Misery list lengthens; relevance is disputed

The list of Georgia banks with a high misery index known as the “Texas ratio” got much longer in the fourth quarter due to mounting problem loans and other challenges.

By the end of the year, Georgia had 42 banks with Texas ratios over 100, a measure that some industry analysts say indicates which financial institutions face a higher risk of insolvency. The list totaled 30 institutions at the end of September.

But subsequent bank failures later shortened both lists. Four Georgia banks failed after the third quarter ended, bringing the state’s total failures last year to five.

One financial institution, FirstBank Financial Services in McDonough, has failed this year, since the state’s banks reported their fourth-quarter financial results.

Atlanta bank consulting firm FIG Partners produced the updated list based on the fourth-quarter numbers.

A banking industry analyst developed the Texas ratio during the savings and loan crisis in the 1980s as a way to pick out financial institutions with the biggest potential problems. It compares a bank’s total problem loans, foreclosed properties and other troubled assets with its total cash reserves and other funds that are available to absorb potential losses.

The theory is that if a financial institution’s problem loans are 100 percent or more of its cash and other reserves, there’s a higher chance the bank will become insolvent.

However, bankers and other people in the industry argue that the Texas ratio gives an incomplete measure of a bank’s health, partly because it doesn’t reflect bank managers’ options to cut costs, raise new capital and sell foreclosed properties and other assets to increase reserves.

David Stovall, chief executive of Clarkesville-based Habersham Bank, said he has been able to raise capital and sell foreclosed assets, unlike many institutions that failed during the savings and loan crisis.

When the Texas ratio was developed, “the underlying collateral was oil equipment rusting in fields,” said Stovall, whose bank’s Texas ratio has exceeded 100 percent in recent quarters.

For Habersham Bank, “the underlying collateral is homes. … We are in fact selling at no further loss,” Stovall said.

He said Habersham Bank also raised $3 million in additional capital from one of its previous shareholders in the fourth quarter, but it also reclassified more delinquent loans as problem assets, causing its Texas ratio to go up.

“If you take an isolated number like the Texas ratio by itself, it’s not the whole picture,” said Bryan F. Bell, a veteran bank executive from C&S Bank and Regions who retired in 2005. However, Bell, who occasionally works as a turnaround consultant, added that he uses the list to look for prospective clients.

Last week, he was named interim chief executive of Neighborhood Community Bank in Newnan, which had a Texas ratio of 218 percent, shortly after the previous CEO resigned.

Problems growing for Georgia banks

More Georgia banks have landed on a list of troubled institutions as measured by the “Texas ratio.” The formula, used with some modifications by Atlanta-based FIG Partners, tries to gauge risk levels at banks. The higher the number, the bigger the potential problems. Bankers want to avoid a score higher than 100, which indicates that a bank’s problem loans exceed the capital it has to absorb losses.

Bank……………………….Location……4Q……3Q

FirstBank Financial Services* ..McDonough ….393%….276%

Omni National Bank…………..Atlanta ……379%….219%

First Piedmont Bank …………Winder……..373%….189%

First Security National Bank….Norcross……340%….273%

Security Bank of

..Gwinnett County…………..Suwanee ……335%….228%

FirstCity Bank………………Stockbridge ..315%….281%

Southern Community Bank ……..Fayetteville..311%….209%

Freedom Bank of Georgia ……..Commerce……241%….175%

Security Bank of North Metro….Woodstock ….236%….181%

Chestatee State Bank…………Dawsonville ..231%….118%

McIntosh Commercial Bank……..Carrollton….229%….139%

Neighborhood Community Bank ….Newnan……..218%….186%

American Southern Bank……….Roswell ……176%….137%

Gordon Bank ………………..Gordon……..175%….149%

United Security Bank…………Sparta……..172%….118%

Habersham Bank………………Clarkesville..167%….115%

First National Bank of Georgia..Carrollton….166%….125%

Buckhead Community Bank ……..Atlanta ……165% ….91%

Peoples Bank………………..Lithonia……162%….124%

First State Bank…………….Stockbridge ..156% ….91%

Georgia Heritage Bank ……….Dallas……..156% ….47%

First Cherokee State Bank ……Woodstock ….153%….122%

First Coweta Bank …………..Newnan……..150% ….80%

First Commerce Community Bank ..Douglasville..143% ….94%

Century Security Bank ……….Duluth……..131% ….61%

Community Capital Bank……….Jonesboro ….131%….112%

First National Bank of Griffin..Griffin ……126%….122%

Tattnall Bank ………………Reidsville….125%….102%

Security Bank of Bibb County….Macon ……..123% ….77%

Farmers & Merchants Bank……..Lakeland……121%….103%

Douglas County Bank …………Douglasville..121% ….95%

Bank of Soperton…………….Soperton……120% ….93%

Community Bank & Trust

..—- West Georgia …………Villa Rica….118%….116%

McIntosh State Bank …………Jackson ……117%….101%

Legacy State Bank …………..Loganville….115% ….59%

Bank of Hiawassee …………..Hiawassee ….114% ….74%

First Covenant Bank …………Norcross……108%….111%

Unity National Bank …………Cartersville..108% ….93%

Oconee State Bank …………..Watkinsville..105% ….59%

North Georgia Bank…………..Watkinsville..104% ….43%

Bank of Lenox ………………Lenox ……..102% ….99%

Northwest Bank & Trust……….Acworth ……102% ….61%

*Failed Feb. 6

Source: FIG Partners