KBRA Comments on the Proposed Acquisition of LegacyTexas Financial Group, Inc. by Prosperity Bancshares, Inc.

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 6^th 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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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus, is recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider, and
is a certified Credit Rating Agency (CRA) by the European Securities and
Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is
registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Jason
Szelc, Director
(301) 969-3174
jszelc@kbra.com

Shannon Servaes, Senior Director
(301) 969-3247
sservaes@kbra.com

Joe Scott, Managing Director
(646) 731-2438
jscott@kbra.com