A widely held belief in banking circles is that, with so many financial institutions chasing so little business, the industry is poised for a major consolidation. That may well turn out to be true, but, so far, the ranks have thinned only slightly. According to SNL Financial LC, only 64 bank and thrift acquisitions were announced in the first half of this year, compared to 84 in the first six months of last year and 158 in 2007. The deals are far smaller, too. The average deal size year-to-date is just $15.4 million, compared to $327 million two years ago.

The surge of bank failures - dozens have failed so far this year with many more to follow - partly explains why M&A activity is so lackluster. Rather than shell out big bucks for healthy banks, many prospective acquirers are holding out hope that they can scoop up the deposits and branches of failed competitors on the cheap.

Others, meanwhile, see no reason to acquire because they are already capturing lots of new business. At an investor conference in New York in June, George Jones, the CEO at Texas Capital Bancshares in Dallas, said his company has "very little interest" in acquisitions because "we see weakened competitors in our marketplace who are very vulnerable, so there's an opportunity to attract customers."

Then there are banks that want to get smaller, not larger. James D'Agostine, chairman and CEO at the $1.5 billion-asset Encore Bancshares in Houston, said at the same investor conference, that the company is looking to shed assets, specifically its lending operations in Florida, California and Colorado.

"Everything outside of Texas is in a run-off mode," he says. "Our strategy is to be a Houston- and Texas-based operation."

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