Oct. 2--Texas bankers are closely watching the congressional wrangling over a Wall Street rescue plan out of curiosity more than concern.

Very few Texas-based banks would benefit from an intervention that would allow the U.S. Treasury Department to unclog the national financial system by purchasing toxic securities tied to big bundles of subprime mortgage loans, said Bob Bacon, Texas' interim banking commissioner.

"The state-chartered banks did not participate in the subprime lending to any major degree," he said. "They are not experiencing the foreclosures and the past dues as other banks are."

That doesn't mean Texas banks are immune from the usual financial fiascoes, such as undercapitalization or poor management, that can make banks unstable and insolvent.

The state's watch list of troubled banks grew from 14 institutions in June 2007, or 4 percent of the state's 328 state-chartered banks, to 21, or 6 percent, in June of this year. Bacon expects that number to rise slightly when the list gets its quarterly update soon to account for the summer.

"But that's nothing like it was in the '80s or '90s when we had approximately half of the state-chartered banks on the watch list at the worst time," he said.

And he attributes part of the difference between now and then to Texas banks' limited exposure to the discredited mortgage-backed securities.

Community banks that rose out of the rubble of the 1980s statewide banking crash grew by buying up failed banks and thrifts, consolidating with strong competitors and focusing on commercial banking.

In the new century, many Texas banks clung to the old-fashioned lending rules they had to use to satisfy federal and state regulators instead of embracing new freedoms available to retail banks, investment and insurance companies.

Several Texas banks even left the residential lending market to the national bank conglomerates and mortgage brokers.

"If there's any place in the country where you would want to be a residential lender, then it would be Texas because of its population growth and lower taxes," said Brian Klock, a banking analyst in San Francisco for Keefe, Bruyette & Woods.

But competing for the business would have required stepping away from traditional lending terms and conditions and accepting low interest rates despite the increased risk.

"It was a very good business for us, but we've probably not been able to make home loans over the last five or six years," said David Zalman, chairman and CEO of Houston-based Prosperity Bancshares.

And if they weren't going to make the loans, many banks decided not to buy another bank's loan, no matter how it was packaged and marketed.

"For some reason the world thought that one subprime loan was risky but you could buy a bundle of subprime loans and that was not so risky," said Paul Murphy, chief executive officer of Amegy Bancorporation, the Houston-based subsidiary of Zions Bancorpation of Utah.

"People forgot to question the borrower's ability to repay. And that's what banks' job is to do, determine if the borrower can repay the loan," he said.

Where Texas banks are seeing problems with repayment is in the residential construction and development loan portfolio, which they tend to keep on their books.

"A few pockets of pain exist in Texas as a result of higher than normal foreclosures and past due loans, mainly in residential construction and development, but these are isolated cases that are not representative of the state as a whole," said Bacon, who identified the Dallas-Fort Worth area as having the most troubles.

Murphy said in the past six months Amegy has foreclosed residential construction loans for 20 homes in Dallas and five in Houston. On the Dallas property, the bank has already sold six homes for a net gain of about $600, he said.

The changing local and national banking landscapes may prompt Texas banks to branch out into new lines of business or revive old ones, Klock said. The current chaos created by massive mergers could lead some Texas banks to add commercial lenders to their staffs. And if Congress does bring more liquidity to the credit markets with a rescue plan, more Texas banks might make more home loans.

But it's unlikely those changes will happen any time soon.

"Overnight, you are not going to see these guys change their strategy," Klock said, "because it's more profitable to do commercial lending than it is to do residential lending."

shannon.buggs@chron.com

-----

To see more of the Houston Chronicle, or to subscribe to the newspaper, go to http://www.HoustonChronicle.com.

Copyright (c) 2008, Houston Chronicle

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:PRSP,