Why Bank Foreclosures Sales Are Rocking Small Georgia Banks

by Donald Hanz on cities

Bank foreclosures sales have been rocking small banks in many communities in Georgia partly because they lack personnel who have the experience and expertise to find ways to resolve complex financial problems arising from the foreclosure crisis.

According to Joe Waites, a partner and bank consultant at Minerva Consulting LLC, most community banks keep delaying addressing their problems related to defaulting mortgages until it becomes too late to salvage their loan portfolios and their entire operations.

According to bank researchers, 30 banks based in Georgia have already failed since August 2008 up to the end of December and that five more are expected to collapse in the first weeks of January if they are unable to get emergency help from investors.

These troubled Georgia banks warned by the Federal Deposit Insurance Corporation are Piedmont Community Bank, First Bank of Dalton, High Trust Bank, Bank of Ellijay and Northwest Georgia Bank. They were ordered by bank regulators to improve their balance sheets and to cut down the number of delinquent loans on their books.

Piedmont Community, for instance, has $26 million worth of mortgages at risk of becoming bank foreclosures sales in December last year, a sharp increase from only $6 million in December 2008.

As of the first week of December, Georgia is on top of a list of states with the highest number of failed banks, with 24 of its banks closed by regulators in 2009, representing a big portion of the total of 130 banks nationwide that failed.

The three Georgia banks that were shuttered in the first week of December were Buckhead Community Bank, First Security National Bank and Tatnall Bank of Reidville.

According to bank consultant Waites, community bankers have difficulties in breaking their bonds with clients whom they have developed close relationships with over the years. Their families attend the same churches and clubs and their children attend the same schools and play in the same sports teams.

Bank analysts in Georgia said that most troubled loans in bank loan portfolios are loans for commercial and residential real estate developments. Throughout Georgia after the housing meltdown, cities and towns are dotted with unfinished subdivisions, vacant office buildings and half-filled retail centers.

While bigger banks like Bank of America, SunTrust Banks and Synovus Financial are able to weather the problems of bad loans, smaller community banks do not have enough capital and do not receive adequate help to be able to absorb losses from bank foreclosures sales.

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