Georgia state regulators closed the Eastside Commercial Bank, Conyers, Georgia, and appointed the FDIC as receiver. In order to protect depositors, the FDIC sold Eastside Commercial Bank to Community & Southern Bank, Atlanta, Georgia, which will assume all deposits of the failed bank.
Eastside Commercial Bank did not even last a decade, having been founded at probably the worst time possible in 2005, shortly before the worst banking crisis since the depression of the 1930’s. Aggressive lending and weak loan underwriting standards quickly got Eastside Commercial into financial trouble and by the middle of 2009 the Bank’s amount of defaulted loans began to soar resulting in a troubled asset ratio of over 100%.
The troubled asset ratio compares the total of defaulted loans to the total of loan loss reserves and Tier 1 capital. Once a bank’s troubled asset ratio exceeds 100% failure of the institution becomes almost inevitable. By the end of 2011 Eastside Commercial had a troubled asset ratio of over 200% and at March 31, 2014 had reached an astronomical level of almost 500%.
Eastside Commercial could be the poster child for regulators allowing zombie banks to remain open long after they have become insolvent with a zero chance of recovery (see Hundreds of Zombie Banks Remain Open for Business). The reasons why regulators allow problem banks to remain open remains a matter a debate.
Both branches of Eastside Commercial Bank will reopen as branches of Community & Southern Bank and FDIC deposit insurance will remain in effect for all depositors of the failed bank up to the applicable insurance limits.
Over the weekend depositors of Eastside Commerical will continue to have access to their money through the use of debit cards, ATMs, and checking accounts. All loan customers of Eastside Commerical should continue to make their payments as usual.
At March 31, 2014, Eastside Commerical had total assets of $169.0 million and total deposits of $161.6 million. Community & Southern agreed to purchase $104.7 million of the failed bank’s assets and in a separate transaction the FDIC sold $42.6 million of the failed bank’s assets to State Bank and Trust Company, Macon, GA, at an undisclosed discount. The balance of Eastside Commercial’s assets will be retained by the FDIC for later disposition.
Community & Southern Bank has been an aggressive purchaser of failed banks from the FDIC and since 2010 has purchased eight failed banks including today’s transaction.
The cost to the FDIC Deposit Insurance Fund for the failure of Eastside Commerical is $33.9 million. Eastside Commerical Bank becomes the 13th banking failure of 2014. the last time a banking failure occurred in Georgia was on May 10, 2013.