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Annual Report Texas Department of Banking

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Annual Report Texas Department of Banking Powered By Docstoc
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         Texas Department of Banking
             2007 Annual Report
                Randall S. James, Commissioner

                                          Contents
 Message from the                                    State Bank Branching Activity
 Commissioner . . . . . . . . . . . . .3             Outside of Texas . . . . . . . . . . .21

 2007 - A Year in Review . . . . . .5                Financial Education . . . . . . . . .23

 Commissioner’s Comments . . . .6                    Department Appropriations . . . .25
                                                                                                Produced by:
                                                                                                The Texas Department
 Highlights of Divisions &                           Memberships & Affiliations . . .28         of Banking
 Supervised Industries                                                                          2601 N. Lamar
                                                     Finance Commission . . . . . . . .30       Austin, Texas 78705
     Texas Banking Overview . . .10                                                             512-475-1300
                                                                                                512-475-1313 (Fax)
                                                     Organizational Chart . . . . . . . .31
                                                                                                www.banking.state.tx.us
     Special Audits . . . . . . . . . .13
                                                     Financial Information & Statistics         Staff:
     Corporate Activities . . . . . .15              on Regulated Industries . . . . . .32      Editor:
                                                                                                Wendy Buitron
     Legal Division . . . . . . . . . .17            Newest State Banks,
                                                                                                Graphics & Layout:
                                                     MSBs, PCCs & PFCs . . . . . . . .38        Philip A. Lena
     Information Security Continues
     to Be Focus of Examinations                     Largest State Banks &                      Photos in this
       . . . . . . . . . . . . . . . . . . . . .20   Trust Companies . . . . . . . . . . .40    publication:
                                                                                                Courtesy of the Texas
                                                                                                Department of Transportation
                                                     Awards & Recognitions . . . . . .42


Page 2
Message from the Commissioner




                            Page 3
 200 7
                                                                             REVIEW
                                   A YEAR I
February                                               August
  Texas Banking Department Hosts Workshops to            Commissioner recognizes Chappell Hill Bank,
Improve Financial Literacy Efforts in Texas.           Chappell Hill for 100 years of service.

   Commissioner recognizes Dilley State Bank, Dilley     Commissioner recognizes TIB-The Independent
for 100 years of service.                              BankersBank for 25 years of service.

April                                                    Commissioner recognizes First State Bank, New
   Texas Banking Commissioner Names Kurt Purdom        Braunfels for 100 years of service.
as Director of Bank and Trust Supervision.
                                                       October
  Commissioner recognizes Buckholts State Bank for       Texas Banking Commissioner Randall S. James
100 years of service.                                  announces its new encrypted communication service
                                                       being provided by ZixCorp (ZIX). This service will
May                                                    provide encrypted email service between the
  Commissioner recognizes FirstBank Southwest for      Department and its customers, including banks and
100 years of service.                                  other licensees and their attorneys.

  Commissioner recognizes Justin State Bank for 100      Commissioner recognizes First United Bank,
years of service.                                      Dimmitt for 100 years of service.

  Commissioner recognizes Citizens State Bank,           Commissioner recognizes CitizensBANK, Slaton for
Princeton for 100 years of service.                    75 years of service.

June                                                     OCC and Texas Agree to Share Consumer
  Banking Commissioner Issues License For The First    Complaints, Bringing Total of Such Agreements to
Foreign Bank Branch Office In Texas.                   Twenty-Eight.

  Bankers Inspired to Promote Financial Literacy          Commissioner recognizes First State Bank of Miami
Programs in Their Communities.                         for 100 years of service.

  CSBS Honors Gayle Griffin Posthumously With            Commissioner recognizes Carmine State Bank,
Senior Fellow Award.                                   Carmine for 100 years of service.

 Commissioner Announces Revisions to Supervisory       November
Memo Addressing Information Technology Frequency.        Comerica Bank Welcomed To Texas By Texas
                                                       Banking Commissioner.
July
   Texas Banking Commissioner Announces Revisions        Commissioner recognizes Citizens State Bank,
to Supervisory Memo Addressing Examination             Sealy for 100 years of service.
Frequency for State-Chartered Commercial Banks.
                                                          Commissioner recognizes First State Bank, Bedias
  Commissioner recognizes Sanderson State Bank,        for 100 years of service.
Sanderson for 100 years of service.




                                                                                                    Page 5
         Commissioner’s Comments
             Banking in Texas                          Texans to successfully meet their
                                                       financial goals and needs.
             Everyone remembers the 1980s cri-
             sis that changed the banking indus-       Economic Environment
             try. The market was in a weak state
             and several Texas banks were              Texas had a good year considering
             acquired by out-of-state banking          the steady dose of volatility in eco-
             organizations. Texas banking has          nomic news throughout 2007.
             changed since then and has strength-      Changing economic conditions at a
             ened substantially over the years.        national level created a roller coast-
                                                       er effect throughout the year. The
             The state’s ability to sustain a strong   turmoil in the mortgage market,
             and vibrant banking marketplace in        reduced housing construction, rising
             2007 attracted 14 new state-charters,     energy prices, and the overall slow-
             and increased total assets by 46%         ing of the economy created chal-
             over 2006. A large majority of this       lenges for the banking industry.
             increase is attributed to the addition
             of Comerica Bank to our banking                   fter           exhibiting
              community. This is exciting news
                for all Texans as our state takes a
                bold step in returning to financial
                                                       A       strong growth for much of
                                                               2007, the Texas economy
                                                       showed weakening in the fourth
               prominence.                             quarter.    Mortgage-related credit
                                                       affecting the lower-priced 1-4 fami-
                   Texas’ diverse banking com-         ly residences tightened; however,
                        munity ranges from the         nonresidential and multifamily
                          smallest bank in the         demand continued to hold steady.
                            United States to the       Homebuyers that no longer qualified
                              23rd largest in the      for a mortgage became renters,
                               country.        The     resulting in an increase demand for
                                future of Texas        multifamily structures. Overall con-
                                  banking con-         struction of residential homes
                                   tinues to look      slowed, but demand for higher
                                    promising,         priced homes did not appear to be
                                      especially       materially    thrown     off    track.
                                        t h e          Although the Texas economy was
                                         oppor-        not significantly affected in 2007 by
                                           tuni-       a majority of these economic factors
                                            t i e s    as other states, 2008 looks to be a
                                             f o r     year of patience and assessment.

                                                       One of the leading headlines all
                                                       through 2007 was the mortgage cri-




Page 6
2007 Annual Report




sis, which appeared to be a “big”         Fraud Act, which requires a written
bank issue. Informal surveys con-         notice at closing indicating that
ducted by the Department indicated        intentionally or knowingly making a
that our regulated entities held a        materially false or misleading state-
minor percentage of mortgages in          ment to obtain property or credit is a
their loan and investment portfolios.     violation of the Texas Penal Code.
Discussions with Texas bankers dur-       Additionally, HB 716 created the
ing Banker Town Hall meetings con-        Residential      Mortgage      Fraud
firmed that smaller community             Taskforce, of which the Department
banks in Texas avoided significant        is an active member, to coordinate
problems with mortgage-related            mortgage fraud reporting, investiga-
investments.                              tions, and prosecution within state
                                          and federal agencies.
The return on assets (ROA) for state-
chartered banks in the fourth quarter
of 2007 was 1.22%, while in the
same quarter a year prior was 1.20%.        “...HB 2002, requires a financial institution
The immaterial change in ROA fur-
ther demonstrates that Texas state
banks are in a better position to enter
                                          to notify all check verification entities about a
the storm.
                                             closed account if a customer is a victim of
Combating Fraud and Identity
Theft                                                      identity theft or fraud.”
A number of consumer protection
laws designed toward combating
fraud and identity theft were brought
to the forefront in the 80th                      n o t h e r c o n s u m e r p r o-
Legislative Session. One specific
piece of legislation, House Bill (HB)
716, addressed mortgage loan fraud.
                                          A       tection law aimed at dimin-
                                                  ishing identity theft, HB
                                          2002, requires a financial institution
According to the Financial Crimes         to notify all check verification enti-
Enforcement Network (FinCEN), the         ties about a closed account if a cus-
number of Suspicious Activity             tomer is a victim of identity theft or
Reports (SARs) filed by depository        fraud. To use the service, the cus-
institutions indicating suspected         tomer must notify and provide cer-
mortgage loan fraud increased by          tain proof to the financial institution,
1,411% between 1997 and 2005. The         including a signed sworn statement
Texas Legislature recognized the          and written authorization. The finan-
need for legislation to help combat       cial institution must promptly pro-
the growing mortgage fraud problem        vide a specified notice to all nation-
and passed the Residential Mortgage       wide check verification companies




                                                                                       Page 7
                                                                               2007 Annual Report




             Commissioner’s Comments (Cont.)

         operating in Texas through a secure          Departmental       Initiatives      and
         electronic notification system estab-        Changes
         lished by Finance Commission rule and
         administered       by    the     Banking     A long standing hallmark of the
         Commissioner.        The     Department      Department has been the experience
         launched the secure electronic system        that our senior staff has been able to
         on March 1, 2008 for the use of any          provide over the years, which has
         financial institution operating a facility   helped shape the Department's priorities
         in Texas. This consumer protection           and goals. The senior staff's diligent
         service is the first of its kind in the      work and selfless dedication is appreci-
         nation, and the banks that register and      ated and a great deal of gratitude is
         use it provide a substantial service to      owed to all those employees. However,
         their customers.                             the Department along with many other
                                                                        agencies and indus-
                                                                        tries is facing a new
                                                                        problem - retirement.

                                                                        The Department has
                                                                        been diligently work-
                                                                        ing to preserve our
                                                                        level of service by
                                                                        retaining our knowl-
                                                                        edgeable and well
                                                                        trained         staff.
                                                                        Thankfully,         it
                                                                        appears    that   our
                                                                        efforts have been
                                                                        successful as examin-
                                                                        er    turnover    has
                                                                        decreased in the last
                                                                        year, improving the
                                                                        tenure of our exami-
                                                                        nation staff. We con-
                                                                        tinue to focus on
                                                                        training and staff
                                                                        development        in
                                                                        preparation for the
                                                                        future.

                                                                               ne of the

                                                                        O      Department’s
                                                                               initiatives to



Page 8
2007 Annual Report




 Commissioner’s Comments (Cont.)


promote examiner retention included       the Department.        In 2007, the
instituting a new policy with legisla-    responsibilities of coordinating trust
tive approval, in which additional        examinations, trust review, and other
compensation is provided to those         trust related matters were reassigned
employees who endure the hardship         to Angela Manzo. She has worked
of excessive overnight travel while       well with the trust examination staff
on official business. The Frequent        to make the transition seamless. I




         “The De p a rt m e nt h a s b e e n d ilig e n tly w o r k in g

          to p re se rv e o ur lev e l o f s er v ic e b y r e ta in in g

           our k no w l e d g e a b le a n d w ell tr a in ed s ta ff. ”


Overnight Stay-Out Travel Stipend         also had the pleasure of filling sever-
Program is available to our examin-       al senior management positions in
ers     and      related     directors.   2007. These personnel changes
Additionally, we worked with state        include the naming of Kurt Purdom
officials to obtain salary adjustments    as the Director of Bank Supervision,
for our examination staff and related     Kaylene Ray as our General
directors. These adjustments allow        Counsel, Bobby Davenport as the
the agency to be more competitive         Houston Regional Director, and
with its federal counterparts. I am       Wendy Buitron as the Director of
happy to report that we received          Strategic Support.
approval for the salary adjustments
in early 2008.                            It’s all about the people.

           e    are     not     only      I hope you enjoy this year’s annual

W          preparing our examiners
           for the future and working
on retaining the most knowledgeable
                                          report.


staff, but we are also focusing on the
responsibilities assigned throughout


                                                                                    Page 9
H         ighlights of Divisions and Supervised Industries


                                                           TEXAS

                                                                  A K I G
                                                                B
                                                                       OVERVIEW
                 e are all familiar with the                    nomic downturn in the 1980’s and the strong Texas

      W          Indian fable of the six blind men attempt-
                 ing to describe an elephant based upon
      their own perspective. Although each description
                                                                economy since 2000, most Texas state-chartered
                                                                banks have chosen to deploy capital in Texas, rather
                                                                than through expansion out of state. We currently
      was correct, looking at a part individually, that         have six state-chartered banks that operate approxi-
      description was grossly inadequate in describing the      mately over 350 branches outside of Texas.
      whole of the animal. Our perception of reality is         Locations of branches operated outside of Texas
      distorted by the half-truths we hold based upon our       include Oklahoma, Arizona, New Mexico,
      understanding of separate units. The identity of the      Colorado, Nevada, California, Michigan, Virginia
      whole can only be understood through an under-            and Florida.
      standing of the individual components, their symbi-
      otic relationships, and the effect of the environment.    In order to focus our discussion, let’s delve into
                                                                some of the specifics. At the end of 2007, our
      In order to describe the community known as Texas         largest state bank was Comerica Bank, located in
      state-chartered banks, it is important to first look at   Dallas. The bank reports assets in excess of $60 bil-
      the individual components. As of December 31,             lion, and equity over $5.7 billion. The bank operates
      2007, there were 330 Texas state-chartered banks          over 400 locations in the U.S. and two foreign
      with approximately 1,900 branches. Assets held by         offices with 10,000 employees. The bank, a member
      these    banks     equaled                                                          of the Federal Reserve, is
      $154,291,811,000, while                                                             a subsidiary of a bank
      equity              totaled                                                         holding company. The
      $17,111,818,000. Forty-                                                             bank holding company and
      six state banks operate                                                             the bank have a myriad of
      trust departments with                                                              subsidiaries including sub-
      49,196     accounts     and                                                         sidiaries outside of the
      approximately $49 million                                                           U.S., that engage in a
      in assets. Thus, our state-chartered banks continue       number of bank related or financial activities. The
      to exercise significant influence over the economic       bank provides a comprehensive offering of products
      health and vitality of our individual communities in      and services including trust, cash management,
      Texas and the state as a whole.                           remote deposit capture, debit cards, credit cards,
                                                                and a vast array of deposit and loan products.
      As an aside, in most cases, the vast majority of
      assets held by, and physical locations operated by        The smallest state bank at year-end 2007 was The
      state banks are in Texas. Partially due to the eco-       Oakwood State Bank. This bank, opened in 1910,




Page 10
2007 Annual Report




                                                     umber of State Banks in Texas
                                                   Includes Other State-Chartered Banks

      Year    #                                    400
                    umber of State Bank Charters
      1998   428                                   350
      1999   400
      2000   381                                   300
      2001   361                                   250
      2002   355
      2003   349                                   200
      2004   351                                   150
      2005   342
      2006   341                                   100
      2007   339                                    50

                                                     0
                                                         1998

                                                                1999

                                                                       2000

                                                                              2001

                                                                                     2002

                                                                                            2003

                                                                                                    2004

                                                                                                           2005

                                                                                                                                              2006

                                                                                                                                                       2007
                                                                                                                     Assets Held by State Banks in Texas
                                                                                                                  Includes Other State-Chartered Banks

                                                                                     Year Billions                                             180.00

                                                                                     1998          $ 57.8                                      160.00
                                                                                                                  Total Assets in $Billions




                                                                                     1999          $ 60.8                                      140.00
                                                                                     2000          $ 88.3                                      120.00
                                                                                     2001          $ 99.9
                                                                                                                                               100.00
                                                                                     2002          $104.8
                                                                                     2003          $122.0                                            80.00

                                                                                     2004          $ 80.7                                            60.00
                                                                                     2005          $ 89.4                                            40.00
                                                                                     2006          $100.2                                            20.00
                                                                                     2007          $169.5
                                                                                                                                                     0.00
                                                                                                                                                              1998

                                                                                                                                                                     1999

                                                                                                                                                                            2000

                                                                                                                                                                                   2001

                                                                                                                                                                                          2002

                                                                                                                                                                                                 2003

                                                                                                                                                                                                        2004

                                                                                                                                                                                                               2005

                                                                                                                                                                                                                      2006

                                                                                                                                                                                                                             2007




  and is not a member of the Federal Reserve. The                                                                                               and in product offerings. As you might expect, the
  bank, which operates out of a single location, is not                                                                                         thirteen state-chartered banks with assets in excess
  a subsidiary of a holding company. The bank has no                                                                                            of $1 billion, more closely resemble Comerica with
  subsidiaries. The bank operates with a significantly                                                                                          a far-flung branching network, including domestic
  reduced product offering, for example, it offers only                                                                                         and international offices, and extensive product
  the most basic deposit and loan accounts. The bank                                                                                            offerings.
  reports assets of almost $3 million with equity of
  $381,000. It boasts three full-time and two part-                                                                                                   egardless of the size of the
  time employees.

  The remainder of the Texas state-chartered banks lie
                                                                                                                                                R     institution, and the obvious operational dif-
                                                                                                                                                      ferences, there are a number of similarities.
                                                                                                                                                The bulk of the products offered are traditional
  somewhere between these two banks both in size                                                                                                banking products. The asset side of the balance




                                                                                                                                                                                                                                    Page 11
                                                                                                                   2007 Annual Report




                                                                                             Bank or R. R. Wiley of The
                                                                                             Oakwood State Bank, they
                                                                                             both are focused on strong
                                                                                             relationships, relationships
                                                                                             with the community, with the
                                                                                             customers and within the
                                                                                             bank. In a recent interview
                                                                                             with both, they emphasized
                                                                                             the importance of the cus-
                                                                                             tomer relationship. Bilstrom
                                                                                             stated, “Our relationship
                                                                                             managers are known for
                                                                                             their ingenuity, flexibility,
                                                                                             responsiveness and attention
                                                                                             to detail.” He further stated
                                                                                             that one of the bigger inter-
                                                                                             nal challenges is keeping the
                                                                                             colleagues focused and not
                                                                                             distracted by the broad-
                                                                                             based national financial tur-
                                                                                             moil that has been drawing
                                                                                             headlines for the last year.
                                                                                             Mr. Wiley put it perhaps
          sheet is remarkably similar regardless of the                                      more succinctly when he
          institution. All of the banking institutions are                said, “We want to keep things the way they are.”
          competing with other financial institutions for
          core deposits and good loans. They are all strug-               State banks take the role they play in the
          gling to accurately forecast interest rate move-                community very seriously. Mr. Wiley dis-
          ments. The increasingly complex financial mar-                  cussed various contributions that the bank
          kets are making it more difficult to make invest-               makes to local community and70     charitable pro-
                                  70                                      grams and projects and spotlighted volunteer
          ment decisions, to price products effectively,
          and to assess risk.                                                                              60
                                                                          work in the community performed by his
                                  60
                                                                          employees. Bilstrom pointed out that the bank
                                                                                                           50
                 e c h n o l o g y c 50 t i n u e s t o p l a y
                                     on                                   made significant contributions, more than $16

          T      an ever more important role in the state
                                     40
                 banks’ arsenal to help maintain their role
          in the varied economic landscape of Texas.
                                     30
                                                                          million nationwide to not-for-profit organiza-

                                                                          ees raised for the United Way. 30
                                                                                                           40
                                                                          tions in addition to the $2.3 million the employ-

          Technology, however, comes with a price. Not                                                                20
                                     20                                   Regardless of your vantage point, an examina-
          only has it become more expensive, but vulner-
          abilities in our current systems and the cus-                                                   10
                                                                          tion of state-chartered banks reveals dynamic
                                     10
          tomers’ demand for quicker more convenient                      business focused on success through the hard
                                                                                                          0
                                      0
          access has introduced new risks including repu-                 work and ingenuity of its directors, officers and
          tational risk. It has become one of the most cru-               employees. The single largest continuing chal-
          cial challenges in attracting talented and quali-               lenge is attracting and retaining qualified per-
                                             1998

                                                    1999

                                                           2000

                                                                  2001

                                                                         2002

                                                                                2003

                                                                                       2004

                                                                                              2005

                                                                                                     2006

                                                                                                            2007




          fied personnel.                                                 sonnel. The benefactors of this hard work are
                                                                          the shareholders, the customers, and the com-
          Whether we are discussing the challenges facing                 munities in which they operate.
          our state banks with Jon Bilstrom of Comerica




Page 12
2007 Annual Report




      SPECIAL AUDITS
                                                                                                                         by Russell Reese



  Overview and Examination Staffing Levels                                                    Division Outreach Programs

  The Special Audits Division is responsible for the                                          The Department continues to be committed to par-
  regulation and supervision of Prepaid Funeral                                               ticipating in outreach programs and as a result, sev-
  Contract (PFC) sellers, Perpetual Care Cemeteries                                           eral presentations were conducted to various regu-
  (PCC) and Money Services Businesses (MSB). At                                               lated industries during 2007. It is during these out-
  year end, there were 415 PFC permit holders, 243                                            reach programs that the Department communicates
  PCC license holders and 128 MSB license holders.                                            relevant information to the public and its regulated
  The Division has 20 employees assigned to these                                             industries. Specifically, in the month of June a
  areas of regulation.                                                                        presentation at the State Comptroller’s Office’s
                                                                                              monthly “Brown Bag Seminar” was given to pro-
  2007 was a very productive year for the Division.                                           vide information on prepaid funeral contracts to
  As a result of a dedicated examination staff, com-                                          fellow state employees. Presentations were also
  prised of five MSB examiners and nine PFC / PCC                                             given on prepaid funeral regulations to members of
  examiners, the Division met all of its performance                                          the East Texas Funeral Directors Education
  measures in the fiscal quarter ending November 30,                                          Seminar and the Texas Funeral Directors
  2007. The Division was able to meet all perform-                                            Association. Members of the Texas Cemeteries
  ance measures as a direct result of its ability to                                          Association also received a presentation regarding
  operate fully staffed.                                                                      perpetual care regulations.

  Furthermore, examiners began conducting on-site                                             Additionally, the Special Audits Division partici-
  visits of authorized delegates of agency MSB                                                pated in the planning and organization of two train-
  license holders for the first time. The authorized                                          ing seminars for member MSB regulators of the
  delegate is the location actually performing the                                            Money Transmitter Regulators Association
  MSB transactions for the license holder. The pur-                                           (MTRA). Representatives of the Division provided
  pose of agency on-site visits is to assess the author-                                      presentations and training that included hands-on
  ized delegate’s compliance with applicable state                                            classroom exercises and case studies focused on
  and federal regulations.                                                                    safety and soundness, management and compliance
                                                                                              issues. Commissioner James also attended


                                                                      Perpetual Care Cemeteries

         Year Millions                                250                                                                 250                        Year Licensees
         1998   $122.3                                                                                                                               1998    226
                          Trust Assets in $Millions




         1999   $143.4                                200                                                                 200                        1999    226
                                                                                                                                umber of Licensees




         2000   $152.2                                                                                                                               2000    229
         2001   $150.4                                                                                                                               2001    228
         2002   $162.1                                150                                                                 150                        2002    232
         2003   $170.3                                                                                                                               2003    233
         2004   $179.2                                100                                                                 100                        2004    239
         2005   $188.2                                                                                                                               2005    240
         2006   $195.3                                                                                                                               2006    242
         2007   $210.6                                50                                                                  50                         2007    243

                                                       0                                                                  0
                                                        1998   1999   2000   2001   2002   2003   2004   2005   2006   2007




                                                                                                                                                                      Page 13
                                                                                                                                                                                                                                                             2007 Annual Report




                                                                                                                                           Prepaid Funeral Contracts

                                                                      3000                                                                                                                                                                                     Contracts

                                  Assets on Dep./Ins. Death Benefit
                                                                                                                                                                                                                                                         Year (thousands)
             Year Millions
                                                                      2500                                                                                                                                                                               1998    653
             1998   $1,733.0
                                                                                                                                                                                                                                                         1999    743
             1999   $1,725.2
                                                                      2000                                                                                                                                                                               2000    795
             2000   $2,207.1
                                                                                                                                                                                                                                                         2001    814
             2001   $2,312.8
                                                                                                                                                                                                                                                         2002    829
             2002   $2,430.7                                          1500
                                                                                                                                                                                                                                                         2003    851
             2003   $2,516.6
                                                                                                                                                                                                                                                         2004    856
             2004   $2,567.6                                          1000                                                                                                                                                                               2005    863
             2005   $2,725.0
                                                                                                                                                                                                                                                         2006    823
             2006   $2,813.0
                                                                      500                                                                                                                                                                                2007    813
             2007   $2,893.4

                                                                                                   0
                                                                                                               1998

                                                                                                                             1999

                                                                                                                                            2000

                                                                                                                                                     2001

                                                                                                                                                             2002

                                                                                                                                                                       2003

                                                                                                                                                                                     2004

                                                                                                                                                                                                   2005

                                                                                                                                                                                                                 2006

                                                                                                                                                                                                                          2007
               umber of Licensees                                                                         450 446 436 436 426 423 421 424 421 415




          FinCEN’s BSA Advisory Group meeting repre-                                                                                                                       Association, Banking on the Border Symposium
          senting the State of Texas and was named Co-                                                                                                                     (BBS) and MTRA to name a few. At the BBS
          Chair of the Non-Bank Financial Institution                                                                                                                      conference in Tucson, Arizona, Commissioner
          Committee that focuses on MSB issues. The                                                                                                                        James gave a presentation informing the banking
          Department also hosted a meeting with represen-                                                                                                                  community about the Department’s overall
          tatives from the Federal Deposit Insurance                                                                                                                       responsibility and efforts in the supervision of
          Corporation to discuss the licensing and supervi-                                                                                                                MSBs in Texas. The Department remains com-
          sion of the MSB industry in Texas.                                                                                                                               mitted to provide outreach to our regulated enti-
                                                                                                                                                                           ties.
                 epartment staff also attended

          D      various conferences hosted by the
                 National     Money     Transmitters



                                                                                                                         Money Service Business Trends

                     Year Millions                                                                        80                                                                                                              140                         Year Licensees
                     1998      $28.7                                                                                                                                                                                                                  1998    77
                                                                       Total Equity Assets in $Millions




                                                                                                          70                                                                                                              120
                     1999      $37.2                                                                                                                                                                                                                  1999    77
                                                                                                          60
                     2000      $43.7                                                                                                                                                                                      100                         2000    84
                                                                                                                                                                                                                                 umber of Licensees




                     2001      $52.3                                                                      50                                                                                                                                          2001    87
                                                                                                                                                                                                                          80                          2002    79
                     2002      $32.8
                                                                                                          40
                     2003      $37.6                                                                                                                                                                                      60
                                                                                                                                                                                                                                                      2003    79
                     2004      $40.3                                                                      30                                                                                                                                          2004    71
                     2005      $39.0                                                                                                                                                                                      40                          2005    64
                                                                                                          20
                     2006      $66.5                                                                                                                                                                                                                  2006    130
                     2007      $73.6                                                                      10                                                                                                              20                          2007    128
                                                                                                          0                                                                                                               0
                                                                                                                      1998

                                                                                                                                    1999

                                                                                                                                              2000

                                                                                                                                                     2001

                                                                                                                                                            2002

                                                                                                                                                                    2003

                                                                                                                                                                              2004

                                                                                                                                                                                            2005

                                                                                                                                                                                                          2006

                                                                                                                                                                                                                   2007




Page 14
2007 Annual Report




      Corporate Activities
                                                                     by Lynda Drake




         he ongoing expansion of the               able for bank purchases stock due to the

  T      Texas economy, primarily due to record
         high oil and gas prices, the growth of
  existing business enterprises, and the reloca-
                                                   downturn in the stock market;

                                                   3. The effect of recently enacted and current
  tion of businesses to Texas, are the primary     pending legislation designed to address the
  causes for the continued boom in Texas bank-     current financial market problems brought
  ing throughout 2007. While the national econ-    about because of the turmoil in the mortgage
  omy sputtered, and the subprime mortgage         and related securities markets is unknown;
  debacle unfolded, Texas banks continued to
  prosper.       Comerica Incorporated and         4. The current interest rate environment
  Comerica Bank moved their corporate head-        reportedly is not favorable for the issuance of
  quarters from Detroit to Dallas, and Comerica    especially small offerings of trust preferred
  Bank became our largest state-chartered bank.    stock, which has supported the growth of
  Private equity funds sought investments in       many Texas state banks; and
  many of the de novo charters; however, the
  amount invested was small in comparison to       5. Turnover in the management of many large
  the total capital raised.                        money center banks may delay expansion
                                                   plans.
  The total effect of the slowdown in the
  national economy may result in fewer appli-      Branching activity remained high with state
  cations due to the following reasons:            banks opening 148 new branches. Nineteen

  1. Due to large
  losses posted by
  the large banks,
  private     equity
  funds are begin-
  ning to shy away
  from     financial
  institution deals;

  2.       Average
  investors   have
  less money avail-




                                                                                                Page 15
                                                                                       2007 Annual Report




                         Corporate Activities (Cont.)

          out-of-state state banks operate branches in      made Texas its U.S. home state and converted
          Texas, along with 21 national banks. Three        its representative office to a foreign bank
          Texas banks opened de novo branches in            branch. The Royal Bank of Canada converted
          Nevada and California.                            its representative office in late 2007 to a for-
                                                            eign bank agency with fiduciary powers. The
              nterest in the family trust                   Bank of Scotland plc, ABN AMBRO Bank

          I   business continued; however, little activi-
              ty occurred. There was a change in our
          rules regarding eligibility for exemptions in
                                                            N.V., and Allied Irish Banks, p.l.c. are estab-
                                                            lished representative offices in Texas.

          late 2007, which laid the groundwork for the      The money services business continues to
          approval of five trust company applications in    expand. Twelve new licenses were issued in
          early 2008. With the legal issues now clari-      2007 and eight change of control filings were
          fied, more activity is anticipated in 2008.       processed. Private equity funds were the
                                                            newest entrant to the money services business
                                                            industry, primarily through buyouts of exist-
                                                            ing companies. These transactions were large
                                                            multi-million and billion dollar deals primari-
“ ..the relocation of businesses                            ly of nationwide companies. Reportedly,
                                                            remittances from Texas to Mexico and other
                                                            Latin American countries has decreased. The
    to Texas, are the primary                               decreased activity is attributed in part to the
                                                            slowdown in home construction and higher
    causes for the continued                                cost of living expenses.

      boom in Texas banking                                 The problems in other states may provide
                                                            opportunities for expansion for Texas banks,
          throughout 2007.”                                 which enjoy healthy capital ratios and strong
                                                            liquidity.




          Merger activity was higher than projected
          with 15 transactions resulting in a state bank.
          In addition, five state banks merged into
          national banks.

          Foreign banks also have been attracted to
          Texas. In 2007, The Bank of Nova Scotia




Page 16
2007 Annual Report




                                       Legal Division
                                                                            by Kaylene Ray and Everette Jobe

  During the last legislative session a number of bills    The revised law has the effect of increasing legal
  were passed that affected the entities regulated by      lending and investment limits by an incremental
  the Department of Banking. The following is a brief      amount beyond what a state bank could set for itself
  summary of the bills that made substantive changes       under current law. In general, 25% of unimpaired
  to the Finance Code and related laws.                    capital and surplus will exceed 25% of capital and
                                                           “certified” surplus for many state banks, although
  H.B. 2007 effective Sept. 1, 2007                        state banks that have continually increased certified
                                                           surplus through periodic certification of positive
  H.B. 2007 amended Chapters 12, 31, 34, 37, and           earnings will not experience a significant change in
  204 of the Finance Code. These amendments                their legal lending limit.
  enhanced the state banking charter and modernized
  state regulation by:                                     Mineral Interests
       promoting opportunities for improving financial
  literacy of Texas citizens;                              As added by H.B. 2007, new Finance Code §34.004
                                                           permits a state bank, with commissioner approval,
      providing flexibility in examination scheduling      to hold nonparticipating royalty interests as person-
  to preserve competitive and regulatory parity with       al property instead of real property for bank regula-
  other depository institutions;                           tory purposes, but only if the interests are acquired
      simplifying legal lending limit calculations on      for debts previously contracted and are of nominal
  loans and investments;                                   value on the financial statements. The commission-
                                                           er must determine upon application that the posses-
      providing for reclassification of bank ownership
                                                           sion of such interests is not inconsistent with the
  of nominally valued, nonworking mineral or royalty
                                                           safety and soundness of the state bank, and may
  interests;
                                                           subsequently order divestiture of such interests
      amending the types of deposit accounts that can      based on a determination that continued ownership
  be secured by pledging bank assets; and                  is detrimental to the state bank. A state bank that
        clarifying the authority of the Department of      seeks to retain direct ownership of qualified, non-
  Banking to facilitate financial system restoration       participating royalty interests beyond 10 years after
  after a natural disaster or other emergency.             acquisition must first apply to and obtain approval
                                                           from the banking commissioner under Finance Code
  Of particular interest are the changes in legal lend-    §34.004, then apply to and obtain approval from the
  ing limits and in treatment of certain royalty inter-    Federal Deposit Insurance Corporation. A copy of
  ests.                                                    the commissioner’s approval letter must be attached
                                                           to the bank’s letter application to the FDIC under 12
  Legal Lending Limits                                     C.F.R. §362.3(a)(2)(i).

  A concept in state law since at least 1943, “certified   To obtain commissioner approval, among other mat-
  surplus” is that portion of the bank’s surplus desig-    ters, the bank must submit a copy of the deed or
  nated as “certified” by the board of directors of a      other instrument that contains the language reserv-
  bank for use in the specified measurement base           ing or granting the interest in question to the bank.
  (“capital and certified surplus”) for calculations of    Examination and analysis of this language is neces-
  legal loan and investment limits under state law.        sary to determine that the interest is not subject to
  H.B. 2007 deletes the concept of “capital and certi-     expenses of exploration, development, production,
  fied surplus” as a measurement tool and replaces it      operation, maintenance, or abandonment, or any
  with “unimpaired capital and surplus,” similar to        other expense associated with extracting and mar-
  existing federal law. Finance commission rules           keting the minerals subject to the interest, as
  define “unimpaired capital and surplus” as equiva-       required by Finance Code §34.004(a)(2).
  lent to Tier 1 capital as it appears in the bank’s
  quarterly call report.



                                                                                                          Page 17
                                                                                                 2007 Annual Report




          H.B. 2754 effective Sept. 1, 2007                        dered incorrect by financial modernization legisla-
                                                                   tion in 2001;
          H.B. 2754 amended Chapters 32, 33, 36, 182, 183,              clarify jurisdiction over bank holding compa-
          and 186 of the Finance Code to:                          nies, inadvertently rendered ambiguous by inter-
               Streamline the corporate application and filing     state banking and branching legislation in 1999;
          process by revising certain notice, hearing, and fil-         correct the definitions in state law governing
          ing requirements, and by clarifying the application      certain substitutions of corporate fiduciaries to
          of confidentiality to contents of pending applica-       include national banks with trust only powers; and
          tions; and
                                                                       revise state law to address the application of the
              Modernize the law regarding required approvals       Business Organizations Code to state banks and
          of certain voluntary asset purchases or sales to         trust companies.
          require regulatory approval only if warranted by
          transaction size and risk.                               H.B. 2002 generally effective Sept. 1, 2007
          Among other highlights, a person protesting the for-     H.B. 2002 amended Ch. 11 of the Finance Code and
          mation of a new state bank or trust company must         Ch. 35 of the Business and Commerce Code to
          now file a detailed protest responding to each con-      require a financial institution to notify check verifi-
          tested statement in the application for charter, and
          relate each such statement and response to the statu-
          tory standards for approval. The banking commis-
          sioner may hold a hearing prior to granting or deny-           “... revised law has the effect of increasing
          ing the charter. A request for hearing made by a
          party must specifically indicate the issues involved            legal lending and investment limits by an
          that cannot be determined on the basis of the docu-
          mentary record.                                               incremental amount beyond what a state bank
          A state bank or state trust company must obtain the
                                                                            could set for itself under current law.”
          prior approval of the banking commissioner to
          engage in an asset purchase or sale transaction if the
          transaction value exceeds (1) for a state bank, an
          amount equal to three times the bank’s unimpaired        cation entities that a customer is a victim of a crime
          capital and surplus, or (2) for a trust company, an      of identity theft, if the customer notifies and pro-
          amount equal to three times the sum of the trust         vides certain proof to the financial institution, and
          company’s equity capital less intangible assets.         signs a written authorization. The financial institu-
                                                                   tion must promptly provide a specified notice to all
          H.B. 1962 effective Sept. 1, 2007                        nationwide check verification companies through a
                                                                   secure electronic notification system established by
          H.B. 1962 amended Chapters 11, 31, 32, 33, 34, 35,       Finance Commission rule and administered by the
          36, 181, 182, 202 and 274, and repealed certain sec-     Banking Commissioner. The Finance Commission
          tions in Chapters 31, 32, 33, and 35 of the Finance      has adopted rules requiring a check verification
          Code to provide for the application of the Business      entity to register with the Banking Commissioner
          Organizations Code to certain financial institutions     and establishing a secure electronic notification
          and the regulation of those institutions by the Texas    system. The bill provides that financial institutions
          Department of Banking. H.B. 1962 amended Title 3,        are not required to comply until March 1, 2008.
          Finance Code, to:
               conform state law with respect to limited bank-     H.B. 2393 effective Sept. 1, 2007
          ing associations to comply with applicable federal
          law;                                                     H.B. 2393 amended Ch. 154 of the Finance Code as
               correct certain internal cross-references within    it relates to investment and management of assets
          the investment statutes that were inadvertently ren-     held in a prepaid funeral benefits trust. Consistent



Page 18
2007 Annual Report




with the trend in trust law to give the trustee greater       ilar provisions from the Uniform Trust Code.
latitude in how to invest the trust assets, H.B. 2393
deleted the statutory list of permissible investments in      Several sections of Chapter 141 of the Property Code
a prepaid funeral benefits trust and substituted the pru-     were amended by H.B. 564 providing new options
dent investor standard. This allows greater flexibility       under the Transfers to Minors Act. Section 112.059
in investment strategies for these trusts. The bill also      was added to the Trust Code to permit the trustee to ter-
expanded the rulemaking authority of the Finance              minate a trust in certain circumstances if the value of
Commission to permit specifying standards applicable          trust property is less than $50,000.
to the written investment plan required by §154.257,
and establishing guidelines for suitable investments          H.J.R. o. 72 Home Equity – Constitutional
and investment strategies for a prepaid funeral benefits      Amendments
trust.
                                                              House Joint Resolution No. 72 was passed by the
H.B. 564 generally effective Sept. 1, 2007                    Legislature and approved by the voters as Proposition 8
                                                              in the 2007 General Election. This proposition became
H.B. 564 relates to the administration and operation of       effective on December 4, 2007 and amended Article
certain trusts and other property interests held for the      XVI, Section 50 of the Texas Constitution. The amend-
benefit of another. This bill amended Trust Code              ments make various changes relating to the eligibility
§111.0035(b)(2) and 114.005(a), as well as                    for a home equity loan and the procedural requirements
§187.005(b) of the Finance Code to remove the prohi-          related to obtaining a home equity loan. Specifically,
bition that a settlor could not waive the self-dealing        the amendment provides that:
rules in §113.052 and 113.053. Such waivers have been             whether property is designated for agricultural use,
permitted for non-corporate trustees since before the         which would make the property ineligible to secure a
enactment of the Trust Code in 1983. The amendment            home equity loan, is determined as of the date of the
to §111.0035 is effective June 15, 2007. However, the         loan closing;
amendments to §114.005 and to Finance Code
§187.005 are effective September 1, 2007.                         the application that begins the 12-day waiting peri-
                                                              od before the loan may close must be the loan applica-
  ote that this change does not authorize self-dealing;       tion;
rather, it permits the settlor to include in the trust            the borrower must receive a copy of the loan appli-
terms a waiver of the duty not to self-deal by a corpo-       cation at least one business day before the loan may
rate trustee. The statutory duties prohibiting self-deal-     close;
ing remain in place. The corporate trustee may self-
                                                                  the one-year waiting period between home equity
deal only if the trust instrument specifically authorizes
                                                              loans may be waived at the borrower’s request in the
that action. If you can’t find a provision authorizing
                                                              case of a declared emergency applicable to the area
self-dealing in the trust instrument, then you can’t
                                                              where the property securing the loans is located;
enter into prohibited self-dealing transactions. This
change is consistent with the trend in trust law to give           a borrower may sign a loan document that has
the trustee greater latitude in how to invest the trust       blanks left to be filled in if the blanks do not relate to
assets.                                                       substantive terms of the loan agreement;
                                                                   at the time the loan is made the borrower must
H.B. 564 repealed §113.060 of the Texas Trust Code            receive a copy of the final loan application and all exe-
effective June 15, 2007. This is the section added in         cuted documents the owner signs at closing and those
2005 requiring disclosure to income and remainder             documents may be provided by a person other than the
beneficiaries. Substantial amendments were made to            lender; and
§114.081 and §114.086 was added to the Trust Code to
                                                                  a borrower may not use an unsolicited preprinted
offer greater protection to third parties dealing with a
                                                              check to obtain an advance on a home equity line of
trustee, and to permit a trustee to provide a certificate
                                                              credit.
of trust to third parties instead of the full trust instru-
ment. Both of these sections are Texas versions of sim-



                                                                                                              Page 19
                                                                                           2007 Annual Report



                Information Security Continues To
                    Be Focus of Examinations
                                                                          by Phillip Hinkle and Brett Howard


           007 marked the first year of the                   market attention. One company has even combined

     2     shift in the regulatory approach related to
           Information Technology (IT) examinations. The
     new procedures, known as the Information Technology
                                                              these two technologies to offer a remote deposit cap-
                                                              ture for the mobile phone. The technology captures
                                                              checks and paper bills using the increasingly powerful
     – Risk Management Program (IT-RMP), has helped the       cameras built into most mobile phones. Before institu-
     Department assess the effectiveness of each institu-     tions are enticed to engage in these or other emerging
     tion’s information security program by focusing on       technologies, the institution should update the risk
     Information Security governance rather than just tech-   assessment by carefully considering all the potential
     nical controls. For 2008, the focus on Information       risks and controls that are needed to protect systems
     Security governance will continue, and some              and data.
     modifications to the IT-RMP Officers
     Questionnaire will be made, which will pro-                        Business       Continuity     and    Disaster
     vide more targeted questions and provide ref-                              Recovery have historically been
     erences to help bankers answer the questions.                                  evaluated as part of Information
     All banks, or for that matter all businesses,                                     Security. However, the impor-
     need to ensure they are developing a corpo-                                         tance of keeping information
     rate culture of security if they don’t have it                                      systems operational is now
     already.                                                                           seen in the broader context of
                                                                                      interdependencies of all bank
     Soaring data losses in 2007 demon-                                              operations. There are growing
     strated that institutions must under-                                          concerns regarding the likelihood
     stand and have the controls in place                                         that a pandemic such as the bird flu
     to minimize the compromise of infor-                                        could occur in the United States,
     mation systems and customer data.                                         which could adversely affect the bank-
     The financial services sector has                                        ing system. Last year during a three
     not been excluded as some large                                         week period, 2,775 U.S. financial firms
     and national companies have                                                  recently took part in a pandemic
     been compromised over the                                                     exercise conducted by the U.S.
     last couple of years. But                                                 Treasury, SIFMA and the Financial and
     data losses didn’t come                                                Banking      Information    Infrastructure
     just from hackers. Recent                                              Committee (FBIIC). Nearly two-thirds of
     compromises include:                                                  participants said they had a business con-
     stolen laptops by a                                                   tinuity plan. Half of the participants that
     cleaning crew, stolen lap-                                           did have a plan said their plans were only
     tops from automobiles, dis-                                          moderately effective and nearly one-third
     carded computer data tapes,                                          of participants said their plans were mini-
     computers sold at an auction, a lost                                 mally effective or not effective at all.
     portable hard drive, sensitive information                          Projections indicate that 30-40% of the
     sent to the wrong email address, sensitive                         workforce will be absent during a pandemic,
     information that was left unattended, loss               where this is not the case during most disasters. (See
     of a CD, and the theft of records by former employees.   the Interagency Advisory on Influenza Pandemic
                                                              Preparedness www.fdic.gov/news/news/press/2006/
     New technologies started to emerge in 2007 and are       pr06030a.html for more information.)
     likely to continue growing in 2008. Mobile banking
     and remote capture deposit are starting to gain more




Page 20
2007 Annual Report




                  State Bank Branching Activity
                         Outside of Texas
                                                                                      by Angela Manzo


       he profile of interstate branching                   side of Texas, the amount of out-of-state deposits

T      by Texas state-chartered banks changed dramati-
       cally in late 2007, mainly due to the relocation
of Comerica Bank’s home office to Texas. While state-
                                                            increases to nearly $40 billion, and the amount of total
                                                            state-chartered bank deposits increases to almost $113
                                                            billion. Comerica Bank deposits account for 38.7% of
chartered banks have had the opportunity to branch          this new total.
outside of Texas since 1998, such activity had been
modest up until October 31, 2007, when Comerica             The Department continues to work closely with other
Bank was added to the list of Texas state-chartered         state banking agencies to provide for a streamlined reg-
banks. Comerica Bank operates branches in five U.S.         ulatory system for state-chartered banks that operate
states including Texas, and has numerous offices all        across state lines. Every state banking department in
over the globe.                                             the country has signed the 1997 Nationwide
                                                            Cooperative Agreement and Nationwide State-Federal
The first Texas state-chartered bank to branch out-of-      Agreement, both of which are designed to achieve the
state was TIB The Independent BankersBank, Irving,          goal of seamless supervision. In the spirit of these
when it established a                                                                   agreements,      Texas    is
branch in Oklahoma in                                                                   including states that host
2001. The following banks                                                               branches of our state-char-
established branches in                                                                 tered banks in the overall
other states in 2004:                                                                   supervisory process. It is
American       Bank       of                                                            our belief that such a posi-
Commerce,       Wolfforth;                                                              tion is critical for the
International Bank of                                                                   preservation of the value
Commerce, Laredo; and                                                                   of the state charter, and
Citizens Bank, Claude.                                                                  ultimately benefits the
United    Central    Bank,                                                              banks crossing state lines.
Garland, established its
first branch outside of                                                                           h e m o s t s i g n i f-
Texas in 2006, and First
International Bank, Plano,
branched out for the first time this year, in 2007.
                                                                                           T      icant benefit to state
                                                                                                  banks is improved
                                                            efficiency in the examination process through the uti-
                                                            lization of examiners in other states. These out-of-state
Interstate branching activity is regulated and moni-        examiners are more familiar with the economic trends
tored by the Department, and data on the volume of          in their states and are better situated to respond to local
deposits held out-of-state is gathered as of June 30th of   needs and interests in an interstate banking environ-
each year by the FDIC. As of June 2007, the FDIC data       ment. Texas also benefits through the sharing of
indicates that Texas state-chartered banks, excluding       resources with other states by effectively reducing the
Comerica, had $1.7 billion in deposits held in branches     reliance on the concentration of agency funding.
outside Texas, which represented approximately 2.5%
of the $69 billion in total deposits for state-chartered    The overall strength of the Texas banking system and
banks.                                                      the Texas economy relative to other areas of the coun-
                                                            try suggest that interstate branching from Texas will
Deposits held by Texas state-chartered banks grew           continue, and the Texas Department of Banking has
immensely when Comerica Bank relocated to Dallas.           developed an infrastructure capable of meeting the
For comparison purposes, if the June 2007 FDIC              needs and challenges that such an expansion creates.
deposit data for Comerica Bank is aggregated with the
other Texas state-chartered banks with branches out-



                                                                                                                 Page 21
                                                                                                  2007 Annual Report




             Identity Theft
               Protection

             ow would you like to help                               is shared with check verification companies and

     H       guard your customers from identity theft?
             On March 1, 2008, the Department
     launched the Closed Account Notification System
                                                                     used to recommend that merchants do not accept
                                                                     checks written against the closed account.

     or CANS, which is designed to help protect those                For more information or to report a compromised
     who fall victim to fraud and subsequently close                 account,      visit      our       web     site
     their deposit account. Customer information                     www.banking.state.tx.us.
     reported through CANS by financial institutions




                      Secure Talk
              a n t t o r e c e i v e s e c u r e e m a i l m e s-   tomers. The service is being utilized by the Department

     W        sages from the Texas Department of Banking
              directly in your inbox?
                                                                     for all secure electronic communications. We believe
                                                                     this new vehicle ensures that information is delivered
                                                                     accurately and timely while maintaining security and
     In October 2007, the Department announced its new               data integrity.
     encrypted communication service provided by
     ZixCorp. This service provides encrypted email service          All secure email from financial service providers to the
     between the Department and its customers, including             Department may be initiated through the Department’s
     banks and other licensees. The service ensures that             web portal. To register for Secure Talk, visit our con-
     confidential information sent to or received by the             tacts page and select Secure Talk to register and begin
     Department is secure and protected.                             sending/retrieving secure emails via our Secure
                                                                     Message Center - www.banking.state.tx.us/smail.htm.
     The Department is continually seeking new ways to
     enhance and improve our communication with its cus-




Page 22
2007 Annual Report




               Financial Education
                                                                                          by Leilani Lim-Villegas

  In 2007, Texas continued to rank very low, if not the      who responded are interested in providing financial
  worst, with regards to financial education. These          education services, yet only 21% of these banks have
  financial issues include: credit scores, home foreclo-     a dedicated financial literacy staff to oversee the
  sures, financial security, personal savings, and identi-   project. The Department is seeking ways to assist
  ty theft complaints. Through workshops, bank visits,       these interested banks. I am following up with banks
  speaking engagements and joint projects with the           by conducting individual meetings or bank visits
  trade associations and the Federal Deposit Insurance       designed to encourage bankers to start their own
  Corporation (FDIC), the Texas Department of                financial literacy programs. Free financial education
  Banking (the Department) was engaged in several ini-       kits are provided to bankers which include the follow-
  tiatives to address and promote financial literacy in      ing financial literacy materials: the FDIC’s Money
  our Texas communities.                                     Smart Program, the Federal Reserve Bank of Dallas’
                                                             Building Wealth curriculum, and the National
  Financial Education Workshops                              Endowment for Financial Education High School
  April is Financial Literacy Month, and the                 Program, Junior Achievement information, and sever-
  Department hosted a series of financial education
  workshops in El Paso, Houston, McAllen, Amarillo,
  San Antonio, Corpus Christi and Dallas. These work-         Financial Education Mission Statement:
  shops included presentations from the Financial
  Education Coordinator, the Director of Strategic                “ Bankers – Helping Texans in making
  Support, various guest speakers ranging from bankers
  to financial literacy experts, and Department regional
  directors.                                                      informed decisions about budget, credit

  A diverse audience of approximately 335 individuals                  and debt management through
  attended the workshops which primarily consisted of
  financial institutions, non-profit organizations and
  other government agencies. A financial literacy table                      financial education.”
  with a collection of free curriculum, materials and
  current information were displayed for participants to     al samples of financial literacy classroom activities.
  take back to their workplaces. Congressman Ruben           Although the level of involvement may vary by finan-
  Hinojosa, one of the leaders of financial literacy in      cial institution, the Department’s goal is to provide
  Washington, D.C., sent one of his regional represen-       each bank with the necessary tools, ideas and curricu-
  tatives to the Corpus Christi workshop to support the      lum to enable them to promote financial education in
  Department’s financial education efforts. In addition      their communities.
  to learning about available financial literacy pro-
  grams, the workshops offered a favorable setting for       Speaking Engagements
  networking opportunities. Our mission to financially       In June, as the Department’s Financial Education
  educate Texans can only be accomplished through            Coordinator, I was able to be the keynote speaker at
  continuous team collaboration with financial institu-      the ACCION Texas Conference in San Antonio.
  tions, and these workshops helped motivate banks to        ACCION Texas is a leading non-profit provider of
  jumpstart their own financial literacy programs.           small business loans statewide. The majority of
                                                             ACCION’s clients are small business entrepreneur
  Bank Visits                                                hopefuls whose loans were denied by banks due to
  According to the Department’s 2006 Financial               poor credit scores, lack of assets or other related fac-
  Education Survey to state-chartered banks, over 80%        tors. Financial literacy plays a key role in their



                                                                                                            Page 23
                                                                                                      2007 Annual Report




                               Financial Education (Cont.)
          organization since their clients are usually candidates        by the International Bank of Commerce (IBC).
          for second-chance business loan financing.                     Houstonville is a micro-society managed by fifth
                                                                         graders from Sam Houston Elementary School in
              n A u g u s t , U n i t e d W a y o f T e x a s h o s t-   McAllen. Students develop public speaking skills,

          I   ed a Financial Stability conference in San
              Antonio. Our Financial Education Coordinator
          was invited to attend as a panel speaker on govern-
                                                                         time management, and the ability to control and man-
                                                                         age budget and finances. This program encourages
                                                                         students at an early age to develop the confidence to
          ment issues, alongside representatives from the                become competitive, professional and responsible
          Federal Reserve Bank of Dallas, the FDIC and the               young citizens, valuable skills that will help them
          IRS. The presentation addressed the Department’s               succeed in the real world. IBC has arranged a
          efforts regarding financial education in Texas and             Houstonville tour for interested visitors to witness
          how local partners can become involved.                        these students in action in February 2008.

          According to recent research, the number one cause             Financial Literacy Efforts with the FDIC
          of stress in the workplace today is personal financial         The FDIC hosts Alliance for Economic Inclusion
          problems. In September, the Federal Reserve Bank of            (AEI) quarterly meetings in Houston and Austin. The
          Dallas hosted a Workplace Financial Education                  mission of the AEI is to improve the economic well-
          Conference in Dallas and requested our Financial               ness of low and moderate income individuals and
          Education Coordinator be one of their guest speakers.          families by improving access to the U.S. banking sys-
          The presentation addressed the state of financial liter-       tem and to work with financial institutions on ways to
          acy in Texas and provided several examples of how              bring them into the financial mainstream. The AEI
          banks are getting their employees involved in teach-           appointed our Financial Education Coordinator Co-
          ing financial literacy in their local schools. This sem-       chair of the Financial Education/Asset Building
          inar provided employers with information on the dif-           Committee. In addition, Leilani Lim-Villegas was
          ferent financial choices available to employees,               awarded the 2007 Pioneer Award. This award is given
          including health benefits and the incorporation of             to those individuals who have made such an impact,
          direct deposit in the workplace. Large employers who           that fellow coalition members nominated them. With
          attended the conference included: JC Penney, DFW               that comes the first principle of a Pioneer Award—it
          International Airport and Texas Instruments.                   is an individual award. This person may be part of an
                                                                         organization, but his or her accomplishments tran-
          Joint Initiatives with Trade Associations                      scend even their own organization. Commissioner
          The Texas Department of Banking, the Independent               James is pleased that the Department’s financial edu-
          Bankers Association of Texas (IBAT) and the Texas              cation efforts were recognized.
          Bankers Association (TBA) have partnered to launch
          a joint online survey to gather information on the var-        In conclusion, financial education is a work in
          ious levels of financial education offered by Texas            progress and continues to gain more attention each
          banks. This survey was sent to state-chartered banks           year. On January 22, 2008, President George W. Bush
          and the entire membership rosters of IBAT and TBA.             formed an Advisory Council on Financial Literacy.
          Several survey questions requested information on              The Council’s mandate is “to help keep America com-
          the type of curriculum banks use to teach financial            petitive and assist the American people in under-
          literacy and the specific audience. Over 250 banks             standing and addressing financial matters.” The Texas
          responded to the survey and a complete analysis of             Department of Banking shares this mission and will
          the results will be available in March 2008.                   continue to provide financial literacy outreach and to
                                                                         visit with financial institutions to better educate our
          In December, all three organizations partnered to host         Texas communities. For more information regarding
          a Financial Literacy Summit in Dallas. The summit              financial education issues in Texas, visit our
          included presentations from financial literacy profes-         Financial         Education           website        at
          sionals. There was one financial literacy initiative           www.banking.state.tx.us/dss/fe.htm.
          that caught everyone’s attention, Houstonville, hosted



Page 24
DEPARTME T                                             Financial Information
                                                                                           by Bill Rison




      ach biennium state agencies                      increase of one employee in fiscal 2007, with the

E     submit requests for appropriations to the
      Legislature. These requests are reviewed
and approved funding is appropriated to the agen-
                                                       Department ending the year with 159 employees.
                                                       For the fiscal year, the Department exceeded three
                                                       key measures. The Number of Bank and Foreign
cies.                                                  Bank Examinations Performed was 115.75% of
                                                       target due to examination staff participating in
Collected revenues which are generated through         non projected foreign bank examinations with the
regulated entity assessments for fiscal year 2007      Federal Reserve Bank. The Number of Trust
were $14.3 million.        Of this amount, the         Company, Trust Department, and Other
Department was appropriated $11.6 million in           Information Technology          Examinations    or
General Revenue funds and $2.7 million for indi-       Certifications and Other Specialized Reviews
rect costs. In addition, the Department was            Performed was 136.67% of target due to complet-
appropriated $50,000 in federal funds.                 ing more IT examinations than projected. The
However, the federal grant with the U.S.               Number of Bank and Trust Applications, Notices,
Department of Justice expired in fiscal year                      and Filings, Money Services Business
2005, and no federal funds were collected                              License, and Private Child Support
in 2007.                                                               Enforcement Agency Registration
                                                                         and     Renewal    Applications
Expenditures for the Department                                          Completed was 129.38% of tar-
for fiscal year 2007 were $14.9 mil-                                     get due to processing a higher
lion with the largest component being                                   number of branch filings than
salaries and benefits, which was $12.3                               projected.
million or eighty-three percent of total expendi-
tures. Salaries and benefits have ranged between              The Department was within plus or minus
eighty and eighty-three percent of total expendi-              5% of target for four key measures. These
tures for the agency for the past several years. The           measures were the Percentage of Banks
next largest expenditure was staff travel at           Receiving Examinations When Due, 97.41%; the
$1,366,657 or nine percent of total expenditures.      Percentage of Assets in Banks Classified Safe and
The remaining eight percent consisted of other         Sound, 101.39%; the Percentage of Money
operating expenses at $1,066,644; utilities at         Services Business Licensees Examined by Special
$105,626; and capital outlay at $68,895. Other         Audits When Due, 99.98%; and the Percentage of
operating expenses include professional fees,          Bank and Trust, Money Service Business, and
materials and supplies, repairs and maintenance,       Private Child Support Enforcement Agency
equipment rentals and leased office spaces, repro-     Registration and Renewal Applications Completed
duction and printing, registration fees for employ-    within Statutory Time Periods, 96.57%.
ee training, and other miscellaneous costs.

During 2007, the Department experienced seven-
teen employee terminations, eight of which were
financial examiners. The Department hired eight-
een employees during the same period, eleven of
which were financial examiners. There was a net




                                                                                                  Page 25
    DEPARTME T                                       Financial Information




          2007 Collected Revenues                               2007 Expenses
                 PFC Licensees
                                   Trust Companies               Benefits
                     6%
                                         3%                       16%       Other Operating
                                                                                  7%
                                   Corp. Activity
                                        3%                                        Travel
                                   PCC Licensees                                   9%
                                        3%
                                                                                 Utilities
                                   Money Services    Salaries
                                                                                   1%
                                     Licensees        67%
                                        6%


     Banks          Federal Revenue and
                           Other
      78%
                            1%

Page 26
DEPARTME T                                                                                Workforce Information
          Texas Department of Banking Workforce Analysis by Gender
                                                                                                                                                                  Civilian                    Other State
                    11/30/06                   2/28/07                            5/31/07                                   8/31/07                              Workforce                     Agencies
                                                                                                                                                                   2006                        8/31/06
 Male                56%                         56%                                56%                                      57%                                                    54%          45%
 Female              44%                         44%                                44%                                      43%                                                    46%          55%
           Total     100%                      100%                                100%                                     100%                                                    100%        100%

                                                                    Male                                                                                Female
                          60


                          50


                          40


                          30


                          20


                          10


                           0




                                                                                                                                                                 Agencies 8/31/06
                                                                                                                                        Civilian FY06
                                                        2/28/2007


                                                                                   5/31/2007


                                                                                                                8/31/2007
                                  11/30/2006




        Texas Department of Banking Workforce Analysis by Ethnicity
                                                                                                                                                                      Civilian                 Other State
                   11/30/06               2/28/07                                 5/31/07                                   8/31/07                                  Workforce                  Agencies
                                                                                                                                                                       2006                     8/31/06
  White             67%                        68%                                  67%                                      68%                                                        60%       60%
   Black            11%                        11%                                  12%                                      11%                                                        11%       19%
 Hispanic           16%                        15%                                  15%                                      15%                                                        25%       19%
   Other             6%                           6%                                   6%                                     6%                                                        4%         2%
   Total            100%                       100%                                100%                                      100%                                                   100%          100%

                                          White                                 Black                                Hispanic                             Other
                                                       67                                      11                             16                                                    6
                           70

                           60

                           50

                           40

                           30

                           20

                           10

                              0
                                                                                                                                                                 Agencies 8/31/06
                                                                                                                              Civilian FY06
                                          2/28/2007



                                                                    5/31/2007



                                                                                                    8/31/2007




                                                                                                                                                                                                             Page 27
                                      Memberships
                                     and Affiliations
                                                                   Money Transmitter         referral and dissemination of informa-
                     Conference of State                        Regulators Association       tion regarding illegal intrusions, disrup-
                      Bank Supervisors                                       (MTRA)          tions, and exploited vulnerabilities of
                                                                                             information systems.

            onference of State Bank                        TRA is a national nonprofit                The Texas Department of

    C       Supervisors (CSBS),was found-
            ed in 1902. They are the nation’s
    leading advocate for the state banking
                                                M          organization dedicated to the
                                                           effective and efficient regula-
                                                tion of money transmitters and check
                                                                                             Banking ("Department") supports and
                                                                                             promotes the InfraGard Program and
                                                                                             has become a member of every
    system, and are the only national organ-    sellers in the United States of America.     InfraGard chapter in Texas. Banks can
    ization dedicated to advancing the state    The MTRA membership consists of              also participate in the InfraGard
    banking system. The Department is an        state regulatory authorities in charge of    Program through membership in local
    active member of CSBS. As such, we          regulating money transmitters and sell-      chapters. The chapters encourage mem-
    have the opportunity to attend various      ers of traveler's checks, money orders,      bers to share information through pre-
    training and educational programs and       drafts and other money instruments.          sentations, "networking" and to promote
    share ideas with banking departments                                                     the security of our nation's critical infra-
    from other states. CSBS Accreditation                Incorporated in Texas in 1989,      structure, including banks.
    also requires the Department to employ      MTRA is governed by a nine-member
    accepted training and examination pro-      board of directors. Commissioner James                 The Department is working in
    grams, and we are proud to report that      began serving on the board in                partnership with public entities includ-
    we met these requirements in 2002.          September 2001. In order to help states      ing National Infrastructure Protection
                                                enact or modernize their money trans-        Center (NIPC), the FBI, the Texas State
             Commissioner James and             mission legislation, MTRA drafted            Attorney General's Internet Bureau, the
    Deputy Commissioner Bacon serve on          model legislative guidelines and made        Texas Department of Public Safety, and
    several committees regarding planning       them available to the states. The Texas      private industry to assist banking insti-
    and regulatory affairs. www.csbs.org.       Department of Banking has been a             tutions in identifying and responding to
                                                member of MTRA since its incorpora-          cyber risks. In the last few years, the
                                                tion in 1989. www.mtraweb.org.               Department has worked with bankers
                                                                                             and the FBI to identify suspected virus-
                                                                                             es and other threats to banking institu-
                                                                                             tions. Currently, Phillip Hinkle, Chief
                                                                      InfraGard              Security Examiner, serves on the Board
                                                                                             of the North Texas Chapter of Infragard.
                                                                                             www.infragard.net.

                                                     nfraGard is a cooperative effort for

                                                I    the exchange of information among
                                                     the business community, academic
                                                institutions, the FBI, and other govern-
                                                ment agencies (federal, state and local).
                                                The organization's primary objective is
                                                to ensure the protection of the nation's
                                                critical cyber infrastructures through the




Page 28
    Memberships
and Affiliations (Cont.)

                           School for Community Bank Management

        ommissioner James serves as an Advisory Director of the School of Community Bank

C       Management at Texas Tech University. The school is designed to provide future leaders in
        the financial service industry with the skills, tools and perspective necessary to advance
their careers and to help their banks prosper. www.texastech.edu.




                                  Bank Operations Institute
                             Southern Methodist University, Dallas

          ommissioner James serves as an advisory council member of the Bank Operations

   C      Institution, Southern Methodist University, Dallas. The program provides the theoret-
          ical and practical management techniques necessary for successful community bank
   operation. www.swgsb.org/boi.




                             Department of Finance and Economics
                              Texas State University, San Marcos

           ommissioner James serves as an advisory board member on the Texas State

   C       University, (previously Southwest Texas State University), San Marcos, Department
           of Finance and Economics. Departmental programs seek to develop informed, criti-
   cally thinking citizens who are skilled in their major discipline and capable of functioning in
   a highly complex, global society. www.txstate.edu.




                             Sam Houston State University, Huntsville

          ommissioner James serves as an advisory board member on the Sam Houston State

   C      University, Huntsville, Smith-Hutson Endowed Chair of Banking.
           The programs provide educational opportunities for community bankers, as well as, to
   educate young men and women for future banking careers. www.shsu.edu.




                                                                                                     Page 29
                                    Members of the
                                  Finance Commission
                                       December 2007
                    Member                 Hometown            End of Term

          John L. Snider, Chair        Center, Texas        February 1, 2012

          Gary D. Akright              Dallas, Texas        February 1, 2008

          Mike Bradford                Midland, Texas       February 1, 2012

          Jonathan B. ewton            Dallas, Texas        February 2, 2010

          Kenneth H. Harris            Austin, Texas        February 1, 2008

          Cindy F. Lyons               El Paso, Texas       February 1, 2010

          Stanley D. Rosenberg         San Antonio, Texas   February 1, 2008

          Vidal Gonzalez               San Antonio, Texas   February 1, 2012

          W.J. (Bill) White            Georgetown, Texas    February 1, 2010




Page 30
    Department of Banking
     Organizational Chart
                         December 2007


                                                            Banking
                                                          Commissioner
                                                         Randall S. James




          Deputy                                                                                              Deputy
        Commissioner                                                                                       Commissioner
       Robert L. Bacon                                                                                 Stephanie S. Newberg




                                                                                                                       Legal
                                                                                                                    Kaylene Ray




                                                                        Strategic
                      Bank &           Corporate                                            Administrative
     MIS                                                                Support                                       Special Audits
                       Trust           Activities                                             Services
   Joe Broz                                                              Wendy                                        Russell Reese
                    Supervision       Lynda Drake                                            Bill Rison
                                                                        Buitron
                    Kurt Purdom




                                                                      Private Child
                                                                                       Money             Prepaid         Perpetual
                                                                         Support
                                                                                       Services          Funeral           Care
                                                                      Enforcement
                                                                                      Businesses        Contracts       Cemeteries
                                                                        Agencies




                   Houston        San Antonio
    DFW                                             Lubbock
                   Region           Region
   Region                                            Region
                   Bobby            Kenneth
Larry Walker                                        J.W. Holt
                  Davenport        Kuntschik




                                                                                                                      Page 31
                                                                                              2007 Annual Report




                                                        Financial Information on
                                                         State-Chartered Banks
                                                          Operating in Texas*
                                                               By: Size,       umber, and Total Assets



                                                                                 Size: $0 to $50 Million
                                                                                        93 Banks
                                                                                Total Assets: $2.8 Billion
                   Breakdown by Asset Size


                                                                                                Size: $50 to $100 Million
                                                                                                       100 Banks
                                                                                                Total Assets: $7.5 Billion


                                                                                               Size: $100 to $250 Million
                                                                                                       87 Banks
                                                                                               Total Assets: $14.4 Billion




                                                                                               Size: $250 to $500 Million
                                                                                                       32 Banks
                                                                                               Total Assets: $11.5 Billion




                                Size: > $500 Million
                                      36 Banks
                             Total Assets: $133.3 Billion



      * Includes all State Banking Activity - Total Assets of $169.5 Billion
        Information as of December 2007



Page 32
            State of the
            Ba n kin g S ystem
                  Texas State-Chartered Banks
                                                                   et Income

 Year      Millions                                      1800




                       et Income in $Millions
                                                         1600
 1998     $599
                                                         1400
 1999     $623
                                                         1200
 2000     $689
                                                         1000
 2001     $709
 2002     $773                                            800

 2003     $784                                            600

 2004     $801                                            400

 2005     $952                                            200

 2006     $947                                                 0



                                                                          1998

                                                                                        1999

                                                                                                  2000

                                                                                                           2001

                                                                                                                    2002

                                                                                                                             2003

                                                                                                                                      2004

                                                                                                                                                2005

                                                                                                                                                              2006

                                                                                                                                                                            2007
 2007    $1,786



                      Texas State-Chartered Banks
                                                          et Interest Margin

  Year     Percent                                            5
                                                          4.5
  1998      4.3%
                                                              4
                                  et Interest Margin %




  1999      4.3%
                                                          3.5
  2000      4.6%
                                                              3
  2001      4.3%                                          2.5
  2002      4.5%                                              2
  2003      4.2%                                          1.5
  2004      4.2%                                              1
  2005      4.2%                                          0.5

  2006      4.0%                                              0
                                                                     1998

                                                                                  1999

                                                                                               2000

                                                                                                         2001

                                                                                                                  2002

                                                                                                                           2003

                                                                                                                                    2004

                                                                                                                                              2005

                                                                                                                                                            2006

                                                                                                                                                                          2007




  2007      4.0%




                      Texas State-Chartered Banks
                      Annual Return on Assets
                                                         1.4
Year    Percent
1998    1.2%                                             1.2
                        % Return on Assets




1999    1.2%
2000    1.3%                                              1
2001    1.3%
                                                         0.8
2002    1.4%
2003    1.3%                                             0.6
2004    1.2%
2005    1.3%                                             0.4
2006    1.2%
                                                         0.2
2007    1.2%
                                                          0
                                                                   1998

                                                                                 1999

                                                                                               2000

                                                                                                         2001

                                                                                                                   2002

                                                                                                                             2003

                                                                                                                                       2004

                                                                                                                                                     2005

                                                                                                                                                                   2006

                                                                                                                                                                                   2007




                                                                                                                                                                                          Page 33
                    State of the
                    B a n kin g S ystem
                          Texas State-Chartered Banks
                              Loans to Individuals

          Year Millions                                            4500
          1998  $4,434                                             4000
          1999  $4,261                                             3500




                           Loans in $Millions
          2000  $4,251
                                                                   3000
          2001  $4,217
          2002  $3,735                                             2500
          2003  $3,473                                             2000
          2004  $3,454
                                                                   1500
          2005  $3,416
          2006  $3,306                                             1000
          2007  $4,135                                              500
                                                                        0

                                                                            1998

                                                                                   1999

                                                                                          2000

                                                                                                   2001

                                                                                                           2002

                                                                                                                  2003

                                                                                                                         2004

                                                                                                                                 2005

                                                                                                                                           2006

                                                                                                                                                    2007
                           Texas State-Chartered Banks
                   Delinquency Rates - Total Loans
                                                                  Includes Nonaccrual Loans

           Year Percent                                             2.5
           1998  2.48%
           1999  2.03%                                                  2
           2000  1.88%
           2001  2.10%
                                               % Past Due




                                                                    1.5
           2002  2.02%
           2003  2.01%
                                                                        1
           2004  1.65%
           2005  1.64%
           2006  1.46%                                              0.5
           2007  1.63%
                                                                        0
                                                                            1998

                                                                                   1999

                                                                                          2000

                                                                                                   2001

                                                                                                           2002

                                                                                                                  2003

                                                                                                                         2004

                                                                                                                                 2005

                                                                                                                                           2006

                                                                                                                                                    2007




                          Texas State-Chartered Banks
                  Total Loans and Leases to Deposits
                                                                  100
          Year Percent
                                 Total Loans as a % of Deposits




          1998  59.9%                                              90
          1999  64.2%                                              80
          2000  67.8%                                              70
          2001  69.0%
                                                                   60
          2002  71.1%
          2003  67.4%                                              50

          2004  72.7%                                              40
          2005  71.8%                                              30
          2006  72.2%                                              20
          2007  90.3%
                                                                   10

                                                                    0
                                                                     1998   1999     2000        2001     2002    2003    2004          2005      2006     2007




Page 34
                  State of the
                  Ba n kin g S ystem


                          Texas State-Chartered Banks
               Risk-Based and Equity Capital Ratios
                                                              16                                                                             R
         R        E                                                    R             R                           R             R



                            % Risk Based and Equity Capital
                                                              14                                   R                                                       R             R             R
        Risk-
        Based Equity                                          12                                                                                                                       E             R
1998    15.2% 8.9%                                                                                                                                                                                   E
                                                              10                                                               E             E             E             E
1999    14.9% 8.7%                                                     E             E             E             E
2000    14.5% 9.0%                                             8
2001    14.6% 9.3%                                             6
2002    14.7% 9.8%
2003    15.7% 10.0%                                            4
2004    14.2% 9.9%                                             2
2005    14.3% 9.9%
2006    13.9% 11.7%                                            0
                                                                       1998

                                                                                     1999

                                                                                                   2000

                                                                                                                 2001

                                                                                                                               2002

                                                                                                                                             2003

                                                                                                                                                           2004

                                                                                                                                                                         2005

                                                                                                                                                                                       2006

                                                                                                                                                                                                     2007
2007    12.2% 11.1%




                           Texas State-Chartered Banks
             Annual Percent of Total and                                                                                           et Charge-offs
                                                               0.5
           T                                                                  T
                                                              0.45
          Total      et                                                                     T                                         T             T
                                                               0.4
          C/O      C/O                                                        N                                         T
                                          % of Total Loans




 1998    .48%     .37%
                                                              0.35                                        T                           N             N             T             T
 1999    .41%     .31%                                         0.3                          N                           N                                                                                   T
 2000    .34%     .27%                                        0.25
                                                                                                          N                                                       N             N
                                                                                                                                                                                              T             N
 2001    .36%     .30%                                         0.2                                                                                                                            N
 2002    .43%     .35%                                        0.15
 2003    .42%     .33%
                                                               0.1
 2004    .34%     .27%
 2005    .33%     .27%                                        0.05
 2006    .24%     .19%                                             0
                                                                              1998

                                                                                            1999

                                                                                                          2000

                                                                                                                        2001

                                                                                                                                      2002

                                                                                                                                                    2003

                                                                                                                                                                  2004

                                                                                                                                                                                2005

                                                                                                                                                                                              2006

                                                                                                                                                                                                            2007




 2007    .31%     .24%




                                                                                                                                                                                                                   Page 35
          Statement of Financial Condition
     State-Chartered Banks Operating in Texas*
                                                              (in millions)

                                                     Dec. 2007            Dec. 2006          Dec. 2005        Dec. 2004
 UMBER OF I STITUTIO S                                         330                    322              341              342
ASSETS
Interest Bearing Balances                              $        898            $      830       $      782       $      679
Federal Funds Sold                                            3,652                 3,386            2,811            1,907
Trading Accounts                                                292                     1               29               37
Securities                                                  29,189                 22,751           21,911           20,271
Total Loans                                                105,322                 47,885           44,024           40,013
 Less: Allowance for Loan Losses                            (1,129)                 (531)            (545)            (514)
Premises and Fixed Assets                                     2,638                 1,808            1,675            1,520
Other Assets                                                13,430                  7,780            5,999            5,214
Texas Assets of Out-of-State State-Chartered Banks          15,240                 16,265           12,736           11,527

Total Assets                                          $ 169,532               $ 100,175         $ 89,422         $ 80,654

LIABILITIES A D CAPITAL

Total Deposits                                        $ 116,643                $ 66,349         $ 61,359         $ 55,073
Federal Funds Purchased & Repos                           5,255                   2,645            2,234            1,906
Demand Notes Issued to U.S. Treasury                          0                       0                0                0
Other Borrowed Funds                                     10,687                   4,469            4,974            4,832
All Other Liabilities                                     4,595                     666              542              466
Equity Capital                                           17,112                   9,781            7,577            6,850
Liabilities and Capital of Out-of-State State-
  Chartered Banks                                           15,240                 16,265           12,736           11,527

 Total Liabilities and Equity Capital                 $169,532                $100,175          $ 89,422         $ 80,654

RATIOS

Yield on Earning Assets                                     7.07%                   6.44%            6.09%            5.46%
Net Interest Margin                                         4.02%                   3.95%            4.24%            4.20%
Return on Assets                                            1.22%                   1.20%            1.31%            1.24%
Net Charge-offs to Loans                                    0.24%                   0.19%            0.27%            0.27%
Assets Per Employee ($million)                                4.18                    3.28             3.05             2.88
Loss Allowance to Loans                                     1.07%                   1.11%            1.24%            1.28%
Equity Capital to Assets                                   11.09%                  11.66%            9.88%            9.91%
Total Risk-Based Capital Ratio                             12.20%                  13.93%           14.33%           14.21%


*Texas State-Chartered Banks and Out-of-state State-Chartered Banks


Page 36
                              Statement of Income
                          Texas Chartered State Banks
                                                             (in thousands)

                                                    Dec. 2007             Dec. 2006          Dec. 2005       Dec. 2004
I TEREST I COME

Loans                                                  $ 7,709,719            $ 3,395,545      $ 3,028,638      $ 2,388,921
Lease Receivables                                           70,097                 28,372           22,202           18,086
Due From Depository Institutions                            41,250                 36,573           23,269           16,687
Securities                                               1,274,466                924,604          840,081          727,927
Trading Assets                                               3,609                    709            1,339            4,510
Federal Funds Sold                                         208,601                158,818           74,051           26,771
 Total Interest Income                                  9,307,742             4,544,621         3,989,580       3,182,902

I TEREST EXPE SE

Deposits                                                  3,188,302             1,402,889         954,632          599,420
Federal Funds Purchased                                     238,544               118,987          77,849           39,982
Borrowings                                                  454,128               229,991         174,147           97,188
Subordinated Notes                                          138,556                 4,571           3,790            2,854
 Total Interest Expense                                 4,019,530             1,756,438         1,210,418         739,444
Net Interest Income                                       5,288,212             2,788,183        2,779,162        2,443,456
Provision for Loan Loss                                     332,418                95,320          136,124          132,345

  O I TEREST I COME
Service Charges on Deposit Accts.                           701,275              428,647          465,761          453,560
Other Noninterest Income
                                                          1,206,066              456,828          494,514          409,641
 Total oninterest Income                                1,907,341               885,475          960,275          863,201
  O I TEREST EXPE SE

Salaries and Benefits                                     2,429,020             1,265,302        1,263,070        1,153,218
Premises and Equipment                                      581,497               353,868          353,083          314,825
All Other Noninterest Expense                             1,404,775               716,247          712,935          659,423
 Total oninterest Expense                               4,415,292             2,335,417         2,329,088       2,126,466
Pre-Tax Net Operating Income                              2,447,843             1,242,921        1,274,225        1,047,848
Securities Gains/(Losses)                                    (9,936)               (4,658)           1,070          21,4935
Applicable Income Taxes                                   (656,270)             (287,411)        (323,516)        (267,804)
Extraordinary Gains - Net                                      4,258               (4,277)           (217)            (151)

  ET I COME                                          $ 1,785,895              $ 946,575        $ 951,562       $ 801,386


  Note: This chart does not include Out-of-State State-Chartered Banks.



                                                                                                             Page 37
                       ewest State Banks and Trust
                          Companies in Texas


          WestboundBank, Katy                   The Bank of San Antonio, San Antonio
          January 2007                          June 2007



          Pegasus Bank, Dallas                  Austin County State Bank, Bellville
          January 2007                          June 2007



          Valliance Bank, McKinney              Allegiance Bank Texas, Houston
          April 2007                            October 2007



          Vision Bank-Texas, Richardson         Access 1st Capital Bank, Denton
          April 2007                            October 2007



          First Private Bank of Texas, Dallas   Comerica Bank, Dallas
          April 2007                            October 2007



                                                Lone Star State Bank of West Texas,
          First Associations Bank, Dallas
                                                Lubbock
          May 2007
                                                December 2007



          The Community Bank, Bridgeport         Conversion to State Charter
          June 2007

                                                Sovereign Bank, Dallas
                                                March 2007
          Frontier Bank of Texas, Elgin
          June 2007
                                                       ew Trust Company


                                                Family Legacy Trust Company,
          Platinum Bank, Lubbock                Dallas
          June 2007                             July 2007




Page 38
                      ewest Money Services Businesses,
                      Perpetual Care Cemeteries and
                     Prepaid Funeral Contract Entities




           ew Money Services Businesses                         ew Prepaid Funeral
                                                                Contract Entities
Tempus Consulting, Inc., Washington, DC
February 2007                                     Harrison Funeral Home, LLC, aples
                                                  April 2007
Lucky Money, Inc., San Francisco, CA
March 2007                                        Legacy Funeral Holdings, Inc., Houston
                                                  July 2007
House Savings Investment, LLC, Houston
March 2007                                        Heritage Family Services, Inc., San Augustine
                                                  October 2007
Anh Minh Money Transfer, Inc., Westminster, CA
April 2007                                        Dial Dunkin Enterprises, Inc., La Feria
                                                  October 2007
Enramex, Inc., Wheat Ridge, CO
May 2007                                          Veterans Direct, Inc., Plano
                                                  November 2007
Coinstar E-Payment Services, Inc., Bellevue, WA
June 2007

Obopay, Inc., Redwood City, CA
August 2007

MULTIDIVISAS MSB, I C., Laredo
August 2007

 oteWorld LLC, Tacoma, WA                                        ew Perpetual Care
November 2007                                                    Cemetery Entities
Global Remittance Inc., Houston                   Golden Sunset Cemetery, Inc., Victoria
November 2007                                     March 2007

El Camino Transferencias, Inc., San Diego, CA     Lord and I Cemetery, Inc., Palmview
November 2007                                     September 2007




                                                                                            Page 39
                           Top 20 Largest
                    Texas State-Chartered Banks
                                          December 2007

               Bank       ame/City                                 Total Assets (thousands)

     Comerica Bank, Dallas                                                    $62,539,056
     International Bank of Commerce, Laredo                                    $9,438,986
     Texas State Bank, McAllen                                                 $8,488,509
     Prosperity Bank, El Campo                                                 $6,364,185
     Sterling Bank, Houston                                                    $4,538,396
     PlainsCapital Bank, Lubbock                                               $3,154,401
     American State Bank, Lubbock                                              $2,073,422
     Southside Bank, Tyler                                                     $2,036,663
     TIB The Independent BankersBank, Irving                                   $1,860,032
     City Bank, Lubbock                                                        $1,492,991
     Legacy Bank of Texas, Plano                                               $1,469,777
     American Bank of Texas, Sherman                                           $1,018,208
     First State Bank Central Texas, Temple                                    $ 954,204
     Texas Bank & Trust Company, Longview                                      $ 945,146
          orth Dallas Bank & Trust Co., Dallas                                 $ 935,029
     Patriot Bank, Houston                                                     $ 840,823
     International Bank of Commerce, Brownsville                               $ 818,307
     Falcon International Bank, Laredo                                         $ 814,278
     United Central Bank, Garland                                              $ 786,265
     First United Bank, Dimmitt                                                $ 739,434

                                                                  Total       $111,308,112

               Percentage of Total Texas State-Chartered Banking Assets            72.1%




Page 40
            Top 15 Largest
Texas State-Chartered Trust Companies
                                  December 2007

Trust Company              ame/City                         Total Assets (thousands)

Brown Brothers Harriman Trust Company, Dallas                          $ 10,178,618
Sterling Trust Company, Waco                                           $ 4,509,480
The Houston Trust Company, Houston                                     $ 2,886,913
Westwood Trust, Dallas                                                 $ 1,926,850
Kanaly Trust Company, Houston                                          $ 1,906,655
Sentinel Trust Company, L.B.A., Houston                                $ 1,496,828
Salient Trust Co., LTA, Houston                                        $ 1,420,645
Woodway Financial Advisors, Houston                                    $ 1,256,652
Hand Benefits & Trust Company, Houston                                 $ 1,020,419
Investors Trust, Inc., Dallas                                          $   848,864
Austin Trust Company, Austin                                           $   537,615
Vaughan    elson Trust Company, Houston                                $   349,010
Trust Management, Inc., Fort Worth                                     $   236,379
Concord Trust Company, Dallas                                          $   235,544
Rice Trust Inc., Houston                                               $   158,321




                                                           Total       $28,968,793

       Percentage of Total Texas State-Chartered Trust Assets                98.8%




                                                                                      Page 41
               Awards and Recognitions
                 Staff Certifications
                                       Through December 2007
        Department Employees                      Department Employees              Department Employees
     with over 10 years of Service             with over 15 years of Service     with over 20 years of Service
            Mary Ates                                   Kyle Bengtson                   Tony Adekoya
        Doug Austin-Weeks                              Elizabeth Cogwin                   Allen Barr
          Grace Bartsch                                  Phillip Hinkle                  Mike Beard
            Joe Becker                                   Emma Hizon                      Mike Bothe
          Wendy Buitron                                    J. W. Holt                      Joe Broz
           Lynda Drake                                     Vance Ivie                    Amy Chavez
        Carolyn Hendricks                               Randall James                 Bobby Davenport
         Melvin Jackson                                  Everette Jobe                 Bert Gonzalez
          John Johnson                                 Joseph Kalapach                 Charles Harrell
          Angela Manzo                                      ancy Love                 William Hastings
          Linda Pearson                                 Dale McKenzie                  Mark LaPlante
            David Reed                                  Brenda Medina                    Philip Lena
             Bill Rison                               Stephanie ewberg                   David Munn
      Rebecca Rychlik-Adams                             Jaime Oliveira                   Elise Myers
         Marilyn Sebade                                  Russell Reese                Gilbert Sepulveda
            Mark Sims                                     Javier Reyes                  Carolyn Shaw
           Hilda Tovar                                 Pat Scarborough                    Julie Sisk
         Anita Villarreal                               Carolyn Smith                   Phyllis Teeple
             athan Vogt                                    Loren Svor                   Mark Walker
          Carol Weaver                                                                  Charles West
         Clara Zamarripa

                                                                                    Department Employees
                                                                                 with over 25 years of Service
   Congratulations are also in order for Brett Howard and John Johnson for             Robert Bacon
   passing the required test to become a Certified Information Systems Auditor         Kurt Purdom
                                                                                      Stephen Traeger
   (CISA).
                                                                                       Larry Walker

                                     ewly Commissioned                              Department Employees
                                     Bank Examiners:                             with over 30 years of Service
                                      Michael Amend                                     Dennis Lebo
                                      Dianne Dennis                                     Carrie Lemke
                                      Brett Howard                                      Georgia Steen
                                                                                       Carri Whitfield

                                                                                    Department Employees
                                                                                 with over 35 years of Service
                                                                                      Larry Craddock
          We are extremely proud of our staff, which through their                     Bob Giddings
          dedication and hard work has allowed the Department to
                      achieve the status it enjoys today.




Page 42
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                                      Page 43
Texas Department of Banking   First Class Mail
                               U.S. Postage
2601 orth Lamar Blvd.               Paid
Austin, Texas 78705-4294       Permit #1331
                               Austin, Texas

				
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