Bank woes mount

About 1 in 6 in the state have major problems

The rising stock market and improving home sales may be sending out glimmers of hope that the economy could be on the mend. But none of those golden rays seem to be reaching Georgia’s dismal bankers.

Mounting losses on problem loans and other investments in the second quarter pushed more of Georgia’s financial institutions onto a troubled-bank list as fast as other banks failed and fell off.

At the end of June, Georgia had at least 49 banks with high scores on the so-called Texas ratio, a cautionary measure aimed at gauging the risk that an institution could fail. That’s about one in six of the state’s 300-plus banks. A 50th bank that had been on the list in the first quarter hadn’t reported financial data by late last week.

When a bank’s Texas ratio tops 100 percent, that means its problem loans and foreclosed properties exceed its cash and other capital available to absorb losses. The measure was developed during the savings-and-loan crisis in the 1980s and 1990s, when hundreds of institutions in Texas and other states failed.

Georgia had 49 banks with ratios over 100 percent at the end of the first quarter of the year, in March. Since then, a dozen Georgia banks have failed (including three not on the list), boosting the state’s total bank closures this year to 16 — the highest total in the nation. Federal regulators have seized 69 U.S. banks so far this year nationwide, compared to 25 last year.

The second-quarter Texas ratio list didn’t shrink because 10 additional Georgia banks’ ratios went above 100 percent in the second quarter, according to Atlanta bank consulting firm FIG Partners, which calculates the ratios. Among those is Atlanta’s second-largest locally-based bank, Georgian Bank, with $2.2 billion in assets -- now the largest institution on the list.

“Probably the reason we saw those names move up is not because of new problems,” said Brett Villaume, a research analyst at FIG Partners, but because the banks are using funds to set aside reserves for troubled loans and other issues. “They’re dealing with their problems,” he said.

Other signs of trouble

Most of the institutions with high Texas ratios are small community banks. Those banks’ finances were ravaged after they concentrated much of their lending to metro Atlanta home builders and real estate developers during the recent housing market boom, only to see many of those developers go belly-up when the market crashed.

“We’re in the clean-up process,” said Doug Higgins, chief executive at American Trust Bank, newly on the list. He said the Roswell bank’s problem ratio jumped after more builders fell behind on loans in May, but it “looks like it’s stabilizing.”

While some bankers and industry experts criticize the Texas ratio as too simplistic a formula to determine which banks are struggling and which are not, there were plenty of other indicators that many banks in Georgia and elsewhere still have an uphill battle.

For instance, federal regulators have filed “cease and desist” orders and other regulatory actions against dozens of Georgia’s institutions, requiring them to raise capital, hire better managers and make other improvements. Although some banks make the required improvements and move on, the orders can be a step toward regulators shutting down a bank if it is unable to raise sufficient capital or stem its losses.

Likewise, the Federal Deposit Insurance Corp., which insures bank customers’ accounts up to $250,000, said its nationwide list of problem banks rose to 305 in the first quarter, its highest total since 1994 during fallout from the savings and loan crisis.

Because of federal guarantees, most depositors are largely unaffected when the regulators shut a bank, which typically occurs late on a Friday. The FDIC usually has already found a new owner to reopen the institution over the weekend.

But there is fallout: The bank’s previous shareholders lose their investment; customers may have to find a new lender; and the FDIC’s insurance fund, backed by premiums paid by other banks, takes another hit. The FDIC expects those failures to cost about $70 billion through 2013.

‘A very bad quarter’

Georgia’s banks are continuing to struggle under pressure from a weak economy, sinking property values and tighter restrictions from federal and state regulators, said Atlanta attorney Walt Moeling.

“The second quarter was a very bad quarter,” said Moeling, who represents the Georgia Bankers Association. “Some of the strongest players ... are struggling to keep their loans current.”

He said some banks reported worse financial results after throwing in the towel on big borrowers they had hoped would be able to recover. With the nation still mired in the longest recession since the Great Depression, more banks had to move tens of millions of dollars worth of loans to “nonaccrual” status and book additional bad-loan reserves, boosting their second-quarter losses.

Moeling said some banks’ bottom lines were also hurt during the second quarter because they had to write down other assets such as investments in other banks’ debt securities. Because of the continuing slide in real estate values, some banks have also had to write down troubled loans or foreclosed properties for a second time based on more recent appraisals, booking additional losses, he said.

“I think the second quarter made believers out of anybody who thought this [crisis] was temporary,” said Moeling.

New to the list

Such trends are reflected in the challenges that landed Atlanta’s Georgian Bank on the Texas ratio list for the first time.

The bank’s ratio jumped from 55 percent in the first quarter to 198 percent three months later, indicating that its problem loans and foreclosed assets suddenly swelled to nearly twice as large as its cash and other capital reserves.

Georgian Bank lost $45 million in the first half of the year — mostly in the second quarter — after boosting its loan loss reserves by $30 million. During the second quarter, the bank’s nonaccrual loans (loans on which it no longer expects to be fully repaid), jumped from about 1 percent of its portfolio to almost 17 percent, or about $300 million.

Last month, the bank’s founder, Gordon Teel, stepped down from his chairman and chief executive roles, and is continuing in an unspecified consulting role, according to the bank. Georgian Bank also has been trying to raise $25 million in additional capital from investors.

“The condition of the bank has clearly worsened,” said Georgian Bank’s new CEO, John Poelker, who was hired after working for several months as a consultant to the bank. Poelker said his marching orders were to be “focused more intently” on addressing the bank’s problems, partly because those challenges have worsened in recent months.

“I think what we’re seeing today isn’t a second wave [of problems for banks],” said Poelker. “I think this wave has lasted longer than a lot of people anticipated.”

How we got the story

With banking experts’ help, the Atlanta Journal-Constitution has been tracking the condition of Georgia’s 300-plus banks for more than a year through periodic rankings of the institutions by the so-called “Texas ratio.”

The measure compares banks’ problem loans and foreclosed properties to their funds available to absorb losses.

This story, the sixth such ranking, is based on calculations by Atlanta bank consulting firm FIG Partners. Its Web site is