Victoria Bancshares is a $1.8 billion-asset super community Bank in South-Central Texas. They have validated the idea that managing the basics and super community banking are a winning combination.

Victoria has branches only outside major metropolitan areas and in its marketplace. Its banks are located in communities ranging from 400 people all the way up to 100,000. In fact, over 50% of the branches are in towns of less than 10,000 people.

The company locates some of its offices on the fringes of major cities, with banks 30 miles outside cities such as San Antonio or Houston.

First or Second in Market

The company's primary selection criterion for banks is that they are No. 1 or No. 2 in the markets served, consistent with its philosophy of being a dominant player in its markets. Charles Hrdlicka, the company's CEO, takes great pride in the fact that Victoria Bancshares is among the oldest state-chartered banks in Texas, dating back to 1875.

Although it has gone through some bad times, the company has survived, unlike many other Texas banks, and is now the second-largest Texas bank holding company after Cullen/Frost. This is no small accomplishment, given that only two of the 11 largest bank holding companies in Texas in the early '80s have survived intact and independent.

Hrdlicka attributes that track record to Victoria Bancshares' conservative nature. The company has always maintained high capital ratios, and when times got tough, that bought them the time they needed to address their loan problems.

Customers Are Savers

Victoria Bancshares has always been a conservative lender. As a result, its loan-to-deposit ratio is only 30%.

This reflects not only the company's underwriting posture, but also its markets, many of which comprise ethnic communities that are interested in accumulating and spending rather than borrowing.

These communities are made up of conservative, risk-averse people who are savers. As a result, Victoria Bancshares developed a product line specifically tailored to meet their needs.

It focuses on service and sells customers what they want to buy. This concept, though brimming with common sense, has not been a tradition in banking. Market-driven organizations were not abundant in the industry 10 or 15 years ago. Victoria Bancshares led the trend by being both community oriented and market driven.

Extensive Research

The bank uses market research and testing extensively to ensure that product introductions and service levels are consistent with customer needs and expectations. ' The company's product line, given its market, includes a dealer bank, a discount brokerage company, mutual funds, annuities, and other investment services.

In addition, Victoria Baneshares services its own data processing needs as well as those of 35 smaller banks in its market. It has a trust department that is growing 20% a year and has just purchased the trust business of Texas Commerce.

Hrdlicka's strategy was to achieve profitability through means other than loans, since the demand for loans in the company's target market was slack. The retail product lines leaned toward investment products to reflect market needs.

The commercial product lines offered servicing and data processing, thereby leveraging existing capability. The company committed to increase noninterest income as a way to compensate for its low-interest income.

Correspondent Network

One effective way to improve noninterest income was the development of a correspondent network. Victoria Bancshares is the only Texas bank that has 200 downstream correspondents to which it sells an exceptionally broad product line.

The company does not limit itself to data processing. "We sell everything they need to operate a bank," says Hrdlicka, "down to negotiating with suppliers for commissions on bank sales."

These suppliers can bc check printers, bank equipment producers, service contractors on equipment, and so on. "We negotiate their territory since we can sell their product better than they can," says Hrdlicka.

Other services offered by Victoria Bancshares to its correspondent network include loan review, compliance examination, educational seminars, and training programs.

"We don't have the loan demand, so we've got to make it where we can," says the CEO.

Keeping It Simple

The company's creative correspondent banking services are certainly an interesting way to make hay from existing capabilities.

In response to its retail customer preference for a simple account rather than a "whizbang super-duper account with lots of fine print," Victoria Bancshares developed banking pure and simple, a "plain vanilla" product approach based on focus groups.

For example, management found that full-page ads are perceived wasteful by small-town customers, and frugality as reflected by advertising style is appreciated by the same customers.

In addition to the unique fee income strategy and the marketdriven attitude, Victoria Baneshares believes in leverage. It underwent an expansion period during which it bought FDIC and RTC failed institutions, mostly in-market acquisitions. Helping a Branch Survive Now the company has 34 branches in 28 communities. Branch asset size ranges from $5 million to $600 million. I asked, "How could you make money on a $5 million branch?" Hrdlicka responded, "We couldn't. It was not a profitable venture. So rather than close the branch, we talked to our customers in town and agreed to open the branch two days a week, Monday and Friday, with two part-time people to accommodate the market. The town loves it, and now the branch is profitable." Luke other super community Banks, everything that can be done from anywhere is centralized, while all customer interface is performed locally. As a result, the company does use credit scoring and other centralized underwriting programs, but all customer service functions are performed at the branch level.

To summarize, Victoria Baneshares has achieved profitability by managing the basics of its banking business, building a super community bank outside major metropolitan areas with dominant market share positions, and developing an innovative corresponding banking product line which it distributes across 200 institutions in the Texas marketplace.

Banking pure and simple, still works, and Victoria Bancshares is the proof.

Ms. Bird is national director of the financial institutions consulting group at BDO Seidman, New York, and author of "Supercommunity Banking: A Superstrategy for Success."

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