Security Exchange Bank, Marietta, GA, Fails After Loan Defaults Soar

Security Exchange Bank, Marietta, GA, a locally owned community bank headquartered in Marietta, GA, was closed today by the Georgia Department of Banking and Finance. The FDIC, acting as receiver, sold the failed Bank to Fidelity Bank, Atlanta, GA.

Both branches of the failed Bank will reopen on Monday as branches of Fidelity Bank and all depositors of Security Exchange Bank will automatically become depositors of Fidelity Bank.  FDIC deposit insurance coverage will continue uninterrupted up to the applicable limits.  Over the weekend, depositors of Security Exchange Bank will have access to their money through the use of checking, ATMs and debit cards.

According to the Security Exchange website, the Bank opened for business in April 2000 and primarily served customers in Cobb County.  Security Exchange prided itself on being a locally owned community bank which made all lending decisions locally and made customer service their number one priority.

Unfortunately for Security Exchange Bank, many of those locally made lending decisions turned out to be horrific mistakes and many borrowers of the Bank made paying back their loans their lowest priority.   Security Exchange Bank began doing business at the dawn of the one of the greatest real estate bubbles in history and aggressively expanded its loan book as real estate values boomed.  From 2000 to 2008, Security Exchange ballooned its loan portfolio from zero to almost $200 million.

Concurrent with the rapid decline in real estate values and a severe recession, Security Exchange Bank began to experience a rapid increase in loan defaults during late 2008.  Over the next three years, loan defaults rose relentlessly and by March 31, 2012, Security Exchange Bank had a ridiculously high troubled asset ratio of 1209% compared to a national average of 13%.  A bank with a troubled asset ratio in excess of 100% rarely survives.  The question of why the Georgia Department of Banking and Finance did not close down Security Exchange sooner remains an unanswered question.   (See Regulators Allow Zombie Banks To Remain Open).

Security Exchange - courtesy

At March 31, 2012, Security Exchange Bank had total assets of $151.0 million and total deposits of $147.9 million.

Fidelity Bank agreed to purchase all of the failed bank’s assets subject to a loss-share transaction with the FDIC that covers $102.8 million or 68% of the asset pool acquired.  The FDIC will share in a portion of the losses on the asset pool acquired by Fidelity Bank.  The FDIC uses loss-share agreements to assist in the marketing efforts to sell failed banks by limiting potential losses to acquiring banks.  In addition, the FDIC maintains that losses on failed banking assets are minimized by keeping them in the private sector.

Fidelity Bank had previously acquired failed Decatur First Bank in October 2011 which had $191.5 million of assets.

The bank holding company for Fidelity Bank is Fidelity Southern Corp. which operates 28 branches in Florida and Georgia, is profitable and has over $2.2 billion in assets.   Fidelity Southern Corp received $48.2 million under the TARP bailout program in December 2008, all of which remains unpaid to date.

The stock price of Fidelity Southern remains below price levels it traded at in 2008 but has recovered greatly from the low of $1 per share reached during the height of the banking crisis.

LION - courtesy yahoo finance

The loss to the FDIC Deposit Insurance Fund for the failure of Security Exchange Bank is $34.3 million.   Security Exchange Bank becomes the 30th banking failure of 2012 and the 5th in Georgia.

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