August 29, 2008 – 1:12 pm

Update, 2008-09-08:

The AJC has an in-depth article on Integrity’s implosion.  Some lowlights:

The FDIC in February demanded the bank overhaul its leadership team and improve how it made loans and handled its problem loans.

“The bank simply didn’t have a good internal credit culture,” said Walt Moeling, a senior partner at the law firm Powell Goldstein who often represents banks. For instance, he said, the bank sometimes left final loan-closing procedures to borrowers’ lawyers instead of hiring its own attorneys.

Under pressure from federal and state banking regulators, Integrity replaced bank founder Steve Skow and other top management, and it beefed up supervision by its board of directors. A former bank regulator, Patrick Frawley, stepped in a year ago as president and CEO.

But with the real estate and capital markets headed into a meltdown, it apparently proved to be too late.

The FDIC, late?!  Are we still talking about the FDIC for the United States?! Ahem.  It continues:

Like many banks in the metro Atlanta market, many of Integrity’s rising losses stemmed from heavy lending to real estate developers and home builders that went bad along with sinking house prices.

Residential and commercial development loans made up about 80 percent of Integrity’s $849 million portfolio at the end of the second quarter, according to a report filed with the FDIC. The loans, profitable during the real estate boom, became increasingly risky as the local housing market soured over the past year.

The numbers tell a stark story of the depth of the bank’s problems. As of June 30, Integrity had given up hope of collecting $333 million in loans and had an additional $89 million that were at least 30 days past due, the report showed. The bank reported a $33.5 million loss for the second quarter.

It was also too late to paper over their capital problems by raising deposits, given non-brokering constraints:

The FDIC also wanted Integrity to reduce its reliance on so-called brokered deposits, in which a broker provides money to banks from investors across the nation. Such depositors are often more fickle than local customers and usually demand higher interest rates.

The new management team did partly wean Integrity from brokered deposits, but the bank had to bump up interest rates as much as a percentage point above other Atlanta banks’ rates in recent months to woo local depositors.

And a buyout or dilution did not work out either:

The FDIC’s February order required Integrity to roughly double its core capital — reserves to cover losses — within six months to improve its financial stability. The agency hoped the bank could raise new capital by selling additional common stock and other securities or assets to boost its cash reserves.

But buyers were scared off by the bank’s likely future losses. For instance, the undeveloped land that serves as collateral on foreclosed real estate development loans in many cases is now worth only 20 percent to 30 percent of the original value of the loans.

Attorney Moeling said Frawley “pursued, I believe, over 40 potential partners,” but without success. “The hole was just too deep.”

As if all that was not enough, the bank is still under investigation for potentially running afoul of banking regulations:

The FBI isn’t talking about the case, but The Wall Street Journal has reported that state and federal officials are focused on 14 loans totaling $83 million that Integrity allegedly made to a developer in South Florida, Guy Mitchell. The loans are now in default.

Regulators are investigating whether Integrity may have run afoul of Georgia banking laws, which limit a bank from tying up more than 25 percent of its capital with a single borrower.

We wouldn’t be surprised if there was indeed a shady connection… a problem that was endemic in the last regional bank bubble & collapse (S&L).  Nothing like a little home-spun, good-ol-boy banking cronyism.

First writeup, August 29, 2008:

The FDIC is right on schedule. Once again they have announced a bank closing just before the weekend. From the FDIC press release web page for failed bank information.

Integrity Bank, Alpharetta, Georgia, with $1.1 billion in total assets and $974.0 million in total deposits as of June 30, 2008, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation was named receiver.

The bank, which had specialized in new home loans and reached meteoric heights during the housing bubble, will be taken over by Regions Financial Corp, based in Birmingham, Ala.

Atlanta Business Chronicle has an article on the failure. Here are some snippets:

The FDIC estimates the cost to liquidate bad assets it assumes from Integrity Bank will be $250 million to $350 million.

In a recent previous interview with Atlanta Business Chronicle, Frawley — hired to turn the bank around in fall 2007 — described the bank as a plane slowly crashing to earth, and himself as the pilot at the controls.

“I don’t know when we’re going to hit the earth, if we’ll hit sooner than I expect or someone else will make that decision for me,” said Frawley. “But I’m at the controls and I know we’re descending.”

Douglas said that while Integrity Bank was rumored to be the first Atlanta bank that would fail throughout the past year, the FDIC likely began looking at taking over the bank only after June 30, when second quarter financial reports showed the bank’s capital was rapidly shrinking.

“The problem was the bank was well-capitalized for much of last year and actively discussing capital infusions with investors,” he said. “You don’t want to take over a bank that has private sector solutions available. This is a recognition there was no private sector solution left. At that point, any Friday after June 30 would have worked, to my knowledge.”

Experts added that Integrity’s loan woes were an extreme example of what commonly took place across metro Atlanta: rapid loan growth by new banks focused on housing and residential real estate development coupled with lax lending standards.


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