Statistics compiled by the Federal Deposit Insurance Corporation paint a dim picture for state-chartered commercial banks. In its Quarterly Banking Profile, FDIC lists aggregate condition and income data and various composite ratios for those banks.
Since the economic meltdown hit with force in 2008, 40 Georgia banks have dropped off the list along with more than 6,500 employees. The financial institutions ended 2007 with more than $2.8 billion in income, but 2009 losses totaled more than $3.2 billion; banks with assets greater than $100 million account for most of the aggregate loss. As banks' cumulative problem loan ratios grew, more than tripling since the end of 2007, aggregate capital has taken a hit to the tune of $3.6 billion.
When a bank runs out of capital -- money it must keep in case of unexpected losses -- its assets could be seized by regulators to protect depositors. Often a larger, more sound institution takes over.
That was the case with Unity National Bank, which was overtaken by Bank of the Ozarks in March, and Crescent Bank, acquired in July by Renasant Bank.
It is the same story across the country, but Georgia is among a handful of states with the highest concentrations of bank collapses. The meltdown in the real estate market has brought mountains of soured mortgage loans and the pace has accelerated as banks' losses mount on loans made for commercial property and development.
Many companies have shut down in the recession, vacating shopping malls and office buildings financed by those loans. It has brought delinquent loan payments and defaults by commercial developers.
The Daily Tribune News will focus on Cartersville-based Bartow County Bank, a community bank that serves customers from its main office on East Church Street and three other branches in Cartersville and Acworth, for the next in a series on local banks with potential problems.
Formed in 1974 by a group of local businessmen and now billed as Bartow County's largest bank, Bartow County Bank lost more than $11.6 million in 2009 and slipped to adequately capitalized from a well-capitalized status at the end of last year.
"Our market is Bartow County. As Bartow County goes, Bartow County Bank goes. As our local economy has been suffering, it reflects on us because we are part of that economy," said President and CEO Gary Fox. "When you operate in one market, that's what happens.
"It was the first time we ever lost money in the history of the bank, and that was a result of us setting a large amount of money aside for future loan losses and the way the accounting rule works is not only aside to deal with what you feel your losses may be, you have to set a similar amount aside assuming its going to happen again. And that basically comes out of capital."
Last year, the institution expensed more than $15 million to deal with more than $11.7 million in charge-offs and increase its reserve by about $3.5 million.
Fox said the bank identified bad loans last year, and is now working to either foreclose on the properties or otherwise resolve those loans with customers.
"And when you do that, you have to get a current appraisal and appraisals are just coming in at much lower values than they were just two and three years ago. It's almost like we reset back 10, 15 years ago in terms of real estate values around here," Fox said. "When you have a loan that's showing some stress, you get that new appraisal, you either have to get more collateral or impair the loan and that again goes into the [loan] loss reserve. That's the bulk of the issues that we and other banks face right now."
Since December 2007, the bank's troubled loans have been on the rise. While Bartow County Bank's troubled asset ratio -- which measures how much stress problem loans put on a bank -- was just above the national median at 15.5 at the end of 2007, it had grown to 114.1 by the end of 2009.
It took another hike by the end of the first quarter this year to 143.2. Also in the first quarter of 2010, capital continued to dip and Bartow County Bank is now just above the borderline of being classified as under-capitalized.
In the one year preceding the end of the first quarter of 2010, the bank's capital had taken more than a $10 million hit. In the same time period, troubled assets grew more than 80 percent and sat just below $40 million at the end of March.
Fox said Bartow County Bank is now dealing with loans to struggling small business after facing the fallout in the construction industry, which drove construction and land development loan defaults.
"We're hanging in there. It's a challenge for everybody that's in business right now, but we've taken numerous steps to streamline our operations to cut our costs and we are having a good deal of success in moving the properties that we foreclose on. We've sold several million dollars worth within just the last couple of months. We're making progress there, so hopefully time will heal this economy and we'll all be a lot better and smarter for it," Fox said. "We feel strongly that we'll weather the storm and it's one heck of a storm. We're looking forward to when we get through this thing."
Bartow County Bank is looking to boost capital, and has secured commitments from local investors, Fox said. The institution is now working on selling stock to investors outside the community, and a sale could happen around the end of the year.
While FDIC's list of about 700 problem banks across the country is not public, bank-rating systems, including BauerFinancial and Weiss Ratings, offer information on the financial strength of banking institutions.
BauerFinancial gives Bartow County Bank zero stars, and the website says the institution makes it Troubled and Problematic Report and is "facing considerable challenges at this time."
The bank also is on Weiss' Weakest Banks and Thrifts in the U.S. list, with an E-, or very weak rating. Weiss says Bartow County Bank is "vulnerable to future financial difficulties or even failure, based on [its] analysis of their capital, asset quality, earnings, liquidity and other factors."
But bank rating systems and FDIC say only a small percentage of problem banks actually fail, often re-capitalizing or meeting other requirements, and depositors are protected by FDIC insurance.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, in part, permanently raised the maximum deposit insurance amount to $250,000 and savings, checking and other deposit accounts are generally insured up to that amount. It had been previously temporarily increased from $100,000 to $250,000.
"There's no reason to fear for your deposits. They're insured and we've joined what's called a Temporary Liquidity Guarantee Program. For example, if you have a demand deposit account and it earns less than .25 percent, which they all do -- unlimited insurance. You could have $5 million sitting in that account, it is fully insured at least through the end of this year and they have the right to extend an additional two years," Fox said, adding the program is separate from the $250,000 cap on FDIC insurance, under which deposits can be structured so families receive additional coverage.
For more information on structuring deposits, visit www.FDIC.gov.
-- Information from AP was used in this report.