PB Prosperity Bancshares Inc

HOUSTON, Oct. 29, 2014 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, "Prosperity"), reported net income for the quarter ended September 30, 2014, of $76.570 million or $1.10 per diluted common share, an increase in net income of $21.292 million or 38.5%, compared with $55.278 million, and an increase in diluted earnings per share of 20.9%, compared with $0.91 per diluted common share for the same period in 2013. 

"It is an honor and a pleasure for me to be able to share such positive news with our shareholders. We continue to see strong organic loan growth.  Excluding loans acquired in our recent acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at September 30, 2014 grew $405.687 million or 6.6% compared with September 30, 2013 and increased $207.345 million or 3.2% (13.0% annualized) on a linked quarter basis," said David Zalman, Prosperity's Chairman and Chief Executive Officer.

"Strong asset quality continues to be one of the core values and principles of our company.  Nonperforming assets totaled $50.082 million or 0.27% of quarterly average earning assets at September 30, 2014. While the increase in nonperforming assets from 0.15% of quarterly average earning assets at June 30, 2014 is significant, it was not unexpected as most of the loans added to nonperforming assets this quarter were identified and marked in our due diligence at one of the recently acquired banks.  While the majority of these loans were nonperforming, several are related to renewals that have been delayed due to documentation or procedural issues.  At the date of this release, approximately $16.5 million of these loans are expected to be paid off, moved or renewed, but there are no guarantees that such payoffs and renewals will occur.  We believe that for the next 12 to 18 months we will have a nonperforming ratio similar to the one this quarter," continued Zalman.

"The Texas and Oklahoma economies continued to expand during the first nine months of 2014.   Employment growth and population growth continues to outpace the majority of the nation.   Texas had the highest rate of job creation in the country, with 375,000 jobs created in the past year.  The unemployment rate for Texas is 5.1% and the unemployment rate for Oklahoma is 4.6%, while the rate for the rest of the nation is 6.2%. With continued strength in home sales, lower apartment and office vacancy rates, and increasing rental rates, the general economic outlook remains positive for the remainder of 2014," concluded Zalman.

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

Results of operations for the three months ended September 30, 2014

For the three months ended September 30, 2014, net income was $76.570 million compared with $55.278 million for the same period in 2013.  Net income per diluted common share was $1.10 for the three months ended September 30, 2014, compared with $0.91 for the same period in 2013. Returns on average assets, average common equity and average tangible common equity, each on an annualized basis, for the three months ended September 30, 2014 were 1.45%, 9.69% and 24.84%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 41.55% for the three months ended September 30, 2014.

Net interest income before provision for credit losses for the quarter ended September 30, 2014 increased 38.8% to $175.657 million, compared with $126.533 million during the same period in 2013.  The increase was primarily due to a 28.8% increase in average interest-earning assets for the same period.  The net interest margin on a tax equivalent basis for the three months ended September 30, 2014 increased to 3.85%, compared with 3.59% for the same period in 2013 and increased from 3.83% for the three months ended June 30, 2014.  Linked quarter net interest income before provision for credit losses increased 0.9% or $1.602 million to $175.657 million, compared with $174.055 million during the three months ended June 30, 2014. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis decreased on a linked quarter basis from 3.31% for the quarter ended June 30, 2014 to 3.26% for the quarter ended September 30, 2014. 

Noninterest income increased $8.607 million or 39.9% to $30.161 million for the three months ended September 30, 2014, compared with $21.554 million for the same period in 2013.  This increase was primarily due to an increase in fees, credit and debit card income, and service charges as a result of the additional accounts acquired from F&M Bancorporation Inc. and its wholly-owned subsidiary, The F&M Bank & Trust Company (collectively, "F&M") and FVNB Corp. and its wholly-owned subsidiary, First Victoria National Bank (collectively, "FVNB").  Additionally, trust and brokerage income increased as a result of the additional products and services acquired through the acquisition of FVNB in the fourth quarter 2013.  On a linked quarter basis, noninterest income decreased $3.840 million or 11.3%, primarily due to decreases in gains on sale of fixed assets and other real estate, and a decrease in life insurance proceeds received during the second quarter 2014. This decrease was partially offset by an increase in NSF fees for the three months ended September 30, 2014.

Noninterest expense increased $23.973 million or 39.0% to $85.510 million for the three months ended September 30, 2014, compared with $61.537 million for the same period in 2013.  This increase was primarily due to additional noninterest expenses associated with the acquisitions of FVNB and F&M.  On a linked quarter basis, noninterest expense decreased $3.186 million or 3.6%. This decrease was primarily due to a decline in salary and benefits expense resulting from a reduction in staff from 3,199 FTE's at June 30, 2014 to 3,057 FTE's at September 30, 2014.

Loans at September 30, 2014 were $9.369 billion, an increase of $3.186 billion or 51.5%, compared with $6.183 billion at September 30, 2013, primarily due to the acquisitions of FVNB and F&M.  Linked quarter loans increased $60.726 million or 0.7% from $9.308 billion at June 30, 2014. 

Deposits at September 30, 2014 were $17.014 billion, an increase of $4.558 billion or 36.6%, compared with $12.456 billion at September 30, 2013, primarily due to the acquisitions of FVNB and F&M.  Linked quarter deposits decreased $267.028 million or 1.5% from $17.281 billion at June 30, 2014.

Average loans increased 52.0% or $3.208 billion to $9.381 billion for the quarter ended September 30, 2014, compared with $6.173 billion for the same period in 2013.  On a linked quarter basis, average loans decreased 0.9% or $86.888 million from $9.468 billion for the quarter ended June 30, 2014. Average deposits increased 37.4% or $4.644 billion to $17.077 billion for the quarter ended September 30, 2014, compared with $12.432 billion for the same period in 2013.   On a linked quarter basis, average deposits decreased 0.5% or $87.293 million from $17.164 billion for the quarter ended June 30, 2014. 

Results of operations for the nine months ended September 30, 2014

For the nine months ended September 30, 2014, net income was $219.213 million, compared with $158.427 million for the same period in 2013.  Net income per diluted common share was $3.19 for the nine months ended September 30, 2014, compared with $2.67 for the same period in 2013.  Returns on average assets, average common equity and average tangible common equity, each on an annualized basis, for the nine months ended September 30, 2014 were 1.44%, 9.67% and 24.38%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 42.17% for the nine months ended September 30, 2014.

Net interest income before provision for credit losses for the nine months ended September 30, 2014, increased 39.6% to $493.403 million, compared with $353.357 million during the same period in 2013.  The increase was primarily due to a 28.3% increase in average interest-earning assets over the same period.  The net interest margin on a tax equivalent basis for the nine months ended September 30, 2014 increased to 3.77%, compared with 3.48% for the same period in 2013.  Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis increased to 3.30% for the nine months ended September 30, 2014 from 3.13% for the same period in 2013. 

Noninterest income increased $22.497 million or 32.0% to $92.766 million for the nine months ended September 30, 2014, compared with $70.269 million for the same period in 2013.  This increase was primarily due to the effects of the additional accounts acquired in the acquisitions of FVNB and F&M completed in 2013 and 2014. Trust and brokerage income increased as a result of the additional products and services acquired through the FVNB acquisition.  In addition, gain on the sale of assets increased $4.7 million during the nine months ended September 30, 2014 compared to the same period in 2013, primarily due to a $2.224 million gain that was recorded during the first quarter of 2014 on the sale of the agent bank credit card and agent bank merchant processing business of Bankers Credit Card Services, Inc., a subsidiary acquired as part of the acquisition of Coppermark Bancshares, Inc. and its wholly-owned subsidiary, Coppermark Bank.

Noninterest expense increased $66.636 million or 37.3% to $245.240 million for the nine months ended September 30, 2014, compared with $178.604 million for the same period in 2013.  This increase was primarily due to additional noninterest expenses associated with the acquisitions of FVNB and F&M.  Additionally, total noninterest expense for the nine months ended September 30, 2014 included one-time pre-tax merger expenses of $3.096 million related primarily to the F&M and FVNB acquisitions. 

Average loans increased $3.020 billion or 51.6% to $8.874 billion for the nine months ended September 30, 2014, compared with $5.854 billion for the same period in 2013.  Average deposits increased $4.253 billion or 34.6% to $16.547 billion for the nine months ended September 30, 2014, compared with $12.294 billion for the same period of 2013.  

The table below provides detail on loans acquired and deposits assumed in the acquisitions of FVNB and F&M completed on November 1, 2013 and April 1, 2014, respectively:

As reflected in the table above, loan and deposit growth was impacted by the acquisitions of FVNB and F&M.  Excluding loans acquired in these acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at September 30, 2014 grew $405.687 million or 6.6% compared with September 30, 2013 and increased $207.345 million or 3.2% (13.0% annualized) on a linked quarter basis. Excluding deposits assumed in these acquisitions and new deposits generated at the acquired banking centers since the respective acquisition dates, deposits at September 30, 2014 grew $550.273 million or 4.4% compared with September 30, 2013 and decreased $79.395 million or 0.6% on a linked quarter basis.

At September 30, 2014, Prosperity had $21.117 billion in total assets, $9.369 billion in loans and $17.014 billion in deposits. Assets, loans and deposits at September 30, 2014 increased by 31.5%, 51.5% and 36.6%, respectively, compared with their respective levels at September 30, 2013.

Asset Quality

Nonperforming assets totaled $50.082 million or 0.27% of quarterly average earning assets at September 30, 2014, compared with $12.687 million or 0.09% of quarterly average earning assets at September 30, 2013, and $28.521 million or 0.15% of quarterly average earning assets at June 30, 2014.  The allowance for credit losses was 0.83% of total loans at September 30, 2014, 0.97% of total loans at September 30, 2013 and 0.79% of total loans at June 30, 2014.  Excluding loans acquired that are accounted for under ASC Topics 310-20 and 310-30, the allowance for credit losses was 1.14% of remaining loans as of September 30, 2014, compared with 1.20% at September 30, 2013 and 1.15% at June 30, 2014.  Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure. 

The provision for credit losses was $5.000 million for the three months ended September 30, 2014, compared with $6.325 million for the three months ended June 30, 2014 and $4.025 million for the three months ended September 30, 2013.  The provision for credit losses was $11.925 million for the nine months ended September 30, 2014, compared with $9.375 million for the nine months ended September 30, 2013. 

Net charge offs were $653 thousand for the three months ended September 30, 2014, compared with $155 thousand for the three months ended June 30, 2014 and $288 thousand for the three months ended September 30, 2013.  Net charge offs were $1.594 million for the nine months ended September 30, 2014, compared with $2.026 million for the nine months ended September 30, 2013.

Conference Call

Prosperity's management team will host a conference call on Wednesday, October 29, 2014 at 10:30 a.m. Eastern Time (9:30 a.m. Central Time) to discuss Prosperity's third quarter 2014 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383.  The elite entry number is 1373203.

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

Dividend

Prosperity Bancshares declared a fourth quarter cash dividend of $0.2725, an increase of 13.5% over the third quarter dividend of $0.24, to be paid on January 2, 2015 to all shareholders of record as of December 15, 2014.

Acquisition of F&M Bancorporation

On April 1, 2014, Prosperity completed the acquisition of 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 operated 13 banking offices: 9 in Tulsa, Oklahoma and surrounding areas; 3 in Dallas, Texas; and 1 loan production office in Oklahoma City, Oklahoma.  As of March 31, 2014, FMBC, on a consolidated basis, reported total assets of $2.412 billion, total loans of $1.738 billion and total deposits of $2.267 billion.

Pursuant to the terms of the acquisition agreement, Prosperity issued 3,298,022 shares of Prosperity common stock plus $34.240 million in cash for all outstanding shares of FMBC capital stock, which resulted in goodwill of $214.897 million as of September 30, 2014.  The goodwill balance as of September 30, 2014 does not include subsequent fair value adjustments that are still being finalized. 

Acquisition of FVNB Corp.

On November 1, 2013, Prosperity completed the acquisition of FVNB Corp. and its wholly-owned subsidiary, First Victoria National Bank headquartered in Victoria, Texas.  First Victoria National Bank operated 33 banking offices: 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 Corp., on a consolidated basis, reported total assets of $2.473 billion, total loans of $1.648 billion and total deposits of $2.195 billion. 

Pursuant to the terms of the acquisition agreement, Prosperity issued 5,570,667 shares of Prosperity common stock plus $91.250 million in cash for all outstanding shares of FVNB Corp. capital stock, which resulted in goodwill of $328.762 million as of September 30, 2014.  Additionally, the Company recognized $18.411 million of core deposit intangibles as of September 30, 2014.  These goodwill and core deposit intangible balances as of September 30, 2014 do not include subsequent fair value adjustments that are still being finalized. 

Prosperity Bancshares, Inc. ^®

As of September 30, 2014, Prosperity Bancshares Inc. ^®, named America's Best Bank for 2014 by Forbes, is a $21.117 billion Houston, Texas based regional financial holding company, formed in 1983. Operating under a community banking philosophy and seeking to develop broad customer relationships based on service and convenience, Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at http://www.prosperitybankusa.com, Retail Brokerage Services, Credit Cards, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services and Mobile Banking. Prosperity currently operates 245 full-service banking locations: 62 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 36 in the Dallas/Fort Worth area; 22 in the East Texas area; 30 in the Central Texas area including Austin and San Antonio; 34 in the West Texas area including Lubbock, Midland-Odessa and Abilene; 16 in the Bryan/College Station area, 6 in the Central Oklahoma area and 9 in the Tulsa, Oklahoma area.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity's management on the conference call may contain, forward-looking statements within the meaning of the securities laws that are based on current expectations, assumptions, estimates and projections about Prosperity and its subsidiaries.  These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity's control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements.  These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks;  continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives.  Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity's securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate fluctuations and interest rate fluctuations; and weather.  These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2013 and other reports and statements Prosperity has filed with the SEC. Copies of the SEC filings for Prosperity Bancshares^® may be downloaded from the Internet at no charge from http://www.prosperitybankusa.com.

 

 

 

 

 

 

 

 

 

 

 

Prosperity Bancshares, Inc.^®
Notes to Selected Financial Data (Unaudited)
(Dollars and share amounts in thousands, except per share data)

Consolidated Financial Highlights

NOTES TO SELECTED FINANCIAL DATA

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

 

 

SOURCE Prosperity Bancshares, Inc.