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In an attempt to expand its footprint in Texas, Cullen/Frost Bankers, Inc. (CFR - Analyst Report) has signed a definitive merger agreement with WNB Bancshares, Inc., under which the latter will merge into Cullen/Frost. This marks the first bank acquisition for Cullen/Frost since 2006 when it bought Fort Worth-based Summit Bancshares Inc. for about $360 million.

The transaction will likely close in Jan 2014 and is subject to certain regulatory approvals, such as that from the Federal Reserve and the Texas Department of Banking, along with customary closing conditions. On completion of the deal, WNB Banshares’ senior management, including board members will remain with Cullen/Frost.

The cash and stock deal is valued at $220 million. Cullen/Frost will issue 2 million shares, and fund the rest of the deal with cash. The 2 million shares will be equal to the volume weighted average price of the company’s common shares during the 10 trading days prior to the deal’s completion.

Further, the purchase price of $220 million can be revised upwards or downwards, depending on WNB Bancshares’ targeted book equity value of $87 million during completion of the deal. At present, the transaction is expected to contribute about 4% to Cullen/Frost's 2014 earnings per share excluding restructuring charges.
 
WNB Bancshares, which operates in the heart of The Permian Basin, is a profitable acquisition for Cullen/Frost. The particular region is the primary driver of Texas’ booming oil and gas business. The Permian Basin is responsible for about 14% of the oil produced in the United States and 57% of the oil produced in Texas.

The merger will be strategically advantageous for both Cullen/Frost and WNB Bancshares. It will enable Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets. For customers of WNB Bancshares, the merger will facilitate access to Cullen/Frost's wide range of financial products and services.

Cullen/Frost currently carries a Zacks Rank #3 (Hold). Some better performing banks in the same sector include Sierra Bancorp (BSRR - Snapshot Report), Prosperity Bancshares Inc. (PB - Analyst Report) and Glacier Bancorp Inc. (GBCI - Snapshot Report). All of them carry a Zacks Rank #1 (Strong Buy).

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