Southern Community Bank agrees to FDIC order; gets $2 million in new capital

Mon, 10/13/2008 - 9:44pm
By: Cal Beverly

Southern Community Bancshares, Inc. announced Oct. 10 that its bank subsidiary, Southern Community Bank, has agreed to the entry of a ”cease and desist” order with the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance.

According to the news release, the bank’s holding company sold $2 million in common stock to inject new capital into the bank to comply with the order.

The buyers of the common stock are members of the bank’s board of directors and represent a Who’s Who of Fayette area businessmen.

“It is unfortunate that both internal and external circumstances have led to this order,” Chairman Thomas D. Reese said. “However, our board is firmly committed to complying with all aspects of the order and returning the bank to a well-performing financial institution.”

Reese stressed that the internal changes will not affect the bank’s relationship with its customers.

”Southern Community Bank will continue to serve our community and offer our customers the financial services necessary to achieve their goals” he said.

The order, which was entered into without admitting or denying any fault and without the imposition of any fines or penalties, is a formal action by the FDIC and the Ga. DBF that directs the bank to take corrective measures in a number of areas.

It does not in any way restrict the bank from transacting business. The bank may continue to serve its customers in all areas, including making loans, establishing lines of credit, accepting deposits and processing banking transactions. All customer deposits remain fully insured to the highest limits set by the FDIC.

The bank has two locations in Fayetteville, two in Newnan, and locations in Peachtree City, Jonesboro and Locust Grove.

The order stems from a regulatory exam conducted by the FDIC based on the bank’s condition as of Dec. 31, 2007. Since the time of the exam, the bank has undertaken a number of initiatives designed to address the weaknesses identified during the exam.

Most notably, the bank increased its Tier 1 capital by $2 million on Sept. 25, 2008. This capital was injected from the bank’s holding company, which on the same day sold 500,000 shares of its common stock to a group of directors at a per share price of $4, representing a 2.5 percent premium to the reported closing price of the holding company’s common stock on that day.

The shares were sold in a private placement transaction.

Other measures that have been initiated by the bank include:

— Hiring David R. Coxon, a veteran banking executive with over 30 years experience in the industry, to serve as the bank’s president and CEO;

— Appointing a special assets committee comprised of independent board members charged with the responsibility of monitoring and disposing of the bank’s other real estate;

— Strengthening the bank’s lending activities with particular emphasis on direct and indirect borrowing concentrations and monitoring individual lender/borrower relationships;

— Engaging an outside regulatory consultant to assist the bank inconnection with the development of a strategic plan and with the bank’s overall compliance with the order;

— Developing a liquidity and funds management plan to address anticipated funding needs;

— Developing a comprehensive policy for managing potential loan loss liability and enhancing the bank’s loan loss reserve;

— Increasing internal controls over loan portfolio review; and

— Establishing a communications policy and procedure for reporting progress in all areas to the FDIC and DBF.

The bank has already begun to act upon many of the items addressed by the order and will continue to work toward full compliance with the order.

Southern Community Bancshares, Inc., is the holding company for Southern Community Bank, headquartered in Fayetteville, Ga. The bank began operations on June 2, 2000.

In addition to its main office, the bank has full-service branches in Fayetteville, Peachtree City, Locust Grove and Newnan as well as locations within Kroger grocery stores in Newnan and Jonesboro.

Members of the bank’s board of directors include the following:

Thomas D. Reese serves as chairman of the board of the company and the bank. Reese is a resident of Senoia, Ga. Since 1990, he has been the owner of Reese Builders & Developers, Inc. where he serves as president.

Vice Chairman Robert B. Dixon, Jr. of Fayetteville since 1971 has been a home builder and developer.

James S. Cameron of Jonesboro, served as a real estate attorney from 1980 through 1999 with the law firm of McNally, Fox & Cameron, P.C., in Fayetteville. Since 1994, Cameron has been a partner and the president of Cameron Development Corporation, a real estate development corporation located in McDonough, Ga.

George R. Davis, Sr. of Fayetteville is the owner of Smith & Davis Fabric & Clothing, Inc.

Richard J. Dumas of Fayetteville is the president and chief executive officer of J&R Clothing, Inc.

William Wayne Leslie of Griffin is an owner in and CEO of Leslie Contracting, Inc. and Leslie Environmental Inc.

Jackie L. Mask of Brooks, since 1969, has been the owner of Mask Tire, a retail tire business in Fayetteville.

Dr. William M. Strain of Fayetteville is a gastroenterologist for Digestive Healthcare of Georgia.

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Submitted by mikese on Tue, 03/24/2009 - 2:01pm.

Commerce bank was one of my favorites in the area now TDK i got my mortgage from them a few years ago.

Submitted by alanman on Tue, 02/24/2009 - 12:45pm.

You are right, we have enough banking problems already. Why do you have to worry about all the details, it's tiring and senseless because either way you can't do much to change things. What's wrong with a bank having new capital? We can all benefit from that. Look at my case: I now have better hopes that I'll get that long waited merchant advance.

Submitted by Nitpickers on Tue, 10/14/2008 - 2:33am.

According to the FDIC and the Georgia bank regulators it appears to have been!

Did that mean it could have failed without the additional stock purchase by their board? I can't be sure since the article is written in legalize to insure no real accusations.

Who were the lawyers who set up this banks financing?

Can we discuss what is going on exactly? We have enough banking problems.

mudcat's picture
Submitted by mudcat on Tue, 10/14/2008 - 5:36am.

And they did it quickly. This was a bank set up by developers and builders to fund developers and builders. There have been a lot of them all the way back to Fayette State Bank (Joel and Floy) in the very beginning.

They would have been taken over by the Feds if they didn't pump that cash into the bank. Then some of the loans that the bank made to some developers and builders would have been scrutinized and possibly declared non-performing assets by the Feds. That's when the wheels really start to come off.

Submitted by Bonkers on Tue, 10/14/2008 - 7:38am.

Since you seem to know, why was it under capitalized?

Too many non-producing loans maybe and about to go broke?

Why wasn't the capital inserted before it became insolvent?
Must everything wait until someone intervenes?

Now, the biggie
Aren't there many, so-called, developer loans in arrears? Way too much development not needed?

Ponzi scheme to make a buck quickly went too far, too quickly?

Steve Brown's picture
Submitted by Steve Brown on Mon, 10/13/2008 - 10:21pm.

Tom Reese, chairman of the board, is also the same person who spearheaded the proposed mini-city across the border from Peachtree City. It was the real reason the development interests (Mayor Lenox, Jim Pace of Group VI, Fayette Chamber of Commerce, etc.) had to have the TDK Extension.

Several of the bank's other board members were also involved in the TDK scheme.

It would be very interesting to look at some of those banking records.

Submitted by Spyglass on Tue, 10/14/2008 - 9:49am.

It's in this paper, you were for it. Why do you continually bring this up?

Yourself, like most everyone else, changed their minds when it came to bear what was planned for the Coweta Side. Somehow, you fail to mention this in any of your ramblings on this subject.

Submitted by DRinFayette on Tue, 10/14/2008 - 8:01am.

Let's get the facts straight first. I bank at six area banks, and what I can tell you is that this bank was the first to realize a problem and take active measures very early. In the first and second quarters of 2007 they took much of their revenue and placed in thier loan loss reserves to cover any anticipated losses which of course drastically lowered earnings. When that happened, many of surrounding banks whom I have vested interest said that this bank was in serious trouble and that the housing market wouldn't have much of an affect at all on them. You tell me, were they right, or "wrong"? I do think that they were under capitalized but "ALL" banks were under capitalized. I'll stick with the guy that saw this meltdown coming rather than the one who was blind sided and now playing catch up.

Mike King's picture
Submitted by Mike King on Tue, 10/14/2008 - 8:29am. it what you may, since inception, this "little" bank has held true to its local investors. It did not ask for a hand out as so many others, it simply is reflecting the times. Should I offer any criticism, it would be that I would have preferred a public offering for additional shares.

Like the above poster, I also bank with small and large banks and much prefer to keep my business local, especially when they are proactive vice reactive.

Mr Brown, please direct your comments to that of running Peachtree City, for one to understand business one needs to appreciate the responsibility of meeting payroll.

sniffles5's picture
Submitted by sniffles5 on Tue, 10/14/2008 - 11:25am.

A bank is required to have sufficient equity investment to cover bad mortgage loan reserves. Tier 1 bank capital requirements for mortgage loans (presumably the bulk of SCB's business) is 4% of portfolio.

If SCB was required to raise an additional $2 million, this means that they had potentially overextended their mortgage business by some $50 million dollars in excess of their Tier 1 capitalization requirements.

(I'm simplifying a bit here, the amount is adjusted by cash on hand and govt. backed securities).

Steve Brown's picture
Submitted by Steve Brown on Tue, 10/14/2008 - 9:01am.

I am not sure, Mike, what your last comment means. We all have to meet payroll or fail, not just banks. My comments were related to the TDK Extension and the prominent role the actors within the bank played.

I believe several local banks appeared on the Feds model (whether you agree with the model or not is another story) of what a bank would look like if it was in trouble (degree of trouble based upon the model).

The bailout cash is meant for the big boys and the small local banks probably will not see a dime.

Mike King's picture
Submitted by Mike King on Tue, 10/14/2008 - 11:02am.

Your added comment regarding how interesting it would be to see those bank records, at least to me, smelled of trying to stir the pot of controversy.

Yes, each of the banks showed signs of stress and one did something without a big brother stepping in.

Submitted by Bonkers on Tue, 10/14/2008 - 11:54am.

I have no bone to pick in this fight about honest banks, but I do believe that the federals and state did step in and demand input of capital!

I suppose you mean that the government gave them a chance to do right or they would take over the bank, correct?
They chose to input the capital.

Mike, if I were you I wouldn't defend the way any bank has made loans or capitalized their banks in order to get richer!

What they have done to us is unforgivable and I am afraid when the time is right, the people in charge of all banks will have to answer in court.

It is absolutely shameful.

Also as to payrolls being made---weren't you on a government payroll instead of making one? There certainly is nothing wrong with serving your country honorably, but that is much different than making payrolls.
I have done both extensively.

It seems that every mayor we have had has had chicken to fry! Why would you want that job?

Mike King's picture
Submitted by Mike King on Tue, 10/14/2008 - 12:15pm.

Not all finance institutions need be lumped into one. My point is that the bank and its board is attempting to do right without being directed from on high. Further, casting dispersion does no good at any time.

Like you I have had the pleasure of more than one career. I have not and will not seek another public office, therefore, the chicken I fry will be mine.

Submitted by susieq on Tue, 10/14/2008 - 11:28am.

Haven't you noticed by now that these bloggers are looking for something sinister in every news article or comment?

If they knew the history of all the banks that have ever been started in Fayette County, they would know that the investors were local business people. So what, if some of them are developers!!

Robert W. Morgan's picture
Submitted by Robert W. Morgan on Wed, 10/15/2008 - 6:26am.

Fayette State Bank, Peachtree National Bank, Fayette County Bank, Bank of Georgia, etc.
Almost everyone except Steve Brown understood that the actual business of Peachtree City was growth - at least through the 1990's. All that time - since 1959, the only thing fueling the Peachtree City economic engine was growth - new people, new industry, new jobs.

That's why Steve has trouble painting all developers as evil because before he came along - everyone was a developer or worked for one.

Submitted by susieq on Wed, 10/15/2008 - 8:27am.

Not everyone was a developer or worked for one before Steve came along. They were farmers and merchants. I guess that's why the first bank was named Farmers & Merchants Bank.

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