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MidSouth Bancorp Inc. has long said that pricing has been to irrational in M&A. News that interest rates will stay low, however, may force an inflection point for sellers.
August 30 -
Commerce Bancshares Inc. and Cullen/Frost Bankers Inc. are in rare company as small banks with top shares in major cities.
July 25 -
With the market trying to peg who's a buyer and who's a seller, some analysts consider a handful of midsize banks, including Zions Bancorp and UMB Financial Corp., as being in a category all their own: Highly unlikely to ever be sold.
May 17
Cullen/Frost Bankers Inc. has a nice kingdom in Texas, and Dick Evans doesn't plan on expanding it beyond the state limits anytime soon.
"We're not interested" in considering acquisitions outside of Texas, Evans, the San Antonio company's chairman and chief executive said in an interview Wednesday. "We're going to be focused on Texas, that's where our priority is."
The $18 billion-asset company dominates its home base, where it has a 9.5% market share. Cullen/Frost has carved out that stronghold despite competition from the largest rivals, including Bank of America Corp. and Wells Fargo & Co.
Texas is also generating mounting interest from smaller and midsize banks, including MidSouth Bancorp Inc. of Lafayette, La. But Evans swats away any suggestion that these new community bank entrants could pose a threat.
"We pretty much decide how we want to run our own business and we don't worry about the juvenile delinquents down the street," he says.
That confidence may be justified. Cullen/Frost has established itself as a local community pillar and a "quality bank that tries to do right by the customer," says analyst Brett Rabatin at Sterne, Agee & Leach Inc. "I'm sure people outside of Texas have heard of Cullen/Frost, but within the state, the advantage they have is everyone thinks they're a really good bank."
Cullen/Frost is the seventh-largest banking company in Texas, with 2.8% deposit market share as of June 2010, according to the most recent data from the Federal Deposit Insurance Corp.
In San Antonio, it has a commanding 9.5% market share. (USAA Federal Savings Bank is credited as the city's market leader, at 62.4%, but most of its customers are affiliated with the military and live elsewhere.)
The community offers an abundance of options to sate Cullen/Frost's expansionary appetite, according to Rabatin. Though Evans could be turning his back on some potential acquisition targets with branches outside the state, Texas has "three very large, growing markets," Rabatin says.
"Even though they [Cullen/Frost] have high market share in the San Antonio market, they have meaningful opportunity to grow around the Fort Worth/Dallas Metroplex as well as Houston, so they don't need to go outside of the state to continue to experience growth," Rabatin adds.
Even within Texas, Cullen/Frost is frequently mentioned by industry observers as a possible midsize acquirer. Still, Evans reiterates that he is an "aggressive looker and a conservative buyer" and he blames the increasing regulation of the banking industry for dampening his enthusiasm for acquisitions.
"You have to be careful in the analysis of what the effects of [theDodd-Frank Act] are going to do to a potential acquired bank," Evans says. "You've got [the repeal of] Regulation Q, you've got interchange not being there, you've got lower revenues on overdrafts …plus the other 468 changes that came about in Dodd-Frank — you've got to see what that's going to do to the real value of that company that you might acquire."
Indeed, Evans blames much of the current economy, and the sluggish loan growth that is plaguing Cullen/Frost and its rivals, on "overregulation" of all sorts. According to Evans, the culprits include even the controversial extraction technique for natural gas known as hydraulic fracturing, or fracking. "This uncertainty and overregulation is keeping the country from growing," he says.
"Dodd-Frank is a mess," Evans adds. "You've got health care: people aren't going to hire somebody because they don't know what the real cost is going to be of that into the future; you've got the energy business and the controversy over fracking, which quite frankly is one of the most impressive advancements in technology and engineering that we've seen in years. You can take almost every industry and you can find overregulation."
