Cornelia bank doomed by real estate, lax management

By J. Scott Trubey

The Atlanta Journal-Constitution

Community Bank & Trust was a rudderless ship that lacked proper oversight to right itself when an economic disaster struck, according to a report issued Tuesday outlining the bank’s collapse.

The $1.1 billion-in-assets lender, based in the northeast Georgia town of Cornelia, failed last January after betting too heavily on real estate development loans, the postmortem report by the FDIC's inspector general said.

It's a familiar story among Georgia's 41 failed banks since 2008. But unlike many, Community Bank wasn’t new. Founded in 1900, Community Bank was considered an innovator. It was among the first to open branches inside grocery stores.

The bank relied on J. Alton Wingate, its powerful CEO, to plot its course. He also oversaw loan underwriting and credit administration for 20 years. When he died of cancer in 2005, the bank saw a revolving door of management changes.

After Wingate’s death, the report said, “it became apparent that the bank lacked management depth." The inspector general’s report knocked Community Bank for lacking internal controls over its lending operations, “which likely contributed to inappropriate lending activities that were associated with substantial losses.”

Despite its leader's death, Community Bank’s loan portfolio grew 65 percent to $992 million from 2005 to 2008 amid the real estate boom.

Problem loans — those delinquent, in default or foreclosed — were $251.3 million by Sept. 30, 2009, according to FDIC data.

A decentralized lending structure gave authority to division presidents. As a result, the report said, compliance with loan policy “was not effectively monitored.”

One unnamed senior officer was cited for losses within his portfolio of “no less than $10 million." These included concealing a $500,000 credit line issued “without proper approval,” and for extending credit for the benefit of a borrower who had at least one loan considered substandard.

Regulators noted problems with underwriting standards starting in 2004, and worrisome concentrations in development loans in 2006. Regulators issued a cease and desist order in May 2009.

Regulators seized Community Bank last January and sold it to SCBT Financial Corp. The bank’s collapse cost the FDIC’s deposit insurance fund an estimated $336.1 million.