Fair Tax Friday Is Also Bank Failure Friday

Another week, another Georgia bank has failed. Todays bank seizure is brought to us by Fayetteville Georgia:

The Federal Deposit Insurance Corp. was appointed receiver of Cooperative Bank of Wilmington, N.C., Southern Community Bank of Fayetteville, Ga., and First National Bank of Anthony in Anthony, Kan.

United Community Bank of Blairsville, Ga., will assume Southern Community bank’s five branches, its $307 million in deposits, and nearly all of its $377 million in assets.

As I’ve commented here many times, Georgia is unique in both it’s banking market (a few big banks and many, many community banks) and it’s real estate development base (few of the national builders, an industry dominated by father and son developer types) which has led to an environment in which we’ll see more of these real estate dependent banks fail.

Take a look at the many new empty storefronts that dominate commercial strip centers that have popped up all over North Georgia over the past few years. While the news has focused on the residential real estate issues, these still unfilled storefronts are one of your biggest signs that there’s a commercial real estate problem too, and it’s just now beginning to show up on bank’s balance sheets.

16 comments

  1. Kellie says:

    “unfilled storefronts are one of your biggest signs that there’s a commercial real estate problem too”

    Yep. And as more small businesses renting space go out of business due to the economy, there will be more empty space.

  2. John Konop says:

    A major problem from my view is many of the banks are asset lenders based on real-estate values based on last sale price.

    The banks need to diversify their portfolios based on cash flow lending.

    A simple example is if a house can rent more than the amount of money it takes to service the note that should be used as a major factor over last sale price similar property in the area.

    The same concept can apply to commercial lending with many different lending products.

    • Kellie says:

      John
      A big problem now is there is more property for rent than there are renters. Even at cost some places can’t get tenants. That goes for residential and commercial properties.

  3. John Konop says:

    Kellie

    If you are in a tough rental market than the value should be written down because that is the true value and the person better have a lot down with a strong job history because of lack of liquidation value. Yet I am finding properties and business deal today which the opposite is happening and banks are using sale price or hard asset value over rental or cash flow value.

    For example if you bought a commercial piece of equipment in your automotive repair shop like a lift. How can liquidate a lift for even close to book value if the loan goes bad? In my mind I would give very little value via an asset via a loan. Yet if your shop is cash flowing and the extra lift would increase your business that is a better indicator to me of the heath of the loan.

    • Kellie says:

      I’m am thinking along the lines of property already owned that people are now trying to rent. We have two properties, one is 20,000 sq ft, the other is 35,000. Our collision business is in the first, our truck shop is in the later but we could move it all in the larger building so we’ve been trying to rent or sale the 20,000 sq ft property with no success. There is too much for rent. We can not tell the bank it is worth less so reduce our loan. We need to at least rent it at cost or it is not worth moving. Follow me??

      • John Konop says:

        Kellie

        You are right that is the problem. And that is why people or banks are liquidating below even rental value because many cannot even service the loan or rent at present values.

        And that is why it is a buyers market. Also that is why Icarus and I proposed lowering the rates to people in your situation as a stimulus package over what was done. This would of lowered the payment and made the property more rentable. The sad part is the people who played by the rules like you and did not over leverage relative to what they could service are getting no help while they pay for irresponsible behavior of banks and many of their customers.

        If the government had worked with homeowners and business people like you they would have invested more and created jobs which would have stopped the free fall of values and helped the economy.

    • Bill Simon says:

      For example if you bought a commercial piece of equipment in your automotive repair shop like a lift. How can liquidate a lift for even close to book value if the loan goes bad?

      I dunno, John. Some lifts (and some equipment) may act like Mercedes Benz cars and hold their value.

      I would suggest there is likely a used market for this type of equipment. Perhaps rather than slash the book value, a good lender would look in the other markets where non-new equipment is traded.

  4. IndyInjun says:

    Aha…here it is…

    H.R. 25

    SEC. 501. MONTHLY REPORTS AND PAYMENTS.

    `(a) Tax Reports and Filing Dates-

    `(1) IN GENERAL- On or before the 15th day of each month, each person who is–

    `(A) liable to collect and remit the tax imposed by this subtitle by reason of section 103(a), or

    `(B) liable to pay tax imposed by this subtitle which is not collected pursuant to section 103(a),

    shall submit to the appropriate sales tax administering authority (in a form prescribed by the Secretary) a report relating to the previous calendar month.

    `(2) CONTENTS OF REPORT- The report required under paragraph (1) shall set forth–

    `(A) the gross payments referred to in section 101,

    `(B) the tax collected under chapter 4 in connection with such payments,

    `(C) the amount and type of any credit claimed, and

    `(D) other information reasonably required by the Secretary or the sales tax administering authority for the administration, collection, and remittance of the tax imposed by this subtitle.

    `(b) Tax Payments Date-

    `(1) GENERAL RULE- The tax imposed by this subtitle during any calendar month is due and shall be paid to the appropriate sales tax administering authority on or before the 15th day of the succeeding month. Both Federal tax imposed by this subtitle and confirming State sales tax (if any) shall be paid in 1 aggregate payment.

    So there you have it TWICE.

    One who is liable by virtue of buying tax free must file and remit.

    WORSE, the last paragraph WELDS the FT to the existing power of Georgia to audit, assess, and even estimate liabilities.

    • Rep. James Mills, R-Gainesville, chairs the House Bank and Banking Committee. Sen. Bill Hamrick, R-Carrollton, chairs the Senate Banking and Financial Institutions Committee.

  5. Bill Greene says:

    I have to admit, it is just a little amusing to think about the fuss raised by the presidents of the Georgia Banking Association and Georgia Association of Community Banks when HB 430 was introduced this year. “Egads,” they exclaimed at the subcommittee hearing, “obeying the Constitution would change the way our banks do business! That could lead to banks failing across Georgia!”

    Yeah… How’s that working out for you?

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