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Prosperity Merges with East Texas

Zacks Equity Research

In an effort to strategically expand in the Texas region, Prosperity Bancshares Inc. (PB) declared the closure of its merger with East Texas Financial Services Inc. and its fully-owned subsidiary First Federal Bank Texas. Under the terms of the agreement, East Texas Financial merged with Prosperity whereas the subsidiary was merged with Prosperity Bank from January 1, 2013.

East Texas Financial had total assets of $191.2 million, total loans of $139.2 million and total deposits of $114.4 million as of September 30, 2012. Further, the company had 4 offices located in the Tyler Metropolitan Statistical Area of Texas.

The terms of the agreement entailed that Prosperity will issue 531,000 shares of its common stock for all outstanding shares of East Texas Financial capital stock and pay cash in lieu of fractional shares.

The CEO of East Texas Financial and First Federal Bank, Derrell Chapman, will serve as the president of Prosperity’s Tyler Banking Center, whereas Micheal Lavender and Joe Hobson will together serve as a the Senior Vice Presidents of Prosperity Bank.

Management at East Texas Financial believes that the merger with Prosperity Bank will provide its costumers a more diverse range of products and help maintain its custom of personalized banking. Further, it will enhance East Texas Financial’s shareholders’ value as well as provide significant benefit to its customers and associates.

Prosperity Bank has been aggressively growing inorganically in the state of Texas over the past one year. According to Forbes, the Texas market is popularly believed to be one of the fastest-growing economies of the U.S.

In July 2012, Prosperity acquired American State Financial Corporation in a cash-and-stock deal. Further, in April 2012, it completed the acquisition of The Bank Arlington in a stock deal. Similarly, in January 2012, Prosperity acquired Texas Bankers, Inc.

Amidst the sluggish economic recovery and uncertain regulatory environment, where most of the U.S. banks are struggling to maintain profitability, Prosperity is better placed with its strong second-quarter results. Further, its strategic acquisitions are expected to enhance its financials.

Prosperity currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We believe opportunistic acquisitions will lead to an improvement in efficiency and add to the company’s competitive edge, which might lead to upward estimate revisions. This in turn, could cause an improvement in its Zacks Rank. In the same sector, IberiaBank Corp. (IBKC) holds a Zacks #1 Rank (Strong Buy).


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