Editor’s Note: There are a variety of ways to measure success. In banking, among the most common markers are return on assets, return on equity and efficiency ratio. We reached out to institutions with industry-leading ROAs, ROEs and rock-bottom efficiency ratios to learn how they recorded such notable numbers.
Technology builds appeal of business bank
Titan Bank, N.A., Mineral Well, Texas
When Titan Bank President and CEO Jonathan Morris and his business partners decided to get into banking, it was 2008 and the financial crisis was in full swing.
It might seem contrary to get started when banks are collapsing, but the partners knew their capital lending and technology background could be the right fit.
“We thought it was a good opportunity to get into banking just because we saw a lot of transition happening at that point and changes happening in the market that we thought we could take advantage of,” Morris said.
That gamble, and a model that pairs up-to-the-moment technology expertise with comprehensive customer service, has paid off.
Titan Bank has only one brick-and-mortar branch, in Mineral Wells, Texas, yet it has customers all over the country. At the end of the third quarter in 2021, it had $474 million in assets. ROA was 2.94 percent, while ROE was 40.88 percent. Titan Bank’s efficiency ratio was 32.23.
“We’ve built some of the best technology in the country that enables thousands and thousands of small businesses to very efficiently open up treasury banking accounts with Titan Bank,” Morris said. “If you look at our strategy, the same product that Bank of America or Chase Bank charges more than a hundred dollars for to small businesses and doesn’t even want to service them, we allow them to open up those accounts in less than five minutes entirely online and we give it to them for free.
“So, we have thousands of new treasury deposit customers every month who are finding us basically because of our technology that we built. And we built it with our own programmers and developers,” Morris continued.
Morris expresses confidence in the staff’s technological expertise and how that has driven Titan Bank’s success.
They’ve been building the platform for years. It’s more sophisticated than what even the large banks have and better than what the fintechs have, yet it’s also incredibly user-friendly, Morris said.
The technology may be what gets people in the virtual door, but it’s the customer service that keeps them, Morris said.
“We’ve tried to take a best-of-breed approach,” Morris said. “What was good about the community banks, the fact that you got good service, the fact that they sort of knew who you are, the fact that the pricing was reasonable and they were willing to deal with smaller businesses, but then blend that with the best of the newer fintech model.”
Titan Bank’s actual brick-and-mortar location is a 115-year-old bank that has served its community for about four or five generations, Morris said. Local residents have been good customers. The bank is profitable, works well and serves that community, so the owners see no reason to change that.
Yet, the area has only about 15,000 people and six banks. It’s not a growing city. To build a healthy, scalable bank, they needed to look online.
Being so remote-friendly meant that there was no learning curve when the pandemic forced banks to alter in-person operations.
“When we just decided to work from home, nothing changed. Even our phone system was all cloud-based,” Morris said.
The bank’s efficient largely because it’s so technology driven. They’ve never taken a loan loss in 10 years, Morris said.
Titan Bank plans to continue growing by investing in technology, expanding product offerings to attract customers from larger banks, and trying to make people happier than anyone else.
“This is a sector where just for whatever reason, people don’t think there needs to be any change, but the reality is the same factors that make people want to go to Amazon from their living room at 11:30 at night make them want to do their banking the same way at the same time,” Morris said.
Three generations of family ownership deliver consistency
The Western State Bank, Garden City, Kan.
Frank and Jan Whitham were farmers first when they ventured into the banking business in a small, agricultural community in western Kansas in the 1970s, eventually expanding and creating the family-owned Western State Bank.
Although it was a change that got them started on this new path, it’s Western State Bank’s decades of consistency that are what have made it successful during three generations of Whitham family ownership, said grandson Tyler Whitham, now bank president.
“Early on we experienced healthy growth against significant headwinds. We were the smallest bank in this market for a long, long time and had to fight, but we were able to operate consistently with a relatively simple mission and were fairly realistic about what we could achieve,” Whitham said.
“We didn’t have to have quarter-by-quarter growth expectations like we might have experienced with a more corporate ownership structure. We were able to have a longer-term vision,” Whitham said.
Today the bank is a high performer, with assets of $591 million and an efficiency ratio of 47.16 percent. Return on assets is 2.23 percent. Return on equity is 19.71 percent. It now operates in seven western Kansas communities.
“I have the pleasure of working with my family and I see the benefits of my work much more directly that way,” Whitham said. “I have some responsibility with what their livelihood looks like and that’s been a pleasurable experience for me. There’s a certain amount of nostalgia and pride associated with the way we were brought up,” Whitham said.
He believes one of the keys to success in banking is hiring more talented people than their banking-industry peers, then getting out of the way so they can thrive.
“I have the ability to do that because I’m not a banker. I don’t have to come and pretend I’m smarter than they are. I get to stand back and say, ‘Just tell me what you need and, and I’ll take care of it’ and that’s what we’ve done,” Whitham said.
The bank has been able to attract and retain talented people in part because employees don’t have to guess what’s expected of them, Whitham said.
“When you come to work with us, we tell you on day one what it looks like to be successful, what we expect of you and that has not changed in 40 years, so if you can accept that and work within that goal set then you’re going to be well rewarded and we’re going to have a long, successful relationship together,” Whitham said.
The business isn’t trying to be the most outstanding salesman or the most miserly of its peers, Whitham said, but to “live in the fairway, and be there for a long, long time.”
When Whitham returned to the family business about seven years ago, it had grown from three banking centers to seven and increased its asset size about two and a half times. It’s both a mid-size community bank and one that is big enough to have the tools that a larger bank might have, Whitham said.
Their challenges are the same as all banks right now, including the tight labor market, a lack of confidence in the direction of capital markets and the trends toward consolidation both in the banking industry and in agriculture.
“Every fewer person who comes back to run their family’s farm or every fewer family farm out there is, is one less customer for the same number of banks to kind of wrestle over,” Whitham said.
Western State Bank’s overall plan for continuing in the changing world is to be innovative in the ways they can be, always asking questions about what’s next, while still maintaining the same consistency they’ve had for these past three generations.
“I’m not here to maximize quarterly profits. I’m not here to realize any particular stated growth goal or size goal or anything like that,” Whitham said. “I’m here to curate, to caretake this asset for my grandchildren, for my cousin’s grandchildren, for my grandmother. I’m here to take care of those people and, therefore, I get to have a much longer-term perspective than the average bank president does.”
Barebones start gave The MINT foundation for growth
The MINT National Bank, Kingwood, Texas
Starting in a converted Starbucks with a team of three, The MINT National Bank may seem to have had modest beginnings. Yet, it turned out that was a blend for success.
That was no surprise to David Bubier and his business partners, who’d started other banks over a number of years. They expected it to work, even though it was one of the last banks to get a charter during the mortgage crisis.
We “realized that front-end overhead is an impediment to long-term success,” said Bubier, who is the bank’s president and CEO. “We really tried to operate on a shoestring in the organizing and opening process. I basically did all the organizational work out of my house, and so our front-end cost to open the bank was under $200,000.”
That bare-bones start in 2009 meant not having a teller line at the beginning, just a desk at the front, set up with under-the-desk teller equipment.
Now, more than a decade later, that’s still how the bank operates.
“Here we are. We’re about ready to hit the $300 million mark in deposits, and we do not have a teller counter. We don’t have a drive-through lane and we don’t have any ATM machines,” Bubier said. “We’ve found that office model works for us.”
The bank had $336 million in assets, with a return on assets of 2.12 percent and a return on equity of 19.52 percent at the end of the third quarter in 2021. The MINT’s efficiency ratio is 48.87.
The MINT didn’t begin expanding until after it achieved breakeven cash flow in its 25th month.
“We were earning money and we kept our front-end capital burn below 15 percent of expenses. We were pleased at how quickly we were able to get to profitability,” Bubier said. “And one of the ways we did that was by being very lean and mean.”
The partners chose Kingwood, which is a northeast suburb of Houston, because they were familiar with the location, having started two previous banks there.
Bubier said they weren’t “geniuses at the front end,” originally planning to be heavy in brick-and-mortar branches, but then realized they would have more financial success with their bare-bones model.
“We don’t need the office. The only customers we can’t service are the ones who have heavy coin and currency needs,” Bubier said. “Most of our customers don’t use currency at all; they use debit cards and credit cards.”
Although the bank doesn’t have its own ATM machines, it picks up all the charges for customers using ATMs anywhere in the world. Bubier said the approach is less expensive than owning and maintaining its own ATM.
Focusing almost entirely on commercial lending, The MINT has six offices. Four of its locations are in the Houston area with one in New Jersey and another opening in Dallas later this year.
The New Jersey office was the bank’s first major move into Small Business Administration lending. At first, a seasoned professional put together the loan packages and sent them to the bank. Later it was determined he should be a part of the bank and he became a loan officer. The bank worked very closely with regulators on the change, Bubier said.
“That’s worked out to be a very successful situation for the bank in terms of generating new business and just generating some new ideas, too,” Bubier said.
While the bank provides all the administrative support, the smaller commercial banking offices manage their revenues and expenses, measure their profitability and growth, and generate new business.
“We look at our bank as being more a collection of offices that are each out attacking the market in their own way, rather than a homogeneous product where everybody does the same thing,” Bubier said.
The MINT’s leadership has no plans to slow down. Bubier said they plan to double the bank about every five years without having to go back to the capital markets and raise more capital.
“We think our business model of opening commercial banking offices is a very scalable model that we can grow for quite a long period of time,” Bubier said. “There’s no reason why we couldn’t do a commercial banking office any place in the country that we wanted to.”
Modest expectations keep Austin-area bank on successful path
First Texas Bank of Georgetown, Texas
First Texas Bank of Georgetown, Texas isn’t trying to get rich quick.
This family-owned community banking business has been around for 123 years, making it the second-oldest charter in the state of Texas.
The $923 million bank’s philosophy is similar to several others of approximate size in the state that are owned by families or individuals who have been financially successful, said President and CEO Van Swift. They want to continue their solid investment while serving their community.
“They’ve owned the bank for a long time, and their goal is to own the bank for a long time into the future,” said Swift, who joined the First Texas Bank four years ago. “What makes us unique is that, unlike most banks, we are under no desire to grow or make more money than we made last year, as long as we just are safe.”
The current owners purchased banks in central Texas starting in the 1950s. They now have seven branches in neighboring communities north of Austin. The location is an asset.
“We’re lucky enough to be in a great market,” Swift said. “It offers us the opportunity to kind of pick and choose the deals that we want to do. My ownership really cares about one thing and that’s long-term capital stability. We don’t want to take a chance on long-term cyclicality with the market.”
First Texas Bank operates conservatively, with double the amount of bonds to loans. They’re constantly working to improve and become more efficient, Swift said, but in a slow and steady way.
The bank has some ag loans because they border cropland and cattle ranching operations. They have a good-sized portfolio of commercial loans and lines of credits. As many community banks do in high-growth areas, they do a lot of construction financing, a high-workload business driven by building relationships.
“We really do well at it. And, of course, like I said earlier, we’re not under any pressure to just go out and set the world on fire. So, we can be real selective with the builders that we bring on. And at times we’re not looking to grow and bring on new builders. I would have to think our average builder that we do business with has probably been with us nearly 10 years or longer,” Swift said.
First Texas Bank has extremely low cost of funds predicated on that stability and long-term slow growth. Customers bank with them because they provide superior service, Swift said, and the bank provides superior service because it can afford to.
“Once a customer comes into our bank, we seldom lose a customer to another bank. We don’t give them a reason to leave because we give great service,” Swift said.
At the end of the third quarter, the bank had assets of $923 million and return on assets of 1.38 percent. Its return on equity is 17.50 percent. The bank’s efficiency ratio is 42.51 percent.
Challenges are in hiring, Swift said, especially because the area is home to several high-tech companies, including Google and Apple, which might seem more appealing to job-seekers than a 123-year-old bank.
The bank’s culture is one where everyone can feel they’re an important part of the team, Swift said. The bonus structure in the organization is based on each specific job and tenure, not on anything else. The management team wants the employees to feel they’re each an integral part of the bank, he said. It adds to the stability of the bank.
“We’re the oldest family-owned bank in Williamson County and I play heavily on the fact that we’re the most stable because the reality is we are. We’ve been here a long time. We serve the needs of our community and we’re here for the community for the long term,” Swift said. “You can’t do that if you’re going to come in, open a loan production office, try to grow, price cheap, be looser on credit and then it works until it doesn’t. That’s just the way we see it.”