The nation’s banking crisis has reached Winder’s venerable Peoples Bank, which is working to comply with a consent order issued three months ago by federal regulators.

Founded 84 years ago by the late Charles Maddox, then managed for decades by his son, Charles Maddox Jr., the bank is being navigated through the current economic crisis by third-generation grandson Chris Maddox.

He sat down a few days ago with the Barrow Journal to talk about what is going on at the bank that still holds 44 percent of this market’s share of the banking business. “This bank is not failing; it is not going away,” Maddox said. “It’s just got to weather a terrible storm. This is just history repeating itself. Remember, we were founded in 1926. There were five banks in Winder at the start of the Depression. Four failed and we survived. We’ll do that again. And when we do, the community and the bank will do well again.

“This is just one of the worst ones ever. And the reason we are still here is because of how stable we’ve always been.”

THE FDIC’S ACTION

The FDIC’s Dec. 16, 2009 consent order requires more active oversight by the bank’s board of directors; pre-approval of changes to the board or the bank’s senior management; quarterly reporting of the bank’s numbers and progress; an improved capital position that meets and maintains minimum federal standards; and a 75-percent reduction in the bank’s “substandard” assets ¬within 720 days from the time the order was issued.

“We are totally in compliance with their plan and will remain so,” Maddox said.

Banks’ substandard assets typically are loans that are not current.

According to the FDIC’s web site, about 10.5 percent of all of Peoples Bank’s loans were not current at the end of 2009.

That figure includes 11.5 percent non-current real estate loans, 31.5 percent construction and development loans, and 8.5 percent non-current commercial real estate loans.

In addition, 16.67 percent of the bank’s credit card customers were behind on payments in December 2009.

“As long as the customer is paying, the loan is a performing asset,” Maddox said. “If he quits paying, I have to take his collateral and then the house becomes an asset of mine. We are supposed to be in the loan business, but we have to take back the house and (the regulators) want us to move that out.

“We have had issues moving those assets out. But more are starting to move and that will reduce our problems over time. We just need a little time.”

Currently, two national bank rating services also are giving Peoples Bank their lowest available ratings: zero stars from BauerFinancial and one star from Bankrate.com. But People’s isn’t alone in the area; several other nearby banks also have low ratings because of the real estate decline.

“Because our loan quality had deteriorated, the value of our portfolio had decreased and our earnings weren’t where they need to be,” Maddox said. “We lost money and when a bank loses money, its ratings go down.”

“At The Peoples Bank, we never made a bad loan,” he said. “Every loan we made we thought had good reason and logic behind it.”

He said he saw the first signs of the troubled economy in 2006, but underestimated the speed and depth of the coming recession.

“We felt the slowdown and as we did, we started doing things. But there was no way to prepare and do everything in time before it went down.”

He said it is only because of sound banking practices over the years that Peoples is still in business this far into the recession.

“We are an old bank that has deep roots in the county. I think we did a better job underwriting our credit than many. Three banks in this market have already failed… starting with Freedom Bank (in Commerce), and we just had First Piedmont (in Winder) and CB&T (based in Cornelia but with Barrow branches).”

DIGGING OUT

What is happening at The Peoples Bank also is a reflection of what is happening in a larger sense throughout Barrow County, where the major industry in the past few years as been real estate development, Maddox said.

“Unfortunately, over the last couple of years, Barrow County’s industry was home building. As a community bank in this market, what else did we have to loan on but real estate?

“We know our market and we made loans to the best customers. But we have had three years of a protracted recession – it’s basically a real estate recession that trickled over into everything else. We have had good borrowers having hard times and going bankrupt.”

The bank was offered federal funds, but rejected them, Maddox said.

“We didn’t want it. We didn’t take it. We have not been bailed out.”

The bank instead has tightened its lending policies, reducing expenditures by $2 million this year, and has cut back charitable giving by 40 percent.

The bank also is in the third year of a hiring freeze and in the third quarter of 2009 laid off 7-8 employees.

“Had we not implemented the hiring freeze, that would have been 25 or 30 out of 120 employees,” he said.

The bank also is looking for additional large investors to raise capital, he added.

Peoples Bank will recover when the local economy recovers, Maddox said.

“If I can get anything across, it is this: We are a traditional old bank that is symbolic of the community that it serves. When the community hurts, we hurt. When the community does well, we do well.”

He said the rest of 2010 will be tough, but better days are coming.

“We are fighting every day. But 2011 is going to be far better than 2009 for us, and in 2011 we will come out of this. I really believe it.

“I am an optimist. But hope is not a strategy, you have to make it happen.”

Back during the Depression, Peoples Bank survived in part due to the canny thinking by Maddox’s grandfather. At one point, during the height of the bank crisis of that era, Maddox’s grandfather had all the bank’s money taken from the safe and put on the floor of the bank’s lobby with an armed guard just to prove to people their money was safe in the bank.

As the third-generation president of the bank, Maddox feels keenly the responsibility not only to the community, but to that heritage of survival during difficult times.

“My granddad started this place, survived the Depression, and then my dad ran it. Since the day I took over, the driving thought in my mind is to continue the good work, to grow it, to do the right thing and to stay in business,” he said. “Losing that would be unbearable.”

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