Eyes are on Allegiance Bancshares to explore going public next year, but those same eyes are likely watching falling oil prices, too.

The Houston company, led by George Martinez, has long been considered an ambitious institution that would pursue an IPO as soon as it got to the right size. Allegiance, on schedule to close its purchase of the $540 million-asset Farmers & Merchants Bancshares this week, will have roughly $1.8 billion in assets, placing it well above the size deemed necessary to lure investors.

The decision on if, and when, to take Allegiance public makes Martinez one of American Banker's five community bankers to watch next year.

"Allegiance has been pretty vocal about wanting to provide their shareholders with liquidity," said Dan Bass, a managing director at Performance Trust Capital Partners in Houston. "There are a lot of local people who like the local story a lot."

But with oil prices falling — light, sweet crude closed at $54.73 on Friday — the inherent premium for Texas banks is shrinking.

"If you're thinking about going public in 2015, I think with energy coming off, you have a lot of questions to answer," said Brett Rabatin, an analyst at Sterne Agee. "Investors are basically terrified of Texas right now."

Still, Rabatin said the oil price decline could be a healthy development over the long term.

"I think it could prevent a bubble that would have ended badly," he said. "No one wants to see [oil prices] down, but maybe the market needed to be reminded not to do stupid things."

Bass and Rabatin said that for Allegiance and other banks in the area, the coming year will largely be influenced by what happens with oil prices.If oil keeps sliding, valuations will follow and that could affect the likelihood of a high-flying public offering. Already, First Guaranty Bancshares in Hammond, La., has postponed its planned IPO in light of falling oil prices.

Still, that doesn't mean Allegiance would wait. Even if the shares fail to price high initially, the company's performance could push it in line with peers.

Bass said Martinez also has a good following among investors. He is the former chairman and chief executive of Sterling Bancshares, a Houston powerhouse that sold itself to Comerica in 2011. Martinez retired from Sterling in 2004 and founded Allegiance three years later with the intention of building a similar commercial bank. The company has been growing loans organically at about 20% a year for several years.

"Earnings drive value and if he is able to replicate some of Sterling's success, it should be a successful stock," Bass said.

Martinez declined, in an interview earlier this month, to comment about the future prospects of a public offering.He said, however, that Allegiance will be focused on integrating its recent acquisition and continuing to find teams to help push its organic growth engine.

"We bring in lenders, groups of three or four, and build a bank office around them and that strategy has made us a market share growth story," Martinez said. "Because the market isn't growing at 20% a year, it is maybe growing from three to six percent."

The growth has been fueled by loans to home developers and commercial loans in manufacturing.The decline in oil prices is a big benefit to the petrochemical industry, but the fuel oil producers are being hurt, Martinez said.

"It is a mixture of good and bad at the moment," he said. "Houston will continue to grow with jobs, but at a slower rate if oil stays down, but the projections are that oil will be $76 a barrel in 2016, so maybe this is a short-term issue and won't be much of a problem."

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