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American Trust Bank, Georgia: Expected bankruptcy

On Friday, February 4, 2011, American Trust Bank, Roswell, GA was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver making it the twelfth bank to fail in 2011 and the second in Georgia after Oglethorpe Bank.

Safety Ranking

BankVega Safety Ranking for this bank was 1. Thus this Bank was classified as being amongst the riskiest banks in the country. Further our safety ranking for this bank since 2009Q2 has been 3 or less. Safety ranking of its peer banks in the country (banks with similar size and similar mix of assets and deposits) has ranged 45 – 49 during this period. This shows that our outlook on the bank’s future has been negative since a long time.


Enforcement Order

FDIC carried the same opinion of the bank’s financial situation and issued it an Order to Cease and Desist (FDIC-09-301b) on Oct 9, 2009. It accused the bank of the following “unsafe and unsound banking practices”:

  • operating with inadequate management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
  • operating with an excessive  volume of adversely classified, Other Real Estate (“ORE”) and special mention assets and poor asset quality;
  • following hazardous lending practices and operating with an inadequate loan policy
  • operating with inadequate capital for the risk profile of the Bank;
  • operating with inadequate liquidity and funds management;

These issues identified by FDIC with American Trust bank have been captured by our Key Financial Performance Indicators as well.

Key Performance Indicators:

Asset Quality: Mortgages constitute 54% of its total assets. Due to very high proportion of Nonperforming loans in the asset portfolio, BankVega Asset Quality Index for the bank was 0, 1, 2 for 2010Q3, 2010Q2 and 2010 Q1 respectively.

Earnings: Poor Asset Quality has resulted in poor profitability for this bank. The Bank has shown losses of over a million dollars in each of the last 8 quarters with a loss of $4.8 million in 2010Q3. This trend in losses is reflected in our Earnings index for this bank during this period (2009Q1 – 2010 Q2). Earnings Index ranged from 3 to 8 while corresponding values for its national peers were from 39 to 46.

Capital: Continued losses have led to erosion of the bank’s capital as noted by FDIC .This is reflected in BankVega’s Capital Index of 1 for this bank for both 2010 Q3 and 2010 Q2. Compared to this national peer banks had a capital Index of 56 for these quarters.

Growth: The bank tried to maintain high growth rate in an attempt to turn around its fortunes. However the growth was accompanied by a proportionate increase in toxic assets and the bank remained in financial distress. BankVega Growth Index for American Trust Bank fell from 79 in 2009Q2 to 2 in 2010Q3.

The above analysis of its financial indicators shows that American Trust Bank had poor fundamentals for the last two years running and hence it was inevitable that this bank would go bankrupt.

 Expected Recovery Rate

Our estimates suggest that this bank will be able to recover about 82.7% of its asset in post-failure auctions. In our opinion this is a relatively lower recovery rate as compared to similar bank failures in the past

American Trust Expected Recovery Rate

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.