Acquisition would move fast-growing Texas bank into public finance

The headquarters of Texas State Bankshares, holding company for Texas Regional Bank. Acquiring Estrada Hinojosa would round out the fee-revenue-producing business lines that Harlingen-based Texas State has been building for more than a decade.

Texas State Bankshares in Harlingen is taking a big plunge into public finance, announcing Monday a deal to acquire one of the nation’s biggest municipal advisory firms.

The $2.6 billion-asset Texas State, holding company for Texas Regional Bank, has agreed to buy Estrada Hinojosa & Co., a 48-person firm with offices in its headquarters city of Dallas, San Antonio, Austin, Miami, Chicago and New York. Founded 1992, Estrada Hinojosa was recently ranked as the No. 4 municipal advisor nationally during the first half of 2023 by Refinitiv, a London-based market research firm.

According to Texas State’s chairman and CEO, Michael Scaief, Estrada Hinojosa has participated in more than 2,500 municipal advisory transactions valued at more than $190 billion. Estrada Hinojosa has underwritten another 4,600 deals valued at more than $460 billion. The firm is the No. 1 municipal advisor in Texas, according to the Refinitiv rankings.

Texas State Bankshares Chairman and CEO Michael Scaief

“This is an exciting and well-matched partnership that will expand our services to capital markets and further complement our commercial banking franchise,” Scaief said Monday in a press release. “With the addition of Estrada Hinojosa and the capital of [Texas Regional Bank], we can offer a full suite of financial solutions to public entities of all sizes.”

The purchase price was not disclosed.

While acquiring Estrada Hinojosa would give it significant new public finance capabilities, Texas State is no stranger to working and partnering with state and local government entities. In 2019, it hired Alex Meade, then the city manager of Pharr, Texas, as senior vice president for economic development and public finance. In March, Texas Gov. Greg Abbott appointed Meade to a four-year term on the state’s Transportation Commission. 

Meade’s work advising local governments throughout Texas has helped Texas State build a portfolio of municipal deposits that totaled $365.6 million at year-end 2022. About a year ago, when the bank decided to expand into municipal advisory and underwriting, one of the first calls it made was to Estrada Hinojosa’s chairman and CEO, Noe Hinojosa, according to Scaief.

“Noe’s a friend of ours,” Scaief said in an interview Monday. “We all know him. He’s a household name in Texas. As a courtesy, we let him know that we wanted to work with him, not against him. That started a conversation that turned into something better.”

Similarly, Texas State is no stranger to bank and nonbank merger-and-acquisition activity. In July 2022, the privately held company paid an undisclosed sum to acquire AccessBank Texas in Denton. The deal moved Texas State into the sprawling Dallas marketplace. In December, Texas State acquired Mission Duncan Insurance in Mission, Texas, giving it and entree into the insurance field. Reorganized as TRB Insurance, Texas State’s agency offers life, auto and commercial insurance. 

For Texas State, acquiring Estrada Hinojosa would further round out the fee-revenue-producing business lines it has been building for more than a decade. Texas State got its start in 2010, after purchasing the $17.3 million-asset Falfurrias State Bank in Harlingen. Since then, the company has added trust, wealth mortgage, international private banking and insurance, Scaief said.

Falfurrias State reported $325,000 of noninterest income in 2009. For 2022, Texas State reported $12.2 million in fee income.

Noe Hinojosa said linking with a bank would spur growth by widening the firm’s access to capital. “The combination of [Texas Regional Bank] capital and our team’s significant years of experience in public finance will enable us to gain market share in municipal advisory, underwriting and trading in Texas and across the nation,” Hinojosa said in the press release. The deal is slated to close in the fourth quarter, at which time Hinojosa would become president of Texas State’s capital markets division and a member of Texas Regional Bank’s executive committee and board of directors. 

Texas State has been in an expansion mode for much of 2023, opening branches in Austin, Cypress and San Antonio and breaking ground on an additional location in Rio Grande City in June. The Rio Grande branch, which will be its 30th, is expected to open early in 2024. Texas State reported net income totaling $17.4 million in 2022, down from $18 million in 2021.

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