SNL reported that the number of banks and thrifts with an adjusted Texas ratio above 100% continued to decrease in the second quarter, falling to 157 as of June 30, compared to 181 in the first quarter. The median Texas ratio among those institutions above 100% also improved to 155.38% at June 30, compared to 156.14% in the prior quarter. Since hitting a peak of 510 institutions above the 100% mark in the fourth quarter of 2010, the count has fallen steadily every quarter.

A high Texas ratio does not imply failure, but the ratio is a good measure of a bank’s ability to absorb future losses. SNL defines the adjusted Texas ratio as nonperforming assets plus loans 90 days or more past due — excluding delinquent government-guaranteed loans and other real estate owned covered by loss-sharing agreements with the FDIC — divided by tangible equity plus reserves. Institutions that reported negative tangible equity are excluded from the analysis.

Of the seven bank failures during the second quarter, five reported an adjusted Texas ratio above 100% in the quarter prior to failure. Berwyn, IL-based AztecAmerica Bank, posted an adjusted Texas ratio of 606.96% at March 31, while Cincinnati, OH-based Columbia Savings Bank came in at 348.73%; Fort Lauderdale, FL-based Valley Bank at 299.79%; Bel Air, MD-based Slavie Federal Savings Bank (MHC) at 245.87%; and Moline, IL-based Valley Bank at 214.77%.

To read the entire SNL report, click here.