For years banks from other states have been eager to enter Texas.
Now at least a handful of them are weighing branch sales there. It's not that these sellers have soured on the Lone Star State, which continues to hold up relatively well despite the recession. It's just that they need capital.
Take First Banks Inc. of St. Louis, which announced such a branch sale late Monday. The $10.2 billion-asset company is struggling with heavy losses on residential construction loans in Florida and California. It has yet to report second-quarter results, but posted $376.6 million in losses over the five previous quarters.
With Texas still considered attractive, companies can fetch quick cash for branches there.
Sterling Bancshares Inc. in Houston agreed to pay a 6% deposit premium, or $30 million, for First Banks' 19 branches and $500 million in deposits in the state. The premium is among the highest for branch deals announced this year.
Though some suggested branch sales also could come from Citigroup Inc., a spokeswoman flatly denied any such plans Tuesday. "We remain committed to growing that business," she said.
But already on the block are branches from the teetering Colonial BancGroup in Montgomery, Ala., and one from the $1.5 billion-asset Premier Bancshares Inc. in Jefferson City, Mo., industry observers said.
Others that might divest Texas operations include FBOP Corp. in Oak Park, Ill., and Hillcrest Bancshares Inc. in Overland Park, Kan., the observers said.
The $26 billion-asset Colonial declined to comment. None of the others returned calls by press time.
"If they are having issues at home and need to shrink their balance sheet by divesting something, Texas is a good place to do it," said Dan Bass, the managing director in the Houston office of Carson Medlin Co., who consulted for Sterling. "You can still find a buyer here and still get value, especially compared to places like Florida or Georgia, where buyers can wait for a failed bank deal."
In June, the Colorado branches of First State Bancorp. in Albuquerque also received a 6% deposit premium. National Bank of Australia's U.S. subsidiary acquired the 20 branches and $477 million in deposits for $28.6 million.
First Banks' Texas branch sale tied the Colorado one for the highest premium this year, according to data from Carson Medlin.
Still, the price is well below the amount First Banks spent to get into Texas and build its presence there, the data showed. It had paid $108 million to acquire four banks in the state.
Terrance M. McCarthy, president and chief executive of First Banks, was unavailable on Tuesday, but said in a press release that his company plans to sell more of its valuable pieces to raise capital. It aims to divest from the Chicago market, where it has $640.5 million in loans and $1.2 billion in deposits. It also plans to exit noncore businesses, which it said could bring $40 million to $50 million of capital.
Clark Locke, a vice president and the head of Texas investment banking operations for Hovde Financial Inc., is working with First Banks. In an interview, he said that selling the Texas branches was the best first bet, given the potential for a strong premium and the overall impact on the company's franchise.
Divesting from its home turf of St. Louis and southern Illinois was not an option the company sought, he said, and Texas is more attractive to buyers than either California or Florida.
"A buyer is willing to pay more of a premium in Texas, where the unemployment rate is 7%, than they would be in California, where the unemployment level is 11%. There is much more of a comfort level in Texas," Locke said. "Florida is not saleable right now."
Brad Milsaps, a managing director with Sandler O'Neill & Partners, said the First Banks branches are a good fit for Sterling, even though it paid a full price.
Sterling, which has 29 Houston branches, will add 11 in what appear to be good locations, Milsaps said. In Dallas its branch count will go from 17 to 25.
Sterling did not return a call.
First Banks likely won't be the last to move out of Texas.
The $17.4 billion-asset FBOP is said to be actively looking at ways to increase its capital ratios, including potentially divesting one or all of its three Texas banking subsidiaries: the $101 million-asset Citizens National Bank in Teague, the $241 million-asset Madisonville Bank of Lemont in Madison, and the $352 million-asset North Houston Bank.
At the $1.9 billion-asset Hillcrest, nonperforming loans climbed to 8.8% of total loans at the end of the first quarter. Though its bank unit remains well capitalized, the total risk-based capital ratio, at 10.68%, seems thin, given the rising loan trouble, industry observers said.
Many Texas banks are well positioned to pick up divested branches. Observers said potential buyers include Comerica Inc. in Dallas, Prosperity Bancshares Inc. in Houston, Green Bank in Houston and Cullen/Frost Bankers Inc. in San Antonio. And Sterling, with an additional capital raise, would be able to buy more, they said.
Out-of-state banks that could be interested in bulking up in Texas include UnionBanCal Corp., Bank of the Ozarks Inc. in Little Rock and American Momentum Bank in Tampa, the observers said.
Those with shell charters are also believed to be eyeing acquisition opportunities in the state.
Sam Davis, the president and chief operating officer at the $500 million American Momentum, said it wants to buy or build branches in particular Texas markets, though he declined to say which ones.
Joanne Curran, a spokeswoman at the $74 billion-asset UnionBanCal in San Francisco, said her company, which is owned by Mitsubishi UFJ Financial Group Inc., has "a long history" in Texas and many lending relationships there, particularly in the oil and gas industry.
She would not comment on whether Union would consider buying branches in the state. It has no Texas branches now.
But she confirmed that Union is seeking regulatory approval to acquire the charter of the $105.9 million-asset Texas First Bank in Winnie from Texas Independent Bancshares Inc. Union said in its regulatory filing that having the charter would allow it to open branches in Texas.
Other companies mentioned as potential buyers or sellers either did not comment, did not have an executive available, or did not return a call.