SNL Financial noted in a recent report that so far in 2013, publicly traded banks with Texas ratios over 50% have strongly outperformed the rest of the bank group, as many have found their way out of trouble on their own or through mergers and recapitalizations.
SNL defines the Texas ratio as nonperforming assets plus loans 90 days or more past due, adjusted for assets guaranteed by the U.S. government, divided by tangible equity and loan loss reserves.
SNL said its data show that major exchange-traded banks and thrifts with Texas ratios over 50% have outperformed other banks by more than 3-to-1 this year. Sixty-three banks and thrifts fit the criteria, and those institutions on average offered their investors a total return of 22.46% through Jan. 28, compared to a 4.53% total return in the SNL Bank & Thrift Index during the same time period.
Most of the banks with high Texas ratios have seen improvements in their credit quality, and in many cases, they have shown tremendous progress in working through their problems. The group on average saw their Texas ratios decline by 6.6 percentage points from year-ago levels and 38.5 percentage points from the peak of their credit problems.
Some of the top 20 performing banks in the group have seen their stock prices jump in 2013 due to extenuating circumstances, some of which are not company-specific issues or not necessarily the result of positive developments for the banks in questions. For instance, a number of banks’ stocks shot up right at the beginning of the year shortly after the U.S. government reached a deal to avert the fiscal cliff.
To read the full SNL Financial report,