The oil and real estate fiasco that hit Texas financial institutions in the late 1980s transformed the banking industry here.

Large, home-state banks that once seemed invincible were sold to out-of- state companies like Banc One Corp. of Columbus, Ohio, Chase Manhattan Corp. of New York, NationsBank Corp. of Charlotte, N.C., or Norwest Corp., Minneapolis.

Non-Texan bank holding companies now hold 60% of the state's banking assets, up from 55% in 1989, according to Strunk & Associates, a Houston- based consulting firm.

But smaller Texas-based banks are again fighting for business.

Community banks are growing at a faster clip than their lumbering, non- Texas counterparts by taking advantage of a strong economy, expanding niche businesses, and blatant appeals to local sentiment.

San Antonio, home of the Alamo, has replaced Dallas and Houston as the center of the state's homegrown banking industry.

It is the headquarters city of what is now the largest Texas-based banking company-$5.2 billion-asset Cullen/Frost Bankers Inc., the only sizable bank to survive the state's economic disaster.

One of the oldest banks in Texas, founded in 1868, Cullen/Frost is slated to become even larger this quarter when it closes a deal for $863 million-asset Overton Bancshares of Forth Worth.

Cullen/Frost officials attributed their company's ability to survive the state's economic crisis to good, old-fashioned Texas resilience.

"We were pretty beat up," said Richard W. Evans Jr., chairman and chief executive officer of Cullen/Frost. "We were down here for 10 years fighting. We said, 'We can hang it up, or we can build this thing for another 100 years.'"

The bank took a $22.3 million loss in 1983 as a nine-year period of struggle began, but the company is now safely back on its feet and making aggressive moves.

Cullen/Frost has increased assets by $1.6 billion in the last four years with nine acquisitions.

Mr. Evans, the first person outside the Frost family to run the Texas company, said in a recent interview that he does not plan on selling to a big out-of-state rival any time soon.

Cullen/Frost could have sold out years ago, he said, but it has never felt compelled to.

"We don't worry about size. We don't think a lot about size. We're large enough to do 95% of what the large banks can do," he said.

Other Texas-based banks are also benefiting from a growth spurt, although they haven't relied on a buying spree to make it happen.

Texas-based banks that have recently passed the $1 billion-asset mark include: International Bancshares of Laredo and its crosstown rival, Laredo National Bancshares; Southwest Bancorp. of Texas Inc., Sterling Bancshares, and Prime Bancshares, all of Houston; First Financial Bankshares of Abilene; and Texas Regional Bancshares of McAllen.

These banking companies have been feeding off the lost business of their out-of-state rivals, according to William Strunk, chairman of Strunk & Associates.

Some analysts said that these companies are too small to survive the current consolidation wave. But others point out that the same thing has been said of Cullen/Frost.

It is the out-of-state banks that really have to worry, some say. These giants have been centralizing operations in their home states and taking away authority from those running the Texas subsidiaries.

"All these large companies are sending local decision-making back to their headquarters in places like Charlotte," said Dennis Nixon, chairman of $4.2 billion-asset International Bancshares of Laredo. "They may know Charlotte real well, but they don't know San Antonio."

However, NationsBank denied this charge. "Local executives in San Antonio and each of our markets have the authority and empowerment to make decisions that affect customers or the marketplace," said Barbara Kirchwehm, a NationsBank senior consumer banking executive based in San Antonio.

"For example, we virtually operate with no loan committees and due to our size are not hindered by loan limits," she added.

But locally owned banks, including Mr. Nixon's, have blossomed in recent years, he said.

Unlike Cullen/Frost, which had to spend years sorting out its problem loans and cutting costs to stay alive, International Bancshares grew through its traditional business, and only more recently began to pursue acquisitions.

Like other Texas banks, International Bancshares has a niche business- international trade. With its headquarters at the Mexican border, the company is uniquely situated to take advantage of growing trade volumes and a growing need for cross-border banking services.

International trade represented about 90% of International Bancshares' business until it began to diversify into retail and business banking in the mid-1980s.

Texas bankers like Mr. Nixon take a special pride in their independence. They said they are aware of how attractive their companies are, but that does not mean they are willing to sell.

"We could sell the bank any day," said George Martinez, chairman of $1.1 billion-asset Sterling. "We have people who call us and want to talk. Our position is, we can remain local and independent as long as we can outperform the market."

Craig McMahen, an investment banker at Keefe, Bruyette & Woods Inc., said Sterling and its Houston counterparts, Prime and Southwest, have performed well, averaging about 20% growth in earnings per share each year.

These companies have bolstered performance by focusing on niche strategies, like lending to the small and midsize businesses that are often shunned by larger banks.

The smaller banks have also expanded their trust and private banking businesses. And they have been cautious about their strategies and the risks they are willing to take.

"Most people who've gone through the boom-and-bust cycle and lived to tell about it are very conservative," Mr. McMahen said.

However, the high prices paid for some target companies make staying independent increasingly difficult.

Mr. McMahen noted that Overton Bancshares of Forth Worth had agreed to sell to Cullen/Frost for $253.5 million, a whopping 4.65 times book value. He said he believes Texas banks with $300 million to $500 million of assets will be in the next wave of banks to sell.

According to Strunk, about 30 Texas-based banks fit that description.

Last month the stock price of one public company, $407 million-asset Summit Bancshares of Fort Worth, jumped 9%, to $21.75, on the day after the Overton deal was announced. Since then, Summit's stock has come down slightly, closing recently at $21.375.

Though it is a favorite target for criticism from some smaller banks, Norwest said it has been sensitive about keeping local management in place.

The $89 billion-asset Minneapolis company has amassed a $10 billion- asset Texas base by completing 26 bank acquisitions in four years. Norwest also has two deals pending. Its officials said they will continue to take advantage of whatever acquisition opportunities come their way.

There are still about 900 Texas banks, or 10% of the nation's total, said John G. Stumpf, regional president of Norwest Bank Texas in San Antonio.

"A lot more people have selling or merging on their minds than 10 years ago," he said.

But Cullen/Frost is not likely to fall prey to such thinking, said Mr. Evans. It is proud of its heritage and its strong commitment to independence, though even Mr. Evans admitted that Texas loyalty is only good for so much.

"I think a lot of customers appreciate and take a lot of pride in" the company's history, Mr. Evans said, "but will they do business here just because of that? I don't think so."

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