Several Georgia banks dominate a recent ranking of the nation's riskiest financial institutions based on a measure known as the "Texas ratio," which attempts to gauge how likely they will run into deep financial trouble.

A number of them have recently made moves aimed at sidestepping potential failures, such as raising capital or selling assets to shore up cash reserves, according to company filings and interviews with executives.

Such moves could buy time for banks that are struggling to recover from big bets on homebuilders and real estate developers that went sour. After years of bankrolling the once-booming metro Atlanta real estate market, Georgia's banks have the highest proportion of developer loans in the nation.

But while some of those bankers said they're optimistic that the Atlanta economy will eventually rebound and ease the strains on the region's banks, they see more tough days ahead.

"The Texas ratio, yes, it's definitely an indicator, and yes, we're going to have challenges, but we're confident we're going to work through it," said W. David Everitt Jr., chairman of FirstCity Bank in Stockbridge. "It's definitely not 'The sky is falling.' "

The 103-year-old bank, which has about $250 million in assets, was among 25 banks nationwide that had high Texas ratios in a list published last month by research firm SNL Securities. Nine Georgia banks, mostly small, dominated the list.

A securities analyst developed the Texas ratio to predict bank and thrift failures during the savings and loan crisis that centered on that state two decades ago. The ratio compares a financial institution's total problem loans and related assets to its capital and reserves set aside for loan losses. A ratio above 100 percent implies that potential losses could wipe out a bank's capital and cash reserves and cause it to fail. SNL based its computations on banks' regulatory filings from March 31, the latest available.

With Friday's failure of IndyMac Bancorp, four of the five financial institutions that have failed this year nationwide had Texas ratios above 100 percent, according to SNL. IndyMac, a Pasadena, Calif.-based mortgage lender, is the nation's second-largest bank failure, according to American Banker newspaper.

Industry veterans predict that several metro Atlanta banks may fail or be pushed into mergers with stronger banks, but stop short of saying the Texas ratio is foolproof.

"Just the raw numbers do not reflect the people behind the numbers and their ability to access local capital and other resources that would not be reflected in the numbers themselves," said Joe Brannen, president of the Georgia Bankers Association.

Even when a bank does fail, most depositors shouldn't be affected. The Federal Deposit Insurance Corp. insures checking and savings accounts up to $100,000 and certain retirement accounts up to $250,000; families with multiple accounts can be insured to higher limits in some cases.

Alpharetta bank at top of the list

The ratio is "a little misleading," said Patrick Frawley, president and chief executive of Integrity Bank.

The nearly 8-year-old Alpharetta bank landed at the top of SNL's list, with a Texas ratio of almost 372 percent. Its strategy of funding construction in Atlanta's booming northern suburbs fizzled, loading the bank with about $270 million in non-performing loans and other assets. The bank is one of the largest on SNL's list, with $1.2 billion in assets.

Frawley is a former bank regulator turned fix-it guy for banks who was hired last September to help turn Integrity Bank around. Because of certain regulatory limits, only a portion of the bank's loan loss reserves are counted in the Texas ratio, he said. He said the ratio also doesn't reflect the fact that most of the bank's loans are secured with real estate collateral.

Meanwhile, Frawley said borrowers have paid about $90 million since January. He said the bank has overhauled much of its management and lending staff, and the bank has been working closely with regulators at the FDIC and Georgia Department of Banking and Finance to improve its operations.

"We've got a very good working relationship with the regulators," said Frawley. But he also acknowledged that the bank, whose stock has dropped 95 percent in the past year, hasn't been able to raise new capital, hobbling its recovery efforts. "We are hopeful that we will eventually find an acceptable solution," he said. "Right now we are considered adequately capitalized [with core capital of over 4 percent of assets]."

The FDIC and Georgia banking regulators won't discuss dealings with specific banks. However, officials at both agencies say they factor their confidence in a bank's management team into their decisions regarding enforcement or other supervisory actions.

Ratio called 'highly misleading'

The Texas ratio is "highly misleading," said Stephen Klein, chairman and chief executive of Omni Financial Services, another Georgia institution on SNL's list. It is the parent company of Atlanta-based Omni National Bank, with roughly $1 billion in assets.

"The [savings and loan] crisis occurred at a time when laws didn't exist that exist today," said Klein. Prompted by hundreds of bank failures in that earlier period, he said Congress overhauled banking oversight laws, requiring regulators to categorize banks by how well they are capitalized, and to step in with a so-called "prompt corrective action" letter if a bank's capital levels fall too low. "I know of no bank in Georgia that has been issued a PCA letter," he said.

He declined to comment on what actions Omni Financial has taken to deal with its non-performing assets and loans that are at least 90 days past due. Those totaled $139 million at the end of the first quarter, according to SNL Securities.

Omni Financial said in a recent Securities and Exchange Commission filing that Nasdaq expects to delist its shares by the end of the year if it doesn't meet the stock exchange's minimum stock price, $1 a share. The bank's shares have dropped 92 percent in the last year, to about 79 cents a share in recent trading.

Looking to shareholders for help

Meanwhile, some of the banks with high Texas ratios have turned to their local shareholders for help.

Everitt, with FirstCity Bank in Stockbridge, recently raised $3.6 million in capital by tapping current shareholders, including himself. First Georgia Community Bank in Jackson, which is also on SNL's list, said in a June 30 filing with the SEC that it had raised $3 million in new capital from some of its directors, and planned a similar offering to its other shareholders.

Everitt said FirstCity Bank has also reduced its total non-performing assets by about $3 million. The Henry County bank hires contractors to complete construction of unfinished houses after foreclosures, then sells them, he said. "We've been able to sell every house when we finished it," he said.

Dan Baker, president of First Security National Bank, another bank on SNL's list, said it has been tackling its problems with similar tactics. After a contractor completes construction of foreclosed homes, he said the Norcross-based bank sometimes sells them at lower prices than the developers who borrowed the money were willing to go, but still covers the borrowers' past-due interest and loan balances. He said the bank sold $1.5 million worth of houses last month, and has $1 million under contract this month.

"It's not fun. Sometimes it seems like you're in the real estate business," he said.

But through such measures, he said the 23-year-old bank, which has $150 million in assets, hasn't needed to raise new capital or to cut its work force of 40 employees. "We don't have a capital problem," he said, adding that the bank's core capital is 13.5 percent of assets, well above regulatory minimums.

Still, it will take some time for the bank to work its way through its problem loans, he said. Disposing of foreclosed properties is a slow process, and more borrowers who got extensions from the bank are likely to go into foreclosure.

"It's going to take a while before it shakes out," he said.

TEXAS-SIZE TROUBLE

Several Georgia banks rank high in terms of the so-called "Texas ratio," a risk measure from the days of the savings and loan debacle that sank hundreds of financial institutions in that state in the 1980s. The ratio measures problem loans compared to the banks' equity capital and reserves for loan losses.

* As of the end of March

**Formerly Neighborhood Community Bank

Source: SNL Financial, Federal Deposit Insurance Corp.