Wheeling and dealing
Prosperity Bank’s CEO sizes up the market for acquisitions.
By Collin Eaton
Prosperity Bank has inked a whopping 42 deals to scoop up smaller banks across Texas and Oklahoma since David Zalman joined the community lender in 1986.
“And 40 of them were great,” Zalman joked in a recent interview. (A public relations executive quickly interjected: “Don’t put that in!”)
The $22.6 billion institution, one of Houston’s largest, has purchased 31 other banks during Zalman’s tenure as chief executive since 2001. Despite its reputation as a consolidator in Texas’ financial industry, Prosperity hasn’t gone back to the auction block since 2016. That could change soon.
The environment for local bank mergers and acquisitions has greatly improved since Prosperity snapped up Houston’s Tradition Bank about two years ago. Higher interest rates have padded bank profits, Houston’s economy has largely escaped the doldrums of the oil bust, and sweeping corporate tax cuts have freed up money, Zalman said.
Houston’s Cadence Bancorp and Allegiance Bancshares recently struck separate deal to acquire other lenders. Icon Bank of Texas and Bank of River Oaks, both of Houston, sold themselves in recent months to out-oftown institutions.
Zalman spoke with the Houston Chronicle earlier this week about Houston’s economy, regulations, lending and the potential for bank mergers.
Q: Prosperity in the market again?
A: We’re looking at deals constantly.
Q: How’s the Houston market for lending right now?
A:
Our loan growth is very strong right now, especially in the Houston market. But one of our challenges is, because the economy is so good, people feel more comfortable about where we’re at today and they’re paying off their loans. We had a customer in Dallas that had a $30 million loan and they had $50 million in their checking account, and they paid off the loan. The next leg of this is, we’ll be taking some chances now, taking some risk and start making loans.
Q: What do you mean by taking risk?
A: For businesspeople, that means expanding. The oil and gas business is improving, so people are buying more equipment. Mergers and acquisitions. We think the economy will grow. There are a lot of new jobs. The oil price going up doesn’t hurt us at all. The pricing on homes still seems to be good. We’re one of the larger banks in town, but we’re community-minded. But as the bank gets bigger, our loans get bigger also. We just made a loan to an oil and gas company in Midland for about $50 million.
Q: We’ve seen several Houston bank mergers in recent months. What are your plans?
A: Banks that are publicly traded are priced pretty high. But I think there will continue to be mergers and acquisitions. We’ve done more M&A than anyone in Texas, and we haven’t done any lately. We probably wouldn’t go into another state or area where we’re not located unless it was a bigger deal. We’ll look at smaller banks in the communities we’re in — in Dallas, Houston, Austin, West Texas, Oklahoma. We’ll look at a $1 billion there. But if it’s in another state, it has to be a bigger deal where we’d be in the top five in size in a reasonable period.
Q: How has the regulatory environment changed under the Trump administration?
A: Before the Trump administration, it almost got to the point I really didn’t want to come to work many days. The cost just kept going up. In our business, we have regulators here every day. They’re in the room over there. After the Trump administration came in, we started to see a change in attitude. They want to know, are we going to grow or make another deal? It’s allowed us to go out and get new business. Fundamentally, things look very good.
Q: Interest rates are going back up. What’s your outlook?
A: I think we’re just getting back to normal. It won’t surprise me to see a 4 percent handle on the 10-year Treasury note in a one-year period. I don’t think rates will go back to where they once were, but they’re still going to climb from where they’re at today. We’ll see how the market adjusts. I don’t think we’ll see runaway rate increases like we’ve seen in other cycles.