5 More Banks Likely to Fail This Year

Willy Staley

By Willy Staley
Updated on Thu Jan 10, 2013

(Editor’s Note: We’ve updated our list of the 5 banks likely to fail this year. Click here to see the new list (and who on this list managed to survive another day.)

Bank failures have slowed down in 2012 as compared with the three years prior. Just 39 banks have failed so far this year (nine of them in Georgia.) At this same point last year, 61 banks had failed. In 2010, that number was over 100. And although the banking industry seems to be stabilizing somewhat, there are still a lot of banks struggling with the fallout from the 2008 crisis. Many more will fail as the FDIC continues to do its job.

There are a number of ways of measuring a bank’s health, but the old standard is the Texas Ratio. The ratio compares a bank’s non-performing assets to its equity. It’s a simple formula: you find the sum of the value of delinquent loans and real estate owned and divide it by the some of tangible common equity and loan loss reserves.

In essence, it is a way of measuring whether a bank has enough liquidity to cover the bad loans on its books. Many smaller banks failed post-2008 due to an over-concentration in real estate lending, so the Texas Ratio is a sometimes effective way of seeing which banks are in trouble.

Typically, a Texas Ratio over 1:1, or 100%, means trouble for a bank. We did this list in the first half of 2012, and five of the banks that were on the list have failed (though not the original five, as we replenished the list after members of the original five failed).

Which banks are up next?

With the caveat that a high Texas Ratio does not guarantee failure, and that the FDIC insures deposits up to $250,000 in the event of a failure, meaning there is no reason to panic, here is a list of the five least healthy banks still in operation. We wouldn’t be surprised at all if the FDIC had to shutter most of these before the year is up. All of these numbers cited below come from Amateur Investor’s list of banks by Texas Ratio.

1. Douglas County Bank (Douglasville, Ga.): Douglas County Bank has four branches, all of which we suspect are being eyed by prospective buyers. The bank’s Texas Ratio is 666% — more than six times the threshold for likely failure, and a bad omen besides.

2. Community Bank of the Ozarks (Sunrise Beach, Mo.): Missouri hasn’t struggled with bank failures like Georgia has. It has lost just 13 banks nice 2008. But Community Bank of the Ozarks, right by the manmade Lake of the Ozarks, boasts a Texas Ratio of 655%, and that isn’t a recipe for success. UPDATE: Community Bank of the Ozarks was closed by the FDIC on Dec. 14, 2012 — Bank of Sullivan assumed the bank’s deposits and acquired its assets.

3. Eastern Savings Bank, FSB (Hunt Valley, Md.): Maryland hasn’t suffered so many bank failures since 2008 either, just six to be exact. But of those, four banks have failed in and around Baltimore. Eastern Savings Bank is located just north of Charm City, and looks poised to suffer a similar fate. The five-branch bank has a troubling Texas Ratio of 572%.

4. Gwinnett Community Bank (Duluth, Ga.): Georgia has struggled more than maybe any other state with bank failures since 2008 — 82 banks have failed in the Peach State since the financial crisis began. This Georgia bank has a Texas Ratio of 508%. If prior failures are any indication, it might soon have an emotional Friday with the FDIC.

5. Peoples Bank & Trust (Buford, Ga.): Buford has already seen one bank fail this year (Georgia Trust Bank), so hopefully Peoples Bank & Trust can survive. Its 439% Texas Ratio is not a good sign, though. Poor Georgia.

Nothing is certain, of course, but you’d be wise to keep less than $250,000 with any of these banks. (Well, you’d be wise not to keep more than $250,000 with any one bank, but that’s another story.) We’ve already found the Texas Ratio to be a good predictor of failure, so keep an eye on these banks.

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.

(Editor’s Note: We’ve updated our list of the 5 banks likely to fail this year. Click here to see the new list (and who on this list managed to survive another day.)

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


Post a Comment

  • Skip Cooke

    I like the idea of “Too big to fail banks” splitting up into smaller banks. Good idea for all of us “little people”.