Craig Scheef, Founder, Chairman & CEO, Texas Security Bank
In an interview with Invest:, Craig Scheef, founder, chairman and CEO of Texas Security Bank, discussed the rapid economic growth in North Texas and the attractive opportunities that presents, leveraging technology to improve customer service, and supporting owner-managed businesses through educational programs.
What is the landscape for the banking and finance industry in North Texas?
When you look at Texas overall, but North Texas in particular, it is one of the fastest growing economies in the world. Texas is the eighth largest economy in the world and the fastest growing. It is crowded and competitive, and there continue to be many banks outside the state of Texas that are looking to move into Texas, usually through acquisition. The last couple of years have been tough for banks, but I think things are starting to turn around. When you look at the KBW index, an index of publicly traded banks, it is up quite a bit since the beginning of the year, which is a good sign.
As you know, interest rates have increased significantly, making it tough on banks, at least in the short term as banks struggle with lower net interest margins. In my personal opinion, rates are going to stay higher for longer. They are not necessarily going to go back to where they were in the last 10 years prior to two years ago.
What were some of the bank’s milestones and achievements over these past two years?
Moving into Tarrant County two years ago in January was a significant milestone. We opened our Southlake location, and it has been well-received. We also want to open a location closer to Fort Worth.
Also, over the last 10 years, we have had a banker development program. We hire bankers primarily out of Texas Tech and Texas A&M, but other places as well. We bring in three to five college graduates each year and develop them into bankers. Our young bankers continue to develop and become good business development people, which is also a milestone for us.
Another milestone is our enhanced focus on deposit gathering. Deposits are the engine that drives our ability to lend money at a good rate. Our deposit growth has been pretty significant, particularly over the last year. That is where our focus has been. With these higher rates, people are not borrowing as much, so it is a good time for us to focus on growing our deposits and getting them out ahead of our loan production.
Given that Texas Security Bank has been recognized for its excellence in banking and customer service, how do these accolades reflect the bank’s core values and mission?
We have a set of core values, and customer service is definitely one of them. We have been recognized by the Dallas Morning News as the No. 1 bank in Dallas-Fort Worth for the last three years in a row. That is pretty impressive considering we only have four locations. How we are able to do that is through emphasizing our core values. We try to use automation and technology as best we can in our customer service experience. We monitor customer service closely through net promoter score and other technology. We pay close attention to our online reviews and how we stack up relative to our competition.
As you focus on industrial, commercial and owner-managed businesses, are there any particular sectors or businesses where you are seeing the most promising growth?
From a lending standpoint, we are kind of agnostic. There are certain industries that are harder to loan to, such as restaurants or startups, but we have loans to pretty much every type of industry. Our focus on underwriting a particular loan is really on the management, as we bet on the jockey.
A lot of owner-managed businesses have owners who, if they have a college degree, it is usually not in one of the business disciplines like accounting, finance, management, or marketing. They are hungry for information and that was the realization the bank was built on. Our mission statement is to elevate the champions of free enterprise. We do that through our award-winning one-year continuing education program for business owners and their key players. This program covers everything from accounting, management, leadership, budgeting, forecasting, and benchmarking, to preparing your business for succession or sale. We also have a monthly speaker series that is virtual, covering timely topics for business owners and their key players. I would say this is particularly unique as I am not aware of any other bank that provides ongoing education like this for business owners.
Given the consolidation trend in the banking industry, what is your outlook in this regard?
I expect there to be continued consolidation. There are a number of dynamics that are really behind that. There is a significant amount of regulation, whether it is from the CFPB (Consumer Financial Protection Bureau) or other areas, that continues to be a burden on banks. You also have an aging population of bank CEOs.
However, I am not saying I am bearish on the banking industry. I just recognize that there are going to be some challenges and there will be fewer people who want to participate in those challenges. That, in itself, creates a significant opportunity for our team because we love banking.
Are there any specific developments that might affect your operation over the next year or so?
In terms of regulations, the big one out there, which is being fought in the courts right now, is Rule 1071, which has to do with small-business lending and was originally part of the Dodd-Frank Act from years ago. It requires that anytime you do a small-business loan, there is all kinds of different information you have to obtain, much of it demographic information. Originally, Dodd-Frank contemplated 13 pieces of information. But the CFPB, when they wrote the rules, increased that to 81 pieces of data, which they have no authority to do. That is why it is in the courts. Whether it is 13 or 81, I believe what is behind it is that they want to avoid price discrimination or people getting turned down because of their race or gender or other factors. Bankers do not care about that stuff. They just care that they get paid back and make a return for their shareholders. What all these rules do in the small-business lending world is make banks do fewer loans because that information costs a lot of money to gather. With small businesses, we have trouble getting accurate financial statements, let alone 81 fields of information. That information you submit can be used against you, adding a significant amount of risk that somebody is going to sue you. It is counterproductive to small-business lending.
It is similar to what already exists on the residential mortgage side with the HMDA (Home Mortgage Disclosure Act), which gathers all kinds of information that has nothing to do with the quality of the loan.
What are your top priorities and goals for Texas Security Bank over the next two to three years?
The biggest priority is safe, sustainable growth. We are open to doing acquisitions to add to our team and create scale. We are focused on developing really good young leaders in the banking industry for the future. I will be 62 by November 2024, but I see myself doing this for a long time. We want to continue to improve profitability and grow our deposits. Developing good leaders is crucial because if you train and develop good leaders, things will take care of themselves.
