Georgian Bank's wealthy clients speeded failure

But the Atlanta bank's well-heeled clientele also turned out to be an Achilles' heel, hastening Georgian’s demise when enough depositors pulled out their money as the enormity of the bank's problems became clear last summer.

While not a classic bank run, experts said, the exodus of cash was large and swift. The trend prompted regulators who were already closely watching the bank to shut it down last Friday.

It’s not clear how much money left the bank. Walt Moeling, Georgian’s attorney, said the figure was in the millions, though he could not be more specific. The bank’s president, John Poelker, was traveling and could not be reached for comment.

Georgian was one of the state's largest community banks when it failed, with more than $1.9 billion in deposits. What really set it apart from the state's two dozen other failed lenders, however, was the affluence of its customers. As of last June 30, about 86 percent of its deposits were held in accounts larger than $100,000. The average size of those accounts: $673,000.

In good times, Georgian’s robust funding base enabled the bank to lend aggressively to builders and developers working in metro Atlanta’s then-booming real estate market. But having so much money tied up in relatively few depositors also meant that a large amount of cash could leave in a hurry should things go awry.

The crisis at Georgian erupted in early July, when the board replaced founder and CEO Gordon Teel. A few weeks later, the bank’s horrid second-quarter performance became public. Losses totaled $36.7 million, while nonperforming loans soared from $24.7 million to $306 million.

All of this apparently spooked Georgian’s wealthy customer base, many of whom had deposits far exceeding the federally insured limit of $250,000 -- giving them good reason to pay close attention to the bank's fortunes. Rival banks near Georgian's Buckhead branch, including Fidelity and Atlantic Capital, began seeing Georgian customers walking through the doors to open accounts.

Jim Miller, CEO of Fidelity Bank, said “many millions” came in over the past month, including wealthy individuals and investment managers looking for a safe place to stash clients’ cash.

The steady stream of new business became a torrent last Friday, when word began swirling that Georgian was set to fail. Last Friday and Saturday, Miller said Fidelity signed up about 75 former Georgian customers.

“It was just a land rush,” he said. “These are sophisticated people. They want a community bank to bank with.”

While the Federal Deposit Insurance Corp. guarantees up to $250,000 per account, no depositor has lost any money during the recent spate of bank failures in Georgia and nationwide, including uninsured funds.

But people still get scared when they hear their bank is having problems, said Doug Williams, president of Atlantic Capital Bank. He said the flow of customers to his bank picked up after Georgian’s leadership change and disastrous second-quarter numbers were released.

“That’s when people really to get concerned and we started to see a lot more movement” of customers from Georgian, Williams said.

The loss of wealthy local customers was far from Georgian’s only problem. It also relied heavily on wholesale and brokered deposits from national investors – so-called hot money that is liable to vanish quickly when problems arise. More than one-third of the bank’s funding came from these sources.

Chris Marinac, a bank analyst at Atlanta-based FIG Partners, said despite Georgian’s mounting pool of bad loans, the bank probably could have survived for another six months if not for the loss of deposits. His firm is watching a number of other banks with similar loan problems that are still alive because “no one’s walking out,” he said.

Georigan’s fall was dizzying. The bank reported a profit through the end of last year and few problem loans until the second quarter. Georgian’s deposit base even held steady through the second quarter, according to the FDIC records.

The bank was formed in 2001, then purchased in 2003 by a group of investors led by Teel. The investors raised $50 million to recapitalize the bank and turn it into an aggressive lender.

After its shutdown by the FDIC, Georgian's remaining accounts and assets were acquired by First Citizens Bank and Trust, of Columbia,  S.C.

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