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Prosperity Bancshares Closes Buyout of LegacyTexas Financial

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Prosperity Bancshares, Inc. PB has closed the acquisition of LegacyTexas Financial Group, Inc. for $2.1 billion. The stock and cash transaction, announced in June, has further expanded the company’s presence in Texas.

Also, LegacyTexas Bank was merged into Prosperity Bank. LegacyTexas' operations will continue as “Prosperity Bank dba LegacyTexas Bank” till the systems conversion are completed by early June 2020. Following the conversion, the combined entity will operate as Prosperity Bank.

David Zalman, Senior Chairman and Chief Executive Officer of Prosperity Bancshares, said “This transaction represents a milestone in Prosperity's strategic growth and we welcome the LegacyTexas customers and associates to Prosperity Bank. This merger creates one of the largest Texas-based banks by deposits, and makes Prosperity Bank a dominant player in the vibrant markets of Houston and Dallas/Fort Worth.”

Deal Details

At the time of announcement, shareholders of LegacyTexas were to receive $6.28 cash and 0.5280 shares of Prosperity Bancshares for each LegacyTexas share.

Prosperity Bancshares’ footprint significantly expanded in and around the Dallas-Fort Worth area as LegacyTexas has 42 branches in 19 cities there. Also, the combined company has $32 billion of assets, $24 billion of deposits and a diversified loan portfolio worth $20 billion.

LegacyTexas President and CEO, Kevin Hanigan, became the President and Chief Operating Officer of Prosperity Bancshares. LegacyTexas EVP and Chief Financial Officer, Mays Davenport will be named as EVP and Director of Corporate Strategy of Prosperity Bancshares.

Further, Prosperity Bancshares increased the size of the company board to 14 and added three LegacyTexas representatives – Kevin Hanigan, Bruce Hunt and George Fisk – to it.

Financial Benefits

At the time of deal announcement, it was noted that it will be accretive to Prosperity Bancshares’ earnings by approximately 10.3% in 2020. Also, it will lead to expense savings of 25% of LegacyTexas’ non-interest expense base (with 50% phase-in in 2020 and 100% thereafter).

Further, the acquisition is expected enhance Prosperity Bancshares’ loan-to-deposit ratio to 71% from 61%. Also, the deal will result in one-time pre-tax charge of $60 million.

Our Take

Acquisitions remain a major contributor to Prosperity Bancshares’ growth. Over the years, the company has significantly expanded its operations through the buyout of community banks and branches of other banks.

Inorganic growth strategy has supported Prosperity Bancshares’ revenue growth. The company’s net revenues witnessed a six-year (2013-2018) CAGR of 4.6%. This upside mainly stemmed from higher loan balances. The bank has been also able to improve its deposit mix.

Given the strong balance sheet position and negligible debt, this Zacks Rank #3 (Hold) company is well poised to grow through opportunistic deals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So far this year, shares of Prosperity Bancshares have rallied 14.1%, outperforming the industry’s rise of 12.3%.

Consolidation in the banking sector is currently on the rise, driven by easing of stringent regulations and lower corporate tax rates that freed up significant capital. Several mid-size banks, including First Horizon National Corporation (FHN - Free Report) , Valley National Bancorp VLY, Associated Banc-Corp ASB, BancorpSouth Bank and People's United Financial, Inc. are undertaking opportunistic buyouts. These will not only lead to geographic expansion but also help diversify revenue base.

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