Louisiana, where bank consolidation was long delayed by a soft economy, is now one of the hottest merger and acquisition markets in the nation.
Community banks have been selling out at steep prices as the state's largest institutions strive to build up their franchises.
During May, for example, New Orleans' First Commerce Corp. bought a $384 million-asset bank in Monroe for $191 million, or 2.7 times book value. The same month, Baton Rouge-based Premier Bancorp plunked down 2.2 times book for HNB Corp., Homer, which has $95 million of assets.
"Banks in the few good markets in Louisiana have been able to get exceptionally strong prices," said industry analyst Peter Tuz of Morgan Keegan in Memphis. "Basically, it's a one-of-a-kind franchise value. If you don't pay the price, you never get in that market in any meaningful way."
"Prices have gotten pretty sporty," agreed Carl E. Jones Jr., who oversees southern Alabama and Louisiana for Regions Financial Corp., Birmingham, Ala. "Every community banker in the state now thinks he's worth two or three times book."
The elevated expectations of community bankers in Louisiana come as takeout prices for smaller banks in many other southeastern states are falling.
The explanation can be boiled down to a simple concept: supply and demand.
Louisiana's pallid economy and the associated credit problems of its largest banks kept the state's financial institutions from playing the acquisition game for nearly a decade. Meanwhile, many other states underwent rapid banking consolidation.
It wasn't until 1993 that business conditions in the Pelican State improved enough for acquirers to take another look.
"What you had was a lot of pent-up demand" in Louisiana, said John Davis, senior vice president at First Commerce in charge of mergers and acquisitions. "And many of the community banks, because they had come through a difficult time, were looking for an opportunity to cash out."
The unconsolidated nature of Louisiana's banking market can be seen in deposit data comparisons.
According to SNL Securities, the top four banks in Louisiana controlled 41% of the state's bank and thrift deposits in June 1994 (a share that has since risen to 49% because of recent deals).
Alabama, by contrast, is a virtual oligopoly, with the five largest banks holding 68% of deposits. Consolidation is also more apparent in Tennessee, where the top five control 51%, and in Mississippi, where the comparable share is 49%.
History is also to blame for Louisiana's relative stagnation. State law prohibited multibank holding companies until 1984, inhibiting the growth of statewide franchises.
The lifting of this ban did spark a wave of acquisitions in 1985, just as the industrywide consolidation movement was beginning in other southeastern states.
But the boom went bust the following year, when a collapse of energy prices plunged Louisiana into recession. Failure claimed 129 Louisiana commercial banks and thrift institutions during the next five years.
Meanwhile, the state's top four bank holding companies - First Commerce, Premier, Hibernia Corp., and Whitney Holding Corp. - collectively charged off nearly $1.6 billion of bad loans.
Both Premier and Hibernia needed capital infusions to stay afloat.
Premier got its fresh capital from Banc One Corp., Columbus, Ohio, which simultaneously gained an option to buy Premier at 125% of book value any time between this June 30 and March 1997.
Banc One agreed July 19 to exercise that option at a price of $20.15 per share, equal to about 140% of Premier's book value. Banc One agreed to the higher price in order to compensate Premier for its recent acquisitions inside the state.
Some analysts expect this deal to lead to a purchase by Banc One of one of the Big Three New Orleans banks: First Commerce, Hibernia or Whitney. The Ohio superregional is known to want a major presence in the Mississippi River's great port city, where Premier currently holds less than 3% of the market.
On the other hand, Banc One's acquisition of Premier probably won't have a dramatic effect on the consolidation of Louisiana community banks, since Premier was already an active buyer of franchises in the state.
Now that the state's big banks are back on their feet, community bank investors certainly enjoy more options. Those that survived the recession found themselves trapped in thinly traded stocks. Now they have a way to get out at a premium.
"When you have directors of a certain age and shareholders getting older, they're looking for liquidity," said Charles A. Worsham, executive vice president of the Louisiana Bankers Association.
"That's what the large, publicly traded institutions have to offer," he said. "That's been the deciding factor."
And it's not only the big in-state players that are looking for targets. Louisiana has also attracted attention from acquirers like Regions Financial and Jackson, Miss.-based Deposit Guaranty Corp.
Deposit Guaranty got in early, in 1990, by buying a troubled bank in Shreveport. Since then, it has built up its Louisiana assets to just over $1 billion, mostly in the northern part of the state.
Executive vice president Thomas M. Hontzas said Deposit Guaranty finds these Louisiana markets attractive because they're growing faster than many parts of Mississippi. Deposit Guaranty would consider expanding into southern Louisiana if an advantageous deal could be struck, he said.
Regions Financial has been a particularly powerful player, building up $2.2 billion of Louisiana assets since 1994. Ironically, the banking company hadn't targeted Louisiana as a place where it wanted to be.
"We kind of backed into Louisiana," said Mr. Jones, who runs Regions Financial's bank in Mobile, Ala.
The bank originally bought a Birmingham-based thrift, Secor, that happened to have two-thirds of its assets in Louisiana.
Regions Financial executives subsequently noticed that banks in Louisiana enjoyed a lower cost of funds and higher loan yields than their brethren in Alabama.
Mr. Jones attributed these advantages to the lack of a dominant statewide franchise. "It tends to be market-by-market pricing," he said.
For now, Regions Financial is taking a breather in Louisiana, content with its respectable market share in Shreveport, New Orleans, and Baton Rouge. The company is currently the fifth-largest bank in the state, after Whitney, with a 4% market share. Deposit Guaranty is sixth, with 3%.
Acquisitions are likely to continue in Louisiana as long as acquirers' stock prices remain strong. But most experts expect the pace to moderate a bit as the best franchises get taken.
The largest independent bank left in the state is Calcasieu Marine National Bank, with $852 million of assets.
"The pool is less ample than it was, although I don't think it's going to totally dry up," said Deposit Guaranty's Mr. Hontzas. "I think you will still see continued acquisitions in Louisiana. But many of the major targets in the major markets are no longer available."
