The Modified Texas Ratio formula has been altered to take into account new rules that force banks to bring onto their balance sheet non-performing government-secured loans at face value, despite the value that they were acquired at or whether they are just being serviced by the bank. These non-performing government-secured loans are added into the cumulative value of a banks non-performing loan total. Therefore to get a clear view of the Texas Ratio you have to subtract out these government secured loans from the numerator value (non-performing loans).
The Modified Texas Ratio formula is below:
Texas Ratio (Modified) = (Non-Performing Loans – Government-Sponsored Non-Performing Loans + Real Estate Owned) / (Tangible Common Equity + Loan Loss Reserves)