John Poelker assumes the rare position of a captain who jumps onto a distressed ship and takes command well after it has run into trouble. "We're obviously facing pretty challenging times," he acknowledges. As the new President and CEO of Georgian Bank, Poelker confronts a balance sheet in the red. In the first quarter, Georgian reported a loss of $8.3 million as well as $50 million in loans considered noncurrent, or loans that have fallen behind schedule, and Poelker predicts another loss in the second quarter. He also faces a regional economy and banking industry staggered by the recession and the implosion of the real estate industry.

Nationwide, Georgia is unique for its exceptional number of bank failures. Between August 2008 and July 2009, the FDIC reports 14 Georgia banks have closed down. Only Illinois even comes close and Illinois had far more banks to begin with. Heavily invested in construction and real estate development, Georgia's financial institutions have almost universally suffered and, at the beginning of July, Georgian Bank named Poelker as its new leader, replacing longtime Chairman and CEO Gordon Teel. In a recent conversation, Poelker predicted little change from Georgian's historic focus on entrepreneurial customers, but noted a new emphasis on survival through lean times and a careful re-balancing of emphasis between its productive and its – at least temporarily – non-productive loan portfolios.

BtoB: It seems like a tough time to be driving a bank anywhere in the U.S., much less in Georgia. What does the landscape look like out there? What will it take for Georgian Bank to succeed now?

Poelker: I think the environment for banks in general is challenging, just given the overall economic environment in the country and the Atlanta market.

Real estate development has been the real driver of the growth in Atlanta over the last four or five years and, as you well know, midway through last year the real estate market pretty much dried up.

So the big challenge for Atlanta banks, the vast majority of banks in Atlanta – who participated pretty significantly in that real estate growth – is now to work our way through this pretty big change in the landscape out there with our development and builder customers until this thing turns around.

It is a very challenging time, from two perspectives. One is that clearly there is not the kind of opportunity for growth of banking assets in this environment, just because of the economy and the condition of the real estate market. So, it's sort of a perfect storm of no opportunity for the kind of profitability and earnings that comes with growth. Then, combine that with dealing with underperforming assets that we've got on our balance sheet already. So it is a challenging time.

With all the changes at Georgian Bank, you don't really come in as an outsider. You've been consulting with [Georgian Bank], so you're eminently familiar with it. But what is changing? What needed to change in terms of how Georgian Bank does business?

I don't anticipate any kind of significant change at all. I'm very familiar with the bank. I've been doing consulting here for almost four years. I have been here literally full time working with Gordon Teel since December of last year.

The changes? I would characterize it really as being about fine-tuning the management and making the shift in management priorities from one driven by growth in terms of where we focusing our resources. I've had quite a few meetings over the last week with some of our most important customers and, as one would expect, one of the most significant questions on their minds is 'Is my service going to change?' Are you still committed to providing the same kind of services that attracted us to begin with?' Our answer to that is an unqualified 'yes.' 

Why is Gordon Teel no longer part of Georgian's leadership team?

Well, the board of directors and Gordon in conversations over the last few weeks came to the conclusion that the time had come for there to be a change in leadership. I would characterize it primarily as a shift in the focus of the company ... from the growth that was the hallmark of the company under Gordon's leadership. He literally created the bank and led its growth and its success over the last four to five years ... to a refocusing of attention on managing through the complexities of dealing with the kind of financial challenges and environmental challenges that we are facing. So it was not a big disagreement about policy or anything. It was really a recognition of the fact that these times call for a different sort of corporate governance structure and skill sets in the leadership.

Georgian Bank has been an entrepreneur-focused institution. Is that something you plan to stick to? 

Oh, absolutely. That's something that has been a hallmark of the company's customer focus, focusing our attention on entrepreneurial customers. Even internally, the vast majority of people who come to Georgian Bank have come here, as you might well expect, from bigger banks around Atlanta. And a big part of why they came was the sort of spirit here where it doesn't take 14 committees to get a decision made. There is a very entrepreneurial spirit with our own within our own staff here. And that will continue.

You've got $50 million in noncurrent loans on the books. How do you dig your way out of a hole like that?

The big challenge the Atlanta banks have is that a lot of money was invested in residential subdivisions and developments all over the metropolitan area. Those developments are not going to be sitting there with weeds growing on them five years from now.

Maybe some of them will. But the presumption I think that most bankers operate under is that this is much more a function of timing than a function of value. The people we lent money to, the developments that are struggling right now, are developments that – in the end – we're pretty confident are going to ultimately be successful. So the challenge the banks have, and we're in there, is trying to work through the timing issues of helping the customers figure out how to complete those projects. Now, in the meantime, there is no cash flow. So in a lot of cases they are unable to service the debt to us. When that happens, we put the loan into what's called nonperforming status and we're going to have a pretty substantial portfolio of nonperforming loans.

For how long?

I don't know for how long. For absorbing this glut, if you will, of real estate development in Atlanta, my guess is we're talking about two to three years. And it will probably go geographically, I think from the center out as this stuff gets absorbed. The challenge that the banks have is managing the rest of the business, in terms of expenses and focusing attention on the performing loan portfolio to try and sustain a level of earnings and capital until we can get through this.

Like a lot of banks, you been scrambling for capital. But as a privately held one, do you have any special problems in that department?

No, not really. The interesting thing about it is the public capital market for banks has pretty dried up anyway. There is not a lot of capital out there, whether you're private or public.

As a matter of fact, if we were to determine that the best way for us to raise the capital would be to go public or to structure some sort of an offering that converted us from a private bank to public bank, we would certainly consider that. We think there are sources of capital out there in both the private equity world, the institutional investor world, and the individual investor world. Gordon had indicated two or three months ago that we were talking to local investors and had a goal of trying to raise $25 million in new capital. Those efforts are continuing and, we are obviously optimistic that, in the appropriate time frame, we will be able to get the bank recapitalized.

Earlier this year, the FDIC conducted its own exam of Georgian Bank. How does that play into where you go next?

We have been in constant communication with the FDIC since March. We know what their issues are. We know what their concerns are. They're the same ones we have. We have very good communications with them. So, there will be no surprises and we are ready and have been focusing on addressing the issues that they point out to us, really since early this year. We are on the same page with them as to what we're focusing on. And what we're focusing on is the same thing all banks are focusing on, which is the asset quality picture, pressure on capital, and liquidity in terms of the banks continuing need to be able to attract deposits.

What about the regulatory environment? Gordon Teel had said that it's especially difficult because of regulators' distrust of real estate and maybe requirements that lenders play it extremely safe, perhaps unreasonably so, in terms of capital and reserves, to the point that it gets harder to do business. Are you concerned about that?

I'm really not. The regulatory apparatus out there, starting in Washington on down to the state level at the Department of Banking in Georgia, is, I think appropriately, concerned about the impact of some protracted downturn in the real estate market on the financial stability of banks who have made pretty big investments and commitment to real estate. We had a bubble. I don't think there's anybody denying the fact that, in retrospect, the entire banking industry probably overcommitted to the real estate development market over the last three to four years and it's appropriate for the regulators to now be taking steps to limit further damage.

Do you worry about the pendulum swinging too far in the direction of more regulation and perhaps causing further problems?

That's another issue. The question is whether regulatory agencies forcing banks into liquidation, forcing banks to dispose of troubled real estate loans at fire sale prices or, in their own case, having the assets that (regulators) have absorbed through their closure of banks and that they now own and that they're trying to get rid of at perhaps distressed pricing is having a negative impact. We have had conversations with the regulatory agencies about that. They have a chance of exacerbating the problem by forcing a bunch of real estate on the market at exactly the time when what the market needs most is the stability. I don't think there is a solution to that. I don't think the regulators are going to back off from that right now. I wish they would.

What is your prognosis overall for the economy and for Georgia's in particular?

I think I'm cautiously optimistic about the economy at large with the stimulus package that government has put into place. I think we are seeing gradual improvement in consumer confidence and business confidence that the worst of this downturn might be behind us. I don't think we ever have to be concerned about is whether Atlanta is suddenly going to become on non-growth city. This is going to be a growing region of the country, forever. I think Atlanta is a great place to be in the banking business.

What I'm hearing from other bankers and conversations with other people who are pretty intimately involved in this is, they all feel like we've clearly gotten to the bottom of this collapse of real estate values. There is money coming back into the sector. We are starting to see pretty encouraging signs about some renewed interest in developing lots. House sales are starting to pick up. I think we have seen the worst.

My own view is it's going to take another six months for us to be at a stage where a combination of consumer confidence, some signs of recovery in the national economic picture combine with continuing growth of opportunity in Atlanta. My hope is that, by the end of this year and certainly into the first quarter of next year, we should be starting to see some improvement in the conditions in the real estate market ... and a great part of that is driven by what I think is continuing even today, the net in migration into Atlanta, because of this being such a great environment for business. So I am very optimistic about the overall Atlanta regional economy.