If failed banks had headstones, the Texas Plain would look like a graveyard. InterFirst, RepublicBank, Allied Bancshares and MCorp all perished in the overheated boom-and-bust cycle of the 1980s. Only Texas Commerce Bank, which had similarly deep roots in Lone Star State soil, managed to pull through.

[Expanded Picture]TCB today isn't the bank it was in the 1970s and early '80s, when it posted 64 quarters of uninterrupted earnings growth, had the highest average return on assets and earnings-per-share growth of the nation's 25 biggest banks and joined J.P. Morgan & Co. as the only domestic banks car in AAA credit ratings. First, it had to endure a hellish trial by fire that began in 1984.

It was then that Texas, energy sector, which fed the entire economy like an enormous aquifer, began drying up. Soon the state's overbuilt commercial real estate sector was collapsing. By 1986, recalls Texas Commerce's current chairman, president and chief executive officer, Marc J. Shapiro, "It was clear we were in for a protracted time of dealing with those problems." A year later, management sensed it needed to hook up with a strong financial partner, and sold itself to New York's Chemical Banking Corp.

Shortly afterward, the Texas economy really was in extremis. Developers went under, thrifts collapsed and big Dallas banks like RepublicBank and InterFirst failed. By 1989, Texas Commerce was the only major Texas bank still on its feet and operating under its own name; Houston rival First City Bancorp. had been seized by regulators and sold to an investor group in 1988, but three years later First City, too, was back in receivership. TCB bought most of its remains in 1993.

[Expanded Picture]The deep pockets and patience of Chemical - since augmented by Chemical's own merger with Manufacturers Hanover Corp., creating the nation's third-largest bank, with $185 billion in assets - helped Texas Commerce survive those dark days. "The situation was worse than anyone thought it would be," says Shapiro, who became CEO in 1989. Nonperformers, most of them commercial real estate-related, soared to nearly 14% of loans.

Looking back, Shapiro says, "We had a very simple strategy: we made commercial loans. We were very conservative. We came to realize that this was probably too narrow a focus, and that there was more risk than we thought."

[Expanded Picture]Problem assets, which peaked in 1989, have been whittled down for 27 straight quarters, to 1.5% of loans plus foreclosed properties. Earnings have recovered nicely, too. TCB's 1994 net income was the company's highest ever - though not much above 1984 levels - and the Texas economy itself has the ruddy glow of good health. If all goes according to Hoyle, Texas Commerce will amply pay back Chemical's investment.

Yet riding the state's growth curve alone won't be enough, and by conventional earnings measures the $19-billion-asset bank still trails most of its superregional peers, posting a 1% return on assets and 11.95% return on equity in 1994 - a performance more indicative of the competitiveness of Texas banking than any TCB shortcomings. To boost those numbers, Shapiro and his troops are reshaping the bank, concentrating on key markets and targeting consumers as never before. They are positioning it as a locally controlled, locally responsive institution - but also one that, through Chemical, has an international reach and capital markets capability its rivals can't match. As such, they are creating a model that others may want to follow as nationwide banking emerges: grafting a strong local identity and customer base to the global capabilities of a much larger bank.

By contrast, the two megabanks that marched into Dallas in 1988-89, NCNB Corp. (now NationsBank Corp.) and Banc One Corp., have acquired a reputation with some business customers as interlopers who defer key decisions to faceless number-crunchers in Charlotte and Columbus. That may be more hearsay than truth, but in Texas, local pride hangs as heavy m the air as the Houston humidity. Texas Commerce uses its name and logo - a variation of the state flag, with its famous Lone Star - to cement its identity, but executives can "wear the Chemical hat if we need to," says vice chairman Alan R. Buckwalter III.

The merger with Chemical "did something to secure a place (for TCB) in the community that others haven't been able to emulate," says Jim C. Kollaer, president of the Greater Houston Partnership, an umbrella business and civic organization comprising local chambers of commerce. Part of the difference is simply that Shapiro is a Houstonian, while rival CEOs aren't, he says.

Another plus for TCB, say several insiders, is its network of local advisory boards. "They're the only ones with an advisory board that reflects the (Dallas) community, with a makeup of African-Americans, Asians and Hispanics," says Alphonso R. Jackson, president of the Dallas Housing Authority and a TCB director since 1992. "They want to make sure they're making the best decisions."

Highly Competitive

Playing the local card may prove critical, since "Texas is the only market in the country with all the major players," says Frank Anderson, a bank analyst in Dallas for Stephens Inc. Rate competition has taken a toll: Texas returns for most superregionals have been marginally below 1% on assets. Only First Interstate did significantly better in 1994, while Bank of America lost money; according to Sheshunoff Information Services.

Out-of-state banks, barely a factor a decade ago, now control 54% of the state's deposits. NationsBank and Banc One get the most attention, and with Texas Commerce, they're the state's largest banks. Both came in during the late 1980s in FDIC-assisted deals for large failed banks in Dallas. There's a consensus among market observers that Banc One is chiefly targeting consumers and small business, while NationsBank is also angling for the larger customers that TCB enjoys.

The list goes on. First Interstate Bancorp has been a Houston rival since its 1988 acquisition of Allied Bancshares. BankAmerica Corp. has been assembling a network of former thrift branches. Michigan's Comerica Inc. has been in Dallas for years.

The newest big entrant, Norwest Corp., entered Texas early in 1994 but has been buying small banks right and left on the premise that there's a ready market for small-town community banking services - a very different strategy from TCB's. Soon to grow to $2.7 billion in assets, Norwest is in a dozen communities and plans to keep building rapidly.

And unlike TCB, Norwest has no interest in Dallas or Houston. "There's very little left to do in those markets in terms of consolidation," says Norwest regional president John Stumpf. "The case is very much different in the rest of the state." He says Norwest favors a decentralized philosophy, keeping local management and local boards; even the timing of adopting the Norwest name is up to each board.

Meanwhile, bank charters in Texas have fallen from 1,965 in 1985 to 985 today. TCB itself has an out-of-state owner, of course, but "if you asked the man in the street, I'd bet surprisingly few know that TCB is owned by Chemical," said Chemical chief executive Walter Shipley in an interview. "In the corporate market, those who know only see the ownership in a positive sense."

Like many banks, TCB has been growing loans rapidly - up 13% in the year ending March 31 to $10.8 billion. That's still well below 1985, when the loan portfolio peaked at $13.3 billion. Yet loans are still the chief driver of the bank's earnings, with many of its fees tied directly to loan products.

Much of TCB's success will remain tied to Houston, the center of its holdings and activity. Its $9-billion bank there is three times the size of any other in the city. From the glass-and-steel towers of downtown to the outlying business centers of The Galleria and Greenway Plaza, Houston is spreading, adding jobs increasingly tied to services and manufacturing. Greater Houston's population of 4 million makes it the nation's 10th largest metropolitan area.

Houston has become a haven for entrepreneurs. "It's an extremely open city" that's "very international and global," says Kollaer. Indeed, Houston has long been a magnet for foreign companies and consulates. Big foreign banks set up representative offices years ago, eager to tap the oil dollars gushing out of the ground. There was more than enough to go around, but margins have been shrinking.

"We have grown our office over the past five years through financing the continued reconfiguration of the energy industry," says John Grandstaff, managing director of Canadian Imperial Bank of Commerce's Houston outpost. While energy remains its chief focus, Grandstaff says the bank also does financing for large investment-grade companies and counts among its local customers Browning-Ferris Industries and Tenneco Inc.

[Expanded Picture]When people outside the state think of Texas, they often picture portly oilmen in Stetsons piloting Cadillacs with steer-horn hood ornaments. But the importance of oil and gas "has substantially diminished, and the economy has truly diversified, most particularly with respect to high-tech," says Robert E. Harris, president of the Texas Bankers Association.

TCB, too, is still evolving. Brought under a holding company, Texas Commerce Bancshares, in 1971, last year it consolidated all its banks under Texas Commerce Bank NA. TCB has actually shrunk after selling off small banks in non-strategic markets like Lubbock, Amarillo and Corpus Christi; it's now just under $19 billion in assets, down from $21.8 billion at year-end 1993.

Tallest in the West

Its 75-story concrete tower - TCB now occupies only four floors, with the rest given over to prime corporate tenants - is arguably more of a monument to the past than the future. When completed in 1981, it was the tallest building in the U.S. west of the Mississippi, and "a concrete symbol of (TCB's) performance and its aspirations," wrote historians Walter L. Buenger and Joseph A. Pratt in "But Also Good Business," their 1986 book on the centennial of TCB. Ben F. Love, TCB's courtly retired chairman and the man who built the bank into its current form, commissioned a statue for the plaza in front from famed Spanish artist Joan Miro.

Most of the bank's executive offices are currently located in the original Texas Commerce Bank building, which houses a vast, four-story bank lobby finished with marble and Art Deco metal accents, as well as a huge stained glass window treating themes from the Battle of San Jacinto. Executive offices are elegant and subdued, finished with dark woods, American landscape paintings and Oriental rugs.

In Shapiro, 48, TCB has a native Houstonian with sterling credentials. He has a degree in economics from Harvard and finished first in his MBA class at Stanford - testimony to Love's goal of recruiting students in the top 10% of their classes. Shapiro joined TCB in 1972; by 1977, he was chief financial officer.

Tall, lean and serious, Shapiro has a slight Texas twang and speaks evenly, with an occasional flash of suffer-no-fools-gladly intensity. Love compliments his "disciplined and productive work ethic" and says, "He has done a very, very fine job with our customers, as well as with the inside portion (of the job)." Chemical's Shipley says that Shapiro - a member of Chemical's 15-member management committee - was a natural successor to Love, "though he has an entirely different style in some respects." Though distance crimps his participation, Shapiro effectively "complements our management group," Shipley says.

Others talk of Shapiro's intimacy with Houston and his contacts in the community. "Marc sits on a number of boards, and the ones at the (Houston) Medical Center and the hospitals like Baylor, in particular, are really important to Houston," says Kollaer. "It's a strong position for him to be in."

Like Shapiro, top officers at TCB are almost all old hands. Love says Shapiro recently told him that of 43 top officers, 35 had worked there at least six years. That's an obvious asset. "Customers get uncomfortable with constant change of policies and officers," says Love simply.

"You have to give Ben Love credit," says director and former Congresswoman Barbara Jordan. "TCB didn't miss a beat when he stepped down."

Texas Commerce's 38-member board - it had been up to 44 at one time, Shapiro says - has such blue-chip names as former President Ford and former Cabinet members Robert Mosbacher, Commerce Secretary in the Bush Administration, and William Ruckelshaus, one-time secretary of the Environmental Protection Agency. It also lists Jordan and prominent chief executives like Lawrence Rawl of Exxon Corp. and Herbert Kelleher of Southwest Airlines.

Jordan, one of the nation's most prominent African-Americans and now a law professor at the University of Texas, says Love recruited her for the board after she left Congress in 1979. "It's a good board," she says. "That bank does not embarrass you, and people are willing to be associated with it."

Like the board, TCB's roster of big corporate customers is also impressive. It claims primary relationships with more than half of all Texas companies with more than $250 million a year in sales, and says that share has doubled since the late 1980s - thanks in part to the services Chemical provides. "They know that (loan) margins will be razor-thin, yet they're able to sell banks on cash management, corporate trust and other services," says Anderson at Stephens Inc.

Alan Buckwalter, TCB-Houston's urbane president, was an energy lender at Chemical who came to Houston in January 1990. Chemical and Manufacturers Hanover both had strong energy lending programs; those customer bases and TCB's "complemented each other," he says. As the energy business has consolidated, he explains, TCB has benefited by advising the major companies on selling reserves, and advising and financing the independents acquiring those reserves - a lucrative double dip.

Indeed, Chemical has topped the oil and gas league tables for the last three years, with 23% of the market in 1994. And in broader syndications, where Chemical is the world leader, TCB is itself very big: Buckwalter puts TCB's volume at $16.4 billion last year, among the top 10 in the world.

Focus on Metroplex

TCB has made the Dallas-Fort Worth market - the Metroplex, as many in Texas call it - a key focus. From a small base a few years ago, the bank now has 50% of the major corporate market there. John Adams, a vice chairman who has headed the Dallas-area operation since 1987, says loan growth there currently is up 35% over last year. "It's a very vibrant, diversified economy," he says.

"With all the failures and changes in ownership, TCB has substantially expanded its share of the corporate market," says David S. Berry, director of research at Keefe, Bruyette & Woods in New York. The franchise already existed, he says, and "the smartest thing Chemical did was to leave the name and the people in place." Berry says TCB's corporate calling effort has historically been big and very focused." When turmoil raked the market, "they looked strong and steady."

TCB has carved out an intriguing niche in trademark and franchise financing, in which it has teamed with Chemical to offer companies like Coca-Cola and Burger King big savings. The bank structures an off-balance sheet financing that is sold to the commercial paper market by Chemical and is backed by a letter of credit from a foreign bank. Buckwalter says the deals save customers an average of 200-300 basis points in interest.

TCB boasts that "our relationship with Chemical Bank also provides our customers with ready access to money center and worldwide financial markets." The institution claims correspondent banking relationships with more than 950 banks in 125 countries (TCB was in seven countries when Chemical acquired it, but quickly closed those offices and piggy-backed on Chemical's faculties, Shapiro says).

TCB clearly has a big value for Chemical, and KBW's Berry doubts the New York giant would sell it. In fact, he says, "I have an impression they would sell the New York retail bank before they would sell TCB."

Yet it's in retail where TCB faces its toughest challenge. Retail was long neglected as the bank pursued classic commercial banking, and it now finds itself in third place behind NationsBank and Banc One - though it does have the No. 1 market positions in Houston, Beaumont and the Rio Grande Valley. "There are some fairly potent retail competitors. It's not like it's easy pickings," says Berry.

Heading the retail bank is executive vice president Shelaghmichael Lents, a trim and energetic woman who left J.P. Morgan & Co. to join TCB in 1979. Lents says the bank wants to diversify and build the consumer business beyond its current contribution of one-third of revenues. Until recently, concedes Shapiro, "we never thought about (retail) as a business."

TCB is clearly making headway, but gains wont come easily against the likes of NationsBank and Banc One. TCB didn't have networked personal computers in its branches until two years ago, and hasn't had a branch-based program for selling mutual funds and annuities - a real anomaly for a bank its size. Lents says that will change this month as it rolls out a system featuring investment counselors attached to the branches. She notes that 22% of the bank's loans are consumer-related, up from just 5% a decade ago; most are unsecured credit lines, installment and home improvement loans. Incentives are helping build that business: Lents says 30% of referrals are coming from tellers.

A central theme in the overall retail push is TCB's "Star Treatment" campaign, which plays off the star in its logo. The message: you, the customer, deserve to be treated like a star. The campaign, kicked off in the fall of 1993, is both internal and external; workers are evaluated on the customer service they deliver and get ribbons as rewards - readily visible on computer terminals to visitors to the bank's head offices.

Beyond Warm and Friendly

"Star Treatment" has been woven into TCB's mission statement, and an advertising campaign has been built around it. But Lents says that "we have to push beyond warm and friendly," and deliver value and convenience. One example: TCB has a loan-by-phone center that now handles 30% of consumer loan applications. Currently staffed 12 hours a day, the center will eventually operate around the clock.

Also getting a technology boost is small business lending. Like many large banks, TCB has created a centralized underwriting center for small businesses, now defined as companies with sales under $3 million a year. TCB also has 246 automated teller machines, and Lents says executives are looking closely at how they're deployed and what kinds of additional services - such as advertising or statement issue - the machines could generate. In that effort, as well as in developing technologies such as home banking and smart cards, TCB will piggy-back on Chemical's resources.

TCB has adopted Chemical's successful relationship banking product, called ChemPlus in New York and OnePlus in Texas, garnering more than 260,000 accounts and $5.4 billion in deposits. And its trust business is the state's largest, thanks in part to sizable trust assets picked up in its 1993 acquisitions of First City and Ameritrust Texas.

[Expanded Picture]Trust and private banking have been combined, as at many banks, with the idea of "putting all things for the affluent in one place," says executive vice president Ed Robinson, TCB's chief of private banking. "I think we will sell more products, and we will make the customer happier." Robinson says TCB is the dominant trust player in Houston, with close to $7 billion in active assets under management.

Retail banking will get a boost from an ongoing reengineering effort called Process Improvement, which began in February 1994 and should be largely done by mid-1996. Robert C. Hunter, TCB vice chairman and head of the effort, says TCB's brass wanted a more efficient bank that would serve customers better.

The project developed into a bankwide effort that created 176 "action teams" of six to 20 people. Their goal was to scrutinize procedures and come up with "fresh ideas" that might save time and money. Two examples: Branch workers suggested that check collections be streamlined, requiring fewer courier pickups; and new check readers are being installed that will enable tellers to "swipe" checks rather than manually enter account information.

Close to 1,000 ideas were approved by management and will be phased into work processes. Current projections call for $53 million in cost reductions by the end of next year and an added $12 million in revenues - part of the $440 million in expense savings that Chemical hopes to realize by year-end 1996.

Not surprisingly, job cuts are in the offing. TCB expects to trim 1,100 positions over two years, mostly by attrition, paring down to about 8,300 employees. But it also foresees spending $42 million for technology improvements to implement the process changes; for instance, Hunter says the bank expected by June to be on a single statewide wide-area network linking its 215 local-area networks.

As they sought greater efficiency, TCB executives elected to exit smaller markets where the bank couldn't effectively leverage its corporate services capabilities. Says Shapiro: "Our competitive advantage is in bigger markets with more companies. If you're a $50-million business, we can do more for you than any other bank in Texas." TCB also has an advantage in locales like Monterey, Mexico, where Chemical has a small office and is targeting Mexican and multinational corporate clients, some already TCB customers.

For years, TCB has done a flourishing business with Mexican maquiladoras, the border-area manufacturing plants that assemble everything from auto parts to electronic equipment, toys and textiles at cheap Mexican labor rates. "Our primary business with them is cash management," Shapiro says. "We make money providing pesos to those plants so they can pay their workers."

Name Is Appropriate

Texas Commerce is aptly named: It has emerged as the bank for large companies in Texas. But in banking today, loans are increasingly viewed as commodities, and providers - relationships aside - as almost interchangeable. Hence TCB's focus on value - added capital markets and advisory services, many delivered with active participation from Chemical.

"I think we've got the best franchise in the southwestern U.S.," enthuses Chemical's Shipley. While the losses in the late '80s were painful, "we may never have had that opportunity (to buy TCB) if we hadn't acted when we did," he says. That franchise doesn't carry the same value it once did, however: TCB maintains a solid, if uninspiring, A+ debt rating from Standard & Poor's at a time when top regional banks are at AA or better.

Chemical may view the franchise as southwestern, but TCB is keeping its eyes solely on Texas. "We think the best markets within. 1,000 miles are the markets we're in. We did a study of other states around us.... Dallas/Fort Worth is as big as Louisiana, and it grows five times as fast," Shapiro says.

Figures from the state comptroller's office show employment rising steadily since 1991 and the number of business incorporations up sharply since 1992. And despite the recent shocks to the peso, Mexico offers what could be huge potential. The North American Free Trade Agreement "was a sweetener," but heavy cross-border trade "was underway well before that," says Harris of the Texas Bankers Association. "Texas will be a big gainer."

Houstonians are feeling that upsurge. "There's a huge service component to the Houston economy that is continuing to grow," Shapiro says. "Businesses are attracted by the low costs. We're the gateway to Latin America. We expect to add 50,000 jobs this year; we added 40,000 last year." All in all, Houston "is the most capitalistic city in the country."

Houston is also a clean and thoroughly modern metropolis whose links to the oil barons and cotton kings of the past are fading. You hear few Texas twangs on television and radio there these days, reflecting the homogenization of American culture, and newcomers don't have the old Texas sensibilities. What worked a generation ago must be reformulated - and the prowess of the big newcomers has spurred TCB to re-examine itself and refocus on areas where it feels it has a competitive advantage.

Access to global resources and sophisticated products offer an edge, and so do its Texas roots. History, and a loyal customer base, are still paying dividends. Ben Love says that Texas "traditionally has had to grow by importing people and capital. My sense is that (outside banks) have been homogenized and assimilated into the business community. But I would hope that with our 100-year head start, we might have some advantage."

Poor Area, Profitable Venture

If retail banking is an underdeveloped area for Texas Commerce, retailing to minorities is practically the next frontier. But the bank has a burgeoning success story in its Lyons & Lockwood branch, opened in November 1993 in a Houston neighborhood with a mostly African-American and Hispanic poulation.

The branch, which draws its name from its cross streets, has cofounded all the bank's projections, drawing in more deposits and generating more loans and good will - the kind that doesn't show on a balance sheet but reinforce TCB's message that it is a locally responsive bank.

As the only financial institution in the area, the branch has been a virtual magnet for deposits. "We're the local convenience store," says branch manager John P. Hernandez, a genial, well-spoken man who readily offers statistics and stories about the brick-and-stone facility, which does resemble a store.

Texas Commerce hadn't opened a Houston branch in almost a decade before Lyons & Lockwood. It chose a historically poor community near the Houston Ship Canal that had lost its last S&L branch years earlier, recalls Barbara Jordan, the former Congresswoman who grew up in the neighborhood and opened her first law office a stone's throw away. Heavyweight boxing champ George Foreman also threw his first jabs there as a boy.

"Texas Commerce and the neighbors surrounding the bank have a kind of partnership in ownership," says Jordan. Before it started up, people who needed to bank had to drive for miles or wait for a bus headed downtown, she says.

"Banking is not an industry that people view affectionately," Jordan says in the oratorical tones she's famous for. "Yet you can feel the emotion among the people there, and the way they respond to the (TCB branch)."

Hernandez says that 60% of its customers had handled their basic banking with non-traditional providers like check-cashing outlets. Now, tellers at Lyons & Lockwood do 80%-90% more transactions than those at comparable Houston branches, and the branch has the third-busiest teller machine of any TCB branch in Houston.

April 30 numbers shows deposits of $12.6 million and loans of $5.2 million, way ahead of initial projections of $7 million and $3.7 million, respectively, for November 1995. Hernandez adds that the branch was profitable within 16 months. That's quite a feat for an area whose meager $14,400 median household income, $26,500 average home value and drive-by appearance - deteriorating frame houses and overgrown yards pock the streets - don't offer much on the surface for bankers to latch onto.

Hernandez ascribes part of the branch's customer appeal to using minority bankers "who look like them and talk like them." He offers the story of a Hispanic man who had been ignored at other banks but found a Spanish-speaking teller at Lyons & Lockwood to listen to him - and promptly pulled out a folded check from his pocket for a $562,000 insurance settlement.

Barbara Jordan says the community has simply taken the branch as its own. "There is not one person,"Biggest Banks in Texas Name Assets ($ Bil.) 1. NationsBank of Texas 43.02. Texas Commerce Bank 19.0(*)3. Bank One Texas 18.24. Bank America Texas 8.45. First Interstate Bank-Texas 6.46. Frost National Bank 3.57. Comerica Bank Texas 3.5 Source: Texas Department of Banking/March 31, 1995 (*)=TCB data

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