Merchants and Farmers Bank — Texas Ratio

The Texas Ratio compares a bank's potential credit losses (non-performing assets + real-estate-owned) to its loss-absorbing capacity (tangible common equity + loan loss reserves). Coined during the 1980s Texas banking crisis, it remains the single most widely cited bank failure-prediction metric.

Under 25%: healthy. 25-50%: normal for most community banks. 50-100%: watch — credit issues exceed half of capital. Over 100%: elevated failure risk; the bank's bad assets exceed its capacity to absorb them. The ratio should be read against trend — a stable 70% is different from a quickly rising 60%.