A growing number of Peach State banks are the pits.

Few states have been hit harder by the economic crisis over the past seven months than Georgia, where many banks are now paying for large bets made on construction loans during the building boom in the Atlanta metropolitan area. Omni National Bank of Atlanta on Friday became the state's ninth since the beginning of 2008, the most in the nation during that time.

All nine Georgia bank failures have taken place since Aug. 29. The nine failed Georgia banks had $4.7 billion total assets and the estimated cost to the Federal Deposit Insurance Corp.'s insurance fund for the failures was $1.4 billion.

There's a lot more trouble ahead. TheStreet.com Ratings' analysis of Dec. 31 financial information for Georgia's 331 banks and thrifts shows that there are over 30 institutions in a weakened condition.

Three of the four Georgia banks that have failed so far during 2009 were undercapitalized under ordinary regulatory guidelines as of Dec. 31. Four other Georgia banks and thrifts were undercapitalized by regulatory standards as of Dec. 31 data. TheStreet.com Ratings has assigned E- (very weak) financial strength ratings to each of them.

Remaining Undercapitalized
Georgia Banks and Thrifts
-Dec. 31, 2008 ($Mil)
Highline Financial

All the bank and thrift ratings based on Dec. 31 financial reports will soon be updated on TheStreet.com's bank and thrift ratings screener.

All four undercapitalized Georgia institutions followed the pattern of high concentrations in residential construction and land development loans, and all four had very high overall levels of nonperforming assets as of Dec. 31.

While EBank of Atlanta had the lowest capital ratios, Southern Community Bank had the highest exposure of capital to problem assets, with a ratio of nonperforming loans and securities to core capital and loan loss reserves of 204.16%. This is also known as the "Texas ratio."

Bank failures are not limited to institutions that report being undercapitalized. Since regulatory reports containing capital ratios only come out quarterly and take quite some time to be made available, the information is always a bit stale.

Significant Georgia Bank Failures

Omni National Bank, Freedom Bank of Georgia and FirstBank Financial Services, three of the four Georgia bank failures this year, all were undercapitalized by ordinary regulatory guidelines as of Dec. 31.

Regions Financial ( RF), which in August acquired deposits and branches of Integrity Bank, Georgia's biggest failure, also acquired FirstBank Financial Services of McDonough, which failed on Feb. 6 and had $337 million in assets.

Omni National was the second largest Georgia failure, with $980 million in total assets. Unlike most bank failures, the FDIC didn't line up another institution to buy Omni's deposits and branches, but rather appointed SunTrust ( STI) paying agent, to service Omni's insured retail depositors until April 27th, by which time depositors would be required to withdraw their money or move their deposits to SunTrust accounts.

Another significant Georgia failure was Haven Trust Bank of Duluth, which was shut down by state regulators on Dec. 12, with all deposits and branches acquired by BB&T ( BBT).

FirstCity Bank was considered adequately capitalized as of Dec. 31, with a tier-1 leverage ratio of 4.57% and a total risk-based capital ratio of 8.54%.

These ratios need to be at least 5% and 10% for a bank or thrift to be considered well-capitalized under regulatory guidelines. They need to be at least 4% and 8% for an institution to be considered adequately capitalized.

For FirstCity, there were other indications of major problems, since the institution's ratio of nonperforming assets to total assets was 20.41% as of Dec. 31. This was the first failed institution during the 2008-2009 crisis for which the FDIC was unable to find a buyer for deposits and branches, with the main reason being that nearly all of FirstCity's deposits had been made through brokers.

Banks with High Levels of Problem Loans

Thirty-three Georgia banks and thrifts had nonperforming asset ratios above 10%, a sign of trouble for most banks. Not surprisingly, TheStreet.com Ratings has assigned nearly all the institutions on this list ratings of D (weak) or below.

Georgia Banks Reporting nonperforming Assets Exceeding 10% as of Dec. 31
Highline Financial

The one exception is Bank of Wrightsville, which was assigned a C- (fair) rating, as its capital position was relatively strong, with a tier-1 leverage ratio of 13.10% and a risk-based capital ratio of 21.19%.

When gauging an institution's overall health, no one ratio provides enough information. Strong capital ratios can mitigate risk associated with loan charge-offs. Comparing an institution's ratio of loan loss reserves to total loans to its ratio of net loan charge-offs to average loans can also be useful. This can provide an indication of whether an institution might need to make relatively large provisions for loan losses over coming quarters, probably leading to quarterly net losses. Keep in mind that the net charge-off ratios above were for all of 2008. The pace of charge-offs in the fourth quarter may have been much greater.

Another thing to consider is that the list doesn't reflect any additional capital these institutions might have raised during the first quarter of 2009.

Plenty of Strong Georgia Banks and Thrifts

Of course, the news for Georgia's banks and thrifts is not all bad. Based on Dec. 31 financials, 83 of Georgia's 331 banks and thrifts were rated a B- (good) or above.

Here's a list of all Georgia institutions rated B+ or higher:

Georgia Banks and S&Ls rated B+ or Higher
Highline Financial


TheStreet.com Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans. These are available at no charge on the Bank & Thrift Ratings Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.
Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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