Published: October 13, 2008 07:44 am      

Avoiding the crash

Strong, diverse economy, sound lending practices help keep local banks out of financial markets meltdown, officials say.

By Lacie Morrison
lmorrison@mineralwellsindex.com

Wall Street may be on a roller coaster ride in recent days but Texas community banks are enjoying strength and resiliency, according to the Texas Department of Banking and local bankers.

“The business of this bank is business as usual,” said Riley Peveto, president of First State Bank in Mineral Wells with 41 years of experience in banking. “We’ve had an annual growth rate since September of last year of 20 percent. We have not had a real estate foreclosure in the last two years.”

First State Bank is a state-chartered bank as well as a member of the Federal Reserve System. The bank opened in 1987.

“We’re a stable organization,” said Ken Williamson, president of First Financial Bank in Mineral Wells with 37 years experience in banking. He added that they have a five-star rating with bankrate.com, the Web’s leading aggregator of financial information, according to their Web site.

First Financial Bank is part of First Financial Bankshares National Association. The bank was originally chartered in 1925 and underwent a name change in 2007.

Local comments echo the sentiments expressed by Texas Department of Banking’s interim banking commissioner Bob Bacon.

“Citizens that have their FDIC [Federal Deposit Insurance Coverage]-insured deposits in Texas state-chartered banks need not worry about whether their money is safe,” Bacon stated.

Both bank presidents said they’ve had some questions from consumers regarding the FDIC insurance, which guarantees accounts up to a certain amount. According to the FDIC Web site, legislation temporarily changed the amount of money insured from $100,000 to $250,000 as of Oct. 3. The increased insurance coverage is effective until Dec. 31, 2009.

“It’s a safety,” Williamson noted, which gives people a higher level of security.

According to the TDB, the Texas state-chartered institutions “reflected a healthy core capital ratio of 9.02 percent as compared to a 7.58 percent position for all commercial banks nationwide” as of June 30.

“A litmus test of a bank is what its capital to asset ratio is,” Peveto commented. “First State Bank’s capital ratio is 10 percent – well capitalized – and the combined capital of the bank and our holding company, Mineral Wells Bancshares, is 11.75 percent, well capitalized.”

Sheshunoff & Co. Investment Banking reported at the end of September “banks in Texas, particularly those in the Houston metropolitan area and rural areas of the state, continue to perform better than banks across the rest of the nation.”

“Twenty years ago, Texans were seeing banks close every week. Since then, our banks have become more disciplined in underwriting loans and credit valuations,” said Curtis Carpenter, the advisory firm’s managing director. “With the strength of the energy industry and the fact that people keep moving into our state, Texas bank performance has remained fairly strong.”

With respect to Texas and specifically North Central Texas, Peveto remarked, “We have had a vibrant diverse economy attributed to the expanding oil and gas industry which has created many jobs and we have also had a tremendous influx of new residents moving into the general area.”

“A few pockets of pain exist in Texas as a result of higher-than-normal foreclosures and past due loans, mainly in residential construction and development, but these are isolated cases that are isolated cases that are not representative of the state as a whole,” Bacon stated. “Texas bankers should be recognized and congratulated for remembering the banking crisis in the ’80s and ’90s and adhering to safe and sound banking practices today.”

Both Williamson and Peveto credit their banks’ current stability on their business practices.

“We traditionally deal with non-complex traditional products and services such as small business, vacation homes, farm and ranch loans and customers that we know,” Peveto remarked, adding that most of their business comes from Palo Pinto County and the surrounding area. “Subprime mortgages has never been a product that we offered.”

According to FannieMae’s Web site, a sub-prime mortgage is defined as “a mortgage loan made to a borrower with a weaker credit profile than that of a prime borrower. As a result of the weaker credit profile, subprime borrowers have a higher likelihood of default than prime borrowers.”

Williamson credits his bank’s good lending practices for their solidity.

“It’s our policies and our staying within our loan guidelines, our credit policy,” he said. “We know our market, and what the real estate market is, who the people are.”

Neither banker said they’ve changed their policies since the economic crisis on Wall Street began.

“We’re still going to be prudent in our lending policies,” Williamson said. “Our standards are the same.”

“To date, nothing has changed with our underwriting standards. We have money to lend,” Peveto said.

Peveto told the Index he met with officials from the Federal Reserve Bank of Dallas on Monday. According to him, the officials said, “The Texas rural banks are performing better than those collectively across the state.”

Regarding the recent news from Washington, D.C., Bacon stated, “Although progress may be slow, the size of the financial rescue effort dictates the need for caution and perseverance. We must all remember that our leaders today are writing history for the next 50 years.”

“These are historic times,” Williamson said.

Officials from the First National Bank Santo and First National Bank-Graford were unavailable Friday for comment.