It seems as if banks in Georgia just cant seem to stay solvent. This may be turning into a real problem for residents of that state, as many of them could soon have far fewer banking options. Nearly one out of five Georgian banks made the list of troubled institutions, or banks that had a high Texas Ratio. This ratio is a measure used to see how bad a bank’s credit troubles are, and is found by dividing the bank’s troubled or non-performing assets by the sum of its loan loss reserves, plus common equity. A ratio of 1:1 (or 100 percent) would indicate that the bank has more bad loans than capital to handle it. Though it is not an exact science, it does give a good idea of how many bad loans a bank is carrying, and many in the industry use this measure.
The Case of Georgia
You might wonder why Georgia has so many banks that are in trouble, or you might even wonder why the state has so many banks in the first place. Well, in 1996 a law was put in place that prevented local Georgia banking monopolies. It was difficult for a lender based in one of the state’s 159 counties to open a branch in another and, as a result, Georgia currently has 309 unique banks (even after the recent failures). Right now there are 57 banks in Georgia that have a very high Texas Ratio (greater than 100 percent), which is up from 49 in the second quarter of this year. After Georgia, Florida has the next highest count of banks with high Texas Ratios with 43 and Illinois comes in third with 29 banks on that list.
Let’s Do The Math
Leading the list of Georgia banks in the third quarter would be Commercial Bank, a small Atlanta-based lender, with a Texas ratio of 1,144 percent. This means that their bad loans amount to more than 11 times the amount of equity and reserves that they have to support it. This figure has actually increased 10 times since the second quarter so either they’re either still making bad loans or their capital is shrinking. If you look at the biggest banks in the country you would see how disastrous that figure is. For instance we have Citigroup registering a Texas Ratio of 28.9 percent and JP Morgan (Chase) with a ratio of 7.59 percent. Let’s not forget that they had a bit of help from the government so that does not reflect a completely accurate figure.
Some Troubled Georgian Banks
Now let’s look at a few of the banks that could potentially make Georgia a continued leader on the FDIC’s failed bank list. Some of the banks with the highest Texas Ratios are as follows:
- First Security National Bank Norcross – 868%
- Buckhead Community Bank Atlanta – 711%
- McIntosh Commercial Bank Carrollton – 592%
- First National Bank of Georgia Carrollton – 480%
- Century Security Bank Duluth – 474%
- United Security Bank Sparta – 440%
- Appalachian Community Bank Ellijay – 398%
- Tattnall Bank Reidsville – 397%
- Community Bank & Trust Cornelia – 383%
As we can see, Georgia definitely could have more problems to come. Only time will tell if they can ride it out or if the state may soon encounter a situation that can see them overtake Florida and California in the headlines.
