Banco Bilbao Vizcaya Argentaria SA's Texas acquisition spree has been a windfall for one Rio Grande Valley bank.
Falcon International Bank, which had grown only modestly for most of the decade, has nearly doubled its assets in the last three years, to $825 million, without a single acquisition. The Laredo bank, which targets wealthy Mexican investors, has done so by hiring roughly a dozen lenders that BBVA had inherited through acquisitions and then building branches around them in such border cities as Brownsville, McAllen, and Eagle Pass.
Gilbert Narvaez, Falcon's president and chief executive, said in an interview last week that it has been successful in hiring lenders away from BBVA simply because many would prefer to work for a community bank.
"We've had a lot of opportunities because of consolidation in banking," he said. "We have been able to attract a lot of good bankers that have led our expansion."
BBVA entered Texas in 2005, when it bought the $3.4 billion-asset Laredo National Bancshares Inc. Since then the Madrid company has acquired the $6.8 billion-asset Texas Regional Bancshares of McAllen, the $1.9 billion-asset State National Bancshares Inc. of Fort Worth, and Compass Bancshares Inc. of Birmingham, Ala., which has a significant Texas operation.
Most of Falcon's new hires once worked at the companies BBVA bought, and Mr. Narvaez said that in some cases he approached the lenders, but in others they approached him.
Of course, the Falcon Bancshares Inc. unit's growth strategy is not entirely unusual. Texas has undergone a wave of consolidation in recent years, and many small banks have capitalized on the upheaval by hiring lenders who were not too keen on joining large organizations.
Few of the banks, though, have grown as rapidly as Falcon, which has targeted lenders in heavily Hispanic markets. It now has 15 branches, versus five in mid-2005. It has two more opening this quarter, and it is scouting for more locations as it aims to reach $1 billion of assets this year. Its goal is to have $2 billion by the end of 2010.
Mr. Narvaez said that Falcon has been fortunate in attracting experienced lenders, who often come with thick Rolodexes and established books of business.
"Lenders are very, very hard to come by, and there is a lot of competition for them," he said. "Our lenders get calls from headhunters for other banks all the time."
Falcon, founded in 1986, had been looking earlier in the decade to expand through acquisitions, but it found deals hard to come by. Its only acquisition in recent years was of a branch in San Antonio, where it could deploy its deposits from wealthy Mexicans.
"We considered buying, but we found that it is very expensive and takes a lot of capital," Mr. Narvaez said.
By the end of 2004, Falcon's assets had grown 60% from three years earlier, to $360 million, but other than the San Antonio branch, it was still largely a Laredo bank.
John Blaylock, the associate director at Sheshunoff & Co. Investment Banking in Austin, said Falcon was wise to resist the temptation to acquire.
"Buying bankers instead of buying banks is sometimes the way to go," he said.
For a small bank like Falcon to grow as quickly as it has in the last three years without buying another bank is "a remarkable feat," Mr. Blaylock said.
Still, there are hazards involved with rapid organic growth, he said. "If you are going to grow that rapidly, one thing you have to have is absolute adherence to your credit standards. And that is something that is hard to do when you go from five lenders to 20 in a short period of time."
Falcon's credit quality has slipped some of late, but that is likely more of a function of economic conditions than lax underwriting.
Its ratio of noncurrent loans to total loans more than tripled between Sept. 30, 2006, and Sept. 30, 2007, to 1.12%, according to Federal Deposit Insurance Corp. data. Still, those ratios are in line with the national average of commercial banks with $500 million to $1 billion of assets.
Falcon opened four branches last year, and the cost of its expansion has lowered its returns on assets and equity — though both are still comfortably above the averages for banks of its size. Its ROA fell 42 basis points from a year earlier, to 1.33% as of Sept. 30, and its ROE fell 316 basis points, to 18.33%.
Mr. Narvaez said he is confident that his bank's performance ratios will return to pre-expansion levels this year as the new branches mature. Even though Falcon would buy a bank if the right opportunity came along, it has no plans at this point to adjust its growth strategy, he said.
"We have managed to grow on our own with personnel, and we'd like to continue in that same frame of mind," he said.
