RockBridge Commercial Bank opened its doors three years ago in Sandy Springs after raising an eye-popping $36 million -- more than any start-up bank in Georgia history to that point.
Initial investors included some of Atlanta's business elite, including Home Depot co-founder Bernie Marcus and Charles Ackerman, founder of Ackerman & Co., a major commercial real estate firm.
But late last year, the bank began to suffer heavy loan losses as the economy deteriorated. By this fall, RockBridge had burned through virtually all of its capital.
By one widely used measure of a bank’s health -- the ratio of troubled loans to cash on hand -- RockBridge is by far Georgia’s most-distressed lender and ranks second-worst in the nation. Federal regulators recently ordered RockBridge to raise additional funds or find a buyer.
How did a bank flush with cash fall so far, so fast?
One one level, the bank appears to be a victim of timing. Like many small metro Atlanta banks, RockBridge loaned heavily to real estate builders and developers only to get hammered when the once high-flying housing market tanked.
A review of the bank's financial records and other documents, along with comments from a former top bank official, suggest the story is not so simple.
RockBridge told regulators and investors it would focus its lending on small-to-medium sized companies, hence the "commercial" part of the bank's name. But RockBridge veered sharply from that path shortly after opening its doors, gorging on real estate -- a historically volatile type of loan that during the boom years proved highly profitable.
Real estate loans now make up 72 percent of RockBridge's $211.7 million portfolio, while commercial loans to businesses account for 20 percent, regulatory filings show. More than one-third of the bank's real estate loans are in the most severe stage of delinquency.
The bank's former chief financial officer, Rollo Ingram, told the Journal-Constitution he warned bank officials they were taking big risks that could prove disastrous. Ingram said he was fired in early 2008 after a disagreement with top management.
"I commented to the board on a number of occasions of the danger of concentration in [real estate], but nobody seemed to listen," he said.
Bank officials referred questions to the company’s attorney, who in an e-mail said the bank has been hard-hit by the recession and historic real estate downturn, like many Georgia banks.
“Hindsight is always 20-20,” said the attorney, Kathryn Knudson. “Banks prepared for a downturn, but no one – not banks, not the regulators, not Congress, no one – could prepare for what has happened.” She declined to comment on the warnings Ingram said he delivered.
Knudson said the bank is pursuing a “unique” recapitalization plan to rescue the bank. She declined to provide details.
Of course, RockBridge is just one of dozens of Georgia banks with high levels of real estate loans to suffer during the financial crisis. But Ingram said poor management, not just a horrible economy, is to blame for RockBridge’s steep slide.
“Even though most banks have lost money as a result of this downdraft, some of them will take a hit and recover rapidly and some will just get walloped,” he said. “Some [banks] are better at risk management than others, and this bank was just horrible at it.”
RockBridge formed during an economic boom in metro Atlanta, fueled by a red-hot housing market, that proved to be a golden era for the state’s banks. Banks raked in huge profits by making loans to companies building new homes and suburban subdivisions. The good times sparked a wave of new banks to form in Georgia – 92 this decade alone, including 21 in 2006, the year RockBridge opened.
RockBridge's founders, led by veteran banker Lauch McKinnon, set out to raise $20 million to $30 million but ended up raising $36 million, including investments from Marcus and Ackerman. Founding board members included Marcus’s nephew, Larry Smith, the former general counsel at Home Depot, and William Porter, a retired founder of Atlanta accounting firm Porter Keadle Moore.
Working from a single branch, the bank ended its first year with $55 million in real estate loans, a figure that almost doubled the next quarter to $102 million and reached$153 million by the end of its second year in operation, records show.
Commercial loans, in contrast, reached about $50 million in the bank's first year but stagnated at that level. In the most recent quarter, the bank reported $44 million in commercial loans.
That pattern appears to differ sharply from the bank's original business plan, contained in a 2006 document to potential investors and obtained by the AJC.
According to the document, known as a "private placement memorandum," the bank said it would conduct a "general commercial banking business" with an emphasis on small-to-medium sized companies. The document said the bank would also target real estate developers and builders.
Ingram, the fired CFO, said he felt the bank's leaders simply wanted to grow the bank quickly.
"Real estate lending is a lot easier to do than anything else," said Ingram. "To build a commercial bank takes time."
RockBridge's first two years were largely uneventful, but problems mounted quickly once the real estate market collapsed and borrowers began to default on their loans. As late as the first quarter of this year, just 5 percent of the bank’s loans were in the most severe stage of default. By the third quarter, however, the figure jumped to more than 30 percent, or $64 million.
RockBridge reported losses of $50 million over the past year, including $28 million in the third quarter alone. It ended the quarter with $1.5 million in equity, but only after the bank’s holding company propped up the bank’s bottom line with a $3 million infusion, according to the bank’s regulatory filing.
The bank’s leadership recently changed with the retirement of McKinnon, the founding CEO. McKinnon could not be reached for comment.
RockBridge’s dismal financial numbers sent its so-called Texas ratio into the stratosphere. The Texas ratio, a common way experts gauge a bank’s fiscal health, takes into account an institution’s troubled loans and the amount of cash on hand to cover potential losses.
A Texas ratio of over 100 percent is worrisome, meaning a bank has more bad loans than capital. RockBridge had a ratio of 1,144 percent in the third quarter, the second-highest in the nation and by a long stretch the highest in Georgia.
"
About the Author
