Ga. Banking Department closes Southern Community Bank; branches reopen as United Community Bank; depositors said to be fully protected from losses

Fayetteville-based Southern Community Bank joined the growing list of failed banks in Georgia and the U.S. when a state agency — the Georgia Department of Banking and Finance — swooped in Friday and closed it down. It’s the first bank failure in Fayette County in modern times.

The SCB branches were picked up by another bank operating locally — United Community Banks with current branch locations in Fayetteville, Peachtree City, Newnan, Tyrone, Union City, Fairburn, Palmetto, Stockbridge and McDonough.

“The FDIC has acted to protect all of the deposits of Southern Community Bank’s customers, which is essential to the overall stability and confidence in the banking system,” according to Joe Brannen, president and CEO of Georgia Bankers Association. “No one has ever lost a penny of FDIC-insured deposits, and the system in place to protect depositors in times of economic stress is working well. The most important thing for customers to know right now is all deposits, including those that exceed FDIC insurance limits, have been transferred to United Community Bank, Blairsville,” Brannen said.

“According to the FDIC, the five offices of Southern Community Bank will reopen for normal business hours, starting Saturday, as branches of United Community Bank,” Brannen said. “Depositors of Southern Community Bank will automatically become depositors of United Community Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until United Community Bank can fully integrate the deposit records of Southern Community Bank. Depositors of Southern Community Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.”

A news release from the Ga. Department of Banking and Finance said, “All deposit accounts of Southern Community Bank have been transferred to United Community Bank and will be available immediately. On Saturday, June 20, 2009, depositors will be able to access their accounts at the former main office and branch locations of Southern Community Bank. Customers of both banks should continue to use their existing branches until United Community Bank can fully integrate the deposit records of Southern Community Bank. Additionally, the former depositors of Southern Community Bank can continue to access their accounts through automated teller machine transactions, checks and debit transactions.”

“All deposits will be transferred to United Community Bank and, therefore, it is not anticipated that there will be any loss exposure to former Southern Community Bank depositors that have deposits exceeding the FDIC Deposit Insurance amounts,” the DBF statement said.

“The former Southern Community Bank locations will open for business as always ... as United Community Bank,” according to a UCB email news release late Friday afternoon. “Southern Community Bank customers can continue to bank as normal. As of now, however, former Southern Community Bank customers will not be able to use United Community Bank locations. Likewise, existing United Community Bank customers will not be able to use Southern Community Bank branches at this time.”

Southern Community Bank is the seventh Georgia bank closed in 2009, mostly due to high levels of distressed construction and development loans, according to a statement from the Ga. Bankers Association.

UCB paid a premium of 1 percent — $3 million — to buy all of the $307 million in SCB deposits, and also bought the failed bank’s assets of $377 million, according to published reports.

The FDIC also will share with UCB for any future losses on up to $253 million of the failed bank’s assets, which includes unpaid loans.

The big losers are the bank’s shareholders, many of whom are well-known business leaders in Fayette County.

The bank’s parent holding company had been put on notice last fall because of its precarious financial situation. Southern Community Bancshares, Inc. announced Oct. 10 that its bank subsidiary, Southern Community Bank, had 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 last fall, 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 were members of the bank’s board of directors and represented a Who’s Who of Fayette area businessmen.

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.

“We are delighted to welcome the customers of Southern Community Bank to the family of valued customers of United Community Bank,” said C.B. Fair, executive vice president, Atlanta Region for UCB. “It is our number one objective to make this transition as transparent and easy as possible for both Southern Community Bank customers and employees.

“I want to personally assure all Southern Community Bank customers that every penny of their money is safe and secure at United Community Bank,” Fair continued. “Because United Community Bank elected to assume both insured AND non-insured deposits, no customers of Southern Community Bank will lose any of their deposits. Southern Community Bank customers will also have the convenience of more than 100 additional bank locations, enhanced services and a vastly larger network of ATMs.”

The following is from UCB’s email announcing the transfer:

United Community Banks, Inc. (NASDAQ: UCBI) announced [Friday] that its wholly-owned subsidiary, United Community Bank, has entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to purchase the assets and assume the deposit liabilities and secured wholesale borrowings of Southern Community Bank.

The Georgia Department of Banking and Finance declared Southern Community Bank closed [June 19] and appointed the FDIC as receiver. The FDIC then assigned the assets, deposit liabilities and secured wholesale borrowings of Southern Community Bank to United Community Bank under a loss sharing agreement.

“This transaction was very attractive to United since it fits perfectly into our south metro Atlanta markets by complementing the bank’s existing locations and adding new locations where we do not currently have a presence,” said Jimmy Tallent, president and CEO of UCB.

Under the terms of the sales agreement, these customers also have the right to withdraw their funds without penalty at any time until they enter into a new deposit agreement with United Community Bank.

“United Community Bank staff members will be on hand at all former Southern Community Bank locations to answer any questions and to assist Southern Community Bank customers in any way possible,” Fair says. “If any customer has any questions or concerns, I encourage them to visit their usual bank location.”

United Community Bank currently operates south metro locations in Fayetteville, Peachtree City, Newnan, Tyrone, Union City, Fairburn, Palmetto, Stockbridge and McDonough. This complements Southern Community Bank locations in Fayetteville, Newman, Peachtree City, and Locust Grove.

About United Community Banks, Inc.

Headquartered in Blairsville, United Community Banks is the third-largest bank holding company in Georgia. United Community Banks has assets of $8.1 billion and operates 27 community banks with 105 banking offices located throughout north Georgia, the Atlanta region, coastal Georgia, western North Carolina and east Tennessee. The company specializes in providing personalized community banking services to individuals and small to mid-size businesses. United Community Banks also offers the convenience of 24-hour access through a network of ATMs, telephone and on-line banking. United Community Banks common stock is listed on the Nasdaq Global Select Market under the symbol UCBI. Additional information may be found at the company’s web site at www.ucbi.com.

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

Gary D. McGaha, an organizer of Southern Community Bank who served as its first president and chief executive officer, retired almost exactly one year ago as the bank was experiencing trouble with problem real estate loans.

As of one year ago, Southern Community Bank employed 78 and managed more than $400 million in total assets.

In response to FDIC demands, the bank hired a new CEO last October. David R. Coxon came in to turn the floundering bank around.

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

Thomas D. Reese — 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 Ronald 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.

— Posted 2nd revision at 11:55 a.m., Saturday, June 20, 2009