A Lebo bank was on a national list last week of the Top 10 banks most likely to fail, but the bank’s president says the finding is faulty.
State Bank of Lebo was listed as No. 10 on a list compiled by Research Associates of America, a non-profit firm located in Washington, D.C.
Jim Krejci, president of the bank, said the group used the “Texas Ratio” to evaluate the financial health of the banks. The Texas Ratio takes a bank’s non-performing assets then divides the figure by the bank’s tangible capital and future loan loss reserves. The ratio was created by Gerald Cassidy during the bank collapse of the 1980s. Advocates of the ranking say a ratio higher than 100 percent suggests a high probability of failure.
The ratio figured for State Bank of Lebo came in at 100.6 percent. Krejci said he doesn’t dispute the figures of the Texas Ratio, but, he said, the bank is not failing.
“I guarantee you that is not the case,” he said. “It was completely one-sided. There are over 8,500 banks in this country and I doubt they looked at each one of those banks.”
Krejci said the article released last week about the 10 banks on the list simply took the ratio at face value.
“Just using that ratio doesn’t go far enough,” he said. “The ratio in itself may well be accurate. I’m not disputing that. ... There are considerations that need to be made before people go saying things like that.”
What Krejci is disputing is the lack of a sense of the big picture. He said State Bank of Lebo has 20 credits on the non-accrual list. Five of those have been paid in full.
“All but three of the remaining 15 have been settled,” Krejci said. “None of that shows up in that report. ...”
Krejci said when a loan is put on non-accrual status (about 90 days past due), a bank is required to leave it on that list for nine to 12 months to establish payment history no matter what happens to the credit.
“So your hands are pretty much tied,” he said.
State Bank of Lebo has more than the required amount of reserves, Krejci said. A balance of $610,374 is in the reserve account and the required amount is $595, 529. Furthermore, many of the loans are backed by real estate or collateral, which the bank can use to recover costs if needed.
“The bottom line is we have proactively established a reserve for loan loss,” he said. “I just think that article was incomplete in the way it was reported and there’s a whole lot of things that (it) did not take into consideration when they made that report.”
Krejci said last week’s new reports have had little effect on the bank.
“We’ve actually had more positive responses than negative,” he said.
He said the bank lost four deposit accounts following the news announcement, three of which didn’t amount to much money and a fourth that was an older person who was out of the area and was nervous about the news.
“We lost less than $400,000 in deposits,” Krejci said. “We’ve had support by our customer base. We talked to other customers and none of them seem to be concerned about the situation.”
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Posted by eiggohp (anonymous) on July 21, 2008 at 4:09 p.m. (Suggest removal)
That is wonderful news for the people who bank at the State Bank of Lebo.
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