The number of U.S. banks with an adjusted Texas ratio above 100% declined for the first time since the fourth quarter of 2021.

Six U.S. banks and thrifts posted an adjusted Texas ratio above 100% in the fourth quarter of 2022, down from 15 in the previous quarter, according to S&P Global Market Intelligence data. Although nonperforming assets and 90-day loan delinquencies increased quarter over quarter, the increase in tangible equity and reserves was greater as accumulated other comprehensive income, or AOCI, losses on securities died down, coupled with higher provision for loan and lease losses in the fourth quarter of 2022.

Eleven banks had negative combined tangible equity plus loan loss reserves in the fourth quarter, and more than half of them are headquartered in Texas. This was down from 17 in the third quarter of 2022.

Unrealized losses on securities are still taking sizeable hits to banks' tangible equity. When excluding AOCI from tangible common equity, no U.S. banks had a Texas ratio above 100% as of Dec. 31, 2022, according to an analysis by Market Intelligence.

The median adjusted ratio for the U.S. banking industry fell slightly for the first time since the first quarter of 2022, to 2.88% in the fourth quarter from 3.10% in the linked quarter. The decline marks a reversion to the trend that began in the third quarter of 2020.

For banks with Texas ratios above 100%, all but Lafayette, Ga.-based Bank of Lafayette and Greensboro, Ala.-based Peoples Bank of Greensboro had higher tangible equity balances in the fourth quarter.

S&P Global Market Intelligence 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 Federal Deposit Insurance Corp. — divided by tangible equity plus loan loss reserves. Allowance for credit losses on off-balance sheet credit exposures are not included in loan loss reserves. A high Texas ratio does not necessarily imply potential failure, but the ratio is a good measure of a bank's ability to absorb future losses.

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Who's on the list

Du Quoin, Ill.-based Du Quoin State Bank had the highest Texas ratio at 1,278.9% at the end of the fourth quarter. Tampa, Kansas-based Tampa State Bank and Bank of Lafayette rounded out the top three with 211.9% and 179.8%, respectively.

Excluding AOCI

With AOCI removed from tangible equity, no banks posted a Texas ratio greater than 100%. Excluding AOCI, Sac City, Iowa-based Citizens Bank had the highest Texas ratio at 78.5%.