Bank Fail Friday: Douglas County Bank

I was passed an article from the AJC about the closure of Douglas County Bank by the FDIC (Warning:  paywall), so I found an article on the Douglas County Sentinel’s website concerning the closure:

As of December 31, 2012, Douglas County Bank had approximately $316.5 million in total assets and $314.3 million in total deposits. Hamilton State Bank will pay the FDIC a premium of 0.5 percent to assume all of the deposits of Douglas County Bank. In addition to assuming all of the deposits of the failed bank, Hamilton State Bank agreed to purchase approximately $260.9 million of the failed bank’s assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Hamilton State Bank entered into a loss-share transaction on $159.2 million of Douglas County Bank’s assets. Hamilton State Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers.

The person who sent me the article told me that they were planning on mounting a challenge against the new regulations created by the Dodd-Frank package passed couple of years ago.  Sounds like they pretty much saw the handwriting on the wall.

12 comments

  1. James says:

    I don’t understand why people keep insisting that Dodd-Frank is responsible for these bank failures. They are the result of one thing and one thing only–terrible lending practices.

  2. Richard says:

    If you want to know what caused the bank failures, try this; the FDIC allowed banks to count FNMA/FHLMC stock for capital purposes as though it were equal to 80% of Treasury securities. It earned a lot more than treasuries, and was “safer” than other investments (corpoate bonds, for example) that counted less; because it was a GSE. A lot of community banks had the stock, and when FNMA/FHLC got in so much trouble over their sub-prime and Alt-A loans the stock was almost worthless, and all of a sudden the banks were under their regulatory minimum. I am amazed that I have not seen this discussed in the media, but maybe I’m wrong. Today, the Regulators are so scard of being called on the carpet by their bosses because of Dodd-Frank, they criticize any loan mae by banks to any commercial borrower unless they are gold plated and don’t need the money.

  3. Bill Dawers says:

    It had been so long since a Georgia bank had closed, I didn’t even check on Friday as usual . . . Here’s the FDIC press release: http://fdic.gov/news/news/press/2013/pr13034.html

    If federal regulations were the core problem, we wouldn’t see such wildly different bank failure rates among the states. Georgia has had about 85 bank failures in recent years. Tennessee has had 4. Texas has had 10.

    • Harry says:

      If anything, the feds are probably straining too hard to keep banks solvent. For example:
      http://seekingalpha.com/article/1372651-the-invidious-down-payment-requirement-meme

      The sad history of Georgia banking goes back many years, and there’s no need to once again revisit the self-destructive history of this state’s bank laws and regulations. The problem was compounded when customers decided they didn’t want to deal with North Carolina etc. megabanks, which resulted that many of the local community bank startups chartered between 10 and 20 years ago were too thinly capitalized and had weak boards of directors and management. So yes, Georgia had special circumstances of our own making.

      • John Konop says:

        Harry,

        All good points, and I would add that to many banks in Georgia were tied to real estate mark to mark values with bank equity, and lending portfolio ratios……. ie last sale price……over looking at cash flow value of proberty….ie rental value…..cash is king…..last sale price is way to subjective……..and can move way to fast……

        Real-estate invetories are about 12 to 24 months away from needing new construction…..this will not only help with jobs ie default rates…..it will help with values…..if a bank can hang on they should be fine in the near future……You can this happening in pockets of the country already……yet with lack of controls it will be another boom-bust cycle………

      • Al Gray says:

        Folks on here complain about welfare for the poor coming out of taxation of the producers, but WHERE is the outrage over the raping of depositors to keep the myriad Georgia banks and their thousands of locations open, employees paid, and management compensated?

        Banking is a utility, meaning about 50% of the branches in Georgia are redundant.

        A whole lot of these mega-parasites pound their chests with feigned religiosity while using politics to rob everyone else.

        This is one ever-more warped state. Frugal now means “fool.”

  4. Al Gray says:

    The loss to the FDIC is 27% of assets. Interestingly, there was a $7 million insider loan that was “resolved” sometime in 2012, after being ramped up at one time to about $8 million. That particularly nonsense erupted in 2006, the year before the Bear mortgage-backed-securities blow up.

  5. Richard says:

    I see my question was a little too esoteric. Oh well, yes real estate was too concentrated, perhaps start ups were too thinly capitalized, and forcing mark to market values and ignoring the fact that the borrowers were timely in their payments was a regulatory overstep, but the FNMA/FHLMC values being equated by the FDIC to 80% of US Treasuries as assets in a bank portfolio was a real world diasaster. Sort of like GM bond holders being crammed down to basically unsecured creditors, a bankruptcy court posture that has NEVER happened before.

    • Al Gray says:

      Richard, I was remiss in not responding to your excellent point about GSE stock.

      Your point was not esoteric and it revealed yet another artifice that allowed even local/community banks to be leveraged to obscene levels.

      Konop, I do no share your view of mark-to-market, which seems allied to that of Isakson. In this county there were hundreds of tracts sold during the lake-front lot mania that ended in 2006. Scores of them are worth less than 10% of those lofty prices, enough to show that values were not “temporarily impaired” which was the mantra behind revising FASB 157 and suspending Mark-to-market. If anything, the “liquidation” prices of late 2006 and 2007 were too high!

      I now favor credit unions, but I am not crazy about their “assets” either. Cyprus might have been a warning shot.

      • John Konop says:

        If a property can rent at x amount of payment…….the value of the property is the the rental value, discounted by vacancy rate, combined with a discount for time on market and minus upkeep cost…. You than take that payment value and figure out what you can traditionally finance and that is called book value…….class over today Al….

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