Prosperity Bank to acquire two Texas community banks for $570M

Dive Brief:

Houston-based Prosperity Bank will acquire two small Texas community banks in separate deals worth about $570 million, the bank announced Tuesday.
The acquisitions of FirstCapital Bank of Texas, headquartered in Midland, and Lone Star State Bank of West Texas, headquartered in Lubbock, are both expected to close in the first quarter of 2023.
Prosperity Bank made headlines last month for becoming the first Paycheck Protection Program (PPP) lender to settle a False Claims Act case with the Justice Department. It agreed to pay more than $18,000 to resolve allegations it knowingly processed a loan for an ineligible business.

Dive Insight:

Prosperity plans to pay roughly $341.6 million for FirstCapital and $228.7 million for Lone Star. Buying FirstCapital would give Prosperity 16 additional locations in north, central and west Texas, and bolster the bank’s balance sheet with $2.1 billion in total assets, almost $1.6 billion in loans of and nearly $1.8 billion in deposits.

The Lone Star deal would give Prosperity six added locations in west Texas, as well as about $1.3 billion in assets, $933.5 million in loans and nearly $1.2 billion in deposits. The total would push Prosperity’s brick-and-mortar footprint to nearly 300 locations, and its asset total past $40 billion.

Management from both banks will join Prosperity. Lone Star CEO Alan Lackey will become Prosperity’s West Texas area president. FirstCapital Bank CEO Ken Burgess will also become a regional president, the Houston-based bank said.

A representative for Prosperity did not return a Banking Dive request for comment.

Cullen Zalman, Prosperity’s senior vice president of banking and corporate activities, told American Banker that executing the two acquisitions concurrently “really bolster[s] our presence in [West and Central Texas] and deepen[s] our bench strength there.”

Acquiring FirstCapital brings Prosperity back into “the desirable Wichita Falls and Amarillo markets” and other areas in “high-growth Central Texas,” CEO David Zalman said in a prepared statement.

Lackey touted Prosperity’s “financial strength and regional footprint” in a statement about the partnership, while Burgess, of FirstCapital, called it an excellent fit because “[t]he ability to remain as a community-oriented bank serving our markets with the same people was important to us.”

Prosperity’s FirstCapital acquisition breaks down to $93.4 million in cash and nearly 3.6 million shares of Prosperity stock to FirstCapital shareholders. For Lone Star, that breakdown is $64.1 million in cash and more than 2.3 million shares.

Prosperity’s last acquisition — a $2.1 billion deal for LegacyTexas Financial Group — closed in 2019.

Prosperity’s recent PPP settlement may represent a good-faith move, in an enforcement sense, before announcing this week’s deals.

“Banks are apt to settle to clear a pathway,” said Richard Horn, a former senior counsel in the Consumer Financial Protection Bureau, told Bloomberg Law last fall. “If they’re looking to get approval from their banking regulator for a particular activity — a merger or something else — it’s not good to have pending [allegations].”