Security Bank report highlights major capital problems

Macon-based Security Bank Corp., which continues to deal with deterioration in the real estate market that started in 2007, has issued its 2008 annual report, which indicates some serious concerns.

“As a result of these unprecedented and difficult times, the regulatory capital level of our banks has decreased significantly, and our sources of funding have diminished,” the report states.

The company reported a net income loss of $254.4 million in 2008, compared to a profit of $6.6 million in 2007 and a profit of $23.4 million in 2006. However, last year’s net income figure includes two one-time accounting adjustments that had a “significant impact on earnings” that were not tied to operations, said Security Bank spokesman Tom Woodbery.

One major move revealed in the report is that the bank is planning to consolidate its banking offices to improve its capitalization. Four of the bank’s six banking subsidiaries — Security Bank of Bibb, North Metro, North Fulton and Gwinnett County — were labeled “undercapitalized” as of Dec. 31, according to regulatory guidelines. Therefore, those banks can be subject to higher rates for FDIC insurance and they are unable to apply for waivers on brokered deposits, according to the annual report.

Two other banks in Jones and Houston counties were considered “well capitalized.”

In January, the company applied to the Federal Deposit Insurance Corp. and the Georgia Department of Banking to consolidate its six banking charters into a single banking charter, and “if allowed, the resulting bank is expected to be adequately capitalized,” the report stated. If approved, Security Bank expects the consolidation to be completed during the second quarter of this year.

Senior Vice President Lorraine Miller said there is no deadline for a response.

“The application has been submitted, and it is under their review,” she said.

Meanwhile, the bank’s auditors, Macon-based McNair, McLemore, Middlebrooks & Co. LLP, raised concerns in its audit report about the four subsidiary banks not meeting adequate regulatory capital levels and issued a “going concern” statement regarding the bank’s future.

“As a result, the banks will operate under restrictions set forth by ... federal regulators which result in uncertainty about the company’s ability to meet obligations coming due in 2009,” the audit stated. “These matters raise substantial doubt about the ability of Security Bank Corp. to continue as a going concern.”

But, in addition to the consolidation of the subsidiaries, the audit refers to other efforts the bank is making to improve its position.

“I think this opinion is a refection of wanting to have more transparency about potential risks,” Miller said. “I would just emphasize it’s an opinion. ... While this is not a pleasant report to read necessarily, it has no business impact on our operations. ... It’s important to note, our auditors are 100 percent signed off on our financial statements.”

In response to the audit, President/CEO Tony Collins said in a prepared statement: “Given these times of unprecedented challenges for financial institutions, we remain very focused on our previously stated objectives of preserving capital, maintaining liquidity, improving asset quality and reducing noninterest expenses.”

The audit report also revealed that in January, Security Bank began the process to sell two of its full-service banking offices, according to the audit report.

“The disposition of these offices will allow the company to specialize its interests in its core markets,” the report stated.

Miller said the bank had not made a decision about which offices it plans to sell.


“Through 2007, we offered land acquisition and development and construction loans for builders and developers, but we no longer offer these loans,” the report stated.

As of Dec. 31, $993.9 million or 50.2 percent of the bank’s loan portfolio represented these types of real estate loans and 20 percent of them were non-performing.

As the sales of homes and land significantly slowed down, the prices of homes and land also declined.

“Therefore many of our customers who develop and sell residential real estate cannot service their loans because they are not generating any revenue,” the report states.

As of Dec. 31, provisions for loan losses increased by $95.4 million to $128.1 million. Also the bank charged off about $100 million in loans, which was significantly higher than in previous periods, the report stated.

According to the annual report, Security Bank has done or is doing several other things, some of which are required by regulators, including:

Ÿ At the request of the Federal Reserve Bank of Atlanta, in February 2008, the bank’s board of directors agreed it would not take on additional debt and that it would not declare or pay additional dividends to shareholders without the prior approval of the Reserve Bank.

Ÿ The bank has applied to participate in the TARP Capital Purchase Program, which would allow the bank to issue and sell preferred stock to the U.S. Treasury, but if approved, it would dilute the stock of the company’s current shareholders, the report states.

Ÿ The bank has retained the services of two investment bankers to “explore possible strategic alternatives to raise capital as well as negotiate the sale of certain offices, including selected assets and liabilities,” Collins said in a prepared statement.

Despite all the changes, Security Bank customers should not be worried about their money, Woodbery said.

“I think given all the news in the national press about banks and the future of banks, the primary concern is safety of deposits — that is not in question,” he said. “With FDIC, every customer with amounts up to $250,000 is perfectly safe,” and certain checking accounts, such as non-interest bearing accounts and business accounts are now insured without any limit.

As of Dec. 31, Security Bank had assets of $2.9 billion, and it had a total of 405 full-time equivalent employees. It’s headquarters is at 4219 Forsyth Road.

To contact writer Linda S. Morris, call 744-4223.