Texas BUSINESS The Bureau of Bu~ines:-i lteseurC'h The llniver~ityof Texas at Austin Vol. 52, No. 4, April 1978 Federal Reserve Membership and Bank Profitability in Texas 69 Carl M. Hubbard and Gloria M. Shatto Financial Reporting and Disclosure 72 Paul M. Horvitz and Ranak Patel Bank Holding Company Acquisitions in Texas 75 John H. Lewis 1976: Improved Profits for Bank Trust Departments 79 S. Michael Edgar Cover design: Eje Wray Bureau of Business Research Charles C. Holt, Director Lorna Monti, Associate Director Review Staff Lewis J. Spellman, Editor Lois Glenn, Publications Manager Charles F. Dameron, Jr., Managing Editor Mildred Anderson, Marylyn Donaldson, Jean Hall, and Mercedes Torres, Data Compilation Daniel P. Rosas, Printing Coordinator Joan Farnham and Nancy K. Jones, Compositors Subscription rate: $5.00 per year. Single copy: $.50. Second-class postage paid at Austin, Texas. Publication number 540-400. Address manuscripts and communications to Texas Busi­ness Review, Bureau of Business Research, P.O. Box 7459, Austin, Texas 78712. Telephone: 512-471-1616. Texas Business Review is indexed in Marketing Information Guide and Public Affairs Information Service and is available on microfilm from University Microfilms. Contents of this publication are not copyrighted and may be reproduced freely. Acknowledgment of the source will be appreciated. Federal Reserve Membership and Bank Profitability in Texas Banks in Texas that are not members of the Federal Reserve System are significantly more profitable than Federal Reserve member banks. The reserve ratios and capital-to-assets ratios of memb.er banks suggest that Fed­eral Reserve regulations on reserves and bank capital contribute to the lower profitability of member banks. This situation has led to an "accelerating erosion of member­ship" in the Federal Reserve System, suggests Philip E. Coldwell, a member of the Board of Governors of the Federal Reserve and former president of the Dallas Federal Reserve Bank. Such a decline in membership also hinders analysis of monetary conditions and implementation of policy by the Board of Governors. 1 The Federal Reserve System influences the money supply, the availability of credit, and the level of interest rates. From 197 I to 1975 the national percentage of bank deposits controlled by member banks dropped from 82 percent to 79 percent. Continuation of this trend over many years could affect Federal Reserve performance.2 Membership in the Federal Reserve imposes regulations on a bank that are additional to those of the Federal Deposit Insurance Corporation and state regulations that nonmember banks must face . Reserve requirements ad­versely affect a member bank's profitability and thus are a Carl M. Hubbard is Assistant Professor of Business and Management Studies at Trinity University. Gloria M. Shatto is George R. Brown Professor ofBusiness at Trinity University. Carl M. Hubbard Gloria M. Shatto major deterrent to membership in the Federal Reserve System.3 Ultimately the decision to join the Federal Reserve System rests on the bank owners' evaluation of the effects of membership on the value of the bank. If the survival prospects of a bank arc not increased by Federal Reserve membership, the value of that bank to its owners may be derived from the after-tax return on the hook value of equity capital. That performance measure, in turn, is determined by the after-tax return on assets and the financial leverage, the ratio of all assets to equity capital, employed by the bank. Loans and securities are assets that a bank can acquire with deposits after setting aside required reserves. Equity capital is provided by stockholders. If all other factors remain the same, a higher return on assets for a bank increases its return on equity. And if return on assets is held constant, greater financial leverage usually increases return on equity. Those relationships between return on assets and financial leverage are demonstrated in the following equation where return on equity is separated into its after-tax components. net income assetsReturn on equity assets x equity capital If the earning power of assets increases, return on equity increases. Similarly, if the proportion of assets financed by equity capital is reduced, return on equity increases. Bank regulation affects return on equity through its impact on the investment and finan cing decisions made by bank officers. If the reserve requirements on member banks result in a greater-than-desired allocation of resources to legal reserves, funds that otherwise would be invested in higher yielding loans and securities earn no return. Al­though nonmember banks in Texas have legal reserve requirements, those requirements can be satisfied by bank balances in correspondent accounts in other banks. There­fore, nonmember Texas banks are able to allocate more funds to higher yielding assets and to increase return on assets above returns of comparable member banks. The equity capital requirements for member banks depend upon the risk and maturity of a bank's assets (loans and securities). In contrast, the determining factor in equity capital requirements for nonmember banks in Texas is town size (population). Hypothetically, nonmember banks in Texas may have less equity capital than member banks that are comparable in deposit size and location. Thus nonmem­ber banks are more highly leveraged and operate with less stockholders' capital than member banks, and consequently are more profitable. As the equation demonstrates, the smaller the equity capital used in the financing of a bank the greater its return on equity. If all Texas banks, member and nonmember, ascribe to policies consistent with profit maximization, each bank will maintain an optimum asset portfolio (including legal reserves) and will finance its assets with an optimum mix of liabilities, deposits, and equity capital. If this reasoning is correct, member bank balance sheets will contain more cash included control variables for bank deposit size and for location in an SMSA county and in a non-SMSA county. Many variables that affect bank profitability, such as management talent, suburban-versus-urban location, non­monetary goals of the owners of banks, and holding company relationships, were not included in this analysis. A cross-sectional discriminant analysis indicated signifi­cantly greater after-tax returns on assets and equity among nonmember banks in Texas in 1972 and 1973 than among member banks. Furthermore, research indicated that the ratio of cash and U.S. securities to deposits and the ratio of equity capital to assets were both significantly higher for Texas member banks than for nonmember banks. These ratios represent the areas of bank management that affect profitability and that are considered sensitive to Federal Reserve regulation. Nonmember banks appear to be more profitable than member banks in Texas, based on the higher returns on assets and equity earhed by nonmember banks. Consequently, the growth of nonmember banking will continue in Texas. Technical Appendix This research project involved two mutually exclusive and collectively exhaustive populations of insured commer­cial banks in Texas, namely members of the Federal Based on higher returns on assets and equity, nonmember banks are more profitable than Federal Reserve member banks in Texas. and U.S. securities as a percentage of deposits and more equity capital as a percentage of total financing than those of nonmember banks. As a consequence, earnings data on Texas banks should reveal a lower return on assets and a lower return on equity for the typical Federal Reserve member bank. The Statistical Investigation Using a statistical technique called discriminant analysis, the authors tested the hypothesis that Texas nonmember banks earn higher after-tax returns on assets and equity capital than member banks earn. In support of that test the reserve ratios and asset-to-equity ratios of the two groups of banks were evaluated. The sample banks were all insured commercial banks in Texas in 1972 and 1973.4 In 1972 there were 581 member banks and 650 nonmember banks, for a total of 1,231; in 1973, 583 member banks and 660 nonmember banks, for a total of 1,243. The statistical tests Reserve and nonmembers. The questions asked involved differences between these two groups in profitability, liquidity, and leverage. Discriminant analysis identifies variables that differ significantly between mutually exclu­sive and collectively exhaustive groups. In simple two-group discriminant analysis a set of coefficients is computed. The sign of a coefficient indicates which of the two groups has, on the average, higher profitability, liquidity, and leverage. In the analysis non­member banks were identified as group one and member banks as group two. Negative coefficients identified vari­ables more characteristic of nonmember banks, and positive coefficients identified variables more characteristic of mem­ber banks. Coefficients not significantly different from zero in the computations of the discriminant analysis equations identified variables that did not differ significantly between the two groups of banks. The t-test was used to test the statistical significance of each coefficient, and equation F statistic was computed for each set of discriminant coeffi­cients. The set of variables in our discriminant analysis of member and nonmember banks in Texas were: ROE= net income after taxes/equity capital ROA= net income after taxes/total assets D = equity capital/total assets C =(cash+ U.S. securities)/deposits S = total deposits (log ) 1 0 L =SMSA county= 1, non-SMSA county= 0 Each of these variables was computed for each insured commercial bank in Texas in 1972 and 1973. Return on equity (ROE) and return on assets (ROA) should have negative signs if the theoretical proposition that nonmem­ber banks are more profitable is consistent with our sample data. If nonmember banks hold fewer reserves and are more highly leveraged, the variables C and D should have positive signs. The variables S and L were included to control the effects of deposit size and large-versus-small population centers on the other coefficients. In the separate analyses of 1972 and 1973 data, four equations (I through IV) were computed (see tables 1 and 2). Equation I in each table contained the variables S, L, and ROE. The variables C and D were added in equation II in the tables. The causal relationship between ROE and C and D required a separate analysis to determine whether ROE differed between the two groups of banks. Equation III in the tables omitted ROE but included ROA. The collinearity of those two variables also required separate analyses. Equation IV in tables 1 and 2 contained S, L, ROA, C, and D. Because of the causal relationship between ROA and C, and possibly D, equation III presents the coefficient of ROA in the absence of those variables. The statistical results in tables 1 and 2 supported the theoretical proposition that nonmember banks are more profitable than member banks. The coefficients of the variables ROE and ROA were negative and statistically significant. The coefficients of the variables C and D were positive and statistically significant. (Variable D in table 1 differed significantly between the two groups of banks at the .OS level in a one-tail t-test.) No statistical test can prove that Federal Reserve regulations caused member banks to hold more reserves and to employ less financial Table 1 Discriminant Analysis Coefficients: Texas Member and Nonmember Banks, 1972 (Standard errors in parentheses) s L ROE ROA c D Equation F I. .30 1 * -. 160 * -.3 86* :t: t :t: 33.399 * (.0 3 1) (.030) (.189) II. .372. -. I S8 * -. 125 :t: .680* .8 34t 30.293 * (.0 33) (.030) (.193) (. 11 8) (.43 1) III. .29S. -.163* :t: -4.559* :t: t 33.600* (.0 30) (.030) (2.098) IV. .37 1* -.1 6 1* t -2 .261 .678 * .82ot 30.45 8* (.033) (.030) (2.103) (. I I 8) (.42 1) *Significant at the .OS level o r less. tsignificant at the .1 0 level. :!: Variab le o mitted . leverage, which resulted in a lower profitability. Neverthe­less, greater returns on equity and assets. lower reserve ratios, and higher leverage among nonmember hanks in Texas lead to that inference. Notes I. Federal Reserve Bulletin 63 (October 1977): 907. 2. As of June 30, 1971 and 1975. Annual Statistical Digest, 1971-1975, Board of Governors of the Federal Reserve System, 1976. 3. For examples see the following : Lucille S. Mayne, "The Effect of Federal Reserve System Membership on the Profitability of Illinois Banks, 1961-1963" (Ph.D. dissertation, Northwestern University, 1966); Samuel C. Webb, "The Cost of Federal Reserve Membership to Kansas Banks," Nebraska Journal of Economics and Business 9, no. 1 (1970): 39-55; John G. Fulmer, "An Investigation into the Effects of Federal Reserve System Membership on Individual Commercial Banks" (Ph.D. dissertation, University of Alabama, 1970); Marvin Phaup, "The Effect of Federal Reserve Membership on the Earnings of Fourth District Banks," Economic Review (Federal Reserve Bank of Cleveland), January-February I 973, pp. 3-18; John G. Fulmer, "The Effect of Federal Reserve Membership on the Earnings of Commercial Banks in South Carolina," Journal of Bank Research 4 (Winter 1974): 214-15; Donald R. Fraser, Peter S. Rose, and Gary L. Schugart, "Federal Reserve Membership and Bank Performance: The Evidence from Texas," Journal of Finance 30 (May 1975): 641-58; Lawrence Goldberg and John T. Rose, "The Effect on Nonmember Banks of the Imposition of Member Bank Reserve Requirements-With and Without Federal Reserve Services," Journal of Finance 31 (December 1976): 1457-69;Chris J. Prestopino, "Do Higher Reserve Requirements Discourage Federal Reserve Membership?" Journal of Finance 31 (December 1976): 1471-80. 4. The sources of data for the statistical tests were the following : Board of Governors of the Federal Reserve System, Reports of Condition of Insured Commercial Banks, December 1972, Reports of Condition of Insured Commercial Banks, December 1973, Reports of Income and Dividends of Insured Commercial Banks, 1972, and Reports of Income and Dividends of Insured Commercial Banks, 1973, BCD tape (Washington, D.C.: Federal Reserve System, 1974). Table 2 Discriminant Analysis Coefficients: Texas Member and Nonmember Banks, 1973 (Standard errors in parentheses) s L ROE ROA c D Equation F I. .277* -. 118* -.S74* 29.828* :t: :t: :t: (.030) (.030) (. 190) II. .343* -.J 19* -.3Sl t .678* .886* 2S.646* (.033) (.030) (.J 99) (.12 7) (.413) III. .264* -.11 5* :t: -6.269* t :t: 29.805. (.029) (.030) (2.089) :t: IV . . 34 I * -. I 2 S * -5.320* .686* .987* 26.408* (.033) (.030) (2.077) (.126) (.39 3) *Significant at the .OS level or less. :!:Variable omitted. Financial Reporting and Disclosure The Annual Reports of Bank Holding Companies in Texas Paul M. Horvitz and Ranak Patel Because bank accounting standards have changed and Securities and Exchange Commission (SEC) disclosure guidelines have been revised , the public has gained access to more comprehensive information on bank holding compa­nies in recent years. The increase in the number of bank holding companies has accelerated the flow of information to the public. In I 969 the banking supervisory agencies changed the accounting standards used by banks in making income reports; bankers were required to calculate loan losses as operating expenses and to use at least some accrual accounting. A major step toward full disclosure was made in I 972 when the banking agencies decided to make public the income reports that banks were required to submit to them. The 1972 decision was important because most banks were exempt from the Securities Exchange Act of I 934, which set forth reporting and disclosure requirements for most business firms. Even the I 964 amendments to that act required only limited reporting by a few hundred large banks. During the past several years, the SEC has gained additional responsibility for bank accounting and disclosure almost by accident. While banks were exempt from much of the securities legislation of the I 930s, bank holding companies were not. Thus the increase in the number of bank holding companies in the I 960s and early I 970s led to more power for the SEC over the bank subsidiaries of these holding companies. Although the concept of full disclosure for nonbanking firms has been well established for many years, disclosure in banking has lagged behind. Bankers and their supervisors have feared that disclosure of unfavorable bank news might trigger runs. (The bulk of a commercial bank's liabilities, unlike those of a manufacturing firm, is payable on demand.) Apart from concern about runs, the banking supervisory agencies have traditionally been concerned about the ability of banks to raise capital, and disclosure of Paul M. Horvitz is Professor of Finance, l'niversity of Houston. Ranak Patel is a graduate student in the Department of Finance, University of Houston. unfavorable results can make the sale of debt or equity more difficult. Regardless of the merit of maintaining secrecy about bank operations, the decision has been made in favor of disclosure. In I976 the SEC promulgated revision of its guides 3 and 6 I, "Guides for the Preparation and Filing of Registration Statements," with respect to statistical disclo­sure by bank holding companies. These documents are guidelines rather than binding rules and relate to new issues of securities rather than to annual reports to stockholders, but they do reflect the thinking of the SEC with respect to appropriate disclosure by banks and bank holding compa­nies. Moreover, the banking agencies have followed up with new requirements for banks that are subject to their disclosure regulations. While not all banks have adjusted to this new environ­ment of full disclosure, many banks and holding companies have made changes in their annual reports. It should be noted that more detail in an annual report is not necessarily better. Full information should be available to investors, but an annual report is not the only source of information. An annual report should be accessible to the average informed stockholder; it is not intended as a substitute for a prospectus or 10-K. 1 The focus of this study was the annual report; some of the sample institutions also provided useful supplements to the annual report. In 1975 First International Bancshares included its 10-K report in the annual report to stock­ holders, and a few other banks have included this poten­ tially useful information in the past. 2 Unfortunately, the 10-K has now become so voluminous that its routine inclusion in the annual report is probably not appropriate. Some companies, most notably Republic of Texas, publish separate statistical reports that contain detailed financial information. Recent annual reports of the largest banking institutions in Texas-those with over $2 billion in total assets as of year-end 1976-were examined in order to determine the extent to which they reflect the changes in reporting and disclosure now expected of commercial banks. Those included were First International Bancshares, Republic of Texas, First City Bancorporation, Texas Commerce, Mercantile Texas Corporation and Southwest Bancshares. Space does not allow discussion of all the changes that have taken place in required reporting or in the responses of the covered banks. Comparisons have been limited to the following areas in which significant changes in requirements and SEC guidelines have been made in recent years: the loan portfolio, including maturity and rate flexibility ; loan quality, including Joan losses, reserves, and restructured and problem loans; Joan commitments; the investment portfo­lio; and foreign operations. Loans Types of Joans . Banks are now required to present a detailed breakdown of loans by type. Many banks have always given some sort of breakdown, often limited to divisions of loans into real estate, business, and personal loans. The required reports of the banking agencies, on the other hand, list seven teen categories of loans. Several of the Texas banks did not present significant detail until very recently. Such Joan detail did not appear in the Southwest Bancshares report until 1975 and in the Texas Commerce report until 1976. Reports for Mercantile Texas and First City Bancorporation still show less detail than the others. Loan maturity and sensitivity to interest fluctuations . Many analysts are now very interested in data on loan maturities and, for loans other than short term, the extent to which loans are on a fixed interest rate basis or are tied to the prime rate. In a world of widely fluctuating interest rates, information about the sensitivity of a bank's income to such changes is extremely valuable. Mercantile Texas had no data on loan maturities in its 1976 report. Republic of Texas did not have this information until 1976. First City Bancshares, while not including maturity data, did have a discussion of rate sensitivity in 1976. Southwest Bancshares presented maturity data but not rate sensitivity. First International included maturity and rate sensitivity data in its 1975 10-K. Texas Commerce also disclosed such information in both 1975 and 1976. Loan loss reserve. Banks have always shown the aggregate amount of loans charged off in their income statements, but now the SEC guides call for more detailed information on losses by type of loan and for a breakdown of the loan loss reserve by type of loan. An important discussion that should be included in this section concerns the basis for management's decision about the amount of transfers to the loan loss reserve. The sample banks differed in their handling of this item, but most presentations were more than adequate. In 1976 First City had an outstanding one with good data and a full discussion of the procedure for transfers to reserves. While the guides call for discussion of losses only on loans, First City included a discussion of possible losses on real estate acquired by foreclosure; however, they did not break down the loan loss reserve by type of loan. First International and Southwest had satisfactory presentations in 1976 and 1975. First Interna­tional provided an interesting discussion of risk exposure by type of loan . Texas Commerce and Republic of Texas data for 1976 were complete, but discussion of the basis for transfers to the reserve was incomplete. Republic was the only company to report a breakdown of the loan loss reserve, even though a large part of the reserve was unallocated. The presentation by Mercantile Texas Corpora­tion could have included a more complete discussion of loss experience by type of loan and of the hasis for transfers to the loan loss reserve. Loan commitments outstanding. Proposed versions of SEC guides 3 and 61 called for disclosure and discussion of the amount of loan commitments outstanding, but this was dropped from the final versions. Texas Commerce was the only holding company to present data on commitments made and amounts used and unused. This information could be useful to the analyst when comparable data for other banks are available. Typical of the sample was the comment in the First City Bancorporation's report that "various outstanding commitments .. . incurred in the nor­mal course of business . .. are not reflected in the . .. finan­cial statements." No figures were given. Most did disclose the amount of standby letters of credit, and First Interna­tional disclosed the amount of foreign but not domestic commitments. "Nonperforming" loans. The principal area of dispute among bankers, bank supervisors, and the SEC over the last few years has been the disclosure of "nonperforming" loans. At one time the SEC proposed that banks disclose the amount of Joans criticized by bank examiners. After strong objections from the supervisory agencies, the SEC sought other measures of loan quality. Current guidelines call for disclosure of loans in three categories: loans past due, Joans on which the terms (or interest rate) have been renegotiated, and Joans that raise serious doubts about the borrower's ability to meet the original terms of the loan. In the early years of this study no such disclosure was made by any of the sample banks. Texas Commerce began its presentation in 197 5. First International included the information in its 1975 10-K but dropped it from the annual report in 1976, becoming the only institution besides Mercantile Texas with no disclosure of nonperform­ing loans. Southwest Bancshares and Republic followed SEC guidelines in detail. Texas Commerce and First City Bancorporation disclosed the amounts of nonperforming loans but had presentations that deviated from the guide­lines in format. Investment Portfolio SEC guidelines call for detailed disclosure of the investment portfolio. Banks must disclose the market value of the investment portfolio and, where material, the amount of holdings of New York City obligations. In this study disclosure by type of security and maturity were examined. Mercantile Texas Corporation gave the least information in this area, while First International Bancshares and Texas Commerce have had thorough presentations for several years. Texas Commerce also discussed policies and effects in addition to presenting figures and tables regarding the investment portfolio. Both First City Bancorporation and Republic of Texas have made progress in their disclosure policies. Previously little discussion or analysis was in­cluded, categories of investments were few, and maturity periods were minimal. By 1976 more explanations were provided , and SEC guidelines were followed in detail. Both First City and Republic disclosed holdings of New York City obligations, with details on maturities of each cate­gory. The Southwest Bancshares report also went beyond the guidelines in some respects. Foreign Operations Foreign operations have become more important for the sample banks mainly because of the major role of oil and energy in Texas. Mercantile Texas was the only sample bank without any foreign branches; therefore, its annual reports contained no discussion of foreign activities. South­west had only a Nassau branch and provided little discus­sion of its modest activities. Texas Commerce, on the other hand , had several foreign offices and provided detailed information on business done by these offices and the home office. The discussion of Joans, assets, income, and interests was thorough and, in accordance with SEC guidelines, provided meaningful definitions of foreign oper­ations. The First City report had one of the best presenta­tions, providing not only data but also a discussion of management policy on various features of its foreign operations. Loans were broken down by individual country, and the risks involved were discussed. Republic of Texas provided similar information but did not distinguish be­tween loans made by the home office and those made through foreign branches. First International's foreign operations have been well covered in recent reports. Disclosure was detailed in 1975 because of the inclusion of the 10-K; in 1976 a unique feature, a discussion of nonperforming loans, was included . First International was the only holding company to disclose the amount of loan commitments made to each country. SEC guidelines do not specify the extent to which country-by-country breakdowns of loans should be dis­closed. Considerable differences existed among the sample banks. Southwest had no breakdown by country, which is understandable in view of its modest foreign assets of $I 20 million. First City and Texas Commerce had the most detailed disclosures by country. Geographic categories listed by Republic were very broad-Continental Europe, Latin America. and Asia. First International listed major countries--Brazil, Japan, Mexico, the United Kingdom -hut other categories were broad. Over one-third of the foreign loans (over $280 million) were to "European" borrowers in nineteen countries. Net Interest Margin An issue of concern to analysts is the net interest margin of banks. 3 Because of rate and volume changes net interest margins fluctuate; this has a major impact on profits. All the companies presented all the necessary information and provided adequate discussions of net interest margins, though the styles of presentation differed. The clearest report belonged to Southwest Bancshares. In this area, as in several others, the Southwest discussion was geared to the layman, and an explanation of policy and procedures was provided. Data on Subsidiaries A stockholder of a holding company may be interested in analyzing the condition of the parent company apart from its subsidiaries. The 197 5 report for First International Bancshares contained the most thorough presentation. Because of the inclusion of the 10-K form, statements for the corporation and its subsidiaries were provided along with statements applying only to the parent company. The general trend was to present the consolidated statements and supplement them with limited information on the individual members. For their member banks Texas Commerce and First City Bancorporation provided financial summaries, which con­sisted of year-end total assets, loans, deposits, and capital. The Southwest report presented a financial summary similar to that of Texas Commerce but also included data on income and returns on assets and equity. First Interna­tional inserted a booklet containing selected financial data-year-end totals of loans, deposits, and shareholders' equity, among other items-on each of its member banks. The statistical supplement for Republic of Texas presented separate consolidated statements for the corporation and its subsidiaries-for Republic National Bank of Dallas (its flagship bank), for Houston National Bank, and for other subsidiaries. Some generalizations can be made from the findings. The annual reports of large Texas bank holding companies are, with the possible exception of Mercantile, more comprehensive and thorough than those of most bank holding companies in the country. In Texas, as in the rest of the United States, a strong trend toward increased disclosure over time exists. All the holding companies have included more substantive information in their recent reports than in their earlier ones. Also, in recent reports the formats have come closer to SEC guidelines. It seems unlikely that these developments would have occurred at this rate without SEC prodding. Notes I. A 10-K is a company's detailed financial statement, which is filed with the Securities and Exchange Commission. 2. The term banks is used throughout the paper because, even though the annual reports are those of holding companies, most of the data discussed refer to bank subsidiaries of the holding companies. 3. Net interest margin refers to interest received less interest paid. This is an indicator of both market conditions and the efficiency of bank management. Bank Holding Company Acquisitions • Ill Texas John H. Lewis Between 1970 and 1977 bank holding companies (BHCs) have played an increasing role in the evolution of banking in Texas. Until March 1976 the Board of Gover­nors of the Federal Reserve System imposed strict guide­lines on new acquisitions in order to keep markets competitive and healthy. Since then, the board has interpre­ted its guidelines more broadly. Consequently, several of John H. Lewis is Associate Professor, Department ofEconomics and Finance, Stephen F. Austin State University. the larger BHCs have been permitted to branch out and acquire banks in areas that were once off limits. The need for more sophisticated banking services presently seems to outweigh objections based on an increasing concentration in Texas commercial banking. The Bank Holding Company Act of 1956 directs the Board of Governors to consider five factors in approving bank acquisitions: the financial history and condition of any concerned companies and banks; their prospects; the character of their managements ; the convenience, needs, and welfare of the communities and areas concerned; and the tendency of the acquisitions to expand the bank holding company system beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking. 1 In 1966 an amendment to the 1956 act clarified the relation­ship between benefits to the public and injury to competi­tion. The amendment states that the board shall not approve any acquisition that results in or furthers a monopoly or that substantially lessens competition or acts to restrain trade, unless the anticompetitive effects are outweighed by the beneficial effects on the community.2 At the end of 1970, 4 multibank holding companies existed in Texas. These 4 companies owned 14 banks, future competition in the banking market and to prevent any trend toward undue concentration. The board also expressed concern over the disparity in size among the state's twenty-four BHCs, noting that the five largest controlled almost two-thirds of all BHC de­posits. This disparity was likely to increase because the larger BHCs were acquiring the larger banks in the state's secondary SMSAs.6 These acquisitions would tend to have three anticompetitive effects: increase the disparity be­tween large and medium BHCs; prevent one of the small or medium BHCs from buying the bank; and discourage the large BHC from entering the market through a new bank (de novo entry) or acquiring one of the smaller banks in the The approval of the acquisition of First Bank and Trust in Lufkin by Republic of Texas in 1976 was not consistent with a strict interpretation of the Tyler Doctrine. which held about 7 percent of commercial bank deposits. By year-end 1974 the number of multibank holding companies had increased to 24, with I 79 subsidiary banks controlling almost 50 percent of the state's commercial bank deposits. 3 For several reasons this increase in BHC deposits did not significantly increase concentration in Texas commercial hanking. Many of the acquisitions were merely formaliza­tions of chain hanking arrangements that already existed in 1970.4 Also, decreases in concentration occurred when certain BHCs were required to divest interests in one competing affiliate as a precondition for acquiring another. Further, the direct influence of a BHC on a newly acquired bank could cause it to become a vigorous competitor. Between 1970 and 1974 Texas appeared to have a relatively open market-it only moved from forty-sixth to forty-fifth in deposit concentration among the fifty states. However, the board did not consider a statewide survey of Texas to be an adequate indication of banking services in the local (SMSA) markets. Thus the board became con­cerned over BHC activities in the state's secondary SMSAs. The Tyler Doctrine On December 28 , 1973, the application of First Interna­tional Bancshares to acquire Citizens First National Bank of Tyler was denied. This decision gave rise to the Tyler Doctrine. The board's denial order asserted that the Bank Holding Company Act of I 9 56 required denial of "any proposed acquisition where the effect may be substantially to lessen competition or to tend to create a monopoly unless the Board finds that the anticompetitive effects are clearly outweighed by the benefits to the community. ,,s Thus the board intended to consider the probable effect on market (foothold entry). Thus, such acquisitions would increase concentration in the statewide bank market and would probably increase concentration in the local bank market as well. In 1974 and 1975 the board cited the Tyler decision in denying acquisitions in Waco, Lufkin, and Austin.7 The board also indicated that it would be desirable for the BHC to enter the market de nova or acquire one of the smaller banks in the market. In each of the four decisions at least one dissenting vote was recorded. Dissent­ing statements asserted that none of the five largest bank holding companies in Texas had acquired a dominant position in a secondary SMSA and that none of their acquisitions had prevented other BHCs from entering the markets. They further argued that Texas needed larger banks to serve the state's growing industries. (A I 973 survey by the Dallas Federal Reserve Bank indicated that large companies in Texas were going out of state for banking services because of inadequate lending limits and inadequate international banking services.)8 One minority opinion also questioned the attractiveness of the Lufkin bank market for de novo entry. However, the Tyler decision was not as restrictive as some bankers at first thought. Subsequent decisions placed restrictions on BHC acquisitions in secondary SMSAs. Further, the decisions applied only to secondary SMSAs where one of the largest BHCs did not already have a subsidiary bank. Acquisitions in markets where BHC-owned banks already existed were viewed as having a positive effect on competition. On March 23, I 976, the board approved the acquisition of First Bank and Trust in Lufkin by Republic of Texas. This decision was somewhat surprising because First City's application to acquire Lufkin National had been denied fewer than two years earlier. In the approval order the board stated that the application did not warrant denial under the Tyler Doctrine because of the lack of an aggressive acquisition policy by the applicant at that time, the existence of a business relationship between the parties, the market's unattractiveness for de novo entry, and First Bank's commitment to divest its interest in Diboll State Bank, a potential direct competitor. The approval of this application was not consistent with a strict interpretation of the Tyler Doctrine; however, because of the special circumstances surrounding the case, it was difficult to determine to what extent the board had eased its earlier position. Two dissenting board members held that the market was attractive for de novo entry and that a foothold entry was clearly possible since the shares of the Diboll bank were for sale. Further, they believed that Republic was likely to begin an aggressive acquisition program in the future. The approval of the acquisition of Capital National Bank in Austin by Texas Commerce Bancshares on April 13, 1977, left little doubt that the board had changed its position. The acquisition of the second largest bank in the Austin market vaulted Texas Commerce from third to first in deposits among Texas BHCs. The approval order stated that "concern relating to the level of concentration of banking resources involving the largest banking organiza­tions in Texas is no longer entirely warranted and should be tempered in light of developments subsequent to 1974."9 The most important developments were these: the percen­tage of commercial banking resources in Texas controlled by the four largest banking organizations had not increased appreciably since 1974; based on the percentage of deposits held by the three largest banking organizations, Texas ranked very low (forty-third out of the fifty states); since the Austin bank market was growing rapidly, the acquisi­tion did not prevent other competitors from entering the market ; and the banks presently in the area were not meeting the needs of the large national and international corporations located there. A dissenting minority opinion vigorously asserted that the Austin banking market was very concentrated and attractive for de novo entry. The acquisition did not decrease concentration, and it did decrease the possibility that one of the hanking organizations most able to enter de novu or through acquisition of one of the smaller banks would do so. Also the minority opinion noted that the acquisition violated the Justice Department's merger guide­line and might be challenged. Since the Texas Commerce decision, the board has confirmed its position in similar cases. On June 1 7, 1977, First City Bancorporation received approval to acquire City National Bank of Austin and on September 1, 1977, to acquire City National Bank of Bryan. 10 In both decisions involving the Austin banks a dissenting vote was recorded; in the very similar Bryan case, however, none was. Reversal of the Tyler Doctrine The Board of Governors no longer applies the Tyler Doctrine in strict terms to Texas banking. 1 1 The catalyst for this change was probably the lobbying effort begun in 1974 by Texas' large BHCs.1 2 The state was undergoing a period of rapid economic growth, which required increas­ingly sophisticated banking services and large loan limits. Since these services were not available in the state, larger firms were acquiring them from out-of-state banks. The BHC movement was seen as a healthy response to the banking deficiencies. 1 3 Texas banks were also faced with an "invasion" of their markets by representative offices of foreign banks and by Edge offices of out-of-state banks.14 Thus, forced to deal with an existing problem or a potential problem, the board chose to increase the availability of in-state banking services for large firms even though the action might lead to a greater concentration in the state banking system. Selected Bank Holding Company Acquisitions in Texas, 1973-1977 Bank 's market Rank of bank Number o f banks/ Ban k ho ld ing co mpany share in local market/ percentage Local bank Date Decision (perce ntage) BHC in state of local market First Intern atio nal Bancshares 12/28/73 Denied 30 I st/ I st 3/82 Citizens First Natio nal, Tyler First Intern atio nal Bancshares 3/ I/74 Denied 35 I st/ I st 3/65 First Nat io nal Bank of Waco First Cit y Banco rpo ratio n 5I I/74 Denied 49 1st/2 nd 2/86 Lufkin Natio nal Bank Texas Commerce Bancshares 1/25/75 Denied 23 I st/3rd• 4/79 Austin Natio nal Bank Republic o f Texas 3/23/76 Approved 42 4th/2 nd No t stated First Bank & Trust , Lufkin Texas Co mmerce Ban cshares 4/ 13/77 Approved 2 1 3rd/2 nd t 4/78 Ca pital Natio nal, Austin First Cit y Bancorporation 6/ 17/77 Approved 16 2nd/3rd t 4/78 Cit y Natio nal Bank , Austin 8/9 1 First Cit y Bancorpo ratio n 9/ 1/77 Approved 25 2nd/1st 3/72 Cit y Natio nal Bank , Bryan 4/86 *Approval would have moved BHC to 2nd. tA pproval moved BH C to 1st. So urce: Federal R eserve Bulletin , vario us issues. Also, the large BHCs were not actively following the board's recommendation to form new banks or to acquire small banks in the secondary SMSAs. Of the twenty-two de novo acquisitions between 1974 and 1976 , seventeen were made by the five largest BHCs and fifteen of the seventeen were in the Houston SMSA. Only one of the seventeen was in a secondary SMSA. Beyond this, the decisions in Tyler, Waco, Lufkin, and Austin invited acquisitions in those markets by the smaller BHCs. However, at the end of 1976, the only acquisition that had occurred in these markets was a de novo in Austin by Austin Bancshares Corporation. Therefore, even though the board claimed in the Texas Commerce decision that its actions opposed the trend toward concentration in Texas banking, one can argue that from 1974 to 1977 the larger BHCs were making acquisi­tions in the primary SMSAs while hoping that the board would change its position on the secondary SMSAs. Implications for the Future The recent changes in the board's position on BHC acquisitions make it possible for the state's larger BHCs to grow rapidly through acquisition of leading banks in the secondary SMSAs. At present only three BHCs-Texas Commerce (thirty-five banks), First City (twenty-eight banks), and First International (twenty-seven banks)-have statewide banking systems. 1 5 These three should be able to enter other attractive markets and extend their geographic representation. Other BHCs will probably also establish statewide systems by acquiring existing banks, a develop­ ment that should allow the BHC movement to become a true substitute for branch banking in Texas. However, the change in the board's position does not amount to a blank check for Texas BHCs. The board will continue to evaluate the applications individually. To determine whether there will be injury to competition, the board will consider the degree of BHC representation in a market, the degree of market concentration, the potential for growth in the market, and the BHC share of the statewide bank market. 1 6 Applications for acquisitions in markets where a major BHC is already represented will have a good chance for approval, as will applications in markets that are not highly concentrated or markets that have good growth potential. Acquisitions by large BHCs will have a better chance for approval if a clear need exists for more sophisticated banking services in either the local or the statewide market. The board will also consider the effect of acquisitions on statewide concentration ratios. Any increase in concentra­tion will probably have to be divided among several BHCs. Even given the board's more lenient stance, the few large BHCs will probably not be allowed to rapidly outdistance the "second tier" BHCs. The minority position in the Austin cases will be strengthened if statewide concentration increases and the state's largest BHCs appear able to satisfy the demand for sophisticated banking services without further growth. Because the board is not a court and is thus not bound by precedents, turnover in the board's membership could lead to a change in its position. Also, the board would certainly be influenced by any challenges of its decisions by the Justice Department. Nevertheless, BHC operations in the future will probably extend to all attractive banking markets in Texas. Notes I. Public Law 84-511, Sec. 3(c); Federal Reserve Bulletin, May 1956,p. 445. 2. Public Law 89-485, amendment to Sec. 3(c); Federal Reserve Bulletin,July 1966,pp. 967-68. 3. John R. Stodden, "Multibank Holding Companies-Development in Texas Changes in Recent Years," Business Review (Federal Reserve Bank of Dallas), December 1974, p. I. 4. lbid., p. 3. Of deposits controlled by the five largest multibank holding companies in 1974, lead banks accounted for 66.9 percent, former chain members other than lead banks 5 .4 percent, and previously unaffiliated banks 26. 7 percent. The remaining 1 percent can be attributed to newly chartered banks and to subsidiaries as of year-end 1970. 5. Federal Reserve Bulletin, January 1974, p. 43. 6. SMSAs other than Dallas, Fort Worth, Houston, and San Antonio. 7. These orders may be found in the following issues of the Federal Reserve Bulletin : April 1974, pp. 290-93; June 1974, pp. 378-81; and February 1975, pp. 109-12. 8. John R. Stodden, "Texas Banking-Their Small Size Costs Banks Business of Large Companies," Business Review (Federal Reserve Bank of Dallas), October 1973, pp. 6-7. 9. Federal Reserve Bulletin, May 1977, p. 500. 10. Federal Reserve Bulletin, July 1977, pp. 6 74-76, and October 1977, pp. 928-29. At the time this article was written, an application by First International Bancshares to acquire City Na­tional Bank of Wichita Falls was pending. 11 . The principles in the Tyler and Austin decisions have been applied to acquisitions in other states. For example, see the order approving an acquisition by DETROITBANK Co'rporation, Federal Reserve Bulletin, October 19 77, pp. 926-28. 12. "Market Extension Opportunities for Texas Bank Holding Companies: The Bank Acquisition Race Is on Again," An Institu­tional Research Report by Morgan Stanley & Co., Inc., August 2, 1977,p.17. 13. "Texas Banking . . . ," Business Review, p. 7. 14. "Why Foreign Banks Like Houston So Much," Business Week, December 5, 1977, pp. 39, 41; "New Edge Offices Participate in Expanding International Banking Market," Business Review (Fed­eral Reserve Bank of Dallas), March 1976, pp. 1-5. In 1919 Congress passed the Edge Act, which allows financial institutions (called Edge Act corporations) to engage in international or foreign banking. Thus out-of-state banks are able to enter Texas markets if their activities are confined to foreign banking. Representative offices of foreign banks, which are forbidden by Texas law from engaging in banking, give financial advice and assistance to customers. Although they do not directly make loans or accept deposits, they may aggressively market various banking services. 15. The number of subsidiaries is accurate as of September 30, 1977. 16. "Market Extension Opportunities ...," p. 17. This report also contains an analysis of the state's most attractive bank markets. 1976: An Improved Year for Bank Trust Departments The Federal Reserve System's Functional Cost Analysis (1976) of all participating banks showed that the average trust department in the United States continued to be unprofitable. In contrast to the national statistics, figures for trust departments of banks that comprise the Eleventh Federal Reserve District-the state of Texas and parts of Louisiana, Oklahoma, and New Mexico-revealed profit positions for more than half of all responding departments and two thirds of the largest departments (see table). Reversal of the unprofitable position of the previous two years has resulted primarily from increased trust income and a leveling off of expenses. Trust income rose 16.6 percent in 1976; revenue from personal accounts, which amounted to 85 percent of aggregate trust income, ac­counted for the bulk of the increase. Revenue from corporate accounts, which are relatively much more impor­tant in the larger trust departments, constituted the balanc~. In 1973 and 1974 expenses rose significantly faster than income, leading to net losses in 1974 and 1975. Since 1974, trust departments have increased the number of accounts handled by each employee in order to decrease salary expenses per dollar of income. However, other expenses, especially legal fees, professional fees associated S. Michael Edgar is Associate Professor of Finance, University of Texas at Arlington. in the Eleventh Federal Reserve District S. Michael Edgar with information and investment services for personal trust accounts, and data processing costs for corporate trust accounts, have increased to offset the decline in salary expenses. The total growth of the value of trust department investment portfolios in the Eleventh District has been impressive over the last five years. Total asset value of personal accounts doubled, while the number of accounts rose 15 percent; corporate account assets tripled. The years I 97 5 and I 97 6 appeared to be extraordinary for corporate accounts: book value per account rose 164 percent in 1975 and almost doubled again in 1976. Among the factors creating an environment for this change were the rapid growth of wealth in the area, the impact of corporate migration to the area, and the expanded effort to be competitive in pricing and providing services. Percentage of Trust Departments Showing Net Operating Profit,* 1971 through 1976 Trust income 1971 1972 1973 1974 1975 1976 $ I 0 ,000-250,000 33.3 42.9 30.6 27 .8 27.0 30.8 $250 ,000+ 66.7 73.3 76.7 4 8.5 4 8.6 68.0 All departments 47.6 56.9 5 1.5 37.7 37.5 52.5 *Net profit or loss before adjustment for credits on uninvested funds deposited in the same bank. Local Business Conditions Statistical data compiled by Mildred Anderson, Marylyn Donaldson, Jean Hall, and Mercedes Torres. Standard metropolitan statistical areas (SMSAs) include one or Census. They represent only building authorizations within city more entire counties, as shown. All SMSAs are designated as such by limits and exclude federal contracts and public works projects, such the U.S. Bureau of the Census. Population figures are from the 1970 as highways, waterways, and reservoirs. Building statistics for the census and 1976 estimates by the Bureau of the Census. latest month are subject to revision. Building permit data are collected from municipalities by the Employment estimates include only wage and salary workers and Bureau of Business Research in cooperation with the Bureau of the are compiled by the Texas Employment Commission in cooperation with the U.S. Bureau of Labor Statistics. Indicators of Local Business Conditions for Texas Standard Metropolitan Statistical Areas Percent change Percent change from from Jan Dec Jan Jan Dec Jan Reported area and indicator 1978 1977 1977 Reported area and indicator 1978 1977 1977 ABILENE SMSA CORPUS CHRISTI SMSA Callahan, Jones, and Taylor Counties; population: 122,164 (1970); Nueces and San Patricio Counties; population: 284,832 (1970); 131,500 (1976 est.) 298,400 (1976 est.) Urban building permits ($ 1,000) 3,466 -39 -7 Urban building permits ($1,000) 10,415 9 55 Nonfarm employment 45 ,860 -2 ** Nonfarm employment 104,450 ** 4 Manufacturing employment 5 ,140 -5 -21 Manufacturing employment 13,000 -I I Unemployed (percent) 6.1 36 22 Unemployed (percent) 6 .5 14 -24 AMARILLO SMSA DALLAS-FORT WORTH SMSA Potter and Randall Counties; population: 144,396 (1970); Collin, Dallas, Denton, Ellis, Hood, Johnson, Kaufman, 154,300 (1976 est.) Parker, Rockwall, Tarrant, and Wise Counties; Urban building permits ($ 1,000) 9,754 -24 20 population: 2,378,353 (1970); 2,585,300 (1976 est.) Nonfarm employment 69,040 -2 3 Urban building permits ($1 ,000) 118,755 -30 22 Manufacturing employment 8,650 -I 2 Nonfarm employment 1,193,700 -2 5 Un em ployed (percent) 4.3 23 9 Manufacturing employment 2 71,800 * * 5 Unemployed (percent) 4.7 18 -19 AUSTIN SMSA Hays, Travis, and Williamson Counties; population: 360,463 (1970); EL PASO SMSA 461,300 (1976 est.) El Paso County; population: 359,291 (1970); 425,200 (1976 est.) Urban building permits ($1,000) 37 ,625 141 70 Urban building permits ($1,000) 14,063 30 8 Nonfarm employment 203,300 -I 7 Nonfarm employment 140,750 ** 3 Manufacturing employment 23,850 ** 14 Manufacturing employment 28,450 l I Unemployed (percent) 3.9 3 -30 Unemployed (percent) 10.3 5 -30 BEAUMONT-PORT ARTHUR-ORANGE SMSA GALVESTON-TEXAS CITY SMSA Hardin, Jefferson, and Orange Counties; population: Galveston County; population: 169,812 (1970); 347,568 (1970); 355,500 (1976 est.) 186,300 (1976 est.) Urban building permits ($1 ,000) 5,479 -50 -11 Urban building permits ($ 1,000) 2,222 -60 -29 Nonfarm employment 142,500 •• 4 Nonfarm employment 69 ,550 -I 8 Manufacturing employment 41,200 •• 8 Manufacturing employment 11,840 I 4 Unemployed (percent) 7.6 23 -11 Unemployed (percent) 7.3 16 -30 BROWNSVILLE-HARLINGEN-SAN BENITO SMSA HOUSTON SMSA Cameron County; population: 140,368(1970);179,500 (1976 est.) Brazoria, Fort Bend, Harris, Liberty, Montgomery, and Waller Urban building permits ($ 1,000) 5,727 -37 -17 Counties; population: 1,999,316 (1970); 2,392,100 (1976 est.) Nonfarm employment 5 1,390 -I 7 Urban building permits ($ 1,000) 176,5 58 -25 149 Manufacturing employment 9,520 I 10 Non farm employment I ,I 19 ,900 * * 7 Unemployed (percen t) 11.2 13 -23 Manufacturing employment 196,400 ** 4 Unemployed (percent) 4 .6 28 -18 BRYAN-COLLEGE STATION SMSA Brazos County; population: 57,978 (1970); 73,000 (1976 est.) KILLEEN-TEMPLE SMSA Urban building permits ($1,000) 7,603 105 380 Bell and Coryell Counties; population: 159,794 (1970); Nonfarm employment 31,040 -I 12 204,600 (1976 est.)Manufacturing employment 2 ,6 10 -2 11 Urban building permits ($1,000) 6,367 6 33Unemployed (percent) 3.4 21 -21 Nonfarm employment 49 ,250 I Manufacturing employment 6,860 •• II Unemployed (percent) 5.6 4 -22 Percent change Percent change from from Jan Dec Jan Jan Dec Jan Reported area and indicator 1978 1977 1977 Repo rted area and indicator 1978 1977 1977 LAREDO SMSA TEXAR.KA A SMSA (continued) Webb County; population: 72,859 (1970); 82,700 (1976 est.) Unemployed (percent) 7.4 12 -21 Urban building permits ($1,000) 2,320 -21 243 (Since the Texarkana SMSA includes Bowie ounty in Texas and Nonfarm employment 25,500 ** 4 Little River and Miller Counties in Arkansas, all data, including Manufacturing employment 2,060 ** 4 population, refer to the three-county region.) Unemployed (percent) 16.0 l 1 I TYLER SMSA LONGVIEW SMSA Smith County; population: 97,096(1970);1.08,900 (1976 est.) Gregg and Harrison Counties; population: 120,770 (1970); Urban building permits($ 1,000) 4,386 -5 19 127,900 (1976 est.) Nonfarm employment 45,580 •• 3 Manufacturing employment 12,250 ** 2Urban building permits ($1,000) 3,424 -48 6 Unemployed (percent) 4.8 17 -17 Nonfarm employment 54,070 -1 3 Manufacturing employment 17,430, ** 6 WACO SMSAUnemployed (percent) 6.7 29 12 McLennan County; population: 147,553 (1970); LUBBOCK SMSA 155,400 (1976 est.) Lubbock County; population: 179,295 (1970); 199,600 (1976 est.) Urban building permits ($1,000-) 10,290 92 215 Nonfarm employment 64,370 -1 5 Urban building permits ($ l ,000) 8,309 2 3 2 3 Manufacturing employment 15 ,640 -I 8Nonfarm employment 82,590 -3 5 Unemployed (percent) 5.2 18 15 Manufacturingemployment 12, 170 -5 11 Unemployed (percent) 4.4 33 8 WICHITA FALLS SMSA Clay and Wichita Counties; population: 128,642 (1970); Hidalgo County; population: 181,535 (1970); 230,300 (1976 est.) McALLEN-PHARR-EDlNBURG SMSA 129,200 (1976 est.) Urban building permits ($1,000) 6,065 174 257 Urban building permits($ l ,000) 6,507 -17 89 Nonfarm employment 48,490 -I 6 Nonfarm employment 61 ,000 ** 4 Manufacturing employment 8,560 •• 16 Manufacturing employment 8,000 1 4 Unemployed (percent) 14.8 3 2 1 Unemployed (percent) 3.7 16 -26 MIDLAND SMSA *•Absolute change is less than one half of percent. Midland County; population: 65,433 (1970); 71,400 (1976 est.) Urban building permits ($1,000) 4 ,57 1 -5 83 Nonfarm employment 33,460 • * 8 Manufacturing employment 2,730 -5 49 Unemployed (percent) 5.3 39 18 ODESSA SMSA Ector County; population: 92,660 (1970); 100,900 (1976 est.) Urban building permits ($1 ,000) 3,3 19 -48 28 Nonfarm employment 46,050 -I 6 Manufacturing employment 6,060 •• 5 Selected Barometers of Texas Business Unemployed (percent) 3.9 3 -11 (Indexes-Adjusted for seasonal variation-1967=100) SAN ANGELO SMSA Tom Green County; population: 71,04 7 (1970); 77,200 (1976 est.) Percent change Urban building permits ($1,000) 2,704 -28 41 Jan Jan Nonfarm employment 30,700 -1 8 1978 1978 Manufacturing employment 5,600 ** 6 from from Unemployed (percent) 3.8 3 -12 Jan Dec Jan Dec Jan Index 1978 1977 1977 1977 1977 SAN ANTONIO SMSA Bexar, Comal, and Guadalupe Counties; population: Crude oil production 104.2p 10 I .2P 104.0r 3 •• Total electric 888,179 (1970); 987 ,200 (1976 est.) power use 209.8p 208. 1 p I98.9r 5Urban building permits ($1,000) 18,765 -11 33 Residential 242.3p 24 I.8p 258.7r •• 6 Non farm employment 346,600 •• 4 Industrial I 77.9p I73.3p 164. Ir 3 8 7 Manufacturing employment 43,100 •• Total nonfarm Unemployed (percent) 7.0 17 9 employment I54.2p I53.2p 147.2r 5 ManufacturingSHERMAN-DENISON SMSA employment 140.5P I39.2p 133.1 r 6 Grayson County; population: 83,225 (1970); 81,900 (1976 est.) Average weekly earn-Urban building permits($ l ,000) 1, 166 16 74 in gs-manufacturing 209.9p 2 I0.8p I86.9r •• 12 Nonfarm employment 31,590 -l 9 Average weekly hours-Manufacturing employment 11 ,740 I 14 manufacturing 97.6p 99.8p 95.7r 2 2 Unemployed (percent) 7.6 29 -16 Total unemployment I 84.0 163.3 18 1.7 13 Insured unemployment 230.8 242.9 259.3 5 11 TEXARKANA SMSA Initial claims on unem-Bowie County, Texas; Little River and Miller Counties, Arkansas; ploymen t insurance 177 .S 149.3 186.4 19 -5 population: 113,488 (1970); 117,800 (1976 est.) PPreliminary . Urban building permits ($1,000) 1,853 -67 -3 1 r Revised. Nonfarm employment 41,5I0 -l 5 •*Change is less than one half of I percent. Manufacturing employment 8,250 •• 8 Gross Retail Sales by Kind of Business for Texas Standard Metropolitan Statistical Areas Percentage change Percentage changeJul-Sep Jul-Sep Reported area and Jul-Sep 191977 77 f.rom Reported area and 1977 Jul-Sep 1977 fro m kind of business ($000) Apr-Jun 1977 Jul-Sep 1976 kind of business ($000) Apr-Jun 1977 Jul-Sep 1976 ABILENE SMSA BRYAN-COLLEGE STATION SMSA Apparel, accessories 4,120 -29 -16 Apparel, accessories 2,S24 10 18 Automotive dealers, Automotive dealers, service stations 48,347 16 36 service stations 18,683 2 21 Building materials, Building materials, farm equipment 11,100 9 18 farm equipment 10 ,960 s 38 Drugstores 2,SS7 3 lS Drugstores 1,200 3 14 Eating and drinking 9,S99 8 14 Eating and drinking 6,S7S 8 2S Food 26,148 4 11 Food 1S,807 1 1 1 S Furniture, home Furniture, home furnishings 6,96S 9 11 furnishings 3,801 so S4 General merchandise 16 ,149 12 13 General merchandise 10,0S7 8 20 Liquor I ,S23 1 14 Liquor 990 10 17 Miscellaneous retail 29,240 3 3S Miscellaneous retail 6,024 49 7 AMARILLO SMSA Apparel, accessories 10 ,267 11 7 CORPUS CHRISTI SMSA Apparel, accessories 9,918 •• 34 Automotive dealers, service stations 71 ,620 •• -12 Automotive dealers, service stations 78,118 4 I S Building materials, farm equipment Drugstores Eating and drinking Food Furniture, home furnishings General merchandise Liquo r Miscellaneous retail 18,S IS 7,S89 17,988 36,303 10 ,767 23,36 1 4,S96 30 ,8 S 3 6 1 6 4 6 2 8 -lS 41 8 16 19 3 6 17 27 Building materials, fa rm equipment Drugstores Eating and drinking Food Furniture, ho me furnishings General merchandise Liquor Miscellaneous retail 24,lOS 6,S9S 22,96S 72,287 14,311 31,873 3,147 S4,333 6 2 1 13 17 7 2 s 47 3 11 78 29 7 10 30 AUSTIN SMSA DALLAS-FORT WORTH SMSA Apparel, accessories Automotive dealers, service stations 18,349 98,269 7 •• 20 6 Apparel, accessories Automotive dealers, service stations 164 ,39S 939,9S8 12 17 28 Building materials, farm equipment Drugstores Eating and drinking Food 47,S96 9,S 10 44,522 88,700 3 2 6 13 43 8 20 48 Building materials, farm equipment Drugstores Eating and drinking Food 224,973 l 13,S39 2S l ,768 s30 ,431 3 19 7 s 2S 38 12 21 Furniture, home Furniture, home furnishings General merchandise 24,680 SS ,S60 12 2 19 s furnishings General merchandise 1S7,092 340,600 13 2 18 14 Liquor 6,S92 2 13 Liquor 49,211 4 9 Miscellaneous retail s7,790 10 31 Miscellaneous retail S99 ,880 6 1 S BEAUMONT-PORT ARTHUR-ORANGE SMSA EL PASO SMSA Apparel, accesso ries 1 I ,6SO 37 32 Apparel, accessories 18 ,020 9 Automotive dealers, Automotive dealers, service stations 97,107 3 27 service stations 138,128 4 Building materials , Building materials, farm eq uipment Drugstores 2S ,602 13 ,190 3•• 2S 7 farm equipment Drugstores 13,924 12,798 s 2 24 2S Eating and drinking 26,149 2 23 Eating and drinking 26,0SO 4 12 Food 86,SS4 9 10 Food S8,12S -10 -12 Furniture, home Furniture, home furnishings 16,079 1 12 furnishings 20,204 3 11 General merchandise 42 ,2S 7 -13 - 3 General merchandise S8,202 -12 - l Liquor s,061 4 18 Liquor 6,618 18 26 Miscellaneous retail 40,823 - s 9 Miscellaneous retail S2,860 14 14 BROWNSVILLE-HARLINGEN-SAN BENITO SMSA GALVESTON­TEXAS CITY SMSA Apparel, accessories 7,832 2 -12 Apparel, accessories 6,120 2 26 Automotive dealers, Automotive dealers, service stations 28,018 16 28 service stations 168,7S6 Building materials, farm eq uipment Drugstores Ea ting and drinking Food l 2,28S 3,39S 10,S8 l 34,166 11 10 3 11 - 23 7 12 43 Building materials, farm equipment Drugstores Eating and drinking Food 11,223 S,692 l 7,S77 44,S 10 3 10 -19 10 28 12 21 12 Furniture, ho me furnishings General merchandise 7 ,soo 31,S 39 4 11 1 2 Furniture, home furnishings General merchandise s,116 16,672 •• 13 2 Liquo r Miscellaneous retail 927 17,000 s 3 s 7 Liquor Miscellaneous retail 3,0S4 18,222 s s - 26 3 Percentage change Percentage change Jul-Sep Jul-Sep Jul-Sep I 977 from Jul-Sep 1977 from Reported area and 1977 Reported area and 1977 kind of business ($000) Apr-Jun 1977 Jul-Sep 1976 kind of business ($000} Apr-Jun 1977 Jul-Sep 1976 HOUSTON SMSA McALLEN-PHARR-EDINB RG SMSA Apparel, accessories I 10,355 3 28 Apparel, accessories 9,793 4 5 Automotive dealers, Automotive dealers, service stations 927,101 -21 service stations 40,337 7 12 Building materials, Building materials, farm equipment 279,903 ** 45 far m equipment I 5 ,554 9 6 Drugstores 83,412 5 2 I Drugstores 3,521 -40 2 Eating and drinking 231 ,839 I 19 Eating and drinking 10,307 6 II Food 586,602 8 18 Food 45,071 5 38 Furniture, home Furniture, home furnishings 148,038 9 26 furnishings 9,223 9 19 General merchandise 381,926 I 12 General merchandise 28,069 5 3 Liquor 40,497 5 16 Liquor 840 •• 2 Miscellaneous retail 627 ,425 I 24 Miscellaneous retail 24 ,705 8 25 - KILLEEN-TEMPLE SMSA MIDLAND SMSA Apparel, accessories 5 ,976 17 Apparel, accessories 3,588 9 9 Automotive dealers, Automotive dealers, service stations 32 ,883 8 8 service stations 24,680 6 19 Building materials, Building materials, farm equipment 11 ,268 18 farm equipment 7,099 20 49 Drugstores 2,175 •• I 3 Drugstores 5 ,037 •• 3 Eating and drinking 12,072 2 26 Eating and drinking 5 ,691 5 21 Food 31,898 17 74 Food 14,969 4 31 Furniture, home Furniture, home furnishings 5 ,451 I 17 furnishings 4,824 16 12 General merchandise I 7,851 4 5 General merchandise I 0 ,496 6 I 5 Liquor 961 •• -24 Liquor I ,090 6 20 Miscellaneous retail 11,558 9 9 Miscellaneous retail 45,361 7 36 LAREDO SMSA ODESSA SMSA Apparel, accessories 17,423 97 45 Apparel, accessories 4,665 8 22 Automotive dealers, Automotive dealers, service stations 14,680 8 22 service stations 49,528 26 Building materials, Building materials, farm equipment 3,990 8 11 farm equipment 10,965 II 37 Drugstores 1,818 •• -5 Drugstores 1,481 I 4 Eating and drinking 4 ,772 11 13 Eating and drinking 9,528 2 26 Food 20,66 1 14 55 Food 22,505 2 18 Furniture, home Furniture, home furnishings 6,839 7 IO furnishings 5 ,788 18 6 General merchandise 23 ,222 17 7 General merchandise 21,434 2 14 Liquor 224 -12 71 Liquor 3,363 3 6 Miscellaneous retail 16 ,27 1 5 7 Miscellaneous retail 64,828 5 16 LONGVIEW SMSA SAN ANGELO SMSA Apparel, accessories 5,811 2 12 Apparel, accessories 3,621 33 35 Automotive dealers, Automotive dealers, service stations 50,431 24 service stations 22 ,968 3 19 Building materials, Building materials, farm equipment 15,373 7 32 farm equipment 9,733 13 37 Drugstores 4,448 •• 10 Drugstores 1,4 16 •• 18 Eating and drinking 11,0·15 4 10 Eating and drin king 5 ,740 3 23 Food 37 ,677 5 19 Food I 7 ,259 4 36 Furniture, home Furniture, home furnishings 8,559 3 40 furnishings 3,97 1 8 23 General merchandise 17 ,267 3 21 General merchandise 10,180 4 -2 Liquor 4,989 8 -17 Liquor 779 5 Miscellaneous retail 25,623 16 30 Miscellaneous retail 7,146 38 LUBBOCK SMSA SAN ANTONIO SMSA Apparel, accessories 11 ,240 16 12 Apparel, accessories 35,814 4 6 Automotive dealers, Automotive dealers, service stations 68,422 23 service stations 272,024 5 25 Building materials, Building materials, farm equipment 28,821 I 50 farm equipment 59 ,070 4 31 Drugstores 2,998 I 2 Drugstores 17 ,865 3 15 Eating and drinking 19 ,95 1 7 14 Eating and drinking 77,191 2 20 Food 49 ,069 3 24 Food 184,396 12 50 Furniture, home Furniture, home furnishings 18,095 19 27 furnishings 39 ,335 5 7 General merchandise 29,994 8 15 General merchandise 104,233 -17 4 Liquor 5 ,315 10 8 Liquor 12,769 2 11 Miscellaneous retail 38,291 17 22 Miscellaneous retail 104,374 2 10 Reported area and kind of business Jul-Sep 1977 ($000) Percentage change Jul-Sep I9 77 from Apr-Jun 1977 Jul-Sep 1976 Reported area and kind of business Jul-Sep 1977 ($000) Perce ntage change Jul-Sep 1977 fro m Apr-Jun 1977 Jul-Sep 1976 SHERMAN-DENISON SMSA TYLER SMSA (continued) Apparel, accessories Automotive dealers, service stations 2,87S 22,388 7 4 13 Food Furniture, home furnishings 23,219 6,921 9 IS 20 Building materials, farm equipment Drugstores 6,201 2,846 7 s - 11 '3 General merchandise Liquor Miscellaneous retail IS ,426 § 13 ,8S4 4 10 16 7 Eating and drinking Food s,267 17 ,649 9 17 24 19 WACO SMSA Furniture, home Apparel, accessories s,2S9 16 28 furnishings 3,8S4 2S s Automotive dealers, General merchandise I l ,70S ** 22 service stations 44,192 -4 -8 Liquor 1,037 1 - 7 Building materials, Miscellaneous retail 10,968 -lS 41 farm equipment 17 ,299 -32 -19 TEXARKANA SMSA Apparel, accessories Automotive dealers, service stations Building m aterials, far m eq uipment Drugstores Eating and drinking 2,2S 1 22 ,820 7 ,610 l ,S21 4,676 9 13 -23 7 6 23 11 8 11 23 Drugstores Eating and drinking Food Furniture, home furnishings General merchandise Liquor Miscellaneous retail 4,069 IS ,200 38,011 7 ,173 18,l 7S l ,79S 22,821 1 23 8 12 •• 10 16 10 22 61 28 I 12 2S Food · 14 ,7S9 3 10 WICHITA FALLS SMSA Furniture, home furnishings Ge neral merchandise Liquor Miscellaneous retail 2,87S 10,830 § 4,473 -41 20 -30 -19 30 -17 Apparel, accessories Automotive dealers, service stations Building materials, farm eq uipment S,772 44,2 88 10,260 8 6 3 26 16 10 TYLER SMSA Apparel, accessories Automotive dealers, service stations Building materials, farm equipment Drugstores Ea ting and drinking 7 ,3S2 33 ,246 19 ,117 3 ,0 38 8,SS I 10 4 2 ** 7 30 21 36 12 24 Drugstores Eating and drinking Food Furniture, home furnishings General merchandise Liquor Miscellaneous retail s,739 10 ,1 40 24,129 6,883 lS ,63S 2 ,482 21,849 s 4 2 17 1 1 6 22 18 18 22 4 14 27 §Omitted to avoid disclosure. **Absolute change is less than one half of 1 percent. ...No data, or inadequate basis for comparison. Source: Sales Tax Division, State Comptroller of Public Accounts. BUREAU OF BUSINESS RESEARCH SECOND-CLASS POSTAGE PAID AT AUSTIN, TEXAS THE UNIVERSITY OF TEXAS AT AUSTIN AUSTIN, TEXAS 78712 from the Bureau of Business Research The Unioersity of Texas at Austin Human Resource Dimensions of Rural Deoelopment Edited by Ray Marshall. This collection of essays on contemporary problems is brought together by Secretary of Labor Ray Marshall. The essays are revised versions of papers delivered at a conference focusing on U.S. agricultural policy and rural labor markets. 258 pp. January 1978. ISBN 87755-211-8. $5.00. Economic Deoelopment and Black Employment in the Nonmetropolitan South James L. Walker. Foreword by Ray Marshall. Walker explores black participation in nonagricultural economic growth in 244 nonmetropolitan counties in the South. 174 pp. January 1978. ISBN 87755-223-1. $5.00. The Deoelopment of State-Chartered Banking in Texas Joseph M. Grant and Lawrence L. Crum. The experiences connected with state-chartered banking in Texas, especially the difficulties of the two decades prior to World War II, and the changes they gave rise to are brought to light. 281 pp. January 1978. ISBN 87755-219-3. $8.95 ; $5.95 paper.