Most recent failed Georgia banks were founded just 5 years ago

I posted already about the failed CreekSide Bank of Woodstock, Georgia, and the failed Patriot Bank of Georgia in Cumming. (Btw, I noticed that since starting this blog in January, I have now made three posts with the identical title: Two more Georgia banks shut down by the FDIC.)

But the coverage in the AJC included a few details that weren’t in the FDIC press release:

Patriot Bank was founded in 2006 and quickly ramped up real estate lending in the northern metro Atlanta suburbs, particularly commercial real estate. The bank quadrupled in asset size to $176.5 million by the end of 2009.

Problem loans — those delinquent, in default and foreclosed — made up 44.1 percent of the bank’s holdings, according to a FIG Partners analysis of second quarter FDIC data.

The bank lost $14.6 million since the beginning of 2008, according to FDIC data.

CreekSide Bank also was founded in 2006, and lent heavily in commercial real estate and development loans. According the FIG analysis, 41.6 percent of CreekSide’s loans were in some form of trouble.

The bank lost $16.9 million since the beginning of 2008, according to FDIC data.

By early 2006, the national housing bubble was deflating — slowly at first, but clearly trending down. And commercial real estate prices topped out in 2008. This pattern was entirely predictable. See this graph from Calculated Risk:

I don’t know the details of these two banks, but we all know that property speculation was rampant in suburban and exurban areas well into 2006 — even into 2008 here in Savannah. But the majority of the people doing the speculating would never have used the word “speculation” — every deal seemed like a sure bet. There was a level of groupthink that now seems literally unimaginable.

As I pointed out in my columns beginning in 2007 (I should have been much quicker on the draw in raising these issues), that growth projections depended on extreme best-case scenarios, that no state would be totally immune from the housing crisis, that the additional neighborhoods being planned as far as the eye could see also assumed a far wealthier population, etc.

Even at the height of the bubble, the numbers never added up. Here in Chatham County, where — after 270 years — we had about 60,000 single-family, owner-occupied homes, developers had plans for something like 25,000 to 30,000 more homes in the next couple of decades — almost all priced well above the existing median.

But back to the banks: how did these two banks get chartered? how did they miss the warning signs? why did they keep expanding their portfolios even after the recession kicked in?

And what state-level failures in policy or oversight have contributed to the failure of 70 banks since 2008 — more than any other state?