Texas’ Jefferson Bank stays strong through controlled growth, customer service

San Antonio-based Jefferson Bank has emerged unscathed from the recent failures of several banks and the subsequent concerns over the future of the regional banking industry..To Board Chair Paul McSween III, that's no coincidence. He sees the $2.8 billion, family-owned bank's controlled approach to growth and reliance on personalized customer service as major differentiators from both the trio of failed banks — Silicon Valley Bank, Signature Bank and First Republic Bank — and Jefferson Bank's regional competitors. .Jefferson Bank strives to grow at an annual rate of 8 to 15 percent. San Francisco-based SVB's overreliance on long-term Treasuries was cited as a main reason for its collapse. As the Federal Reserve raised interest rates, the $209 billion bank sustained heavy financial losses as it sold assets at a steep discount to their initial purchase prices. .McSween said his bank is focused on serving small businesses and middle market businesses through relationship-based banking. The bank evaluates its securities portfolio as a true source of liquidity. . "We like making loans that have adjustment features in them, we don't like extending the duration of our balance sheet over three years … when rates are dropping, that is not always great," McSween said. "It can take away from earnings. But when rates go up, it helps us.".That approach has paid off, both in the wake of the bank failures and as the bank's cost of funds has risen significantly due to the Federal Reserve's rapid interest rate hikes over the last 18 months. .Immediately following the March 10 and March 13 failures of SVB and Signature Bank, respectively, staff from Jefferson Bank reached out to customers to reassure them that their deposits were safe. "We got on the phone and called our largest customers," McSween said. "We operate this bank with strong relationships and our customers appreciated a call and the opportunity to talk about what was going on. As a result, we didn't see deposits leave out of fear.".Jefferson Bank's TEXAS ratio — its ratio of non-performing assets divided by the amount of tangible common equity and loan loss reserves — is under 1 percent. The bank hasn't seen an accumulation of OREO, and can access more than $1 billion in liquidity to fund depositor needs if disaster strikes. .Jefferson opened a branch in Austin at the start of this year, and expects to book roughly $100 million in loans and have roughly $50 million in deposits in the area this year. The current interest rate environment will dampen overall bank growth, but there are bright spots, McSween said. "We are growing in Austin, we are growing our footprint, but the size of the bank is probably not going to grow in 2023," he added. "We've seen, as many banks have seen, a migration of funds, a migration of deposits out of banks and into the U.S. Treasury market or into other competing investments.".As interest rates remain high, Jefferson Bank is focused on securing non-interest income through its subsidiaries. A commercial financial institution, roughly one-third of Jefferson Bank's commercial loan portfolio is in adjustable-rate residential mortgages. The bank's trust division and wealth management subsidiary have a combined $2.8 billion of assets under management. .McSween said the roots of the bank's approach were established in 1946 when Jefferson Bank was founded by a group of investors, including his grandfather, a tax and estate planning lawyer named A.J. Lewis. A former bank examiner, Lewis initially didn't have the financial means to invest large sums of money in the bank. A fiscally conservative businessman, Lewis eventually secured the needed funding, and became majority owner roughly a decade later. .McSween spent summers at his grandfather's ranch working physically demanding jobs with Lewis' two other grandsons. In the evenings, Lewis, worried that his grandchildren would neither understand the value of hard work nor the dollar, discussed his core values with them.."He loved hard work," McSween said. "He was a businessman. He was very involved in the community. He was a very fair man, but he was also a very frugal man. He admired people with a hard work ethic, and he operated this bank as such." .Lewis served as bank chair from 1946-78. His son Jack Lewis, Jr., served as chair for the next 20 years before McSween's cousin, Steve Lewis, was named chair in 1998. McSween became the bank's fourth chair in its 77-year history this year upon Steve Lewis' retirement.. Today, the McSween and Lewis families own more than 90 percent of the bank. Paul McSween has 34 years of banking experience, including 14 as president. He noted that the bank, which is mostly owned by the Lewis and McSween families, is not expected to be sold during his lifetime. .McSween sees the bank's most important work as maintaining the family-like culture it developed during his grandfather's tenure. He aims for Jefferson Bank to have the latest technology while offering quality customer service. ."So many businesses are looking for a bank with personal intention and a banker who they can develop a relationship with, and that's what we feel like we really have an advantage over most of the regional banks that we compete against in our market," McSween added.