Fewer, but worse, troubled banks at end of 2013

Fewer banks are headed for trouble, according to key measure of banking stability. But the banks that do show trouble are more troubled than usual.

SNL Financial, a leading bank and business analysis firm, calculated the Texas ratio for FDIC-insured U.S. banks using year-end data, the latest available. The Texas ratio, formulated during a study of collapsed Lone Star State banks in the early 1980s, shows a bank's level of problem loans in relation to the money it has to withstand defaults.

A bank with a Texas ratio of 100% or more is likely headed for big problems or failure. As of Dec. 31, 203 banks had a Texas ratio higher than 100%, vs. 235 at the end of Sept. 30. That's good news.

But the median Texas ratio for banks above the 100% mark rose to 161.7% from 155.57% in the third quarter of 2013, says Tahir Ali, research analyst. Median means that half were higher, half lower.

The bank with the highest Texas ratio: Eastside Commercial Bank, in Conyers, Ga., clocking in at 1,030.75%. Second-highest: First City Bank of Florida, in Fort Walton Beach, Fla., with a 639.12% Texas ratio.

Georgia has 40 banks with Texas ratios higher than 100%, the most of any state, and Illinois comes in second, with 24. Texas had only two.

SNL's ratio accounts for loans that are guaranteed by the government or some other loss-sharing agreements with the FDIC. A high Texas ratio doesn't guarantee failure, but it's generally considered a good indicator. Millennium Bank, which posted the highest Texas ratio in the third quarter of 2013, failed Feb. 28. The Sterling, Va., bank had a Texas ratio of 3,330.21%.

Five banks have failed so far this year, according to the FDIC, and 24 failed in 2013. In the wake of the financial crisis, 157 banks failed in 2010.