Texas Banks

Return on assets held stable at 1.38% in Q1 2026, down only 2 basis points from 1.40% in Q4 2025 and up 3 basis points from 1.35% a year earlier, marking the highest ROA in the periods shown. The YoY improvement is modest but consistent, and the QoQ stability suggests steady earnings momentum. Texas banks' ROA of 1.38% sits 19 basis points above the national benchmark of 1.20%, a material outperformance that reflects both margin strength and cost discipline. Net interest margin at 4.03% declined 4 basis points QoQ from 4.07% but rose 10 basis points YoY from 3.92%, a deceleration in the expansion pace. The cohort's NIM advantage over the national average of 3.82% widened to 21 basis points, consistent with a low-cost deposit franchise (NIB share at 29.02% versus national 21.60%).

The efficiency ratio increased to 62.52% from 61.80% in Q4 2025, a 71-basis-point deterioration, but improved 89 basis points YoY from 63.40%. The QoQ increase reflects higher operating expenses relative to revenue, likely driven by seasonal first-quarter cost patterns or the sharp drop in noninterest income (from 0.86% to 0.20% of revenue). The cohort's efficiency ratio of 62.52% remains 163 basis points below the national benchmark of 64.14%, indicating superior cost control. Two ways to measure profitability: the asset-weighted ROA at 1.38% reflects the aggregate earnings power of the 348-institution cohort; a per-bank median would likely be lower given the concentration of assets in larger institutions, but the aggregate is the honest number for industry-level profitability.

Specialization dynamics show notable dispersion. Credit Card specialists posted NIM of 13.80%, 999 basis points above the national average, and ROA of 2.26%, though only 10 banks in the cohort carry this designation. Agricultural specialists, representing 21.3% of the cohort, delivered ROA of 1.37% and NIM of 3.84%, both near the cohort average. Mortgage specialists lagged with ROA of 0.66% and NIM of 3.19%, and their efficiency ratio of 76.96% was 1,281 basis points above the national benchmark, reflecting the structural cost burden of mortgage servicing. If NIM continues its current QoQ deceleration (4 basis points per quarter versus 10 basis points YoY), the margin expansion cycle may be nearing its end.

Asset growth accelerated to 6.70% in Q1 2026 from 4.15% a year earlier, a 61.40-percentage-point increase in the growth rate and the highest YoY expansion in the periods shown. Quarter-over-quarter, however, growth decelerated from 6.93% to 6.70%, a 3.23-percentage-point slowdown, signaling that the expansion is cooling from its recent peak. Texas banks' 6.70% asset growth outpaces the national benchmark of 5.15% by 155 basis points, a material advantage. The YoY acceleration reflects robust balance-sheet expansion across the cohort, while the QoQ deceleration suggests the pace is moderating as institutions digest recent growth.

Loan growth followed a similar pattern, accelerating to 6.41% YoY from 5.88% a year earlier (a 9.00-percentage-point increase in the growth rate) but decelerating from 6.68% in Q4 2025 to 6.41% in Q1 2026 (a 3.96-percentage-point slowdown). Deposit growth accelerated to 6.32% YoY from 4.76% a year earlier (a 32.82-percentage-point increase) and decelerated from 6.45% in Q4 2025 to 6.32% in Q1 2026 (a 1.93-percentage-point slowdown). The near-parity between loan and deposit growth rates (6.41% versus 6.32%) means the loan-to-deposit ratio compressed only modestly, falling 51 basis points QoQ to 66.78%. The cohort's loan growth of 6.41% exceeds the national benchmark of 6.20% by 21 basis points, while deposit growth of 6.32% outpaces the national 5.02% by 130 basis points, indicating stronger funding growth than lending growth relative to the national average.

The growth profile across Texas banks is robust but decelerating. The YoY acceleration in all three metrics reflects strong momentum through 2025, while the QoQ deceleration across all three signals a natural cooling in early 2026. The deposit-growth advantage (130 basis points above national) is wider than the loan-growth advantage (21 basis points above national), consistent with the liquidity build reflected in the falling loan-to-deposit ratio. If the current QoQ deceleration pace continues (roughly 2-4 percentage points per quarter across asset, loan, and deposit growth), the cohort's growth rates will converge toward the national benchmarks by mid-2026.

Delinquency rose to 0.59% in Q1 2026, up 1 basis point from 0.58% in Q4 2025 and 14 basis points from 0.45% a year earlier, marking the highest level in the periods shown. The QoQ increase is minimal and classified as stable, but the YoY increase is material and reflects a steady upward drift in problem loans. Texas banks' delinquency rate of 0.59% remains 11 basis points below the national benchmark of 0.70%, indicating a relative credit-quality advantage. The nonperforming-asset ratio increased to 0.45% from 0.43% in Q4 2025 (a 2-basis-point increase, classified as stable) and from 0.32% a year earlier (a 13-basis-point increase). The NPA ratio of 0.45% sits 6 basis points below the national benchmark of 0.51%, consistent with the delinquency advantage.

Two ways to measure credit risk: the aggregate delinquency rate at 0.59% reflects the asset-weighted average across the 348-institution cohort, while a per-bank median would likely be lower given the concentration of delinquencies in larger loan portfolios. The aggregate is the honest number for industry-level credit costs. The YoY increases in both delinquency (14 basis points) and NPA ratio (13 basis points) are nearly identical, suggesting that problem loans are flowing through to nonaccrual status at a consistent rate rather than being cured or restructured. The QoQ stability (1-2 basis points) indicates the deterioration has plateaued in the near term, but the YoY trend is clearly upward.

Tier 1 capital declined to 15.50% from 15.61% in Q4 2025, a 10-basis-point decrease, and was stable YoY at 15.54% (down 4 basis points). The QoQ decline reflects organic capital consumption from balance-sheet growth (assets up 6.70% YoY) outpacing retained earnings, while the YoY stability indicates capital generation has kept pace with growth over the longer term. Texas banks' Tier 1 capital ratio of 15.50% sits 125 basis points above the national benchmark of 14.26%, a substantial cushion. Across specializations, Credit Card specialists posted delinquency of 2.57%, more than four times the cohort average, reflecting the higher-risk consumer credit profile of that business line. Agricultural specialists, representing 21.3% of the cohort, posted delinquency of 0.63%, slightly above the cohort average of 0.59%. If delinquency continues its current YoY pace of increase (14 basis points per year), the cohort will converge toward the national benchmark of 0.70% by early 2027.

The loan-to-deposit ratio fell to 66.78% in Q1 2026, down 51 basis points from 67.28% in Q4 2025 and 57 basis points from 67.35% a year earlier, marking the lowest level in the periods shown. The decline reflects deposit growth outpacing loan growth: deposits expanded 6.32% YoY while loans grew 6.41% YoY, a near-parity dynamic that mechanically compressed the ratio. Quarter-over-quarter, deposit growth decelerated from 6.45% to 6.32% while loan growth decelerated from 6.68% to 6.41%, but the deposit deceleration was less severe, widening the liquidity cushion. The cohort's LDR sits 960 basis points below the national benchmark of 76.38%, signaling a structurally more liquid funding posture.

Noninterest-bearing deposit share held stable at 29.02%, down only 2 basis points from 29.04% in Q4 2025 but down 30 basis points from 29.32% a year earlier. The YoY decline is consistent with a gradual migration toward interest-bearing accounts, but the QoQ stability suggests the shift has plateaued. Texas banks' NIB share of 29.02% remains 743 basis points above the national average of 21.60%, reflecting a durable low-cost deposit franchise. Noninterest income as a percentage of revenue fell sharply to 0.20% from 0.86% in Q4 2025, though it was stable YoY at 0.20%, suggesting the Q4 figure was an outlier driven by one-time fee or investment income. The cohort's 0.20% trails the national benchmark of 0.32% by 12 basis points, indicating a traditional net-interest-income orientation.

Across the 348 Texas banks, the engagement profile is mixed: liquidity improved as deposit growth slightly outpaced loan growth, and the noninterest-bearing deposit franchise remains robust relative to the national average. However, the sharp QoQ drop in noninterest income and the continued YoY erosion of NIB share point to revenue-mix pressure. The loan-to-deposit ratio at 66.78% provides ample liquidity headroom but also signals underdeployed deposits—a strategic tension for institutions seeking to optimize earning-asset yields.