1. January 17, 2013
Agency Responsibilities and
Texas Banking System
Kurt Purdom
Director of Bank and Trust Supervision
Texas Department of Banking

2. Disclaimer
The views expressed in this presentation are
those of the author and do not necessarily
reflect official positions of the Texas
Department of Banking. Some of the
information used in the preparation of this
presentation was obtained from publicly
available sources which are considered
reliable. However, the use of this information
does not constitute any endorsement of its
accuracy by the Texas Department of Banking.

3. Topics
 Agency Operations
 Banking Issues
 Balance Sheet Risk vs. Reward
 New Product Lines
 Trimming OH Costs
 CFPB
 BASEL III
 Cyber Crime
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4. Agency Operations
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5. Profile of Regulated Entities
Total Assets
Regulated Entity Number of Entities $(billions)
Commercial Banks* 300 $196
Foreign Bank Agencies 10 $ 84
Public Trust Companies 22 $ 22
Prepaid Funeral Licensees 398 $ 3
Perpetual Care Cemeteries 243 $ 0
Money Service Businesses 135 $ 81
Private Child Support Enforcement Agencies 10 N/A
Check Verification Entities 4 N/A
Totals 1,122 $386
Information as of June 2012.
* Excludes out of state, state-chartered banks operating in Texas.
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6. Assets Under Supervision in Texas
Sources:
6 FDIC June 2012

7. 7

8. Return on Assets by State
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Source: FDIC Quarterly Banking Profile – 3Q 2012.

9. Commercial Bank Performance and Condition Ratio
Comparison (State and Federal Charters)
Texas Nation Texas Nation
12/31/2008 12/31/2008 6/30/2012 6/30/2012
Number of Banks 594 7,085 544 6,222
Total Assets ($ in millions) $273,498 $12,312,914 $338,458 $12,889,818
% of Unprofitable Institutions 14.14% 21.85% 6.07% 9.95%
Net Interest Margin 3.82% 3.23% 3.59% 3.50%
Return on Assets 0.82% 0.21% 1.19% 0.99%
Return on Equity 7.85% 2.11% 10.64% 8.86%
Net Charge-Offs to Loans 0.50% 1.31% 0.44% 1.15%
Earnings Coverage of Net Loan Charge-
Offs (x) 5.00 2.17 6.41 2.92
Efficiency Ratio 64.73% 58.30% 62.23% 61.87%
Source: FDIC
As of 12-31-08 and 6-30-12
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10. Commercial Bank Performance and Condition Ratio
Comparison (State and Federal Charters)
Texas Nation Texas Nation
12/31/2008 12/31/2008 6/30/2012 6/30/2012
Loss Allowance to Loans 1.31% 2.28% 1.72% 2.44%
% CRE to Total Loans 44.2% 25.0% 20.8%* 14.1%**
% CRE to Total Risk-Based Capital 285.2% 148.6% 117.8%* 73.2%**
% C & D Loans to Total RBC 108.6% 46.4% 40.9% 15.3%
Noncurrent Assets Plus ORE to
Assets 1.14% 1.82% 1.71% 2.40%
Noncurrent Loans to Loans 1.43% 2.90% 2.07% 3.93%
Core Capital (leverage) Ratio 8.94% 7.42% 9.81% 9.11%
Equity Capital to Assets 10.40% 9.45% 11.21% 11.29%
Tier 1 Risk-Based Capital Ratio 10.62% 9.75% 14.38% 12.84%
Total Risk-Based Capital Ratio 12.67% 12.75% 16.12% 14.98%
Total Bank Failures and Assistance
Transactions (All) 2 30 0 32
Source: FDIC
As of 12-31-08 and 6-30-12
*Represents CRE Concentration (without owner occupied properties). CRE Exposure w/owner occupied and commitments would be 36.3% and 205.6%, respectively.
10 ** Represents CRE Concentration (without owner occupied properties). CRE Exposure w/owner occupied and commitments would be 22.7% and 117.7%, respectively.

11. Noncurrent Rate on RE Construction and Development
Loans (Nationally)
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12. RE Loan Growth Rates: 2001 to 2011
(All FDIC Insured Institutions in the U.S.)
Source: FDIC Quarterly Bank Profile – 3rd Quarter 2012.
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13. Yield Curve: Low Rates Continue
13 Graphic provided by Federal Reserve Bank of Dallas

14. Quarterly NIM: Lower Asset Yields Cause Downward
Pressure (All Insured Institutions in the U.S.)
Source: FDIC Quarterly – 2nd Quarter 2012. 14

15. Balance Sheet Risk vs. Reward
New Product Lines
Trimming OH Costs
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16. Dodd-Frank Act
Purpose: Promote financial stability by improving
accountability and transparency in the financial
system, ending “too big to fail,” and protecting
consumers.
Organized under 16 titles in 848 pages of
legislation.
Requires regulators to create 243 rules.
Conduct 67 studies.
Issue 22 periodic reports.
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17. Dodd-Frank Act
OTS: Eliminates the Office of Thrift Supervision,
who was the supervisor of federal thrifts.
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18. Dodd-Frank Act
Too Big to Fail: Requires banks of $50 billion and over to
draft living wills and imposes new capital requirements,
which may make it undesirable to become too big.
FSOC: Creates the Financial Stability Oversight Council.
Charged with identifying and responding to emerging risks
in the financial system. Decides which banks and other
non‐bank financial service providers are “Systemically
Important Financial Institutions,” or SIFIs.
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19. Dodd-Frank Act
 Amends FDI Act to fully insure, without limit, all
noninterest bearing transaction accts. Ended 12‐31‐
12.
 Voelcker Rule – Will ban proprietary trading. Banks
can still execute trades for customers, but not for
themselves.
 Rating Agencies – Banks can no longer rely on them
when purchasing bonds. Must do their own
analysis.
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20. Dodd-Frank Act
Ability to Repay: Requires that the lender consider the
borrower’s ability to repay the loan. If a lender originates a
mortgage that a consumer clearly can’t repay, then they can
be subject to litigation risk.
 Bankers wanted a “safe harbor” from this provision. If the
lender underwrites the loan according to the “Qualifying
Mortgage” guidelines, then they will not be subject to
lawsuits. Consumer groups wanted limits on the “safe
harbor.” Final rule released by CFPB on 1‐10‐13 only
provides a “safe harbor” for prime loans.
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21. Dodd-Frank Act
Ability to Repay: Generally speaking, the characteristics of a
QM loan are:
 The borrower has a debt‐to‐income ratio no greater than
43%.
 Fees and points cannot exceed 3% of the total loan amount,
although certain "bona fide" fees on prime loans are
excluded.
 Lenders must verify a borrower's income.
 Cannot include certain characteristics of nontraditional
mortgages, including interest‐only and negative‐
amortization loans, as well as mortgages for a period of
longer than 30 years.
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22. Dodd-Frank Act
Qualifying Residential Mortgage (QRM): Mortgage lenders
will be required to have “skin in the game,” meaning that
they will be required to retain a percent of the mortgage
(Ex: $5,000 on a $100,000 loan).
 However, if the loan is a QRM, then the lender can sell the
entire balance into the secondary market.
 Current proposal from the regulators is the loan must
have 20% down payment to be a QRM.
 CFPB opposes the 20% down payment on low‐risk
mortgages, but will not intervene.
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23. Dodd-Frank Act
Swipe Fees: New rules on interchange fees went into
effect 10‐1‐11 limiting the fees that big banks can
charge to 21 cents per transaction, plus a few cents
more if the bank has a fraud prevention program in
place. The average was approximately 44 cents per
transaction before the Durbin Amendment to the
Dodd‐Frank Act.
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24. Dodd-Frank Act Swipe Fees
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25. Other Issues
 Basel III. CSBS and DOB believe framework is
too complex and will adversely affect
economy.
 Corporate Account Takeovers.
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26. Questions?
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