To hear community banker David Zalman tell it, the only major challenge his Houston bank faces is deciding how it wants to grow.

Prosperity Bank, part of $586 million-asset Prosperity Bancshares Inc., is torn between focusing on more bank acquisitions or increasing its internal loans, which have grown 15% to 20% in each of the past two years. "Houston banks, including ourselves, are doing really well right now," said Mr. Zalman, Prosperity Bank's president. "I can tell by the increasing number of New York investment bankers that call on us that people are interested in this market."

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