Small Banks Feel the Urge to Merge

Getting larger helps cover the cost of complying with new rules
Photograph by Witold Skrypczak/Alamy

After almost 30 years in business, Prosperity Bancshares surpassed $10 billion in assets early last year. For Chief Executive Officer David Zalman, it wasn’t cause for celebration. Crossing the $10 billion threshold subjected the Houston-based bank to a variety of regulatory hurdles under Dodd-Frank. To help absorb the burden, Zalman went on a shopping spree. He’s spent $1.37 billion to buy six banks since the start of 2012, making Prosperity the most acquisitive U.S. bank during that time. Now its assets total $16.3 billion. “The regulations are getting more strict, more strict all the time,” says Zalman, who pointed to the bank’s spending $500,000 in August on software for a Fed-mandated stress test. “We’re going to do more deals as they come along.”

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