Bartow County Bank of Cartersville, GA, besieged by a collapsing loan portfolio, was closed today by the Georgia Department of Banking and Finance, which appointed the FDIC as receiver. The FDIC sold the failed bank to Hamilton State Bank, Hoschton, Georgia, which will assume all deposits of Bartow County Bank.
Bartow County Bank, a half hour north of Atlanta, was started in 1974 by a group of local businessmen. As the local economy boomed during the bubble years, Bartow increased its lending and total assets increased from the $200 million range in 2000 to over $400 million in 2009. Many of these loans defaulted leading to Bartow Bank’s insolvency and closure by regulators. Bartow County was issued a Consent Order by the FDIC on April 14, 2010, requiring that Bartow County raise additional capital which it was unable to do.
Bartow County Bank had a huge troubled asset ratio of 635% compared to the national average of 15%. Most problem banks have typically been closed by regulators when the troubled asset ratio exceeds 100%. Loan delinquencies had been steadily increasing at Bartow County Bank since mid 2009.
The closing of Bartow County Bank once again raises questions about the timeliness and consistency of which banks regulators decide to close. A study by Keefe, Bruyette & Woods Inc. showed that 50 failed banks were not closed until they had negative capital, an indication that regulators were shorthanded and poorly coordinated in deciding which banks to close. James Wigand of the FDIC disputes that the FDIC is overwhelmed or inconsistent in deciding which banks to close but admits that it is always a “difficult judgment”.
The difficult decision of when to close a problem bank is complicated by the overlapping regulatory agencies involved in a bank closing. Certain state regulators are not allowed to close a bank until capital is totally depleted compared to Federal regulators who are able to act sooner.
Allowing critically undercapitalized banks to remain open usually results in a greater loss to the FDIC Deposit Insurance Fund, but closing a bank too soon may not allow it to explore all options for raising additional capital.
An example of the inconsistent treatment by regulators in bank closings can be seen below. Citizens Bank of Effingham was closed by regulators on February 18, 2011 while Bartow County Bank, with worse capital ratios, was allowed to remain open for two months longer. Meanwhile, First Choice Community Bank of Dallas, GA, is critically undercapitalized with negative capital ratios across the board (as shown below) and is still allowed to operate.
Condition Ratios As Reported On FDIC Website
|Condition Ratios 12/31/2010||Citizens Bank||First Choice||Bartow|
|As Reported by FDIC||of Effingham||Community Bank||County Bank|
|Springfield, GA||Dallas, GA||Cartersville, GA|
|Equity capital to assets||1.02%||-2.46%||0.76%|
|Core capital (leverage) ratio||0.97%||-2.37%||0.71%|
|Tier 1 risk-based capital ratio||1.27%||-2.96%||1.09%|
|Total risk-based capital ratio||2.53%||-2.96%||2.16%|
The four branches of Bartow will reopen on Saturday as branches of Hamilton State Bank and depositors of Bartow will have full access to their money over the weekend.
Bartow County, at December 31, 2010, had total assets of $330.2 million and total deposits of $304.1 million. Hamilton State is paying a premium of 1.0% to the FDIC on the assumption of Bartow’s deposits and, in addition, will purchase all of Bartow’s assets subject to a loss-share transaction with the FDIC.
The loss-share transaction will cover $247.5 million of Bartow’s assets and will limit the losses to Hamilton State Bank on the asset pool purchased. The loss-share agreement covers a generous 75% of the purchased assets.
Hamilton State Bank is a quarter billion dollar asset bank which has lost money for the past two years ending December 31, 2010. Hamilton State Bank borrowed $7 million under the TARP program. According to the Bank’s website, Hamilton intends to repay the loan to the US Treasury from proceeds of a private sale of common and preferred stock that was completed in February.
The closing of Bartow County Bank will cost the FDIC Deposit Insurance Fund $69.5 million or 20% of Bartow’s total assets. Bartow is the 29th bank failure this year and the 7th in Georgia.