North Georgia Bank Fails Under Crush of Defaulting Loans

February 4, 2011 – The Georgia Department of Banking and Finance closed troubled North Georgia Bank, Watkinsville, Georgia, and appointed the FDIC as receiver.   The failed bank was sold by the FDIC to BankSouth, Greensboro, Georgia, which assumed all deposits of North Georgia Bank.

North Georgia Bank was put under regulatory oversight with the issuance of a Cease and Desist Order dated 7/14/2009.  Loan defaults increased dramatically since March 2009 and the latest readings show a very high troubled asset ratio of 752%.   Most banks with a troubled asset ratio of over 100% wind up failing.

According to the Bank’s website, North Georgia was a community bank founded by local shareholders in April 2000.  Following the same pattern as other failed banks, North Georgia lent aggressively during the real estate boom, often making aggressive loans that quickly defaulted when real estate values slumped.

The two branches of North Georgia will reopen on Saturday as branches of BankSouth.

At December 31, 2010, North Georgia had total assets of $153.2 million and total deposits of $139.7 million.  BankSouth agreed to purchase $123.9 million of the failed bank’s assets leaving the rest for the FDIC to separately dispose of.  The FDIC and BankSouth entered into a loss-share agreement covering $120.1 million or 96% of the assets purchased by BankSouth.

FDIC loss protection on 97% of the failed assets purchased is an unusually aggressive amount of coverage.  The norm for loss-share transactions in the recent past has averaged 80% of failed assets purchased by an acquiring bank.   This high amount of loss share protection, as well as the fact that BankSouth only purchased 81% of the failed bank assets indicates that the quality of North Georgia’s loan portfolio was extremely poor.

BankSouth operates two branches, is a locally owned thrift and was founded in 1946.  According to a BankSouth press release,they will try to retain as many North Georgia Bank employees as possible.

At September 30, 2010, BankSouth had $250 million in assets and 49 employees.

The estimated loss to the FDIC Deposit Insurance Fund for the failure of North Georgia Bank is $35.2 million.  North Georgia is the nation’s 13th banking failure and the 4th in Georgia.  Since the banking crisis got into full swing in 2008, a total of 55 banks have failed in Georgia, the most for any state.