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Prosperity signaling more interest in billion-dollar deals

Prosperity Bancshares Inc.'s stock price got hammered after its most recent deal, but Chairman and CEO David Zalman said the company remains on the hunt as it seeks to become a $50 billion-asset bank in about five years.

Prosperity currently has $22.38 billion of assets, and its purchase of LegacyTexas Financial Group Inc. would add $9.94 billion. Prosperity's shares dropped 7% the day it announced the deal on June 17 but subsequently closed some of the gap to the KBW Nasdaq Bank Index, with the help of about $53 million of stock repurchases in the second quarter.

The bank bought back as much stock as it could between blackout periods related to the deal announcement and its second-quarter earnings report on July 24, Zalman said July 30 at a Keefe Bruyette and Woods conference. "If we see that the stock doesn't hold up, we'll be back in there for sure," he added.

Zalman also said the acquisitions of two or three banks of about LegacyTexas' size that Prosperity had been exploring may yet happen. He said he mentioned the talks during the company's earnings call as a way "to communicate to the people that we were talking to" that Prosperity remains interested and to try "to keep everybody" the bank was "talking to on the line."

Prosperity is open to deals beyond its current footprint in Texas and Oklahoma, Zalman said. "We've looked at deals that are contiguous to the state of Texas and we've looked at deals that skip a state over," he said.

Prosperity also continues to be interested in smaller bank acquisitions within its current markets, Zalman said, holding up its 2016 purchase of Tradition Bancshares Inc. as an example. Tradition Bancshares had $547.3 million in assets at completion. "Those are easy for us to do," Zalman said.

Other banks presenting at the two-day community bank investor conference elaborated on their M&A outlooks.

Heartland Financial USA Inc. Executive Chairman Lynn Fuller said on July 31 that his company, which operates 11 independently chartered banks in 12 states, is actively cultivating M&A prospects across its sprawling footprint.

"We probably run a pipeline of 20 relationships at any one time," he said. "It's not uncommon for us to be looking at, and working on, four deals at one time," with about one-fifth converting into actual acquisitions.

Heartland, which is based in Dubuque, Iowa, focuses on buying banks with $500 million to $2 billion in assets. Its goal is to attain a critical mass of $1 billion or more in assets for each of its banks.

Fuller said Heartland's model as a consortium of independent banks and brands is attractive to sellers. "The position we really prefer to be in is building long-term relationships with banks we think would be good partners," he said. "Four of the last five [acquisitions] were negotiated transactions."

Heartland has announced 14 bank acquisitions since 2012.

Bank of Marin Bancorp President and CEO Russell Colombo described his company as an acquirer but said there were few targets available in its home region in the San Francisco area.

"The market for M&A in the Bay Area is shrinking a lot because there have been no new startups but a lot of activity," he said.

But the bank, which has a special focus on wine businesses, might be interested in an acquisition in the Central Coast region of California, which also has a significant wine industry.

"We have made some exploratory missions down there," Colombo said.