This Week’s Bank Failure Surprisingly Costly

Some of the usual suspects have dutifully noted the closure of $1.1 billion in assets Integrity Bank of Alpharetta, Georgia (weirdly, the links at the Wall Street Journal to two stories lead only to “Page Not Available”).

The plot is already familiar: the Friday night, FDIC prepack, in this case, with Birmingham, Alabama-based Regions bank assuming all $974 million of deposits and $34 million of assets. The New York Times reported that the bank focused on real estate lending and had a “faith based culture”. The results suggest that they might have relied overmuch on divine intervention at the expense of due diligence.

Now let’s get to the juicy bit. As Bloomberg noted:

Banks are being closed at the fastest pace in 14 years as financial companies report more than $505 billion in writedowns and credit losses since 2007…..

Regions will buy about $34.4 million in assets and will pay the FDIC a premium of 1.01 percent to assume the failed bank’s deposits, the FDIC said. The FDIC estimates the cost of the Integrity failure to its deposit-insurance fund will be $250 million to $300 million.

$250 to $300 million of losses for a mere $1.1 billion in assets bank? As reader Steve A noted:

Today’s failure of the amusingly named Integrity Bank of Alpharetta, GA, confirms two very ugly trends: once again, FDIC was only able to pass cash and cash-equivalents to the assuming bank, and the FDIC’s loss estimate is extremely high ($250M – $350M on $1.1B of assets). I don’t have hard numbers handy but I seem to recall that receivership losses in the range of 25% – 35% were unusual in the commercial bank failures of the late 80’s. I could be wrong, but the numbers this year are extremely high. FDIC’s expected losses certainly make me wonder what on earth the bank examiners were doing for the last year besides critiquing the bank’s coffee and color scheme.

Now given that the bank was only eight years old and may have have used its religious positioning to hide some less-than-upstanding practices, the magnitude of the bust may reflect fraud, and well executed fraud harder to detect than good old fashioned recklessness or shoddy controls.

I’d love to learn more about what went awry here, but his story will probably slip beneath the radar as failures continue apace.

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  1. Anonymous

    The FDIC estimates the cost of the Integrity failure to its deposit-insurance fund will be $250 million to $300 million. My estimate of the FDIC’s estimate… wishful thining to farcical.

  2. Steve

    With FDIC’s latest loss forecast for Indymac, we’re up to 28% of assets ($8.9B loss on $30.1B in total assets).

    For an eye-opening comparison, the final cost to FDIC for the Bank of New England failures (combined balance sheet of $23B) was 4.1% of assets.

  3. James B

    I wonder how much of the problem is that the FDIC is waiting a long time before shutting down failing banks. he longer they wait, the more the losses mount. By the time they get around to taking over WaMu they'll be losing >50%.

  4. Anonymous

    The website is interesting:

    Integrity Bank opened for business on November 1, 2000 in a small, modular building while construction was underway next door. We moved into our new 16,000 square foot building June 4, 2001. You may have seen it on State Bridge Road near the intersection of Kimball Bridge Road.

    During the Summer of 2003 we opened the Roswell Financial Center at 900 Woodstock Road in Roswell, Ga.

    Chuck Puckett Chairman
    Gerald O. (Neal) Reynolds
    Patrick M. Frawley Vice Chairman
    Richard H. Peden, Sr.
    Patrick M. Frawley President & Chief Executive Officer
    John Brothers – Executive Vice President & Chief Operating Officer
    Suzanne Long – Senior Vice President & Chief Financial Officer
    Greg Jones – Senior Vice President – Director of Regulatory Relations
    David Edwards – Senior Vice President & Chief Credit Officer
    Clyde Smith – Senior Vice President – Real Estate Lending (Duluth)
    Stacey Mann – EVP Retail and Commercial Banking

  5. Anonymous

    A seemingly good piece on the bank failure at this blog, that wraps it all up in one post Georgia regulators close Integrity Bank.

    Frawley was brought in to try and turn the bank around but clearly the former senior mgt had already done the bank in.

    “CEO Steve Skow earned $1.8 million that year, while senior lender and executive vice president Doug Ballard earned $847,222. A typical community bank CEO, banking consultants said, earn roughly $300,000 per year.”

  6. Anonymous

    Another interesting thing about the FDIC data that was released last week that showed the problem list of banks rose to 117 and had $78bn of troubled assets revealed (on average – though averaged can be misleading) that the asset size of institution on the list increased from $300m to $700m. Looks like the rot is rising!

  7. Anonymous

    “Banksters” running “Casino Banks”.
    What more do you need to know?
    Earl L. Crockett
    Santa Cruz, CA.

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