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Texas Ratio and Troubled Bank List and Analysis

What is Texas Ratio?

The Texas ratio was developed as an early warning system to identify potential problem Banks. It was developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (Non performing loans + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

                      (NonPerformingLoans + REOs)
Texas Ratio = ----------------------------------------------
             (TangibleCommonEquityCapital + LoanLossReserves)

Cassidy noted that, in analyzing Texas banks during the early 1980s recession, banks tended to fail when this ratio reached 1:1, or 100%. During the 1990's recession, he noted a similar pattern among New England banks.

These tables of high Texas Ratio Banks are probably the next best substitute for the actual unpublished "FDIC Bank Watch List".

Sources of Texas Ratio Data for Banks

Below are several sources of Texas Ratio data for banks, along with comparisons and analysis.

Unofficial List of Troubled Banks with Texas Ratios

A table of the Texas Ratios for the weakest banks can be found here:

Texas Ratio Table (Warning its big) - this is an Unofficial List of Troubled Banks, updated periodically, the largest source I've found, and very accurate.

The above table with data from 2009 Q4 contains 706 troubled banks. Some further analysis of this table shows some interesting results.  Most of the weakest banks based on Texas Ratio are smaller banks.  Of the banks on the above list which are still in business, over 95% of the Banks have assets less than $2.5B. and over half of the Banks have assets of less than $235M.

Bank Size vs Texas Ratio for troubled banks

Of the 36 banks on the above list which were closed by the FDIC during 2010 Q1, the below chart shows the Texas Ratio vs. Bank Size (in assets). All but one of the closed banks had a Texas Ratio above 90% for the prior quarter.

Bank Size vs Texas Ratio for failed banks

The following is a chart of the distribution of Texas Ratio for the 36 banks which were closed by the FDIC in 2010 Q1. 

Failed Banks vs Texas Ratio Distribution 2010Q1

For a more up to date chart of the above, See also: 
Table of all Failed Banks for 2010 with Texas Ratio and Distribution Chart

Another source of Texas Ratio Data for Banks

This Table below covers Texas Ratio for 407 banks with Texas Ratios over 100%, it appears more up to date, with Texas Ratio data for 2010 Q1 as well as 2009 Q4. However some of the data appears inaccurate, and the exact formula on which the calculation is made is not available.

Comparing Texas Ratio Data Sources

The Texas Ratio data calculations from the above two sources match fairly well for 2009 Q4 (95% of all the banks which were in both sources, had a Texas Ratio within 10% of each other.  For the 5% of banks which mismatched, they were off greatly 10-75%).  Looking at the discrepancies, it appears like the 2nd table does not properly adjust their non performing assets to subtract out all government guaranteed loans.

Texas Ratio for the Top 100 Largest Banks

The below source provides a Texas Ratio table for the top 100 largest banks, and a great tool for researching individual bank data.  Data is compiled from FDIC call reports on a quarterly basis and is usually very up to date. Accuracy is excellent, and its easy to see how they are calculated.   

Of the Top 100 Largest Banks, 5 Banks had a Texas Ratio above 90% for 2010 Q1 they are:

  • W Holding Company Inc. - Holding Company for Westernbank Puerto Rico, closed by the FDIC on 4/30/2010
  • Flagstar Bank - Troy, MI,  recent 1 for 10 reverse stock split and recapitalization effort
  • Sterling Financial Corp. - Spokane, WA, new recapitalization effort in process
  • First Bancorp - Puerto Rico
  • OneWestBank - Pasadena, CA

Texas Ratio Shortcomings in Predicting Bank Failure

Although Texas Ratio is quite useful to help identify weak banks which need more scrutiny, it can't predict which bank will fail next.  It is not a perfect indicator.  The data from the FDIC is always several months old.  Some banks may improve by raising additional capital or merging with another bank. Additional capitalization from TARP is not accurately reflected currently.  Conversely, some larger banks may be in far worse condition than Texas Ratio indicates, since certain exotic troubled assets such as collateralized debt obligations and mortgage-backed securities are not reflected.

Other Banking Data and Bank Info:

Top 25 Largest Banks Defaulted Loans - Latest Data

REO Listings of Bank Owned Property for all Major Lenders / Government Agencies

FDIC Failed Banks, Bank Watch List and Bank Ratings

Top 25 Largest Banks - Defaulted Loan Rates and REOs (all loan types combined)

Top 100 Largest Banks - Defaulted Loan Rates and REOs (all loan types combined

The Hard Money Pros
Private and Hard Money Lenders in California
PO Box 91472, San Diego, CA  92169
Contact: James MacArthur (619) 846-1550

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