Editor's Note: "The Most Fun I Never Want to Have Again: A Mid-life Crisis In Community Banking" is R.D. Koncerak's firsthand account of the 2008 financial crisis and how it impacted Georgia's community banking industry. This abridged excerpt is taken from Chapter 5: Regulation, Controls and the 'Chernobyl' of Banking
The Georgia landscape is adorned with beautiful bank buildings. Many are embellished with majestic white columns that convey a sense of prosperous permanence. All of them were expensive to build. Bill Short, our CEO at the time, liked to say that a stately bank headquarters positioned at a busy intersection is really just a very expensive billboard.
It has long been a tradition in the community banking industry to build a headquarters designed to inspire confidence, permanence and significance. With the benefit of hindsight, it would have been helpful had the marquees of many de novo institutions been designed to allow for quick name changes as well: between January 2008 and December 2012, the FDIC replaced or covered over the signage on 468 separate bank headquarters buildings 85 of them in Georgia. Many are now occupied by new groups of bankers. As of this writing, many of them also sit empty.
As a chief financial officer, it is my job to ensure that the assets of my company are put to productive use. For example, Touchmark's management team planned to lease all of its branches rather than own them. The way to make money in banking, after all, is to maximize earning assets on the balance sheet. No matter how impressive a bank building may appear, it doesn't earn anything ... it only depreciates. Touchmark's strategy was to maximize earning assets rather than sink significant sums into non-earning property. We leased our initial office space and also our two subsequent branches. Touchmark's eventual headquarters location, though, turned out to be another matter altogether and I was grateful for the one exception that we made to our lease holding strategy.
In May 2006, the capable organizers of Alpha Bank and Trust had just completed the largest capital raise in Georgia de novo banking history. They celebrated in part by constructing an 8,600 square foot craftsman-style headquarters in the commercial epicenter of Alpharetta, Georgia.
In October 2008, the unfortunate directors of Alpha Bank and Trust went on to distinguish themselves again as perhaps the shortest-lived banking entrepreneurs in Georgia history. Alpha Bank was shuttered by the FDIC a mere twenty-eight months after it opened. The bank failed only ten months after celebrating the grand opening of its headquarters. On Alpha's December 2006 balance sheet, the property and associated assets were valued at $5,455,000.
As the building sat empty through the winter of 2008, Bill Butler, a director and an astute commercial realtor, took note of the property with other Touchmark directors and watched for an opportunity to bid. Our bank's real estate committee had considered several similar buildings, but nothing fit better within Touchmark's strategic service area than a headquarters in one of the most robust commercial zip codes in the South.
The moment came in June 2009 when a regulatory lockout period expired, and Butler stood ready at the FDIC's offices with a cash offer. With no competing bids, Touchmark acquired the building and two acres of surrounding property at the rock-bottom price of $1.6 million. For those without fast fingers, that works out to a mere 29% of construction cost for a complete headquarters building with curbed and landscaped parking. As if that weren't enough, we subsequently acquired the entire contents of the building everything from limited edition artwork to the safe deposit boxes and teller stations for the tidy sum of $75,000. The building was beautifully furnished and stocked with laptops (hard drives removed), operational equipment and office supplies. While we celebrated oursuccess, I couldn't help but feel conflicted over the devastating loss suffered by Alpha's shareholders. Our good fortune on the heels of their closure felt more like "spoils of war" than an outright purchase.
Beyond the good fortune of a discounted purchase, I felt that we had accomplished something equally as valuable: the "instant headquarters" enabled our team to stay focused on the business of banking rather than the distraction brought on by a major construction project. Selecting a property, hiring an architect, building designers, interiors, vendors and technology providers all encompass a project that amounts to a two-year business interruption for a management team and it does nothing to attract a client base.
R.D. Koncerak is executive vice president and chief financial officer at Altrust Financial Services, Inc. He formerly served as chief financial officer of Touchmark National Bank.