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Increased oversight hits Statesboro banks
First Southern, Park Avenue working under regulatory agreements
Tommy David for web
Tommy David
      Leading the nation in the number of bank failures this past year, Georgia's banking industry has become a hot topic with the national media and the subject of intensified scrutiny by bank regulators at both the state and national level. Even though the vast majority of the banks that have failed have been in the metro Atlanta area, all banks in the state of Georgia are being stringently examined.
       "I was just on Fox News this morning (Monday) being interviewed about the banking industry in Georgia, specifically regarding the number of bank failures and the oversight that is being done," said Joe Brannen, president of the Georgia Bankers Association in Atlanta. "It is important that people understand that the increased oversight and regulatory pressure being put on banks in Georgia is the natural and logical result of what has happened in the market."
       According to an article published in the Atlanta Journal-Constitution this past Sunday, as many as one -third of Georgia's 316 banks are under intensified monitoring and recovery plans.
       "I think it is very important for Georgians to realize that there is a very distinct difference between a ‘cease-and-desist' order and letter of agreement/memorandum of understanding that is issued by a regulatory agency," Brannen said. "They literally are apples and oranges. Unfortunately, many people assume that a written agreement between a bank and a regulatory agency is automatically a cease-and-desist, and that simply isn't the case. That's where misinformation begins."
       Brannen said that these working agreements or monitoring and recovery plans are part of the regulatory process in any economic downturn, particularly one as significant as this one has been.
       "These agreements or understandings are never a surprise to the institution that is issued them," Brannen said. "They require that things be put into place by the bank that typically have already been put into place from the suspension of dividends, auditing of management, policy review, and plans for dealing with bad or nonperforming loans. When the economy deteriorates, you are going to have people that simply cannot repay their loans. Banks have to work their way out of that under regulatory oversight, and frankly, the vast majority will. These agreements have been issued for decades. They are nothing new."
       Some banks are facing more public scrutiny than others, because of the manner in which information is being released. Monitoring and recovery plans issued by the Office of the Comptroller of the Currency (OCC) in Washington, D.C. are made public, whereas those issued by the Georgia Department of Banking and Finance (GDBF), by law, are not. Nationally chartered banks face regulatory action from the OCC, whereas, state chartered banks typically face regulatory action from the GDBF and sometimes from the FDIC.
       State chartered banks, however, are prohibited from commenting on or acknowledging any regulatory actions imposed upon them by the GBDF.
       There are 38 nationally chartered banks in Georgia and 278 state chartered institutions. Statesboro has one nationally charted bank operating locally - First Southern National Bank. First Southern is currently operating under a monitoring agreement with the OCC.
       The bank's president Tommy David said he has been amazed at the misinformation and misunderstanding that has been generated since the OCC posted the agreement on its website on July 17.
       "Nationally chartered banks in Georgia were told in a group meeting called by the OCC in June 2008 that due to the falling real estate market in Georgia, banks in our state were going to be scrutinized more heavily regarding real estate loans in their loan portfolio and the processes that were being used to make these loans," David said. "Our board of directors immediately decided to be proactive regarding the OCC's directives, and we began to audit ourselves and make changes. Everything that was put in our written agreement with the OCC this past May were things that we had already been doing - things we needed to do to be a better bank and to work through the decline in our local real estate market and the overall change in economic conditions. We are ahead of what they have asked us to do. The agreement is basically serving as a monitoring device. That is what is confusing about the negative publicity that has been generated by it. When it is all said and done, most banks in Georgia may be operating under some type of an agreement."
       David said for his bank it is business as usual. "Nothing has changed," he said. "We are well capitalized and are working through some nonperforming real estate loans. We will be monitored until we do that. From a timeframe stand point, that will depend for the most part on the real estate market itself."
       First Southern isn't alone. Valdosta based Park Avenue Bank, a subsidiary of Park Avenue Bankshares, Inc. (NASDAQ: PABK) recently entered into a written agreement with the Federal Reserve Bank of Atlanta and the GDBF. That document was made public because of the Federal Reserve's involvement.
       Park Avenue Bankshares, Inc., president and CEO Jay Torbert clarified the status of his bank's regulatory action. "You have probably heard of regulatory enforcement actions called cease-and-desist orders or memorandums of understanding that have been placed on banks," Torbert said. "This is not a C&D or an MOU, it is a written agreement. The bank's management and board of directors have taken prudent measures to address various areas of improvement within the bank and to avoid increasing its risk profile during this period of economic contraction. It is our primary responsibility to maintain the safety and soundness of our financial institution, and we commenced to enact most of these measures prior to contemplation of this written agreement."
       Torbert was further quoted in an article two weeks ago stating the following. "The regulatory measure will not impact our customers or FDIC insurance. We are still loaning money, and we are still in business. This was no criticism of management and the board, and we are pleased they (regulators) have the confidence in us to allow PAB to work through the storm and weather these market conditions.
       Brannen said what should most concern depositors is the safety of their deposits, not monitoring agreements between banks and regulatory agencies. "The FDIC insures the deposits, and if depositors are worried about their deposits, they should go talk to their banker to make sure that they are covered," he said. "I want people to know that the banks in Georgia are about to send a check to the FDIC that is greater than all of their profits from last year. In the 75 years that the FDIC has been in operation, not a penny has been lost."
       As it regards the regulators, Brannen had this to add. "Regulatory agreements are serious. Understand that the regulators have as much interest in seeing banks move through the orders successfully as the banks themselves. The system is such, however, that some have to do it in the public eye, whereas others do not."