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Banks of all sizes go head to head for customers, talent in red hot Dallas-Fort Worth financial market

The state has nearly 500 banks, mostly in North Texas. Can they all survive?

Prosperity Bank president Kevin Hanigan passes eight banks each day on his half-mile drive to work in Frisco.

“There’s a lot of banks trying to get here,” said Hanigan, whose bank operates 65 locations in Dallas-Fort Worth. “And if they’re already here, they’re trying to get bigger as fast as they can. Maybe the first question we should think about is, ‘Why?’”

The great bank migration into Dallas-Fort Worth is directly tied to the general influx of people to the area, bank executives say. D-FW had the largest population increase in the past decade of any metro area in the U.S., with a 19% boost that added 1.2 million people, according to the U.S. Census Bureau.

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And people typically follow business and job growth. In the past year, the Dallas Regional Chamber has tracked more than 50 corporate relocations or expansions into D-FW in spite of the pandemic.

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“The banking business is only as good as the economy it operates in, so everybody wants to be where the action is and the action is where everybody is moving and where the jobs are being created,” Hanigan said. “The influx of people is creating an influx of banks.”

In the past year, First Foundation and Charles Schwab moved corporate headquarters from California to D-FW, joining established financial players like JPMorgan Chase, Bank of America, Wells Fargo and Fidelity Investments. Vanguard, which manages $7.5 trillion in global assets, announced in May that it selected Dallas for its fifth U.S. office.

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Besides the pool of talent and businesses, Texas is a draw because of its perception as a pro-business state in terms of regulation and taxes. It’s one of nine states with no income tax.

“A lot of the move had to do with politically some of the things that are affecting many companies in California,” First Foundation CEO Scott Kavanaugh said. “It led to us thinking about where would we geographically want to be, and when you look at the landscape, in my mind, the clear winners are Florida and Texas.”

First Foundation moved its headquarters out of Irvine, Calif., and into The Crescent in...
First Foundation moved its headquarters out of Irvine, Calif., and into The Crescent in Uptown Dallas earlier this year. CEO Scott Kavanaugh said he was drawn to the Lone Star State due to its pro-business environment, as well as the talent pool and kindness of its people. (Lola Gomez / Staff Photographer)
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In total, Texas has 491 banks totaling over $1 trillion in assets, according to the Texas Bankers Association. Many are small to mid-sized. The state has more community banks than any other at about 380, according to FDIC data compiled by bankingstrategist.com.

“Relational banking is true to Texas and how things are done here,” said Christopher L. Williston, CEO of the Independent Bankers Association of Texas.

But three of the “big four” U.S. banks — Bank of America, JPMorgan Chase & Co. and Wells Fargo — are aware of the hot market and spreading their tentacles throughout North Texas to protect their sizable shares. Wells Fargo said it plans to open a location in Prosper this summer. The fourth of the “big four” group, Citigroup, doesn’t have any branches in Texas but focuses on loans in the state and has more than 10,000 employees across it.

For smaller banks that can’t compete, their best bet is to be acquired by a midsize to large bank.

“The general pool of business in Texas has increased dramatically in the last 10 years, so it’s not the same pie being divided between banks,” said Larry Walker, regional director of the Texas Department of Banking. “But there will always be competition for the best business clients.”

Walker said banks are getting bigger and bigger in the state, growing annually over the past five years because it’s easier to control overhead costs. Since 1992, the total assets of D-FW-headquartered banks have grown from $96 billion to $612 billion, according to data from the FDIC.

“Some banks spent more on infrastructure and technology in past years and are surviving a whole lot better,” Walker said.

Texas Capital Bank is in a better financial position than it's ever been in its 23-year...
Texas Capital Bank is in a better financial position than it's ever been in its 23-year history, says new CEO Rob Holmes. But the competition for talent is fierce not just with other banks, but with tech companies and human resources companies, he said. (Lynda M. González / Staff Photographer)
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Talent up for grabs

A bank is only as good as its talent. D-FW topped the nation in net migration of degree-holders from 2016 to 2019, according to the Census Bureau’s American Community Survey. It gained about 70,000 degree-holders, while cities such as Los Angeles, Chicago and New York had net losses.

Despite consistent growth in financial jobs in D-FW, demand is even higher. Employment in financial activities has grown 39% to 329,000 since 2011 for the area, according to Bureau of Labor Statistics data.

“One of the biggest concerns for the D-FW area is talent,” said Williston of the independent bankers group. “This is what I hear most often from community bankers is if you want to put together a lending team, there’s just tremendous competition for a limited pool of talent in D-FW.”

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Bigger banks can afford to pay a premium to ensure they attract the best talent, making it harder for smaller banks to compete on the same scale.

“Banks come in and bid up the cost of talent. It’s not unique,” said Prosperity’s Hanigan.

Bank of America announced in May that it will lead the big four banks in raising its minimum wage to $25 by 2025. Bank of America was also recently rated as one of the top three workplaces for parents due to its 16 weeks of paid gender-neutral leave and sick child care. It offers reimbursement of up to $100 a day for backup child or adult care, something the bank said was particularly useful for employees in the pandemic.

But more and more, banks believe their salaries and benefits packages need to compete with big tech companies. That’s because banks are going increasingly digital to keep up with how consumers want to do their banking, which means they need a high volume of software engineers and other tech employees.

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“Especially with the increase in remote work this year, tech companies are coming in to compete for the talent here,” said Jeff Wallace, the new chief financial officer of San Antonio-based USAA.

JPMorgan Chase & Co. has 24,500 employees in Texas, with the largest concentration of 6,500 workers at its Plano campus. It plans to hire 1,000 new tech employees by the end of the year, including roles for software engineering, cybersecurity and artificial intelligence.

Bank of America’s technology budget per year is about $10 billion, helping it land the title of the financial services institution with the most U.S. patents. It has more than 4,400 patents, with just over 500 related to online and mobile banking. An Addison resident holds the title for having the bank’s most patents — more than 130.

“It helps attract tech experts because of the large platform we can give them,” said Jennifer Chandler, Bank of America’s Dallas market president.

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Texas Capital Bank CEO Rob Holmes, who recently completed his first 100 days at the Dallas-based bank after 31 years at JPMorgan, said the talent war goes beyond the banking industry.

“The first- and second-quarter GDP this year will likely be the best back-to-back growth in our careers, so when you have that backdrop, there’s going to be a war for talent across all industries,” he said.

Boston-based Fidelity Investments is taking advantage of the negatives of the pandemic and reaching out to people with customer service skills who were laid off in the retail and hospitality industries, said Westlake-based Kristen Kuykendoll, head of associate experience at Fidelity. North Texas is Fidelity’s largest regional site with 6,200 employees. It added 475 roles for the area in April, mostly for its Westlake campus.

“D-FW is filled with educated, talented go-getters with a passion for helping people,” Kuykendoll said.

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Talent is especially important for banks that are new to D-FW because the right leaders can leverage their relationships to jump-start its growth story in the region.

First Foundation has only been in Dallas for 10 weeks after moving its headquarters out of Irvine, but it already has an office at Uptown Dallas’ landmark Crescent complex and has a small team forming.

“The people we’re hiring are very seasoned bankers that are already in this marketplace that may have worked for a bank that either got acquired or is rumored to be acquired,” CEO Kavanaugh said. “That’s given us the ability to talk to some seasoned bankers, so we’re having decent success in terms of talking to people.”

First Foundation listed similar open positions in California and Texas this year but has been able to fill more of the Texas positions so far, Kavanaugh said.

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“The talent pool is very strong here and more accessible than in California,” he said.

Cincinnati-based Fifth Third Bank created a North Texas market executive role earlier this year to increase its presence. The bank’s strategy is to make big investments in select markets, said Ron Harrison, who filled the role. He’s hired four people and is looking to have a team of 10 to 12 by the end of the year.

“I’m looking for folks in the market who are long-tenured with lots of relationships in the Dallas market,” Harrison said. “Institutions that invest two to three people in an area tend not to succeed. You have to be committed to a market.”

McKinney-based Independent Financial CEO David Brooks said he’s seen banks make the mistake of moving into D-FW and thinking its robust economy will do the work for them. But Texas clients like to work with banks that have been calling on them and investing in the community, he said.

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“Some banks come and do OK and some come and don’t do as well,” Brooks said. “We like our position very much compared to someone coming in starting from scratch.”

Pennsylvania-based Customer’s Bank added an office in The Crescent this year. It’s trying to adapt to the relationship-minded state by starting off with a small team of three people, said Jake Danelski, senior vice president and North Texas market executive.

This small banking team model means they are with customers from start to finish, said Danelski, who previously worked in a similar role for the bank in New York.

“We’re coming from New York, which is one of the most overbooked markets in the world, so we’re up for the challenge,” he said.

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Business up for grabs

If Texas were a nation, it would be the world’s ninth-largest economy, according to GDP data. Twenty-two public companies headquartered in North Texas made the 2021 Fortune 500 ranking of America’s largest companies. Dallas also has 65,000 businesses, with more than 90% defined as “small,” meaning they employ fewer than 500 people, according to the Dallas Office of Economic Development.

In other words, it’s ripe with opportunity for business banking. And when it comes to consumer banking, D-FW’s growing population is all banks need to know. But bank executives are split on whether there’s enough business to feed all the banks trying to establish themselves or expand in D-FW.

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San Antonio-based Frost Bank, which focuses on commercial banking for small to mid-sized companies, plans to open 25 locations in the Dallas market over the next several years. This follows a successful expansion into Houston. It’s hoping its customer service, including a 24/7 call line, will help it succeed.

“If we make customers feel significant, I’m positive we’ll find our market share in Dallas,” said Frost Bank’s Dallas regional president, Rod Washington. Frost Bank benefits from its major presence in other parts of Texas, tracing its Lone Star roots to 1868.

Prosperity’s Hanigan isn’t so sure the pie is large enough to go around.

“There’s not enough long growth or deposit growth in any market to support all these banks, so there’s going to have to be consolidation and cutting out costs,” he said.

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Independent Financial (formerly Independent Bank) is taking office space in the Rosewood...
Independent Financial (formerly Independent Bank) is taking office space in the Rosewood Court building on Cedar Springs Road. It plans to hire several hundred more employees in the next two to three years after a failed merger with Texas Capital Bank in the summer of 2020. (Ian C. Bates / Staff Photographer)

Banks up for grabs

Hanigan, who said Prosperity has done 43 acquisitions and has more to do, isn’t the only bank executive on the lookout for accelerated consolidation. Besides customers and business, some smaller banks are being sniffed out by larger firms.

Smaller banks will be the first to be pushed out by an overcrowded market. The costs of technology and regulatory expectations mean they have a harder time competing to make a return for shareholders.

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This type of environment encourages mergers to spread out the costs, Independent’s Brooks said. He hopes to expand his bank’s footprint from about 90 locations to between 110 and 130 via an acquisition by the end of 2022.

“Banks that have been around have a chance to buy high-quality banks and add to their footprint,” he said.

In June, Pittsburgh-based PNC Financial Services Group Inc. completed its $11.6 billion acquisition of Houston-based BBVA USA Bancshares Inc., including its banking subsidiary BBVA USA. Over half of BBVA’s 641 national branches are in Texas, giving the Northeast bank immediate access to 330 locations in the state.

Texas Capital isn’t looking to acquire a bank any time soon because it needs to earn that right by continuing to turn itself around, Holmes said. But it’s eager to gain customers unhappy with other banks after mergers.

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“Acquisitions create opportunities for us because there may be some bankers that may not like their new location,” he said. “I think the disruption caused by mergers is going to create a window for us to extend our platform here.”

Other heads of banks are looking to absorb the leftover talent from mergers.

Customer’s Bank has already taken advantage of the failed merger from a year ago between Texas Capital and Independent Financial. That $5.5 billion deal would have created the state’s sixth-largest bank operating in Texas.

“Both banks lost good people who we’re having conversations with now because of the changes at those two banks since last summer,” he said. “They’re looking for a new home. We can find good people from the mess left behind of a merger.”

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First Foundation was in talks with a few institutions earlier this year but ended up acquiring a company in Florida in early June. It already knew the bank in Florida and the opportunity popped up unexpectedly, Kavanaugh said. He’s confident an acquisition in Texas will happen this year or next year.

“That same thing has happened in all acquisitions. You never know if and when a board of directors or executive management team is gonna say, ‘OK, we’re willing to talk,’” he said.

Different banks for different folks

The triple threat combination of a large talent pool, ample customers and a pro-business climate makes North Texas a prime region for any bank.

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While consolidation is expected to continue and even accelerate, there will always be a healthy community bank sector in Texas, Texas Capital’s Holmes said.

The bank of choice for a business or consumer mostly depends on what they want from their bank.

For big-time business customers, they want to meet in a physical location with the head of the bank.

“For medium and larger businesses, they expect face-to-face contact,” Prosperity’s Hanigan said. “And if they need to borrow $2 million, $10 million, $50 million or $100 million, they want to know they can count on you. I get those calls every day.”

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But for consumers, most are happy to never deal with their bank in person.

“Consumers want mobile banking and to only have to walk into a bank to get into a safety deposit box,” Hanigan said.

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