Whitney Holding Corp. of New Orleans is buying banks in its home state again.
After years of focusing on expanding in such states as Florida, Texas, and Alabama, the $10.8 billion-asset Whitney said Monday that it has a deal to buy the $763 million-asset Parish National Corp. in Covington, La., for $165 million in cash and stock.
The acquisition would be Whitney's first in Louisiana since early 2001 — and there could be more to follow. Whitney has expressed plans to capitalize on its status as the largest banking company based in Louisiana, and observers say that with high oil and natural gas prices giving the state's economy a boost, now appears to be a good time to bulk up there.
The deal for Parish National is pricey, and analysts said one potential downside is that it could diminish capital at a time when Whitney might need the cushion to deal with potential losses on Florida construction loans.
An active acquirer of Louisiana banks in the 1980s and 1990s, Whitney shifted its focus in recent years to faster-growing states. It has bought eight out-of-state banks in the last eight years, including four in Florida in the last four years.
But with three out-of-state companies — Capital One Financial Corp., JPMorgan Chase & Co., and Regions Financial Corp. — controlling half of Louisiana's deposits, Whitney's board laid out a strategic plan late last year to build on its 125-year history and win market share from competitors.
"We have a strong brand in this part of Louisiana, and we want to try and leverage that as the last large bank headquartered in New Orleans," John M. Turner, Whitney's president, said in an interview Monday.
Buying Parish National would more than double Whitney's branch network along the north shore of Lake Pontchartrain, adding 11 branches in Saint Tammany, Tangipahoa, and Washington parishes. More significantly, the purchase would raise Whitney's deposit share in those parishes from No. 9 to No. 2, according to Mr. Turner.
John C. Hope 3rd, Whitney's chairman and chief executive officer, said the deal for Parish "is a first step in achieving its expansion goals."
Analysts said that in addition to having a strong economy, Louisiana is a good place to buy these days, because there are fewer banks there than there are in other states.
"Typically there is better pricing and higher margins there, because there is less competition," said Bain Slack, a senior vice president with KBW Inc.'s Keefe Bruyette & Woods Inc. "This also signals that while they may have some obstacles in their Florida markets, management is still willing to allocate capital for growth opportunities."
Mr. Hope said Parish would be a great fit for Whitney, because both companies target wealthy individuals and small and midsize businesses. Whitney plans to keep Parish's management team.
Parish has been a strong performer. In the first quarter its earnings rose roughly 72% from a year earlier, to about $2.9 million. Its return on equity was 13.49%, and its return on assets was 1.1%, compared with the nationwide averages of 8.94% and 0.89% for banks with $500 million to $1 billion of assets, according to Federal Deposit Insurance Corp. data.
Its ratio of noncurrent loans to total loans is better than the industry average. Its $580 million loan portfolio is heavily concentrated in construction and development and commercial real estate, however, and that concentration has the potential to cause problems later, according to Kevin Fitzsimmons, a managing director at Sandler O'Neill & Partners LP.
"Even though Louisiana isn't one of the places getting cited for real estate problems, those segments are under pressure these days," Mr. Fitzsimmons said. "It looks like a profitable bank, but at this point in the cycle you are a little suspect that anyone is choosing to sell now."
Whitney has 18% of its loan portfolio in Florida, and buying Parish could reduce capital when it needs it most, Mr. Fitzsimmons said. The deal price works out to about 2.8 times Parish's tangible book value.
"I think from Whitney's standpoint, that kind of price takes their good, healthy capital position and uses it, diminishing the capital surplus Whitney had," Mr. Fitzsimmons said. "Maybe people saw Whitney as a safe haven, because of the high ratio they had."
Whitney would not say what its capital ratios would be after the deal's closing, which is set for the fourth quarter, but it said it would remain well capitalized by regulatory standards.
Whitney's shares fell 2.5% Monday, to close at $20.64. Parish is privately held.
