Integrity Bank fails, bought by Regions Financial

Integrity Bank's skyrocket run as the fastest-growing bank in Georgia history, fueled by housing construction, has ended in failure.
Birmingham, Ala.-based Regions Financial Corp. (NYSE: RF) has acquired the branches and deposits for the Alpharetta, Ga.-based community bank, according to a late Friday press release from the Federal Deposit Insurance Corp.
Integrity Bank operates five branches in metro Atlanta, primarily in the city's affluent north suburbs. All of those branches will be acquired by Regions.
Integrity Bank branches will open Tuesday morning as Regions locations, and the FDIC said all customer deposits at the bank will be available for customer use over the weekend through checks, debit cards and ATM withdrawals.
The bank has $919 million in insured deposits, according to FDIC estimates, out of $962 million in total deposits.
CEO Pat Frawley was not immediately available for comment. 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."
Integrity Bank's failure trails only NetbankÂ’s failure in 2007 and the collapse of Fulton Federal Savings Bank in 1991.
Atlanta-based NetBank Inc. had $2.2 billion in deposits, but operated as an online bank gathering deposits nationwide.
Fulton Federal Savings Bank had $1.3 billion in deposits.
It is the fourth bank failure in Georgia since 2000 and 43 banks have failed in Georgia since the FDIC's creation in 1934. Four the last five Georgia bank failures have been in the metro area.
Centered around a Christian faith-based business model, Integrity Bank was a high-flying star of metro Atlanta's housing boom. The bank was the fastest in Georgia history to $1 billion in assets.
From Dec. 31, 2000 to June 30, 2008, the bank's loan portfolio grew 14,826 percent from $5.6 million to $834.8 million. That growth was fueled by loans for housing construction and land lot development, which increased 15,727 percent during that same period, from $4.2 million to $668 million.
But problems first emerged in spring 2007, when the bank's parent company disclosed in a Securities and Exchange Commission filing that losses were mounting in a series of $83 million loans to one borrower, and a federal regulatory inquiry into the matter had begun.
By the end of the summer, founding CEO Steve Skow had been ousted along with senior lender Douglas Ballard. Turnaround specialist
Frawley was hired soon after.
Frawley proceeded to shrink the bank's balance sheet -- particularly the troubled loan portfolio -- from $1.1 billion in total assets in second quarter 2007 to $880 million in second quarter 2008.
Bank executives also courted customers' deposits to fund the bank, offering certificate of deposit rates and shedding brokered deposits or so-called "hot money."
In the weeks before the bank's failure, Frawley said he remained confident the bank could continue to operate and eventually turn itself around. The only concern, he said, was how quickly federal and state regulators would push the bank to shed bad assets.
"If they ask me to sell it all tomorrow, we'll have to close our doors," he said. "But if you give me eight to ten quarters and some time to slowly work the pig through the python, we have a chance."
But the bank's losses from its rapid growth during the first half of the decade overwhelmed Frawley's turnaround efforts.
The bank's loan problems at the time of its closing were $353 million. That figure alone is 10 times the size of the bank's Tier 1 capital -- a key statistic comprised of shareholder equity and other internal assets that shows a bank's ability to weather loan losses.
On Aug. 28, Integrity Bank said it did not expect to be profitable during any reasonable future period, and wrote-down a series of deferred tax assets worth as much as $10.6 million.
The bank had also struggled to file quarterly and annual reports because of deterioration in its overall loan portfolio, and independent auditors have been unable to complete their review of the company's 2007 financial statements.
"Pat and his team did everything possible to try to save this bank," said Walt Moeling, Powell Goldstein banking attorney and senior counsel to the board. "It just wasn't recoverable." Regions Financial operates 62 branches in metro Atlanta, with the bulk of those branches in the northern suburbs.
The bank has $2.5 billion in local deposits and 2.27 percent market share, according to the 2007 FDIC Summary of Deposits report, the most recent data available.
Its acquisition of Integrity Bank adds five branches in high-growth suburbs, experts said, and is the first major move by Regions local executive Bill Linginfelter since he joined the bank in July.
At the time, Linginfelter said the bank would be a selective player in acquiring distressed or failing banks in Atlanta to add branches to a bank that has struggled to gain a firm Atlanta foothold.