Even though 2009 has been a bad year for Georgia banks to date–with six bank failures since the start of the year–the rest of 2009 could be even worse. According to a research analyst at FIG Partners, an Atlanta based consulting firm, there are at least 49 Georgia banks that are at risk of failing. FIG generated a list of distressed banks using a index known as the “Texas Ratio,” which measures a banks total problem loans and foreclosed properties (so-called “non-performing assets”) compared to its cash or other liquid capital available to absorb potential losses. When the Texas Ratio equals 100% or more that means its non-performing loans or the value of its non-performing loans exceeds its cash equivalence. According to the Atlanta Journal & Constitution, there were 42 Georgia banks with a Texas Ratio of 100 or more at the end of 2008.
Of the six Georgia banks that have failed since January 1, four of them were among the 10 banks with the highest Texas Ratios at the end of 2008, according to Journal & Constitution. Banks are beginning to report higher percentages of loans that have been non-performing for only a month or two, suggesting that problems could mount as the loans become more delinquent.
Others in the banking community are optimistic that the small banks will survive. For example, as quoted in the Journal & Constitution, Rick Hayden, President and CEO of Community Bank of West Georgia in Villa Rica, believes that his bank is at the bottom of its problems. He is optimistic that the bank will survive. More generally, David Oliver, a spokesman for the Georgia Bankers Association, contends that the Texas Ratio is an incomplete measure. Some banks that have high Texas Ratios are nevertheless able to address challenging situations and raise more capital.
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