Before it fell, Silverton Bank’s influence stretched as far as its three corporate airplanes could carry it.
Unlike the 56 other Georgia banks that failed since mid-2008, Silverton, whose customers were other banks rather than regular folks, was a national player. Its May 2009 collapse still ripples through the banking community.
There is “no question” Silverton’s failure contributed to the collapse of other community banks, said Byron Richardson, an Atlanta bank consultant. “Georgia banks got hit particularly hard because of that.”
Silverton officials have said the bank failed because of the real estate collapse that wounded both Silverton and its customer banks. But a recent lawsuit blames a former Silverton CEO, as well as the firm that audited its books.
Dozens of community banks got their start from a Silverton loan or by passing the hat around its board room. Banks locked in no-growth areas often linked with Silverton to take part in loans in hot real estate markets like the Florida Panhandle.
Starting in 2003, Buckhead-based Silverton, then known as the Bankers Bank, launched an ambitious five-year plan to grow to $3 billion in assets. Ultimately, Silverton exceeded that.
In 2007, amid a slowdown in real estate, Silverton obtained a national charter, opening the door to greater growth in residential and commercial real estate loans that it sold in chunks to its community bank owners.
A little more than a year later Silverton was awash in red ink, its real estate investments riddled with losses. Banks it did business with also suffered.
A lawsuit filed in Fulton County Superior Court by Silverton’s defunct parent company accuses Chief Executive Tom Bryan of neglecting his duties, misleading investors in the bank and producing financial reports that understated problems. The suit also faults an accountant and Porter Keadle Moore, the firm that audited Silverton’s books.
The suit contends directors of Silverton’s holding company, Silverton Financial Services, relied on those flawed appraisals and took on millions in debt and sold stock, unaware of Silverton’s failing health. It seeks about $65 million in damages.
Bryan denied the allegations, as did the managing partner of Atlanta-based PKM.
Silverton’s failure, PKM managing partner Phil Moore said, was the result of an unforeseeable collapse of the real estate market and the widespread turn in the collective fortunes of Silverton’s web of member banks.
“We stand by the work that we did,” Moore said.
Also named in the suit was Sal Inserra, a former PKM accountant who audited Silverton. Now with another Atlanta firm, he directed requests for comment to PKM officials.
Bryan spent 18 years at Silverton/the Bankers Bank, his final five as CEO. He left the company about a month before it was seized by regulators. He is now a senior vice president in the Atlanta office of Duncan-Williams, a Memphis-based investment banking company.
“While I can’t comment on the specifics of the complaint, the allegations are completely unfounded and without merit,” Bryan said in a statement. “We managed the affairs of the bank appropriately and with complete transparency to the regulators and the board of directors.
“I look forward to getting this behind me,” he said.
As with a lot of Georgia’s bank failures, regulators criticized Silverton in a post-mortem report for too much dependence on real estate and improper internal controls. But the government also criticized its own regulators, saying they were too slow to react to problems noted at Silverton in 2007.
Silverton issued loans and lines of credit for the parent companies of community banks, acted as a bank and investment adviser for smaller institutions, and bought portions of loans issued by smaller banks. It also issued loans and sold pieces, known as participations, so smaller institutions could take part in bigger development loans.
“Because its business was tied so closely to community banks, it fared as its community bank clients fared,” said Mark Kanaly, a banking attorney with Alston & Bird.
Silverton’s stock was owned by the banks it served. When the bank failed, that stock was worthless, and participating banks were often stuck with pieces of bad loans.
“Member banks not only lost all their stock [in Silverton], they got killed on participations,” Atlanta banking attorney Jim Wheeler said.
According to the suit, Bryan pushed Silverton on a high-growth plan of residential and commercial real estate loans, despite signs of an unstable real estate market.
The suit alleges the board approved the $3.5 million purchase of a third corporate jet at Bryan’s request as the bank’s condition worsened. Directors would not have done so had Bryan not obscured the bank’s financial condition, the suit contends.
Silverton’s profits, the suit contends, were “illusory” and “the product of accounting manipulations.”
The suit says Bryan also made “upbeat and positive statements” about the bank holding company’s finances that he allegedly knew to be false in a March 2008 letter soliciting shareholder banks to buy stock.
The bank turned a profit of $2.6 million in the first quarter of 2008, but posted losses of about $36 million through the rest of that year, according to the suit. By June of that year, bank regulators found more than $200 million in substandard loans not previously reported, the suit says.
Moore, the PKM managing partner, said the firm’s last official report was for 2007. No auditor could have foreseen the woes to come, he added.
“Clearly, we do not believe there’s merit to those [allegations],” he said.
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