One Failed Bank For September 25, 2009

Banking Failures – 95 And Counting

2009 has now seen a total of 70 more failed banks than occurred for all of 2008.  The latest banking closure brings total banking failures for 2009 to 95.  The latest failed bank on September 25, 2009 had total assets of $2 billion and total losses to the FDIC Deposit Insurance Fund (DIF) are estimated at $892 million.

The latest failed bank is as follows:

Georgian Bank, Atlanta, Georgia – Number 95

Georgian Bank was closed today and the FDIC, as receiver, entered into a purchase and assumption agreement with First Citizens Bank and Trust Company, Incorporated, Columbia, South Carolina, to assume all of the deposits and assets of the failed bank.

Georgian Bank’s five branches will reopen Monday as branches of First Citizens.  As of July 24, 2009, Georgian Bank had total assets of $2 billion and total deposits of $2 billion.   The FDIC and First Citizens entered into a loss-share transaction on the entire $2 billion  of Georgian Bank’s assets that were purchased by First Citizens.  It is unusual for the loss-share transaction to cover the entire amount of purchased assets and may reflect the assessment of First Citizens that the ultimate recovery on the purchased assets will be low (see discussion on Loss-Share Agreements – Is The FDIC Postponing Losses?).

Georgian Bank is the nineteenth banking failure in Georgia this year and Georgia banking failures now account for 20% of all bank failures in 2009 (see How Georgia Became The Failed Bank Capital Of The U.S.).

The loss to the FDIC Deposit Insurance Fund (DIF) is estimated at $892 million, representing a huge 44.6% of Georgian Bank’s assets.  This week’s banking failure is another example of regulators allowing a troubled bank to remain open long after it should have been closed.  The huge loss taken by the FDIC on Georgian Bank’s failure indicates that almost half of the failed bank’s assets were worthless, a situation that regulators should have been aware of for some time.

The size of the losses on this bank closing raises questions on how adequately regulators supervised the lending policies of Georgian Bank.   Asset growth exploded at Georgian Bank from $71 million in 2003 to $2 billion at the time of closing, an indication that Georgian Bank’s lending policy was focused on growth at the expense of loan quality.

The failure of Georgian Bank also raises serious questions on the ability of management or regulators to assess the health of a banking institution.  As recently as early August, John Poelker, Chief Executive Officer of Georgian Bank stated that the bank was “adequately capitalized” under regulatory guidelines.   In addition, Mr. Poelker stated that “Whether there is enough capital for the bank to be a survivor isn’t an issue.  We’ve got the right model and right franchise and right position to be an important player.”

Barely two months later, it is blatantly obvious that Georgian Bank’s lending model was a recipe for failure.