LOCAL ECONOMIC SNAPSHOT | BANKING

Fewer banks, more profits

By BILL BOWEN
Staff Writer bbowen@dallasnews.com

KYLE ALCOTT
Staff Artist kalcott@dallasnews.com

Banks help us gain credit worthiness, build savings, finance our housing and business growth, and are often active in their local communities economic development efforts. Banks are important. Their success drives communities forward. Their mistakes, as we have recently learned, can affect us all. Or make a post-industrial economy's knees wobble. Despite improvements in the industrys overall performance, problems linger.

A national overview
The number of banks continues to decline, mostly through acquisition. And while the number of troubled institutions appears to have peaked, the assets of troubled institutions, while down slightly, remain an overhang. Banks put aside $19.5 billion in provision for loan losses in the fourth quarter 2011, down from $32.6 billion in fourth quarter 2010. Fourth-quarter profits were $26.3 billion.

Number of FDIC insured institutions

10,000 8,000 6,000 4,000 2,000 0 05 06 07 08 09 10 11

Number of problem institutions

1,000 800 600 400 200 0

7,357

813

Assets of problem institutions (in billions)

500 400 300 200 100 0

Number of failed institutions

200

$319 billion

92
150 100 50 0

05 06 07 08 09 10 11

05 06 07 08 09 10 11

05 06 07 08 09 10 11

Quarterly profits
Quarterly profits show that in 2007 there were signs of problems that didnt explode until fourth-quarter 2008. Banks earned $119.5 billion last year, the first year of profits above $100 billion since 2006.
(In billions) 40 30 20 10 0 -10 -20 -30 -40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Growing centralization
A growing number of industry voices are starting to call for the end of too-big-to-fail institutions. The top five banks accounted for 52% of banking assets in 2010 compared with 17% in 1970. PERCENTAGE OF ALL ASSETS 1970
Top five insititutions:

$26.3 billion

2010
Top five insititutions:

17%

52%

Small: 46%

Large and medium: 37%

Small: 16%

Large and medium: 32%

2007

2008

2009

2010

2011

Total number of institutions: 12,600 2011 Return on assets Noncurrent loan rate* Loan charge-offs*
*Percent of all loans

Total number of institutions: 5,800 TEXAS 1.1% 2.4% 0.7% 1.6% UNITED STATES 0.9% 4.1%

Texas banking vs. the nation

By avoiding the real estate bubble experienced elsewhere in the country and with profits from a strong energy industry, Texas banks, on average, survived the economic downturn healthier than their national peers.

Texas top 10
Banking has rebounded in Texas since the late 1980s when the real estate investment bust knocked the wind out of the states overextended industry and saw the total demise of the savings and loan industry. Seven of the top 20 banks in Texas are based in North Texas. BANK Comerica Bank Wells Fargo Bank South Central The Frost National Bank Amegy Bank Prosperity Bank International Bank of Commerce Texas Capital Bank PlainsCapital Bank First National Bank Woodforest National Bank HEADQUARTERS Dallas Houston San Antonio Houston El Campo Laredo Dallas Dallas Edinburg The Woodlands DEPOSITS (in billions) $48.3 $26.4 $16.85 $9.73 $8.1 $6.55 $5.58 $4.26 $2.6 $3.1 TOTAL ASSETS (in billions) $60.97 $33.73 $20.37 $12.2 $9.82 $9.62 $8.13 $5.68 $3.52 $3.49 TOTAL CAPITAL $6.97 billion $3.27 billion $2.31 billion $2.26 billion $1.64 billion $1.31 billion $693 million $581.9 million $327.7 million $335.6 million NET INCOME (in millions) $471 $630 $225 $159.4 $146.2 $113.4 $79.5 $71.6 -$26 $73.5

SOURCES: FDIC; Federal Deposit Insurance Corp.; Federal Reserve Bank of Dallas

The bottom line

Why has Texas banking done better than the nation? It's a combination of things: The economy in Texas was stronger and more diverse. We went into it better. And our bankers are very experienced. A lot of them lived through the 1980s when we were strictly tied to the energy sector. Everything went great guns to bust overnight. Charles Cooper, Texas Banking Commissioner We're building a banking system of big banks and a regulatory system that is only worried about the big banks. Nobody is worrying about the unintended consequences of these rules on the smaller banks. The banking system ought to be looking after the assets of the community, not its derivatives. I get the sense that attitudes are changing. Recently, the new chairman of the Texas Bankers Association, Mike Mauldin of First Financial in Hereford, targeted Wall Street. He thinks Texas bankers too often have been painted with the same broad brush as the Wall Street investment bankers. But here in Texas, he said, bankers help peoples dreams come true.

Tom Frost, chairman emeritus of Frost Bank

Bill Bowen, staff writer, The Dallas Morning News