Prosperity Bancshares in Houston has agreed to acquire two Lone Star state community banks for $570 million in cash and stock. The deals, announced Tuesday, would deepen the company's West Texas footprint while boosting deposits and adding senior talent, executives said.
"By doing both of these together we can really bolster our presence in that region and deepen our bench strength there," Cullen Zalman, Prosperity's senior vice president of banking and corporate activities, said in an interview.
The $37.4 billion-asset Prosperity said it would pay $341.6 million for First Bancshares of Texas in Midland, which has 16 branches and assets of $2.1 billion, and $228.7 million for Lone Star State Bancshares in Lubbock, which has nine branches and $1.3 billion of assets.
Both deals are expected to close in the first quarter of 2023, Prosperity said.
"The kind of density and scale we are building with these" deals "really starts to create something special," Zalman said.
First Bancshares finished the second quarter with total loans of $1.6 billion and total deposits of $1.8 billion. First Bancshares CEO Ken Burgess and several other members of the bank's management team would join Prosperity as regional presidents leading the West Texas and Central Texas areas.
"The ability to remain as a community-oriented bank serving our markets with the same people was important to us," Burgess said in a joint press release. It is "an opportunity to be part of a larger community bank and offer customers additional products, a larger branch network and the financial strength of a premier banking organization," Burgess added.
Lone Star, meanwhile, reported total loans of $933.5 million and total deposits of $1.2 billion. Its CEO, Alan Lackey, plans to join Prosperity as West Texas president, while Melisa Roberts, Lone Star's chief lending officer, would join as a vice president for the region. Additional members of the Lone Star management will maintain leadership roles in the combined organization, Prosperity said.
"We are excited to unite Lone Star's diversity of revenue, assets and commitment to excellent service in the communities we serve with the financial strength and regional footprint that Prosperity Bank offers to fortify our combined capabilities in the West Texas region," Lackey said in the press release.
These are Prosperity's first M&A deals for Prosperity in the current decade. It acquired 10 banks in the decade leading up to the 2020 pandemic; the latest was its
Zalman said the company's long M&A history and experience navigating regulatory hurdles give Prosperity confidence it can close and integrate both acquisitions without interruption.
"Nothing is a layup," Zalman said in the interview. "But we have a lot of experience with this … and we always try to keep very good working relationships with all of our regulators. We have no reason to believe this won't come together as planned."
Regulators this year have ramped up scrutiny of acquisitions
"Doing two deals at once, while not unheard of, is definitely not common," Thompson said in an interview. "But if anybody knows their way around deals in Texas, and has the resources and proven experience in place, it's Prosperity."
The bank "is one of a few that have become serial acquirers, and these banks treat M&A as a line of business and make sure they are very good at it," Thompson said. "There is an element of integration risk here, doing two at once, but I do think Prosperity has the credibility needed to do this."
John Rodis, an analyst at Janney Montgomery Scott, said after combining the financials of the two deal deals, Prosperity is looking for earnings-per-share accretion of about 3% in 2023 and 5% the following year. This is based on expected cost savings of 25% for both deals. About 75% of savings are expected next year and 100% in 2024.
Prosperity expects to earn back tangible book value dilution of 3% in a little over two years.
"These estimates seem reasonable" based on the relative size of the transactions, Rodis said.
He noted that First Bancshares and Lone Star have roughly 9% the assets and market capitalization of Prosperity.
