The simple formula is nonperforming loans divided by tangible equity and loan loss reserves.1 Ideally, the ratio is low. A ratio of 0% indicates that a bank is carrying no nonperforming loans or foreclosed real estate on its balance sheet, reflecting little risk of loan losses to a bank’s capital. A ratio above 100% implies that a bank may not have enough capital to cover its potential loan losses.
As shown in the figure below, the median Texas ratio across various bank sizes has remained controlled and manageable, even during the COVID-19 pandemic. Near the end of 2022, however, Texas ratios at large and regional banks began increasing, putting them in line with historical figures. Texas ratios at community banks, however, remain subdued, reflecting continual favorable credit conditions at America’s smallest banks.
note to self find a community bank? All this article says though is that the rate is rising…
Quote Citation: Suzanne Jenkins , Reed Romanko, “Banking Analytics: Understanding Credit Risk with the Texas Ratio”, November 04, 2025, https://www.stlouisfed.org/on-the-economy/2025/nov/banking-analytics-taking-banks-risk-temperature-texas-ratio