Audit Report 

OIG-11-063

SAFETY AND SOUNDNESS: Failed Bank Review of The First 

National Bank of Barnesville 

March 22, 2011 

Office of 

Inspector General 

Department of the Treasury 

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

 March 22, 2011 OFFICE OF 

INSPECTOR GE RAL NE

OIG-11-063 

MEMORANDUM FOR JOHN WALSH 

ACTING COMPTROLLER OF THE CURRENCY 

FROM: Jeffrey Dye /s/ 

Director, Banking Audits 

SUBJECT: Failed Bank Review of The First National Bank of Barnesville 

This memorandum presents the results of our review of the failure of The First 

National Bank of Barnesville (Barnesville). Barnesville was established in 1902. Its 

main office was located in Barnesville, Georgia, and it had one branch located in 

Zebulon, Georgia. The bank did not have a holding company. The Office of the 

Comptroller of the Currency (OCC) closed Barnesville and appointed the Federal 

Deposit Insurance Corporation (FDIC) as receiver on October 22, 2010. As of June 

30, 2010, the bank had $131.4 million in total assets. FDIC estimated that the loss 

to the Deposit Insurance Fund is $33.9 million. 

Because the loss to the Deposit Insurance Fund is less than $200 million, as set 

forth by section 38(k) of the Federal Deposit Insurance Act (FDIA), we conducted a 

review of the failure of Barnesville that was limited to (1) ascertaining the grounds 

identified by OCC for appointing the FDIC as receiver and (2) determining whether 

any unusual circumstances exist that might warrant a more in-depth review of the 

loss. In performing our review we (1) examined documentation related to the 

appointment of FDIC as receiver and (2) interviewed an OCC problem bank 

specialist. 

We conducted this performance audit during November and December 2010 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit objectives. 

Causes of Barnesville’s Failure 

OCC appointed FDIC as receiver based on the following grounds: (1) the bank 

experienced substantial dissipation of assets or earnings due to unsafe and unsound 
OIG-11-063 

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practice, (2) the bank was in an unsafe and unsound condition to transact business, 

and (3) the bank’s capital was severely impaired. 

The primary causes of Barnesville’s failure were its aggressive lending strategy that 

focused on direct lending and participations in commercial real estate loans (CRE) 

concentrated in its local market in Georgia, as well as in Alabama, Florida, and North 

Carolina; and ineffective oversight by the board and management. For example, 

management had an unreliable risk rating system, disregarded external loan review 

decisions, and failed to document collateral support for real estate loans. The board 

and management did not demonstrate the leadership or ability to correct serious 

deficiencies in capital and strategic planning, credit administration, or liquidity risk 

management. As a result, significant risks were not adequately identified, measured, 

monitored, or controlled. By 2009, OCC determined Barnesville’s capital, asset quality, 

management, earnings, and liquidity were critically deficient, which ultimately led to 

its failure. 

It should be noted that our review of Barnesville revealed certain questionable 

transactions. We referred these matters to the Treasury Inspector General’s Office of 

Investigation. 

Conclusion 

Based on our review of the causes of Barnesville’s failure and the grounds 

identified by OCC for appointing FDIC as receiver, we determined that there were 

no unusual circumstances surrounding the bank’s failure or the supervision 

exercised by OCC. Accordingly, we have determined that a more in-depth review of 

the bank’s failure by our office is not warranted. 

We provided a draft of this memorandum to OCC management for comment. In its 

response, OCC stated it agreed with our conclusion as to the causes of 

Barnesville’s failure and that it had no concerns with our determination that an indepth review of the bank’s failure was not warranted. The response is provided as 

Attachment 1. A list of the recipients of this memorandum is provided as 

Attachment 2. 

We appreciate the courtesies and cooperation provided to our staff during the 

audit. If you have any questions, you may contact me at (202) 927-0384 or 

Theresa Cameron, Audit Manager, at (202) 927-1011. 

Attachments 
OIG-11-063 

Attachment 1 

Management Response 
OIG-11-063 

Attachment 2 

Distribution 

Department of the Treasury 

Deputy Secretary 

Office of Strategic Planning and Evaluations 

Office of Accounting and Internal Control 

Office of the Comptroller of the Currency 

Acting Comptroller of the Currency 

Liaison Officer 

Office of Management and Budget 

OIG Budget Examiner