Carrollton-based First National Bank of Georgia was closed by federal regulators Friday evening and its deposits are being sold to a newly chartered bank called Community & Southern Bank, ending months of speculation about whether the bank would survive an economic recession that battered its loan portfolio and caused it to lose tens of millions of dollars.

Community & Southern will be based in Carrollton and will assume control of First National’s 11 branch offices in Carroll, Douglas and Haralson counties. The offices will reopen today on schedule, said officials with the Federal Deposit Insurance Corp. Depositors of First National Bank will automatically become depositors of Community & Southern Bank, according to an FDIC news release issued Friday night. The release said that depositors can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed, and loan customers should continue to make their payments as usual.

All deposits are insured up to $250,000 by the FDIC and customers of the bank should notice very few changes other than possibly in the top management, said David Barr, public affairs spokesman for the FDIC.

Barr said it would be up to the new bank owners to decide whether they would retain management personnel such as Rocky Lipham, who has served as president and CEO of First National Bank of Georgia for the past several years.

“In more than 75 years of insuring banks not a single depositor has lost a single penny from insured money,” Barr said. “And in this transaction, Community Southern took over all of the deposits, so none of the deposit customers are going to lose anything in this transaction. The customer out there for First National should view it simply as a merger between two banks. Essentially all that’s changed is just the management. It’s [Community & Southern Bank’s] business decision as to who they’re going to have run it or who they’re going to retain.”

But this was not a bank merger. Officers with the U.S. Office of the Comptroller of the Currency swooped into the Carrollton bank’s main office on Maple Street at 6 p.m. Friday. The OCC appointed the FDIC as receiver and by 6:30 p.m. the FDIC had listed First National Bank of Georgia on its Web site as a failed bank. First National became the nation’s 14th bank to fail so far this year and the first in Georgia. In 2009, 25 Georgia banks were closed by the FDIC, making it one of the worst years in Georgia banking history as the fallout from the real estate meltdown and high unemployment have continued to take their toll on the industry.

First National had been working under a consent order from the OCC since mid-2009, meaning it had been placed under heightened scrutiny by regulators and was required to put in place a plan to improve its financial position. But the bank was unable to raise fresh capital and its non-performing assets – loans that were no longer accruing interest – had grown to more than 22 percent of its total loan portfolio.

“It wasn’t a surprise,” said Chris Marinac, managing principal and research director for FIG Partners, an Atlanta-based bank research firm. “I think this was, unfortunately, coming for several months for the company.”

After months of speculation about the bank’s future, Marinac said having First National finally closed and replaced by a new, stronger entity could actually be good news for the Carroll, Douglas and Haralson county business communities. The bank has a dominant position in the market for those three counties.

He said Community & Southern will be led by Pat Frawley, a man with many years of experience and deep roots in the Georgia banking industry.

“He is a longtime Georgia banker who spent years with the old C&S Sovereign, which is now Bank of America,” Marinac said. “Pat had turned around a bank in Blountsville, Ala., from 2002 to 2007 and had a temporary stint at Integrity Bank here in Georgia.”

Marinac said David Edwards of Carrollton will also be part of the new management team.

He said that more often than not, when a bank fails, it gets taken over by a larger institution based in another state.

“Pat spent many years working in Atlanta and he knows where Carrollton is. Sometimes, you have a buyer who doesn’t know where the bank is. So that’s the good news. I think the team that will be in place will be responsive, will be a good community citizen, and is certainly going to be local,” Marinac said. “This will be a local team. It’s not an out-of-state bank ... so the fit is very, very strong. The name on the sign will change but the people should not change that dramatically, if at all.”

Perhaps the biggest plus to the deal is that the deal is now done. The rumors that have been swirling around Carrollton for weeks can now hush.

“For creating a new chapter for Carrollton, I think this clearly can happen now,” Marinac said. “If you look at other deals like this around nation, it removes a cloud of uncertainty, so to the extent that it puts that behind I think it’s very productive, to not only help the bank be a bigger part of the community but also to help the bank itself.”

First National’s roots in the Carrollton community go back to 1946, when it operated under the name of West Georgia National Bank. It grew through acquisitions and had a long history of success until the latest real estate crisis hit the region in 2008.

As recently as one week ago, bank president Rocky Lipham said the management team was continuing to slog through a difficult environment.

“We’re working with our regulators. Operationally, that core customer business is still doing well,” Lipham said in a phone interview one week before the feds moved in to close the bank. “The economy has been tough on everybody and a lot of those clients out there who were unable to pay back their loans before, they’re still unable to pay now.”

Lipham said the bank had been unable to move a substantial number of bad loans off of its books. Many of the loans that soured were made to builders holding lots in subdivisions around the metro-Atlanta area.

“I don’t think there’s going to be a strong market for subdivision lot property for quite some time,” Lipham said. “But our customer base has been tremendously loyal ... We’re taking deposits every day.”

Marinac said First National made a major effort to raise new capital to cover its mounting losses and shore up its balance sheet, but found itself in a Catch 22: Investors don’t want to invest fresh cash into a bank that is on the government watch list and operating under a consent order, yet without such a cash infusion there was no way to satisfy the regulators.

“I really don’t think it had to do with the people. There are some fine people in the organization,” Marinac said. “I don’t think you will see turnover everywhere in the organization.”

The failure of First National Bank of Georgia cost the FDIC’s Deposit Insurance Fund $260.4 million. Community & Southern Bank’s acquisition of all the deposits was the “least costly” resolution compared to all other alternatives, Barr said.

When a bank fails, the FDIC negotiates a “loss sharing agreement” with the new owner, in which the FDIC covers typically around 80 percent of the failed bank’s loan losses up to a certain point and then covers 95 percent up to another point.

“You create a plan and ask them to work out the loans,” Marinac said. “Over time, the company will come and re-examine all of the loans and re-evaluate and determine what the best course of action is, that’s what the loss sharing agreement allows the new buyer to do.”

Marinac said the economy has “shown signs” of improvement, but banks are not out of the woods yet.

“There was nothing unique about First National,” Marinac said. “They were caught in the middle of a real estate recession and an economic recession both locally and regionally in metro Atlanta, and the capital was not available to them to fix the problems. And investors are unwilling to invest new capital if they don’t know where the bottom is in the market.”

(Hohmann is News Editor of the Times-Georgian, a sister publication of the Sentinel.)