Commerce-based Freedom Bank of Georgia has entered into a cease and desist order with the Georgia Department of Banking and Finance, according to documents filed Dec. 23 with the Securities and Exchange Commission.
The bank’s deposits are insured by the Federal Deposit Insurance Corp., and its operations remain in place under the order.
A cease and desist order is a formal agreement between regulators and a bank that the operations must undergo an overhaul for the institution overseen by regulators.
The order, which has been acknowledged by federal regulators, prevents Freedom Bank from paying cash dividends to stockholders or bonuses to executives without written approval of bank regulators. At least six other cease and desist orders against Georgia banks have been publicly disclosed.
The order is based on findings from an examination of Freedom Bank’s operations conducted through June 9, the company said in the filing.
Freedom Bank has four branches in Commerce, Winder, Homer and Jefferson. It opened in early 2004 in Commerce.
“Freedom Bank of Georgia has been affected by the downturn in the economy, particularly in the real estate sector of the market,” said Vince Cater, president and CEO of the bank. “Jackson, Banks and Barrow counties have been among the fastest growing and most dynamic areas of the country for the past several years, and Freedom Bank of Georgia, in serving the local economy, participated actively in construction and related loans.”
At the end of the third quarter, the bank had $147 million in assets. Of its $104 million in loans, $12 million — or about 11 percent of its total loan portfolio — was in some state of default, according to Federal Deposit Insurance Corp. records. The bank had a net loss of $2.7 million in the third quarter and has lost $4.8 million in the first nine months of 2008.
Terms of the order mandate the bank submit written plans to, among other things, maintain sufficient capital, improve liquidity and “funds management practices,” and improve loan underwriting, administration and portfolio management.
The order became effective Dec. 27.
“The bank and its board of directors have taken an active role in working with the (Georgia Department of Banking and Finance) to improve the condition of the bank and have already completed many of the items included in the order,” the bank said in the SEC filing.
“Many of the bank’s local customers are involved directly or indirectly in the construction industry, and some of them have been struggling for the past year or so,” Cater said. “This, in turn, has affected the bank’s loan performance and earnings.”
Freedom Bank has also hired an investment banker to assist in evaluating its “strategic alternatives,” the bank said in the filing.
In the third quarter SEC filing, the bank and regulators said the firm’s ability to maintain an ongoing business would be dependent on the bank’s ability to raise additional capital.
“We will continue to provide the high quality of service that our customers have come to expect,” Cater said. “Our intent is to serve our community, assist our customers, and to work with our borrowers that are struggling in the current downturn to overcome their problems. Our depositors remain fully covered by FDIC insurance to the maximum extent permitted by law, our Board of Directors and staff remain committed to the communities we serve, and our confidence in the future of Freedom Bank of Georgia and in the future of Northeast Georgia remains strong.”
