It has been almost two years since an article in the Wall Street Journal dubbed the state of Georgia the "Chernobyl of Banking". Since January 1, 2009, 322 banks have failed nationwide, 50 in the state of Georgia alone - about one-sixth of the US total.
This past year has proven to be a particularly difficult one for many of the banks throughout the state with most reporting net income losses for 2010. Several Georgia-based banks doing business in Bulloch County also are experiencing the significant losses facing banks in other areas around the state.
According to data obtained from the financial analyst firm SNL Financial dated Feb. 11, 2011, five of the seven Georgia banks operating in Bulloch County posted net income losses in 2010: Farmers and Merchants Bank (-$6,130,000), First Southern National Bank (-$14,364,000), HeritageBank (-$42,036,000), Queensborough National Bank and Trust Company (-$5,695,000), and Synovus (-$1,038,785,000: Statesboro-based Sea Island Bank is a division of Synovus).
Showing positive net incomes at the end of 2010 were HeritageBank of the South ($2,132,000) and Citizens Bank of Washington County ($673,000: Statesboro-based Citizens Bank of Bulloch County is a division of the Citizens Bank of Washington County). Income figures for North Carolina-based BB&T and California-based Wells Fargo, specific to the state of Georgia, were not available.
An industry under siege reflecting the enormous financial difficulties of its clients, Georgia banks find themselves under unprecedented scrutiny by regulators.
As reported previously in the Statesboro Herald, both Farmers and Merchants Bank and First Southern National Bank are operating with formal agreements in place instituted by the regulatory agencies responsible for their oversight. Banks chartered by the state of Georgia are monitored by the Georgia Department of Banking and Finance. Nationally chartered banks are monitored by the Office of the Comptroller of the Currency (OCC).
On April 23, 2010, Farmers and Merchants entered into a Written Agreement between its holding company FMB Equibanc, Inc., the Federal Reserve Bank (FRB) of Atlanta, and the Banking Commissioner of the State of Georgia.
On November 30, 2010, First Southern National Bank entered into a Consent Order with the OCC. Prior to that, the bank was operating under a Formal Agreement with the OCC which was implemented on May 18, 2009.
Queensborough National Bank and Trust Company entered into a Formal Agreement with the Office of the Comptroller of the Currency on December 8, 2010.
Each of these agreements lists strict operating guidelines which the banks must adhere to and financial objectives which the banks must meet. These agreements are public, and can be found on either the OCC or FRB websites where applicable.
It should be noted that not all agreements are made public, and in a recent speech, Steve Pleger, deputy commissioner of the Georgia Dept. of Banking and Finance pointed out at a conference that approximately two thirds of the banks in Georgia have a three or lower CAMELS rating, and most of those banks are under some form of Board Resolution, Memorandum of Understanding, or formal supervisory agreement.
"These agreements serve as a road map to recovery for banks to follow," said Joe Brannen, president and CEO of the Georgia Bankers Association. "Typically, regulators put these agreements in place, because there are concerns related to the quality of the loan portfolio that the bank is carrying."
First Southern National Bank president and CEO Tommy David acknowledged the difficult environment that Georgia banks operate in today, particularly community banks such as First Southern.
"Over the last several years we have experienced some of the worst times ever in the banking industry," David said. "Our bank, like most community banks, financed the growth and expansion in our community by lending on real estate. The recession, unprecedented unemployment, and significant declines in real estate values have taken their toll on our customers, and many have been unable to meet their loan payment obligations. As a result the bank has suffered significant losses."
David said First Southern's board of directors and management have implemented a variety of strategic initiatives in order to do everything they can to face the challenges at hand.
"In the meantime it is business as usual; our customers still enjoy popcorn and cokes in the lobby as we continue to provide the best products and services through employees who genuinely care about our customers and neighbors," David said.
Farmers and Merchants
Farmers and Merchants president Ricky Nessmith also said his bank's customer base has been greatly affected by the historical downturn in the economy.
"Many borrowers in the entire Bulloch County market have encountered difficulties, but FMB is committed to working together with its borrowers so that we all can make it through these extraordinary economic times," Nessmith said. "Farmers and Merchants has a strong 63-year history and we are continuing with business in a usual fashion. We have a stable base of core deposits from this community."
"Through the first two months of 2011, we have positive earnings that exceed our budgeted projections, and our capital levels have always exceeded minimum regulatory requirements," he said. "We believe we are weathering these times and have full confidence in the future of our local economy."
With almost half of the bank deposits in Bulloch County being held by institutions meeting the definition of a community bank, the ultimate success of community banks is very important according to Federal Reserve chairmen Ben Bernanke in a recent speech Bernanke made to the Independent Community Bankers of America national convention.
"Community bankers live and work where they do business, and their institutions have deep roots, sometimes established over several generations," Bernanke said. "They know their customers and the local economy. The largest banks typically rely heavily on statistical models to assess borrowers' capital, collateral, and capacity to repay, and those approaches can add value, but banks whose headquarters and key decision makers are hundreds or thousands of miles away inevitably lack the in-depth local knowledge that community banks use to assess character and conditions when making credit decisions."
GSU bank symposium
Federal and state regulators at a recent bank symposium hosted by Georgia Southern University's College of Business Administration echoed the sentiments of Bernanke during a panel discussion.
"The regulators affirmed that community banks play a vital role financing small and midsized businesses - that they are the primary source of capital for these businesses," said Ed Sibbald, director of Georgia Southern's Center For Excellence in Financial Services. "Further, they reaffirmed their commitment to the vitality and strength of the community banks, and that was very important."
Sibbald said that community banks in the southeast coastal region of Georgia are faring much better than their counterparts in Atlanta, its surrounding counties, and northwest Georgia. "Overall, banks are in a much better position here, but we aren't doing as well as banks in south and southwest Georgia. Those banks weren't so heavily vested in real estate development."
Sibbald said that only three banks - Glennville Bank, First Bank of Coastal Georgia and Carver State Bank - were profitable in 2010 among banks headquartered in Chatham, Effingham, Bryan, Evans, Liberty and Bulloch counties.
Even though southeastern Georgia hasn't seen the rash of bank failures that have occurred in the northern part of the state, three failures occurred in the area since January 1, 2010: First National Bank (Savannah), Darby Bank and Trust Company (Vidalia), and Citizens Bank of Effingham (Springfield).
Brannen said if a bank is put into receivership by its regulatory authority, then the regulatory authority will turn the receivership over to the FDIC to ensure that the depositors are taken care of.
"The Federal Deposit Insurance Corporation (FDIC) works in very close concert with the regulators and generally knows well before hand if a bank might be placed in receivership," he said. "Typically, an acquiring entity can be found so that a smooth transition can take place. Of the 57 banks that have been closed in Georgia, there have been six occasions when a buyer couldn't be found, and they were very unique situations."
Recently, HeritageBank of the South, which has two branches in Statesboro, became one of those acquiring banks when it purchased Citizens Bank of Effingham after it was placed into receivership by its regulators.
"The purchase of Citizens made perfect sense for HeritageBank of the South," said Gary Johnson, southeast Georgia regional vice president of HeritageBank. "The bank has a strong foothold in the market and great infrastructure to support future growth."
Brannen said it is very important to remember that banks have FDIC insurance which has protected bank customers without fail since its institution 77 years ago.
Brannen said that bankers, not taxpayers, are responsible to pay for the FDIC insurance fund to protect depositors. This is an expense item for banks that is accounted for and paid before bank earnings or dividends to shareholders.
"At the end of 2009, the FDIC required that insured institutions prepay slightly over three years of estimated insurance assessments," Brannen said. "The banks did that at an estimated cost of almost $405 million to Georgia banks alone."