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  1. 1. Committee on Financial Institutions Texas House of Representatives Residential Mortgage Foreclosure Credit Cards Financial Education Testimony by: Robert Bacon, Deputy Commissioner Texas Department of Banking June 11, 2008
  2. 2. Texas State-Chartered Banks * Overview <ul><li>The Texas state-chartered banking system is entering this period of economic uncertainty from a position of relative strength. </li></ul><ul><li>Overall, state-chartered banks are operating within acceptable risk profiles and reflect sufficient management, capital, profitability, liquidity and loan loss reserves. </li></ul><ul><li>Overall, the involvement of state-chartered Texas banks in residential mortgage lending has been measured, prudent, and conducted in a safe and sound manner. </li></ul><ul><li>However, stresses in the housing markets, including interim construction and land development, have affected some institutions, with a few banks experiencing a marked increase in asset quality issues. </li></ul><ul><li>*Indicates only commercial banks supervised by the Department of Banking. </li></ul>Prepared by: Texas Department of Banking House Committee on Financial Institutions June 2008
  3. 3. Source: FDIC calculations based on the LoanPerformance Securities Database Note: Seriously Delinquent includes active loans 90 or more days past due or in foreclosure; excluding REO. Seriously Delinquent Subprime Loans, as Percent of Active Loans Year-end 2006 Year-end 2007
  4. 4. Texas State-Chartered Banks * Highlights – March 31, 2008 <ul><li>Texas has 328 state-chartered institutions with $152.8 billion in assets, employ 35,335 persons, and operate 1,463 in-state branches and 392 out-of-state branches in eight states (AZ, CA, CO, FL, MI, NM, OK, VA). </li></ul><ul><li>New Texas state-chartered banks opening in 2007 totaled 14. </li></ul><ul><li>Capital adequacy is strong with a core position of 9.1%. </li></ul><ul><li>Loan loss reserves are adequate at 1.11% of total loans. </li></ul><ul><li>Profitability is acceptable with a return on assets of 1.01% and return on equity of 9.99%. </li></ul><ul><li>Loan volume is satisfactory with net loans and leases to total assets at 67.68%. </li></ul><ul><li>Past dues loans are manageable at 1.0% of total loans and leases. </li></ul><ul><li>The primary funding source remains core deposits at 61.26% of total liabilities. </li></ul><ul><li>*Indicates only commercial banks supervised by the Department of Banking. </li></ul>House Committee on Financial Institutions June 2008 Prepared by: Texas Department of Banking
  5. 5. Texas State-Chartered Banks * Stresses – March 31, 2008 <ul><li>The percentage of unprofitable institutions increased to 12.5%, but adjusted for unprofitable state charters less than one year old, the ratio changes to 8.8%. </li></ul><ul><li>Overall, the net interest margin declined to 3.72%. </li></ul><ul><li>The number of problem institutions (CAMELS rated 3, 4, or 5) increased to 14 (none are rated 5 or are in immediate jeopardy of failing). </li></ul><ul><li>Net loan charge-offs to total loans increased to 0.51%. </li></ul><ul><li>Experienced bankers with loan work-out experience are in short supply. </li></ul><ul><li>*Indicates only commercial banks supervised by the Department of Banking. </li></ul>House Committee on Financial Institutions June 2008 Prepared by: Texas Department of Banking
  6. 6. Texas State-Chartered Banks * Residential Mortgage Activity- March 31, 2008 <ul><li>Material residential mortgage loan problems have been avoided due to: minimal credit concentrations; generally sound underwriting; and statutory limitation on home equity loans at 80% of the property’s appraised value. </li></ul><ul><li>1-4 family mortgage loans total $11.5 billion or 7.46% of gross bank assets, a decrease from 9.45% and 10.11% as of March 2005 and 2002, respectively. (Nationwide, 1-4 family mortgages at commercial banks are 17.19% of gross bank assets.) </li></ul><ul><li>Past due residential mortgages are manageable at 1.03% for 30-89 days and 0.27% for 90 plus days. </li></ul><ul><li>Net charge-offs of residential mortgages remain manageable at $17 million in 2007 and $6.5 million for the first quarter of 2008. </li></ul><ul><li>Foreclosed 1-4 family property is manageable at $48.5 million. </li></ul><ul><li>*Indicates only commercial banks supervised by the Department of Banking. </li></ul>Prepared by: Texas Department of Banking House Committee on Financial Institutions June 2008
  7. 7. Texas Department of Banking Bank Regulatory Plan House Committee on Financial Institutions June 2008 Prepared by: Texas Department of Banking <ul><li>The Department, in conjunction with other state and federal bank regulators, is concentrating on monitoring and reacting to: </li></ul><ul><ul><li>System liquidity and bank funding sources; </li></ul></ul><ul><ul><li>Concentrations in construction and land development loans; </li></ul></ul><ul><ul><li>Concentrations in commercial real estate loans; and </li></ul></ul><ul><ul><li>Bank management’s risk management practices. </li></ul></ul>
  8. 8. Texas State-Chartered Banks * Credit Card Activity - March 31, 2008 House Committee on Financial Institutions June 2008 Prepared by: Texas Department of Banking <ul><li>Most Texas state-chartered banks are not active in extending credit card debt. </li></ul><ul><li>Only ten institutions reflect credit card loans in excess of 1.0% of total assets. </li></ul><ul><li>Texas state-chartered banks are not active in issuing credit card loans, predominately because of the state usury ceiling as other states have no usury limit for this type debt. </li></ul><ul><li>Basically, Texas citizens carry credit cards issued by out-of-state financial institutions. </li></ul><ul><li>*Indicates only commercial banks supervised by the Department of Banking. </li></ul>
  9. 9. Texas Department of Banking Financial Education Highlights <ul><li>Conducted legal research and initiated discussions with the FDIC to reduce the burden of establishing in-school branches. </li></ul><ul><li>Participated in state-wide financial education surveys in 2006 and 2007. </li></ul><ul><li>Conducted a series of seven statewide workshops in 2007 that attracted hundreds of participants. </li></ul><ul><li>The Department’s Financial Education Coordinator visited over 20 state-chartered banks in fiscal year 2008, with five more visits planned before September 2008. </li></ul><ul><li>The Financial Education Coordinator has been active in numerous public speaking events. </li></ul><ul><li>Leilani Lim-Villegas, the Department’s Financial Education Coordinator, received one of five FDIC 2007 Pioneer Awards for her efforts in promoting financial education. </li></ul>Prepared by: Texas Department of Banking House Committee on Financial Institutions June 2008

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