Freedom Bank of Georgia based in Commerce has entered into a “cease and desist order” with state and federal regulators to overhaul the bank’s operations. The bank agreed Dec. 17 to the order and it became effective Dec. 27.
The bank will maintain its current services and hours and all deposits are covered by the FDIC to the limits allowed by law. The bank has offices in Commerce, Jefferson, Winder and Homer.
The order comes from an on-site visit in June, according to documents filed with the Securities and Exchange Commission. Among the terms of the order, the bank is to address the following: Maintaining sufficient capital at the bank; improving the bank’s liquidity; revise the bank’s allowance for loan and losses; improve the bank’s position regarding real estate it owns; and to create a plan to improve the bank’s overall condition.
Under the terms of the agreement, the bank cannot pay dividends or bonuses without consent of the regulators.
The bank has engaged an investment bank to help review the firm’s “strategic alternatives,” according to the documents.
Like many of the smaller banks in North Georgia, Freedom Bank has been hit hard by the economic downturn and housing bust. The bank had a net loss of $2.7 million in the third quarter and has lost $4.8 million in the first nine months of 2008. The bank had total assets of $147 million at the end of the third quarter.
“Freedom Bank of Georgia has been affected by the downturn in the economy, particularly in the real estate sector of the market,” said Vince Cater, president and CEO of the bank. “Jackson, Banks and Barrow counties have been among the fastest growing and most dynamic areas of the country for the past several years, and Freedom Bank of Georgia, in serving the local economy, participated actively in construction and related loans.”
According to the SEC filing, the bank has “aggressively taken steps to address the findings of the (June) exam. The Bank and its Board of Directors have taken an active role in working with the Department to improve the condition of the Bank and have already completed many of the items included in the order.”
“Many of the bank’s local customers are involved directly or indirectly in the construction industry, and some of them have been struggling for the past year or so,” Cater said. “This, in turn, has affected the bank’s loan performance and earnings.
“The bank has been aggressively addressing these issues in cooperation with the regulatory authorities, and remains confident in the future of this market as the economy recovers. The bank has retained an investment banker to assist in finding the best alternatives for strengthening the bank’s capital.”
In the third quarter SEC filing, the bank and regulators said the firm’s ability to maintain an on-going business would be dependent on the bank’s ability to raise additional capital.
“We will continue to provide the high quality of service that our customers have come to expect,” Cater said. “Our intent is to serve our community, assist our customers, and to work with our borrowers that are struggling in the current down-turn to overcome their problems. Our depositors remain fully covered by FDIC insurance to the maximum extent permitted by law, our Board of Directors and staff remain committed to the communities we serve, and our confidence in the future of Freedom Bank of Georgia and in the future of Northeast Georgia remains strong.”
Freedom Bank of Georgia opened in early 2004 in Commerce.
http://www.fdic.gov/bank/individual/failed/banklist.html
According to the article, the issue at Freedom is that "regulators said the firm’s ability to maintain an on-going business would be dependent on the bank’s ability to raise additional capital." The issue was similar to the Integrity bank failure, as described in this article from AJC, http://www.ajc.com/business/content/business/stories/2008/09/07/integrity.html?cxntlid=inform_artr,
Integrty relied heavily on construction, as does Freedom: "You don’t want to put all of your eggs in one basket,” said Bert Ely, an independent banking consultant. Integrity “got way too heavy into residential construction, and did so without a good customer franchise base. They basically went belly up when home building went belly up.”" Freedom is in that same boat, “Many of the bank’s local customers are involved directly or indirectly in the construction industry… has affected the bank’s loan performance and earnings.”
Georgia's Integrity bank was issued a cease-and-desist order 6 months prior to their failure. That bank, like Freedom, needed to raise capital to cover losses. So yes, the outcome of the SEC visit was a cease and desist (current practices, that got theminto this boat), a warning that the bank is dangerously undercapitalized and has little liquidity. In other words, not enough money. From the Madison Journal article: "In the third quarter SEC filing, the bank and regulators said the firm’s ability to maintain an on-going business would be dependent on the bank’s ability to raise additional capital."
If they don't, the next step is failure, the Regulators swoop in, and the bank winds up on the failed list. If Freedom can diversify and raise capital, then all is well. If not, well, the gap between banks’ low capital/little liquidity and the customers’ deposits is made up from FDIC insurance.
check to see if your bank is "Safe and Sound" from bankrate.com's rating system:
http://www.bankrate.com/brm/safesound/ss_home.asp
According to Safe and Sound, Sept. 2008, Freedom Bank currently has a one-star rating. The lowest... Their "Return on Equity" was -58.96, which is "Substantially Below Average" and their Net Profit/Loss was -4,859.00 thousand.