its previously announced $45 million private placement with Castle Creek Capital Partners VI, L.P. and certain other institutional and accredited investors, pursuant to which the Company issued 359,468,443 shares of its common stock, par value $0.01 per share, at $0.10 per share, and 905,315.57 shares of a new series of convertible perpetual non-voting preferred stock, Series A, par value $0.01 per share, at $10.00 per share. The Company used the net proceeds from the private placement to repurchase its outstanding Series T preferred stock, trust preferred securities, and subordinated debt notes, as described below, and to recapitalize the Company’s wholly-owned bank subsidiary, Horry County State Bank (the “Bank”), to support its operations and increase its capital ratios to meet the higher minimum capital ratios required under the terms of the consent order between the Bank, the FDIC, and the South Carolina Board of Financial Institutions.
The private placement was previously disclosed by the Company in its Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on March 3, 2016, as amended by the Company’s Current Report on Form 8-K/A filed with the Commission on March 9, 2016, which disclosure is incorporated herein by reference. The issuance of the shares of common stock and Series A preferred stock is exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
Item 5.02. (b) (c) (e) Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Jan H. Hollar was appointed as the chief executive officer and a director of the Company and the Bank, effective as of the closing of the private placement. The terms of Mrs. Hollar’s appointment as chief executive officer, including her employment agreement with the Company and the Bank, were previously disclosed by the Company in its Current Report on Form 8-K filed with the Commission on March 3, 2016, as amended by the Company’s Current Report on Form 8-K/A filed with the Commission on March 9, 2016, which disclosure and agreements are incorporated herein by reference.
The Company previously announced that James R. Clarkson would retire as the president, chief executive officer and as a director of the Company and the Bank, effective as of the closing of the private placement, and would enter into a consulting and non-compete agreement with the Company and the Bank, subject to the receipt of any necessary regulatory approvals or non-objections. Mr. Clarkson has agreed to stay on with the Company and the Bank as an employee on a temporary basis. Effective as of the closing of the private placement, Mr. Clarkson resigned from the boards of directors of the Company and the Bank.
Item 8.01. Other Events.
Closing of the Series T Preferred Stock and Trust Preferred Securities Repurchases
On April 11, 2016, the Company closed its previously announced Series T preferred stock repurchase with the United States Department of the Treasury (the “U.S. Treasury”), pursuant to which the Company repurchased all 12,895 shares of its outstanding fixed rate cumulative perpetual preferred stock, Series T, from the U.S. Treasury for $128,950. In addition, on April 11, 2016, the Company closed its previously announced trust preferred securities repurchase with Alesco Preferred Funding VI LTD, pursuant to which the Company repurchased all of its floating rate trust preferred securities issued through its subsidiary, HCSB Financial Trust I, for an aggregate cash payment of $600,000.
The agreements to repurchase the Series T preferred stock and trust preferred securities were previously disclosed by the Company in its Current Report on Form 8-K filed with the Commission on March 3, 2016, as amended by the Company’s Current Report on Form 8-K/A filed with the Commission on March 9, 2016, which disclosure is incorporated herein by reference.
Expiration of Appeal Period for the Subordinated Debt Class Action Settlement Final Order and Funding of the Settlement Fund
On April 1, 2016, the statutory appeals period ended for the final approval order confirming the previously announced class action settlement agreement between the Company, the Bank, James R. Clarkson, Glenn Raymond Bullard, Ron Lee Paige, Sr., and Edward Lewis Loehr, Jr., the President and Chief Executive Officer, former Senior Executive Vice President, Executive Vice President, and Chief Financial Officer of the Company and the Bank, respectively, and Jan W. Snyder, Acey H. Livingston, and Mark Josephs, on behalf of themselves and as representatives of a class of similarly situated purchasers of the Company’s subordinated debt notes (Case No. 2014-CP-26-00204). No appeals were filed, and therefore, the class action settlement was final as of such date. On April 11, 2016, pursuant to the terms of the class action settlement agreement, the Company deposited approximately $2.4 million into a trust account with counsel for the class members. The approximately $2.4 million represents 20% of the principal of subordinated debt notes issued by the Company, and class members will receive 20% of their notes in exchange for a full and complete release of all claims that were asserted or could have been asserted in the class action lawsuit.
The class action settlement agreement was previously disclosed by the Company in its Current Report on Form 8-K filed with the Commission on March 3, 2016, as amended by the Company’s Current Report on Form 8-K/A filed with the Commission on March 9, 2016, which disclosure is incorporated herein by reference.
Also on April 11, 2016, the Company settled, pursuant to previously executed binding settlement agreements, with all subordinated debt noteholders who opted out of the class action settlement. These settlements constituted the full satisfaction of the principal and interest owed on, and require the immediate dismissal of all pending litigation related to, the respective subordinated debt notes. In each case, the Company and the Bank also obtained a full and complete release of all claims asserted or that could have been asserted with respect to the subordinated debt notes.
Independent Outside Loan Review
In June 2015, the Company’s financial advisor, Hovde Group, LLC, retained an independent outside loan review firm to conduct an evaluation of the Bank’s loan portfolio and to provide certain projections regarding potential future cumulative losses to the loan portfolio and the Bank’s OREO based on financial data as of May 31, 2015. This review was based on a 30-month forecast horizon with a pessimistic outlook and analyzed a sample of the unpaid or committed balances of commercial loans, as well as all non-commercial loans and OREO. This calculation was not prepared in accordance with GAAP. The review also included a full review of the Bank’s specific policies and practices regarding credit policy and administration, product mix, asset concentrations, file accuracy and completeness, loan review, risk management and assessment, appraisals, Special Asset Group (SAG) effectiveness, and asset disposition. Based on its analysis using a pessimistic outlook, this outside loan review firm projected a net incremental loss to the loan portfolio and OREO of $15.9 million through November 30, 2017. In January 2016, the loan review firm performed a “Bring Forward Analysis and Comparison” from its prior review, including a comparison between its original forecast and its current forecast. Adjusting for timing, current reserves, charge-offs taken since the prior review, and OREO changes, the loan review firm concluded that its current forecast was consistent with its original forecast and the resulting re-look forecast has not resulted in a material change to its opinion of the overall loss outlook for the Bank.
Management closely monitors the loan portfolio, the value of the collateral in the loan portfolio, and OREO. After considering the hypothetical cumulative loss scenario set forth in the review and other information, including information regarding the Bank’s borrowers, guarantors, and loan collateral, management believes that the Bank’s loans are appropriately risk rated and that the allowance for loan losses is appropriately determined in accordance with GAAP. However, if management’s assumptions and judgments about the collectability of the loan portfolio are incorrect, the Bank may experience additional losses beyond its current reserves. Such losses could materially affect the Company’s financial condition and ability to execute our business and financial plans. Management intends to evaluate various alternatives for liquidating or otherwise resolving the Bank’s classified loans, which could include a potential sale of a substantial amount of its classified and most risky assets.
Press Release
On April 11, 2016, the Company issued a press release relating to the items described above in Items 3.02, 5.02 and 8.01. A copy of the press release that discusses these matters is filed as Exhibit 99.1 to, and incorporated by reference in, this Current Report on Form 8-K. The information in this Item 8.01 of this Current Report on Form 8-K is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this Item 8.01 of this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, except as shall be expressly set forth by specific reference in any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit | |
| Number | Description |
| 99.1 | Press Release, dated April 11, 2016 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HCSB FINANCIAL CORPORATION | |||
| Dated: April 11, 2016 | By: | /s/ Jan H. Hollar | |
| Name: | Jan H. Hollar | ||
| Title: | Chief Executive Officer | ||
EXHIBIT INDEX
| Exhibit | |
| Number | Description |
| 99.1 | Press Release, dated April 11, 2016 |
HCSB Financial Corporation
Press Release
FOR IMMEDIATE RELEASE
April 11, 2016
Contact:
Jan H. Hollar
Chief Executive Officer
HCSB Financial Corporation/Horry County State Bank
(704) 576-6155
HCSB Financial Corporation Completes $45 Million Capital Raise and
Recapitalization of Horry County State Bank
Loris, South Carolina — HCSB Financial Corporation (the “Company”) announced today that it closed its previously announced private placement of 359,468,443 shares of its common stock at $0.10 per share and 905,315.57 shares of its Series A preferred stock at $10.00 per share to Castle Creek Capital Partners VI, L.P. and certain other institutional and accredited investors for gross proceeds of approximately $45 million.
The Company utilized approximately $3 million of the gross proceeds from the private placement to repurchase all of its outstanding Series T preferred stock, trust preferred securities and subordinated debt notes, and approximately $38 million to recapitalize the Company’s wholly-owned bank subsidiary, Horry County State Bank, to support its operations and increase its capital ratios to levels in excess of required regulatory levels.
Jan H. Hollar was appointed as the chief executive officer and a director of the Company and the Bank effective as of the closing of the private placement. Ms. Hollar commented, “I am personally honored to be leading this Company at this pivotal point in time. I have had the privilege of working with HCSB in a consultant role over the past year and a half. During that time, I have come to deeply respect this Company and what it stands for. I intend to build upon the deep history and solid relationships we have throughout the markets we serve.”
Michael S. Addy, Chairman of the Board of the Company, added: “The private placement and subsequent resolution of the Company’s outstanding preferred stock, trust preferred securities and subordinated debt represent a tremendous accomplishment following many long hours of work by our employees, management, the Board and our outside partners. I believe today is a turning point for our Company as we bring in a seasoned and experienced management team to lead the Bank forward with purpose and vision. Although HCSB, like many financial institutions, has suffered several setbacks as a result of the recent economic turmoil, I believe we have now overcome these obstacles and can move ahead with a well-capitalized balance sheet and a return to responsible lending. I deeply appreciate the support of our employees, my fellow Board members and, most importantly, our customers and community supporters.”
Hovde Group, LLC served as the exclusive placement agent for the private placement and as financial advisor to the Company and the Bank. Nelson Mullins Riley & Scarborough LLP served as the Company’s legal advisor. Sidley Austin LLP served as legal advisor to Castle Creek.
For additional information regarding the terms and conditions of the transactions described in this press release, please refer to the Current Report on Form 8-K, which the Company expects to file with the Securities and Exchange Commission on or about April 12, 2016.
Additional Information
The private placement involves the sale of securities in private transactions that have not been registered under the Securities Act of 1933 and will be subject to the resale restrictions under that Act. The Company has agreed to file a registration statement with the Securities and Exchange Commission to cover resales of the securities described above. The securities being sold in the private placement may not be offered or sold absent registration or an applicable exemption from registration. This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains, among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements preceded by, followed by, or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or similar expressions. These statements are based upon the current belief and expectations of the Company’s management team and are subject to significant risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control). Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, the Company can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will be achieved. Additional factors that could cause other Company’s results to differ materially from those described in the forward-looking statements can be found in the Company’s reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov). All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf is expressly qualified in its entirety by the cautionary statements above. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.