Don't Mess With Texas Bankers

American Banker - A community bank held the most deposits in at least nine Texas metropolitan areas at June 30, according to data recently issued by the Federal Deposit Insurance Corp. Big banks are the top dogs in most U.S. markets.

A community bank held the most deposits in at least nine Texas metropolitan areas at June 30, according to data recently issued by the Federal Deposit Insurance Corp. Big banks are the top dogs in most U.S. markets.

The trend runs deep, too. Multiple community banks control more than half the market in several Texas cities.

Small banks in Texas have a history of maintaining closer ties to their communities than the big banks, said Scott Hein, a banking professor at Texas Tech University in Lubbock. "Texas values relationship banking," he said. "And community banks are able to provide that in all sorts of different forms."

The results are lopsided in some Texas markets such as Lubbock, where more than a dozen community banks control 82% of the city's deposits. In the Killeen-Temple-Fort Hood, area, six of the seven biggest banks are community banks, collectively controlling about 60% of the area's deposits.

Among the 30-largest metropolitan markets, only Kansas City, Mo., and San Antonio, Texas, have a bank with less than $20 billion of assets as the market leader. San Antonio, where Cullen/Frost Bankers Inc. is the leader, sets the stage for other Texas cities.

Amarillo National Bancorp Inc., a $2.9 billion-asset company, controls about half of the retail market in its home town. Happy Bancshares Inc., a $1.6 billion-asset company based in Happy, Texas, is second in Amarillo, at 15.32%.

The $1.9 billion-asset North American Bancshares Inc. holds The top spot in its home city of Sherman, with 35.8% of the market.
Community banks are also the leaders in Longview, Abilene, Odessa and Corpus Christi.

Community banks typically do not wield that kind of power in other U.S. metropolitan areas of similar sizes. In Grand Rapids, Mich., for instance, bigger out-of-state banks such as Fifth Third Bancorp and Wells Fargo & Co. control more than 63% of the market. In Spartanburg, S.C., Bank of America Corp., BB&T Corp., SunTrust Banks Inc., and Wells collectively hold about 56% of local deposits.

Big banks have found that it's not cost-effective for them to provide the same type of "relationship banking" as community banks, said F. Scott Dueser, the chairman, president and chief executive of First Financial Bankshares Inc. in Abilene.

"In Texas, the big banks don't staff their offices with anybody who can make a decision," Dueser said. "People in Texas like the community bank concept because they know they're going to be called by name."

Another reason for smaller banks' dominance is the old unit banking system in Texas, which barred a bank from operating more than one branch. The system, discarded in the late 1980s, created an environment where small banks could thrive, industry observers said.

Still, community banks' dominance in parts of Texas is no anachronism. Far from hanging on to leads by their fingernails, many Lone Star community bankers have bolstered their market strength.

In Lubbock, PlainsCapital Corp.'s market share hit 20.3% at June 30, compared with 18.9% in mid-2009. South Plains Financial Corp., a $2.1 billion-asset company based in Lubbock, has grown market share in its home town to 18.4% from 14.4% in 2005.

In Abilene, market share for the $3.8 billion-asset First Financial has ranged from 38.26% to 42.29% over the past five years. The Abilene-based company had 41.1% of the city's deposits in the 2011 report.

Other small banks have grown in Abilene, seemingly at the expense of big banks. First Baird Bancshares Inc., a $541.4 millionasset company based in Bedford, Texas, reported 8.5% market share at June 30, compared with 6.7% in 2005.

Over the same time period, JPMorgan Chase & Co. steadily lost market share, slipping a few percentage points each year, to hit 5.6% this year after holding 8.4% in 2005. JPMorgan Chase still has the largest market share statewide, the FDIC says.

Officials for JPMorgan Chase and Wells did not answer questions for this story. Bank of America has increased its market share in 2011 in several Texas cities, including Abilene and Lubbock, and added a lot of deposits in Texas overall, a B of A spokesmansaid.

Some of the state's community banks have benefitted from acquisitions. Rather than gain from their own deals, many have done well after a bigger bank acquired a major competitor.

In Killeen, World Savings Bank was the leader with 9.2% of deposits until Wachovia Corp. bought its parent, Golden West Financial Corp. Wachovia, in turn, sold to Wells in 2008. The surviving bank's market share fell to 7.4% in 2008 and to 3.9% this year.

Wachovia likely contributed to the deposit flight when it ended a practice by World Savings to offer very high interest rates to fuel overzealous mortgage originations.

Hein said that in the late 1980s he asked a Texas community banker what NCNB Corp.'s entry into the state would mean, after the B of A predecessor bought the failed Texas banks of First RepublicBank Corp. The banker, to Hein's surprise, said it would be "wonderful" for any remaining community banks.

"My sense was he'd be scared that the big boys were coming," Hein said. "But he said [NCNB] is going to lose customers and lose employees and we'll be able to hire away better loan officers that don't want to work in a big bureaucratic environment. And he was 100% right."

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