The eye-popping price that Trustmark Corp. agreed to pay for a Houston community bank shows just how eager out-of-state banking companies are to bulk up in one of the country's fastest-growing markets.
The $8.4 billion-asset Trustmark Corp. of Jackson, Miss., announced late Thursday that it has a deal to buy the $654 million-asset Republic Bancshares of Texas Inc. for $210 million - or five times Republic's book value.
Though the price is not particularly large, the price/book ratio would make the cash-and-stock deal one of the most expensive in this or any year. In the U.S. bank deals announced so far this year, sellers are fetching an average of 2.26 times book value, according to SNL Financial LC.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Nashville, said that banks are willing to pay top dollar to enter or add market share in and around Houston, the nation's fourth-largest city. The population of the Houston metropolitan statistical area has grown an average of 15% a year over the past five years, and the growth is showing no signs of slowing down.
"You've got a huge market, you've got deposit share opportunity, and it's a growing market," Mr. Rabatin said. "So if you're anywhere in the region, why aren't you in Houston?"
Late last year Zions Bancorp. in Salt Lake City paid $1.7 billion, or about 4.25 times book value, for the $9 billion-asset Amegy Bancorp Inc. in Houston, and in late 2004, Wells Fargo & Co. paid nearly 5.4 times book for the $564 million-asset First Community Capital Corp. in Houston.
Buyers are paying up to be in other markets in Texas as well. Compass Bancshares Inc. in Birmingham, Ala., paid just under four times book value for the $1.6 billion-asset TexasBanc Holding Co. in Fort Worth this year, and Grupo Financiero Banorte's $259 million deal for a 70% stake in INB Financial Corp. in McAllen, announced in January, works out to nearly 6.7 times INB's book value.
Trustmark entered Texas in early 2004 when it bought the majority of the assets of the $210 million-asset Allied Bank in Houston. Today, Trustmark has five branches in the Houston area, and five more on the drawing board, and it would gain six more in its deal for Republic, which is expected to close next quarter.
The deal would more than triple Trustmark's loans in the Houston market, to about $670 million, and would boost deposits from less than $200 million to more than $750 million.
Richard G. Hickson, Trustmark's chairman and CEO, said in an interview that the deal would "continue our geographic diversification into the high-growth markets of Florida and Texas."
Most of Trustmark's branches are in slower-growing markets in Mississippi, where it ranks No. 1 in deposit share. After buying Republic, it would have 11% of its deposits in Texas, up from its current 2.5%.
Peyton Green, another analyst with FTN Midwest Research, said another reason Trustmark is paying such a high price for Republic is to gain a top-notch management team with extensive experience and contacts in the Houston market.
Republic is only 8 years old, but C.P. "Chip" Bryan, its chairman, chief executive, and co-founder, has about 38 years of banking experience in the Houston market. Mr. Bryan would become the chairman and CEO of Trustmark's Texas operations.
"The premium price that was paid reflects how important it is to get a management team that gives you instant credibility in the market that can achieve corporate growth goals," Mr. Green said.
Republic's net income has increased by an average of 56.4% a year since 2000. Last year its profits rose 37.5%, to $6.6 million.
Mr. Green called Republic a "very solidly profitable franchise, even though it's young."
Republic, primarily a commercial lender, would be merged into Trustmark National Bank.
In an interview Friday, Mr. Bryan said that the deal is a good one for Republic's customers, because it would give them access to more products and services, as well as larger loans.
"We've been needing to add products and services to continue growth in Houston, and Trustmark allowed us to do that," he said. "We needed the wealth management, trust, and treasury management services that are already in place at Trustmark."
Mr. Hickson said that Trustmark would probably not make any more deals in Houston; instead, it would use Republic as a platform for organic growth there.
"With their market knowledge," he said of Mr. Bryan and his team, "I don't think it will be necessary to make another acquisition in Houston."
