First Cherokee State Bank, GA, Closed By Regulators

Georgia, which had the most bank failures of any state during 2011, looks like it may retain this dubious record for 2012.  Regulators closed two banks in Georgia today, bringing the year to date total of bank failures in the State to eight, representing 22% of bank failures this year.  During 2011, Georgia accounted for 25% of the nation’s 92 banking failures.

State regulators in Georgia closed First Cherokee State Bank, Woodstock, GA, and appointed the FDIC as receiver.  To protect depositors, the FDIC sold the failed bank to Community & Southern Bank, Atlanta, GA, which also purchased Georgia Trust Bank, today’s second bank closing in Georgia.

First Cherokee was a community bank founded by a group of local businessmen.  The bank opened for business in November 1988 and had three branches at the time of closing.  According to the Bank’s website, First Cherokee prided itself on personalized service in an era of large bank domination of the marketplace.  The Bank greatly expanded its lending activities during the housing boom.  Subsequent to the housing crash, the amount of nonperforming loans climbed steadily from early 2008.  The Bank was unable to raise additional capital and became hopelessly insolvent, leading to today’s closing by regulators.

All three branches of the failed bank will reopen as branches of Community & Southern on Monday.  All depositors of First Cherokee will retain full FDIC deposit insurance coverage up to the applicable limits and depositors will have full access to their money over the weekend through the use of checks, ATM and debit cards.

At March 31, 2012, First Cherokee State Bank had total assets of $222.7 million and total deposits of $193.3 million.  Community & Southern agreed to pay a premium of 0.50% to the FDIC on the assumption of First Cherokee’s deposits and also agreed to purchase all of the failed bank’s assets subject to a loss-share agreement with the FDIC.  The loss-share transaction allows Community & Southern to be reimbursed for a certain portion of losses on the asset pool purchased.  The FDIC maintains that by using the incentive of loss-share agreements to keep failed bank assets in the private sector, losses on failed bank assets are minimized.

With today’s acquisitions of two failed banks, Community & Southern has now acquired a total of 7 failed banks since 2010.  Community & Southern Bank (CSB) was formed for the express purpose of building a state wide banking franchise by acquiring failed banks.  CSB is well capitalized and currently has over $2 billion in assets with 33 branches across Georgia.

The loss to the FDIC Deposit Insurance Fund on the closing of First Cherokee State Bank is $36.9 million.  First Cherokee is the nation’s 36th banking failure and the eight in Georgia.