First Horizon National Corp.'s decision to unload its Texas branches came at a perfect time for Sterling Bancshares Inc. of Houston.
The $4.4 billion-asset Sterling had been looking to get into Fort Worth to capture customer runoff from mergers there, and it had been eager to become more visible in Dallas.
On Tuesday, Sterling announced that it is buying 10 First Horizon branches in Dallas and Fort Worth to more than double its branch network in the state's largest metropolitan market.
"This transaction is an ideal way for us to achieve critical presence in Dallas and provide us with an entry into the growing Fort Worth market," J. Downey Bridgwater, Sterling's chairman, president and chief executive officer, said in a press release.
The branches are among 34 that
Sterling executives did not say how much it would pay, except to say it would be far less than it would have spent to buy a bank in the Dallas area.
Its challenge is making the branches more profitable. First Horizon had been in the market only since 2004, and the branches Sterling is buying have an average of $10 million of deposits. Sterling officials said it is aiming to more than double that total at each branch it is buying.
First Horizon has targeted mainly consumers, but Jefferson Harralson, a managing director with KBW Inc.'s Keefe, Bruyette, & Woods Inc., said he would expect Sterling to boost deposits by going after business customers. "The commercial and industrial business is relatively deposit rich," Mr. Harralson said. "You get deposits from the business, the proprietors, and even the employees."
Sterling is "putting a lot of money into becoming better known in the Dallas-Fort Worth area, and going after small businesses is a stable way of going after deposits," he said.
Still, adding commercial lenders to bring in loans and deposits could be easier said than done, Mr. Harralson said. "Lenders have been getting more and more expensive in Texas. While the locations are strong, it will create a need to hire a more focused lender base."
Chris Reid, Sterling's vice president of investor relations, said it would pick up some lenders, but agreed that it would likely need to add more.
The deal also includes $81 million of loans and land in Lewisville, Arlington, and Fort Worth where First Horizon had intended to build branches. Mr. Reid said that Sterling would not consider building on those sites until the branches it is buying hit their deposit targets.
Sterling entered the Dallas market in 2000 by building a branch and later acquired Eagle National Bank and Oaks Bank and Trust. It now has seven branches in the Dallas area, compared with about 30 in Houston.
Sterling has been especially eager to enter Fort Worth, which has undergone significant consolidation in the past year. Banco Bilbao Vizcaya Argentaria SA bought State National Bancshares Inc., Cullen/Frost Bankers Inc. in San Antonio bought Summit Bancshares Inc., and Compass Bancshares Inc. of Birmingham, Ala., bought TexasBank. Moreover, BBVA's recent acquisition of Compass could create further disruption in the market.
"It's a good time to get into that market and establish ourselves as a bank there," Mr. Reid said. Eventually, Sterling would like its Dallas market share to match its Houston share, he said.
Mr. Harralson agreed that Fort Worth presented a great opportunity for Sterling. "It's a good time to be setting up shop in Fort Worth," he said. "It's a strong market, and with that kind of volatility, it is a good time to get some market share there."
Dan Bass, the managing director of the Houston office of Carson Medlin Co., said a branch acquisition makes more sense than acquiring a bank because Sterling already operates in the market.
"The price expectations for whole banks is pretty high, so this was easier to get done," he said. "They have the infrastructure and back office, so they can just leverage what they have."
