Regulators shut down Atlanta-based Georgian Bank; total failed banks and thrifts in ’09 reach 95
U.S. regulators on Friday shuttered Georgian Bank of Atlanta. Georgian was one of the fastest-growing and most profitable banks of the state. But its significant exposure to home building industry miscarried as a result of ongoing housing market turmoil, particularly in its operating region.
This takes the total number of failed federally insured banks and thrifts this year to 95, compared to 25 in 2008 and 3 in 2007.
Georgian was the second-biggest bank based in metro Atlanta, with about $2 billion in total assets, $2 billion in deposits and six branches when it failed.
Failure of Georgian represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for the bank. The failure of Georgian Bank is expected to cost the deposit insurance fund an estimated $892 million.
The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of failing financial institutions has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.
Incorporated in 2001, Georgian specialized in construction lending to residential developers. The bank also provided private banking services to businesses and wealthy depositors. More than half of its assets were concentrated in construction loans and commercial real estate loans.
In 2007, Georgian became one of the state’s top earners, with $21 million of profit. The bank remained profitable through the end of 2008. But the region’s increasing real estate crisis finally forced it to fail this year.
Georgian’s credit quality significantly collapsed in the second quarter with a significant increase in nonperforming assets to 17.19% of total assets, compared to 5.13% in the prior quarter.
The FDIC sold all of the deposits and essentially all of Georgian’s assets to First Citizens Bank and Trust of Columbia, S.C., a subsidiary of First Citizens Bancorp (FCBN). The FDIC and First Citizens Bank agreed to share losses on all of Georgian Bank’s assets.
The failure of Washington Mutual last year is the largest bank failure in U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), Regions Financial (RF) and MB Financial (MBFI).
In the second quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.
The regulators are considering asking healthy banks to bail out the government soon, in order to replenish the declining fund of the FDIC. Also, the FDIC may ask U.S. banks to prepay fees for three years.
Though the economy is in a far better shape now than a year ago, there are lingering concerns related to the banking industry as well as the economy. The serial bank failures indicate that the financial crisis is far from over. The FDIC also said on Friday that it had issued enforcement actions against four small, troubled Georgia lenders that are stumbling from losses related to real estate. We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
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