Thirty years ago the sky fell on one small Central Texas town

LEROY, Texas (KWTX) It was a Friday, the end of the week, on Aug. 7, 1987 as storm clouds gathered over the uninsured Leroy Bank which on this day announced it was closing.

“I had friends that lost everything they had,” Albert Miller, 94, said.

The bank was private and not insured by the Federal Deposit Insurance Corporation, which would have guaranteed the depositors would have gotten their money back.

“I lost money there,” he said, “It was devastating.”

It wasn’t like a bank went insolvent in Dallas, or Houston, or even Waco where such a thing could be absorbed by a growing economy because besides corn and cotton, very little was growing in Leroy and now those black land farmers lost everything.

There were 52 banks in Texas that failed that year, but only Leroy and Chilton were private banks — no federal deposit insurance – so depositors, along with the bank, went bust.

“The Leroy Bank (Unincorporated) of Leroy, located in Leroy, Texas, is hereby closed as of August 7, 1987, by order of the Banking Commissioner of Texas,” was the sign posted on the door at about 4:45 p.m. that Friday.

“(My father) had just been in there that afternoon and deposited money from five truck runs,” Joseph Williams said.

“I lost everything,” Lacy Williams, 86, owner of a trucking company back then, said Friday during an interview with him, his son and his brother at his Leroy home.

His brother David was driving a truck for him and David Williams said when he took his paycheck into the bank late that afternoon “they wouldn’t take it, but they were taking some deposits right up to the time the doors were closed.”

Despair, poverty, financial ruin, disaster, shattered dreams and unbounded suspicion were all that remained.

The day the bank was shuttered news spread quickly to those who had money there.

“I had neighbors who lost every penny they had,” Joe Summers, 84, outside manager for the Leroy-Tours-Gerald Water Supply Corporation, said.

“Families were ruined.”

That evening, dark-suited state bank examiners and investigators walked out the door, got into their state vehicles and sped away, leaving only dust to settle on the street.

Many of the bank’s customers were standing on the sidewalk in front of the building trying to find out what happened.

Anger arose … one man was kicking the doors of the building trying to get in, others were shouting and cursing and before long some of the members of the crowd turned on each other.

Texas Rangers were on hand to keep the peace, and that’s what they did.

Soon the angry mob spilled into the street and across the street to a grocery store to continue their rants.

The crowd hung around late into the night, most of them just standing there staring at the building, their money gone and no hope of getting it back.

Most of them were agri-businessmen, farmers or ranchers, who’d supported the bank since it was founded but now their futures were in jeopardy.

Leroy first was established in the late 1880s and soon had grown to 250 residents.

Smith Land Company plotted the town for the International Great Northern Railroad – Leroy Smith was president of both companies – and from him is where the town got its name.

The town got its post office in 1900.

By 1914 the town had two general stores, two grocery stores, a cotton gin, a lumber yard, a private bank

The little community flourished until 1948 when its school district was forced to disband and merge with West ISD.

Some today think that’s where the downturn began.

“A town that loses its school can’t really survive,” Lacy Williams said.

Then in the 1960s the Missouri-Pacific Railroad abandoned its track between Waco and Maypearl, another big blow, but the bank closure in 1987 pretty much was a death sentence for the tiny town.

Transplanted Kentuckian and Civil War veteran W.H. Janes, who served as a McLennan County Commissioner in 1898 and later mayor of Leroy, moved his family there in 1902 and later backed his son D.T. Janes when he opened a lumber yard.

Then in 1907, in the wake of a national financial crisis, Janes and three other businessmen ventured into banking and opened the Leroy Bank that first operated out of an office in the lumber yard.

Later the bank moved to a white stone building down the street.

The old lumber yard building now serves as Leroy City Hall and a businessman has purchased the old bank building, which he plans to turn into a fried chicken restaurant he’s calling the “Chicken Bank.”

Janes and his business partners founded the bank but they didn’t own it at the time it failed.

When the bank went belly-up, it was in the hands of third owner.

Ronald Bailey, purchased the bank from Bill Janes, W.H. Janes grandson and the third in the Janes line to head up the bank, on May 20, 1987, and soon later he sold the bank to former California electrician Bill Tankersley for $1.

“I liked (Bill) Janes, thought he was a good man, and so did a lot of others,” Lacy Williams, himself a former mayor of Leroy, said.

At the time there were private banks springing up all over the country, but in Texas the banking rules were different.

Farmers and ranchers had a special mistrust for large banking companies and demanded that small private, community banks continue to exist.

Small town bankers understood the ins and outs, the seasonal gamble, that farmers and ranchers faced and they understood how to finance their operations in spite of the risks.

The rule was “Make crops, make money; fail crops, go bust.”

Owners of private banks didn’t have big corporate rules to follow, especially when it came to lending money.

Private bankers knew their customers, lived with them, went to church and school with them, and were willing to take chances on them because they made loan decisions based on their character and not on their collateral, so their customers were faithful and loyal to the institutions.

Private bankers would offer wide latitude to their customers making allowances for such things as late payments.

The mostly German and Czech farmers, a lot of whom were second or third generation agri-businessmen who grew up in families of immigrants, were responsible and normally didn’t welch on their responsibilities, so a payment might be late, but it got made sooner or later.

In those days when a checking account might fall into overdraft, D.T. Janes, the second Janes to run the institution, might call and say “The pigs are out of the pen,” meaning the customers needed to catch up, which they did.

The Leroy bank survived the Great Depression while other private banks floated, so in 1923 Texas outlawed private bank start-ups, but those that already were in business were “grandfathered” in and stayed in business.

D.T. Janes, who by then had become a wealthy McLennan County landowner, including the property where Waco’s Lake Air Mall now sits, retired from the bank in 1953 and transferred ownership to his son Bill, who was 37-years-old at the time.

Bill had degrees from both Baylor University and Columbia University, better educated and more cosmopolitan than either his father or grandfather, taught Sunday school at the Leroy church, was a skillful chess player and poet who brought a touch of class to the small country bank.

He maintained tradition at the Leroy Bank, daily posting account ledgers in large cloth-bound books and continued customers to secure their valuables in safety deposit boxes that were filled with items stored in shoe boxes, cigar boxes, even fishing tackle boxes.

Oftentimes terms of a loan weren’t even written down and there were no records, but he knew who owed him money and the borrowers did, too.

Dressed in an open collar shirt he never shied away from farmers who’d walk in wearing dirty, muddy overalls because if they were dirty they were working and if they were working they were making money.

Bill Janes made the loan decisions; there was no committee, no application, no hoops to jump through, just a conversation with a polite, patient good listener who happily offered customers advice on finance, deeds, wills and personal savings.

Bill Janes, fearing encroachment from Waco, steered the community to incorporate and served as the first mayor.

His only son had no interest in the bank and went to work as a pest control technician in Waco.

So in May 1987 Bill Janes sent each of his customers a letter stating he’d sold the bank to Bailey “in the best interest of the Leroy Bank,” the letter said.

The very same week the Leroy bank sold, the Chilton bank was declared insolvent and closed.

That prompted then state banking commissioner Kenneth Littlefield to begin investigating the Leroy Bank under a legislative provision that cleared the way for the commission to begin examining private banks.

What the team of investigators found in Leroy was a “huge mess.”

Bank records were incomplete and the ones available were in disarray, there were improperly-kept books that failed to balance, and liabilities exceeded assets by more than $1 million, which flagged examiners that the institution was “clearly insolvent”.

Bank deposits totaled some $5 million and the loan portfolio had a value of about $3.5 million, some of which loans were in question, an active loan from FirstRepublicBank, in Waco, for $1 million, which had cleared all of Leroy Bank’s checks but the bank had only about $100,000 in certificates of deposit and about $20,000 in cash on hand.

Then on Thursday Aug. 6, 1987, the Federal Reserve Bank in Dallas notified Littlefield that the bank didn’t have enough money to cash checks being written against accounts, which meant the bank was “out of cash.”

The following day the notice was tacked to the front door and at 4:45 p.m. Aug. 7, 1987, the bank closed forever.

An article published in Texas Monthly entitled “The Day Leroy Died,” the writer wrote: “On that hot Friday afternoon, the Reverend Anderson lost every cent of his savings, nearly $37,000.

Lenora Schutza lost $24,030, and Henry Young lost $43,000.

“Of the 1,200 depositors at the Leroy Bank, more than half were older than 65.

“They had lived on savings-account interest and social security checks, which they had faithfully deposited the first of each month.

“When the Leroy Bank closed, a lot of those checks had just been deposited. Without them, many people had no money for medical and utility bills,” the article read.

Depositors dreams of security and independence vanished with the stroke of a pen, plans for travel, retirement, college for children, purchases both small and large, money saved for funerals and that saved by a young boy intended to purchase a lamb for show were dashed.

When lawyers got involved and started deposing those figures involved, Bailey would say it was Tankersley, all along, who’d owned the bank and he’d just been the operator.

Routed depositors hired Waco attorney Bill Vanatta, who said legal responsibility on the dissolved bank’s part and that of its former owners should be settled in court.

“They wanted us to file lawsuits, but why,” Lacy Williams said, “they didn’t have any money so all we’d have been doing is paying lawyers without any chance of recovering our money.”

Tankersley said a rush of withdrawals in the days following the sale is what was responsible for the collapse, which to many of the depositors who lost their life savings was the ultimate insult.

Twenty days after the closing a group of depositors filed a lawsuit in a Waco state district court which named Tankersley and Bailey as defendants and sought to determine what shape the bank was in when Bill Janes sold it.

Bill Janes, from the beginning, maintained the institution was in solid financial shape when he sold it.

Townsfolk, who once held Bill Janes in high esteem, now found him refusing to speak, unfriendly and evasive, which most interpreted as guilt.

That forced a split between neighbors, those who found Janes’ attitude questionable and those who thought he was an honorable man who had nothing to do with the bank’s failure.

Residents talk about it today.

“I liked (Bill) Janes,” Miller said, “(and) thought he was a fine man.”

Some of those who held Bill Janes responsible even felt citizens who supported him did so because they got forewarning about the trouble and were able to withdraw their money before the bank closed.

In September 74th District Court Judge Bill Logue signed a restraining order that prevented the liquidation of the bank’s assets after a group of Leroy residents went to the state with a plan to re-capitalize the bank, but because no one in the group had any knowledge of banking and no one could give a reason why they wanted to own the failed bank, it didn’t happen..

Then in November a crowd gathered in the courtroom anticipating an order from Logue that would clear the way for re-establishment, but the funds promised to support the effort never arrived and after 45 minutes of waiting past the court-imposed deadline, Logue had no choice but to let his order expire, which finally prevented the bank from ever opening again.

The Texas Monthly article explains: “On a sunny day in October 1988 the contents of the Leroy Bank went on the auction block.

“Everything from file cabinets to pencil sharpeners, even the rickety green couch, was auctioned off and carried away.

“From a storeroom at the back of the bank came carton after carton of unused giveaways — plastic pitchers, change purses, sink stoppers, egg separators, spatulas — all imprinted with the words ‘Another service of the Leroy Bank.'” The article said.

Even today there is controversy about what happened, beginning with the fact that state bank examiners still don’t know for sure who owned the bank when it failed, but most state banking officials say they think the bank’s troubles started long before it was sold, because damage that bad can’t happen in a short period of time.

Perhaps, they say, the root of the problem was skittish customers who withdrew their funds, or miss-management, bad financial decisions, bad investments on the bank’s part or maybe even just plain theft, but to those affected, while they’d like to know the answer, it really doesn’t matter … their money is gone and they’ll never get it back.

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