NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of Prosperity Bancshares, Inc.
®
(the Company) and its wholly-owned subsidiaries, Prosperity Bank
®
(the Bank) and Prosperity Holdings of Delaware,
LLC. All intercompany transactions and balances have been eliminated.
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows of the Company on a consolidated basis, and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with the Companys Annual
Report on Form 10-K for the year ended December 31, 2012. Operating results for the nine-month period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or
any other period.
2. INCOME PER COMMON SHARE
Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average
shares. The following table illustrates the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
Amount
|
|
|
Per Share
Amount
|
|
|
Amount
|
|
|
Per Share
Amount
|
|
|
Amount
|
|
|
Per Share
Amount
|
|
|
Amount
|
|
|
Per Share
Amount
|
|
|
|
(In thousands, except per share data)
|
|
Net income
|
|
$
|
55,278
|
|
|
|
|
|
|
$
|
46,176
|
|
|
|
|
|
|
$
|
158,427
|
|
|
|
|
|
|
$
|
119,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
60,344
|
|
|
$
|
0.92
|
|
|
|
55,958
|
|
|
$
|
0.83
|
|
|
|
59,207
|
|
|
$
|
2.68
|
|
|
|
50,239
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add incremental shares for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securitiesoptions
|
|
|
160
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
60,504
|
|
|
$
|
0.91
|
|
|
|
56,093
|
|
|
$
|
0.82
|
|
|
|
59,362
|
|
|
$
|
2.67
|
|
|
|
50,393
|
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options exercisable during the three and nine months ended September 30, 2013 or 2012
that would have had an anti-dilutive effect on the above computation.
3. NEW ACCOUNTING STANDARDS
Accounting Standards Updates (ASU)
ASU 2012-02 IntangiblesGoodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for
Impairment.
ASU 2012-02 gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived
intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative
impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess permitting an entity to assess qualitative
factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 became effective for the Company on January 1, 2013 and did not
have a significant impact on the Companys financial statements.
8
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
ASU 2013-02 Comprehensive Income (Topic 220) Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income.
ASU 2013-02 amends recent guidance related to the reporting of comprehensive income to enhance the reporting of reclassifications out of accumulated other comprehensive
income. ASU 2013-02 became effective for the Company on January 1, 2013 and did not have a significant impact on the Companys financial statements. See Note 10 Other Comprehensive (Loss) Income for applicable disclosures.
4. SECURITIES
The amortized cost and fair value of investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
29,130
|
|
|
$
|
1,002
|
|
|
$
|
|
|
|
$
|
30,132
|
|
Collateralized mortgage obligations
|
|
|
512
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
514
|
|
Mortgage-backed securities
|
|
|
119,259
|
|
|
|
7,602
|
|
|
|
(24
|
)
|
|
|
126,837
|
|
Other securities
|
|
|
7,288
|
|
|
|
5
|
|
|
|
|
|
|
|
7,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
156,189
|
|
|
$
|
8,612
|
|
|
$
|
(25
|
)
|
|
$
|
164,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies
|
|
$
|
3,252
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
3,275
|
|
States and political subdivisions
|
|
|
333,380
|
|
|
|
1,640
|
|
|
|
(2,175
|
)
|
|
|
332,845
|
|
Corporate debt securities
|
|
|
518
|
|
|
|
7
|
|
|
|
|
|
|
|
525
|
|
Collateralized mortgage obligations
|
|
|
59,724
|
|
|
|
1,327
|
|
|
|
(48
|
)
|
|
|
61,003
|
|
Mortgage-backed securities
|
|
|
7,186,737
|
|
|
|
98,915
|
|
|
|
(151,079
|
)
|
|
|
7,134,573
|
|
Qualified School Construction Bonds (QSCB)
|
|
|
22,958
|
|
|
|
1,270
|
|
|
|
(278
|
)
|
|
|
23,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,606,569
|
|
|
$
|
103,182
|
|
|
$
|
(153,580
|
)
|
|
$
|
7,556,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
34,743
|
|
|
$
|
1,691
|
|
|
$
|
|
|
|
$
|
36,434
|
|
Collateralized mortgage obligations
|
|
|
616
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
604
|
|
Mortgage-backed securities
|
|
|
168,701
|
|
|
|
11,742
|
|
|
|
(27
|
)
|
|
|
180,416
|
|
Other securities
|
|
|
8,786
|
|
|
|
430
|
|
|
|
|
|
|
|
9,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
212,846
|
|
|
$
|
13,863
|
|
|
$
|
(39
|
)
|
|
$
|
226,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies
|
|
$
|
7,061
|
|
|
$
|
160
|
|
|
$
|
|
|
|
$
|
7,221
|
|
States and political subdivisions
|
|
|
391,510
|
|
|
|
7,074
|
|
|
|
(354
|
)
|
|
|
398,230
|
|
Corporate debt securities
|
|
|
1,500
|
|
|
|
28
|
|
|
|
|
|
|
|
1,528
|
|
Collateralized mortgage obligations
|
|
|
125,912
|
|
|
|
2,304
|
|
|
|
(50
|
)
|
|
|
128,166
|
|
Mortgage-backed securities
|
|
|
6,676,512
|
|
|
|
196,206
|
|
|
|
(4,517
|
)
|
|
|
6,868,201
|
|
Qualified School Construction Bonds (QSCB)
|
|
|
12,900
|
|
|
|
2,449
|
|
|
|
|
|
|
|
15,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,215,395
|
|
|
$
|
208,221
|
|
|
$
|
(4,921
|
)
|
|
$
|
7,418,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Management evaluates securities for other-than-temporary impairment (OTTI) at
least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the
appropriate OTTI model.
In determining OTTI, management considers many factors, including: (1) the length of time and the extent to
which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to
sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is
based on the information available to management at a point in time.
When OTTI occurs, the amount of the other-than-temporary impairment
recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to
sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investments
amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis
less any current-period loss, the OTTI shall be separated into the amount representing the credit-related portion of the impairment loss (credit loss) and the noncredit portion of the impairment loss (noncredit portion). The
amount of the total OTTI related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis and such difference is recognized in earnings. The amount of the
total OTTI related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.
As of September 30, 2013, the Company does not intend to sell any debt securities and management believes that the Company more
likely than not will not be required to sell any debt securities before their anticipated recovery, at which time the Company will receive full value for the securities. Furthermore, as of September 30, 2013, management does not have the intent
to sell any of its securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the
yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not
believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2013, management believes any impairment in the Companys securities is temporary and no impairment loss has been realized in the
Companys consolidated statements of income.
10
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Securities, with unrealized losses segregated by length of time, that have been in a
continuous loss position at September 30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
Less than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
53
|
|
|
$
|
(1
|
)
|
|
$
|
68
|
|
|
$
|
(1
|
)
|
Mortgage-backed securities
|
|
|
409
|
|
|
|
|
|
|
|
3,539
|
|
|
|
(24
|
)
|
|
|
3,948
|
|
|
|
(24
|
)
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
424
|
|
|
$
|
|
|
|
$
|
3,592
|
|
|
$
|
(25
|
)
|
|
$
|
4,016
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
164,268
|
|
|
$
|
(2,222
|
)
|
|
$
|
10,264
|
|
|
$
|
(231
|
)
|
|
$
|
174,532
|
|
|
$
|
(2,453
|
)
|
Collateralized mortgage obligations
|
|
|
1,391
|
|
|
|
(42
|
)
|
|
|
437
|
|
|
|
(6
|
)
|
|
|
1,828
|
|
|
|
(48
|
)
|
Mortgage-backed securities
|
|
|
3,507,024
|
|
|
|
(145,835
|
)
|
|
|
102,028
|
|
|
|
(5,244
|
)
|
|
|
3,609,052
|
|
|
|
(151,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,672,683
|
|
|
$
|
(148,099
|
)
|
|
$
|
112,729
|
|
|
$
|
(5,481
|
)
|
|
$
|
3,785,412
|
|
|
$
|
(153,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Less than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(Dollars in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
603
|
|
|
$
|
(12
|
)
|
|
$
|
603
|
|
|
$
|
(12
|
)
|
Mortgage-backed securities
|
|
|
224
|
|
|
|
|
|
|
|
3,964
|
|
|
|
(27
|
)
|
|
|
4,188
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
224
|
|
|
$
|
|
|
|
$
|
4,567
|
|
|
$
|
(39
|
)
|
|
$
|
4,791
|
|
|
$
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
37,322
|
|
|
$
|
(335
|
)
|
|
$
|
1,140
|
|
|
$
|
(19
|
)
|
|
$
|
38,462
|
|
|
$
|
(354
|
)
|
Collateralized mortgage obligations
|
|
|
2,366
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
2,366
|
|
|
|
(50
|
)
|
Mortgage-backed securities
|
|
|
1,081,414
|
|
|
|
(4,516
|
)
|
|
|
234
|
|
|
|
(1
|
)
|
|
|
1,081,648
|
|
|
|
(4,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,121,102
|
|
|
$
|
(4,901
|
)
|
|
$
|
1,374
|
|
|
$
|
(20
|
)
|
|
$
|
1,122,476
|
|
|
$
|
(4,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013, approximately 18.6% of securities were in an unrealized loss position for more than 12 months.
11
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The amortized cost and fair value of investment securities at September 30, 2013, by
contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations at any time with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
Available for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Due in one year or less
|
|
$
|
26,450
|
|
|
$
|
26,523
|
|
|
$
|
7,383
|
|
|
$
|
7,392
|
|
Due after one year through five years
|
|
|
120,137
|
|
|
|
120,135
|
|
|
|
4,990
|
|
|
|
5,175
|
|
Due after five years through ten years
|
|
|
138,529
|
|
|
|
138,049
|
|
|
|
20,997
|
|
|
|
21,721
|
|
Due after ten years
|
|
|
74,992
|
|
|
|
75,888
|
|
|
|
3,048
|
|
|
|
3,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
360,108
|
|
|
|
360,595
|
|
|
|
36,418
|
|
|
|
37,425
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
7,246,461
|
|
|
|
7,195,576
|
|
|
|
119,771
|
|
|
|
127,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,606,569
|
|
|
$
|
7,556,171
|
|
|
$
|
156,189
|
|
|
$
|
164,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no gain or loss on sale of securities for the three and nine months ended September 30,
2013 and 2012. As of September 30, 2013, the Company had eight non-agency CMOs remaining with a total book value of $1.8 million and total market value of $1.8 million.
At September 30, 2013 and December 31, 2012, the Company did not own securities of any one issuer (other than the U.S. government
and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders equity at such respective dates.
Securities with an amortized cost of $4.22 billion and $4.13 billion and a fair value of $4.20 billion and $4.27 billion at September 30,
2013 and December 31, 2012, respectively, were pledged to collateralize public deposits and for other purposes required or permitted by law.
12
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The loan portfolio consists of various types of loans made principally to borrowers located in Texas and Oklahoma and is
classified by major type as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Residential mortgage loans held for sale
|
|
$
|
4,892
|
|
|
$
|
10,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,028,799
|
|
|
|
771,114
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
703,193
|
|
|
|
550,768
|
|
1-4 family residential (including home equity)
|
|
|
1,710,621
|
|
|
|
1,432,133
|
|
Commercial real estate (including multi-family residential)
|
|
|
2,304,862
|
|
|
|
1,990,642
|
|
Farmland
|
|
|
235,049
|
|
|
|
211,156
|
|
Agriculture
|
|
|
86,469
|
|
|
|
74,481
|
|
Consumer and other (net of unearned discount)
|
|
|
108,704
|
|
|
|
139,213
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
|
6,177,697
|
|
|
|
5,169,507
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,182,589
|
|
|
$
|
5,179,940
|
|
|
|
|
|
|
|
|
|
|
(i) Commercial and Industrial Loans
.
In nearly all cases, the Companys commercial
loans are made in the Companys market areas and are underwritten on the basis of the borrowers ability to service the debt from income. As a general practice, the Company takes as collateral a lien on any available real estate, equipment
or other assets owned by the borrower and obtains a personal guaranty of the borrower or principal. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In
general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these
loans. The increased risk also derives from the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of
loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.
(ii) Commercial Real Estate.
The Company makes commercial real estate related loans collateralized by owner-occupied and
non-owner-occupied real estate to finance the purchase of real estate. The Companys commercial real estate related loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed
rates) and amortize over a 15 to 20 year period. Payments on loans secured by such properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions
in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the propertys operating history, future operating
projections, current and projected occupancy, location and physical condition in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the
financial condition of the borrower. At September 30, 2013, approximately 38.0% of the outstanding principal balance of the Companys commercial real estate related loans was secured by owner-occupied properties.
13
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
(iii) 1-4 Family Residential Loans
.
The Company originates 1-4 family
residential mortgage loans and home equity loans collateralized by owner-occupied residential properties located in the Companys market areas. The Company offers a variety of mortgage loan products which generally are amortized over five to 25
years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value or have mortgage insurance. The Company requires mortgage title insurance and hazard insurance. The
Company has elected to keep all 1-4 family residential loans for its own account rather than selling such loans into the secondary market. By doing so, the Company is able to realize a higher yield on these loans; however, the Company also incurs
interest rate risk as well as the risks associated with nonpayments on such loans.
(iv) Construction and Land Development
Loans.
The Company makes loans to finance the construction of residential and, to a lesser extent, nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have floating interest rates. The
Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Companys construction lending
activities. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties
inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the
related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a
borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, there is no assurance that the Company will be able to recover all of the unpaid portion of the loan. In addition, the Company may be
required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. While the Company has underwriting procedures designed to identify what it believes to be acceptable levels of risks in
construction lending, no assurance can be given that these procedures will prevent losses from the risks described above.
(v)
Agriculture Loans
.
The Company provides agriculture loans for short-term crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture
borrowers primarily based on their historical profitability, level of experience in their particular agriculture industry, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to
the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks.
(vi) Consumer Loans
.
Consumer loans made by the Company include direct credit automobile loans, recreational vehicle
loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 120 months and vary based upon the nature of collateral and
size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
The Company
maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification
and assessment decisions made by lenders and credit personnel, as well as the Companys policies and procedures.
14
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Concentrations of Credit.
Most of the Companys lending activity occurs within
the states of Texas and Oklahoma. The majority of the Companys loan portfolio consists of commercial and industrial, commercial real estate and 1-4 family residential loans. As of September 30, 2013 and December 31, 2012, there were
no concentrations of loans related to any single industry in excess of 10% of total loans.
Foreign Loans.
The Company has U.S.
dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at September 30, 2013 or December 31, 2012.
Related Party Loans.
As of September 30, 2013 and December 31, 2012, loans outstanding to directors, officers and their
affiliates totaled $6.3 million and $6.7 million, respectively. All transactions entered into between the Company and such related parties are done in the ordinary course of business, made on the same terms and conditions as similar transactions
with unaffiliated persons.
An analysis of activity with respect to these related party loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Beginning balance on January 1
|
|
$
|
6,682
|
|
|
$
|
9,809
|
|
New loans and reclassified related loans
|
|
|
306
|
|
|
|
967
|
|
Repayments
|
|
|
(676
|
)
|
|
|
(4,094
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,312
|
|
|
$
|
6,682
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual and Past Due Loans.
The Company has several procedures in place to assist it in maintaining
the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers and the Company also monitors its delinquency levels for any negative or adverse trends. There can be no assurance,
however, that the Companys loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent
for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan.
The Company requires appraisals on loans collateralized by real estate. With respect to potential problem loans, an evaluation of the
borrowers overall financial condition is made to determine the need, if any, for possible writedowns or appropriate additions to the allowance for credit losses.
15
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
An aging analysis of past due loans, segregated by class of loans, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
Loans Past Due and Still Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 or More
Days
|
|
|
Total Past
Due Loans
|
|
|
Nonaccrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(Dollars in thousands)
|
|
Construction and land development
|
|
$
|
3,465
|
|
|
$
|
|
|
|
$
|
3,465
|
|
|
$
|
469
|
|
|
$
|
699,259
|
|
|
$
|
703,193
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
557
|
|
|
|
|
|
|
|
557
|
|
|
|
23
|
|
|
|
320,938
|
|
|
|
321,518
|
|
1-4 family (includes home equity) (1)
|
|
|
5,655
|
|
|
|
90
|
|
|
|
5,745
|
|
|
|
1,037
|
|
|
|
1,708,731
|
|
|
|
1,715,513
|
|
Commercial real estate (includes multi-family residential)
|
|
|
7,065
|
|
|
|
34
|
|
|
|
7,099
|
|
|
|
2,223
|
|
|
|
2,295,540
|
|
|
|
2,304,862
|
|
Commercial and industrial
|
|
|
9,230
|
|
|
|
148
|
|
|
|
9,378
|
|
|
|
1,069
|
|
|
|
1,018,352
|
|
|
|
1,028,799
|
|
Consumer and other
|
|
|
391
|
|
|
|
11
|
|
|
|
402
|
|
|
|
133
|
|
|
|
108,169
|
|
|
|
108,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,363
|
|
|
$
|
283
|
|
|
$
|
26,646
|
|
|
$
|
4,954
|
|
|
$
|
6,150,989
|
|
|
$
|
6,182,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Loans Past Due and Still Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 or More
Days
|
|
|
Total Past
Due Loans
|
|
|
Nonaccrual
Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
|
(Dollars in thousands)
|
|
Construction and land development
|
|
$
|
3,863
|
|
|
$
|
|
|
|
$
|
3,863
|
|
|
$
|
1,170
|
|
|
$
|
545,735
|
|
|
$
|
550,768
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
310
|
|
|
|
21
|
|
|
|
331
|
|
|
|
396
|
|
|
|
284,910
|
|
|
|
285,637
|
|
1-4 family (includes home equity) (1)
|
|
|
2,307
|
|
|
|
310
|
|
|
|
2,617
|
|
|
|
1,598
|
|
|
|
1,438,351
|
|
|
|
1,442,566
|
|
Commercial real estate (includes multi-family residential)
|
|
|
9,163
|
|
|
|
|
|
|
|
9,163
|
|
|
|
|
|
|
|
1,981,479
|
|
|
|
1,990,642
|
|
Commercial and industrial
|
|
|
4,843
|
|
|
|
|
|
|
|
4,843
|
|
|
|
1,469
|
|
|
|
764,802
|
|
|
|
771,114
|
|
Consumer and other
|
|
|
856
|
|
|
|
|
|
|
|
856
|
|
|
|
749
|
|
|
|
137,608
|
|
|
|
139,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,342
|
|
|
$
|
331
|
|
|
$
|
21,673
|
|
|
$
|
5,382
|
|
|
$
|
5,152,885
|
|
|
$
|
5,179,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $4.9 million and $10.4 million of residential mortgage loans held for sale at September 30, 2013 and December 31, 2012, respectively.
|
16
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following table presents information regarding past due loans and nonperforming assets as
of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
Nonaccrual loans
|
|
$
|
4,954
|
|
|
$
|
5,382
|
|
Accruing loans 90 or more days past due
|
|
|
283
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
5,237
|
|
|
|
5,713
|
|
Repossessed assets
|
|
|
18
|
|
|
|
68
|
|
Other real estate
|
|
|
7,432
|
|
|
|
7,234
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
12,687
|
|
|
$
|
13,015
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans and other real estate
|
|
|
0.20
|
%
|
|
|
0.25
|
%
|
The Company believes its conservative lending approach has resulted in sound asset quality. The Company had
$12.7 million in nonperforming assets at September 30, 2013 compared with $13.0 million at December 31, 2012. If interest on nonaccrual loans had been accrued under the original loan terms, approximately $341,000 and $252,000 would have
been recorded as income for the nine months ended September 30, 2013 and 2012, respectively.
Purchased Credit-Impaired (PCI)
Loans.
In connection with the acquisition of American State Financial Corporation (ASB) on July 1, 2012, Community National Bank on October 1, 2012, East Texas Financial Services, Inc. on January 1, 2013 and Coppermark Bancshares,
Inc. on April 1, 2013, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses.
Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Company would not be able
to collect all contractual amounts due were accounted for as PCI.
The carrying amount of acquired PCI loans included in the consolidated
balance sheet and the related outstanding balance at September 30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
Acquired PCI loans:
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
$
|
36,204
|
|
|
$
|
22,880
|
|
Outstanding balance
|
|
|
77,303
|
|
|
|
46,914
|
|
The outstanding balance represents the total amount owed as of September 30, 2013 and December 31,
2012, including accrued but unpaid interest and any amounts previously charged off. No allowance for loan losses was required on the acquired PCI loans at both September 30, 2013 and December 31, 2012.
17
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Changes in the accretable yield for acquired PCI loans for the three and nine month periods
ended September 30, 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Periods Ended September 30,
|
|
|
Nine Month Periods Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Dollars in thousands)
|
|
Balance at beginning of period
|
|
$
|
13,011
|
|
|
$
|
|
|
|
$
|
7,459
|
|
|
$
|
|
|
Additions
|
|
|
349
|
|
|
|
8,157
|
|
|
|
7,877
|
|
|
|
8,157
|
|
Reclassifications from nonaccretable
|
|
|
3,088
|
|
|
|
|
|
|
|
4,343
|
|
|
|
|
|
Accretion
|
|
|
(5,840
|
)
|
|
|
(1,160
|
)
|
|
|
(9,071
|
)
|
|
|
(1,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
$
|
10,608
|
|
|
$
|
6,997
|
|
|
$
|
10,608
|
|
|
$
|
6,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans.
Loans are considered impaired when, based on current information and events, it is
probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans
of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the
loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably
assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
18
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Impaired loans as of September 30, 2013 are set forth in the following table. No
interest income was recognized on impaired loans subsequent to their classification as impaired. The average recorded investment presented in the table below is reported on a year-to-date basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
257
|
|
|
$
|
265
|
|
|
$
|
|
|
|
$
|
701
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
1-4 family (includes home equity)
|
|
|
310
|
|
|
|
279
|
|
|
|
|
|
|
|
401
|
|
Commercial real estate (includes multi-family residential)
|
|
|
1,213
|
|
|
|
1,237
|
|
|
|
|
|
|
|
832
|
|
Commercial and industrial
|
|
|
194
|
|
|
|
54
|
|
|
|
|
|
|
|
141
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,974
|
|
|
|
1,835
|
|
|
|
|
|
|
|
2,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
23
|
|
|
|
30
|
|
|
|
20
|
|
|
|
29
|
|
1-4 family (includes home equity)
|
|
|
71
|
|
|
|
96
|
|
|
|
53
|
|
|
|
535
|
|
Commercial real estate (includes multi-family residential)
|
|
|
17
|
|
|
|
18
|
|
|
|
17
|
|
|
|
1,234
|
|
Commercial and industrial
|
|
|
832
|
|
|
|
842
|
|
|
|
741
|
|
|
|
938
|
|
Consumer and other
|
|
|
80
|
|
|
|
87
|
|
|
|
69
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,023
|
|
|
|
1,073
|
|
|
|
900
|
|
|
|
2,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
257
|
|
|
|
265
|
|
|
|
|
|
|
|
701
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
23
|
|
|
|
30
|
|
|
|
20
|
|
|
|
68
|
|
1-4 family (includes home equity)
|
|
|
381
|
|
|
|
375
|
|
|
|
53
|
|
|
|
936
|
|
Commercial real estate (includes multi-family residential)
|
|
|
1,230
|
|
|
|
1,255
|
|
|
|
17
|
|
|
|
2,066
|
|
Commercial and industrial
|
|
|
1,026
|
|
|
|
896
|
|
|
|
741
|
|
|
|
1,079
|
|
Consumer and other
|
|
|
80
|
|
|
|
87
|
|
|
|
69
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,997
|
|
|
$
|
2,908
|
|
|
$
|
900
|
|
|
$
|
4,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Impaired loans as of December 31, 2012 are set forth in the following tables. No
interest income was recognized on impaired loans subsequent to their classification as impaired. The average recorded investment is reported on a year-to-date basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
1,144
|
|
|
$
|
1,175
|
|
|
$
|
|
|
|
$
|
368
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
77
|
|
|
|
77
|
|
|
|
|
|
|
|
34
|
|
1-4 family (includes home equity)
|
|
|
491
|
|
|
|
522
|
|
|
|
|
|
|
|
381
|
|
Commercial real estate (includes multi-family residential)
|
|
|
450
|
|
|
|
476
|
|
|
|
|
|
|
|
676
|
|
Commercial and industrial
|
|
|
87
|
|
|
|
89
|
|
|
|
|
|
|
|
75
|
|
Consumer and other
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,259
|
|
|
|
2,349
|
|
|
|
|
|
|
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
34
|
|
|
|
41
|
|
|
|
29
|
|
|
|
45
|
|
1-4 family (includes home equity)
|
|
|
999
|
|
|
|
1,017
|
|
|
|
273
|
|
|
|
720
|
|
Commercial real estate (includes multi-family residential)
|
|
|
2,450
|
|
|
|
2,451
|
|
|
|
610
|
|
|
|
2,725
|
|
Commercial and industrial
|
|
|
1,043
|
|
|
|
1,079
|
|
|
|
1,002
|
|
|
|
782
|
|
Consumer and other
|
|
|
66
|
|
|
|
81
|
|
|
|
67
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,592
|
|
|
|
4,669
|
|
|
|
1,981
|
|
|
|
4,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
1,144
|
|
|
|
1,175
|
|
|
|
|
|
|
|
819
|
|
Agriculture and agriculture real estate (includes farmland)
|
|
|
111
|
|
|
|
118
|
|
|
|
29
|
|
|
|
79
|
|
1-4 family (includes home equity)
|
|
|
1,490
|
|
|
|
1,539
|
|
|
|
273
|
|
|
|
1,101
|
|
Commercial real estate (includes multi-family residential)
|
|
|
2,900
|
|
|
|
2,927
|
|
|
|
610
|
|
|
|
3,401
|
|
Commercial and industrial
|
|
|
1,130
|
|
|
|
1,168
|
|
|
|
1,002
|
|
|
|
857
|
|
Consumer and other
|
|
|
76
|
|
|
|
91
|
|
|
|
67
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,851
|
|
|
$
|
7,018
|
|
|
$
|
1,981
|
|
|
$
|
6,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators.
As part of the ongoing monitoring of the credit quality of the
Companys loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used (1-7):
Grade 1
Credits in this category are of the highest standards of credit quality with virtually no risk of loss. These borrowers would
represent top rated companies and individuals with unquestionable financial standing with excellent global cash flow coverage, net worth, liquidity and collateral coverage and/or secured by CD/savings accounts.
Grade 2
Credits in this category are not immune for risk but are well-protected by the collateral and paying capacity of the borrower. These
loans may exhibit a minor unfavorable credit factor, but the overall credit is sufficiently strong to minimize the possibility of loss.
20
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Grade 3
Credits in this category constitute an undue and unwarranted credit risk, however the
factors do not rise to a level of substandard. These credits have potential weaknesses and/or declining trends that, if not corrected, could expose the Company to risk at a future date. Credits graded 3 are monitored on the Companys internally
generated watch list and evaluated on a quarterly basis.
Grade 4
Credits in this category are deemed substandard loans in
accordance with regulatory guidelines. Loans in this category have well-defined weakness that, if not corrected, could make default of principal and interest possible, but it is not yet certain. Loans in this category are still accruing interest and
may be dependent upon secondary sources of repayment and/or collateral liquidation.
Grade 5
Credits in this category are deemed
substandard and impaired pursuant to regulatory guidelines. As such, the Company has determined that it is probable that less than 100% of the principal and interest will be collected. Loans graded 5 are individually
evaluated for a specific reserve valuation and will typically have the accrual of interest stopped.
Grade 6
Credits in this category
include doubtful loans in accordance with regulatory guidance. Such loans are on nonaccrual and factors have indicated a loss is imminent. These loans are also deemed impaired. While a specific reserve may be in place while
the loan and collateral is being evaluated these loans are typically charged down to an amount the Company deems collectable.
Grade 7
Credits in this category are deemed a loss in accordance with regulatory guidelines and charged off or charged down. The Company may continue collection efforts and may have partial recovery in the future.
The following table presents risk grades and classified loans by class of loan at September 30, 2013. Classified loans include loans in
risk grades 5, 6 and 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and Land
Development
|
|
|
Agriculture and
Agriculture Real
Estate (includes
Farmland)
|
|
|
1-4 Family
(includes
Home Equity) (1)
|
|
|
Commercial
Real Estate
(includes Multi-
Family Residential)
|
|
|
Commercial
and Industrial
|
|
|
Consumer and
Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Grade 1
|
|
$
|
|
|
|
$
|
4,771
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,879
|
|
|
$
|
31,287
|
|
|
$
|
84,937
|
|
Grade 2
|
|
|
694,446
|
|
|
|
313,890
|
|
|
|
1,701,525
|
|
|
|
2,248,498
|
|
|
|
962,941
|
|
|
|
77,114
|
|
|
|
5,998,414
|
|
Grade 3
|
|
|
3,850
|
|
|
|
1,044
|
|
|
|
4,287
|
|
|
|
12,483
|
|
|
|
7,453
|
|
|
|
133
|
|
|
|
29,250
|
|
Grade 4
|
|
|
1,551
|
|
|
|
1,369
|
|
|
|
6,165
|
|
|
|
15,736
|
|
|
|
5,876
|
|
|
|
90
|
|
|
|
30,787
|
|
Grade 5
|
|
|
257
|
|
|
|
23
|
|
|
|
370
|
|
|
|
1,230
|
|
|
|
1,026
|
|
|
|
80
|
|
|
|
2,986
|
|
Grade 6
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Grade 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI Loans (2)
|
|
|
3,089
|
|
|
|
421
|
|
|
|
3,155
|
|
|
|
26,915
|
|
|
|
2,624
|
|
|
|
|
|
|
|
36,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
703,193
|
|
|
$
|
321,518
|
|
|
$
|
1,715,513
|
|
|
$
|
2,304,862
|
|
|
$
|
1,028,799
|
|
|
$
|
108,704
|
|
|
$
|
6,182,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $4.9 million of residential mortgage loans held for sale at September 30, 2013.
|
(2)
|
Of the total PCI loans, $24.9 million were classified as substandard at September 30, 2013.
|
21
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following table presents risk grades and classified loans by class of loan at
December 31, 2012. Classified loans include loans in risk grades 5, 6 and 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and Land
Development
|
|
|
Agriculture and
Agriculture Real
Estate (includes
Farmland)
|
|
|
1-4 Family
(includes
Home Equity) (1)
|
|
|
Commercial
Real Estate
(includes Multi-
Family Residential)
|
|
|
Commercial
and Industrial
|
|
|
Consumer and
Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Grade 1
|
|
$
|
476
|
|
|
$
|
4,195
|
|
|
$
|
515
|
|
|
$
|
|
|
|
$
|
53,965
|
|
|
$
|
38,789
|
|
|
$
|
97,940
|
|
Grade 2
|
|
|
537,340
|
|
|
|
277,333
|
|
|
|
1,431,095
|
|
|
|
1,945,319
|
|
|
|
702,587
|
|
|
|
100,163
|
|
|
|
4,993,837
|
|
Grade 3
|
|
|
7,250
|
|
|
|
2,024
|
|
|
|
4,947
|
|
|
|
11,760
|
|
|
|
8,926
|
|
|
|
|
|
|
|
34,907
|
|
Grade 4
|
|
|
4,256
|
|
|
|
1,694
|
|
|
|
4,303
|
|
|
|
11,711
|
|
|
|
1,385
|
|
|
|
176
|
|
|
|
23,525
|
|
Grade 5
|
|
|
1,144
|
|
|
|
111
|
|
|
|
1,477
|
|
|
|
2,900
|
|
|
|
1,130
|
|
|
|
76
|
|
|
|
6,838
|
|
Grade 6
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Grade 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI Loans
|
|
|
302
|
|
|
|
280
|
|
|
|
216
|
|
|
|
18,952
|
|
|
|
3,121
|
|
|
|
9
|
|
|
|
22,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
550,768
|
|
|
$
|
285,637
|
|
|
$
|
1,442,566
|
|
|
$
|
1,990,642
|
|
|
$
|
771,114
|
|
|
$
|
139,213
|
|
|
$
|
5,179,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $10.4 million of residential mortgage loans held for sale at December 31, 2012.
|
Allowance for Credit Losses.
The allowance for credit losses is a valuation established through charges to earnings in the form of a
provision for credit losses. Management has established an allowance for credit losses which it believes is adequate for estimated losses in the Companys loan portfolio. The amount of the allowance for credit losses is affected by the
following: (i) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (ii) recoveries on loans previously charged off that increase the allowance and (iii) provisions for credit losses charged
to earnings that increase the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Banks Board of Directors,
indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance.
The
Companys allowance for credit losses consists of two components: a specific valuation allowance based on probable losses on specifically identified loans and a general valuation allowance based on historical loan loss experience, general
economic conditions and other qualitative risk factors both internal and external to the Company.
In setting the specific valuation
allowance, the Company follows a loan review program to evaluate the credit risk in the loan portfolio. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps
management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is
required. For each impaired loan, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan requiring a reserve. The specific reserves are determined on an individual loan basis.
Impaired loans are excluded from the general valuation allowance described below.
In determining the amount of the general valuation
allowance, management considers factors such as historical loan loss experience, industry diversification of the Companys commercial loan portfolio, concentration risk of specific loan types, the volume, growth and composition of the
Companys loan portfolio, current economic conditions that may affect the borrowers ability to pay and the value of collateral, the evaluation of the Companys loan portfolio through its internal loan review process, general economic
conditions and other qualitative risk factors both internal and external to the Company and other relevant factors.
Based on a review of
these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any impaired loan. The Company uses this information to establish the amount of the general valuation allowance.
22
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
In connection with its review of the loan portfolio, the Company considers risk elements
attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include:
|
|
|
for 1-4 family residential mortgage loans, the borrowers ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age,
condition and marketability of collateral;
|
|
|
|
for commercial real estate loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of
the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
|
|
|
|
for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for
lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio;
|
|
|
|
for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrowers business, professional and financial ability and expertise, the specific risks and
volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;
|
|
|
|
for agriculture real estate loans, the experience and financial capability of the borrower, projected debt service coverage of the operations of the borrower and loan to value ratio; and
|
|
|
|
for non-real estate agriculture loans, the operating results, experience and financial capability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral.
|
In addition, for each category, the Company considers secondary sources of income and the financial strength and credit
history of the borrower and any guarantors.
At September 30, 2013, the allowance for credit losses totaled $59.9 million or 0.97% of
total loans. At December 31, 2012, the allowance aggregated $52.6 million or 1.01% of total loans.
23
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following table details the recorded investment in loans and activity in the allowance
for credit losses by portfolio segment for the three and nine months ended September 30, 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and Land
Development
|
|
|
Agriculture
and
Agriculture
Real Estate
(includes
Farmland)
|
|
|
1-4 Family
(includes
Home
Equity)
|
|
|
Commercial
Real Estate
(includes
Multi-Family
Residential)
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2013
|
|
$
|
11,991
|
|
|
$
|
982
|
|
|
$
|
13,435
|
|
|
$
|
22,831
|
|
|
$
|
6,293
|
|
|
$
|
644
|
|
|
$
|
56,176
|
|
Provision for credit losses
|
|
|
1,024
|
|
|
|
129
|
|
|
|
1,262
|
|
|
|
(658
|
)
|
|
|
1,356
|
|
|
|
912
|
|
|
|
4,025
|
|
Charge-offs
|
|
|
(14
|
)
|
|
|
(23
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(188
|
)
|
|
|
(897
|
)
|
|
|
(1,142
|
)
|
Recoveries
|
|
|
44
|
|
|
|
10
|
|
|
|
5
|
|
|
|
471
|
|
|
|
69
|
|
|
|
255
|
|
|
|
854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
30
|
|
|
|
(13
|
)
|
|
|
(15
|
)
|
|
|
471
|
|
|
|
(119
|
)
|
|
|
(642
|
)
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2013
|
|
$
|
13,045
|
|
|
$
|
1,098
|
|
|
$
|
14,682
|
|
|
$
|
22,644
|
|
|
$
|
7,530
|
|
|
$
|
914
|
|
|
$
|
59,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2013
|
|
$
|
11,909
|
|
|
$
|
764
|
|
|
$
|
13,942
|
|
|
$
|
19,607
|
|
|
$
|
5,777
|
|
|
$
|
565
|
|
|
$
|
52,564
|
|
Provision for credit losses
|
|
|
1,173
|
|
|
|
352
|
|
|
|
892
|
|
|
|
3,309
|
|
|
|
2,070
|
|
|
|
1,579
|
|
|
|
9,375
|
|
Charge-offs
|
|
|
(270
|
)
|
|
|
(36
|
)
|
|
|
(182
|
)
|
|
|
(894
|
)
|
|
|
(592
|
)
|
|
|
(2,100
|
)
|
|
|
(4,074
|
)
|
Recoveries
|
|
|
233
|
|
|
|
18
|
|
|
|
30
|
|
|
|
622
|
|
|
|
275
|
|
|
|
870
|
|
|
|
2,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(37
|
)
|
|
|
(18
|
)
|
|
|
(152
|
)
|
|
|
(272
|
)
|
|
|
(317
|
)
|
|
|
(1,230
|
)
|
|
|
(2,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2013
|
|
$
|
13,045
|
|
|
$
|
1,098
|
|
|
$
|
14,682
|
|
|
$
|
22,644
|
|
|
$
|
7,530
|
|
|
$
|
914
|
|
|
$
|
59,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
53
|
|
|
$
|
17
|
|
|
$
|
741
|
|
|
$
|
69
|
|
|
$
|
900
|
|
Collectively evaluated for impairment
|
|
|
13,045
|
|
|
|
1,078
|
|
|
|
14,629
|
|
|
|
22,627
|
|
|
|
6,789
|
|
|
|
845
|
|
|
|
59,013
|
|
PCI loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
13,045
|
|
|
$
|
1,098
|
|
|
$
|
14,682
|
|
|
$
|
22,644
|
|
|
$
|
7,530
|
|
|
$
|
914
|
|
|
$
|
59,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
257
|
|
|
$
|
23
|
|
|
$
|
381
|
|
|
$
|
1,230
|
|
|
$
|
1,026
|
|
|
$
|
80
|
|
|
$
|
2,997
|
|
Collectively evaluated for impairment
|
|
|
699,847
|
|
|
|
321,074
|
|
|
|
1,711,977
|
|
|
|
2,276,717
|
|
|
|
1,025,149
|
|
|
|
108,624
|
|
|
|
6,143,388
|
|
PCI loans
|
|
|
3,089
|
|
|
|
421
|
|
|
|
3,155
|
|
|
|
26,915
|
|
|
|
2,624
|
|
|
|
|
|
|
|
36,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans evaluated for impairment
|
|
$
|
703,193
|
|
|
$
|
321,518
|
|
|
$
|
1,715,513
|
|
|
$
|
2,304,862
|
|
|
$
|
1,028,799
|
|
|
$
|
108,704
|
|
|
$
|
6,182,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following table details the recorded investment in loans and activity in the allowance
for credit losses by portfolio segment for the three and nine months ended September 30, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and Land
Development
|
|
|
Agriculture
and
Agriculture
Real Estate
(includes
Farmland)
|
|
|
1-4 Family
(includes
Home
Equity)
|
|
|
Commercial
Real Estate
(includes
Multi-Family
Residential)
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2012
|
|
$
|
10,065
|
|
|
$
|
742
|
|
|
$
|
13,326
|
|
|
$
|
21,406
|
|
|
$
|
4,238
|
|
|
$
|
605
|
|
|
$
|
50,382
|
|
Provision for credit losses
|
|
|
359
|
|
|
|
(2
|
)
|
|
|
299
|
|
|
|
(509
|
)
|
|
|
660
|
|
|
|
993
|
|
|
|
1,800
|
|
Charge-offs
|
|
|
(159
|
)
|
|
|
|
|
|
|
(327
|
)
|
|
|
(909
|
)
|
|
|
(55
|
)
|
|
|
(1,663
|
)
|
|
|
(3,113
|
)
|
Recoveries
|
|
|
4
|
|
|
|
30
|
|
|
|
76
|
|
|
|
109
|
|
|
|
565
|
|
|
|
1,074
|
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(155
|
)
|
|
|
30
|
|
|
|
(251
|
)
|
|
|
(800
|
)
|
|
|
510
|
|
|
|
(589
|
)
|
|
|
(1,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2012
|
|
$
|
10,269
|
|
|
$
|
770
|
|
|
$
|
13,374
|
|
|
$
|
20,097
|
|
|
$
|
5,408
|
|
|
$
|
1,009
|
|
|
$
|
50,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2012
|
|
$
|
12,094
|
|
|
$
|
511
|
|
|
$
|
12,645
|
|
|
$
|
21,460
|
|
|
$
|
3,826
|
|
|
$
|
1,058
|
|
|
$
|
51,594
|
|
Provision for credit losses
|
|
|
(469
|
)
|
|
|
226
|
|
|
|
1,121
|
|
|
|
(250
|
)
|
|
|
1,237
|
|
|
|
685
|
|
|
|
2,550
|
|
Charge-offs
|
|
|
(1,368
|
)
|
|
|
|
|
|
|
(478
|
)
|
|
|
(1,278
|
)
|
|
|
(376
|
)
|
|
|
(2,101
|
)
|
|
|
(5,601
|
)
|
Recoveries
|
|
|
12
|
|
|
|
33
|
|
|
|
86
|
|
|
|
165
|
|
|
|
721
|
|
|
|
1,367
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,356
|
)
|
|
|
33
|
|
|
|
(392
|
)
|
|
|
(1,113
|
)
|
|
|
345
|
|
|
|
(734
|
)
|
|
|
(3,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2012
|
|
$
|
10,269
|
|
|
$
|
770
|
|
|
$
|
13,374
|
|
|
$
|
20,097
|
|
|
$
|
5,408
|
|
|
$
|
1,009
|
|
|
$
|
50,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
26
|
|
|
$
|
61
|
|
|
$
|
336
|
|
|
$
|
567
|
|
|
$
|
1,180
|
|
|
$
|
20
|
|
|
$
|
2,190
|
|
Collectively evaluated for impairment
|
|
|
10,243
|
|
|
|
709
|
|
|
|
13,038
|
|
|
|
19,530
|
|
|
|
4,228
|
|
|
|
989
|
|
|
|
48,737
|
|
PCI loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
10,269
|
|
|
$
|
770
|
|
|
$
|
13,374
|
|
|
$
|
20,097
|
|
|
$
|
5,408
|
|
|
$
|
1,009
|
|
|
$
|
50,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
86
|
|
|
$
|
143
|
|
|
$
|
1,448
|
|
|
$
|
3,170
|
|
|
$
|
1,395
|
|
|
$
|
20
|
|
|
$
|
6,262
|
|
Collectively evaluated for impairment
|
|
|
495,005
|
|
|
|
303,913
|
|
|
|
1,396,114
|
|
|
|
1,950,488
|
|
|
|
751,379
|
|
|
|
148,361
|
|
|
|
5,045,260
|
|
PCI loans
|
|
|
1,326
|
|
|
|
78
|
|
|
|
155
|
|
|
|
22,454
|
|
|
|
3,568
|
|
|
|
|
|
|
|
27,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans evaluated for impairment
|
|
$
|
496,417
|
|
|
$
|
304,134
|
|
|
$
|
1,397,717
|
|
|
$
|
1,976,112
|
|
|
$
|
756,342
|
|
|
$
|
148,381
|
|
|
$
|
5,079,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Troubled Debt Restructurings.
The restructuring of a loan is considered a
troubled debt restructuring if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates,
principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.
During the nine
months ended September 30, 2013, a $249,000 loan was restructured. Default is determined at 90 or more days past due. The restructured loans from prior periods are performing and accruing loans.
6. FAIR VALUE
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value
disclosures. Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an exit price. Securities available for sale are recorded at fair value on a
recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis such as certain loans including loans held-for-sale, goodwill and other intangible assets and other real
estate owned. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write downs of individual assets.
Fair Value Hierarchy
The Company groups
financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
|
|
|
Level 1Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
|
|
|
|
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an
orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the
market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. FASB
Accounting Standards Codification (ASC) Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to
unobservable inputs.
The fair value disclosures below represent the Companys estimates based on relevant market information and
information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the various instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.
26
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following tables present fair values for assets measured at fair value on a recurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
|
|
|
$
|
30,132
|
|
|
$
|
|
|
|
$
|
30,132
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
514
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
126,837
|
|
|
|
|
|
|
|
126,837
|
|
Other securities
|
|
|
7,293
|
|
|
|
|
|
|
|
|
|
|
|
7,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,293
|
|
|
$
|
157,483
|
|
|
$
|
|
|
|
$
|
164,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
|
|
|
$
|
36,434
|
|
|
$
|
|
|
|
$
|
36,434
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
604
|
|
|
|
|
|
|
|
604
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
180,416
|
|
|
|
|
|
|
|
180,416
|
|
Other securities
|
|
|
7,688
|
|
|
|
1,528
|
|
|
|
|
|
|
|
9,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,688
|
|
|
$
|
218,982
|
|
|
$
|
|
|
|
$
|
226,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that
is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring
basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable
market data, typically in the case of real estate collateral. For the nine months ended September 30, 2013, the Company had additions to impaired loans of $5.5 million, of which $1.4 million were outstanding at September 30, 2013.
Financial assets measured at fair value on a nonrecurring basis during the reported periods also include other real estate owned and
repossessed assets. For the three and nine months ended September 30, 2013, the Company had additions to other real estate owned of $305,000 and $2.7 million, of which $305,000 and $1.1 million were outstanding at September 30, 2013,
respectively. The remaining financial assets and financial liabilities measured at fair value on a non-recurring basis that were recorded in 2013 and remained outstanding at September 30, 2013 were not significant. During the reported periods,
all fair value measurements for other real estate owned and repossessed assets utilized Level 2 inputs based on observable market data. There were no transfers between Level 1 and Level 2 assets during the nine months ended September 30, 2013.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and due from banks
For these short-term instruments, the carrying amount is a
reasonable estimate of fair value. The Company classifies the estimated fair value of these instruments as Level 1.
Federal funds
sold
For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The Company classifies the estimated fair value of these instruments as Level 1.
27
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Securities
Fair value measurements based upon quoted prices are considered Level
1 inputs. Level 1 securities consist of U.S. Treasury securities and certain equity securities which are included in the available for sale portfolio. For all other available for sale and held to maturity securities, if quoted prices are not
available, fair values are measured using Level 2 inputs. For these securities, the Company generally obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer
quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things. The Company reviews
the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness.
Securities
available for sale are recorded at fair value on a recurring basis.
Loans held for investment
The Company does not record
loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value disclosures. However, from time to time, the Company records nonrecurring fair value adjustments to impaired
loans to reflect (1) partial write downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. Where appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the credit risk associated with those cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific
borrower information.
The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no
significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar
terms would be made to borrowers of similar credit quality. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The Company classifies the estimated fair value of loans held for investment as
Level 3.
Loans held for sale
Loans held for sale are carried at the lower of cost or estimated fair value. Fair value for
consumer mortgages held for sale is based on commitments on hand from investors or prevailing market prices. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 1.
Federal Home Loan Bank of Dallas Stock
The fair value of FHLB stock is estimated to be equal to its carrying amount as reported in
the accompanying Consolidated Balance Sheets, given it is not a publicly traded equity security, it has an adjustable dividend rate, and all transactions in the stock are executed at the stated par value. FHLB stock is considered a Level 1 fair
value.
Other real estate owned
Other real estate owned is primarily foreclosed properties securing residential loans and
commercial real estate. Foreclosed assets are adjusted to fair value less estimated costs to sell upon transfer of the loans to other real estate owned. Subsequently, these assets are carried at the lower of carrying value or fair value less
estimated costs to sell. Other real estate carried at fair value based on an observable market price or a current appraised value is classified by the Company as Level 2. When management determines that the fair value of other real estate requires
additional adjustments, either as a result of a non-current appraisal or when there is no observable market price, the Company classifies the other real estate as Level 3.
Deposits
The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Deposits fair value measurements utilize Level 2 inputs.
Junior subordinated debentures
The fair value of the junior subordinated debentures was calculated using the quoted market prices,
if available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar subordinated debentures. Junior subordinated debentures fair value measurements utilize Level 2 inputs.
Other borrowings
Rates currently available to the Company for debt with similar terms and remaining maturities are used to
estimate the fair value of other borrowings using a discounted cash flows methodology and are measured utilizing Level 2 inputs.
Securities sold under repurchase agreements
The fair value of securities sold under repurchase agreements is the amount payable on
demand at the reporting date and are measured utilizing Level 2 inputs.
28
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Off-balance sheet financial instruments
The fair value of commitments to extend
credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the counterparties. The Company has
reviewed the unfunded portion of commitments to extend credit as well as standby and other letters of credit, and has determined that the fair value of such financial instruments is not material. The Company classifies the estimated fair value of
credit-related financial instruments as Level 3.
The following table summarizes the carrying values and estimated fair values of certain
financial instruments not recorded at fair value on a regular basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013
|
|
|
|
Carrying
|
|
|
Estimated Fair Value
|
|
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
269,987
|
|
|
$
|
269,987
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
269,987
|
|
Federal funds sold
|
|
|
1,121
|
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
1,121
|
|
Held to maturity securities
|
|
|
7,606,569
|
|
|
|
|
|
|
|
7,556,171
|
|
|
|
|
|
|
|
7,556,171
|
|
Loans held for sale
|
|
|
4,892
|
|
|
|
4,892
|
|
|
|
|
|
|
|
|
|
|
|
4,892
|
|
Loans held for investment, net of allowance
|
|
|
6,117,784
|
|
|
|
|
|
|
|
|
|
|
|
6,143,355
|
|
|
|
6,143,355
|
|
Federal Home Loan Bank of Dallas stock
|
|
|
43,058
|
|
|
|
43,058
|
|
|
|
|
|
|
|
|
|
|
|
43,058
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
3,368,357
|
|
|
$
|
|
|
|
$
|
3,368,687
|
|
|
$
|
|
|
|
$
|
3,368,687
|
|
Interest-bearing
|
|
|
9,087,442
|
|
|
|
|
|
|
|
8,286,130
|
|
|
|
|
|
|
|
8,286,130
|
|
Other borrowings
|
|
|
605,951
|
|
|
|
|
|
|
|
607,471
|
|
|
|
|
|
|
|
607,471
|
|
Securities sold under repurchase agreements
|
|
|
431,969
|
|
|
|
|
|
|
|
431,692
|
|
|
|
|
|
|
|
431,692
|
|
Junior subordinated debentures
|
|
|
85,055
|
|
|
|
|
|
|
|
81,696
|
|
|
|
|
|
|
|
81,696
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
Carrying
|
|
|
Estimated Fair Value
|
|
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
Cash and due from banks
|
|
$
|
325,952
|
|
|
$
|
325,952
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
325,952
|
|
Federal funds sold
|
|
|
352
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
Held to maturity securities
|
|
|
7,215,395
|
|
|
|
|
|
|
|
7,418,695
|
|
|
|
|
|
|
|
7,418,695
|
|
Loans held for sale
|
|
|
10,433
|
|
|
|
10,433
|
|
|
|
|
|
|
|
|
|
|
|
10,433
|
|
Loans held for investment, net of allowance
|
|
|
5,116,943
|
|
|
|
|
|
|
|
|
|
|
|
5,186,779
|
|
|
|
5,186,779
|
|
Federal Home Loan Bank of Dallas stock
|
|
|
34,461
|
|
|
|
34,461
|
|
|
|
|
|
|
|
|
|
|
|
34,461
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
3,016,205
|
|
|
$
|
|
|
|
$
|
3,016,205
|
|
|
$
|
|
|
|
$
|
3,016,205
|
|
Interest-bearing
|
|
|
8,625,639
|
|
|
|
|
|
|
|
8,640,625
|
|
|
|
|
|
|
|
8,640,625
|
|
Other borrowings
|
|
|
256,753
|
|
|
|
|
|
|
|
258,819
|
|
|
|
|
|
|
|
258,819
|
|
Securities sold under repurchase agreements
|
|
|
454,502
|
|
|
|
|
|
|
|
454,596
|
|
|
|
|
|
|
|
454,596
|
|
Junior subordinated debentures
|
|
|
85,055
|
|
|
|
|
|
|
|
72,705
|
|
|
|
|
|
|
|
72,705
|
|
29
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The Companys off-balance sheet commitments including letters of credit, which totaled
$1.19 billion at September 30, 2013, are funded at current market rates at the date they are drawn upon. It is managements opinion that the fair value of these commitments would approximate their carrying value, if drawn upon.
The fair value estimates presented herein are based on pertinent information available to management at September 30, 2013. Although
management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts presented herein.
7. GOODWILL AND CORE DEPOSIT INTANGIBLES
Changes in the carrying amount of the Companys goodwill and core deposit intangibles (CDI) for nine months
ended September 30, 2013 and the year ended December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Core Deposit
Intangibles
|
|
|
|
(Dollars in thousands)
|
|
Balance as of December 31, 2011
|
|
$
|
924,537
|
|
|
$
|
20,996
|
|
Less:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(7,229
|
)
|
Add:
|
|
|
|
|
|
|
|
|
Acquisition of Texas Bankers, Inc.
|
|
|
6,077
|
|
|
|
|
|
Acquisition of The Bank Arlington
|
|
|
2,102
|
|
|
|
|
|
Acquisition of ASB
|
|
|
274,119
|
|
|
|
12,392
|
|
Acquisition of Community National Bank
|
|
|
10,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
|
1,217,162
|
|
|
|
26,159
|
|
Less:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(4,551
|
)
|
Add:
|
|
|
|
|
|
|
|
|
Measurement period adjustment of The Bank Arlington
|
|
|
(130
|
)
|
|
|
|
|
Measurement period adjustment of ASB
|
|
|
(3,094
|
)
|
|
|
2,110
|
|
Measurement period adjustment of Community National Bank
|
|
|
1,999
|
|
|
|
|
|
Acquisition of East Texas Financial Services, Inc.
|
|
|
16,658
|
|
|
|
|
|
Acquisition of Coppermark Bancshares, Inc.
|
|
|
119,187
|
|
|
|
1,515
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2013
|
|
$
|
1,351,782
|
|
|
$
|
25,233
|
|
|
|
|
|
|
|
|
|
|
Goodwill is recorded on the acquisition date of each entity. The Company may record subsequent adjustments to
goodwill for amounts undeterminable at acquisition date, such as deferred taxes and real estate valuations, and therefore the goodwill amounts reflected in the table above may change accordingly. The Company initially records the total premium paid
on acquisitions as goodwill. After finalizing the valuation, core deposit intangibles are identified and reclassified from goodwill to core deposit intangibles on the balance sheet. This reclassification has no effect on total assets, liabilities,
shareholders equity, net income or cash flows. Management performs an evaluation annually, and more frequently if a triggering event occurs, of whether any impairment of the goodwill and other intangibles has occurred. If any such impairment
is determined, a write-down is recorded. As of September 30, 2013, there were no impairments recorded on goodwill.
The measurement
period for the Company to determine the fair value of acquired identifiable assets and assumed liabilities will be at the end of the earlier of (i) twelve months from the date of acquisition or (ii) as soon as the Company receives the
information it
was seeking about facts and circumstances that existed as of the date of acquisition. As such, certain acquisitions completed during 2012
and 2013 may be subject to adjustment.
30
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
Core deposit intangibles are amortized on an accelerated basis over their estimated lives,
which the Company believes is between 8 and 15 years. Amortization expense related to intangible assets totaled $1.5 million and $2.0 million for the three months ended September 30, 2013 and 2012, respectively, and $4.6 million and $5.3
million for the nine months ended September 30, 2013 and 2012, respectively. The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2013 was as follows (dollars in thousands):
|
|
|
|
|
Remaining 2013
|
|
$
|
1,483
|
|
2014
|
|
|
4,841
|
|
2015
|
|
|
4,201
|
|
2016
|
|
|
3,761
|
|
2017
|
|
|
2,076
|
|
Thereafter
|
|
|
8,871
|
|
|
|
|
|
|
Total
|
|
$
|
25,233
|
|
|
|
|
|
|
8. STOCK BASED COMPENSATION
At September 30, 2013, the Company had four stock-based employee compensation plans and one stock option plan assumed
in connection with an acquisition under which no additional options will be granted. Two of the four plans adopted by the Company have expired and therefore no additional awards may be issued under those plans.
During 2004, the Companys Board of Directors adopted the Prosperity Bancshares, Inc. 2004 Stock Incentive Plan (the 2004
Plan) which authorizes the issuance of up to 1,250,000 shares of common stock pursuant to the exercise or grant, as the case may be, of awards under such plan and the shareholders approved the 2004 Plan in 2005. The Company has granted shares
with forfeiture restrictions (restricted stock) to certain directors, officers and associates under the 2004 Plan. The awardee is not entitled to the shares until they vest, which is generally over a one to five year period, but the
awardee is entitled to receive dividends on and vote the shares prior to vesting. The shares granted do not have a cost to the awardee and the only requirement of vesting is continued service to the Company. Compensation cost related to restricted
stock is calculated based on the fair value of the shares at the date of grant. If the awardee leaves the Company before the shares vest, the unvested shares are forfeited.
On February 22, 2012, the Companys Board of Directors adopted the Prosperity Bancshares, Inc. 2012 Stock Incentive Plan (the
2012 Plan), subject to approval by the Companys shareholders. The Companys shareholders approved the 2012 Plan at the annual meeting of shareholders on April 17, 2012. The 2012 Plan authorizes the issuance of
up to 1,250,000 shares of common stock upon the exercise of options granted under the 2012 Plan or pursuant to the grant or exercise, as the case may be, of other awards granted under the 2012 Plan, including restricted stock, stock appreciation
rights, phantom stock awards and performance awards. As of September 30, 2013, no options or other awards have been granted under the 2012 Plan.
The Company received $1.2 million and $300,000 in cash from the exercise of stock options during the three-month periods ended
September 30, 2013 and 2012, respectively, and $3.0 million and $2.7 million during the nine-month periods ended September 30, 2013 and 2012, respectively. There was no tax benefit realized from option exercises of the share-based payment
arrangements during the three and nine month periods ended September 30, 2013 and 2012.
As of September 30, 2013, there was
$7.0 million of total unrecognized compensation expense related to stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.5 years.
31
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
9. CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ITEMS
Contractual Obligations
The following table summarizes the Companys contractual obligations and other commitments to make future payments as of
September 30, 2013 (other than deposit obligations). The payments do not include pre-payment options that may be available to the Company. The Companys future cash payments associated with its contractual obligations pursuant to its
junior subordinated debentures, FHLB borrowings and operating leases as of September 30, 2013 are summarized below. Payments for junior subordinated debentures include interest of $46.2 million that will be paid over the future periods. The
future interest payments were calculated using the current rate in effect at September 30, 2013. The current principal balance of the junior subordinated debentures at September 30, 2013 was $85.1 million. Payments for FHLB borrowings
include interest of $2.5 million that will be paid over the future periods. Payments related to leases are based on actual payments specified in underlying contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year or less
|
|
|
More than 1
year but less
than 3 years
|
|
|
3 years or
more but less
than 5 years
|
|
|
5 years
or more
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Junior subordinated debentures
|
|
$
|
578
|
|
|
$
|
4,624
|
|
|
$
|
4,623
|
|
|
$
|
121,438
|
|
|
$
|
131,263
|
|
Federal Home Loan Bank notes payable and other borrowings
|
|
|
595,407
|
|
|
|
3,836
|
|
|
|
2,312
|
|
|
|
6,899
|
|
|
|
608,454
|
|
Operating leases
|
|
|
1,247
|
|
|
|
7,785
|
|
|
|
3,264
|
|
|
|
380
|
|
|
|
12,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
597,232
|
|
|
$
|
16,245
|
|
|
$
|
10,199
|
|
|
$
|
128,717
|
|
|
$
|
752,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Items
In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally
accepted in the United States, are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters
of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Companys commitments associated with outstanding standby letters of credit and commitments to extend credit as of September 30,
2013 are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year or less
|
|
|
More than 1
year but less
than 3 years
|
|
|
3 years or
more but less
than 5 years
|
|
|
5 years
or more
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Standby letters of credit
|
|
$
|
37,537
|
|
|
$
|
5,291
|
|
|
$
|
30
|
|
|
$
|
|
|
|
$
|
42,858
|
|
Commitments to extend credit
|
|
|
159,906
|
|
|
|
609,923
|
|
|
|
49,941
|
|
|
|
323,938
|
|
|
|
1,143,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
197,443
|
|
|
$
|
615,214
|
|
|
$
|
49,971
|
|
|
$
|
323,938
|
|
|
$
|
1,186,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
10. OTHER COMPREHENSIVE (LOSS) INCOME
The tax effects allocated to each component of other comprehensive (loss) income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Before Tax
Amount
|
|
|
Tax Benefit
|
|
|
Net of Tax
Amount
|
|
|
Before Tax
Amount
|
|
|
Tax Benefit
|
|
|
Net of Tax
Amount
|
|
|
|
(Dollars in thousands)
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain during period
|
|
$
|
(1,136
|
)
|
|
$
|
398
|
|
|
$
|
(738
|
)
|
|
$
|
(718
|
)
|
|
$
|
251
|
|
|
$
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
(1,136
|
)
|
|
|
398
|
|
|
|
(738
|
)
|
|
|
(718
|
)
|
|
|
251
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
$
|
(1,136
|
)
|
|
$
|
398
|
|
|
$
|
(738
|
)
|
|
$
|
(718
|
)
|
|
$
|
251
|
|
|
$
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Before Tax
Amount
|
|
|
Tax Benefit
|
|
|
Net of Tax
Amount
|
|
|
Before Tax
Amount
|
|
|
Tax Benefit
|
|
|
Net of Tax
Amount
|
|
|
|
(Dollars in thousands)
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain during period
|
|
$
|
(5,237
|
)
|
|
$
|
1,833
|
|
|
$
|
(3,404
|
)
|
|
$
|
(3,736
|
)
|
|
$
|
1,308
|
|
|
$
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
(5,237
|
)
|
|
|
1,833
|
|
|
|
(3,404
|
)
|
|
|
(3,736
|
)
|
|
|
1,308
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
$
|
(5,237
|
)
|
|
$
|
1,833
|
|
|
$
|
(3,404
|
)
|
|
$
|
(3,736
|
)
|
|
$
|
1,308
|
|
|
$
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in accumulated other comprehensive income, net of tax, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for
Sale
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
(Dollars in thousands)
|
|
Balance at January 1, 2013
|
|
$
|
8,986
|
|
|
$
|
8,986
|
|
Other comprehensive loss
|
|
|
(3,404
|
)
|
|
|
(3,404
|
)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2013
|
|
$
|
5,582
|
|
|
$
|
5,582
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
$
|
13,472
|
|
|
$
|
13,472
|
|
Other comprehensive loss
|
|
|
(2,428
|
)
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2012
|
|
$
|
11,044
|
|
|
$
|
11,044
|
|
|
|
|
|
|
|
|
|
|
33
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
11. ACQUISITIONS
Pending Acquisition of F&M Bancorporation Inc.
On August 29, 2013, the Company announced the
signing of a definitive merger agreement to acquire F&M Bancorporation Inc. (FMBC) and its wholly-owned subsidiary The F&M Bank & Trust Company (F&M Bank) headquartered in Tulsa, Oklahoma. F&M Bank
operates 13 banking locations; 10 in Tulsa, Oklahoma and surrounding areas and 3 in Dallas, Texas. As of September 30, 2013, FMBC on a consolidated basis, reported total assets of $2.47 billion, total loans of $1.88 billion and total deposits
of $2.26 billion. Under the terms of the definitive agreement, the Company will issue approximately 3,298,246 shares of Company common stock plus $47.0 million in cash for all outstanding shares of FMBC capital stock, subject to certain conditions
and potential adjustments. The transaction is subject to customary closing conditions, including the receipt of customary regulatory approvals and approval by FMBCs shareholders.
Acquisition of FVNB Corp.
On November 1, 2013, the Company completed the acquisition of FVNB Corp. and its wholly
owned subsidiary, First Victoria National Bank (collectively, FVNB) headquartered in Victoria, Texas. The acquisition was not considered significant to the Companys financial statements and therefore pro forma financial data and
related disclosures are not included. Refer to Note 12 Subsequent Events for further information regarding the FVNB acquisition.
Acquisition of Coppermark Bancshares, Inc.
On April 1, 2013, the Company completed the acquisition of Coppermark
Bancshares, Inc. and its wholly-owned subsidiary, Coppermark Bank (collectively, Coppermark). Coppermark operated 9 full-service banking offices: 6 in Oklahoma City, Oklahoma and surrounding areas and 3 in the Dallas, Texas area. The
Company acquired Coppermark to expand its market into Oklahoma. The acquisition was not considered significant to the Companys financial statements and therefore pro forma financial data and related disclosures are not included.
As of March 31, 2013, Coppermark reported, on a consolidated basis, total assets of $1.25 billion, total loans of $847.6 million and
total deposits of $1.11 billion. Under the terms of the acquisition agreement, the Company issued 3,258,718 shares of Company common stock plus $60.0 million in cash for all outstanding shares of Coppermark Bancshares, Inc. capital stock, for total
merger consideration of $214.4 million based on the Companys closing stock price of $47.39. The Company recognized initial goodwill of $91.7 million which does not include subsequent fair value adjustments that are still being finalized.
Goodwill is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible for tax purposes. Additionally, the Company
recognized $1.5 million of core deposit intangibles. For the nine months ended September 30, 2013, the Company incurred approximately $787,000 of pre-tax merger related expenses related to the Coppermark acquisition.
Acquisition of East Texas Financial Services, Inc.
On January 1, 2013, the Company completed the acquisition of East
Texas Financial Services, Inc. (OTC BB: FFBT) and its wholly-owned subsidiary, First Federal Bank Texas (collectively, East Texas Financial Services). East Texas Financial Services operated 4 banking offices in the Tyler MSA, including
three locations in Tyler, Texas and one location in Gilmer, Texas. The Company acquired East Texas Financial Services to increase its market share in the East Texas area. The acquisition was not considered significant to the Companys financial
statements and therefore pro forma financial data and related disclosures are not included.
As of December 31, 2012, East Texas
Financial Services reported, on a consolidated basis, total assets of $165.0 million, total loans of $129.3 million and total deposits of $112.3 million. Under the terms of the acquisition agreement, the Company issued 530,940 shares of Company
common stock for all outstanding shares of East Texas Financial Services capital stock, for total merger consideration of $22.3 million based on the Companys closing stock price of $42.00. The Company recognized initial goodwill of $7.0
million which does not include subsequent fair value adjustments that are still being finalized. Goodwill is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets
acquired, none of which is expected to be deductible for tax purposes.
Acquisition of Community National Bank
On
October 1, 2012, the Company completed the acquisition of Community National Bank, Bellaire, Texas. Community National Bank operated 1 banking office in Bellaire, Texas, in the Houston Metropolitan Area. The Company acquired Community National
Bank to increase its market share in the Houston area. The acquisition is not considered significant to the Companys financial statements and therefore pro forma financial data is not included.
34
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
As of September 30, 2012, Community National Bank reported total assets of $182.0
million, total loans of $68.0 million and total deposits of $164.6 million. Under the terms of the acquisition agreement, the Company issued 372,282 shares of Company common stock plus $11.4 million in cash for all outstanding shares of Community
National Bank capital stock, for total merger consideration of $27.3 million, based on the Companys closing stock price of $42.62. The Company recognized initial goodwill of $10.6 million which does not include subsequent fair value
adjustments that are still being finalized. Goodwill is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible
for tax purposes.
Acquisition of American State Financial Corporation
On July 1, 2012, the Company completed the
acquisition of American State Financial Corporation and its wholly owned subsidiary American State Bank (collectively referred to as ASB). ASB operated 37 full service banking offices in 18 counties across West Texas. The Company
acquired ASB to increase its market share in the West Texas area.
Under the terms of the acquisition agreement, the Company issued
8,524,835 shares of Company common stock plus $178.5 million in cash for all outstanding shares of American State Financial Corporation capital stock, for total merger consideration of $536.8 million based on the Companys closing stock price
of $42.03. The Company recognized goodwill of $271.0 million which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets acquired. Goodwill resulted from a
combination of expected operational synergies, an enhanced branching network, and cross-selling opportunities. Goodwill is not expected to be deductible for tax purposes. Additionally, the Company recognized $14.5 million of core deposit
intangibles.
Acquisition of The Bank Arlington
On April 1, 2012, the Company completed the acquisition of The
Bank Arlington. The Bank Arlington operated one banking office in Arlington, Texas, in the Dallas/Fort Worth CMSA. The Company acquired The Bank Arlington to increase its market share in the Dallas/Fort Worth area. The acquisition is not considered
significant to the Companys financial statements and therefore pro forma financial data and related disclosures are not included.
As of March 31, 2012, The Bank Arlington reported total assets of $37.3 million, total loans of $22.9 million and total deposits of $33.2
million. Under the terms of the acquisition agreement, the Company issued 135,347 shares of Company common stock for all outstanding shares of The Bank Arlington capital stock, for total merger consideration of $6.2 million, based on the
Companys closing stock price of $45.80. The Company recognized goodwill of $2.0 million which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets
acquired, none of which is expected to be deductible for tax purposes.
Acquisition of Texas Bankers, Inc.
On
January 1, 2012, the Company completed the acquisition of Texas Bankers, Inc. and its wholly-owned subsidiary, Bank of Texas, Austin, Texas. The three Bank of Texas banking offices in the Austin, Texas CMSA consisted of a location in
Rollingwood, which was consolidated with the Companys Westlake location and remains in Bank of Texas Rollingwood banking office; one banking center in downtown Austin, which was consolidated into the Companys downtown Austin
location; and another banking center in Thorndale. The Company acquired Texas Bankers, Inc. to increase is its market share in the Central Texas area. The acquisition is not considered significant to the Companys financial statements and
therefore pro forma financial data and related disclosures are not included.
Texas Bankers, Inc. on a consolidated basis, reported total
assets of $77.0 million, total loans of $27.6 million and total deposits of $70.4 million as of December 31, 2011. Under the terms of the acquisition agreement, the Company issued 314,953 shares of Company common stock for all outstanding
shares of Texas Bankers capital stock, for total merger consideration of $12.7 million, based on the Companys closing stock price of $40.35. The Company recognized goodwill of $6.1 million which is calculated as the excess of both the
consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible for tax purposes.
35
PROSPERITY BANCSHARES, INC.
®
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
The following pro forma information presents the results of operations for the three and nine
months ended September 30, 2013 and 2012, as if the Coppermark, East Texas Financial Services, Community National Bank, ASB and The Bank Arlington acquisitions had occurred on January 1, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2013
|
|
|
2012 (1)
|
|
|
2013
|
|
|
2012 (1)
|
|
|
|
(Dollars in thousands, except per
share data)
|
|
|
(Dollars in thousands, except per
share data)
|
|
Net interest income
|
|
$
|
126,533
|
|
|
$
|
127,501
|
|
|
$
|
375,699
|
|
|
$
|
403,983
|
|
Net income
|
|
|
55,278
|
|
|
|
53,266
|
|
|
|
165,090
|
|
|
|
184,368
|
|
Basic earnings per share
|
|
|
0.92
|
|
|
|
0.89
|
|
|
|
2.64
|
|
|
|
2.92
|
|
Diluted earnings per share
|
|
|
0.91
|
|
|
|
0.88
|
|
|
|
2.64
|
|
|
|
2.92
|
|
(1)
|
Includes a nonrecurring gain on sale of securities of $23.4 million, or $0.37 earnings per share, by ASB during the second quarter of 2012.
|
12. SUBSEQUENT EVENT
Acquisition of FVNB Corp.
On November 1, 2013, the Company completed the acquisition of FVNB Corp.
and its wholly owned subsidiary, First Victoria National Bank (collectively, FVNB) headquartered in Victoria, Texas. FVNB operated 33 banking locations; 4 in Victoria, Texas, 7 in the South Texas area including Corpus Christi; 6 in the
Bryan/College Station area; 5 in the Central Texas area including New Braunfels; and 11 in the Houston area including The Woodlands and Huntsville.
As of September 30, 2013, FVNB, on a consolidated basis, reported total assets of $2.47 billion, total loans of $1.65 billion and total
deposits of $2.20 billion. Under the terms of the acquisition agreement, the Company issued 5,570,667 shares of Company common stock plus $91.3 million in cash for all outstanding shares of FVNB Corp. capital stock for total merger consideration of
$439.1 million based on the Companys closing stock price of $62.45. The Company recognized initial goodwill of $278.3 million which does not include subsequent fair value adjustments that are still being finalized. Goodwill is calculated
as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible for tax purposes. For the nine months ended September 30, 2013, the
Company incurred approximately $121,000 of pre-tax merger related expenses related to the FVNB acquisition.