In a bid to further expand its presence in Texas, Prosperity Bancshares, Inc. PB has inked a deal to acquire LegacyTexas Financial Group, Inc. LTXB for $2.1 billion. The stock cum cash transaction is expected to close in fourth-quarter 2019, and will create the second largest Texas-based bank in terms of deposits.
The deal has been approved by the board of directors of both the companies. It is still subject to approvals from LegacyTexas and Prosperity Bancshares shareholders as well as the regulators.
David Zalman, Chairman and CEO of Prosperity Bancshares, said “LegacyTexas has been serving the North Texas area for more than 60 years and we believe that our banks are complementary and provide many opportunities for continued growth. This is a rare opportunity to significantly enhance our presence in the Dallas/Fort Worth MSA, a market with a diverse economy that is continually attracting investment and has a growing population.”
Transaction Details & Benefits
Per terms of the deal, shareholders of LegacyTexas will receive $6.28 cash and 0.5280 shares of Prosperity Bancshares for each LegacyTexas share.
Following the closure, Prosperity Bancshares’ footprint will significantly expand in and around the Dallas-Fort Worth area as LegacyTexas has 42 branches in 19 cities there. Also, the combined company will have $32 billion of assets, $24 billion of deposits and a diversified loan portfolio worth $19 billion.
Moreover, LegacyTexas President and CEO, Kevin Hanigan, become the President and Chief Operating Officer of Prosperity Bancshares. Also, LegacyTexas EVP and Chief Financial Officer, Mays Davenport will be named as EVP and Director of Corporate Strategy of Prosperity Bancshares.
Further, Prosperity Bancshares will increase the size of the company board to 14 and add three LegacyTexas representatives – Kevin Hanigan, Bruce Hunt and George Fisk – to it.
The deal will be accretive to Prosperity Bancshares earnings by approximately 10.3% in 2020 and will lead to expense savings of 25% of LegacyTexas’ non-interest expense base (with 50% phase-in in 2020 and 100% thereafter). Notably, no revenue synergies were taken in to consideration while calculating these benefits.
Further, the acquisition will enhance Prosperity Bancshares’ loan-to-deposit ratio to 71% from 61%. Besides, the deal will result in one-time pre-tax charge of $60 million.
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. Since 1998, the company has completed more than 30 deals.
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.
Over the past six months, shares of Prosperity Bancshares have rallied 5.4%, marginally outperforming the industry’s rise of 5.2%.
Of late, consolidation in the banking sector is on the rise, driven by easing of stringent regulations and lower corporate tax rates that freed up capital. Several mid-size banks, including Fifth Third Bancorp FITB, SVB Financial Group SIVB and People's United Financial, Inc. are undertaking opportunistic buyouts that will not only lead to geographic expansion but will also help diversify revenue base.
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