Georgia banks improving amid fewer failures

2010…..21

2011…..23

2012…..10

2013 to-date…..1

When Frontier Bank in LaGrange failed March 8, 117 days had passed since Georgia’s last bank failure. That marked the longest period without a failure since banks began shutting down in earnest at the end of 2008.

With 85 failures during that time, the state still has more than anywhere else in the country — Georgia bank failures account for 18 percent of the total U.S. failures since 2009.

But the slowing pace is indicative of improvement, though the state’s banks still have a long way to go before they are healthy across the board.

“We continue to lag the national economy as a whole, but we are clearly seeing good signs of improvement,” said Tom Dujenski, director of the Federal Deposit Insurance Corp.’s regional office in Atlanta. “Some institutions continue to have significant challenges as they’re working through this crisis.”

The health of Georgia’s banks, which suffered mightily in the recession, is integral to an improving economy in the state. Healthy banks are more likely to make loans and take risks, which means businesses have easier access to money if banks are doing well. Those companies then spend that money on employees, construction or innovation, expanding their businesses and putting dollars back into the economy.

Without banks that are willing to lend, it is much more difficult for businesses to access the money they need to grow. As banks worried about their own survival and loans that were going bad during the recession, they were less likely to lend money to other companies, hampering the ability of the economy to expand.

“As we see a general improvement in the banking industry, they will be able to serve their communities better,” Dujenski said.

Trouble still exists for many banks. Some do not have large enough cushions of capital to deal with potentially bad loans, while others are working through bad construction and development or commercial real estate loans that are still on their books.

But the numbers are improving. Nationwide, 651 banks were considered troubled at the end of 2012, down from 888 in March 2011. In Georgia, there are about 10 banks that have such low capital levels that they are in danger of having some action taken against them, said Chris Marinac, director of research and managing principal at FIG Partners.

Not all of those banks will fail, but Dujenski said there could still be failures in the state. Frontier Bank’s failure was Georgia’s first this year; there were 10 failures in 2012 and more than 20 a year between 2009 and 2011.

“Clearly, we have some banks in Georgia that are not going to make it,” said Walt Moeling, a senior partner at Bryan Cave. “It’s not going to be (117) days before the next one.”

Banks that have run out of the capital necessary to deal with all their problem loans are those most likely to fail, Moeling said. But for the first time since 2007, he said, banks are finally starting to look forward.

“They’re saying, ‘Quit your whining, get back to work, let’s go make some money,’” he said. “We’re clearly in much better shape. Many banks that were on the cusp are earning their way back now.”

Synovus Financial, the state’s second-biggest bank, showed its first annual profit since 2007 last year. The Columbus company has paid nearly $180 million in interest to the federal government for a Troubled Asset Relief Program loan of $967.9 million that it expects to pay back this year, the largest TARP loan outstanding.

United Community Banks in Blairsville also is expected to pay back a $180 million TARP loan this year.

As the state’s banks improve, Moeling said, the quality of their loans is not as much of a concern as it once was.

The improvements mean Georgia banks are becoming more profitable. They made $2.25 billion in 2012, up from $537 million in 2011. Nearly three quarters of the state’s banks were profitable last year, compared with just 30 percent during the worst of the crisis. Nationally, 86 percent of banks are now profitable.

The number of past-due loans at Georgia banks also is falling, having gone from 7.09 percent of all loans at the end of 2011 to 5.75 percent at the end of 2012. That’s still higher than the national picture, where past-due loans are 2.56 percent of total loans.

“It’s modest, it’s moderate, but we are moving forward,” Marinac said. “We’re keeping calm and carrying on.”

Banks are improving by shrinking, he said. They’re paying close attention to their balance sheets and keeping expenses lean. Some banks are closing branches — SunTrust announced that it will be closing 40 — and others are cutting employees.

Financial employers announced 30,302 job cuts in January and February, according to outplacement firm Challenger Gray & Christmas. Some of that is good news: In response to the improving housing market, JP Morgan Chase plans to cut 19,000 jobs over the next two years as it shrinks the number of employees who deal with troubled mortgages.

Marinac said others are using technology to minimize the number of employees needed to do particular tasks. In doing so, Moeling said, they are emulating corporations that are growing by contracting.

These moves help banks become more profitable. And that, in turn, is good for business in the state.

“Any relief (banks are) seeing really does help the profitability of companies,” Marinac said.