Georgia leads in bank failures

From its 59-year-old home in the rural mountains of North Georgia, United Community Bank grew to become Georgia's third-biggest bank holding company, buying 17 banks over the past eight years.

Over the weekend, the Blairsville, Ga.-based bank made its 18th bank acquisition. But unlike any of its earlier buys, the newest purchase comes with the help of Uncle Sam and involves the latest failed bank in Georgia.

State regulators last week shut down Southern Community Bank in Fayetteville, Ga. -- the seventh Georgia bank to fail so far this year and the 12th bank in the Peach State ordered shut down in the past 10 months.

The Federal Deposit Insurance Corp. sold the assets of the failed bank to United Community Bank, which since has reopened the five branches under its own name.

With seven so far this year, Georgia leads the nation in the number of bank failures. Regulators have closed a dozen Georgia banks since last August, or more than one of every five U.S. banks shut down since last summer.

Bank analysts said the same forces that helped fuel Georgia's growth now are leading to an increase in bank failures.

"Each of the banks that has failed has had a huge concentration in residential construction loans that grew for many years," said Joe Brannen, president of the Georgia Bankers Association.

With a rich tradition of state-charted banks and investors eager to cash in on the state's growth, Georgia trailed only California and Florida -- both bigger states -- in the number of new banks started in the 21st century, according to FDIC figures.

Since 2000, 112 banks have been charted in Georgia. The shuttered Southern Community Bank got its state charter in 1996.

Such banks capitalized on Georgia's population growth -- the sixth fastest in the nation -- and abundance of investors interested in the financial services industry prior to the past couple of years, Mr. Brannen said. Because Georgia didn't allow banking across county lines until the late 1990s, its 159 counties also kept or sprouted many new smaller banks across the state.

Karen Thomas, executive vice president of governmental relations for the Independent Community Bankers of America, said the seemingly higher number of smaller banks failing this year simply reflects nationwide numbers. Among about 8,000 community banks, 50 have failed in the past two years -- or about 0.6 percent of the banks, she said.

By contrast, among the 92 banks with assets from $10 billion to $100 billion, three have been shut down in the past two years.

"Banks fail for many reasons, but the uptick in bank failures now is primarily the result of the economic downturn," she said.

Rex Schuette, chief financial officer for United Community Banks, said many of the troubled banks in Georgia were started over the past decade and a half, when population growth fueled demand for more housing developments, especially in suburban areas around Atlanta or in the retirement havens of North Georgia's mountains.

As the economy slowed and property values slumped, banks dependent upon construction and development loans struggled, he said.

After 70 FDIC agents swarmed into Southern Community Bank and declared it insolvent last Friday, United Community emerged as the highest bidder for the assets.

"This purchase is something that adds a lot of franchise value and complements our markets so it should (add to bank earnings) from Day One," Mr. Schuette said.

United Community has not been immune from the economic slump, however. Last year, it lost money $64.2 million -- the first operating loss ever for the 59-year-old bank.

In December, United Community got $180 million in preferred stock from the federal government's Troubled Asset Relief Program "so we have an extremely strong capital position," Mr. Schuette said.

BY THE NUMBERS

* 7 -- Number of bank failures in Georgia in 2009 (40 nationwide)

* 12 -- Number of bank failures in Georgia over the past 10 months (56 nationwide)

* 325 -- Number of state and federally chartered banks in Georgia

* 112 -- Number of new banks started in Georgia since 2000

* $2 billion -- Estimated FDIC losses from Georgia bank failures in 2009

Sources: Federal Deposit Insurance Corp., Georgia Bankers Association