Regulators let too much time lapse between examinations of a South Georgia bank that failed last fall, an audit of the bank shows, but adhering to the proper schedule likely would not have saved the Gordon Bank.
Regulators were supposed to inspect the bank every 18 months, but an in-depth review of reasons for the bank's Oct. 22 failure show after it was examined June 29, 2006, by the Georgia Department of Banking and Finance it was not inspected again until Oct. 6, 2008, by the Federal Deposit Insurance Corp.
That's about eight months longer than the rules require.
Regulators had "limited resources and higher priority concerns pertaining to other institutions that were experiencing significant financial deterioration," the report said.
"This ‘managed delinquency' process is tightly controlled," FDIC Division of Risk Management Supervision Director Sandra L. Thompson wrote in the report. A spokeswoman for the FDIC said the agency would have no further comment, but the report concluded that answer "adequately addresses" the findings of the FDIC's Office of Inspector General.
The Georgia Department of Banking and Finance did not return calls; no one from the bank was available to talk about the failure.
The Gordon Bank, founded in 1946, cost the deposit insurance fund $8.9 million when it failed. Its total assets were $30.5 million.
The bank increased its acquisition, development and construction loans between 2004 and 2007 from $3.8 million, or 17 percent of its total loans, to $11.1 million, or 40 percent of its total loans. Most were outside its area, the report said, and the bank did not adequately inspect the loans it was acquiring or properly underwrite them.
The bank was in good shape at its 2006 inspection, but because it purchased many of its bad loans in 2006, the report concluded an on-time inspection likely would not have made a difference in its financial decline.
The report also noted that due to an oversight, the FDIC did not request a capital restoration plan from the bank, as the agency's policy requires.
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