Georgia-based bank failure is nation's 10th this year

Integrity Bank of Alpharetta, Ga., on Friday became the 10th U.S. bank to fail so far this year, done in by the very business it was built on — real estate lending.

Regions Bank of Birmingham, Ala., is assuming all of Integrity Bank's $974 million in insured and uninsured deposits in 23,000 accounts, and about $34.4 million of the bank's $1.1 billion in assets.

The remainder of Integrity's total assets are being retained by the FDIC. The FDIC said it estimates that Integrity's failure will cost its deposit insurance fund $250 million to $350 million.

Integrity Bank, which opened for business in November of 2000, specialized in real-estate lending in the Atlanta area with a self-described "faith-based culture." Throughout the early part of the decade when the housing market was booming, Integrity Bank grew into a billion-dollar, publicly-traded company — but when the real estate market started faltering, the bank found itself in trouble.

The bank fired its chief executive in August 2007, nabbed a turnaround expert in September, only to voluntarily delist from the Nasdaq Global Market in March of this year. The Nasdaq had been threatening to delist the company for failing to comply with reporting standards.

FDIC spokesman Rickey McCullough said late Friday the bank failed due to its aggressive pursuit of construction loans, coupled with falling real estate values and "inadequate risk management."

Construction loans comprised 76% of the bank's total loan portfolio. During the quarter ending June 30, the bank posted a net loss of $33.56 million.

After being closed down on Friday by the Georgia Department of Banking and Finance, Integrity's five branches in Atlanta will open Tuesday after Labor Day as Regions Bank branches. Regions is the 18th largest U.S. bank, according to American Banker, with about $144 billion in total assets.

"We felt it was important to assume both insured and uninsured deposits, and we believe it is our responsibility as a leading national institution to work with and support the FDIC in providing safe harbors for depositors in this challenging time," said Regions Chairman and Chief Executive Dowd Ritter in a statement.

Integrity Bank is the first Georgia bank to fail since late September of last year, when NetBank — also based in Alpharetta — was closed by the Federal Deposit Insurance Corp., the FDIC said Friday.

"Despite today's announcement, it is important to emphasize that the overwhelming majority of banks operating in Georgia, 96%, are well capitalized and have adequate reserves," said Joe Brannen, president and CEO of Georgia Bankers Association, in a statement.

The number of bank failures has shot up this year amid continuing mortgage defaults. On July 11, California mortgage lender IndyMac Bancorp Inc., with $32 billion in assets, became the largest thrift to fail in U.S. history.

According to FDIC data released Tuesday, the number of troubled U.S. banks jumped to 117 — the highest level in about five years — during the second quarter, up from 90 in the prior quarter. Bank profits plunged by 86% during that quarter, the FDIC said.