Georgia has become America’s poster child for bank failure, leading the nation with 67 failed institutions since mid-2008. But the state’s banking environment remains in flux, with big names entering the market (Wells Fargo) and others (PNC) looking to do so.
Amid the turmoil, we asked local bankers and experts how the Georgia banking crisis is impacting state business and, in particular, their own business. Here is what they wrote:
Milton H. Jones Jr.
Chairman, CEO and president of CertusBank, former Georgia market president for Bank of America
The rash of bank failures in Georgia and our state’s struggle to recover from the recession go hand in hand. With a burst housing bubble, a statewide unemployment rate hovering around 10 percent and a state budget shortfall of $1.3 billion, Georgia clearly has to pull itself out of a pretty deep hole. For the Georgia economy to climb out of the recession, a healthy banking system is critical.
Yet almost four years after the start of the current economic downturn, nowhere is the recession’s impact being felt more acutely than in the area of small-business lending. While there have been a large number of failures, it is important to note that many banks in our state are liquid, strong and prepared to meet the reasonable demand for credit as it surfaces. However, many banks continue to take an extremely conservative approach to reduce risk on their overall loan portfolio.
The resulting lack of available credit has had a devastating effect on the creation and growth of small businesses in Georgia. According to the FDIC, small business loans of less than $1 million dropped 8.6 percent nationwide at the end of March compared to one year ago. That’s an ominous sign when you consider that the U.S. Small Business Administration reports small businesses account for 60 to 80 percent of annual net job growth, which most economists agree will be the primary indicator of true economic recovery.
At CertusBank, we see the current banking environment as a significant opportunity. Through our acquisition of two Georgia banks from the FDIC earlier this year, we’ve expanded our $1.8 billion banking franchise to include 25 branches in key Georgia communities like Savannah, Macon and Valdosta, as well as underserved markets like Carrollton, Jefferson and Franklin.
Because these acquisitions were structured to shield CertusBank from most of the bad loans from the acquired institutions, our healthy balance sheet and strong asset base allow us to be an active participant in rebuilding Georgia’s economy, particularly in the area of small business lending.
To succeed in this environment, we remain committed to focusing on the fundamentals of sound banking principles. CertusBank’s strategy is to actively grow through acquisitions while focusing on organic growth in our current markets.
Walter M. Deriso Jr.
Chairman, Atlantic Capital Bank
Prior to the economic downturn, often referred to as the Great Recession, Georgia had one of the most robust banking markets in the nation. Since 2008, there have been 67 Georgia banks closed by regulators, representing 19 percent of Georgia’s total banks. By comparison, this percentage represents the fourth-most-closed banks in any state or territory, and there are five states that have had more bank assets in closed banks than in Georgia. These closures have occurred largely in banks that were heavily dependent on residential acquisition and development loans and which suffered losses as a result of the drastic decline in real estate values.
Most communities and all of Georgia’s banks have been affected by the economic downturn and bank closures. There has been little available credit for residential real estate development in what were previously vibrant real estate markets. Many of the closed banks have been purchased by other Georgia or out-of-state banks, bringing capital and credit availability to these markets. In addition, a number of private equity groups have invested in Georgia banks, seeing opportunity to prosper when the economy recovers, changing the traditional shareholder base for Georgia banks and adding new sources of capital for the state. Finally, some of my good friends in banking have lost their positions as a result of these closures, but most employees of banks have been able to keep their employment.
The general economic downturn and the decline in real estate values that brought about bank closures has also tempered the desire of business owners to borrow money. Atlantic Capital Bank has operated in that environment. However, with a strong capital base and balance sheet, our business has continued to grow during this cycle.
Joe Brannen
President and CEO, Georgia Bankers Association
The high number of Georgia bank closures is a reflection of a historic correction in real estate values.
When the national mortgage markets seized in 2008 and the subsequent meltdown in real estate values occurred, many businesses dependent on a thriving real estate market were unable to pay back their bank loans.
Those losses, combined with pro-cyclical accounting and regulatory policies, caused the regulators to close those banks that were no longer viable.
For bank depositors, the effects of the closures have been minimal. Not a penny of insured deposits has been lost. The FDIC system works well, and that has been reassuring to consumers.
FDIC has also found other, more healthy banks to acquire almost all the closed banks.
While the investors in the closed banks lost their investment, most of the banks’ employees have stayed with the new banks, giving customers assurance they will be working with people they know.
There is little correlation between bank closures and access to credit that often gets mentioned as a component of an economic recovery.
Most banks are flush with funds and are anxious to make more loans, the primary way they serve their communities and earn profits. The number of loans and amount of money loaned are more dependent on demand from borrowers and the creditworthiness of those applicants.
But many business and consumer borrowers are waiting for more positive economic news before increasing their debt load. As real estate values stabilize, more jobs get created and the national and international debt crises are resolved, qualified borrowers will return.
For historical perspective, look West.
From 1988-1990, 483 Texas financial institutions were closed, just over seven times more than have closed in Georgia since 2008. Today, the Texas economy is a relative bright spot.
Georgia’s economy and banking industry will recover, too.
About 290 banks do business here to serve that recovery. Those banks employ more than 60,000 people, pay taxes and keep deposits safe and accessible anytime, anywhere. They are the infrastructure of an efficient payment and transaction system.
So, despite the difficult times, there remains a solid backbone of financial institutions to help our state’s economy recover and thrive again.
Compiled and edited by Tom Sabulis, tsabulis@ajc.com
