Cullen/Frost Bankers Inc. is buying the $380 million-asset Horizon Capital Bank to move into the top 10 among Houston banking companies.
The holding company for the 137-year-old Frost National Bank announced Wednesday that it has agreed to pay investors of the privately held Horizon $45 million in cash and 1.4 million shares of its stock. The deal, expected to close next quarter, is worth $107.1 million. It would be the first acquisition by the $10 billion-asset Cullen/Frost since 1999, when it purchased the $181 million-asset Commerce Financial Corp. in Fort Worth for $42 million.
Buying Horizon would add six branches and more than $280 million of deposits to Cullen/Frost's Houston base. Frost National was the 11th-largest bank in the Houston area, with just under $1.5 billion of deposits, as of June 30, according to statistics compiled by the Federal Deposit Insurance Corp. The Horizon deal would move it into the No. 9 slot, with a 2% share of Houston's $85 billion deposit market.
Cullen/Frost said acquiring Horizon would dilute its earnings by a penny a share this year but would be accretive to earnings by 2 cents a share next year. Horizon posted $10.5 million of noninterest expenses for last year, and Cullen/Frost said it expects to cut about 15% of that total.
The purchase price amounts to 3.1 times Horizon's equity capital and 31 times its 2004 earnings.
"Frost paid a healthy price, but it's getting a good commercial banking franchise," Scott Alaniz, an analyst with Sandler O'Neill & Partners LP, said Wednesday. "It fits geographically, too. This looks good on the map."
Dick Evans, Cullen/Frost's chairman and chief executive officer said culture issues more than price are what has kept the company out of the merger and acquisition market so long."We have a strong commitment to philosophy, culture, and people," he said. "We're very particular. We feel good about this match."
Jack Thetford, Horizon's chairman and chief executive officer, said he planned to have "some involvement" in Cullen/Frost but had not discussed a specific arrangement with the buyer yet. Mr. Evans said "definitely" wants Mr. Thetford and his management team to remain.
Mr. Thetford headed an investor group that acquired Horizon from its founder, Walter Hall, in 1995. Since then Horizon has been consistently profitable; its net income grew from $555,000 in 1996 to $3.3 million last year.
Cullen/Frost would still have plenty of capital left over for other deals. It netted $120 million from the sale of trust-preferred securities in February 2004.
