Pat Hickman has no shortage of opinions about the current state of banking.
“Oppressive” and “stupid” regulations are denying consumers access to credit, says Hickman, the chairman and CEO of Happy State Bank in Texas. Requirements from the Dodd-Frank Act are crushing community banks while allowing much bigger institutions to thrive thanks to their scale and resources.
Talk of the branch being dead is “ridiculous” and Happy State is more than content to continue to open new locations, Hickman said during a conversation in his bank’s Amarillo office.
Hickman is pure Texan. A devout Christian, he has no problem with employees and customers praying on the job. As for work-life balance, family comes first. Without exception. Period.
He also has a message for anyone interested in buying his $3.2 billion-asset bank.
Happy State will sell “over my dead body,” said Hickman, who has run the bank since raising the funds to buy it in 1990.
At the time, the Texas banking industry was in the midst of a crisis where hundreds of institutions in the state failed. But Hickman tripled the size of what had been a $10 million-asset bank in northern Texas in his first four months of ownership. It now has 700 employees and more than 30 branches.
The following is an edited transcript of an interview with Hickman.
How did you grow Happy State so fast? What kind of loans were you making?
PAT HICKMAN: We didn’t go after any particular sector of the economy. We just wanted to build relationship banking, community banking. Originally it was primarily cattle and farmers. In time, we became more involved in real estate and greater involvement in C&I. We’ve never been a real big consumer bank. We’ve done some. We want to serve our customers. Also we have a lot of small business. We have just kind of taken on what came to our door.
What lessons from the 1980s Texas banking crisis did you apply to the financial crisis?
There was no [financial] crisis for us. None, zip, zero. I have asked regulators before if they had gone in and looked at those that failed in '07 or '08 and see how many of them had the CEO or senior lender who was in banking in the mid-'80s. If they were in banking in the mid-'80s, I guarantee you they would not have failed. You learn you don’t make nonrecourse loans. You get adequate equity going in. The reason that banks fail is poor lending. Period. You learn in those times that there are certain absolutes. You inspect your collateral. You follow good common sense in conservative lending. I don’t care how hard or strong the competition is, if the competition starts to do crazy stuff, let them.
Why hasn’t Happy State gone public?
I will tender my resignation the day we go public. We have enough regulation as it is without adding the [Securities and Exchange Commission]. Why would I want to add one more? We looked at it and just the preliminary things we were going to have to do [was a lot]. It’s horrible.
Does being privately held constrain growth or access to capital?
We raised $110 million in capital in the last three years without help from anyone. We [recently] did a private raise. We did it for 45 days and raised $37 million. That included about 170 existing shareholders and 80 or so new shareholders. We have about 800 shareholders.
Who are your investors?
We’re all over the board. I have retired school teachers. I have every day folks. I have some folks that would be considered wealthy, of course. But our stockholder base looks like a church picnic. It is just every day good old fashioned folks. In 1990, I talked 10 families into investing with us. Each of them put up a minimum of $100,000. We bought the bank for $1.5 million for 75% of book [value] because no one wanted to buy banks back then. That $100,000 that those original investors put in is worth $3.7 million today. It has been a pretty good deal. An eighth of our stockholder base invests with us through their retirement plan. Our largest stockholder is our [employee stock ownership plan] is right at 10%, which started in 1993.
Are you looking at acquisitions or branching to expand?
We have done both. The last acquisition was Signature Bank [in 2013]. It’s been a while since we’ve done an acquisition, but we’ve done several de novos, including in Abilene, Lubbock and Fort Worth. We’ve mixed it up.
How do you successfully do de novo branching?
You hire great bankers and put together a great team. We moved into Fort Worth three years ago. We have $500 million in loans there. We moved into Lubbock five or six years ago and we have $350 million in loans now. We’re very proud of our culture. A name like Happy State Bank is not easily forgotten. We have a strong reputation in the state. … Other bankers have seen what we have done.
A lot of banks want to hire good lenders. How do you make Happy State stand out?
It is the culture. You still have to pay a fair wage. I think someone once said loan officers have big egos. Let them be themselves. At the same time, hire the personality. Encourage the personality. My ego is massive, so other massive egos don’t bother me at all. I love sparring with other guys and gals. Give them the autonomy. Embrace this culture.
Quote'Someone once said loan officers have big egos. Hire the personality. Encourage the personality. My ego is massive so other massive egos don’t bother me at all.'
One of our core values is that your family will come first. Period. I don’t care what the situation is. [Before a core conversion] I had an employee tell me that they had a family deal coming up. I said, "That’s where you’re going to be." If your child or grandchild is doing something and you aren’t there, then there’s something wrong with your priorities. We want you to put your family first. There are a lot of businesses that claim that, but very few that actually under every circumstance — and I mean under every circumstance — mean it.
What made you decide to emphasize that?
When we started the bank I was a 37-year-old cocky kid with two values I was going to fight for under every circumstance. One was that your family would always be first. Period. No compromise. The second was that at this bank you could unabashedly and unashamedly speak of your faith. I’m an outspoken Christian. I don’t hide that from anybody. I have tons of folks that believe otherwise. And that’s wonderful. We aren’t here to cram my personal beliefs down anyone’s throat. If you want to pray with your customer, I don’t have a problem with that. If you want to pray with your co-workers, I don’t have a problem with it. If you want to talk openly about your faith, I don’t have a problem with it. We have encouraged that. It’s amazing how many people in this world embrace that and look for it.
Regulators have warned banks about CRE concentrations. Are those concerns valid?
One of the reasons we went to other markets was diversification. We had had a greater concentration in agriculture loans. I think it is a wise and prudent thing for banks to diversify their portfolio as much as they can. It is not good business for a bank to have all of their eggs in one basket.
What are your broad views of the regulatory environment?
The regulators are overstepping their bounds in so many ways. The community banks of this country didn’t cause the [financial] crisis. It was the big banks that did it. Dodd-Frank hasn’t impacted the big banks one iota. It is crushing community banking. You’re watching independent banks fold up and dry up every single day.
What’s the one regulation you would do away with?
I couldn’t say one. There are five or six. I miss the days where regulators primarily looked at safety and soundness. They recognized that the bank was there to serve the community’s financial needs and to help a community grow and prosper. Therefore, they wanted us to protect the deposits and make good loans.
I was a puppy banker at the time in the late ‘70s when CRA came out. The government started using banking for social engineering. Today BSA, Fair Lending, HMDA, mortgage. We are not making as many loans to consumers because of Fair Lending. Banks are getting out of the home mortgage business because of HMDA. The regs are oppressive. Community banks have a hard time keeping up.
Quote'It will hurt this country if Congress does not get in and make it where community banks can function and thrive again. Get these stupid regulations off of us. I get a little passionate.'
The megabanks have a zillion people and dollars that they can throw at them. Don’t forget that community banks lead the way in starting small-business loans. Where are most of the jobs today? In small businesses. It will hurt this country if Congress does not get in and make it where community banks can function and thrive again. Get these stupid regulations off of us. I get a little passionate.
What can community banks do to survive if regulatory relief comes too slowly?
Spend a lot of money hiring compliance people. It’s the hot button. It is impossible for a community bank to adhere 100% to all of the onerous compliance issues. Examine me all day long on the Camels. It is the compliance piece. It is subjective. I have hired far more compliance people in the last three years than I have customer-facing. There’s a limitation of being in Amarillo, Texas. It is hard to find people with the experience who want to move here from Dallas.
There’s a lot of talk that banks must acquire or be acquired. What do you think?
There’s no such thing as standing still. You have to be moving forward. Growth I believe in every business is paramount. … But I’m not going to go with acquire or be acquired. Open de novos. I don’t think the branch is dead. I think those conversations are ridiculous. We have four new de novos in existing markets on the drawing board. Get the good bankers. That’s the key. You have to grow.
Would you ever sell the bank?
Over my dead body. My wife will, every now and then, look at me and say, "Honey, because you had this crazy idea to buy a little bank in Happy, Texas, a zillion years ago look at how many lives you have impacted." People caught our dream and latched on. My dream has become other people's dreams. For me to sell this bank would be the most traitorous, turncoat act. It would be disastrous. I could never look at these people in the eye again.
Is there even a number you would consider?
I won’t talk to you. Every now and then I will get some guy asking if I want to sell my bank. I will go to my board and my board will go, "No, tell him to take a hike." I really cannot imagine us selling. It’s just been a great ride.