When metro Atlanta surged with growth the past few decades, it wasn’t just jobs and population. From its southern areas to northern locations, the region sprouted new banks and saw established ones get bigger by funding profitable land development.
When the real estate bubble subsequently burst, these high-growth areas took the brunt of the losses — not only in failed developments, but failed banks.
More than 60 percent of Georgia’s 57 bank failures, since the Great Recession began at the end of 2007, fell within 70 miles of Atlanta, according to an analysis by The Atlanta Journal-Constitution.
The highest concentration of failures was across the north metro: Nine Fulton County banks, followed by five in Gwinnett and four in Cobb.
“Georgia is unique in that we have a lot of banks, and we have one central hub of commerce in Atlanta,” said Lee Burrows, CEO and bank consultant with Banks Street Partners.
Georgia’s bank failures — the most in the nation during and since the Great Recession — grew out of the state’s housing boom, which unleashed a gold rush among existing and new banks for real estate-related loans.
The financial crisis eventually spread from its Atlanta roots. Bank failures shook the North Georgia mountains, the coast and a smattering in Middle Georgia that largely reached out of their traditionally sleepy markets to tap into faster growing areas.
About the only places in the state unaffected by closures were around Columbus and Augusta, which fared better than many of Georgia’s high-growth areas, and the state’s generally less affluent and rural southwest.
“In the markets that haven’t boomed, they haven’t busted,” Burrows said.
Georgia’s failed banks generally fell into three geographic categories:
● Metro Atlanta banks that largely funded residential and commercial development or land investment loans.
● Mountain banks that funded loans for vacation or retiree home development, land investment loans and tourism-related businesses.
● Coastal institutions that also lent to vacation and retiree homes, retail and tourism-related businesses, as well as developments for the influx of new industry lured by the state’s bustling ports.
About three dozen failures were located within 70 miles of Atlanta. Six were headquartered and focused their business in the Northeast mountains, and six were near or had operations along the Georgia coast.
The state also has seen a handful of outliers in small rural banks, like United Security Bank, which failed in November 2009. Though it was based in tiny Sparta, northeast of Macon, the bank did most of its business through a branch in Woodstock.
Three other suburban Macon banks, both subsidiaries of Macon-based Security Bank, failed in July 2009, with their parent company. Much of the overarching company’s losses were tied to residential development loans in metro Atlanta.
Another outlier, not geographic but in its operations, was Atlanta-based Silverton Bank, Georgia’s biggest collapse. Silverton’s clients were other banks, about 1,400 nationwide. It originated and sold pieces of loans to banks across the country.
Silverton specialized in larger residential and commercial real estate loans and had a division with a large portfolio of hotel construction loans. The $4.1 billion bank failed in May 2009.
Banks both young and old have succumbed to economic strife. Almost half of the banks — 27 — that have failed were started in 2000 or later, but nearly a dozen had roots stretching to the Great Depression era or before.
Although convictions for fraud have occurred in three institutions so far, most failed Georgia banks collapsed after betting too heavily on a boom that went bust, not because of intentional wrongdoing, experts said.
“The banks that failed are a direct reflection of the economy that supported them,” said Walt Moeling, banking attorney with Bryan Cave in Atlanta.
Banks like American Trust Bank of Roswell, which failed last month, and Jasper-based Crescent Bank & Trust, which failed in July, grew aggressively on construction, residential and commercial real estate loans.
Unlike giant regional or national banks, community lenders have fewer options for revenue and geographic diversity, and a tighter margin for error when things go bad. But it wasn’t just developers and land investors. Loans for real estate-related businesses like land surveyors, appraisers and landscapers also soured when the market turned.
When American Trust failed, 40 percent of its $155 million loan portfolio was delinquent, in default or foreclosed, according to Federal Deposit Insurance Corp. data. More than $71 million in loans were commercial real estate.
Crescent, which had offices in north metro Atlanta and the mountains, was a heavy lender to subdivision developers, strip retail centers and builders of vacation homes. At the end of 2007, half of its $815 million loan book was in construction and land acquisition loans, according to FDIC data.
Failed Georgia lenders generally had concentrations in real estate loans well beyond the national average and higher than regulator guidelines, the FDIC showed.
Around 120 new banks were chartered in the state during the 2000s, and at one time the state had around 350 institutions. Pressure to grow quickly pushed many to find deposits by paying out high interest or securing them from third-party sources.
Use of noncore deposits to grow banks has been criticized by regulators, because such funds tend to pull out of a bank when it runs into trouble.
“It was the seven deadly sins of banking,” said Byron Richardson, an Atlanta-based bank consultant.
Metro Atlanta dove first into the Great Recession. Losses increased in early 2007 after easy credit and subprime lending seized up in 2006 and developers couldn’t unload homes. Home loans for prime borrowers even dried up during the worst of the recession.
That also hit retail developers and retailers who followed suburban growth, counting on the inflow of new homeowners to ever distant suburbs.
Home buyers had spent the 2000s drifting farther out of the urban core, sacrificing commute times for larger, less expensive homes. Areas like Henry County, once the third-fastest growing county in the nation, welcomed new homeowners and new banks.
“Banks were opening in communities with great prosperity,” said Kay Pippin, president and CEO of the Henry County Chamber of Commerce.
Henry has suffered through three bank failures. “The biggest loss is the access to capital to builders and small businesses,” Pippin said.
Job growth was provided last year from new and expanding manufacturers in Henry, Pippin said, and demand will eventually return to an area projected by the Atlanta Regional Commission to add 239,000 residents over the next 30 years.
Losses compounded and nearby failures struck other banks forced to shed their books of bad loans and write down the value of real estate collateral because it wasn’t worth what it was in the boom years.
Troubles for the mountain banks followed Atlanta by about a year after sales faded for vacation and retirement homes.
With little industry, institutions like Bank of Hiawassee near the North Carolina border tilted heavily to vacation homes and businesses tied to tourism. When it failed in March 2010, the bank had lost $30.6 million the year before, and a third of its loans were troubled or had been foreclosed.
Second-home buyers faced with losing a vacation house or a primary residence largely opted for the latter, sending scores of mountain and coastal retreats into foreclosure.
One of those failed coastal institutions, Satilla Community Bank in St. Marys, which closed in May 2010, didn’t report rising loan losses until mid-2008. By the end of 2009, $20 million of the bank’s $95.4 million in loans were no longer being paid or had been foreclosed.
“Once you took a big eraser to excess wealth in Atlanta, you took a big eraser to [developers’] ability to sell high-end homes in the coast and mountains,” Moeling said.
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