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) -- Following three years of leading all states in the number of bank failures, only two Georgia banks have failed so far during 2012. But there continues to be tremendous pressure for the weaker players in the state to merge with stronger institutions as the state's banking system continues to rebuild following the financial crisis.

As we discussed on our coverage of

Illinois banks

, consolidation will be a key theme for banks across the country over the next several years, with regulatory pressure and continued earnings weakness providing catalysts, as well as the rise in share prices this year.

Regarding the slowing pace of bank failures across the U.S., Frank A. Mayer -- a partner in the Financial Services Practice Group of Pepper Hamilton LLP, in the firm's Philadelphia office -- says "there are macro trends that have resulted in 1,000 or so financial institutions disappearing since 2008," and that beyond the industry consolidation from bank failures, the rest have disappeared "through mergers, some of which were encouraged by regulators."

At this stage of the economic recovery, a lot of Georgia banks continue to struggle to return to profitability. Of the over 240 banks in the state, over 40% posted fourth-quarter operating losses, according to data provided by HighlineFI.

Going forward, community banks will be forced to rethink their bread-and-butter "free checking" business model, with the latest regulatory pressure on profits coming from the Consumer Financial Protection Bureau, which last Wednesday announced that it had "launched an inquiry into checking account

overdraft programs

to determine how these practices are impacting consumers," with Director Richard Cordray saying that "overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it."

There are plenty of Georgia banks that need to sell quickly, or somehow arrange for major injections of new capital. According to data provided by HighlineFI, there were 29 undercapitalized Georgia banks and thrifts as of Dec. 30 -- which were included on


Bank Watch List

-- not including Central Bank of Georgia, which failed

on Friday

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and was sold by the FDIC to

Ameris Bank

(held by

Ameris Bancorp

(ABCB) - Get Ameris Bancorp Report

, and The First State Bank of Stockbridge, which was


by state regulators on Jan. 20, and sold by the Federal Deposit Insurance Corp. to

Hamilton State Bank

of Hoschton, Ga.

Since the Watch List is based solely on capital ratios, we take a different approach on our quarterly coverage of banks in key states, by looking at overall credit quality to identify troubled institutions.

Georgia Banks with Weakest Asset Quality

The following list includes all banks in the state with nonperforming assets comprising more than 15% of total assets as of Dec 30:

Nonperforming assets (NPA) include nonaccrual loans, loans past due 90 days or more and repossessed assets. Government-guaranteed loan balances are excluded. The ratio of net charge-offs to average loans is annualized.

The total risk-based capital ratios needs to be at least 8% for most institutions to be considered

adequately capitalized

by regulators and 10% for most to be considered well-capitalized. Most of the undercapitalized banks on the above list are operating under regulatory orders to achieve and maintain total risk-based capital ratios higher than 10%.

The list also includes financial strength ratings provided by Weiss Ratings. Weiss Ratings uses a very conservative ratings model, placing the greatest weight on capital strength, credit quality and earnings stability to assign ratings ranging from A-plus (Excellent) to E-minus (Very Weak).

The Georgia institution with the highest level of nonperforming assets as of Dec. 30 was

Security Exchange Bank

of Marietta, which had $157 million in total assets and a rather astounding nonperforming assets ratio of 45.74%. The bank was undercapitalized, with a total risk-based capital ratio of 3.97%, and is still operating under a March 10, 2009 cease and desist order from the FDIC and Georgia regulators, requiring the bank to raise sufficient capital to achieve a total risk-based capital ratio of 10%, within 60 days of the order.

Largest Georgia Banks

SunTrust Bank

of Atlanta -- the main subsidiary of

SunTrust Banks

(STI) - Get SunTrust Banks, Inc. Report

-- has the leading deposit market share in Georgia, with 19% of deposits in the state as of June 30, 2011, according to the most recent FDIC data. SunTrust Bank's deposit market share grew from 17% a year earlier.

Wells Fargo Bank, NA

-- held by

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

is in second place for Georgia Deposits, with a 15% share as of June 30, 2011, increasing slightly from a year earlier. Wells Fargo has slightly improved the 14% Georgia deposit market share it gained through its heavily discounted purchase of the teetering Wachovia in December 2008. That transaction more than doubled Wells Fargo's size, and gave the San Francisco company a national branch footprint.

Bank of America NA

-- held by

Bank of America

(BAC) - Get Bank of America Corp Report

-- improved upon its third-place market share in Georgia, with 12% of all deposits in the state as of June 30, 2011, increasing from 11% a year earlier, as fourth-place

Synovus Bank

(held by

Synovus Financial

(SNV) - Get Synovus Financial Corp. Report

significantly trimmed its balance sheet, causing its deposits to decline 23% during the year ended June 30, 2011, and its market share to fall to 7% from 8% a year earlier.

Here are the 10 largest banks headquartered in Georgia, along with key metrics as of Dec. 30:

The largest Georgia bank is SunTrust Bank, which had $171.3 billion in total assets as of Dec 30. The bank's fourth-quarter return on average assets (ROA) was 0.39% and its nonperforming assets ratio was 2.34% as of Dec. 30, improving from 3.14% a year earlier.

The holding company during the fourth quarter experienced a 20% decline in noninterest income from the previous quarter, because of an increase in mortgage putback expenses, and also write-down of mortgage servicing rights, in anticipation of increased refinance activity, tied to President Obama's expansion of the Home Affordable Refinance Program, or HARP.

On a brighter note, Jefferies analyst Ken Usdin on Wednesday pointed out that SunTrust grew its loan portfolio by 4% during the fourth quarter, "partially aided by its acquisition of $1.2B of student loans," and that the growth "continues to be fairly deliberate, with areas like

commercial and industrial lending and guaranteed loans (both mortgage and student loans) growing at the expense of

commercial real estate and home equity."

Usdin rates SunTrust a "Buy," with a $25 price target, and estimates the company will earn $1.05 a share in 2012, followed by EPS of $2.70 in 2013.

SunTrust's shares have returned 26% year-to-date, through Friday's market close at $22.30, following a 40% decline in 2011. The shares trade just below book value, according to HighlineFI, and for 13 times the consensus 2012 EPS estimate of $1.73. The consensus 2012 EPS estimate is $2.67.

Interested in more on SunTrust? See TheStreet Ratings' report card for

this stock


The second-largest Georgia bank is Synovus Bank of Columbus, with $26.8 billion in total assets as of Dec. 30. The bank's holding company, Synovus Financial, owes $967.9 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP, in December 2008.

The holding company reported fourth-quarter net income available to common shareholders of $12.8 million, or 1.4 cents a share, for its second consecutive quarterly profit. Synovus is hoping that sustained profitability can help it recapture "most" of $815 million in deferred tax assets, or DTA.

At the Credit Suisse Financial Services Forum on Feb. 9, Synovus CEO Kessel Stelling said that DTA recapture is not "necessarily linked" with TARP repayment, but "the facts and circumstances that lead to the recovery of the DTA also would cause you to think that you're now in a position to repay TARP."

Stelling added that the company was having "regular discussions with Treasury

and bank regulators on a quarterly basis about the progress of our bank," and "they want to see core profitability, they want to see sustainability of earnings and continued progress along all fronts," before Synovus repays TARP.

Synovus's shares were up 43% year-to-date through Friday's close at $2.02.

FIG partners analyst Christopher Marinac rates Synovus "Market Perform," with a price target of $2.00, saying on Feb. 8 that the "stock may cool off," saying that the company's high cost for borrowings "is one more roadblock to SNV achieving higher profitability that enables it to recover some portion of its DTA-Deferred Tax Asset valuation allowance," and that he expected "zero DTA recovery at SNV during 2012 and only a modest pick-up in the first-half of 2013."

Marinac estimates that Synovus will earn six cents a share in 2012, followed by EPS of 20 cents in 2013.

Synovus's shares trade for 0.9 times tangible book value, and 21 times the consensus 2012 EPS estimate of 10 cents. The consensus 2013 EPS estimate is 17 cents.

Interested in more on Synovus? See TheStreet Ratings' report card for

this stock


The third-largest Georgia bank is

United Community Bank

of Blairsville, with nearly $7 billion in total assets as of Dec. 30. The bank lost $78.9 million during the fourth quarter, and lost $216 million for all of 2011, while lowering its nonperforming assets ratio to 3.79% as of Dec. 30, from 5.65% a year earlier.

The bank is held by

United Community Banks

(UCBI) - Get United Community Banks, Inc. Report

, which owes $180 million in TARP money. The holding company reported fourth-quarter earnings available to common shareholders of $6.9 million, or 12 cents a share. CEO Jimmy Tallent said on Jan. 25 that UCBI "continued to dispose of problem assets aggressively," and that the "remaining credit challenges are manageable and while we are not invulnerable to the still-fragile economy, our expectation is continued profitability during 2012."

Guggenheim analyst Jeff Davis has a neutral rating on United Community Banks, with a $6.50 price target, saying in January that his investment thesis assumed the shares would trade at roughly tangible book value "for now assuming credit metrics gradually improve," and that 2013 will be "an eventful year," with the possibility of DTA recapture and TARP repayment.

Davis also assumes that "UCBI's largest shareholder, Corsair Capital, will engineer a sale by

the end of 2012 if UCBI has not become a consolidator."

United Community's shares were up 27% year-to-date, through Friday's close at $8.91. The shares trade for 1.4 times tangible book value, and for 14 times the consensus 2012 EPS estimate of 65 cents. The consensus 2013 EPS estimate is 71 cents.

Interested in more on United Community Banks? See TheStreet Ratings' report card for

this stock


The best earner among the 10 largest Georgia banks and thrifts during the fourth quarter was BB&T Financial FSB, with net income of $29.1 million, and an ROA of 4.39%.

With $2.7 billion in assets, the thrift is a smaller subsidiary of

BB&T Corp.

(BBT) - Get BB&T Corporation Report

of Winston-Salem, N.C., but certainly punches above its weight, as it focuses on credit card lending, with a subsidiary specializing in issuing retail gift certificates, as well as a wholesale mortgage lending unit.

BB&T's shares returned 18% year-to-date, through Friday's close at $29.48, following a pullback of 2% in 2011. The shares trade for twice their tangible book value, and for 12 times the consensus 2012 EPS estimate of $2.49. The consensus 2013 EPS estimate is $2.95.

Sterne Agee analyst Ken Usdin rates BB&T a "Buy," with a $35 price target, saying on Feb 10 after meeting with BB&T CFO Daryl Bible that "management's outlook for 2012 is particularly upbeat as the recent inflection point in credit quality," and that following the company's recent deal to acquire Crump Insurance's wholesale insurance brokerage business, and a deal to acquire

BankAtlantic Bancorp's

(BBX) - Get BBX Capital Corporation Class A Report

main thrift subsidiary, "BBT is still focused on a $5B-15B asset sized bank acquisition."

Interested in more on BB&T? See TheStreet Ratings' report card for

this stock


Strongest Georgia Banks and Thrifts

Based on fourth-quarter financial reports, only seven Georgia institutions were assigned "recommended" ratings of B-plus or above by Weiss Ratings:

The list is sorted by rating, and then alphabetically by institution name.

All of the Georgia banks and thrifts on Weiss's recommended list were strongly capitalized as of Dec. 30, with total risk-based capital ratios exceeding 16% and all but one had total risk-based capital ratios exceeding 20% or twice the level most institutions need to be considered well-capitalized by regulators.

All but two of the recommended Georgia institutions had fourth-quarter returns on average assets exceeding 1%.

Thorough Bank Failure Coverage

There have been only two bank failures in Georgia this year, following 23 closures in 2011, 21 in 2010, and 25 in 2009.

Since the current wave of bank and thrift closures began in 2008, Georgia has seen 75 institutions closed by regulators, which is the most for any state, and is trailed by Florida, with 60 failures, Illinois with 48, and California, with 38 institutions shut down since the beginning of 2008.

There were two bank failures on Friday, including Central Bank of Georgia.

All 423 previous U.S. bank and thrift closures since the beginning of 2008 are detailed in


interactive bank failure map:

The bank failure map is color-coded, with the states having the greatest number of failures highlighted in dark gray, and states with no failures in light green. By moving your mouse over a state you can see its combined 2008-2011 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.


Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here:

Philip van Doorn


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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.