'Times tough' for all
Associated Press, July 7, 2008

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."

Russell Walker