Georgia leads nation in weak banks

Georgia, famous for its peaches and peanuts, has gained a reputation of late for a far less admirable trait: the problem bank.

Of the 34 American banks to fail in the past year, six were based in Georgia, placing the Peach State behind only California in the race for the nation’s bank failure capital. Florida is a distant third with three failures.

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Johnny Crawford / jcrawford@ajc.com

The marque that once served FirstBank Financial Services in McDonough is now covered by a Regions Bank sign. FirstBank was recently shut down by federal regulators.

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And no state comes close to challenging Georgia when it comes to banks in danger of going under, according to a recent analysis that aims to gauge how likely banks are to face insolvency. Georgia has 42 banks on the list — up from 26 three months earlier — followed by Illinois with 15.

It’s a startlingly poor showing experts blame on a tangled web of factors, from the sheer number of banks crowding the marketplace to risky lending practices that saw many banks concentrate their loans in one area: real estate development.

None of it mattered when times were good. Profits rolled in, borrowers paid their debts on time, investors got rich. But after the economy collapsed, the business model imploded. Bad loans mounted, earnings nose-dived, deposits dried up.

“It worked for a while, and then the music stopped,” said Jon Burke, an Atlanta banking consultant. The problem, he said, “really has to do with way too much commercial banking money — generally speaking, small banks — chasing one little piece of the market, which is residential real estate.”

Of course, every bank is a different and has its own set of variables. Some of the failed and troubled banks are only a few years old, and one has been around for a century. One failed bank gambled big on a south Florida resort, while another lent heavily to Indian-American hotel owners.

But interviews with bankers, analysts, consultants and attorneys point to five factors that helped precipitate Georgia’s banking woes.