A federal audit of the August 2009 failure of First Coweta Bank in Newnan says the bank succumbed to the same problem as most of the state’s other failed institutions: too many residential real estate development loans and poor loan underwriting.
It was a risky combination that proved fatal once the housing market collapsed, the audit said.
The audit said there were enough red flags in 2007 for regulators to increase their supervision and require corrective actions that could have helped stabilize the bank. But regulators opted not to take that step, in part because First Coweta’s earnings and capital were deemed satisfactory.
The bank, established in 2004, grew quickly in part by buying pieces of loans from another financial firm, the audit said.
First Coweta should have evaluated those loans as if they were generated in-house. But the bank failed “to perform any independent review of these loans and relied upon the firm’s underwriting and credit administration, which was found to be poor.”
The audit, conducted by the Federal Deposit Insurance Corp.’s Office of Inspector General, did not identify the financial firm that sold the loans to First Coweta.
Another problem highlighted in the audit: First Coweta made a series of loans that exceeded regulatory “loan-to-value” limits. The bank’s officials failed to report the loans to the board, the audit said.
Since 2008, 32 banks have failed in Georgia, more than any other state.
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