What brought down bank in Cornelia

The little bank in this North Georgia town also survived the Great Depression, which spawned the Federal Deposit Insurance Corp. to buttress bank customers’ deposits.

But late last month the FDIC seized the 110-year-old bank after it amassed more than $200 million in money-losing loans to failed real estate developments and other borrowers. In a deal brokered by the federal agency, Columbia, S.C.-based SCBT Financial Corp. took over the failed bank’s operations and reopened.

The FDIC expects the failure to cost its deposit insurance fund about $354.5 million — roughly 30 percent of the bank’s total assets.

That’s the part of the story that’s been repeated more than 30 times in the past 18 months in Georgia — the nation’s bank failure leader — as one bank after another has succumbed to the real estate crash.

But Community Bank & Trust is unlike many of those other failed banks, which generally popped up in Atlanta’s suburbs in the past decade and then disappeared without much hoopla.

Community Bank, with $1.1 billion in deposits and about 400 employees, was the oldest and biggest bank in town, with deep roots that extended into many of the area’s government, educational, business and civic institutions.

And its failure has rattled Cornelia, which was already struggling because of the burst real estate bubble, declining tourism and migration to Georgia’s Appalachian playgrounds, as well as job cuts at local manufacturers.

Even though few customers seem worried about their deposits or business loans — especially since a healthier bank has stepped in — rumors of possible mismanagement, fraud and federal investigations have become the talk of the town.

“From the time that negative information started to come out, people were waiting to see what would [happen],” said Judy Taylor, president of the Habersham Chamber of Commerce in Cornelia.

“It’s very sad for the community to see the oldest bank in Habersham County — I guess you would say — fail,” she said, calling the bank an “icon of the community.”

A local institution

Indeed, Community Bank & Trust’s vaults held nearly half the deposits in Cornelia, a town in the foothills of the Georgia Appalachians known for its apples. A former CEO of the bank’s parent company sits on the county commission and chaired the economic development board, and another former executive is on the city council.

The bank helped finance civic events ranging from the local Easter egg hunt and the law enforcement officers’ shooting tournament to the restoration of Cornelia’s “Big Red Apple” sculpture downtown. The bank’s logo: a red apple.

But the ties between the bank and town were strained when losses started mounting. The bank lost almost $59 million last year, according to the FDIC.

Directors and other investors at the closely-held bank have lost fortunes in some cases. Employees have also been hit. The bulk of their retirement savings consisted of $24 million of the bank’s stock (as of the end of 2007) that is likely to be wiped out as a result of the bank’s failure, according to annual filings.

When the FDIC seizes a bank, it guarantees depositors’ accounts up to $250,000 and often pays off a portion of deposits above those amounts. But much as in a bankruptcy, the FDIC has a higher claim on remaining assets than the bank’s shareholders, whose stakes often become worthless.

“There’s a lot of people that lost a lot of money. A lot of employees lost their retirement,” said James Tatum, owner of Habersham Aviation, who for years served as pilot for the bank’s executives.

Rumors of fraud, probe

The sudden arrival on Jan. 29 of scores of FDIC officials without warning for the Friday-afternoon takeover — the agency’s usual strategy to quickly secure records and reopen over the weekend — also sent a chill through the community.

Rumors go swirling “almost every time,” said Walt Moeling, a banking attorney and partner at Bryan Cave Powell Goldstein in Atlanta. “People aren’t prepared for a hundred people from [the government] showing up,” said Moeling. “It’s scary. They ask a lot of questions.”

The takeover triggered about a dozen stories in the area’s newspapers.

One former executive told a local newspaper that “fraud and bad loans” had sunk the bank, that the FBI was investigating, and that “some people in our company are going to jail.”

The Habersham County sheriff told another paper that the FDIC requested officers to provide security, and that FBI officers collected documents at the bank.

Elton Collins, the former president of Community Bank’s Jackson County operations who was quoted, now declines to comment. He was listed as a major shareholder in the bank’s financial disclosures before it reversed its status as a publicly-traded company in 2005.

For now, some customers aren’t too worried. Others have a wait-and-see attitude.

David Lynn, a former prison warden, said he has been a customer for 35 years. He borrowed from the bank to launch his picture framing shop 12 years ago, and then again to finance his expansion into producing art prints.

“At this point I don’t know if I’m going to change banks or not. All I know is what I’ve read in the newspaper and they say it’s business as usual,” he said.

“Naturally it’s not good, but I think it’s fortunate that a good bank has taken over,” said Paul Reeves, who owns the Habersham Ace Hardware that sprawls across several parcels in downtown Cornelia. Now, the recapitalized bank may have money to lend again, he said.

Losses beyond real estate

Meanwhile, the bank’s new owners have taken pains to smooth the town’s ruffled feathers, telling employees, customers and community leaders that it will retain its name and its involvement in the local economy.

“The reception from the employees and the customers has been very good,” said Robert Hill Jr., SCBT Financial Corp.’s chief executive. “I think there were a lot of rumors on the streets. ... The employees didn’t know what the future holds. Now they know.”

The deal, which has resulted in “very few [job] reductions” so far, Hill said, boosts SCBT’s size by more than 40 percent to $4 billion in assets. It will eventually allow the company to expand statewide in Georgia, he predicted.

But first, he said, he has to change the “credit culture” at Community Bank & Trust.

Like many banks in Georgia, it tripped after devoting a high share of its loan portfolio to real estate developers and home builders who were eager to capitalize on the influx of retirees, long commuters and second-home buyers from Atlanta and other regions.

Many of the bank’s loans to homeowners, small businesses and other borrowers also soured as dozens of small shops closed and large employers cut jobs. The bank reported that it had foreclosed on more than $40 million worth of properties and was no longer collecting on more than $200 million of a wide variety of loans at the end of 2009.

“A lot of banks got caught up in growth beyond profitability and beyond soundness,” said Hill. “In this situation, growth became a priority.”  

Same old mistakes?

Community Bank & Trust also was left somewhat rudderless after the death in 2005 of its dominating and entrepreneurial former chief executive, J. Alton Wingate. He had led Community Bank & Trust’s parent company to become one of the nation’s early major developers of bank branches in grocery stores.

After his death from cancer at age 66, the leadership of the bank’s parent company, Community Bankshares, changed three times in five years.

“There wasn’t really anybody ready to step in as CEO,” said Moeling.

But Reeves, 84, who has been running his hardware business for 63 years, said each generation of bankers seems to make the same mistakes over and over again.

“Invariably, about every 25 years [bankers] forget and make a lot of loans that are too lenient,” said Reeves, whose father headed a rival bank in Cornelia from the early 1930s to 1960.

“Like my Daddy said, you don’t get in trouble in bad times. You get in trouble in good times.”

How we got the story

As Georgia’s banking crisis has spread outside metro Atlanta, we decided to look at the recent failure of Cornelia’s oldest bank, which was taken over by a South Carolina institution. Much as Community Bank & Trust’s problem loans spanned the town’s economy, it played a role in many of the community’s civic institutions, according to interviews with local business owners and residents. We also interviewed the mayor and officials with the FDIC, chamber of commerce and county economic development authority, and reviewed documents from the FDIC and freeERISA.com.

Support real journalism. Support local journalism. Subscribe to The Atlanta Journal-Constitution today. See offers.

Your subscription to the Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism.