About Texas Ratios
What is the meaning of “Texas ratio”?
Wikipedia has a definition. Click here for the Wiki definition.
Using a Texas Ratio to evaluate a bank’s future is not appropriate.
Read what the American Bankers Association says about Texas ratios. View ABA Issue Summary.
The Georgia Bankers Association has weighed in on the ongoing debate about the merits of publicly using the Texas Ratio as a sole indicator of bank health. Numerous analysts and newspapers continue to point to the well-known measure in published lists of what they define as struggling banks. The Atlanta Journal-Constitution published a July 4 pro-con article about the use of the ratio, with GBA President and CEO Joe Brannen arguing that greater care should be taken when publishing Texas Ratios because the measure is not an official regulatory ranking and is imperfect when viewed in a vacuum. Read the article by clicking here.
What is Cherokee Bank’s Texas ratio?
While we do not believe that the ratio is appropriate for gauging an individual bank’s ability to survive a downturn, we cannot deny that the ratio is of interest.
As of the end of the fourth quarter 20o9, Cherokee Bank’s Texas ratio was 70%. At the end of the first quarter 2010, it was 88%.
The higher the number, the perception worsens. Thus, the bank with the highest Texas ratio would rank #1. At 88%, Cherokee Bank ranked 81st on the list of banks in Georgia at the end of the first quarter.
While the official numbers have not been published. we estimate that our Texas Ratio will be 109% as of June 30, 2010.
With Cherokee Bank’s ratio exceeding 100%, will the bank be considered ”tainted” in the eyes of some people?
Most informed people will understand that the bank is doing quite well by not reaching this level until June, 2010. While we have not seen the bottom of the credit cycle yet, Cherokee Bank is in a well-regarded position to be only at 109% at this point.
Things will only get better when they get as bad as they can get. But things will get better!