By  Tue Mar 20, 2012

5 Banks Likely to Fail This Year

The FDIC has slowed down with its post-2008 onslaught of bank failures, but it hasn’t stopped entirely. Because the number of banks in financial trouble is still significant. While the Federal Reserve has stress tests it can administer to systemically important banks like Citi and Bank of America, most banks’ health is gauged by more old school means: the Texas Ratio.

(Update: All five banks on this list have failed in 2012. Check out our story on the five banks likely to fail in 2013.)

The Texas Ratio is a way of measuring a bank’s health by comparing their non-performing assets to their equity. The ratio is found by finding the sum of the value of delinquent loans and real estate owned and dividing it by the sum of tangible common equity and loan loss reserves.

In essence, the Texas Ratio seeks to find out whether a bank has enough liquidity to cover the bad loans on their books. It’s a good predictor of bank failures, especially post-2008, when community banks are being sunk by their over-concentration in real estate lending.

The rule of thumb with the Texas Ratio is that banks over 1:1, or 100%, are very likely to fail.

The last three bank failures had astronomical Texas Ratios. New City Bank had a Texas Ratio of 390%, Global Commerce Bank’s was 575%, Central Bank of Georgia’s was 320%, SCB Bank’s was 515%, and Charter National Bank and Trust’s was 660%. All of these numbers come from Amateur Investor’s list of banks by Texas Ratio. Having an astronomical Texas Ratio is a good predictor of failure. Of the top five, four have closed this year.

Which banks are up next?

With the caveats that a poor Texas Ratio does not necessarily guarantee a bank will be shuttered, and more importantly that customer deposits will be insured by the FDIC up to $250,000 in the event of a failure — so don’t panic! — here’s a list of the five least healthy banks that are still doing business. A fair warning to their employees and customers — that might not be the case soon. As we learned, the FDIC knows a bank will fail long before they actually shut it down and begins secretly looking for asset buyers in the meantime. The grave might already be dug for these banks:

Security Exchange Bank (Marietta, Ga.): Georgia has lost so many banks in the last few years, it should hardly come as a surprise that a Peach State bank tops the list. Security Exchange Bank currently boasts a staggering Texas Ratio of 1,227%. This two-branch bank in Cobb County looks likely to go the way of so many other Georgia banks. Update: Security Exchange Bank was shuttered by state regulators on June 15, 2012. Fidelity Bank, of Atlanta, has agreed to assume all the deposits.

Montgomery Bank & Trust (Ailey, Ga.): Surprise! Georgia tops the list, once again. This rural one-branch bank has a Texas Ratio of 868%. Brutal. Update: Montgomery Bank & Trust was closed by state regulators on July 7, 2012. Ameris Bank agreed to assume all its deposits.

Palm Desert National Trust (Palm Desert, Ca.): This small Inland Empire bank has a Texas Ratio of 629%. Inland California has suffered badly during the mortgage crisis, especially cities like Stockton and Fresno. Palm Desert is much further south, though it’s not a surprise to see an obscenely high Texas Ratio here. Update: Palm Desert National Trust was shuttered by the OCC on Friday April 27, 2012. Pacific Premier Bank agreed to assume its deposits and purchase its assets.

Jasper Banking Company (Jasper, Ga.): Still in Georgia! Jasper Banking Company of the small town of Jasper, Ga., has a Texas Ratio of 660. Update: Jasper Banking Company was closed by regulators on Friday July 27, 2012. Stearns Bank National Association agreed to assume the bank’s deposits and purchase its assets.

Georgia Trust Bank (Buford, Ga.): And number five brings us back to Georgia, of course, with Georgia Trust Bank, which boasts a Texas Ratio of 544%. Update: Georgia Trust Bank was closed by state regulators on Friday July 20, 2012. Community & Southern Bank agreed to assume the bank’s deposits and purchase some assets.

Now, nothing is certain, and you have nothing to fear so long as you keep less than $250,000 with these banks. If for some insane reason your deposits are over $250,000 with one of these institutions — or any institution for that matter! — you should diversify. Otherwise, check back for our bank failure articles, and see if the Texas Ratio is as good a predictor of insolvency as we — and basically everyone else — thinks it is. Considering we’ve had to update this list five times so far this year, it seems the Texas Ratio is a good indicator of potential failure. That said, 32 banks have failed so far in 2012, so it’s certainly not the only predictor.

Don’t see your bank here?

Doesn’t mean it’s necessarily in good health, financially or otherwise. Go check out your bank’s MyBankTracker Report Card here, where you can learn about its fiscal health, customer reviews, fees and locations all in one spot.

Click here for the full list of bank failures in 2012.

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Add Your 2 Cents

  • Moomoo

    We all be s(rewed n e way…………

  • http://buyherepayherescams.com/buy-here-pay-here-car-lots buy here pay here car lots

    I am not a fan of douglas county bank. They run a very shady operation.

  • http://mybanktracker.com Willy Staley

    I just checked these banks’ Texas ratios, and they’re both in great financial health. If only the banks we felt ought to succeed were the successful ones!

  • Terekr

    Well this is the time for all CEO”s to aid their banks, isn’t that where all the money goes to?

  • Jimlinwoo

    I hope all of the C E O’S of these banks get a hefty raise befor they close the door,after all I am sure they  all worked hard to deserve the money..

  • http://twitter.com/amplifyval Valerie MacLean

    Join a credit union NOW!

    • Csuftitan

       Credit Unions can fail too.

    • Eric Jackson

      I see this advice all the time, yet the credit unions I’ve dealt with directly and indirectly have had account fees, terrible websites, and less-than-stellar customer service. Definitely check them out, but don’t expect everything to be instantly better, either!

  • http://www.facebook.com/people/John-Gray/100001899966114 John Gray

    Somebody actually expected a bank in Newt Gringrich’s town (Marietta ,GA.) to be shut down because it is under-capitalized and likely to fail?Quit snorting coke! There is no way that Newtie is going to let a bank in his town go bust,expect it to be sold at a very low price to a bigger bank (and at very high cost to taxpayers,because to buy this pos bank the government will throw in sweeteners for the deal for the buyer).

    • widollar

      Yes Dr. Strangelove would never let that happen on his watch!

    • csuftitan

       Very few banks are actually closed and not longer exist in some form.  Whenever a bank is closed, the FDIC is appointed as a receiver.  The FDIC then sells the bank to another bank, through a bidding process.  The FDIC uses a least costly approach to the sale/bidding process, so as to limit the cost to the Deposit Insurance Fund.

      Newt Gingrich has absolutely nothing to do with the process and couldn’t prevent, aside from injecting capital into the bank.

  • Chwangtwie

    I would definately bank with a federal government insured bank. A lot of people may chastize the federal government but industries can be a lot worse than the government.

    • csuftitan

       All banks are insured by the FDIC, otherwise they can’t get a charter, and thus would not be able to function as a bank.

      Same thing with all Credit Unions, except they are insured by NCUA (National Credit Union Administration).

  • gbhi

    I’m no fan of banks, but in this case, Mr. Staley’s conjectures are highly inappropriate and potentially injurious to those financial institutions he mentions, their employees, and stockholders.

    However precarious their situations might or might not be, these banks deserve the right to work toward correcting their problems without outside opinions of rogue columnists. The Texas Ratio is just a yardstick.

    If, ultimately these banks can’t resolve their problems, then it’s the FDIC’s responsibility to step forward, not Mr. Staley’s.

    The FDIC is there to protect the public’s interests. Mr. Staley’s comments might, in fact, hasten a run on these banks, precipitating their collapse, and thereby requiring a public bailout and a loss of stockholder value. A lose-lose-lose proposition.

    However well intentioned Mr. Staley’s comments might be, he needs to be a lot more responsible in his opinions and in what he posts.

    • http://mybanktracker.com Willy Staley

      This is a fair point, but I fail to see what damage my words could inflict on these businesses that they have not already inflicted on themselves. However, the piece has been updated to state clearly that depositors should not fret because they are insured by the FDIC up to $250,000.
      As for anyone keeping more than that amount with one of these establishments — for whatever reason — I think it’s their right to know. Thanks for the comment.

      • Csuftitan

         The damage your word could have is to cause a run on the bank, ala IndyMac.  IndyMac had plenty of problems, but was working through them.  Then Senator Chuck Schumer sent an open letter (meaning everyone could see it) to regulators asking what they were doing about IndyMac.  That open letter caused depositors to go in droves and remove their money causing a liquidity crisis and thus the closure. 

        That being said, we don’t know if IndyMac would have been able to work through their problems or not, but they should have at least had the chance.

        Many banks are working through problems right now.  The size of the problem bank list has been declining for sometime as banks work through their problems and improve their financial health.

  • toop2

    I would never deal with a bank again. I’m all for Credit Unions.

    • Terry

      Absolutely!! Gave up banks in 2011. My local Credit Union is a different world. Wished I’d changed much sooner. The big name banks are Tarkus vestiges of moronic, zombie bureaucracy.

  • http://www.facebook.com/davethelandman Dave Johnson

    Friends don’t let friends bank at the “too big to fail” banks. Local community banks and S&L’s have been much more responsible with your savings. Blame congress for recinding laws that opened the door for all types of banks to gamble with our savinigs. Banks in general make 54% profit….maybe state owned banks are a way to move corportate profits towards balancing our budgets. How about school bands and summer pools for our chidren rather than another executive making millions and paying less tax % than the secretary…. Let’s not forget not a single bankster from the big six have gone to jail for crashing the economies of any country dumb enough to bet on wall streets cdo’s. They are being prosecuted and jailed in other countrries, maybe corporations don’t finance their politicians with unlimited secret super PACs…. If money is speech and corporations are people, then did our soldiers give up their lifes for short term profits?… are there any corporations burried in Arlinton cemetary? Do the 1% have any children in the military? How about congress? What is the 1%’s great sacrifice?

    • http://www.facebook.com/people/Liz-Leyden/100003766056570 Liz Leyden

      Unfortunately, local community banks keep getting bought out by giant banks. It happened to me so many times that I started calling Bank of America “Borg bank.”

  • technopeasantx

    The numerator isnt a ratio your description is unclear and grammatically incorrect..
    You wrote, “The ratio is found by dividing the sum of the value of delinquent loans and and real estate owned and dividing it by the sum of tangible common equity and loan loss reserves.”
    This is correct.
    Texas Ratio = (Non-Performing Loans + Real Estate Owned) / (Tangible Common Equity + Loan Loss Reserves)

  • harr1234

    Close your accounts with Chase, Bank of America, CitiBank and Capital One. Use your local banks and credit unions.

  • readhr2056

    Good luck dealing with the FDIC and the new rescue bank as they proceed to wipe out all borrowers of both PERFORMING and non-performing loans thanks to the FDIC’s widespread use of it’s Loss Share Agreement ( LSA ). The LSA is nothing more than a license to allow the new bank’s owners to make more than 100 cents on the dollar for EVERY loan, not just any loans in default. The acquiring institation ( AI – new bank owners ) together with the FDIC each share on the profits over 100 cents on the dollar, meanign the FDIC is complicit when your local banker proposes terms to renew your loan designed to force you into default, so they can reap financial rewards totaling more than the original face amount of the loan.

    If you know anyone who has suffered at the hands of the FDIC and it’s allies contact the Inspector General’s office of the FDIC immediately and tell them your story. Congress mandated an investigation into LSA’s by the FDIC and the ugly truth needs to be reported.

    And lastly, a few courts have started strking down the gross amounts of money the new bank and the FDIC are stealing from borrowers by “double” and “triple” dipping. Hopefully borrowers who suffer from making the only mistake at banking at a failed bank will start to fight back and win in their local courts also.

    • Csuftitan

      You don’t know what you are talking about.  If you take out a loan for $100,000, you are responsible for paying back the whole of the $100,000 plus interest.  When a bank is closed, you still are responsible for the remaining balance plus interest.  The FDIC is not in the business of being a lender, so it sells the loan portfolio to a purchasing bank for less than the outstanding balance, but that does not mean you don’t owe the outstanding balance. 

      The way the loss share agreement works is this:  say you owe $90,000 on that $100,000 loan, the FDIC sells it to the purchasing bank for say 90 cents on the dollar, so the purchasing bank buys it for $81,000.  You still owe $90,000, so if you pay it back in full, the purchasing bank gets the $9,000 difference and all the interest, but in no way do they don’t make a penny more than what you owe.  However, take the same scenario, say you default on the loan with a balance of $90,000, instead of paying it in full.  The bank would lose $81,000 without the loss share agreement, with the loss share agreement the bank would loss would only be $16,200 and the FDIC would recognize an additional loss of $64,800.  This assumes the loans was unsecured (has no collateral).  If there is collateral, the purchasing bank has rights to the collateral, and that reduces the amount of loss for both the bank and the FDIC.  The FDIC does not gain a penny in either scenario.

      Any bank, whether the originator or the purchaser, has the right to secure their loan.  And, in fact, unless you have a very substantial net worth and a good credit score, it is difficult to get an unsecured loan for more than a couple thousand dollars.  Loan rates are determined by the amount of risk in the loan, Inventory loans and Accounts Receivable loans have higher interest rates than a loan secured by a building or land.  People who are responsible and make their payments as agreed get better rates than people who don’t make their payments as agreed.  Who can fault a bank for that?

  • James Hobson

    “Bank Failures” and “Financial Collapse” are essentials in order to let the government “reset our economy and make everything fair”. The hard working people in America are going to get hosed. Watch for a proposed governemnt seizure of 401k’s and IRA’s with a promise to give you credit for your money in your social security payments.

  • blogengeezer

    “The Community Reinvestment Act” (no credit?, no job? no income,? no problemo) signed into (forced) law, by ‘slick Willy’ and his Congress of Wealth Redistribution, as a roadside “Improvised Explosive Devise” in 1999, did it’s job swimingly. Barney repeatedly said “All is fine, just fine thank you” as the ‘Instruments’ were devised, to sell the ‘created’ sub-Primes to Fannie and Freddie. Suuuweeet. Everyone loved the ‘Bubble’, no one enjoys the predictable ‘Swirl…. around the Drain’s ‘Glory Hole’.

  • Csuftitan

    The Community Reinvestment Act was actually signed into law in 1977 by Jimmy Carter.  It had legislative changes to it in 1989, 1991, 1992, 1994, 1999, and 2008.  Like most legislation from our “beloved” government, the intentions were well, try to eliminate discrimination in lending, but they always fail to recognize unintended consequences.

  • Read HR2056

    Regarding not knowing what I am talking about when your local community bank is closed by the FDIC and a hedge fund appears at your door with demands to force you into default.  

    If you have ever read a Loss Share Agreement (LSA) you would know that they FDIC gives the AI (acquiring institution, hedge fund or new bank) .80 cents on the dollar for every loan in the portfolio and the new bank only has to contribute .20 cents on the dollar towards any losses (this is known as the 80/20 split .80 FDIC .20 bank).  

    It’s also no secret that the AI paid somewhere between .50 and .60 cents on the dollar for the banks assets. We don’t know the exact amount the new bank pays for the assets because the FDIC refuses to disclose it.  The first order of business is to have all the assets re-appraised.  In speaking to the head of a national appraisal group, appraisers are being told by the AI to bring the values in as low as possible.  That is because the new bank immediately receives the .80 cents on the dollar for the DIFFERENCE between the loan’s original face value and the new lower appraised value.  This cash goes right to the new bank’s bottom line – day one.

    Then instead of renewing any loan, performing included, they impose such draconian renewal terms on the borrower so as to force the borrower to walk away from the loan.  Now is when the big money comes to the AI.  The new bank along with their friends at the FDIC foreclose, retake the asset, hold the asset until it increases in value, sell the asset and sue the borrower for the difference between the “foreclosed” amount and the loan face value, AND keep original .80 cents on the dollar difference between the face value and new lower appraised value.  Thus the new bank stands to make MORE than 100 cents on the dollar of the face value of the original loan.  So who shares in this profit.  Our friends at the FDIC.  You see when the new bank gets through forcing all of the loans into foreclosure and wiping out the borrowers, getting reimbursed for all expenses included questionable attorneys fees and appraisals the 80/20 share flips and the FDIC receives the .80 cents on the dollar for profits when they exceed the original face value of the loan and the bank gets to keep the .20 cents on the dollar profit.  This came directly from an FDIC insider.  If you don’t believe me, read the recent Hillsborough County court case where a judge ruled in favor of the borrower and told BBT and the FDIC they were “double” and “triple” dipping.  Actually, the AI keeps 100% of the profit, unless the FDIC audits them.  Until this has happened to you or anyone you care about, you will not fully understand.  You can’t make this stuff up.  It’s happening to “thousands” of borrowers according to another FDIC insider.Finally, if Loss Share Agreements are so great, why was the Inspector General of the FDIC directed by Congress to investigate their widespread use and possible abuse?  Did you ever read HR 2056?

    • Catcaper01

      You still clearly show that you do not fully know what you are talking about. Under loss share, banks are required to manage the acquired, covered credits as if it were one of their own. For mortgages, the AI is REQUIRED to work with borrowers in an attempt to modify the loan under specified modification programs. (Of course the problem is that many people either may not qualify for the modification program, or will not work with the bank either through action or inaction to see if they may qualify for the modification program.)

      In addition, management of these are reviewed by the resolutions and the regular examinations side of the FDIC, which clearly invalidates your false implication that the FDIC does not audit bank’s for performance in accordance with the agreement. If a bank is found to significantly manage the credits different from those of their own originated credits, the bank can have the loss share agreement cancelled. (It’s in the contract, so obviously you didn’t really read any like you claim.) In fact some banks have had or have been threatened with having their agreements invalidated for failure to perform by filing poorly supported claims certificates.

      Furthermore, further proof that you didn’t really read a contract (they are publicly available), recoveries on prior losses claimed are subject to clawback, meaning the bank owes the FDIC money when those recoveries are realized. In addition, under most loss share arrangements, the clawback period is typically 2-3 years beyond the covered period for claiming losses; however, given the state of the current rate of recovery, the likelihood of bank’s receiving windfall profits from the sale of OREO subject to loss share clawback is highly unlikely.

      Your statements make it sound that banks ought to be clamoring and hammering down the door for loss share to line their pockets and that FDIC ought to be eager to issue more if it shores up the deposit insurance fund. However, you statements clearly demonstrates that you have an ax to grind with the banks, the FDIC, or both, since the implications of your assertions run counter to statements by both banks with lost share and the FDIC that they do not like them and the fact that the FDIC has gradually made loss share provisions favoring the AI less desirable and is slowing winding down the usage of loss share.

      Lastly, what you clearly fail to note is that the “mandate” to investigate loss shares was a knee jerk reaction to the carping and crying of the very same greedy bankers, who placed most of their eggs in the building boom basket, and whose institutions were/are teetering on verge of collapse.

      • http://www.facebook.com/devin.rutkowski.1 Devin Rutkowski

        If you think I do not know what I am talking about, then you clearly either work for a rescue bank or the FDIC. Your comments come straight out of FDIC press releases and propaganda. You clearly have insider knowledge to exactly how corrupt the system is stacked against ALL borrowers of failed banks, both performing AND non-performing. You assert that I have never read a LSA, when not only have I read several of them, I have questioned both private bankers charged with carrying out the terms of the LSA as well as officials of the FDIC.

        Regarding the AI ( assuming institution, or more commonly referred to a Banksters) being “required” to work with borrowers in an attempt to modify a loan. You must be referring to the bogus appraisals the AI’s produce to force the borrower to seek private financing or give the property to the bank. All while they AI refuses to provide a copy of the bogus appraisal to the borrower and refuses to accept an appraisal provided by the borrower. This specific tactic ( you call it “working with the borrower”) is sanctioned by the FDIC as well. You obviously have no clue as to what is happening to borrowers of take over banks regarding modifications. While the statistics bear out the fact that the AI’s are not “required” to modify any “commercial” loans, and therefore, have renewed virtually none to date. Once agin, if you have read any LSA, you would realize the the LSA provides a financial incentive to NOT renew a loan – performing loans included!

        Regarding auditing the books of the Banksters. If you call auditing less than 10% of the entire loan portfolio “managing the assets” then I am confident the AI virtually will never be found to be “not in compliance” with the terms of the LSA.

        This is borne out by the fact that not a single bank has had their LSA terminated or revoked. You see, according to one official at the FDIC “the program is working as planned”.

        Regarding a clawback from a bank for their dirty deeds, that should happen when hell freezes over. You obviously realize that the FDIC is a “partner” with their new found friends who come in to take over the poor mismanaged local community bank and proceed to force all loans into default. The last thing the FDIC compliance monitors want to do is ruffle any feathers at either the Bank or the Division of Resolutions and Receiverships (DRR).

        Why is it so difficult for you to see the huge multi-million dollar windfalls the rescue banks are reaping in. Simply force a loan into default, collect on the Loss Share monies, repossess the asset, hold the asset for a year, sell the asset and sue the borrower for additional monies. If this was such a bad deal, then why is the FDIC finally retrenching on some of the most egregious terms of their LSA’s ( like paying out 100% of the face loan value to the AI).

        Finally, you either are too blinded by greed or refuse to accept the reality that if Loss Share Agreements are the fair and balanced tool for all parties ( AI, BORROWERS, and the FDIC) then why is Congress investigating their widespread use and the tactics employed by the Banksters. There has to be a loser in the game and I can assure you it’s not the bankers and hedge fund managers from Wall Street and it’s not the beaurocrats at the FDIC.

        My only wish is for to experience the wrath of these ruthless people disguised as local neighborhood bankers who hide behind their LSA with the FDIC and smile all while forcing perfectly good small business owners and private citizens into default – all in the name of greed.

        Continue to believe this doesn’t exist. The sad fact is that folks at the FDIC know exactly what they are doing to perfectly fine tax payers and as long as they consider us “collateral damage” as one official told me, I guess you and your money lusting bankers will sleep just fine.

        Stay tuned, the Inspector General’s report on Loss Share Agreements is due in January 2013. I am confident it will be a glowing example of how perfectly well the FDIC and their banking friends saved the country from ruin, all while making a very, very good return on their investment.

  • Catcaper01

    First of all, I think you and other analysts should make it clear that the Texas ratio is a private sector derived figure to mimic the adversely classified items ratio (simply put poorly rated, accruing and non-accruing loans plus OREO and other poorly rated assets and contingent liabilities divided by equity capital plus reserves) that regulators actually calculate from non-public, bank information. The assessment of the health of the bank is also dependent upon other factors, such as capital and earnings levels, ability to absorb market risks, and liquidity. To focus solely a single measure of asset quality does a huge disservice to the examination process. Banks have and will continue to fail due a liquidity crisis (IndyMac, Washington Mutual, and the near collapse of Wachovia being prime examples of liquidity versus depleted capital due to poor asset quality triggering the failure or near failure).

    Second, as alluded above, your assessment of the Texas ratio makes it seem as if it is the sole measure of whether or not a bank is troubled, or will fail; however, there are plenty of banks current in operations with ratios over 100%, but more than likely they will not fail, even though they may limp along until the adversely classified assets are fully resolved (either through returning to an acceptable performing credit or fully charged-off/foreclosure). I believe the casual reader would take from your article that any bank with a ratio over 100% will fail, which is not the usually the case for those marginally over that benchmark. While to your credit you do state that over 100% means very likely to fail, a better and more accurate statement would be the greater the ratio exceeds 100%, the greater the risk exists that the bank may fail.

  • http://profile.yahoo.com/DO7FFVU6HMJDPEPS5WXEBSW3P4 Zion

    How can BANK OF AMERICA sell my tomorrows wages of my home loan to investors in a recession then get the Government to pay it off with American’s taxes, then foreclose on our family at Christmas when there’s no Jobs with wages that will qualify, under BofA’s standards, to support or modify our PREDATORY Countrywide loan that they won’t give me a copy of the Lock-in agreement to because it shows a different loan switched before signing? Countrywide’s excuse for changing the loan without telling us was, “You couldn’t afford the cheaper loan” and since they knew we had to vacate previous residence in a few weeks, we had to sign new loan to avoid homelessness in hopes we could modify or refinance it later.

    • davidcruise

      Zion u shoulda never signed the new note because BOA they didnt have a copy of the original loan! u coulda had there mortgage thrown out in the court and been debt free. I know this cause Country Wide used mers system and lost these cases over and over while attempting to get mods done. Those that had attorneys that fought for home owners got home owners debt free! BTW less then 1% of the people foreclosed on by BOA or Countrywide have legal representation. If I had more time I would explain it all to you but it has to do with bifurcating the mortgage.

  • http://www.facebook.com/tom.mcnassor Tom McNassor

    The artical did not mention
    Wells Fargo. I bank with Wells Fargo, and I think that it is a safe bet.

  • MrAsurd

    The “definitely” is definitely the most misspelled word circulating today. Most definately!

  • MrAsurd

    The word…