AUGUST 28, 2005
THE DALLAS MORNING NEWS

Ieva M. Augstums Staff Writer

Locally owned, but not for long. Bank chains make offers that lucrative Texas independents can't pass up. New start-ups spring up in turn, vowing homegrown loyalty.

On its Web site, First National Bank of Sachse touts itself as a "locally owned independent community bank."

Not for much longer. With $73.5 million in assets, the 21-year-old bank agreed last week to be acquired by St. Louis-based First Banks Inc. for $20.8 million in cash.

"Basically, our board's philosophy has always been we are not for sale," said Donald Flatt, First National Bank's president and chief executive. "But not only are they offering us a very attractive price for our shareholders, our customers will continue to be served by the same employees and officers that have built this bank."

Many of the mergers coming fast and furious in the Texas banking market involve established chains, such as last month's $1.7 billion deal that will make the 80-branch Houston-based Amegy Bank part of Utah-based Zions Bancorporation.

But large, out-of-state chains are also making irresistible offers for small, independent banks. The smaller bank's customers then become subject to rules and policies that may be more bureaucratic and restrictive.

And banks don't have to be around as long as Sachse's First National to be attractive.

In the last 10 years, 82 banks have been launched in Texas, most of them promoting their small size and local ownership. Seventeen - about 20 percent - have already merged or been sold.

There is no shortage of small banks for the larger chains to shop among. For every bank that's sold, another is bound to start up.

In the wake of the 1980s savings-and-loan crisis, new bank charters became a rarity in Texas. But activity has picked up.

Last year, nine bank companies opened for business statewide, compared with three in 2000. So far this year, there have been four start-ups, according to banking analysts at Sandler, O'Neill & Partners LP.

Local activity
The activity is even more pronounced in Dallas-Fort Worth. Of the 38 Texas banks chartered since January 2000, 20 are in D-FW.

Few - if any - executives will admit to starting a bank with the intent of flipping it a few years later. But in Texas, buyout offers go with the territory.

"Someone starts a bank in Dallas knowing that there are a number of buyers in the market," said Scott Alaniz, an equity research analyst for Sandler O'Neill. "Most people don't start banks that they know won't sell."

Nationally, the average life of a bank is six years. In Texas, that number is smaller, experts say.

"Locally, the big fish eat the little fish, and then you have these huge whales out there," Mr. Alaniz said. "If the new bank is profitable, chances are it's being looked at."

Inspiring growth
Ironically, the merger activity helps spawn more banks, experts say.

Many of the executives who are starting banks came from larger institutions that consolidated after a sale. They can launch their own institutions once their non-compete agreements end.

"If you have any track record of running a bank or past success, you can do it," said Jim Gardner, senior managing partner of Samco Capital Markets, a Dallas financial services consulting firm.

Ed Thomas, who's worked at both small and large banks over the last two decades, said he wanted something to call his own.

"It's always been a dream of mine to open a community bank and be a hometown bank," said Mr. Thomas, president and chief executive of Town Center Bank in Coppell, which opened last October.

"I stayed with a big bank for about 31/2 years," he said. "I probably stayed maybe a year or two too long."

Smaller banks tend to have fairly narrow business plans, such as Dallas-based T-Bank, which opened last November and targets small-business owners in North Dallas and West Plano.

Other banks open to serve specific religions or ethnic groups, for example, without excluding anyone. One World Bank in Dallas opened in April, for example, to target the area's thriving Asian-American market.

One thing almost all new banks offer is that extra morsel of customer service.

When Coppell resident Byron Hoffman needed a business loan, he went to a big national bank branch first. But after weeks of not hearing back, he decided to talk to Town Center Bank. Two days and a couple of meetings later, he had his loan.

"I didn't know he would be able to do the loan," Mr. Hoffman said. "I think what made it possible was that Ed was in charge and I was dealing with the decision-maker."

Little things, like immediate satisfaction, are important to people.

"Community banks do little things well," Mr. Gardner said. And that really affects business."

Large banks are like Wal-Mart, said John Holt, president of Southwest Securities Bank in Arlington.

"You know what you want and you go in and get it," Mr. Holt said. "If you need more time, explanation, help with your financial goals, these smaller banks can help you, but they may not be able to offer the Wal-Mart pricing."

Getting started
Starting a bank isn't easy. You must write a business plan, raise millions of dollars in capital, apply for a state or national charter, hire a management team and find a facility.

"Even though the regulatory process is slow and frustrating, I saw that as an advantage of being a barrier to competition," said Jack Seifrick, chairman of Dallas-based Professional Bank, which opened in January 2004.

"From a business standpoint, the attractive thing of starting and owning and investing in a bank is that it is a service that everyone needs and uses," said Mr. Seifrick, whose background is in commercial real estate.

It wasn't difficult, just a little challenging, to raise the $8 million needed to open one branch in the Lakewood area, he said. He did it with the help of 47 investors in about a year.

"Most people like doing business with people that are from where they are from," said Mr. Seifrick. "The investors in this bank live in this neighborhood, live in Dallas and share in the belief that independent, locally owned banks can provide a benefit to the community."

He says he has no interest in selling out. That pleases his customers.

"If it became one of the large banks, I wouldn't stay," said Mike Crawford, a Professional Bank customer for six months. "The last thing I want to have is a relationship with a teller, not the bank executive that has the responsibility and authority that comes along with that title."

Staying put
For all the banks that sell out, there are some that stick around.

From Frost National Bank's inception as a small downtown San Antonio bank in 1868, it has grown into a multibillion-dollar, full-service financial institution. It is the largest national bank headquartered in Texas and says it doesn't plan to give up that designation anytime soon.

"We are not for sale. It's that simple," said Dick Evans, chairman and chief executive of Cullen/Frost Bankers, the financial holding company of Frost National Bank. "Our model is building long-term relations.

"We've been here for 138 years, and we plan to celebrate our 200th birthday."

That was the plan at First National Bank in Sachse, too, until First Banks made an offer too good to refuse.

First National officials in Sachse say First Banks' management in St. Louis shares the local bank's philosophy.

"The community should not be apprehensive of this change," said Mr. Flatt, the local chief executive.

But modifications are inevitable. The bank's name will change, and customers could see an extra layer of loan approval, for example.

"The larger a bank gets, by necessity controls have to increase," Mr. Flatt said. "You can't operate hundreds of branches and let each branch do their own thing. Some things will have to be adjusted."

E-mail iaugstums@dallasnews.com