- Key insight: Texas-based banks are feeling increasing competitive pressure from out-of-state banks that have made recent inroads into the Lone Star State.
- What's at stake: The heightened competition for loans and deposits is pushing some Texas-headquartered banks to be more flexible with pricing and rates.
- Expert quote: "We don't want to lose our customer base by being too rigid." — Tracy Harris, CEO of State National Bank
Texas-headquartered banks are facing stiffer competition for loans and deposits, a consequence of out-of-state banks' quest to gain greater access to the Lone Star State's booming economy.
Over the past year, a number of non-Texas-based banks have cast their nets across the state, in some cases opening branches and in other cases buying Texas banks. Three of the larger merger-and-acquisition deals announced last year — the purchases of Comerica, Veritex Holdings and Cadence Bank — involved sales of Texas banks to out-of-state buyers.
It's a situation pushing some Texas banks to evaluate their loan pricing and deposit rates, and to sharpen their focus on building and maintaining full banking relationships, as they seek to retain customers and grow their market share.
State National Bank is the only bank in Groom, Texas, a Panhandle-region town of about 550 known for two landmarks — a 190-foot-tall freestanding cross and a leaning water tower. But the privately owned bank, which operates two branches, including a newly opened one in Panhandle, Texas, isn't immune from the competition in nearby Amarillo, CEO Tracy Harris said.
State National, which has about $55 million of assets, is willing to work with customers to keep them satisfied when it comes to loan pricing and interest rates on deposits. Being flexible with financing options and rate structures is a way to "do right by the customer," Harris said.
"There are multiple banks in towns 20 or 30 minutes away from us," said Harris, the bank's CEO since May and the immediate past chair of the Independent Bankers Association of Texas. "We don't want to lose our customer base by being too rigid."
That attitude isn't limited to the state's smallest banks. Some of Texas' largest regionals say they too are competing on loans and deposits, especially for the best customers.
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Frost Bank, the banking arm of San Antonio-based Cullen/Frost Bankers, is willing to compete on loan pricing in particular, CEO Phil Green said during the bank's second-quarter earnings call.
"We've said we're going to do that, particularly for good relationships [and] good prospects that are out there," Green told analysts in response to questions about competition. "You have to find out what the market is, and you have to gauge at a market price. And so we're doing that."
Why banks like Texas
As of March 31, Texas was home to 414 banks — including 196 that were state-chartered in the Lone Star State, according to the latest data compiled by the Texas Department of Banking.
JPMorganChase, the largest U.S. bank based on assets, operated the most branches at 476. Wells Fargo, Bank of America and PNC Financial Services Group, all also headquartered in other parts of the country, followed with 462, 319 and 314 branches, respectively.
Other non-Texas-based banks are also targeting the state. Truist Financial in Charlotte, North Carolina, includes Austin and Dallas among the metro areas where it
The department's latest list did not include Columbus, Ohio-based Huntington Bancshares, which made a big splash in Texas last year when it announced plans to buy Dallas-based Veritex and Houston-based Cadence.
The bank has said its Texas acquisitions are
A year ago, Huntington had no branches in Texas, Brant Standridge, president of consumer and regional banking, said in July during the $284.4 billion-asset bank's second-quarter earnings call. Today it has 140 of them, he said, and it's ranked eighth in the state in total deposits.
Fifth Third Bancorp, based in Cincinnati, Ohio, had just one de novo branch in Texas
The Texas economy has been the main attraction for banks arriving from elsewhere. With a gross domestic product of $2.9 trillion in 2025, according to the Federal Reserve Bank of St. Louis. It's the world's eighth-largest economy, according to the Texas Economic Development Corp., which promotes the state as a premier business location.
With the help of business-friendly policies and regulations, and zero personal or corporate income taxes, Texas has attracted a number of large corporations in recent years. Companies such Tesla, Caterpillar and Charles Schwab have relocated their headquarters to the state. Some public companies are even changing their state of incorporation to Texas.
Recently, the state has been attracting attention for its growing financial corridor in Dallas, which has been dubbed "Y'all Street," and the July launch of the Texas Stock Exchange. Goldman Sachs is currently building its second-largest U.S. office in Dallas, while JPMorgan has said it employs nearly 30,000 workers in Texas, exceeding its workforce of 24,000 in New York City.
"I will preach this gospel wherever I go," said Chris Furlow, the president and CEO of the Texas Bankers Association, the largest U.S. state-based banking trade group. "The real secret to the success of the Texas economy is the depth of banking we have … not just the number of banks, but how they do business, and that's attracting others to the state. They want to be part of it."
Texas banks have an advantage over newer entrants, he said. For starters, they already have name recognition locally. Most are also relationship-driven and deeply embedded in their communities.
Texas banks are "used to the competition … but if there's any risk [from new entrants], it's not doing what's made Texas banks successful — their relationships and community ties," he said.
How Texas banks are competing
At Frost Bank, increased competition is showing up not only in loans, but also deposits, Chief Financial Officer Daniel Geddes said during the bank's earnings call. While average deposits rose 2.1% year over year, deposit costs were also higher in the second quarter. Total deposit costs in June were "a little bit higher than the average," Geddes said.
The $53.9 billion-asset bank is
"Our strategy is consistent and our results speak for themselves," Green said in a press release announcing the bank's second-quarter results. "Frost bankers continue to compete and win in an intensely competitive environment, and growth trends in our markets continue to be strong."
Houston-based Prosperity Bancshares is
Prosperity is seeing "very, very aggressive structure and pricing" on loans, Chairman Tim Timanus said during the bank's second-quarter earnings call. The bank forecasted relatively flat loan growth for the remainder of the year, citing a lack of interest in changing a loan structure if the prospective loan doesn't lead to a fuller banking relationship.
"Most of the loans, the bigger loans that come, they're really more of a dry relationship," Prosperity CEO David Zalman said on the call, explaining that such relationships are only intended to grow loans and arguing that they don't make "a lot of sense."
"I mean, if you're really bringing over a customer, and you're bringing over customer deposits and a total relationship, that's a completely different story," Zalman said.
Prosperity also said that it's offering some competitive rates of certificates of deposits, and it may raise its money-market account rates.
Texas banks that decide not to match or exceed deposit rates could be in for a bumpy ride, warned Peter Winter, an analyst at D.A. Davidson, who covers Fifth Third and Huntington as well as Texas' larger regionals including Cullen/Frost, Prosperity and Texas Capital Bancshares.
"You might lose market share because you won't pay up," Winter said. "Huntington and Fifth Third are very good consumer banks."
Dallas-based Texas Capital is benefiting from the state's recent M&A disruption in the way of loans, deposits and talent acquisition, CEO Rob Holmes said last month. But the $33.9 billion-asset bank, which has
Texas Capital is one of the companies currently
"We're gaining a lot of share, but not nearly as much as we could if we wanted, and we're
being very prudent with client selection and structure," Holmes said.
Amid the heightened competition and disruption, banks such as Frost, Prosperity and Texas Capital have an opportunity to serve middle-market customers, said Jared Shaw, a Barclays analyst.
"As a bank gets bigger, what they target for loan size gets bigger," Shaw told American Banker. Some of the larger banks in Texas "would rather do a $100 million loan … but there's always going to be a need to have really good service for middle-market commercial customers."
Back in Groom, Texas, Harris, the CEO of State National, said it's a positive when out-of-state banks see her home state as a good place to do business and grow. It's an opportunity to keep those relationships front of mind, and to keep showing up for the communities. In State National's case, that includes buying the buckles for this month's Groom Day Ranch Rodeo contest.
"It helps us sharpen our sword and keeps us on our toes," Harris said. "When these other banks come in, it perks you up again and makes you fight for what you want, which is our customers."
