After eight years of slow, steady growth in Texas, Hibernia Corp. of New Orleans has struck a deal that would double its deposits and branch network there.
The $17.6 billion-asset company said Monday that it would buy the $2.6 billion-asset Coastal Bancorp Inc. of Houston for $230 million in cash.
The acquisition would catapult it into the top 15 in the state's deposit-share rankings, up from 26th, and jump its Texas branch total to 86, from 42. More importantly, it would give Hibernia - which has concentrated its Texas operations on the counties bordering Louisiana - a foothold in the state's largest metropolitan market.
Chief executive officer Herb Boydstun said in an interview Tuesday that the purchase would give Hibernia a platform to grow in the Rio Grande Valley and Austin markets. It has a goal of having 25% of its deposits in Texas, and Coastal would put it at 22%.
"Coastal is a very nice fit for what we want to do," Mr. Boydstun said.
Manuel Mehos, the CEO at Coastal, said it had not been looking to sell but accepted the offer because it was having a hard time making the transition from a traditional thrift to a more bank-like company.
Its third-quarter earnings were down 25% from a year earlier, and loans were nearly unchanged, at $2 billion. Last year it sold off five branches to improve efficiency.
"It takes a lot of resources to build a franchise, and … limited capital makes it difficult to grow," Mr. Mehos said. "We felt like this was a good chance for customers and employees to match up with a bank that will help them grow."
Coastal, founded through the merger of several failed thrifts in the 1980s, still has about 73% of its loans in residential real estate. Hibernia's portfolio, on the other hand, is 42% residential real estate, 12% commercial real estate, and 18% commercial and industrial loans.
Mr. Boydstun said Hibernia would try to reduce reliance on residential lending by courting more small-business customers in Coastal's markets.
Hibernia has not acquired a bank in Texas since 1998, but it has made no secret of the fact that it has been looking. Though capital constraints might seem to have precluded it from buying a company of Coastal's size, Charlie Ernst, an analyst with Keefe, Bruyette & Woods Inc. in New York, said the asking price - 1.64 times book value - was well within Hibernia's range.
"I think the deal is financially attractive and serves as a way to jump-start their Texas franchise in a new area," he said.
Hibernia built 20 of the branches it has in Texas. In July 2002 it announced plans to open 50 in the Houston, Fort Worth, and Dallas markets by the end of 2007.
This year it built commercial loan offices in Houston and Dallas; it says it will open several branches in these markets this month.
Mr. Boydstun said that Hibernia expects to continue building branches, without a delay, despite the deal. However, some analysts question if it can do both effectively. Todd Hagerman, an analyst with Fox-Pitt, Kelton Inc. in New York, said Hibernia would have to work extremely hard to build branches and change Coastal's business mix while integrating it.
"I think it will be a challenge, and it's not something that is going to happen overnight," he said. "However, I am optimistic about the leadership skills of the management."
Coastal's stock soared in heavy trading on news of the deal, closing at $41.22, up 12.3% from Monday's close. Hibernia's rose slightly, closing at $23.42.
