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Tickers in this Article: RF, FGCC, OFSI, ITYC
Integrity Bancshares (OTC:ITYC.PK) was taken over by the Federal Deposit Insurance Corporation (FDIC) on August 29, 2008, after its capital levels fell sharply. Integrity was the tenth bank to fail in 2008. The seizure of the bank underscores the importance of careful research and monitoring of banks prior to investing.

Depositors must also be cognizant of rules regarding insurance on accounts at insured banks. The deposits were taken over by Regions Bank (NYSE:RF), which agreed to assume Integrity's $974 million in deposits at a premium of 1.012%, or $9.9 million. Regions will also buy $34.4 million in assets of the bank.

The Gory Details
Integrity Bancshares suffered a large loss of capital on Thursday, August 28, 2008, when the company filed an 8-K, stating that because it had experienced significant net losses during 2007 and 2008, the company would not be able to realize any of the value of its deferred tax assets. Accounting rules forced Integrity Bancshares to impair the full value of its deferred tax assets. The bank reported a Tier 1 risk-based capital ratio of 3.83% as of June 30, 2008. This capital ratio is a key measure used to by investors and regulators to gauge the health of an institution.

Low capital levels were not the only problem with Integrity Bancshares. The bank also suffered from a large number of bad loans. The latest report filed with the FDIC, with data as of June 30, 2008, listed the bank as having 41.94% of its loans as non-current. The FDIC defines this ratio as loans and leases 90 days or more past due plus loans in non-accrual status, as a percent of gross loans and leases.

Integrity Bancshares also had significant loan concentration with one borrower, lending $83 million to one developer for Florida construction. This was a significant risk considering the size of the bank. It also may have been a violation of Georgia law, which "limits to 25% of available capital the amount of credit secured by real estate that a bank can lend to one borrower."

Other Banks to Watch
Another bank with a low Tier 1 risk-based capital ratio is First Georgia Community (OTC:FGCC) with a ratio of 6.25%, although it is above minimum regulatory levels. Also having a high level of non-current loans to total loans is Omni Financial Services (OTC:OFSI) with a ratio of 11.86%. Investors should understand that there are many metrics used to understand the financial health of a bank, and there is no indication that either First Georgia Community or Omni Financial Services are close to suffering the same fate as Integrity Bancshares. (For more read Analyzing A Bank's Financial Statements.)

Bottom Line
The accelerating pace of bank seizures should motivate individuals to understand the rules regarding deposit coverage. Most people know that deposits are insured by the FDIC up to $100,000 per account. However, the rules for how the government accounts for multiple accounts with similar owners are fairly complex, and the FDIC has made available a calculator to help depositors. (To find out how safe your money is, check out Are Your Bank Deposits Insured? and Are My Investments Insured Against Loss?)

The failure of Integrity Bancshares highlights the dual importance of monitoring and researching carefully before investing in the community banking sector, and for depositors to know the rules underlying insurance of bank accounts.

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