Most Texas Banks Stable and Safe, Advisory Firm Says

October 3, 2008

Banks in Texas, particularly those in the Houston metropolitan area and rural areas of the state, continue to perform better than banks across the rest of the nation, reported Sheshunoff & Co. Investment Banking, a merger and acquisitions valuation advisory firm for the banking industry. The exception, the company said, are banks in the Dallas/Fort Worth area.

The outlook for Texas banks appears positive, Sheshunoff officials reported. While 14 banks failed across the nation in 2008, including the FDIC assisted sale of $307 billion for Washington Mutual and $812 billion for Wachovia, Texas institutions are fundamentally strong, according to Sheshunoff.

Sheshunoff & Co. Investment Banking based its findings on its Texas Asset Quality Review for the Second Quarter of 2008. The data from the report may reduce the anxiety of many Texans worried about the financial crisis.

Sheshunoff credited the strong economy and continued migration into the state as two factors that have enabled Texas banks to stay healthy during the financial crisis sweeping America. The high price of farm commodities combined with the small number of real estate transactions in non-metropolitan areas, where there is little development, have made it possible for agricultural banks to remain stable.

Banks’ troubles nationwide are a result of making bad loans and having insufficient capital and other earning assets to cover those risky bets. It is impossible to know exactly which banks will survive or fail as a result of the current crisis. However, one measure of how well or poorly a bank is faring is its ratio of bad loans as a portion of total assets.

Referred to as non-performing assets to total assets (NPAs/Total Assets) ratio, it measures the quality of a bank’s assets. And, indicates the scope of the problem – what portion of a bank’s portfolio is made up loans that are more than 90 days overdue, loans that are no longer accruing interest and real estate acquired through foreclosure. The higher the percentage, the more troubled the loan portfolio.

Although there is no hard and fast rule, a NPAs/Total Assets ratio of less than 1 percent is an indicator of good asset quality; the lower the ratio, the better the quality of the bank’s assets.

According to Sheshunoff & Co. Investment Banking Texas Asset Quality Review for the Second Quarter of 2008, the Houston NPAs/Total Assets ratio was 0.20 percent. During the same period, Dallas’ NPA/Total Assets ratio was 0.63 percent, slightly higher than the national average of 0.61 percent. In contrast, failed bank IndyMac’s NPAs/Total Assets ratio was 7.57 percent, while WaMu’s ratio was 3.62 percent on June 30, 2008.

Austin, with an asset ratio of 0.48 percent, was the second worst performing region among Texas metropolitan areas during Q2. San Antonio’s asset ratio of 0.27 percent reflects its ability thus far to avoid much of the sub-prime loan fall-out.

Sheshunoff & Co. Investment Banking clients within the state tell the firm that their banks have remained stable during the third quarter, and don’t believe there will be a material decline in their profitability between the second and third quarters of 2008.

As for Texas banks outside the major metropolitan areas, Sheshunoff & Co. Investment Banking statistics show that they have maintained the same profitability levels over the last two years. Rural Texas banks recorded a Q2 2008 NPAs/Total Assets ratio of just 0.12 percent. The level of disparity between the asset quality of these Texas banks and their metropolitan cousins is increasing.

A full copy of the Sheshunoff & Co. Investment Banking report on Texas Asset Quality Review for the Second Quarter of 2008, which includes a list of Texas banks broken down by metro area and ranked by NPA ratio, can be found online at

Source: Sheshunoff & Co. Investment Banking

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