.......................................................... Banks
Thirty years ago, an oil bust turned into a real estate bust that took down nine out of 10 of Texas’ largest bank holding companies, as suddenly empty office buildings and laid-off homeowners no longer had the means to pay off loans.
Over the past three years, as a bust of similar magnitude crashed down on Houston, zero banks failed in the state, a testament to the strength of an industry that has been thoroughly reformed since the 1980s and now operates much more cautiously. Today’s oil downturn played out much differently.
“The overleveraged nature of banks to the real estate industry no longer exists,” says Marty Goossen, regional director for JPMorgan Chase, which has a nearly 40 percent market share in Houstonarea deposits. “So I think generally there’s a floor under how deep a recession could get here.”
Here’s what he means by that: Post-financial crisis underwriting standards led banks to require much more equity in the building projects they financed, meaning that they were much less likely to default even as the energy-related economic swoon sent vacancy rates soaring.
That’s not to say the energy downturn didn’t have an impact on Houston’s banking industry. Deposits increased 35 percent between 2012 and 2014, to $242 billion, and then fell back to $215 billion
in 2015, according to the Federal Deposit Insurance Corp. Deposits then edged up slightly in 2016, the latest year for which comprehensive data are available.
Although oil and gas activity has returned with the relative rise of oil prices, many banks continue to proactively reduce their exposure to oil and gas assets, according to reports from the Texas Department of Banking. In particular, Green Bank, Amegy and Prosperity — which have between 20 percent and 50 percent of their deposits in Houston — have reduced energy’s slice of their loan portfolios.
However, that has challenged banks to find other profit centers, especially as low interest rates have made it difficult for them to make much money on deposits or real estate loans.
“How do you grow while the energy market is not in a growth mode, and how do you grow safely?” Amegy Bank CEO Steve Stephens asks.
According to Stephens, Amegy managed 5 percent loan growth in 2016, despite a pullback in energy lend-
ing, which still constitutes about 20 percent of the bank’s portfolio. Mortgage lending expanded by 15 percent, business lending is on the rise, and the bank started a municipal finance arm as well.
“The name of the game is just that you’ve got to be diversified,” Stephens says.
That’s one thing for JPMorgan Chase and Amegy, the No. 1 and No. 5 banks in Houston respectively. But what about the ones far, far down the list?
Community banks have protested that they’re especially ill-equipped to deal with post-financial crisis rules and reporting requirements, and many have sold themselves to larger banks as part of a longterm trend toward consolidation in the industry. Previously high hopes that congressional Republicans would manage to roll back some of those regulations have started to fade as the Trump administration gets bogged down in other problems.
Nevertheless, many small banks have forged ahead, such as First Liberty National Bank, based in a little town 50 miles northeast of Houston, which comes in at No. 50 out of the 96 banks active in the local market. On a recent Friday morning, it was bustling with locals coming in to talk with loan officers and make deposits — all things that consumers are increasingly doing online or over the phone or not at all.
CEO Kelly Stretcher says his bank has opened or acquired physical branches as most others are cutting back and boosted loan volume by more than 20 percent over the last year because of rapid suburban housing growth.
“Houston has discovered Liberty County,” Stretcher says. “Some banks have gotten out of the mortgage business, and we see that as an opportunity.”