The third quarter was a troublesome one for large Texas-based firms, according to nine-month reports from two major banks.

Nationally, the legal market took a turn for the worse during the third quarter of 2017, with year-over-year revenue growth, demand for billable hours and revenue per lawyer all slipping during the third quarter after a strong first half, according to a report released Nov. 15 by Wells Fargo & Co.

A report released last week by Citi Private Bank's Law Firm Group posted similar results for the nine-month period, pointing to slower revenue growth, a decline in demand and a longer collection cycle.

For the most part, the news out of Texas painted a cloudier picture.

In the Citi report, revenue was down 1.4 percent for Texas firms for the first nine months of 2017 compared with the same period in 2016, while demand (timekeeper hours) was up by 0.1 percent and lawyer billing rates improved by 3.8 percent. Nationally in comparison, revenue grew by 3.6 percent during the first nine months, demand declined by 0.2 percent and billing rates improved by 4 percent.

But the collections cycle lengthened by 13.5 percent in Texas, according to Texas statistics provided by John Wilmouth, a senior client adviser in Citi Private Bank's Law Firm Group. The collections cycle was only 0.9 percent longer nationally.

Wilmouth said the Texas region was ranked midway among 11 regions in demand and rates, but the Texas revenue decline was worst of all of the regions. He said that 1.4 percent decline in revenue in Texas for the first nine months in 2017 compared with the previous year may be due to the lengthening of the collection cycle, and things could turn around.

“A lot of it is just a buildup in accounts receivable at the end of September, so a lot of it could be collected during the fourth quarter,” he said.

John Wilmouth

Wilmouth notes that the third quarter includes the summer months, so lawyers may have been slow to send out invoices, and clients may be taking their time to pay them. Hurricane Harvey, which made landfall in Texas on Aug. 25 and caused massive flooding in Houston, may have had an impact as well, he said.

He said it's hard to know if there's anything unique about what is going on in Texas this year. He said energy work has rebounded, but Texas firms may be feeling pressure from out-of-state firms that have opened offices in Texas in recent years.

The findings about Texas were similar in the Wells Fargo report. Gross revenue was down 0.9 percent during the nine-month period in Texas, compared to a 3.7 percent growth nationally for the same period, according to statistics provided by Jeff Grossman, managing director of banking and advisory services for Wells Fargo Private Bank's Legal Specialty Group. Revenue per lawyer was up 0.3 percent in Texas, compared with 2.3 percent nationally, and demand for billable hours was down 2.3 percent in Texas, compared with a 1.4 percent increase nationally.

“It's a combination of not enough demand to go around for all of the firms, and some of the out-of-state firms that have acquired some of the demand,” Grossman said. Other factors that may explain why Texas is lagging the market for the nine-month period is the comparison to a very strong 2016, a decline in transactions and a “mixed bag” in litigation, he said.

“There's a lot riding on the last quarter,' he said.

Wells Fargo surveyed 135 firms nationally, including 12 in Texas. Citi surveyed 183 firms, including eight in Texas.