Banco Popular's parent company is making its Texas debut by buying one of the state's best-run community banks.

Puerto Rico-based Popular Inc. has agreed to pay more than three times book value for Citizens National Bank, according to a source with knowledge of the deal.

Citizens is a $51 million-asset institution that serves Houston's blue- collar Hispanic population.

A Citizens National official refused to disclose the sale price, and officials of Popular could not be reached for comment.

"Texas is the market that Banco wanted to be in," said James P. Meadows, Citizens' chairman and majority shareholder.

"We're very much a niche player," and Banco Popular's "stated strategy is to also serve the Hispanic market."

Citizens had planned to stay independent, but $20 billion-asset Popular made the bank's five shareholders an offer they couldn't refuse, said Bill Strunk, a consultant at Houston-based Strunk & Associates who has done work for the bank.

Banco Popular operates 55 branches in communities with large Hispanic populations in New York, New Jersey, Illinois, Florida, and California.

The bank, one of the nation's largest Small Business Administration lenders, had been looking for an acquisition opportunity in the Houston market, Mr. Meadows said.

In the 1990 U.S. Census, 26.7% of Houston's 1.6 million people were Hispanic.

Mr. Meadows said Banco Popular met with other local community banks before striking a deal with Citizens.

After the acquisition is completed this year, Mr. Meadows plans to stay on and help Popular expand its presence in Texas-something Citizens could never afford to do. And he expects Banco Popular to tap the Hispanic community for small-business borrowing, something that Citizens wasn't able to do.

In fiscal year 1996, Banco Popular was the fifth-largest SBA lender in the country, making 790 loans totaling $110 million.

That's roughly one-tenth of Banco Popular's outstanding small-business loans.

Mr. Strunk said Popular would be wise to take advantage of Citizens' expertise in its market. Citizens has been extremely profitable, reporting year-to-date return on average assets of 2.81% and return on average equity of 33.04%.

"If I were" Banco Popular, he said, "I would say, 'You have a great track record. Go do that four more times.'"

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