Aggressive lending in the real estate market before the bubble burst had a lot to do with the demise of both Peoples Bank of Winder, which shut its doors this month, and Silverton, Georgia’s largest-ever bank failure.
But the banks, two of 44 in Georgia to shut down since 2008, had one other thing in common -- they were each led by Christopher B. Maddox when they met their end.
An imposing figure who stands 6-foot-5, Maddox is described by friends and business associates as humble, well-respected and a man who doesn’t shrink from responsibility.
In a recent interview, Maddox said he tried to find a buyer for Silverton and did all he could to save Peoples.
He also did what he could to save a family legacy that bonded him to both banks.
Peoples can trace its founding in 1926 to a group of businessmen, including Maddox’s grandfather Charles O. Maddox Sr. It was Christopher’s father, Charles O. Maddox Jr., who started the Bankers Bank in the 1980s and laterchanged its name to Silverton. Charles Jr. added to the family’s 84-year history of contributions to Georgia banking in 1969 by creating the Community Bankers Association of Georgia, which Christopher would one day lead.
Christopher Maddox, who was the chief executive of Peoples for 10 years, said the bank’s failure was brought on by having too many housing loans written against properties that tumbled in value when the housing market crashed.
"Really, it was the deterioration of both the credit condition of a lot of our borrowers and the value of the collateral," Maddox said. "Every time that happened, you had to take write-downs, and that eroded capital."
Analysts and longtime players in Georgia banking say the economic downturn was a factor, but Peoples' own aggressive loan making in both its home markets as well as out of state led to its demise.
Its financial tie to Silverton as a customer and a shareholder also weakened its position, said Walt Moeling, a longtime Atlanta banking attorney.
"Its failure was a consequence of the failure of Silverton," Moeling said. "When it failed, it erased, in the aggregate, several hundreds of millions of dollars of bank capital."
Silverton wasn't a bank that took deposits from or made loans to retail customers. It made loans to other banks and also generated income from providing investment banking and check processing services to those institutions.
When regulators seized the bank in May of last year, it had $4.1 billion in total assets and more than$1 billion in real estate-related loans. It had more than $192 million in bad loans when it failed.
Maddox said Silverton was caught up in an economic meltdown when its board unanimously voted to make him the bank's interim CEO in the early part of 2009.
"I was a member of the board and brought in with a two-pronged purpose," said Maddox, 47. "One was to try to facilitate and market the company for a possible acquisition, and in the case that that was not possible, to orchestrate a smooth resolution.
"At the end of the day, I didn't cause the failure of Silverton."
That failure left its bank investors such as Peoples holding worthless shares and shakier balance sheets.
"Peoples Bank was hit by the Silverton issue," said Christopher W. Marinac, a bank analyst at FIG Partners in Atlanta. "This is a good example of systemic risk."
One example of that systemic risk was a $100 million development project -- Merrill Ranch -- on a 5,600-acre tract outside Phoenix. The loan, which went into foreclosure, was too large for Peoples, which got other banks to underwrite different chunks of it to spread the risk. Silverton marketed the loan to five dozen community banks, with Georgia-based lenders forming a large contingent of participants.
Maddox declined to comment on specific loans.
Peoples' sour loan portfolio was also a result of its aggressive lending closer to home.
The bank's concentration in development loans was fed by Barrow County's housing boom.
Barrow benefited from its location, in between metro Atlanta's fast-growing Hall and Gwinnett counties and metro Athens-Clarke County, Marinac said.
As the economy hummed along, so did Peoples Bank, capturing nearly half the deposits in Barrow County. Peoples had long been the dominant player in Barrow County as the only one of five banks in operation there before the Great Depression to survive it.
But when the housing and real estate development sectors fell, so did Peoples' fortunes.
In the end, 34 percent of Peoples' loans went sour -- six times higher than the median $500 million-in-assets institution, according to a FIG Partners analysis.
Maddox did try to address the problems at Peoples, announcing a plan earlier this year to find new investors and capital to help build up the bank's reserves. And the bank sought to shed its foreclosed real estate and virgin lots.
None of those efforts proved fruitful.
"We were working on it, we just never got to do it," Maddox said. "There was no demand for our other real estate, the market was so flat."
When it failed, Peoples Bank had $447.2 million in assets and $398.2 million in deposits. By the end of June -- nearly two months before its was shut down -- 25 percent of its assets were already in some level of distress.
“I think Chris attempted to respond to the errors. He took his medicine and adopted a new religion," Marinac said. "But there were catastrophic mistakes made that could not be undone.”
Those who worked with Maddox agree with those sentiments.
"It's been kind of an emotional time for so many people because they were the bank of Barrow County," said Thomas R. Jennings, president of the Barrow County Chamber of Commerce. "We were not immune to the economy and what has happened in real estate," he said, noting since the downturn, the county has lost four banks to failure.
"We felt like to some extent, we were at the center of the real estate crash," Jennings said. "He understood the situation and was trying to do all he could to save the bank."
Staff writer J. Scott Trubey contributed to this article.
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