Some of Texas' most prolific acquirers in recent years are being bought out themselves, but even with companies such as Texas Regional Bancshares Inc. and Texas United Bancshares Inc. out of the mix, there are no signs that dealmaking is slowing in the state.
More bank and thrift deals were announced in Texas than in any other state last year, and most industry observers expect 2007 to be another big year in mergers and acquisitions. Texas remains an attractive market for large out-of-state acquirers, and many Texas banks with less than $1 billion of assets want to keep bulking up to compete with larger banks, analysts and investment bankers said.
Prices are only expected to go up. Texas banks are fetching the highest prices in the country, as measured by price-to-tangible book value, and observers said the state's appealing demographics, growing population, and shrinking pool of larger buyout targets will keep prices higher than the national average.
"It is such an affordable place to live, a lot of people are moving in, new businesses are starting, and the economy is moving in Texas," said Dan Bass, the managing director of Carson Medlin Co. Investment Bankers in Houston. "It is a great market to be in, because the demographics are still on an upswing. Plus, being in Texas offers diversification from other areas in the country that have downside risk."
Brisk dealmaking is not the only indicator of the banking industry's health in Texas.
The consolidation has led to a flurry of start-ups - eight banks or thrifts opened in Texas in 2006, including two credit unions that converted to thrifts, according Federal Deposit Insurance Corp. data. State banking officials estimate that at last another dozen are in various stages of organization.
And if banks aren't buying, they are building. Through early December, banks in Texas had opened 274 branches in 2006, the most in the nation, according to the FDIC.
"What we have seen in this state is a good, strong, solid economic base developing in 2006, and that has resulted in increased bank activity, as seen in branching and de novos," said Randall James, Texas' banking commissioner. "I believe that trend will continue in 2007 and we will continue to see positive economic growth and further development."
There is a flip side to the surge of activity. Many bankers are complaining of a talent shortage, especially among commercial lenders. Also, intensified competition for loans and deposits is creating pricing wars that bankers do not expect to let up much this year.
"The spreads are certainly getting tighter," said Scott Dueser, the chief executive officer and president of the $2.7 billion-asset First Financial Bancshares, a multibank holding company in Abilene. "You have to manage deposits a lot harder today to make sure you maintain your spread, and the competition is certainly tougher for loans and deposits."
That competition has banks pursuing what they say are untapped markets in the state's growing Hispanic population. Some new banks' business models are tailored to the Hispanic market, and more established ones are adding brochures in Spanish, placing Spanish advertisements, and hiring bilingual employees.
First Financial's 10 banks this year will begin offering a new mortgage that looks at nontraditional criteria when evaluating credit histories. The company also offers remittance services to Mexican immigrants and is creating a program that would allow immigrants from countries other than Mexico to send money to their families.
"This product will be good for Indians and Asians - all those groups that send money back home," Mr. Dueser said. He noted that a large percentage of the Hispanic population is from other countries besides Mexico, including Guatemala, Honduras, and Costa Rica.
First Financial, which has historically been an acquirer in the state, found prices not to its liking in 2006 and focused on making its banks more efficient, Mr. Dueser said.
"We've really spent time with those banks, and it has proven to be good for us," he said. "Sometimes it is good to sit on the sidelines, because when the right thing comes along at the right price, you are ready for it."
Plenty of other buyers have no such reservations.
Twenty-nine deals were announced in Texas in 2006, and 14 of them have been completed, according to Carson Medlin. Rounding out the top four were Florida and Illinois, both with 24 deals announced, and California, with 14.
Curtis Carpenter, the managing director for Sheshunoff & Co. Investment Banking in Austin, said the median multiple on these deals was 3.04 times tangible book value; the national median was 2.42. California banks garnered the second-highest multiple, 2.94.
Prosperity Bancshares Inc. of Houston did its part to keep Texas multiples high, announcing it was buying Texas United, of La Grange, for $357 million, 4.62 times the seller's tangible book value. The deal is expected to close this quarter and would bring Prosperity's assets to $6.5 billion.
Sellers' high prices and heavy competition are a normal part of banking in Texas, said Dan Rollins, Prosperity's president and chief operating officer.
"Pricing has been rich and strong, and is driven off of future opportunity," he said, adding that Prosperity is scouting for more deals. "The market believes there is future opportunity in Texas."
And though the national economy seems to be cooling, several observers said the Texas economy looks poised for continued strong growth this year.
"I don't see anything that is going to cause anybody to throw their brakes on," Mr. Rollins said. "The road appears to be relatively smooth."