couple of years, but the more recent pace is surprising even longtime observers. Economic revitalization has taken hold in the Lone Star State, and with real estate prices moving back up and jobs on the rise, Texas banks are being snapped up this fall at a frenetic pace. "I've got investment bankers telling me that they've got 20 buyers for every bank for sale, so it's a real sellers' market," said Dennis McCuistion of McCuistion & Associates, an Irving, Tex., research firm. "It's the darndest thing I've ever seen - a real feeding frenzy." "Texas hit a historical banking high of 2,000 banks in the 1980s and now we're down to less than half of that, around 900 banks," said Christopher Williston, chairman and chief executive of Independent Bankers of Texas. "Between 300 to 350 banks were basically merged out of existence over the past three years." Added John Hazard, chairman and chief executive of $150 million-asset American Bank in Houston: "When the holding company act went into effect in the 1970s there was a lot of activity, but this is probably greater than even that." The number of mergers in Texas over the last six quarters has fluctuated, but it's still much higher than several years ago. According to John Minor, merger analyst with SNL Securities in Charlottesville, Va., the third quarter of 1995 saw nine mergers, compared with 16 in the third quarter of 1994. But so far this year, there have been 36 mergers in the state, compared with 29 during the same period last year. Besides an improving economy in the Sunbelt Region, another factor behind the M&A upswing is the North American Free Trade Agreement, which has proved to be a boon to the state. But the buying mood can also be attributed to the bank-merger boom itself. "I think the biggest reason is the big players are back in the market," Mr. McQuistion said. "You've got Bank One, the Pohlad Group up in Minnesota and Norwest among those who are actively searching for banks." He declared. "Also, there are several local banking groups who were bought out in the past few years who have some money and want to get back in. And there are groups from other states, such as Oklahoma and Arkansas, who are interested in establishing a foothold in Texas." James B. Gardner, managing partner for Dallas' Service Asset Management and former president and chief executive of Pacific Southwest Bank, said a few notable trends are becoming apparent: "What you're seeing is community banks in the $100 million to $300 million range in major cities and markets selling to the big boys at very, very attractive prices as big banks try and build up their presence in the big markets," Mr. Gardner said. "Another thing that's happening is other big banks moving into smaller towns and trying to buy the one or two largest banks in those towns." Mr. Gardner said rural banks are also trying to expand and are buying to do it. He noted that several of the large, out-of-state owned franchise are being rationalized. For instance, BankAmerica sold off two dozen rural branches to small community banks this summer. The aggressive acquisition pace, and the hefty offers community banks are being showered with, are a stark contrast with five years ago. "We were at the bottom of the well looking up at a black hole wondering if there was light at the top back then," Mr. Williston said of the state's economic problems in the late 1980s. "I don't think anybody could have predicted what has happened. It just wasn't comprehensible back then and I don't think it could have been. We've hit historical highs, and you can't predict something like that." "We've got a pretty stable economy in the state," said Jerry E. Finger, chairman and chief executive of Charter National Bank Houston, an active participant in the M&A market. "The state's economy is growing and it's a predictable, stable growth. People are more comfortable now and the banks are showing that." What about the future of independent banks in Texas? Mr. Williston said he feels another 10% to 20% of independent banks will become M&A statistics. "I think by the end of the decade we're really looking at going no lower than 700 banks in the state, and that would be the low end - more likely would be around 750," he predicted.

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