While most of the frenzied expansion in Texas is concentrated in the largest markets, First Financial Bankshares Inc. is targeting parts of the state's central and western regions that are much less congested.
In the past 10 months the $2.4 billion-asset multibank holding company has acquired three banks - in Glen Rose and Stephensville, both in central Texas, and in Clyde, in west Texas. It is looking for sellers just outside Dallas, along the Interstate-30 corridor in northeast Texas and in the Hill country northwest of San Antonio, and aims to get its asset size to $4 billion in the next four years, said F. Scott Dueser, First Financial's chief executive.
"We don't have an interest in Dallas or Houston, but we like to be on the fringes of those communities and in places where we can make a mark," Mr. Dueser said.
The smaller markets have fewer competitors, he said, so First Financial can set the pricing and establish itself as the bank of choice in the community.
For instance, First Financial Bank in Abilene (where the holding company is headquartered) has a 49% market share. In three more of First Financial's five west Texas markets, it is No. 1 in market share, and in the fifth market it is a solid No. 2, with 23% of the deposits.
Even in the more competitive central Texas markets, First Financial subsidiaries are in first or second place in four of five markets, with as much as a 26% share.
"It's very important that we are No. 1 in market share," Mr. Dueser said. "We like to move into markets where we can quickly become the community leader."
This strategy, adopted when First Financial was formed 30 years ago, has proven quite successful for the low-profile company. Its first-quarter return on assets was 2.04% and its return on equity was 18.19%, well above the industry average.
First Financial's markets are 50 miles or more outside Dallas. They are not growing as briskly as the close-in suburbs, but Mr. Dueser said they have good infrastructures and are becoming more populated.
"The growth is picking up, because these are great communities with great schools and hospitals and a lot of amenities that people want," he said.
Brett Rabatin, an analyst with First Horizon National Corp.'s FTN Midwest Research in Nashville, is skeptical of First Financial's near-term growth prospects. He said the company "got lucky" in finding the Glen Rose, Stephensville, and Clyde acquisitions.
"They are very selective and will not pay three times tangible book," Mr. Rabatin said. "And with deal metrics so pricey now, I don't think they are going to make another acquisition for another year and a half to two years."
But Mr. Dueser said First Financial is actively looking, knocking on the doors of small banks in these outlying communities. And banks are coming to First Financial, he said, including some of the 80 that use it as their correspondent bank. One lure is that banks bought by First Financial are given plenty of independence.
First Financial retains the charter of banks it acquires in new markets, keeping all the employees and the board intact. When it buys in markets where it is established, it merges the bank into the nearest First Financial subsidiary.
The holding company's 10 banks range in asset size from $831 million for the Abilene bank to $107 million for Eastland National. The banks have their own boards made up of community leaders, and each bank's management team makes the lending decisions and chooses how to become involved in its community.
However, back-office processing is centralized at the parent company.
"This gives the individual banks the decision-making process and pricing decisions without having to worry about all the operations and technology," Mr. Dueser said.
Each of the 10 banks can decide how and when to implement First Financial's new rebranding initiative. In the past year five of them have changed their name to First Financial Bank; three others plan to do so in the next few months, and two are keeping their name.
Customers of one bank have always been able to use the others, and a common name would make this convenience more apparent, Mr. Dueser said.
Though multibank holding companies are often saddled with duplicate costs for marketing and other expenses, First Financial's efficiency ratio was 49.5% in the first quarter, well below the average of 55.5% for banks with assets of $1 billion to $10 billion, according to the Federal Deposit Insurance Corp.
First Financial traces its history to 1890, when the flagship Farmers and Merchants National Bank opened. It was the only Abilene bank to survive the Great Depression, and the company's predecessor, First Abilene Bankshares, weathered the oil and real estate collapse of the 1980s, when more than 500 banks in the state failed.
Mr. Dueser has been with the company for three decades, taking over as CEO five years ago. He led its expansion from its west Texas base.
Scott Alaniz, an analyst who covers Texas banks for Sandler O'Neill & Partners LP in New York, said that by focusing on quieter markets First Financial has steered clear of the pricing wars in the major metropolitan areas.
Its weighted cost of deposits is 0.84%, Mr. Alaniz said, versus 1.40% at the $1.1 billion-asset Texas United Bancshares Inc. of La Grange, which does business in San Antonio and Austin.
"They have a real advantage over a lot of other banks in Texas," Mr. Alaniz said. "First Financial really is the proverbial big fish in a little pond."
