The number of troubled banks in Georgia jumped by more than 20 percent to 78 in the first quarter of this year, showing that the industry’s crisis isn’t ending yet.
But the end could be closer.
Mounting loan problems landed 22 new banks on a list of banks with high “Texas ratios” — an unofficial measure of the chance that financial troubles could sink individual banks.
Georgia’s first-quarter tally of problem banks amounts to more than a fourth of those in the state, and is up from 64 at the end of 2009. Eight Georgia banks disappeared from the list after failing this year, bringing the state’s total of failures to 38 since the end of 2007. Nationwide, more than 250 banks have failed in the same period.
The trends show that Georgia’s banks continue to struggle with losses on soured loans to real estate developers, home builders and other borrowers nearly three years after the real estate boom in metro Atlanta and North Georgia’s mountains went bust.
However, there are other signs that Georgia’s banking industry could be closer to stabilizing. Experts differ on the industry’s outlook.
On one hand, the pace of bank failures in Georgia has slowed this year, and the state’s nearly 300 banks reported much smaller losses in the first quarter than a year earlier. Illinois and Florida each have accounted for a bigger share of the 80-plus banks that have failed this year.
On the other hand, Georgia continues to lead the nation in terms of total banks with high Texas ratios, possibly pointing to more problems ahead. Likewise, Georgia still has the nation’s highest total of bank failures over the past 2 1/2 years.
Differing views
To banker and former banking regulator Pat Frawley, it looks like the worst is over for Georgia’s banks.
“It’s like run-off from the storm,” said Frawley, chief executive of Community & Southern Bank in Carrollton. Much like rising flood waters after a storm has passed, banks are still booking rising losses as they deal with long-known problems, but they aren’t uncovering new problem loans, he said.
“I don’t think that the industry is any worse off than it was a year ago, frankly,” said Frawley, whose firm has bought two closed Georgia banks this year.
But Atlanta banking consultant Chris Marinac believes it’s much too early to say Georgia’s banking industry is nearing a recovery.
Marinac, with FIG Partners, the firm that compiles the Texas ratio list, said many banks are continuing to report mounting losses because they’re finally taking long-delayed mark-downs on bad loans — actions they couldn’t afford to take earlier. He believes the current lull in bank failures in Georgia is temporary.
“There is more work that is necessary,” he said. “I frankly think that we’re still going to be doing this until middle or late 2011.”
He predicted the Federal Deposit Insurance Corp. could close another 10 Georgia banks this year, and more at a faster pace next year, before things get better.
The FDIC said its confidential list of “problem” banks grew to 775 nationwide in the first quarter, from 702 at the end of 2009.
Some optimistic signs
According to an analysis by FIG Partners, Georgia now accounts for about a fifth of the nation’s 331 banks with over $100 million in assets that have high Texas ratios, more than any other state.
The Texas ratio became widely used by bankers and analysts during the 1980s savings and loan crisis centered in that state. The ratio compares a bank’s total bad loans and foreclosed properties to the total amount of cash and other capital it has set aside to absorb losses.
The more a bank’s Texas ratio exceeds 100 percent, the more problems it faces that could eventually push it into insolvency. A ratio over 100 percent doesn’t mean a bank will fail, experts say. A bank’s access to cash and other sources of so-called “liquidity” — perhaps from selling assets or wooing new investors — is also an important factor that gives some institutions more breathing room.
Marinac said many banks with high Texas ratios now have “decent” liquidity, unlike some institutions that failed early in the crisis after customers rushed to withdraw funds.
Optimists point to other signs that the banking industry could be on the mend, or at least stabilizing.
The industry as a whole recently reported its best quarter in two years. A majority of the nation’s banks posted gains in income in the first three months of this year, according to the FDIC. Georgia’s banks lost $350 million during the first quarter, though that was a big improvement over a $1.2 billion loss during the same months in 2009.
Also, some struggling banks have been able to raise additional capital to ride out the tough times.
‘Materially different’
For instance, Alpharetta-based Bank of North Georgia’s Texas ratio hit 100 percent in the first quarter.
However, its stay on the problem list should be short-lived, said Marinac, because the bank’s parent company, Columbus-based Synovus Financial, raised $1.1 billion in May by issuing new stock and debt, and consolidated most of its 30 bank charters into one.
The moves by Synovus, Georgia’s second-largest bank, leave Bank of North Georgia in a “materially different position,” said Marinac.
Likewise, Peoples Community National Bank in Bremen had a Texas ratio of 123 percent at the end of 2009. But the tiny bank, which has about $80 million in assets, recently became one of the few Georgia banks to make it off the Texas ratio list without failing. It raised $12 million in stock offerings late last year and in the first quarter.
“We’ve got commitments for a good bit more capital” from individual investors and wealthy families in New York, Chicago and Florida, said Larry Mathews, who was named the bank’s new president and chief executive in January.
Mathews, who said he has been involved in several bank turnarounds over the past 26 years, hopes to tap additional capital to buy up enough banks in Georgia, Alabama and Florida — mostly from institutions closed by the FDIC — to build a regional bank with $3 billion in assets over the next three or four years.
“As you can imagine, it’s a pretty target-rich environment now,” he said.
First things first
But first, Mathews said, Peoples Community has to repair the damage that it suffered in the past few years, and meet the requirements of an enforcement order by the federal Office of the Comptroller of the Currency.
After getting the order last September, the bank boosted capital and hired new management, but it still needs to deal with problem loans and foreclosed properties on its books, said Mathews.
Meanwhile, the federal regulator’s order blocks the bank from making acquisitions.
But Mathews figures he’s got time.
“I haven’t seen an environment like this before,” he said, where many of his neighboring banks have failed. “I think there are going to be plenty of opportunities.”
Banks’ problem list grows
The tally of Georgia banks with financial strains grew more than 20 percent in the first quarter, to 78, based on an informal index called the “Texas ratio.” A ratio of 100 percent or more means the bank has more problem assets such as bad loans and foreclosures on its books than the total cash and other capital it has available to absorb losses.
1. Bank of Ellijay, Ellijay
2. First Commerce Community Bank, Douglasville
3. Habersham Bank, Clarkesville
4. First National Bank, Savannah
5. Crescent Bank & Trust Company, Jasper
6. North Georgia Bank, Watkinsville
7. Security Exchange Bank, Marietta
8. Chestatee State Bank, Dawsonville
9. First State Bank, Stockbridge
10. Montgomery Bank & Trust, Ailey
11. American Trust Bank, Roswell
12. High Trust Bank, Stockbridge
13. Gordon Bank, Gordon
14. Douglas County Bank, Douglasville
15. McIntosh State Bank, Jackson
16. Mountain Heritage Bank, Clayton
17. Northwest Bank & Trust, Acworth
18. Enterprise Banking Company, McDonough
19. Gwinnett Community Bank, Duluth
20. Providence Bank, Alpharetta
21. Darby Bank & Trust Company, Vidalia
22. Oglethorpe Bank, Brunswick
23. First Cherokee State Bank, Woodstock
24. Park Avenue Bank, Valdosta
25. Sunrise Bank of Atlanta, Atlanta
26. WestSide Bank, Hiram
27. Peoples Bank, Conyers
28. Peoples Bank, Winder
29. Atlantic Southern Bank, Macon
30. Piedmont Community Bank, Gray
31. Hometown Community Bank, Braselton
32. Northside Bank, Adairsville
33. Farmers & Merchants Bank, Lakeland
34. Peoples Bank & Trust, Buford
35. United Americas Bank, National Association, Atlanta
36. Citizens Bank of Effingham, Springfield
37. First Citizens Bank of Georgia, Dawsonville
38. CreekSide Bank, Woodstock
39. Community Bank & Trust - West Georgia, LaGrange
40. Community Bank of Rockmart, Rockmart
41. Piedmont Bank, Lawrenceville
42. New Horizons Bank, East Ellijay
43. Georgia Heritage Bank, Dallas
44. Patriot Bank of Georgia, Cumming
45. Capitol City Bank & Trust Co., Atlanta
46. Heritage Bank, Jonesboro
47. PlantersFirst, Cordele
48. Bartow County Bank, Cartersville
49. Community Capital Bank, Jonesboro
50. Decatur First Bank, Decatur
51. Citizens State Bank, Kingsland
52. Community & Southern Bank, Carrollton
53. Bank of Georgia, Peachtree City
54. First National Bank of Barnesville, Barnesville
55. Georgia Trust Bank, Buford
56. Community Bank of the South, Smyrna
57. Central Bank of Georgia, Ellaville
58. Legacy State Bank, Loganville
59. Covenant Bank & Trust, Rock Spring
60. First Georgia Banking Company, Franklin
61. Eastside Commercial Bank, Conyers
62. Tifton Banking Company, Tifton
63. Bank of Newington, Newington
64. One Georgia Bank, Atlanta
65. Farmers Bank, Forsyth
66. Bank of Wrightsville, Wrightsville
67. First National Bank of Chatsworth, Chatsworth
68. Talbot State Bank, Fayetteville
69. Highland Commercial Bank, Marietta
70. First National Bank of Griffin, Griffin
71. Jasper Banking Co., Jasper
72. Frontier Bank, LaGrange
73. First Choice Community Bank, Dallas
74. Global Commerce Bank, Doraville
75. Northwest Georgia Bank, Ringgold
76. First State Bank, Wrens
77. Peach State Bank & Trust, Gainesville
78. Bank of North Georgia, Alpharetta
Source: FIG Partners
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How we got the story
With banking experts’ help, The Atlanta Journal-Constitution has been tracking the condition of Georgia’s roughly 300 banks for about two years through periodic rankings of the institutions by the so-called “Texas ratio.”
A ratio above 100 percent means a bank’s problem loans and foreclosed properties exceed its cash and other funds available to absorb losses. Higher ratios indicate greater financial strains on the bank. However, experts caution that a ratio over 100 percent does not mean that a bank will fail, and that some banks can sell assets or issue stock to boost capital.
This story and the accompanying chart are based on calculations by Atlanta bank consulting firm FIG Partners. Its Web site is www.figpartners.com.
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