Prosperity Bank to Acquire Two Texas Community Banks for $570 Million

Diving brief:

  • Houston-based Prosperity Bank will acquire two smaller 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 Department of Justice. He agreed to pay more than $18,000 to resolve allegations that he knowingly processed a loan for an ineligible business.

Overview of the dive:

Prosperity expects to pay approximately $341.6 million for FirstCapital and $228.7 million for Lone Star. The purchase of FirstCapital would give Prosperity 16 additional locations in North, Central and West Texas, and strengthen the bank’s balance sheet with $2.1 billion in total assets, nearly $1.6 billion in loans and nearly $1.8 billion in deposits.

The Lone Star deal would give Prosperity six additional locations in West Texas, as well as approximately $1.3 billion in assets, $933.5 million in loans and nearly $1.2 billion in deposits. The total would bring Prosperity’s physical footprint to nearly 300 locations, and its assets would total more than $40 billion.

The management of both banks will join Prosperity. Lone Star CEO Alan Lackey will become president of Prosperity’s West Texas region. FirstCapital The bank’s CEO, Ken Burgess, will also become regional chairman, the Houston-based bank said.

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

Cullen Zalman, Prosperity ssenior vice president of banking and corporate affairs, told American Banker that executing the two acquisitions simultaneously “really strengthens[s] our presence in [West and Central Texas] and deepen[s] our bench strength there.

AFirstCapital acquisition brings Prosperity back to “desirable markets of Wichita Falls and Amarillo” and other “high-growth Central Texas” regions, CEO David Zalman said in a prepared statement.

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

Prosperity’s acquisition of FirstCapital breaks down into $93.4 million in cash and nearly 3.6 million shares of Prosperity for FirstCapital shareholders. For Lone Star, that split is $64.1 million in cash and over 2.3 million shares.

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

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

“Banks are likely to settle in to clear a path,” Richard Horn, former senior counsel for the Consumer Financial Protection Bureau, told Bloomberg Law last fall. “If they’re seeking approval from their banking regulator for a particular activity – a merger or whatever – it’s not good to have pending [allegations].”

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