House Committee on State Affairs

April 28, 2016

Condition of the Texas State Banking System

Charles G. Cooper Commissioner – Texas Department of Banking

Executive Director – Finance Commission of Texas

                  

Tough But Fair

Ensuring Texas Has a Safe, Sound and Competitive Financial Services System

      

       

 

  

  

   

 

     

   

 

     

 

     

                

          

                   

                           

     

               

                  

Profile of Regulated Entities

Regulated Entities Number of Entities

As of December 31, 2015

Total Assets ($ millions)

Commercial Banks 252 246,960

Trust Companies 20 nonexempt 17 exempt 97,453

Foreign Bank Agencies 9 FBAs

17 representative offices 77,941

Money Services Businesses 147 104,133

Prepaid Funeral Contract Sellers 378 3,638

Perpetual Care Cemeteries 245 308

Cemetery Brokers* 9 NA

Private Child Support Enforcement Agencies* 10 NA

Check Verification Entities* 2 NA

Texas Bullion Depository Agent Services* 0 NA

The Department conducts examinations of entities under its supervision to evaluate the safety and soundness and compliance with state and federal laws. Total assets of the regulated entities represented in the table are approximately $530.4 billion.

Eleven Texas state‐chartered banks operate branches in nine other states. (AZ, CA, CO, FL, GA, IL, MI, NM & OK)

* Registration requirement only. Presented by the Texas Department of Banking

3

          

            

      

      

 

      

 

   

 

     

     

 

  

 

      

       

        

Assets of Federally Insured Texas Financial Institutions

Source: FDIC Presented by the Texas Department of Banking

Texas State‐Chartered Banks $247.0 Billion

26.1%

Texas State‐Chartered Savings Institutions $13.6 Billion

1.4%

Texas State‐Chartered Credit Unions

$33.9 Billion 3.6%

Texas Nationally‐Chartered Banks

$117.4 Billion 12.4%

Texas Federally‐Chartered Savings Institutions

$73.7 Billion 7.8%

Texas Federally‐Chartered Credit Unions

$55.3 Billion 5.8%

Out‐of‐State State‐Chartered Banks

$57.3 Billion 6.1%

Out‐of‐State Nationally Chartered Banks

$347.5 Billion 36.7%

Out‐of‐State Federally‐Chartered Savings Institutions

$ 1 Billion <1%

$946.6 Billion As of December 31, 2015

4

 

 

           

Bank Failures ‐ Nationwide

5 Source: FDIC Presented by the Texas Department of Banking

 Bank Failures ‐ Nationwide

6 Source: FDIC

 

 

     

         

 

   

   

     

       

     

               

       

     

           

Bank Failures in Texas 2008

Franklin Bank, SSB State Savings Houston November

Sanderson State Bank State Bank Sanderson December

2009 Millennium State Bank of Texas State Bank Dallas July

Guaranty Bank Federal Thrift Austin August

Citizens National Bank National Teague October

Madisonville State Bank State Bank Madisonville October

North Houston Bank State Bank Houston October

2010 The La Coste National Bank National La Coste February

2011 First International Bank State Bank Plano September

2013

First National Bank aka The National Bank of El Paso National Edinburg September

Texas Community Bank, National Association National The Woodlands December

Presented by the Texas Department of Banking Source: FDIC

7

                               

     

       

 

  

 

FDIC Problem Banks Nationwide

# of

Problem

Ban

ks

The FDIC defines problem banks as any financial institution with a composite rating of “4” or “5”.

900

884800 813

700 702

600

651500

400

300 467

252200

100 291

0

1832008 2009 2010 2011 2012 2013 2014 2015

Years

As of December 31, 2015

Source: FDIC 8

                                  

   

       

  

 

       

Department Problem Banks The DOB defines problem banks as any financial institution with a composite rating of “3”, “4” or “5”.

Historical State‐Chartered Problem Banks Data

Num

ber o

f Problem

Ban

ks

60

50

40

30

20

10

0

14

21

42

56 58

51

41

24

9 7 8

Aug‐07 Aug‐08 Aug‐09 Aug‐10 Nov‐10 Aug‐11 Aug‐12 Aug‐13 Aug‐14 Aug‐15 Mar‐16

Source: Texas Department of Banking 9

       

      

   

       

     

   

   

   

     

     

 

     

     

           

 

Bank Performance and Condition Ratios

Texas Nation

12/31/2015 12/31/2015

Number of Banks 480 6,182

Total Assets ($ in millions) $451,713 $15,967,923

% of Unprofitable Institutions 2.71% 4.61%

Net Interest Margin 3.58% 3.07%

Return on Assets 1.12% 1.04%

Return on Equity 10.16% 9.31%

Net Charge‐Offs to Loans 0.31% 0.44%

Loss Allowance to Loans 1.31% 1.34%

Efficiency Ratio 63.27% 59.91%

Equity Capital to Assets 11.02% 11.24%

Total Risk‐Based Capital Ratio 14.62% 14.21%

Earnings Coverage of Net Loan Charge‐Offs (x) 8.98 7.22

10Source: FDIC

                                                                                         

             

      

   

      

       

In 1985, there were more than 18,000 active bank charters in the United States. Since then, the US has seen a 65% decrease in the number of active bank charters. Despite this rapid consolidation, the state charter remains strong. Of the 6,127 banks in operation as of April 2016, 4,748 (77%) hold a state charter.

Source: FDIC and CSBS

77% State Chartered

16% OCC Banks

7% OCC Thrifts

11

U.S. Bank Charters by Authority

                                    

                                              

                        

                       

           

Challenges for Banks

1. Increasing federal regulatory burden stemming from the financial crisis, i.e. Dodd‐Frank, etc.

2. Cyber crimes. 3. Economic impact of the Texas oil and gas industry.

• Only 7% of state banks have a significant activity in oil and gas loans. • Ancillary industries could be affected by decreased investments in the oil industry.

4. Narrowing net interest margin in a low rate environment. 5. Revenue diversification through noninterest income sources.

Due to these challenges, we have seen an increased number of bank consolidations.

Presented by the Texas Department of Banking 12

       

       

 

           

7,658 All U.S. Banks As of December 31, 2010

1,531 less

6,127 All U.S. Banks As of April 14, 2016

Presented by the Texas Department of Banking Source: FDIC

13

       

       

 

           

615 All Texas Banks As of December 31, 2010

139 less

476 All Texas Banks As of April 14, 2016

Presented by the Texas Department of Banking Source: FDIC

14

     

 

 

 

 

 

 

 

 

 

 

 

 

 

   

  

    

260

270

300

310

320

330

Changes Over the Years

327

318 314

304

294

283

267

252

$164.6 $162.8 $162.6

$170.4

$205.8

$216.2

$235.4

$247.0

2008 2009 2010 2011 2012 2013 2014 2015

# of Banks Total Assets

$290.0

$270.0

$250.0

# of

Ban

ks

290 $230.0

280 $210.0

$190.0

$170.0

Total A

ssets in Billion

s

$150.0240

15 Source: FDIC

250

                  

                    

Number of De Novo State Bank Charters In Texas Since 2000

18

16

14

12

10

8

6

4

2

0

5

6

3

8

3

6

4

5

17

4

0 0 0 0 0 0

Presented by the Texas Department of Banking Source: Texas Department of Banking Data

16

Commissioned vs. Non-Commissioned

Non-commissioned Examiners

Commissioned Examiners

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

41.9%

53.7% 56.4% 59.2% 64.4% 64.5% 67.0% 63.0%

58.1% 46.3% 43.6% 40.8%

35.6% 35.5% 33.0% 37.0%

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

 

 

     

 

   

        

Department Tenure

< 2yrs

2‐ 5 yrs

5 to 10 yrs

10 ‐ 15 yrs

> 15 yrs

21%

19%

23%

22%

16%

As of February 29, 2016

           

                    

                

                                                

        

     

Department Initiatives

Industry leader in Cybersecurity. Hosted first Executive Leadership on Cybersecurity event in the nation.

Recognized nationally on banking and money service business issues.

Regulatory leader in developing supervisory policies, procedures and training, and only state regulator to have formal testing program for commissioning examiners.

Extensive financial literacy outreach and community involvement. Active with: Conference of State Bank Supervisors ‐ CSBS Money Transmitter Regulators Association ‐MTRA

Presented by the Texas Department of Banking 19