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Texas M&A slower, but Prosperity still hunting for deals

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Texas M&A slower, but Prosperity still hunting for deals

WhileM&A activity in Texas has slowed, Prosperity Bancshares Inc. Chairman and CEO David Zalmansaid April 27 that the company remains on the hunt for deals.

TheHouston-based company has been one of the most acquisitive banks in the U.S.,most recently announcing plans to acquire Tradition Bancshares for $76.5 million inAugust 2015. Prosperity closed that transaction early in 2016. TheProsperity/Tradition transaction was one of 22 bank and thrift deals announcedin Texas in 2015, according to SNL data. That level of M&A activity wasdown from 27 transactions announced in 2014.

BankM&A activity in Texas has slowed even further this year as oil prices haveremained under pressure, having fallen close to 60% since their recent peak inthe summer of 2014. SNL data shows that just three bank deals have been inannounced in Texas thus far in 2016, down considerably from eight transactionsand 10 transactions announced during the same time periods in 2015 and 2014,respectively.

SomeTexas bank executiveshave said that parts of the state are currently "on hold" from anM&A perspective, noting that potential buyers are waiting to see if stressin the oil and gas sector will spread elsewhere.

Oilprices have rebounded in the last month, and Prosperity's Zalman said during aconference call to discuss the company's first-quarterresults that the rebound in prices could the market. Zalman was askedon the call whether that stabilization could encourage more banks to sell, orif market volatility could prevent the company from pursuing a transactionlarger than the recent Tradition deal.

Theexecutive said he has always preferred larger transactions and would stillentertain a "bigger deal." Zalman said he remains confident in thecompany's due diligence team, and noted that Prosperity continues to talk toother banks about a possible transaction, highlighting that it spoke with twoor three different banks in the first quarter. When evaluating transactions, hesaid Prosperity must evaluate how much work the deal would require and balancethat effort against the assets it would receive. He noted that some potentialtargets have larger oil and gas portfolios, and acquiring those institutionssimply is not worth the company's time.

Zalmanbelieves further opportunities will eventually arise for Prosperity. While heexpressed the belief that the Texas economy could continue to prove resilient,he said Prosperity continues to hear from bankers that heightened regulatoryrequirements are pressuring profitability. He said those requirements, andmanagement and board fatigue will continue to create opportunities forProsperity.