In Texas these days, most aggressive community banks have chosen to grow by the acquisition game. But a few small banks aren't playing - and are growing anyway.

There have been more than 65 mergers of community banks over the last 18 months. But bucking the common wisdom that the only way to add significant assets in Texas is by buying them, some community banks there are building them fast through sweat equity.

"Our weapon is personal customer service," said James T. Chambers, president and chief executive of Town and Country Bank in Stephenville, Tex. "In the smaller communities, that's what folks like - and what they were used to until the big banks started coming in. Now we're trying to pick up customers who weren't getting what they wanted."

"Some of the community banks out here are just beating the socks off the big boys when it comes to customer service and such," said Dennis McCuistion of McCuistion & Associates, an analysis group in Irving. "They've been getting lots of business from big banks running people off."

The number of banks willing to pursue asset growth through building its customer base instead of mergers and acquisitions is small. According to Mr. McCuistion, there are 20 buyers for every bank up for sale. Common sense would dictate that it's easier to add $50 million by taking over another bank rather than trying to drum up several thousand new customers.

Northeast National Bank, in Mesquite, is an example of a bank willing to do it the hard way. J. David Walls, chief executive and president, said Northeast works the small-business niche market, in addition to its strong emphasis on customer service.

Once a troubled institution, Mr. Walls and his staff have slowly built Northeast into a solid community bank. It had a growth rate of about 25% this year, and Mr. Wall said he expects 15% more growth in 1996.

"Basically, we rolled up our sleeves and went to work," he said. "We've experienced some growing pains over the past couple of years, but I feel we should be able to continue to succeed by serving niche markets and working hard."

The bank has grown from $11 million in assets when Mr. Walls took over six years ago to $53 million today and has a return on assets of 2.6%. Mr. Walls said that in 1994 Northeast had the best ROA of any bank in the Dallas area.

"We're a community bank and we've benefited from the regional banks coming in and buying up other banks," Mr. Walls said. "The mom-and-pop businesses haven't been too happy with the regionals, and it's been to our benefit."

Chris Williston, chief executive officer of the Independent Bankers of Texas, said many community banks are filling niches that larger institutions can't compete with.

"That's been a very lucrative proposition for many of our community banks," Mr. Williston said. "They're able to offer services customers have grown accustomed to but that bigger banks are either unable or unwilling to."

Mr. Chambers said Town and Country Bank lost about $3 million in assets last year to other institutions specializing in non-banking services. He's stemmed those losses by paying higher interest rates and linking up with an investment products firm, giving his customers more options.

The new arrangement has worked well enough that Town and Country has two new branch openings slated for 1996, and Mr. Chambers said he expects assets to increase to $60 million from the current $52 million.

United Texas Bank, in Dallas, has posted very strong numbers over the last couple years. President Thomas S. Mello said United rang up the largest rate of growth of any bank in the Dallas area in 1994, registering an increase of 26%, to $65 million. So far this year, the bank has grown at a 10% clip.

By concentrating on construction loans, consumer loans and commercial small business, United has carved out a niche for itself in a competitive area.

"We've done it the old-fashioned way, by making calls and knocking on doors," said Mr. Mello.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.