First Georgia Community Bank became the second local bank to fail in less than a month when the Federal Deposit Insurance Corporation took control of the bank on Friday.
The bank has since been acquired by United Bank of Zebulon, which has assumed all of the deposits of First Georgia. The Covington branch of the bank, located on U.S. Highway 278 in the Kroger shopping plaza, reopened on Saturday as United Bank.
Depositors of First Georgia automatically became depositors of United Bank. Checks drawn on First Georgia will continue to be processed. Loan customers should continue to make their payments as usual.
The last bank to be closed in Georgia was The Community Bank of Loganville on Nov. 21. The Community Bank, which had a branch in Covington, has since been taken over by The Bank of Essex.
The FDIC orchestrated the purchase and assumption agreement with United Bank, which acquired First Georgia’s deposits for a .811 percent premium. As of Nov. 7, First Georgia had $197.4 million in deposits.
United Bank also purchased approximately $60.6 million of First Georgia’s $237.5 million worth of assets. The FDIC will retain the remaining assets for the time being.
"We just bought the deposits. We did not buy any of the loans," said United Bank CEO Jim Edwards, adding that the bank will be going over First Georgia’s loans to decide which ones the bank will acquire and which ones the bank will leave to the FDIC.
LaJuanWilliams-Dickerson, spokesperson for the FDIC, said the FDIC stepped in to manage the sale of the bank after being asked to by The Georgia Department of Banking and Finance.
"The FDIC finds a healthy institution to take over the assets and deposits of that failed institution," said Williams-Dickerson of the role played by the FDIC.
Under O.C.G.A. law, the Georgia Department of Banking and Finance is authorized to take possession of any state-chartered financial institution when it becomes either insolvent or is operating in an unsafe or unsound condition in its business transactions.
Omens of First Georgia’s failure have been around for a while. In September, First Georgia had a Texas ratio of 199 percent. The Texas ratio is a measure by which the financial health of a bank is judged by looking at the ratio of bad loans and assets to the capital and reserves set aside to cover potential losses. A healthy Texas Ratio is considered to be any level below 40 percent. To have a ratio above 100 percent is a cause for serious concern.
Christopher Marinac, director of research and co-founder of Atlanta-based FIG Partners, a broker firm specializing in bank and thrift stocks, said there were two main problems leading to the failure of First Georgia: a concentration in real estate loans and a lack of adequate liquidity.
"At the end of the day it was the concentration of real estate loans that hurt them, in particular in the residential area," Marinac said. "It’s a familiar theme. Unfortunately, we continue to see more of it. Real estate, particularly in residential construction, was something that a lot of banks did heavily. It’s really come back to hurt banks. They just had too much of a good thing."
A bank’s liquidity determines how quickly they are able to convert assets into cash in order to meet requests for withdrawals from depositors. When liquidity grows thin, it jeopardizes the ability of a bank to meet all withdrawal requests. When it grows too thin, the FDIC will step in and seize the bank to make sure that depositors are protected.
"Most banks that are failing face liquidity issues at the end," Marinac said.
Edwards said his bank decided to acquire First Georgia because its footprint fit in with the growth plans of United Bank.
"This was just a very good opportunity to allow us to grow in markets that we were already in and to expand into markets that we weren’t in," said Edwards.
First Georgia had branches in Covington, Jackson, Griffin and Locust Grove. Those are all United Bank locations now. With its acquisition of First Georgia, United Bank now operates nineteen branches in eight contiguous counties from Thomaston to Madison.
United Bank now has more than $839 million in assets, $68 million in capital and employs nearly 400 people.
Prior to their acquisition of First Georgia, United Bank had been operating in Covington for a year and a half with a branch on Washington Street. Edwards said First Georgia customers will benefit from the change over because they will be able to take advantage of more branch locations and of United Bank’s later banking hours.
United Bank has customer contact services from 7 a.m. until 11 p.m., six days a week.
"If any customers are concerned about their accounts in any way, please come see us," Edwards said.
Even in this economic downturn, Edwards said he feels confident about the acquisition of First Georgia and the long-term health of United Bank.
"We have a very diversified loan portfolio with a mixture of consumer, commercial and real estate lending. We’ve been a conservative bank and that’s allowed us to stay in business for over 100 years," Edwards said.
United Bank is 90 percent owned by its directors, employees and their families. More than 20 percent of the bank is owned by employees through a profit-sharing plan.
The FDIC estimates that the cost to the Deposit Insurance Fund will be $72.2 million. United Bank’s acquisition of all deposits was the "least costly" resolution for the FDIC’s Deposit Insurance Fund compared to alternatives.
First Georgia Community Bank is the 23rd bank to fail in the nation this year and the fourth to fail in Georgia.