Here's a good look at GA banking situation
(DOW JONES) DJN: DJ Georgia Has Foreclosure And Failure On Its Mind
By Ronald D. Orol
Marc Green, president of Mountain Valley Community Bank in Cleveland, Ga.,
is part of an endangered species: Georgia bankers.
So far this year, 21 Georgia banks have failed, more than in any other
state. Georgia -- with 3% of the nation's population and 4% of its banks -
has been home to 17% of the 124 U.S. bank failures so far this year. Georgia
also had more than its shares of bank failures last year.
United Security Bank in Sparta, Ga., was the latest addition to the list
with its failure on Nov. 13.
The Federal Deposit Insurance Corp. reported last week that the number of
distressed banks in the U.S. rose to 552, the highest level in 16 years. In
Georgia and other states, more bank failures are expected.
Green and 311 other Georgian bankers are struggling to survive. Along with
25 other community banks in the state, Green's bank has raised more capital,
including some from the government. Today, Mountain Valley has $24 million
in capital.
But he says the prospects for the real-estate market are dismal in his town
of 2,200 that sits 100 miles north of once-booming Atlanta.
"Real estate in Georgia is not moving at any price unless it's an absolute
give-away," Green said. "The business cycle has absolutely stopped."
Georgia now has the eighth highest new foreclosure rate in the nation (one
in 312 homes with new foreclosure filing), according to Realtytrac.com.
That's slightly below the national average of 385, but well above the 1 in
80 in Nevada or one in 156 in California. Filings in Georgia are up 26% from
a year ago.
Why Has Georgia Had It So Tough?
Joe Brannen, president of the Georgia Bankers Association, argues that
Georgia's problem banks are a product, in part, of a massive population
explosion - mostly in and around Atlanta - which has driven major
residential development projects underwritten by banks.
When the economy turned from boom to bust, the failure of developers to
complete their construction projects left many neighborhoods unfinished.
Banks, meanwhile, were left holding countless problem loans, driving some
institutions to failure and others to the verge of collapse.
The problem was heightened, in part, because at the peak of the crisis
Georgia banks had more commercial real estate development loans on their
books than banks in many other states.
"Georgia was and is a fast growing state," Brannen said. "It is among the
six fastest growing states in the country with 120,000 new people moving to
Atlanta every year."
The unemployment rate in Georgia has doubled during the recession from 5.1%
to 10.2%, matching the national average.
In addition, the state has always had a large number of community banks for
historic reasons. Until 1996, community banks were prohibited from opening
branches outside their home county. Georgia has 159 counties.
"Our state has always had an affinity for community banks," he said.
Too Tough Examinations?
In addition to significant write-downs, banks in Georgia are complaining
that state and FDIC examiners are asking institutions to increase their
levels of capital to unrealistic levels, thus forcing many banks to look for
capital in a dry market.
Chris Cole, vice president of the Independent Community Bankers of America,
said the heightened examination standards have added to a climate of
apprehension among banks, driving managers to lend less.
"They have to dispose of foreclosed property sooner, be more aggressive with
customers, and force homebuilders to give up more collateral," said Cole.
"Banks are being forced to write down viable loan values, and hike capital
standards, all of which is eating up capital that could be used for
lending."
Brannen, of the Georgia bankers group, argues that bank examiners are overly
aggressive in their interpretation of long-standing rules for how community
banks hold reserves for future loan losses. According to the FDIC, U.S.
banks insured by the agency set aside $62.5 billion in reserves in the third
quarter, the fourth quarter in a row that U.S. bank loss provisions
surpassed $60 billion.
"Regulators have a lot of leeway in calculating how much capital banks must
have in their loan-loss reserves," Brannen said. "This sucks up real capital
for what most people believe is a theoretical future financial situation."
U.S. Sen. Johnny Isakson, (R., Ga.), argues that FDIC examiners are putting
tremendous pressure on bank capital.
"It makes it impossible for banks to make loans, and puts lots of pressure
on the balance sheet," he said. "Certainly if a bank is failing, it is
appropriate for the FDIC to move in, but some of the difficulties for
healthy banks are in part because of the pressure of the FDIC."
However, FDIC Chairwoman Sheila Bair, responding to bipartisan concerns at a
hearing in September from U.S. Reps. Tom Price, (R., Ga.), and David Scott,
(D., Ga.), defended the tougher standards.
The longer a troubled bank is left operating, the greater will be the cost
to the community, because the institution is not doing much healthy lending,
she said. Should examiners fail to insist on higher capital standards, more
banks could fail.
The FDIC recently set up an office with 500 employees in Jacksonville, Fla.,
and added workers at its Atlanta office to expand its scrutiny of banks on
the East Coast.
How To Shock Georgian Banks Out Of Their Doldrums
The Georgia bank failures and the state's rising foreclosures have driven
Washington policymakers to examine the situation there in greater detail.
U.S. Rep. Dennis Kucinich, (D., Ohio), chairman of a House oversight and
government reform subcommittee, recently held a field hearing in Atlanta on
bank failures and foreclosures.
Separately, Georgia bank lobbyists are joining bank advocates in Washington
to press the Treasury to expand its stimulus efforts for small banks.
Specifically, they want Treasury to provide funds from the $700 bank bailout
package to small stressed banks - those with less than $5 billion in assets
- on the cusp of a default.
Under their proposal, the federal aid would be matched by capital raised in
the private markets. For example, a small bank could be eligible for $10
million in TARP funds if it could show a commitment of $10 million from
private investors.
Brannen of the Georgia bankers' group said the Treasury Department is still
considering this program for viable banks. Treasury did not respond to
requests for comment.
"It would be huge for a ton of banks in Georgia," Brannen said. "Over $20
million in capital would accommodate three-fourths of all the banks in
Georgia."
However, Isakson argues that the possibility of additional TARP infusions
for small banks could put many Georgian institutions in a difficult
position.
"A bank has to be very careful about whether or not to apply," he said. "A
bank that applies that is rejected would have a black mark placed on it and
no matter what you tried to do, it could be negative."
-By Ronald D. Orol; 415-439-6400; AskNewswires@dowjones.com
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