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Published Wednesday, July 23, 2008 in Local
Photo by Jeff Bishop
Neighborhood Community Bank has suffered a steady erosion in its stock price and some negative media coverage due to its problematic “Texas ratio,” but bank representatives call the institution the “best capitalized bank in the community.”
Banker: 'Times tough' for all
By Jeff Bishop
The Times-Herald
It appears more and more that the country's housing crisis is spilling over into the banking system, and Coweta County is not immune.
One Newnan banker said times are tough and banks are suffering just like everyone else.
Wachovia Corp. -- which has Newnan offices on Greenville Street, Newnan Crossing Boulevard, and Amlajack Boulevard -- announced an $8.86 billion loss this week because of charges and reserves for bad mortgage loans. The bank also announced that it will eliminate 10,750 jobs.
Although company representatives predicted that the Georgia impact will be "minimal," there are 4,700 employees in the metro Atlanta area and 6,200 in the state. Wachovia is metro Atlanta's second-biggest bank.
"Wachovia's news isn't isolated. I think there is still a structural issue with U.S. banks," Russell Walker, a professor at the Kellogg School of Management at Northwestern University, told The Associated Press.
In fact, Wachovia joins a long list of banks posting losses, including Citigroup ($9.83 billion in the fourth quarter of 2007 and another $5.11 billion in the first quarter of this year), and Washington Mutual ($3.33 billion in the second quarter 2008).
"Many of the banks, including Wachovia, are still facing challenges," said Walker.
Locally, one bank has closed a branch. United Community Bank closed its doors earlier this month at its office at the corner of Lower Fayetteville Road and the Bypass. Its Bullsboro Drive location is still open.
One local bank has suffered a collapse of its stock value over the past year. Neighborhood Community Bank, based at 145 Millard Farmer Industrial Boulevard, has seen shares of its stock, Newnan-Coweta Bancshares, plummet from $37 a year ago to a current value of $4.05. Shares dipped as low as $2.15 when a story recently hit the Atlanta Journal-Constitution regarding the bank's troubled "Texas Ratio," an indicator used to gauge a bank's financial footing.
The story noted that Newnan-Coweta Bancshares (Neighborhood Community Bank), with assets of $240 million, has a Texas ratio of 130 percent, which could be a sign of trouble. The statistics were first made public by research firm SNL Securities. Neighborhood Community Bank was one of nine Georgia banks that dominated its nationwide list of 25 possibly troubled financial institutions.
The AP reports that a securities analyst developed the Texas ratio to predict bank and thrift failures during the savings and loan crisis that centered on the state two decades ago. The ratio compares a financial institution's total problem loans and related assets to its capital and reserves set aside for loan losses.
A Texas ratio above 100 percent implies that potential losses could wipe out a bank's capital and cash reserves and cause it to fail.
But Bill Davis, marketing and public relations representative for Neighborhood Community Bank, called the Texas ratio "antiquated" and the recent media reports "misleading."
"Neighborhood Community Bank is the best capitalized bank in the community," said Davis.
"The 'Texas Ratio' is an antiquated one that was used in an isolated incident in the thrift industry in Texas during the early 1980s and involved a complete lack of confidence in the industry itself," he said. "We're in a very different time now, and the old rules don't apply."
He said that Neighborhood Community Bank's "liquidity remains very strong" and that the bank has "had ongoing discussions with all large customers to ensure that they are comfortable."
Neighborhood Community Bank has also "shored up other liquidity sources," Davis said, and it has "the ability to bring in deposits, and shed loans if necessary."
The bank's capital position "remains well above the highest typical standards in the banking industry," he said.
"We also have the ability to go out and raise large amounts of additional capital to cover any losses that we might not foresee along the way," he said.
According to the AP, banks across the country -- but especially in Georgia, where banks have the highest proportion of developer loans in the nation -- are making moves to sidestep potential failure by raising capital and selling assets. This enables banks to shore up their cash reserves to enable them to recover from losses from real estate ventures.
Banks don't want to wind up where IndyMac is today -- the nation's second-largest bank failure. Four of the five financial institutions that have failed this year nationwide had Texas ratios above 100 percent.
Banking industry insiders mostly admit that the Texas ratio is an indicator, but they also caution that it isn't foolproof.
"Just the raw numbers do not reflect the people behind the numbers and their ability to access local capital and other resources that would not be reflected in the numbers themselves," Joe Brannen, president of the Georgia Banks Association, told the AP.
Even when a bank does fail, most depositors won't be affected. That's because the Federal Deposit Insurance Corp. (FDIC) insures checking and savings accounts up to $100,000, and certain retirement accounts up to $250,000.
That's the main message Neighborhood Community Bank wants its customers to remember.
"If people feel their deposits are not safe with us, they're not safe anywhere else either," said Davis.
"The key is to ensure FDIC coverage for those who are very concerned," he said. "No one has ever lost one penny of FDIC insured funds."
Davis said that the times are tough and the banks are suffering just like everyone else.
"It is important to remember that no banks are making it through unscathed during this difficult time," he said.
"We are not isolated in our problems," said Davis. "All banks, at all levels, from RegionsBank to local community banks are caught up in this storm."
Comment On This Story
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Thanks for the words of encouragement.
Posted by Scared Investor at 6:32 PM
If Obama is elected, our taxes will sky-rocket! If you make any gains on a house sold, he proposes the govt will take 28% of the gain. If your family members dies, he wants to reinstate the inheritance tax (which led to people losing family farms, homes, and property). If you have money in ANY kind of retirement account, he wants 40% of the money earned in the account. YES - I am worried if Obama is elected.
Posted by Smarter at 6:30 PM
Once Obama gets elected all our problems are over.
Posted by Voter at 4:01 PM
What you typed was a GNMA pass through mortgage security. This is Ginnie Mae. I may be wrong but this may be a govt. agency security. Essentially you are receiving a rate of return for purchasing their debt. These agencies have been taking it on the chin lately and you can see that by looking at the stock price. Just a week ago there were rumors that Fannie Mae (FNMA), Freddie Mac (FHLMC) could essentially shut down. This would be disasterous for the economy. This could lead the country into an depression. But since the govt. is stepping in with the new housing legislation, the govt. agencies are safe from falling apart. I hope some of this helps you as it can get hairy. The best advice I can give is to stay calm for what we are going through will pass and better days are ahead.
Posted by Tim Dinsmore at 11:10 PM
I wish Delta Community Credit Union the best of luck. I am tired of all the large banks screwing people. Also, incase you didn't know, there are a lot of Delta family members in Newnan.
Posted by Coweta Citizen at 9:55 PM
We were here FIRST! Hope you don't get lonely in that big ole' empty building there.
Posted by Proud Bank of GA Customer at 6:07 PM
Thank you for the information. I believe the question I have raised is on the minds of many. Thus, your responses have not only helped me, rather others on this site. I would love to be able to talk in person, as I don't know how to research what is in my portfolio. I, like many others, have placed my trust in an investment person at my bank. The bank is not the one mentioned in the article, rather another big bank throughout our "country". I, too, was wondering how the housing bill would impact the investment account. When would changes normally be seen - days, weeks? What do the abbreviations: GOVT NATL MTG ASSN CL GA REMIC PASS THRU CTFS GTD stand for?
Posted by Scared Investor at 4:46 PM
I work for a regulatory agency that supervises financial institutions. Sometimes it's best to stay put and not get caught up making an emotional decision concerning your money. As it stands right now, all you have is a paper loss because you haven't sold anything. Plus, I don't know what type of bonds you are holding, there are all types out there. What are you holding? You may want to watch how this new housing bill may impact problem loans. I'd suggest researching further about what you have in your portfolio. There is a ton of info out there now a days.
Posted by Tim Dinsmore at 3:56 PM
Are you in the investment business or banking business? I have invested in mortgage bonds and have seen the value of the bond decrease, only to be told by my investment person that everything is ok. Please help -
Posted by Scared Investor at 2:23 PM
I wouldn't want to give advice concerning investments in bonds, but I can share how banks have been investing in Mortgage Backed Securities in the past few years. Many institutions invested in these vehicles because the rate of return was very attractive, but as we have been finding out for the last year or so, many of the securities are laced with subprime loans (toxic loans). Many of these loans have gone bad or will be going bad as time goes on. As these pools of loans sour, the dollar value of the bond decreases. Banks that carry these securities have to mark-to-market (re-value) their securities on a quarterly basis. Unfortunately, many of these securities have lost a significant portion of their value thus adding to the quarterly losses we are seeing. There are groups of investors who go out and buy these securities for pennies on the dollar just to take a chance in that these securities will reverse direction. Also the piece about the bank being well capitalized, that can change rather quickly and if the bank continues to show problems, no one in their right mind will throw more good money after bad.
Posted by Tim Dinsmore at 1:41 PM
Why should my tax dollars bail mortgage lenders or home owners out because they made bad choices. If you have made a bad choice work through it and don't do it again. If you can't work through it and you go bankrupt then there is no one to blame but yourself. It's not the governments fault or the citizens of this great nation and it shouldn't be the governments or the citizens responsibility to bail them out.
Posted by Matt at 1:23 PM
How does all of the affect a person who has invested in mortgage bonds?
Posted by Scared Investor at 12:57 PM
The banks are getting what they deserve for letting people who had no business getting a mortgage buy a home. Predatory lending by banks and irresponsibility on the part of the buyers are largely to blame for the situation we are in. Now the banks want a government bailout? Hey can I get one too?
Posted by Steve at 12:11 PM
Asset quality, capital and liquidity are the focal points these days. Some banks are faring better than others and, as Time correctly pointed out, it has a lot to do with the loan portfolio mix. According to the call report NCB booked a lot of C&D loans during the residential construction boom and I assume a good percentage of those have since become NPAs (either NPLs or OREO). Time will tell if, or how much, asset quality further deteriorates. However, from what I can tell, the person from NCB was accurate in his statement concerning capital levels and liquidity.
Posted by Someone at 11:07 AM
You know maybe if there weren't so many different banks or 5 different branches of the same bank with a 10 mile radius then they wouldn't be facing such a hard time. I mean come on a new Delta credit union accross from a big new Bank of Georgia?
Posted by Lou at 9:38 AM
"Texas Ratio" is a calculation that looks at the Bank's Tier 1 capital plus their reserves for loan losses then you compare this to a bank's total problem loans (30 or more days past dues, non-accrual loans, and Real Estate Owned). If the calculation is above 100%, then potential losses could wipe out a bank's capital and cash reserves and cause it to fail. What the spokesman for Neighborhood Community Bank forgot to mention is that they booked a lot of land development and construction loans, which is absolutely killing a lot of community banks. I can count three residential developments right near Lower Fayetteville and the Bypass which hold abandoned residential lots. Look through a bank's quarterly Call Report and see the kind of risky loans they have booked (www.ffiec.gov). With the way things are going with the banking industry, people need to have a better understanding of how their banks do business.
Posted by Tim Dinsmore at 7:12 AM
Where do I find a bank's ratio (Texas ratio)?
Posted by Phyllis MacFarland at 11:33 PM
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Delta CU
7/28/2008
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I'm a former Delta employee and am very pleased that the Delta bank is open in Newnan. They have the best customer service, no fees or minimums whatsoever, and competitive interest rates. My brother-in-law banks with BOA, and gets charged fees right and left. And, the Delta CU started reaching out to its customers early on to help them during tough financial times. To those who commented negatively about this bank, you're missing out. You're lucky that it's not limited to just Delta employees anymore.
Posted by Loyal Customer at 10:53 PM