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Form 8-K PROSPERITY BANCSHARES For: Oct 23

October 23, 2015 6:12 AM EDT


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 


Date of Report (Date of earliest event reported):  October 23, 2015

 

Prosperity bancshares, inc.

(Exact name of registrant as specified in its charter)

 

 

Texas

001-35388

74-2331986

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

 

 

4295 San Felipe

Houston, Texas 77027

(Address of principal executive offices including zip code)

 

 

Registrant's telephone number, including area code: (281) 269-7199

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



 
 

 

 

Item 2.02     Results of Operations and Financial Condition.

 

On October 23, 2015, Prosperity Bancshares, Inc. publicly disseminated a press release announcing its financial results for the third quarter and nine months ended September 30, 2015. A copy of the press release is furnished as Exhibit 99.1 hereto and incorporated herein by reference.

 

As provided in General Instruction B.2 to Form 8-K, the information furnished in Item 2.02 and Exhibit 99.1 of this Current Report on Form 8-K shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

  

 

Item 9.01     Financial Statements and Exhibits.

 

(d) Exhibits. The following is furnished as an exhibit to this Current Report on Form 8-K:
     
 

Exhibit

Number

Description of Exhibit
     
 

99.1

Press Release issued by Prosperity Bancshares, Inc. dated October 23, 2015.

  

 
 

 

 

Signatures

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

PROSPERITY BANCSHARES, INC.

 

(Registrant)

 

 

 

 

 

 

Dated: October 23, 2015

By:

/s/ Charlotte M. Rasche

 

 

Charlotte M. Rasche

Executive Vice President and General Counsel

  

 
 

 

 

exhibit index

 

 

Exhibit

Number

Description of Exhibit
     
 

99.1

Press Release issued by Prosperity Bancshares, Inc. dated October 23, 2015.

 

Exhibit 99.1

 

 

PRESS RELEASE

For more information contact:

   

Prosperity Bancshares, Inc.®

 David Zalman

Prosperity Bank Plaza

Chairman and Chief Executive Officer

4295 San Felipe

281.269.7199

Houston, Texas 77027

[email protected]

 

FOR IMMEDIATE RELEASE

 

Prosperity Bancshares, Inc.®

REPORTS THIRD QUARTER

2015 EARNINGS

 

 

Third quarter 2015 earnings per share (diluted) of $1.01

 

Third quarter net income of $70.598 million

 

Nonperforming assets remain low at 0.26% of third quarter average earning assets

 

Return on third quarter average assets of 1.30%

 

Third quarter efficiency ratio of 40.72%

 

Increase in dividend of 10% to $0.30 per share for the fourth quarter 2015

 

Received all regulatory approvals for the pending acquisition of Tradition Bancshares, Inc. headquartered in Houston, Texas

 

HOUSTON, October 23, 2015. Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank® (collectively, “Prosperity”), reported net income for the quarter ended September 30, 2015 of $70.598 million or $1.01 per diluted common share. Additionally, nonperforming assets remain low at 0.26% of third quarter average earning assets with an annualized return on third quarter average assets of 1.30%.

 

“I am excited to announce that the Prosperity Board of Directors has decided to increase the dividend payable to shareholders to $0.30 per share for the fourth quarter, representing a 10% increase. The Board and management appreciate our shareholders and are glad to be able to show our appreciation with this increase,” said David Zalman, Prosperity’s Chairman and Chief Executive Officer.

 

“Prosperity enjoyed another successful quarter. Because of the acquisitions we completed over the last several years, our net income figures include purchase accounting adjustment income, which has been quickly declining. Excluding these purchase accounting adjustments, net income per diluted common share was $0.92 for the three months ended September 30, 2015 compared with $0.84 for the three months ended September 30, 2014, a 9.5% increase. Prosperity’s return on average tangible common equity for the three months ended September 30, 2015 was 19.30%. The reconciliations of these non-GAAP financial measures are included below,” continued Zalman.

 

“Despite employment declines in the oil and gas extraction and the manufacturing sectors, the Texas unemployment rate fell in August to 4.1% and continues to be lower than the U.S. rate, which was 5.1%. Oklahoma’s unemployment rate inched down slightly in September to 4.4% compared with 4.6% in August, according to data recently released by the U.S. Labor Department.”

 
Page 1 of 18

 

“Although our loans decreased overall during the first nine months of 2015 primarily due to planned reductions at some of our acquired banks, our third quarter results showed loan growth of 1% (4% annualized) compared to the previous quarter ended June 30, 2015. Deposits have been flat for the first nine months of 2015, but, when comparing deposits as of September 30, 2015 to September 30, 2014, Prosperity has been successful in replacing over $500 million in higher cost time deposits at acquired banks with more traditional transactional accounts,” stated Zalman.

 

“Prosperity continues to be one of the best in class in asset quality with non-performing assets at 0.26% of third quarter average earning assets,” concluded Zalman.

   

Results of Operations for the Three Months Ended September 30, 2015

 

Net income was $70.598 million for the three months ended September 30, 2015 compared with $76.570 million for the same period in 2014. Net income per diluted common share was $1.01 for the three months ended September 30, 2015 compared with $1.10 for the same period in 2014. Net income (excluding purchase accounting adjustments) was $64.154 million for the quarter ended September 30, 2015 compared with $58.635 million for the quarter ended September 30, 2014, an increase of 9.4%. Net income per diluted common share (excluding purchase accounting adjustments) was $0.92 for the three months ended September 30, 2015 compared with $0.84 for the three months ended September 30, 2014. The reconciliation of these non-GAAP financial measures is shown on page 12. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended September 30, 2015 were 1.30%, 8.31% and 19.30%, respectively. Prosperity’s efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 40.72% for the three months ended September 30, 2015.

 

Net interest income before provision for credit losses for the quarter ended September 30, 2015 was $156.108 million compared with $175.657 million during the same period in 2014. This change was primarily due to a decrease in loan discount accretion of $17.424 million for the quarter ended September 30, 2015 compared with the quarter ended September 30, 2014. Linked quarter net interest income before provision for credit losses was $156.108 million for the three months ended September 30, 2015 compared with $158.239 million for the three months ended June 30, 2015. This change was primarily due to a decrease in loan discount accretion of $2.568 million for the quarter ended September 30, 2015 compared with the quarter ended June 30, 2015. The net interest margin on a tax equivalent basis was 3.30% for the three months ended September 30, 2015, compared with 3.85% for the same period in 2014 and 3.39% for the three months ended June 30, 2015. This change was primarily due to the decrease in loan discount accretion and lower yields on average interest-earning assets partially offset by lower rates paid on average interest-bearing liabilities for the three months ended September 30, 2015. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis was 3.10% for the three months ended September 30, 2015, compared with 3.26% for the same period in 2014 and 3.13% for the three months ended June 30, 2015.

 

Noninterest income was $31.780 million for the three months ended September 30, 2015 compared with $30.191 million for the same period in 2014. This change was primarily due to an increase in mortgage income and other noninterest income. On a linked quarter basis, noninterest income increased $1.483 million or 4.9% compared with the quarter ended June 30, 2015. This was primarily due to an increase in NSF fees and service charges on deposit accounts.

 

Noninterest expense was $76.430 million for the three months ended September 30, 2015 compared with $85.540 million for the same period in 2014. This change was primarily due to a decrease in salary and benefits expense, other noninterest expense, net occupancy and equipment expense and regulatory assessments. On a linked quarter basis, noninterest expense decreased $3.305 million or 4.1% compared with the quarter ended June 30, 2015. This was primarily due to a decrease in salary and benefits expense, other noninterest expense and regulatory assessments for the three months ended September 30, 2015.

 

Results of Operations for the Nine Months Ended September 30, 2015

 

Net income was $216.171 million for the nine months ended September 30, 2015 compared with $219.213 million for the same period in 2014. Net income per diluted common share was $3.09 for the nine months ended September 30, 2015 compared with $3.19 for the same period in 2014. Net income (excluding purchase accounting adjustments) was $189.332 million for the nine months ended September 30, 2015 compared with $177.638 million for the nine months ended September 30, 2014. Net income per diluted common share (excluding purchase accounting adjustments) was $2.71 for the nine months ended September 30, 2015 compared with $2.59 for the nine months ended September 30, 2014. The reconciliation of these non-GAAP financial measures is shown on page 12. Returns on average assets, average common equity and average tangible common equity, each on an annualized basis, for the nine months ended September 30, 2015 were 1.33%, 8.63% and 20.51%, respectively. Prosperity’s efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 41.64% for the nine months ended September 30, 2015.

 
Page 2 of 18

 

 

Net interest income before provision for credit losses for the nine months ended September 30, 2015 was $477.252 million compared with $493.403 million during the same period in 2014. The change was primarily due to a decrease of $23.002 million in loan discount accretion partially offset by lower rates paid on average interest-bearing liabilities for the nine months ended September 30, 2015. The net interest margin on a tax equivalent basis for the nine months ended September 30, 2015 decreased to 3.42% compared with 3.77% for the same period in 2014. This was primarily due to a decrease in loan discount accretion and lower yields on average interest-earning assets partially offset by lower rates paid on average interest-bearing liabilities for the nine months ended September 30, 2015. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis was 3.13% for the nine months ended September 30, 2015 compared with 3.30% for the same period in 2014.

 

Noninterest income was $90.498 million for the nine months ended September 30, 2015 compared with $91.452 million for the same period in 2014. This change was primarily due to a decrease in net gain on sale of assets and NSF fees partially offset by an increase in other noninterest income and mortgage income. Noninterest expense was $235.627 million for the nine months ended September 30, 2015 compared with $243.926 million for the same period in 2014. This change was primarily due to a decrease in salary and benefits expense and other noninterest expense partially offset by an increase in regulatory assessments and a net gain on sale of other real estate recorded in 2014.

 

Balance Sheet Information

 

At September 30, 2015, Prosperity had $21.567 billion in total assets, an increase of $449.922 million or 2.1%, compared with $21.117 billion at September 30, 2014.

 

Loans at September 30, 2015 were $9.205 billion, a decrease of $163.900 million or 1.7%, compared with $9.369 billion at September 30, 2014. Linked quarter loans increased $90.653 million or 1.0% (4.0% annualized) from $9.114 billion at June 30, 2015.

 

As part of its lending activities, Prosperity extends credit to oil and gas production and servicing companies. Oil and gas production loans are loans to companies directly involved in the exploration and or production of oil and gas. Oil and gas servicing loans are loans to companies that provide services for oil and gas production and exploration. At September 30, 2015, oil and gas loans totaled $405.176 million or 4.4% of total loans, of which $185.162 million were production loans and $220.014 million were servicing loans compared with total oil and gas loans of $500.409 million or 5.3% of total loans at December 31, 2014, of which $271.972 million were production loans and $228.437 million were servicing loans.

 

Deposits at September 30, 2015 were $16.940 billion, a decrease of $74.090 million or 0.4%, compared with $17.014 billion at September 30, 2014. Linked quarter deposits decreased $61.727 million or 0.4% from $17.002 billion at June 30, 2015.

 

Asset Quality

 

Nonperforming assets totaled $48.628 million or 0.26% of quarterly average earning assets at September 30, 2015, compared with $50.082 million or 0.27% of quarterly average earning assets at September 30, 2014, and $35.119 million or 0.19% of quarterly average earning assets at June 30, 2015. The allowance for credit losses was 0.88% of total loans at September 30, 2015, 0.83% of total loans at September 30, 2014 and 0.89% of total loans at June 30, 2015. Excluding loans acquired that are accounted for under FASB Accounting Standards Codification (“ASC”) Topics 310-20 and 310-30, the allowance for credit losses was 1.06% of remaining loans as of September 30, 2015, compared with 1.14% at September 30, 2014 and 1.09% at June 30, 2015. Refer to the “Notes to Selected Financial Data” at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.

 

The provision for credit losses was $5.310 million for the three months ended September 30, 2015 compared with $5.000 million for the three months ended September 30, 2014 and $500 thousand for the three months ended June 30, 2015. The provision for credit losses was $7.060 million for the nine months ended September 30, 2015 compared with $11.925 million for the nine months ended September 30, 2014.

 

Net charge offs were $5.279 million for the three months ended September 30, 2015 compared with $653 thousand for the three months ended September 30, 2014 and $491 thousand for the three months ended June 30, 2015. This increase was primarily due to the charge off of three commercial and industrial loans during the third quarter of 2015. Net charge offs were $6.819 million for the nine months ended September 30, 2015 compared with $1.594 million for the nine months ended September 30, 2014.

 

 
Page 3 of 18

 

 

Conference Call

 

Prosperity’s management team will host a conference call on Friday, October 23, 2015 at 10:30 a.m. Eastern Time (9:30 a.m. Central Time) to discuss Prosperity’s third quarter 2015 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383. The elite entry number is 2554742.

 

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity’s website at www.prosperitybankusa.com. The webcast may be accessed directly from Prosperity’s home page by clicking the “Investor Relations” tab and then the “Presentations & Calls” link.

 

Non-GAAP Financial Measures

 

Prosperity’s management uses certain non−GAAP financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity and the tangible equity to tangible assets ratio. Further, as a result of acquisitions, and the related purchase accounting adjustments, Prosperity uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate its net income and earnings per share (excluding purchase accounting adjustments) and its allowance for credit losses to total loans (excluding acquired loans accounted for under ASC Topics 310-20, “Receivables-Nonrefundable Fees and Other Costs” and 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality”). Prosperity has included in this Earnings Release information related to these non-GAAP financial measures for the applicable periods presented. Please refer to page 12 and to the “Notes to Selected Financial Data” at the end of this Earnings Release for a reconciliation of these non-GAAP financial measures.

 

Dividend

 

Prosperity Bancshares, Inc. (“Prosperity Bancshares”) declared a fourth quarter cash dividend of $0.30 per share, to be paid on January 4, 2016 to all shareholders of record as of December 18, 2015.

 

Pending Acquisition of Tradition Bancshares, Inc.; Regulatory Approvals Received

 

On August 6, 2015, Prosperity Bancshares announced the signing of a definitive merger agreement to acquire Tradition Bancshares, Inc. (“Tradition”) and its wholly-owned subsidiary Tradition Bank headquartered in Houston, Texas. Tradition Bank operates 7 banking offices in the Houston, Texas area, including its main office in Bellaire, 3 banking centers in Katy and 1 banking center in The Woodlands. As of September 30, 2015, Tradition, on a consolidated basis, reported total assets of $540.565 million, total loans of $239.196 million, total deposits of $483.828 million and shareholder’s equity of $46.288 million.

 

Under the terms of the definitive agreement, Prosperity Bancshares will issue approximately 679,679 shares of Prosperity Bancshares common stock plus $39.0 million in cash for all outstanding shares of Tradition capital stock, subject to potential adjustments. The transaction is subject to customary closing conditions and approval by Tradition’s shareholders. Prosperity has received all necessary regulatory approvals for this acquisition and expects to close the transaction on December 31, 2015.

 

Prosperity Bancshares, Inc. ®

 

As of September 30, 2015, Prosperity Bancshares, Inc. ® is a $21.567 billion Houston, Texas based regional financial holding company, formed in 1983. Operating under a community banking philosophy and seeking to develop broad customer relationships based on service and convenience, Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at www.prosperitybankusa.com, Retail Brokerage Services, Credit Cards, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services and Mobile Banking.

 

Prosperity currently operates 244 full-service banking locations: 61 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 37 in the Dallas/Fort Worth area; 22 in the East Texas area; 30 in the Central Texas area including Austin and San Antonio; 34 in the West Texas area including Lubbock, Midland-Odessa and Abilene; 16 in the Bryan/College Station area, 6 in the Central Oklahoma area and 8 in the Tulsa, Oklahoma area.

 

 
Page 4 of 18

 

 

Bryan/College Station Area -

Sachse

Sugar Land

Sinton

Bryan

The Colony

SW Medical Center

Taft

Bryan-29th Street

Turtle Creek

Tanglewood

Victoria

Bryan-East

Turtle Creek Loan Office

Uptown

Victoria-Navarro

Bryan-North

Westmoreland

Waugh Drive

Victoria-North

Caldwell

 

Westheimer

Yoakum

College Station

Fort Worth - 

West University

Yorktown

Crescent Point

Haltom City

Woodcreek

 

Hearne

Keller

 

West Texas Area -

Huntsville

Roanoke

Other Houston Area

Abilene -

Madisonville

Stockyards

Locations - 

Antilley Road

Navasota

 

Angleton

Barrow Street

New Waverly

Other Dallas/Fort Worth Locations -

Bay City

Cypress Street

Rock Prairie

Arlington

Beaumont

Judge Ely

Southwest Parkway

Azle

Cinco Ranch

Mockingbird

Tower Point

Ennis

Cleveland

 

Wellborn Road

Gainesville

East Bernard

Lubbock -

 

Glen Rose

El Campo

4th Street

Central Texas Area -

Granbury

Dayton

66th Street

Austin -

Mesquite

Galveston

82nd Street

183

Muenster

Groves

86th Street

Allandale

Sanger

Hempstead

98th Street

Cedar Park

Waxahachie

Hitchcock

Avenue Q

Congress

Weatherford

Katy

North University

Lakeway

 

Katy-Spring Green

Texas Tech Student Union

Liberty Hill

East Texas Area -

Liberty

 

Northland

Athens

Magnolia

Midland -

Oak Hill

Blooming Grove

Magnolia Parkway

Wadley

Research Blvd

Canton

Mont Belvieu

Wall Street

Westlake

Carthage

Nederland

 
 

Corsicana

Needville

Odessa -

Other Central Texas Locations -

Crockett

Rosenberg

Grandview

Bastrop

Eustace

Shadow Creek

Grant

Canyon Lake

Gilmer

Spring

Kermit Highway

Dime Box

Grapeland

Sweeny

Parkway

Dripping Springs

Gun Barrel City

The Woodlands-I-45

 

Elgin

Jacksonville

The Woodlands-Research Forest

Other West Texas Locations -

Flatonia

Kerens

Tomball

Big Spring

Georgetown

Longview

Waller

Brownfield

Gruene

Mount Vernon

West Columbia

Brownwood

Kingsland

Palestine

Wharton

Cisco

La Grange

Rusk

Winnie

Comanche

Lexington

Seven Points

Wirt

Early

New Braunfels

Teague

 

Floydada

Pleasanton

Tyler-Beckham

South Texas Area -

Gorman

Round Rock

Tyler-South Broadway

Corpus Christi -

Levelland

San Antonio

Tyler-University

Airline

Littlefield

Schulenburg

Winnsboro

Calallen

Merkel

Seguin

 

Carmel

Plainview

Smithville

Houston Area -

Northwest

San Angelo

Thorndale

Houston - 

Saratoga

Slaton

Weimar

Aldine

Timbergate

Snyder

 

Bellaire

Water Street

 

Dallas/Fort Worth Area -

Beltway

 

Oklahoma

Dallas -

Clear Lake

Other South Texas

Central Oklahoma-

Abrams Centre

Copperfield

Locations - 

23rd Street

Balch Springs

Cypress

Alice

Edmond

Camp Wisdom

Downtown

Aransas Pass

Expressway

Cedar Hill

Eastex

Beeville

I-240

Dallas – Central Expressway

Fairfield

Colony Creek

Memorial

Forest Park

First Colony

Cuero

Norman

Frisco

Gessner

Edna

 

Frisco-West

Gladebrook

Goliad

Tulsa-

Kiest

Heights

Gonzales

Garnett

McKinney

Highway 6 West

Hallettsville

Harvard

McKinney-Stonebridge

Little York

Kingsville

Memorial

Midway

Medical Center

Mathis

Owasso

Northwest Highway

Memorial Drive

Padre Island

Sheridan

Plano

Northside

Palacios

S. Harvard

Preston Forest

Pasadena

Port Lavaca

Utica Tower

Preston Road

Pecan Grove

Portland

Yale

Red Oak

River Oaks

Rockport

 

 

- - -

 

 
Page 5 of 18

 

 

In connection with the proposed merger of Tradition Bancshares, Inc. into Prosperity Bancshares, Prosperity Bancshares has filed with the Securities and Exchange Commission a registration statement on Form S-4 to register the shares of Prosperity's common stock to be issued to the shareholders of Tradition Bancshares, Inc. The registration statement includes a proxy statement/prospectus which will be sent to the shareholders of Tradition Bancshares, Inc. seeking their approval of the proposed transaction.

 

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY BANCSHARES, TRADITION BANCSHARES, INC. AND THE PROPOSED TRANSACTION.

 

Investors and security holders may obtain free copies of these documents through the website maintained by the Securities and Exchange Commission at http://www.sec.gov. Documents filed with the SEC by Prosperity Bancshares will be available free of charge by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations. Prosperity's telephone number is (281) 269-7199.

 

Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity’s management on the conference call may contain, forward-looking statements within the meaning of the securities laws that are based on current expectations, assumptions, estimates and projections about Prosperity Bancshares and its subsidiaries. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity’s control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks; continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives. Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity’s securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate fluctuations and interest rate fluctuations; and weather. These and various other factors are discussed in Prosperity Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2014 and other reports and statements Prosperity Bancshares has filed with the SEC. Copies of the SEC filings for Prosperity Bancshares® may be downloaded from the Internet at no charge from http://www.prosperitybankusa.com.

 

 
Page 6 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(In thousands)

 

   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

 

Balance Sheet Data

                                       

(at period end)

                                       

Total loans

  $ 9,204,988     $ 9,114,335     $ 9,166,005     $ 9,244,183     $ 9,368,888  

Investment securities(A)

    9,530,761       9,698,079       9,579,496       9,045,776       8,845,909  

Federal funds sold

    996       1,451       1,639       569       484  

Allowance for credit losses

    (81,003 )     (80,972 )     (80,963 )     (80,762 )     (77,613 )

Cash and due from banks

    300,230       353,047       352,642       677,285       330,952  

Goodwill

    1,881,955       1,881,955       1,881,955       1,874,191       1,892,255  

Core deposit intangibles, net

    51,712       54,068       56,458       58,947       34,474  

Other real estate owned

    3,271       2,806       3,010       3,237       5,504  

Fixed assets, net

    271,650       275,347       276,468       281,549       283,011  

Other assets

    402,676       386,171       370,149       402,758       433,450  

Total assets

  $ 21,567,236     $ 21,686,287     $ 21,606,859     $ 21,507,733     $ 21,117,314  
                                         

Noninterest-bearing deposits

  $ 5,093,175     $ 5,040,628     $ 5,038,436     $ 4,936,420     $ 4,968,867  

Interest-bearing deposits

    11,846,762       11,961,036       12,522,916       12,756,738       12,045,160  

Total deposits

    16,939,937       17,001,664       17,561,352       17,693,158       17,014,027  

Other borrowings

    786,571       886,741       331,914       8,724       289,972  

Securities sold under repurchase agreements

    310,038       334,189       318,418       315,523       358,053  

Junior subordinated debentures

    -       -       -       167,531       167,531  

Other liabilities

    119,451       106,408       93,314       77,971       104,781  

Total liabilities

    18,155,997       18,329,002       18,304,998       18,262,907       17,934,364  

Shareholders' equity(B)

    3,411,239       3,357,285       3,301,861       3,244,826       3,182,950  

Total liabilities and equity

  $ 21,567,236     $ 21,686,287     $ 21,606,859     $ 21,507,733     $ 21,117,314  

 

(A) Includes $3,788, $4,655, $5,296, $5,737 and $5,756 in unrealized gains on available for sale securities for the quarterly periods ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively.

(B) Includes $2,462, $3,026, $3,442, $3,729 and $3,741 in after-tax unrealized gains on available for sale securities for the quarterly periods ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively.

  

 
Page 7 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(In thousands)

 

   

Three Months Ended

   

Year-to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 
                                                         

Income Statement Data

                                                       

Interest income:

                                                       

Loans

  $ 116,911     $ 119,404     $ 124,878     $ 139,396     $ 140,521     $ 361,193     $ 386,320  

Securities(C)

    48,610       48,530       48,562       47,108       46,910       145,702       141,636  

Federal funds sold and other earning assets

    22       47       165       74       35       234       261  

Total interest income

    165,543       167,981       173,605       186,578       187,466       507,129       528,217  
                                                         

Interest expense:

                                                       

Deposits

    8,753       9,169       9,577       7,326       10,240       27,499       30,545  

Other borrowings

    473       365       129       200       225       967       572  

Securities sold under repurchase agreements

    209       208       203       202       245       620       736  

Junior subordinated debentures

    -       -       791       1,099       1,099       791       2,961  

Total interest expense

    9,435       9,742       10,700       8,827       11,809       29,877       34,814  

Net interest income

    156,108       158,239       162,905       177,751       175,657       477,252       493,403  

Provision for credit losses

    5,310       500       1,250       6,350       5,000       7,060       11,925  

Net interest income after provision for credit losses

    150,798       157,739       161,655       171,401       170,657       470,192       481,478  
                                                         

Noninterest income:

                                                       

Nonsufficient funds (NSF) fees

    9,082       8,310       7,918       9,345       9,734       25,310       27,703  

Credit card, debit card and ATM card income

    5,955       6,003       5,638       5,786       5,921       17,596       17,103  

Service charges on deposit accounts

    4,438       4,189       4,179       4,263       4,255       12,806       12,189  

Trust income

    1,986       2,047       2,009       2,165       2,099       6,042       5,943  

Mortgage income

    1,770       1,513       1,148       1,049       1,414       4,431       3,215  

Brokerage income

    1,596       1,541       1,409       1,455       1,743       4,546       4,413  

Bank owned life insurance income

    1,384       1,390       1,380       1,392       1,404       4,154       3,797  

Net gain on sale of assets

    173       270       1,379       24       23       1,822       4,634  

Other noninterest income

    5,396       5,034       3,361       3,901       3,598       13,791       12,455  

Total noninterest income

    31,780       30,297       28,421       29,380       30,191       90,498       91,452  
                                                         

Noninterest expense:

                                                       

Salaries and benefits

    46,587       47,819       49,966       49,557       52,179       144,372       149,713  

Net occupancy and equipment

    6,088       5,812       5,964       6,620       6,801       17,864       18,136  

Debit card, data processing and software amortization

    3,924       4,045       3,817       4,553       4,044       11,786       11,237  

Regulatory assessments and FDIC insurance

    3,366       4,253       4,354       4,354       4,051       11,973       10,663  

Core deposit intangibles amortization

    2,356       2,390       2,489       2,667       2,598       7,235       7,273  

Depreciation

    3,313       3,420       2,916       3,491       3,516       9,649       10,239  

Communications

    2,663       2,835       2,809       2,993       2,960       8,307       8,616  

Other real estate expense

    123       129       132       363       72       384       656  

Net (gain) loss on sale of other real estate

    (68 )     (32 )     14       (726 )     30       (86 )     (1,314 )

Other noninterest expense

    8,078       9,064       7,001       10,164       9,289       24,143       28,707  

Total noninterest expense

    76,430       79,735       79,462       84,036       85,540       235,627       243,926  

Income before income taxes

    106,148       108,301       110,614       116,745       115,308       325,063       329,004  

Provision for income taxes

    35,550       36,369       36,973       38,517       38,738       108,892       109,791  

Net income available to common shareholders

  $ 70,598     $ 71,932     $ 73,641     $ 78,228     $ 76,570     $ 216,171     $ 219,213  

 

(C) Interest income on securities was reduced by net premium amortization of $14,845, $15,466, $14,144, $13,031 and $13,531 for the three month periods ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively, and $44,455 and $38,648 for the nine month periods ended September 30, 2015 and September 30, 2014, respectively.

 

 
Page 8 of 18

 

 

Prosperity Bancshares, Inc. ®

Financial Highlights (Unaudited)

(Dollars and share amounts in thousands, except per share data and market prices)

 

   

Three Months Ended

   

Year-to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 
                                                         

Profitability

                                                       

Net income

  $ 70,598     $ 71,932     $ 73,641     $ 78,228     $ 76,570     $ 216,171     $ 219,213  
                                                         

Basic earnings per share

  $ 1.01     $ 1.03     $ 1.05     $ 1.12     $ 1.10     $ 3.09     $ 3.20  

Diluted earnings per share

  $ 1.01     $ 1.03     $ 1.05     $ 1.12     $ 1.10     $ 3.09     $ 3.19  
                                                         

Return on average assets (D)

    1.30 %     1.33 %     1.37 %     1.48 %     1.45 %     1.33 %     1.44 %

Return on average common equity (D)

    8.31 %     8.61 %     8.98 %     9.70 %     9.69 %     8.63 %     9.67 %

Return on average tangible common equity (D) (E)

    19.30 %     20.49 %     21.84 %     23.87 %     24.84 %     20.51 %     24.38 %

Tax equivalent net interest margin (F)

    3.30 %     3.39 %     3.57 %     3.89 %     3.85 %     3.42 %     3.77 %

Efficiency ratio(G)

    40.72 %     42.35 %     41.83 %     40.78 %     41.55 %     41.64 %     42.17 %
                                                         

Liquidity and Capital Ratios

                                                       

Equity to assets

    15.82 %     15.48 %     15.28 %     15.09 %     15.07 %     15.82 %     15.07 %

Common equity tier 1 capital(H)

    13.37 %     12.91 %     12.40 %  

N/A

   

N/A

      13.37 %  

N/A

 

Tier 1 risk-based capital

    13.37 % (1)   12.91 % (1)   12.40 % (1)   13.80 %     13.18 %     13.37 % (1)   13.18 %

Total risk-based capital

    14.09 % (1)   13.63 % (1)   13.14 % (1)   14.56 %     13.90 %     14.09 % (1)   13.90 %

Tier 1 leverage capital

    7.65 % (1)   7.35 % (1)   6.96 % (1)   7.69 %     7.40 %     7.65 % (1)   7.40 %

Period end tangible equity to period end tangible assets(E)

    7.53 %     7.20 %     6.93 %     6.70 %     6.55 %     7.53 %     6.55 %
                                                         

Other Data

                                                       

Shares used in computed earnings per share

                                                       

Basic

    70,041       70,037       70,034       69,768       69,751       70,037       68,548  

Diluted

    70,053       70,053       70,055       69,796       69,791       70,054       68,614  

Period end shares outstanding

    70,040       70,040       70,024       69,780       69,756       70,040       69,756  

Cash dividends paid per common share

  $ 0.2725     $ 0.2725     $ 0.2725     $ 0.2725     $ 0.2400     $ 0.8175     $ 0.7200  

Book value per share

  $ 48.70     $ 47.93     $ 47.15     $ 46.50     $ 45.63     $ 48.70     $ 45.63  

Tangible book value per share(E)

  $ 21.10     $ 20.29     $ 19.47     $ 18.80     $ 18.01     $ 21.10     $ 18.01  
                                                         

Common Stock Market Price

                                                       

High

  $ 59.97     $ 59.30     $ 55.88     $ 61.15     $ 63.73     $ 59.97     $ 67.68  

Low

    43.76       50.91       45.01       52.62       55.99       43.76       55.99  

Period end closing price

    49.11       57.74       52.48       55.36       57.17       49.11       57.17  

Employees – FTE

    3,051       3,065       3,081       3,096       3,057       3,051       3,057  

Number of banking centers

    244       245       244       245       245       244       245  

 

(D) Interim periods annualized.

(E) Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.

(F) Net interest margin for all periods presented is calculated on an actual 365 day basis.

(G) Calculated by dividing total noninterest expense, excluding credit loss provisions, by net interest income plus noninterest income, excluding net gains and losses on the sale of assets. Additionally, taxes are not part of this calculation.

(H) Common equity tier 1 capital ratio is a new ratio required under the Basel III Capital Rules effective January 1, 2015.

(I) Calculated pursuant to the phase-in provisions of the Basel III Capital Rules.

 

 
Page 9 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

YIELD ANALYSIS

 

Three Months Ended

   
   

Sep 30, 2015

   

Jun 30, 2015

   

Sep 30, 2014

   
   

Average Balance

   

Interest Earned/ Interest Paid

   

Average Yield/ Rate

  (L)

Average Balance

   

Interest Earned/ Interest Paid

   

Average Yield/ Rate

  (L)

Average Balance

   

Interest Earned/ Interest Paid

   

Average Yield/ Rate

  (L)
                                                                           

Interest-Earning Assets:

                                                                         

Loans

  $ 9,156,679     $ 116,911       5.07 %   $ 9,133,625     $ 119,404       5.24 %   $ 9,381,248     $ 140,521       5.94 %  

Investment securities

    9,706,373       48,610       1.99 % (J)   9,688,961       48,530       2.01 % (J)   8,836,309       46,910       2.11 % (J)

Federal funds sold and other earning assets

    55,000       22       0.16 %     79,659       47       0.24 %     95,378       35       0.15 %  

Total interest-earning assets

    18,918,052     $ 165,543       3.47 %     18,902,245     $ 167,981       3.56 %     18,312,935     $ 187,466       4.06 %  

Allowance for credit losses

    (80,793 )                     (80,868 )                     (73,977 )                  

Noninterest-earning assets

    2,819,150                       2,817,644                       2,881,762                    

Total assets

  $ 21,656,409                     $ 21,639,021                     $ 21,120,720                    
                                                                           

Interest-Bearing Liabilities:

                                                                         

Interest-bearing demand deposits

  $ 3,663,114     $ 1,961       0.21 %   $ 3,891,682     $ 2,227       0.23 %   $ 3,399,655     $ 2,089       0.24 %  

Savings and money market deposits

    5,492,326       3,392       0.24 %     5,476,931       3,374       0.25 %     5,502,326       3,400       0.25 %  

Certificates and other time deposits

    2,685,346       3,400       0.50 %     2,821,058       3,568       0.51 %     3,235,185       4,751       0.58 %  

Other borrowings

    886,787       473       0.21 %     684,371       365       0.21 %     215,222       225       0.42 %  

Securities sold under repurchase agreements

    331,286       209       0.25 %     333,220       208       0.25 %     389,726       245       0.25 %  

Junior subordinated debentures

                                        167,531       1,099       2.60 %  

Total interest-bearing liabilities

    13,058,859       9,435       0.29 % (K)   13,207,262       9,742       0.30 % (K)   12,909,645       11,809       0.36 % (K)
                                                                           

Noninterest-bearing liabilities:

                                                                         

Noninterest-bearing demand deposits

    5,078,234                       4,992,301                       4,939,388                    

Other liabilities

    121,360                       98,133                       109,287                    

Total liabilities

    18,258,453                       18,297,696                       17,958,320                    

Shareholders' equity

    3,397,956                       3,341,325                       3,162,400                    

Total liabilities and shareholders' equity

  $ 21,656,409                     $ 21,639,021                     $ 21,120,720                    
                                                                           

Net interest income and margin

          $ 156,108       3.27 %           $ 158,239       3.36 %           $ 175,657       3.81 %  
                                                                           

Non-GAAP to GAAP reconciliation:

                                                                         

Tax equivalent adjustment

            1,463                       1,563                       1,997            
                                                                           

Net interest income and margin (tax equivalent basis)

          $ 157,571       3.30 %           $ 159,802       3.39 %           $ 177,654       3.85 %  

 

(J) Yield on securities was impacted by net premium amortization of $14,845, $15,466 and $13,531 for the three month periods ended September 30, 2015, June 30, 2015 and Septbember 30, 2014, respectively.

(K) Total cost of funds, including noninterest bearing deposits, was 0.21%, 0.21% and 0.26% for the three months ended September 30, 2015, June 30, 2015 and September 30, 2014, respectively.

(L) Annualized and based on an actual/365 day basis.

 

 
Page 10 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

YIELD ANALYSIS

 

Year-to-Date

   
   

September 30, 2015

   

September 30, 2014

   
   

Average

Balance

   

Interest Earned/ Interest Paid

   

Average Yield/ Rate

  (O)

Average

Balance

   

Interest Earned/ Interest Paid

   

Average Yield/ Rate

  (O)
                                                   

Interest-Earning Assets:

                                                 

Loans

  $ 9,159,775     $ 361,193       5.27 %   $ 8,874,414     $ 386,320       5.82 %  

Investment securities

    9,547,293       145,702       2.04 % (M)   8,685,212       141,636       2.18 % (M)

Federal funds sold and other earning assets

    133,331       234       0.23 %     143,770       261       0.24 %  

Total interest-earning assets

    18,840,399     $ 507,129       3.60 %     17,703,396     $ 528,217       3.99 %  

Allowance for credit losses

    (80,781 )                     (71,287 )                  

Noninterest-earning assets

    2,835,450                       2,791,827                    

Total assets

  $ 21,595,068                     $ 20,423,936                    
                                                   

Interest-Bearing Liabilities:

                                                 

Interest-bearing demand deposits

  $ 3,909,337     $ 6,771       0.23 %   $ 3,506,932     $ 6,493       0.25 %  

Savings and money market deposits

    5,503,597       10,171       0.25 %     5,326,783       10,105       0.25 %  

Certificates and other time deposits

    2,819,822       10,557       0.50 %     3,145,435       13,947       0.59 %  

Other borrowings

    550,743       967       0.23 %     136,618       571       0.56 %  

Securities sold under repurchase agreements

    334,958       620       0.25 %     373,542       737       0.26 %  

Junior subordinated debentures

    39,365       791       2.69 %     150,692       2,961       2.63 %  

Total interest-bearing liabilities

    13,157,822       29,877       0.30 % (N)   12,640,002       34,814       0.37 % (N)
                                                   

Noninterest-bearing liabilities:

                                                 

Noninterest-bearing demand deposits

    4,990,769                       4,567,397                    

Other liabilities

    106,782                       185,838                    

Total liabilities

    18,255,373                       17,393,237                    

Shareholders' equity

    3,339,695                       3,030,699                    

Total liabilities and shareholders' equity

  $ 21,595,068                     $ 20,423,936                    
                                                   

Net interest income and margin

          $ 477,252       3.39 %           $ 493,403       3.73 %  
                                                    

Non-GAAP to GAAP reconciliation:

                                                 

Tax equivalent adjustment

            4,690                       6,132            
                                                   

Net interest income and margin (tax equivalent basis)

          $ 481,942       3.42 %           $ 499,535       3.77 %  

 

(M) Yield on securities was impacted by net premium amortization of $44,455 and $38,648 for the nine month periods ended September 30, 2015 and 2014, respectively.

(N) Total cost of funds, including noninterest bearing deposits, was 0.22% and 0.27% for the nine month periods ended September 30, 2015 and 2014, respectively.

(O) Annualized and based on an actual/365 day basis.

 

 
Page 11 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands, except per share data)

 

   

Three Months Ended

   

Year -to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 

Adjustment to Loan Yield (P)

                                                       

Interest on loans, as reported

  $ 116,911     $ 119,404     $ 124,878     $ 139,396     $ 140,521     $ 361,193     $ 386,320  

Purchase accounting adjustment- loan discount accretion

                                                       

ASC 310-20

    (7,060 )     (10,388 )     (10,714 )     (14,857 )     (19,122 )     (28,162 )     (50,789 )

ASC 310-30

    (3,974 )     (3,214 )     (8,933 )     (13,733 )     (9,336 )     (16,121 )     (16,496 )

Total

    (11,034 )     (13,602 )     (19,647 )     (28,590 )     (28,458 )     (44,283 )     (67,285 )

Interest on loans excluding discount accretion

  $ 105,877     $ 105,802     $ 105,231     $ 110,806     $ 112,063     $ 316,910     $ 319,035  

Average loans

  $ 9,156,679     $ 9,133,625     $ 9,189,380     $ 9,325,330     $ 9,381,248     $ 9,159,775     $ 8,874,414  

Loan yield excluding purchase accounting adjustment

    4.59 %     4.65 %     4.64 %     4.71 %     4.74 %     4.63 %     4.81 %

Loan yield, as reported

    5.07 %     5.24 %     5.51 %     5.93 %     5.94 %     5.27 %     5.82 %
                                                         

Adjustment to Securities Yield (P)

                                                       

Interest on securities, as reported

  $ 48,610     $ 48,530     $ 48,562     $ 47,108     $ 46,910     $ 145,702     $ 141,636  

Purchase accounting adjustment- securities amortization

    1,565       1,579       1,647       1,590       1,466       4,791       5,000  

Interest on securities excluding amortization

  $ 50,175     $ 50,109     $ 50,209     $ 48,698     $ 48,376     $ 150,493     $ 146,636  

Average securities

  $ 9,706,373     $ 9,688,961     $ 9,241,434     $ 8,835,176     $ 8,836,309     $ 9,547,293     $ 8,685,212  

Securities yield excluding purchase accounting adjustment

    2.05 %     2.07 %     2.20 %     2.19 %     2.17 %     2.11 %     2.26 %

Securities yield, as reported

    1.99 %     2.01 %     2.13 %     2.12 %     2.11 %     2.04 %     2.18 %
                                                         

Adjustment to Time Deposits Yield (P)

                                                       

Interest on time deposits, as reported

  $ 3,400     $ 3,568     $ 3,589     $ 1,957     $ 4,751     $ 10,557     $ 13,947  

Purchase accounting adjustment- time deposit amortization

    220       220       420       2,443       16       860       113  

Interest on time deposits excluding amortization

  $ 3,620     $ 3,788     $ 4,009     $ 4,400     $ 4,767     $ 11,417     $ 14,060  

Average time deposits

  $ 2,685,346     $ 2,821,058     $ 2,956,038     $ 3,083,047     $ 3,235,185     $ 2,819,822     $ 3,145,435  

Time deposits yield excluding purchase accounting adjustment

    0.53 %     0.54 %     0.55 %     0.57 %     0.58 %     0.54 %     0.60 %

Time deposits yield, as reported

    0.50 %     0.51 %     0.49 %     0.25 %     0.58 %     0.50 %     0.59 %
                                                         

Net Interest Margin (tax equivalent basis, excluding purchase accounting adjustments to yield)

    3.10 %     3.13 %     3.17 %     3.25 %     3.26 %     3.13 %     3.30 %
                                                         

Net Interest Margin (tax equivalent basis), as reported

    3.30 %     3.39 %     3.57 %     3.89 %     3.85 %     3.42 %     3.77 %
                                                         

Net income available to common shareholders, as reported

  $ 70,598     $ 71,932     $ 73,641     $ 78,228     $ 76,570     $ 216,171     $ 219,213  

Less: Purchase accounting adjustments, net of tax (Q)

    (6,444 )     (8,132 )     (12,263 )     (19,729 )     (17,935 )     (26,839 )     (41,575 )

Net income available to common shareholders, excluding

  $ 64,154     $ 63,800     $ 61,378     $ 58,499     $ 58,635     $ 189,332     $ 177,638  

purchase accounting adjustments

                                                       
                                                         

Basic earnings per share, excluding purchase accounting adjusments (P)

  $ 0.92     $ 0.91     $ 0.88     $ 0.84     $ 0.84     $ 2.71     $ 2.59  

Diluted earnings per share, excluding purchase accounting adjustments (P)

  $ 0.92     $ 0.91     $ 0.88     $ 0.84     $ 0.84     $ 2.71     $ 2.59  

 

 

   

Acquired Loans Accounted for

Under ASC 310-20

   

Acquired Loans Accounted for

Under ASC 310-30

   

Total Loans Accounted for

Under ASC 310-20 and 310-30

 
   

Balance at Acquisition Date

   

Balance at Jun 30,

2015

   

Balance at Sep 30,

2015

   

Balance at Acquisition Date

   

Balance at Jun 30,

2015

   

Balance at Sep 30,

2015

   

Balance at Acquisition Date

   

Balance at Jun 30,

2015

   

Balance at Sep 30,

2015

 

Loan marks:

                                                                       

Acquired banks (R)

  $ 225,589     $ 67,895     $ 60,819     $ 131,906     $ 48,277     $ 41,814     $ 357,495     $ 116,172     $ 102,633  
                                                                         

Acquired portfolio loan balances:

                                                                       

Acquired banks (R)

    5,456,934       1,727,123       1,560,730       255,846       94,601       83,272       5,712,780   (S)   1,821,724       1,644,002  
                                                                         

Acquired portfolio loan balances less loan marks

  $ 5,231,345     $ 1,659,228     $ 1,499,911     $ 123,940     $ 46,324     $ 41,458     $ 5,355,285     $ 1,705,552     $ 1,541,369  

 

(P) Non-GAAP financial measure.

(Q) Using effective tax rate of 33.5%, 33.6%, 33.4%, 33.0% and 33.6% for the three month periods ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively, and 33.5% and 33.4% for the nine month periods ended September 30, 2015 and 2014, respectively.

(R) Includes Bank of Texas, Bank Arlington, American State Bank, Community National Bank, First Federal Bank Texas, Coppermark Bank, First Victoria National Bank and F&M Bank.

(S) Actual principal balances acquired.

 

 
Page 12 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

   

Three Months Ended

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

 

YIELD TREND

                                       
                                         

Interest-Earning Assets:

                                       

Loans

    5.07 %     5.24 %     5.51 %     5.93 %     5.94 %

Investment securities (T)

    1.99 %     2.01 %     2.13 %     2.12 %     2.11 %

Federal funds sold and other earning assets

    0.16 %     0.24 %     0.25 %     0.20 %     0.15 %

Total interest-earning assets

    3.47 %     3.56 %     3.77 %     4.04 %     4.06 %
                                         

Interest-Bearing Liabilities:

                                       

Interest-bearing demand deposits

    0.21 %     0.23 %     0.25 %     0.23 %     0.24 %

Savings and money market deposits

    0.24 %     0.25 %     0.25 %     0.24 %     0.25 %

Certificates and other time deposits

    0.50 %     0.51 %     0.49 %     0.25 %     0.58 %

Other borrowings

    0.21 %     0.21 %     0.73 %     0.47 %     0.42 %

Securities sold under repurchase agreements

    0.25 %     0.25 %     0.24 %     0.25 %     0.25 %

Junior subordinated debentures

                2.69 %     2.60 %     2.60 %

Total interest-bearing liabilities

    0.29 %     0.30 %     0.33 %     0.28 %     0.36 %
                                         

Net Interest Margin

    3.27 %     3.36 %     3.53 %     3.85 %     3.81 %

Net Interest Margin (tax equivalent)

    3.30 %     3.39 %     3.57 %     3.89 %     3.85 %

 

(T) Yield on securities was impacted by net premium amortization of $14,845, $15,466, $14,144, $13,031 and $13,531 for the three month periods ended September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively.

 

 
Page 13 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

   

Three Months Ended

 
   

Sep 30,

2015

   

Jun 30,

2015

   

March 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

 

Balance Sheet Averages

                                       

Total loans

  $ 9,156,679     $ 9,133,625     $ 9,189,380     $ 9,325,330     $ 9,381,248  

Investment securities

    9,706,373       9,688,961       9,241,434       8,835,176       8,836,309  

Federal funds sold and other earning assets

    55,000       79,659       267,672       143,705       95,378  

Total interest-earning assets

    18,918,052       18,902,245       18,698,486       18,304,211       18,312,935  

Allowance for credit losses

    (80,793 )     (80,868 )     (80,681 )     (76,948 )     (73,977 )

Cash and due from banks

    237,191       241,110       284,395       273,503       267,389  

Goodwill

    1,881,955       1,881,955       1,874,274       1,883,654       1,893,667  

Core deposit intangibles, net

    52,909       55,245       57,687       43,157       35,753  

Other real estate

    3,096       2,972       3,536       4,843       5,405  

Fixed assets, net

    273,818       276,761       280,515       282,827       285,039  

Other assets

    370,181       359,601       371,295       395,045       394,509  

Total assets

  $ 21,656,409     $ 21,639,021     $ 21,489,507     $ 21,110,292     $ 21,120,720  
                                         

Noninterest-bearing deposits

  $ 5,078,234     $ 4,992,301     $ 4,899,279     $ 5,045,097     $ 4,939,388  

Interest-bearing demand deposits

    3,663,114       3,891,682       4,178,883       3,546,825       3,399,655  

Savings and money market deposits

    5,492,326       5,476,931       5,542,081       5,442,568       5,502,326  

Certificates and other time deposits

    2,685,346       2,821,058       2,956,038       3,083,047       3,235,185  

Total deposits

    16,919,020       17,181,972       17,576,281       17,117,537       17,076,554  

Other borrowings

    886,787       684,371       72,118       168,167       215,222  

Securities sold under repurchase agreements

    331,286       333,220       340,469       323,882       389,726  

Junior subordinated debentures

    -       -       119,408       167,531       167,531  

Other liabilities

    121,360       98,133       100,648       106,222       109,287  

Shareholders' equity

    3,397,956       3,341,325       3,280,583       3,226,953       3,162,400  

Total liabilities and equity

  $ 21,656,409     $ 21,639,021     $ 21,489,507     $ 21,110,292     $ 21,120,720  

 

 
Page 14 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

   

Sep 30, 2015

   

Jun 30, 2015

   

Mar 31, 2015

   

Dec 31, 2014

   

Sep 30, 2014

 

Period End Balances

                                                                               
                                                                                 

Loan Portfolio

                                                                               

Commercial and other

  $ 1,777,913       19.3 %   $ 1,774,652       19.5 %   $ 1,851,906       20.2 %   $ 1,952,945       21.1 %   $ 2,058,217       22.0 %

Construction

    1,072,985       11.7 %     1,068,056       11.7 %     1,040,845       11.3 %     1,026,475       11.1 %     1,041,300       11.1 %

1-4 family residential

    2,318,841       25.2 %     2,289,114       25.1 %     2,272,788       24.8 %     2,250,251       24.4 %     2,210,141       23.6 %

Home equity

    277,744       3.0 %     273,538       3.0 %     269,894       2.9 %     271,930       2.9 %     269,850       2.9 %

Commercial real estate

    2,992,726       32.5 %     2,958,239       32.5 %     3,021,656       33.0 %     3,030,340       32.8 %     3,091,090       33.0 %

Agriculture (includes farmland)

    618,563       6.7 %     600,745       6.6 %     556,839       6.1 %     551,646       6.0 %     534,672       5.7 %

Consumer

    146,216       1.6 %     149,991       1.6 %     152,077       1.7 %     160,596       1.7 %     163,618       1.7 %

Total loans

  $ 9,204,988             $ 9,114,335             $ 9,166,005             $ 9,244,183             $ 9,368,888          
                                                                                 
                                                                                 

Deposit Types

                                                                               

Noninterest-bearing DDA

  $ 5,093,175       30.1 %   $ 5,040,628       29.7 %   $ 5,038,436       28.7 %   $ 4,936,420       27.9 %   $ 4,968,867       29.2 %

Interest-bearing DDA

    3,604,798       21.3 %     3,746,939       22.0 %     4,038,690       23.0 %     4,260,038       24.1 %     3,359,606       19.7 %

Money market

    3,716,094       21.9 %     3,607,000       21.2 %     3,773,011       21.5 %     3,680,711       20.8 %     3,788,358       22.3 %

Savings

    1,896,725       11.2 %     1,853,322       10.9 %     1,828,790       10.4 %     1,784,889       10.1 %     1,728,676       10.2 %

Certificates and other time deposits

    2,629,145       15.5 %     2,753,775       16.2 %     2,882,425       16.4 %     3,031,100       17.1 %     3,168,520       18.6 %

Total deposits

  $ 16,939,937             $ 17,001,664             $ 17,561,352             $ 17,693,158             $ 17,014,027          
                                                                                 

Loan to Deposit Ratio

    54.3 %             53.6 %             52.2 %             52.2 %             55.1 %        
                                                                                 
                                                                                 

Construction Loans

                                                                               

Single family residential construction

  $ 351,169       32.6 %   $ 354,211       33.0 %   $ 356,081       34.1 %   $ 329,797       32.0 %   $ 317,307       30.3 %

Land development

    84,040       7.8 %     84,864       7.9 %     89,403       8.5 %     84,051       8.2 %     89,553       8.5 %

Raw land

    143,955       13.4 %     145,885       13.6 %     129,470       12.4 %     106,058       10.3 %     83,013       7.9 %

Residential lots

    131,793       12.3 %     127,671       11.9 %     128,064       12.2 %     148,763       14.4 %     154,027       14.7 %

Commercial lots

    84,162       7.8 %     87,719       8.2 %     92,677       8.9 %     89,565       8.7 %     86,991       8.3 %

Commercial construction and other

    281,231       26.1 %     271,833       25.4 %     249,504       23.9 %     272,723       26.4 %     317,355       30.3 %

Net unaccreted discount

    (3,365 )             (4,127 )             (4,354 )             (4,482 )             (6,946 )        

Total construction loans

  $ 1,072,985             $ 1,068,056             $ 1,040,845             $ 1,026,475             $ 1,041,300          

 

 

Non-Owner Occupied Commercial Real Estate Loans by Metropolitan Statistical Area (MSA) as of September 30, 2015

Collateral Type

 

Houston

   

Dallas

   

Austin

   

OK City

   

Tulsa

   

Other (U)

   

Total

 

Shopping center/retail

  $ 157,691     $ 44,184     $ 28,052     $ 30,832     $ 23,457     $ 121,723     $ 405,939  

Commercial & industrial buildings

    71,677       31,081       6,804       8,222       10,086       59,040       186,910  

Office buildings

    55,497       78,774       21,391       25,228       9,822       72,527       263,239  

Medical buildings

    48,978       8,060       58       9,792       8,413       52,647       127,948  

Apartment buildings

    41,254       9,230       14,554       16,968       8,605       99,900       190,511  

Hotel

    22,303       27,400       9,595       25,248       -       85,143       169,689  

Other

    85,952       10,272       15,697       8,189       10,897       85,585       216,592  

Total

  $ 483,352     $ 209,001     $ 96,151     $ 124,479     $ 71,280     $ 576,565     $ 1,560,828 (V)

 

(U) Includes other MSA and non-MSA regions.

(V) Represents a portion of total commercial real estate loans of $2.993 billion as of September 30, 2015.

 

 
Page 15 of 18

 

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

   

Three Months Ended

   

Year-to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 
                                                         

Asset Quality

                                                       

Nonaccrual loans

  $ 44,935     $ 31,987     $ 29,252     $ 31,422     $ 26,804     $ 44,935     $ 26,804  

Accruing loans 90 or more days past due

    261       153       2,968       2,193       17,753       261       17,753  

Total nonperforming loans

    45,196       32,140       32,220       33,615       44,557       45,196       44,557  

Repossessed assets

    161       173       146       67       21       161       21  

Other real estate

    3,271       2,806       3,010       3,237       5,504       3,271       5,504  

Total nonperforming assets

  $ 48,628     $ 35,119     $ 35,376     $ 36,919     $ 50,082     $ 48,628     $ 50,082  
                                                         
                                                         

Nonperforming assets:

                                                       

Commercial and industrial

  $ 26,200     $ 20,295     $ 16,830     $ 21,418     $ 26,172     $ 26,200     $ 26,172  

Construction, land development and other land loans

    475       813       3,023       1,893       5,998       475       5,998  

1-4 family residential (including home equity)

    4,766       5,124       5,087       5,232       7,559       4,766       7,559  

Commercial real estate (including multi-family residential)

    16,485       7,939       9,736       6,695       9,686       16,485       9,686  

Agriculture (including farmland)

    376       605       281       473       182       376       182  

Consumer and other

    326       343       419       1,208       485       326       485  

Total

  $ 48,628     $ 35,119     $ 35,376     $ 36,919     $ 50,082     $ 48,628     $ 50,082  
                                                         

Number of loans/properties

    159       161       166       169       194       159       194  
                                                         

Allowance for credit losses at end of period

  $ 81,003     $ 80,972     $ 80,963     $ 80,762     $ 77,613     $ 81,003     $ 77,613  
                                                         

Net charge-offs:

                                                       

Commercial and industrial

  $ 4,426     $ (28 )   $ 504     $ 318     $ 17       4,902     $ 34  

Construction, land development and other land loans

    173       (2 )     145       (1 )     (28 )     316       70  

1-4 family residential (including home equity)

    110       12       86       420       70       208       607  

Commercial real estate (including multi-family residential)

    53       114       33       1,732       (6 )     200       59  

Agriculture (including farmland)

    (40 )     (65 )     (78 )     (13 )     (53 )     (183 )     (977 )

Consumer and other

    557       460       359       745       653       1,376       1,801  

Total

  $ 5,279     $ 491     $ 1,049     $ 3,201     $ 653     $ 6,819     $ 1,594  
                                                         
                                                         

Asset Quality Ratios

                                                       

Nonperforming assets to average earning assets

    0.26 %     0.19 %     0.19 %     0.20 %     0.27 %     0.26 %     0.28 %

Nonperforming assets to loans and other real estate

    0.53 %     0.39 %     0.39 %     0.40 %     0.53 %     0.53 %     0.53 %

Net charge-offs to average loans (annualized)

    0.23 %     0.02 %     0.05 %     0.14 %     0.03 %     0.10 %     0.02 %

Allowance for credit losses to total loans

    0.88 %     0.89 %     0.88 %     0.87 %     0.83 %     0.88 %     0.83 %

Allowance for credit losses to total loans (excluding acquired loans accounted for under ASC Topics 310-20 and 310-30) (E)

    1.06 %     1.09 %     1.12 %     1.14 %     1.14 %     1.06 %     1.14 %

 

 
Page 16 of 18

 

  

Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands, except per share data)

 

Consolidated Financial Highlights

 

NOTES TO SELECTED FINANCIAL DATA

 

Prosperity’s management uses certain non−GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity and the tangible equity to tangible assets ratio for internal planning and forecasting purposes. In addition, due to the application of purchase accounting, Prosperity uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate its net income and earnings per share (each excluding purchase accounting adjustments) and its allowance for credit losses to total loans (excluding acquired loans accounted for under ASC Topics 310-20 and 310-30). Prosperity has included information below and on page 12 of this Earnings Release relating to these non-GAAP financial measures for the applicable periods presented. Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity’s financial results and Prosperity believes that its presentation, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting Prosperity’s business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. Further, Prosperity believes that these non-GAAP measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results and Prosperity strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

 

   

Three Months Ended

   

Year-to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 
                                                         

Return on average tangible common equity:

                                                       

Net income

  $ 70,598     $ 71,932     $ 73,641     $ 78,228     $ 76,570     $ 216,171     $ 219,213  

Average shareholders' equity

  $ 3,397,956     $ 3,341,325     $ 3,280,583     $ 3,226,953     $ 3,162,400     $ 3,339,695     $ 3,030,699  

Less: Average goodwill and other intangible assets

    (1,934,864 )     (1,937,200 )     (1,931,961 )     (1,926,811 )     (1,929,420 )     (1,934,686 )     (1,828,594 )

Average tangible shareholders’ equity

  $ 1,463,092     $ 1,404,125     $ 1,348,622     $ 1,300,142     $ 1,232,980     $ 1,405,009     $ 1,202,105  

Return on average tangible common equity:

    19.30 %     20.49 %     21.84 %     23.87 %     24.84 %     20.51 %     24.38 %
                                                         

Tangible book value per share:

                                                       

Shareholders’ equity

  $ 3,411,239     $ 3,357,285     $ 3,301,861     $ 3,244,826     $ 3,182,950     $ 3,411,239     $ 3,182,950  

Less: Goodwill and other intangible assets

    (1,933,667 )     (1,936,023 )     (1,938,413 )     (1,933,138 )     (1,926,729 )     (1,933,667 )     (1,926,729 )

Tangible shareholders’ equity

  $ 1,477,572     $ 1,421,262     $ 1,363,448     $ 1,311,688     $ 1,256,221     $ 1,477,572     $ 1,256,221  
                                                         

Period end shares outstanding

    70,040       70,040       70,024       69,780       69,756       70,040       69,756  

Tangible book value per share:

  $ 21.10     $ 20.29     $ 19.47     $ 18.80     $ 18.01     $ 21.10     $ 18.01  
                                                         

Period end tangible equity to period end tangible assets ratio:

                                                       

Tangible shareholders’ equity

  $ 1,477,572     $ 1,421,262     $ 1,363,448     $ 1,311,688     $ 1,256,221     $ 1,477,572     $ 1,256,221  
                                                         

Total assets

  $ 21,567,236     $ 21,686,287     $ 21,606,859     $ 21,507,733     $ 21,117,314     $ 21,567,236     $ 21,117,314  

Less: Goodwill and other intangible assets

    (1,933,667 )     (1,936,023 )     (1,938,413 )     (1,933,138 )     (1,926,729 )     (1,933,667 )     (1,926,729 )

Tangible assets

  $ 19,633,569     $ 19,750,264     $ 19,668,446     $ 19,574,595     $ 19,190,585     $ 19,633,569     $ 19,190,585  
                                                         

Period end tangible equity to period end tangible assets ratio:

    7.53 %     7.20 %     6.93 %     6.70 %     6.55 %     7.53 %     6.55 %

 

 
Page 17 of 18

 

 

Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars in thousands)

 

   

Three Months Ended

   

Year-to-Date

 
   

Sep 30,

2015

   

Jun 30,

2015

   

Mar 31,

2015

   

Dec 31,

2014

   

Sep 30,

2014

   

Sep 30,

2015

   

Sep 30,

2014

 

Allowance for credit losses to total loans, excluding acquired loans:

                                                       

Allowance for credit losses

  $ 81,003     $ 80,972     $ 80,963     $ 80,762     $ 77,613     $ 81,003     $ 77,613  

Total loans

  $ 9,204,988     $ 9,114,335     $ 9,166,005     $ 9,244,183     $ 9,368,888     $ 9,204,988     $ 9,368,888  
                                                         

Less: Fair value of acquired loans (acquired portfolio loan balances less loan marks)

  $ 1,541,369     $ 1,705,552     $ 1,910,646     $ 2,154,148     $ 2,536,433     $ 1,541,369     $ 2,536,433  

Total loans less acquired loans

  $ 7,663,619     $ 7,408,783     $ 7,255,359     $ 7,090,035     $ 6,832,455     $ 7,663,619     $ 6,832,455  

Allowance for credit losses to total loans, excluding acquired loans (non-GAAP basis)

    1.06 %     1.09 %     1.12 %     1.14 %     1.14 %     1.06 %     1.14 %

 

 

 

Page 18 of 18



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