NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a comment on Prosperity Bancshares, Inc.’s potential acquisition of LegacyTexas Financial Group, Inc.
On June 17, 2019, LegacyTexas Financial Group, Inc. (NASDAQ: LTXB) (KBRA Senior BHC Rating, BBB+) and its subsidiary, LegacyTexas Bank, announced a definitive merger agreement with Prosperity Bancshares, Inc. (NYSE: PB), the parent company for Prosperity Bank. The deal, which was valued at approximately $2.1 billion (roughly 2.16X P/TBV), is expected to close during the fourth quarter of 2019. PB’s capital position would be markedly impacted by the roughly 15% cash consideration to be paid, though is projected to remain above the average for similar sized peers with a TCE ratio of 9.6% and a CET1 ratio of 13.1%. The combined company would be the second largest Texas-headquartered bank by deposits, bringing together LTXB’s robust and diversified loan portfolio and PB’s expansive deposit franchise. The acquisition would provide a dynamic shift in earning asset mix to PB’s balance sheet, increasing its loan-to-deposit ratio to 71%, up from 61% at 1Q19. PB’s low-cost funding mix (0.58% total deposit cost for 1Q19) should enable the combined company to runoff LTXB’s higher cost brokered funding over time, as well as some of its FHLB borrowings, though this source is expected to continue to be used to fund the acquired bank’s warehouse lending program. With its notable footing in a market in which PB sought to gain scale, LTXB would give PB the 6th largest market share in the highly attractive Dallas/Fort Worth MSA. Furthermore, PB is anticipated to retain many key members of LTXB’s executive leadership team, including Kevin Hanigan (LTXB’s President and CEO), who will become President and COO at Prosperity Bank, and Mays Davenport (LTXB’s CFO) who will become the Director of Corporate Strategy at Prosperity Bank. While KBRA does not maintain a debt rating for PB, KBRA’s Subscription Rating Service rated its subsidiary bank, Prosperity Bank, B on the financial strength rating scale, based on fourth quarter 2018 financials, which denotes a sound financial condition.
The ratings are based on KBRA’s Global Bank and Bank Holding Company Rating Methodology published on February 19, 2016.
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