Mountain Heritage Bank, Clayton, Georgia, was closed today by the Georgia Department of Banking and Finance. The FDIC was appointed as receiver and sold the small two branch community bank to First American Bank and Trust Company, Athens, Georgia. First American will assume all of the failed bank’s deposits and, in addition, purchase essentially all of the failed bank’s assets.
The two branches of Mountain Heritage Bank will reopen as branches of First American and all depositors of Mountain Heritage will automatically become depositors of First American. Depositors of Mountain Heritage will have access to their money through checking, ATM machines and debit cards.
At March 31, 2011, Mountain Heritage Bank had total assets of $103.7 million and total deposits of $89.6 million.
First American is protected from loss on the purchase of Mountain Heritage assets through a loss-share transaction with the FDIC covering $69.2 million of the asset pool purchased. The FDIC’s position on loss-share agreements is that they minimize losses on the failed bank assets by keeping them in the private sector.
Mountain Heritage opened for business in late 2003 as real estate value were starting to boom in Georgia and lent heavily on speculative, over leveraged projects which eventually defaulted, leading to the Bank’s failure.
Mountain Heritage Bank is another example of a hopelessly insolvent institution that should have been closed in a more timely manner by regulators. The failed Bank had a shocking troubled asset ratio of 861% compared to a national average of 15%. Most banks with a troubled asset ratio exceeding 100% wind up failing.
Mountain Heritage had been issued a Cease and Desist Order by the FDIC in August 2009 which cited numerous deficiencies in the Bank’s operating policies which constituted “unsafe and unsound” lending.
According to the Clayton Tribune, the Cease and Desist Order was taken rather lightly by Mountain Heritage President Jim Wallis, who said “That just means we have to do a lot more reporting to the government. Several other banks around here have the same thing.”
The loss on the closing of Mountain Heritage Bank is estimate at $41.4 million representing a huge 40% of total assets at the time of closing. Mountain Heritage was allowed to continue operations with almost half of its “assets” being worthless. Mountain Heritage is the nation’s48th banking failure and the fourteenth in Georgia. Georgia now represents 30% of all U.S. banking failures in 2011.
Mountain Heritage is the second acquisition of a failed bank by First American Bank and Trust Co. In July 2009, First American acquired failed First Piedmont Bank of Winder, Georgia. First American Bank was established in 1910, has 24 offices and over $700 million in assets.
First American Bank is not immune to the woes afflicting other banks in Georgia. According to BankTracker, non-accruing loans at March 31, 2011 more than doubled to $19.4 million from the previous year and total troubled assets tripled over the same period to $27 million, giving First American Bank an elevated troubled asset ratio of 56%.