Two more banks get sanctioned

By Paul Donsky

The Atlanta Journal-Constitution

Federal regulators have slapped two more small Georgia banks with orders to improve their practices and also issued a blistering notice against one, accusing it of questionable financial dealings.

The banks, Central Bank of Georgia in Ellaville and Northside Bank in Adairsville, received the “cease-and-desist” orders in July. The Federal Deposit Insurance Corp. made them public on Friday.

Both banks are reeling from real estate loans gone bad.

Central Bank was required to add three board members to comply with state law and have at least two independent directors verify the accuracy of financial data reported to the FDIC. The agency also issued an unusual 13-page notice detailing “unsafe and unsound” practices.

They included manipulating and misstating the bank’s quarterly financial condition. Twice last year, the FDIC said, the bank’s holding company borrowed $500,000 from a board member and injected the money into the bank’s surplus capital account. A short time later, the bank paid a dividend to the holding company, which repaid the loan to the board member.

These practices “inflated the bank’s capital at quarter and and misstated the true condition of the bank,” the document said.

Richard Frith, acting chief executive of Central Bank, said the bank’s board “has proactively corrected the deficiencies identified in the order and have made significant progress.”

Regulators ordered Northside Bank to shore up its capital levels and improve lending practices and board oversight. Richard Guinter, president and CEO of Northside, said the 4-year-old Bartow County bank plans to shrink its loan portfolio and raise capital by issuing $3 million to $5 million in stock.

About one-third of Georgia’s 300 banks are under a cease-and-desist order, banking experts say.