Continuing its aggressive expansion in its home state, Cullen/Frost Bankers Inc. of San Antonio announced Monday that it had agreed to buy the $1.1 billion-asset Summit Bancshares Inc. of Fort Worth for about $366 million in cash and stock.
It would be Cullen/Frost's fourth acquisition of a Texas community bank since last fall - and its biggest ever.
At nearly five times Summit's tangible book value, it would also be one of the priciest acquisitions so far in 2006. Sellers in the Southwest and Southeast are fetching an average of 2.82 times tangible book value, according to SNL Financial LC.
Cullen/Frost, the $12 billion-asset parent of Frost National Bank, is paying top dollar to gain market share in one of the state's fastest-growing and most affluent counties. Buying Summit would nearly double its branch network in Tarrant County, which includes Fort Worth, and boost deposits and loans there by more than 60%. Indeed, after the deal closes, Tarrant County would be Frost's largest lending market and its No. 2 deposit market, behind San Antonio.
"It is expensive to do business in Texas," said Dick Evans, Cullen/Frost's chairman, president, and chief executive. "But we believe the most important thing is to make sure you are doing business with the right people - as we have talked about, with a quality organization, and this certainly is - and therefore we are comfortable with the price."
An active acquirer in the 1990s, Cullen/Frost took a break from dealmaking for more than six years, until it bought Horizon Capital Bank in Houston in October for $117 million. But Mr. Evans said it never stopped searching.
"We just couldn't find an acquisition that fit our company," he said. "We are always looking for ... [banks] that would be a great fit like Summit. We've been doing that for years and will continue to do that."
Cullen/Frost is hardly the only banking company aiming to bulk up in Texas.
On June 12, Banco Bilbao Vizcaya Argentaria SA announced agreements to buy two other publicly traded banks in Texas - the $6.6 billion-asset Texas Regional Bancshares Inc. of McAllen and the $1.7 billion-asset State National Bancshares Inc. of Fort Worth, for about $2.58 billion. So far in 2006, 12 such deals in Texas have been announced with an average value of $318.6 million, according to SNL.
Several analysts said they expect prices to remain high in the state as the economy continues to grow and the number of publicly traded banks continues to shrink. Shares of International Bancshares Corp. of Laredo gained 7.8%, Metrocorp Bancshares Inc. of Houston gained 4.2%, and Prosperity Bancshares Inc. of Houston gained 3% in what was a light pre-holiday trading day.
Summit's stock rose nearly 30% on volume that was more than 30 times its daily average. The stock closed at $27.22. Cullen/Frost's stock fell 2.8%, to $55.70.
Kevin Reynolds, a senior vice president of equity research with Stanford Group Co. in Memphis, covers both banks. He said that with the Texas banking climate getting more challenging, the 31-year-old Summit is selling itself at a good time - and at a good price for its shareholders.
"Competition in Texas every day is becoming more intense," he said. "With Compass, JPMorgan Chase, and Wachovia moving in, it is harder and harder for independent banks to go out there and do their business. Plus, the regulatory burden is greater today for smaller companies than bigger companies. Bigger companies can spread the cost over a larger operating base."
Jennifer Demba, an analyst with SunTrust Robinson Humphrey in Atlanta, said she was not surprised Summit is selling for such a high price.
"Summit was really the best play and the largest play on the Fort Worth market," she said. "Everyone knew that if the franchise sold, it would be a very high price.
"It will end up being a good deal for Cullen/Frost. It gives them more presence in one of the best markets in the state. Their corporate cultures are very similar."
Cullen/Frost's biggest challenge will be keeping employees on board, several analysts said.
Mr. Evans said seven of Summit's senior managers have signed agreements to stay, including its chairman, president, and CEO, Philip Norwood, who is to be the president of the Tarrant County region for Cullen/Frost. The sale is expected to close in the fourth quarter.
