2nd Largest Atlanta-Based Bank Seeking Cash As Bad Loans Surged 10-Fold in 6 Months

Discussion in 'Economics' started by ByLoSellHi, Aug 5, 2009.

  1. Georgian Bank Says Bad Loans Surged 10-Fold in Six Months
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    By David Mildenberg


    Aug. 5 (Bloomberg) --
    Georgian Bancorporation Inc., the second-biggest Atlanta-based bank, is still seeking to raise at least $25 million after a 10-fold jump in bad loans in six months, Chief Executive Officer John Poelker said.

    “We felt along with most people that the real estate situation in Atlanta would have begun to correct itself by the summer of 2009,” Poelker, who replaced founder Gordon Teel at the closely held bank last month, said in an interview today. “Nobody expected this downturn in real estate to be as widespread and deep as it turned out.”

    Georgian, which earlier this year scrapped a plan to seek U.S. bank-bailout funds, had $306.4 million in nonperforming loans as of June 30, compared with $28.4 million at the end of 2008, according to Poelker. Of the bank’s $1.77 billion of total loans, $1.36 billion were for property. The capital-raising, announced in May, will target private-equity firms or other institutions, a shift from earlier plans to seek funds from shareholders and local investors, Poelker said.

    Sixteen Georgia banks failed this year, more than a fifth of the 69 U.S. lenders that went under this year, according to the Federal Deposit Insurance Corp. The failures stemmed from excessive optimism by developers and bankers earlier this decade, said Walt Moeling, an Atlanta lawyer with Bryan Cave LLP who has represented Georgian.

    ‘Adequately Capitalized’

    Georgian remains “adequately capitalized” under regulatory guidelines with tangible common equity of $143.7 million and a Tier 1 Capital ratio of 7.3 percent, Poelker said. The bank, second in size in Atlanta to SunTrust Banks Inc., lost $36.7 million in the second quarter after taking a $41.3 million provision for loan losses, marking its third straight quarterly deficit. It had deposits of $1.96 billion as of June 30.

    The bank’s borrowers tend to be “very established developers and builders” whose wealth and personal guarantees gave Georgian confidence they would keep repaying loans, Poelker said. “But when you are starting to get into 12 to 15 months of reduced cash flows, pretty soon you are going to run out of money and that’s what we are seeing.”

    Teel led an investor group that in 2003 injected $50 million into the bank, sparking growth from $71 million in assets to $2.2 billion at the end of 2008. The bank was the fastest-growing U.S. bank among 334 banks established since June 2001, according to a 2005 statement.

    Staff Cuts

    Georgian, founded in 2001, has cut its staff to 175 from 210 and is reducing marketing, sponsorships and other costs, said Poelker, a former chief financial officer at BankAmerica Corp. and Citizens & Southern Bank in Atlanta. The bank withdrew an application to raise capital through the U.S. Treasury’s Troubled Asset Relief Program because Teel and Georgian’s board didn’t favor restrictions imposed as part of the program.

    Unemployment in Georgia exceeded 10 percent for the first time ever in June, the state’s Labor Department reported. Georgia’s unemployment rate has exceeded the U.S. rate for 20 months, a reversal after years of drawing residents from other states with jobs, a lower cost of living and mild winters.

    “Georgia has an egregious oversupply of home lots, bank failures, and commercial office market overbuilding,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

    To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
    Last Updated: August 5, 2009 13:40 EDT
  2. S2007S


    no need to worry, the fdic will save them and everything will be happy times again. Risk free market....
  3. It's only a 1000% increase in their bad loan portfolio.
  4. If they are that large a bank I'm sure it will be easy for them to raise 25M. I don't see what the big deal is here on this story.