AUSTIN BUSINESS JOURNAL

Friday, September 3, 2010

Report: Treaty Oak Bank troubled

6-year-old bank gets “F”; CEO hints at ‘announcement’ soon

Austin Business Journal - by Christopher Calnan

ABJ Staff

Five months after being cited by federal regulators, Treaty Oak Bancorp  Inc. is listed by an industry analyst as one of the 10 most-troubled banks in Texas.

The Austin-based company that operates Treaty Oak Bank  received a score of “F” from the Oklahoma-based Bartmann Bank  Monitor Report, which listed the bank as having $151.3 million in assets.

The ranking on the troubled-banks list is based on several factors, including the amount of capital available to cover loans and the percentage of late loans. Treaty Oak reported a 5.6 percent capital-to-loan ratio; 8 to 10 percent is normally considered healthy, said Bill Bartmann, CEO of report publisher Bartmann Enterprises.

Also, 12 percent of Treaty Oak’s loans are more than 30 days late, compared with a preferred level of 3 to 5 percent.

“It isn’t one thing. It’s a series of things that cause us concern,” Bartmann said.

Treaty Oak, founded in 2004, operates four offices. CEO Jeff Nash said the statistics used by the Bartmann report were not up-to-date, and he’s scheduled to make an announcement about the bank within three weeks.

“I don’t know if [the Bartmann report] is accurate or not,” Nash said. “Are we still having challenges? Absolutely. But we’re still working diligently to resolve them.”

In February, Treaty Oak agreed to follow bank regulator recommendations to reduce its concentration of commercial real estate loans and increase capital, according to a Federal Deposit Insurance Corp.  and Texas Department of Banking  consent order that was prompted by a September 2009 report of examination.

Bartmann’s troubled bank report lists 32 Texas banks, including Frontier Bancshares Inc. , the Austin-based company that operates Horizon Bank SSB . Frontier received a score of “D” from Bartmann.

Horizon officials, however, refuted Bartmann’s assessment by pointing to industry reports such as one from Kentucky-based Financial Management Consulting Group . That midyear report ranked Horizon as the No. 50 bank, of 605, in the state for overall performance. Treaty Oak is ranked No. 597 on that list.

Other local banks received low performance ratings from Financial Management, which ranked Austin-based Community State Bank as No. 596 and Austin-based Bank of Texas as No. 586 out of 605.

Banks that score poorly on performance metrics are typically undercapitalized and operate with a high exposure to commercial real estate and development loans. Also, troubled banks tend to carry on their books significant volumes of foreclosed real estate and have a large number of loans that are behind in payments, Bartmann said.

Nationally, the banking industry turned tumultuous in early 2008 when home mortgage rates were reset, prompting the subprime crisis and volatile public markets. Banks in California, Florida, Nevada and Arizona have been the hardest hit by the subsequent recession.

Texas banks have fared well by comparison because statewide banking safeguards established following the real estate bubble of the late 1980s and early 1990s have largely insulated the Lone Star State from the subprime mortgage crisis and muted its effects. Loans in Texas are limited to 80 percent of the equity, and property owners are restricted to one home refinancing per year.

Still, the large number of banks in the Lone Star State increases the chances of bank failures compared with other states.

Last year, five Texas banks were closed, and two were closed during 2008. The 2009 shuttering of Austin-based Guaranty Financial Group Inc.   cost the FDIC $3 billion, the fourth-largest amount since 2008. Before it closed, Guaranty was the second-largest publicly traded bank in Texas.