Georgia banks, reeling from the Great Recession and collapsed real estate market, recorded $3.3 billion in losses in 2009 – effectively wiping out all profits the state’s banking industry earned the previous two years.

The shattered economy also put a big squeeze on lending as cash-strapped Georgia banks moved to shrink their balance sheets.

Overall, 63 percent of the state’s 305 banks ended last year in the red, according to figures released last week by the Federal Deposit Insurance Corp. That compares to 49 percent in 2008 and 15 percent in 2007.

The grim numbers are “certainly no surprise,” said Joe Brannen, Georgia Bankers Association president. “The economy continues to find its bottom, especially in states like Georgia, where we’ve seen 300,000 jobs lost.”

Many Georgia banks bet big on real estate during last decade's housing boom, posting record profits between 2005 and 2007 of about $3 billion a year. Yet the economic woes of the last few years have taken a huge toll, with 32 banks shut down by regulators, more than any other state.

How deep are the problems? More than two out of three Georgia banks face regulatory orders to improve their capital levels and operations, Georgia State University economist Rhajeev Dhawan said..

To comply with the orders, many banks are scrambling to raise cash – a difficult prospect, experts say – as well as reduce their loan portfolios. The moves have been made to comply with increasingly strict regulatory capital guidelines.

As a result, banks are not renewing some loans and being extra cautious about making new loans. The total loans held by the state’s banks plunged by $23 billion last year, or 11 percent.

Most of the purging involved home construction loans, which fell by $12 billion, or 32 percent. Loans to businesses and industrial customers dropped by $7.5 billion, a 20-percent decline, according to FDIC records.

"[There’s a] lowered willingness to lend on the part of banks because their capital ratios are down and they’re getting a lot more regulatory scrutiny,” said Peter Eisman, a finance professor at Georgia State.

New-loan demand is down in part because borrowers are reluctant to take on new debt given the continued economic woes, Eisman said, while some companies seeking new loans are now seen as higher risks.

“Some borrowers are having issues of their own and are less credit-worthy,” he said.

Leonard Moreland, president and CEO of Heritage Bank in Jonesboro, said requests for loans at his bank have dropped from a high of $14 million three years ago to about $2 million to $4 million today.

"No doubt, loan demand is extremely low," he said. "We're still making loans. Of course the requests are fewer and the approvals are much fewer."

Georgia banks seem willing to lend when the conditions are squarely in their favor.

The volume of Small Business Administration loans, which carry 90-percent guarantees by the federal government, rose 83 percent in the last three months of 2009 compared to the same period in 2008. But SBA loans represent only a small portion of the state’s total loan portfolio.

SunTrust, by far Georgia’s largest bank, led the state with a $1.5 billion loss in 2009. Synovus, the state’s second-largest lender, followed with losses of $907 million.

The most profitable Georgia bank is a newcomer of sorts: State Bank and Trust, a tiny lender bought by an investment team armed with an abundance of cash used to take over and recapitalize thefailed Security Bank of Macon. The acquisition included an agreement from federal regulators to cover potential losses stemming from the deal. State Bank earned $19.2 million in 2009.

The second-most profitable lender was United Bank of Zebulon, which earned $15.6 million. United Bank, located between Atlanta and Macon, largely took an inactive role in the housing boom, leaving it in much stronger shape than most of its peers.

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