State and federal banking regulators shut down Winder's First Piedmont Bank late Friday and sold the financial institution to First American Bank & Trust Co. in Athens.
The Athens bank reopened First Piedmont's locations in Winder and Monroe on Monday morning as First American branches.
First Piedmont became Georgia's 10th bank to fail this year and the 15th since the banking crisis heated up in August 2008. It's the second northeast Georgia-based bank to fail.
In March, the state Department of Banking and Finance closed Commerce-based Freedom Bank of Georgia with branches in Commerce, Homer, Jefferson and Winder.
Lavonia-based Northeast Georgia Bank took over all Freedom Bank's branches but closed the locations in Winder and Jefferson about two months later.
"The banks that are struggling are those that are in high-growth markets and that were focused on residential real estate construction, which is under serious stress right now," said Joe Brannen, the president and CEO of the Georgia Bankers Association. "If they are in markets like Jackson County or Barrow County, where the primary drivers of economic activity are real estate construction, that market has pretty much collapsed those institutions."
About 350 chartered banks do business in Georgia, Brannen said. Banks in the Atlanta market and surrounding counties, as well as many in the northeast Georgia mountain resort areas and along Georgia's coast, all are suffering because of the real estate downturn, Brannen said.
"Until the real estate market improves, those banks are going to continue to struggle," Brannen said.
First American bank President and CEO Bobby Heath agreed with Brannen's assessment.
"I think a lot of banks that were in those really hot growth markets and that focused on development and construction loans had a high concentration of loans in those areas when the residential market sort of tanked," Heath said. "Obviously, they had lot of problem loans they had to work out and didn't have enough capital to absorb those losses."
First Piedmont ended up in that very situation, Heath said. The bank had money, but not enough to cover all the bad loans, he said.
First American is in a much better position, he said.
First American is one of the most highly capitalized banks in the country and was looking at expanding into Barrow County and along the Georgia Highway 316 or U.S. Highway 78 corridors, Heath said.
The Athens bank plans to close First Piedmont's Monroe branch in 30 to 45 days, he said.
"We're just going to focus on the Winder operation," he said.
The University of Georgia and a diverse economic base have helped Athens maintain a stable business market, enabling banks like First American to stay financially healthy, Brannen said.
Relatively few banks have failed in this recession compared to the Great Depression or even the 1980s, when 1,000 banks went under, Brannen said.
"We have very different capital, regulatory and economic structure than we did in 1929 and the 1980s," he said.