LTXB LegacyTexas Financial Group Inc

 

 

 

 

PRESS RELEASE	For more information contact:
Prosperity Bancshares, Inc. ®	Cullen Zalman
Prosperity Bank Plaza	Vice President – Banking and Corporate Activities
4295 San Felipe	281.269.7199
Houston, Texas 77027	cullen.zalman@prosperitybankusa.com

FOR IMMEDIATE RELEASE

PROSPERITY BANCSHARES, INC. ^®

REPORTS SECOND QUARTER

2019 EARNINGS

 

HOUSTON, July 24, 2019. Prosperity Bancshares, Inc. ^® (NYSE: PB), the parent company of Prosperity Bank ^® (collectively, “Prosperity”), reported net income for the quarter ended June 30, 2019 of $82.258 million, an increase of $661 thousand or 0.8% compared with $81.597 million for the same period in 2018. Net income per diluted common share increased to $1.18 compared with $1.17 for the same period in 2018. Additionally, loans increased 6.7% (annualized) during the second quarter 2019 and nonperforming assets remain low at 0.21% of second quarter average interest-earning assets.

“The Texas and Oklahoma economies continue to perform well, with record low unemployment.  Consumer confidence remains strong as evidenced by increased credit card purchases, and businesses continue to do well as reflected by increased sales tax rebates to most cities and small towns.  We posted a 6.7% annualized increase in loans for the second quarter of 2019, also reflecting confidence from businesses and consumers,” said David Zalman, Prosperity’s Chairman and Chief Executive Officer.

“We are excited about our pending merger with LegacyTexas Financial Group, Inc., the parent company of LegacyTexas Bank. LegacyTexas Bank operates 42 locations in 19 North Texas cities in and around the Dallas-Fort Worth area.  We look forward to partnering with Kevin Hanigan and the entire LegacyTexas team to build the premier Texas-based bank.  We explored a number of options, but believe that this strategic transaction provided the greatest opportunities for the combined organization.  With the addition of LegacyTexas, we will have a significant and competitive position in Texas’ two largest metropolitan areas,” continued Zalman.

“We continue to work to develop people to be the next generation of leaders, make every customer’s experience easy and enjoyable and operate in a safe and sound manner,” concluded Zalman.

 

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Results of Operations for the Three Months Ended June 30, 2019

Net income was $82.258 million ⁽²⁾ for the three months ended June 30, 2019 compared with $81.597 million ⁽³⁾ for the same period in 2018. Net income per diluted common share was $1.18 for the three months ended June 30, 2019 compared with $1.17 for the same period in 2018. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended June 30, 2019 were 1.46%, 7.92% and 14.82% ⁽¹⁾ , respectively.  Prosperity’s efficiency ratio (excluding credit loss provisions, net gains on the sale of assets and taxes) was 43.74% ⁽¹⁾ for the three months ended June 30, 2019.

Net interest income before provision for credit losses for the three months ended June 30, 2019 was $154.838 million compared with $161.803 million for the same period in 2018, a decrease of $6.965 million or 4.3%. This change was primarily due to a decrease in loan discount accretion of $3.996 million for the second quarter of 2019 and the collection of previously identified troubled assets during the second quarter of 2018. On a linked quarter basis, net interest income before provision for credit losses was $154.838 million compared with $154.911 million for the three months ended March 31, 2019.

The net interest margin on a tax equivalent basis was 3.16% for the three months ended June 30, 2019 compared with 3.28% for the same period in 2018. This change was primarily due to a decrease in loan discount accretion for the second quarter of 2019 and the collection of previously identified troubled assets during the second quarter of 2018. On a linked quarter basis, the net interest margin was 3.16% compared with 3.20% for the three months ended March 31, 2019. This decrease was primarily due to higher rates on deposits and higher net premium amortization on securities.

Noninterest income was $29.958 million for the three months ended June 30, 2019 compared with $28.371 million for the same period in 2018, an increase of $1.587 million or 5.6%. This change was primarily due to an increase in other noninterest income. On a linked quarter basis, noninterest income increased $1.814 million or 6.4% to $29.958 million compared with $28.144 million for the three months ended March 31, 2019. This increase was primarily due to increases in other noninterest income and credit card, debit card and ATM card income.

Noninterest expense was $80.821 million for the three months ended June 30, 2019 compared with $83.602 million for the same period in 2018, a decrease of $2.781 million or 3.3%. This change was primarily due to decreases in regulatory assessments and FDIC insurance and in other noninterest expense. On a linked quarter basis, noninterest expense increased $2.250 million or 2.9% to $80.821 million compared with $78.571 million for the three months ended March 31, 2019. This change was primarily due to an increase in salaries and benefits.

Results of Operations for the Six Months Ended June 30, 2019

Net income was $164.660 million ⁽⁴⁾ for the six months ended June 30, 2019 compared with $155.958 million ⁽⁵⁾ for the same period in 2018, an increase of $8.702 million or 5.6%.  Net income per diluted common share was $2.36 for the six months ended June 30, 2019 compared with $2.23 for the same period in 2018, an increase of 5.8%. Net income and earnings per diluted common share for the six months ended June 30, 2018 were impacted by significant charge-offs during the first quarter of 2018. Annualized returns on average assets, average common equity and average tangible common equity for the six months ended June 30, 2019 were 1.46%, 7.99% and 15.03% ⁽¹⁾ , respectively.  Prosperity’s efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 43.34% ⁽¹⁾ for the six months ended June 30, 2019.

Net interest income before provision for credit losses for the six months ended June 30, 2019 was $309.749 million compared with $315.026 million for the same period in 2018, a decrease of $5.277 million or 1.7%. This change was primarily due to higher rates on deposits and a decrease in loan discount accretion, partially offset by higher balances and yields on loans.

The net interest margin on a tax equivalent basis for the six months ended June 30, 2019 was 3.18% compared with 3.22% for the same period in 2018. This change was primarily due to a decrease in loan discount accretion and the collection of previously identified troubled assets during the second quarter of 2018.

Noninterest income was $58.102 million for the six months ended June 30, 2019 compared with $56.309 million for the same period in 2018, an increase of $1.793 million or 3.2%. This increase was primarily due to an increase in other noninterest income.

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Noninterest expense was $159.392 million for the six months ended June 30, 2019 compared with $163.656 million for the same period in 2018 , a decrease of $4.264 million or 2.6% . This change was primarily due to decreases in regulatory assessments and FDIC insurance and in other noninterest expense.

Balance Sheet Information

At June 30, 2019, Prosperity had $22.375 billion in total assets, a decrease of $195.519 million or 0.9%, compared with $22.571 billion at June 30, 2018.

Loans at June 30, 2019 were $10.587 billion, an increase of $440.810 million or 4.3%, compared with $10.147 billion at June 30, 2018. Linked quarter loans increased $173.353 million or 1.7% (6.7% annualized) from $10.414 billion at March 31, 2019.

Deposits at June 30, 2019 were $16.888 billion, a decrease of $90.975 million or 0.5%, compared with $16.979 billion at June 30, 2018. Linked quarter deposits decreased $310.141 million or 1.8% from $17.198 billion at March 31, 2019. This decrease was primarily due to seasonality.

Asset Quality

Nonperforming assets totaled $41.558 million or 0.21% of quarterly average interest-earning assets at June 30, 2019, compared with $31.585 million or 0.16% of quarterly average interest-earning assets at June 30, 2018, and $40.883 million or 0.21% of quarterly average interest-earning assets at March 31, 2019.

The allowance for credit losses was $87.006 million or 0.82% of total loans at June 30, 2019, $84.964 million or 0.84% of total loans at June 30, 2018 and $86.091 million or 0.83% of total loans at March 31, 2019. Excluding loans acquired that are accounted for under FASB Accounting Standards Codification (“ASC”) Topics 310-20 and 310-30, the allowance for credit losses was 0.86% ⁽¹⁾ of remaining loans as of June 30, 2019, compared with 0.89% ⁽¹⁾ at June 30, 2018 and 0.87% ⁽¹⁾ at March 31, 2019.

The provision for credit losses was $800 thousand for the three months ended June 30, 2019 compared with $4.000 million for the three months ended June 30, 2018 and $700 thousand for the three months ended March 31, 2019. The provision for credit losses was $1.500 million for the six months ended June 30, 2019 compared with $13.000 million for the six months ended June 30, 2018.

Net recoveries were $115 thousand for the three months ended June 30, 2019 compared with net charge-offs of $2.636 million for the three months ended June 30, 2018 and $1.049 million for the three months ended March 31, 2019. Net charge-offs were $934 thousand for the six months ended June 30, 2019 compared with $12.077 million for the six months ended June 30, 2018.

Dividend

Prosperity Bancshares declared a third quarter cash dividend of $0.41 per share to be paid on October 1, 2019 to all shareholders of record as of September 16, 2019.

Stock Repurchase Program

On January 19, 2018, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately

3.47 million shares, of its outstanding common stock may be acquired over a two-year period expiring on January 16, 2020, at the discretion of management. During the second quarter of 2019, Prosperity Bancshares repurchased 818.6 thousand shares of its common stock at an average weighted price of $64.52 per share (including 219.8 thousand shares purchased for which the settlement occurred in July 2019).

Pending Merger with LegacyTexas Financial Group, Inc.

On June 17, 2019 Prosperity Bancshares and LegacyTexas Financial Group, Inc. (“LegacyTexas”) jointly announced the signing of a definitive agreement whereby LegacyTexas, the parent company of LegacyTexas Bank will merge into Prosperity. LegacyTexas Bank operates 42 locations in 19 North Texas cities in and around the Dallas-Fort Worth area. As of June 30, 2019, LegacyTexas, on a consolidated basis, reported total assets of $9.9 billion, total gross loans of $8.7 billion and total deposits of $7.1 billion.

Under the terms of the merger agreement, stockholders of LegacyTexas will receive 0.5280 shares of Prosperity common stock and $6.28 cash for each LegacyTexas share. Consummation of the merger is subject to certain conditions, including the approval by the shareholders of Prosperity Bancshares and LegacyTexas and customary regulatory approvals. Based on Prosperity’s closing price of $67.24 on June 14, 2019, the total consideration was valued at approximately $2.1 billion, or approximately $41.78 per share.

Conference Call

Prosperity’s management team will host a conference call on Wednesday, July 24, 2019 at 11:30 a.m. Eastern Time (10:30 a.m. Central Time) to discuss Prosperity’s second quarter 2019 earnings. Individuals and investment professionals may participate in the

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call by dialing 877-883-0383 for domestic participants, or 412-902-6506 for international participants. The elite entry number is 4864960 .

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity’s website at www.prosperitybankusa.com .  The webcast may be accessed from Prosperity’s home page by selecting “Presentations & Calls” from the drop-down menu on the Investor Relations tab and following the instructions.

Non-GAAP Financial Measures

Prosperity’s management uses certain non-GAAP financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity, tangible equity to tangible assets ratio and the efficiency ratio, excluding net gains and losses on the sale of assets and securities.  Further, as a result of acquisitions and the related purchase accounting adjustments, Prosperity uses certain non-GAAP financial 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, “ Receivables-Nonrefundable Fees and Other Costs ” and 310-30, “ Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality ”).  Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity’s financial results and that their presentation, together with the accompanying reconciliations, provides a more 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 financial measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook.  These non-GAAP financial measures should not be considered a substitute for, nor of greater importance than, GAAP basis financial measures and results; 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. 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 to the nearest respective GAAP financial measures.

Prosperity Bancshares, Inc. ®

As of June 30, 2019, Prosperity Bancshares, Inc. ^® is a $22.375 billion Houston, Texas based regional financial holding company, formed in 1983. Operating under a community banking philosophy and seeking to develop broad customer relationships based on service and convenience, Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at www.prosperitybankusa.com , Retail Brokerage Services, Credit Cards, Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services, Cash Management and Mobile Banking.

As of June 30, 2019, Prosperity operated 243 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 33 in the Dallas/Fort Worth area; 22 in the East Texas area; 29 in the Central Texas area including Austin and San Antonio; 34 in the West Texas area including Lubbock, Midland-Odessa and Abilene; 16 in the Bryan/College Station area; 6 in the Central Oklahoma area; and 8 in the Tulsa, Oklahoma area.

Cautionary Notes on Forward Looking Statements

This communication contains, and the remarks by Prosperity’s management on the conference call may contain, statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, oral or written forward-looking statements may also be included in other information released to the public. Such statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as “aim,” “anticipate,” “estimate,” “expect,” “goal,” “guidance,” “intend,” “is anticipated,” “is expected,” “is intended,” “objective,” “plan,” “projected,” “projection,” “will affect,” “will be,” “will continue,” “will decrease,” “will grow,” “will impact,” “will increase,” “will incur,” “will reduce,” “will remain,” “will result,” “would be,” variations of such words or phrases (including where the word “could,” “may,” or “would” is used rather than the word “will” in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. These forward-looking statements may include information about Prosperity’s and LegacyTexas’s possible or assumed future economic performance or future results of operations, including future revenues, income, expenses, provision for loan losses, provision for taxes, effective tax rate, earnings per share and cash flows and Prosperity’s or LegacyTexas’s future capital expenditures and dividends, future financial condition and changes therein, including changes in Prosperity’s and LegacyTexas’s loan portfolio and allowance for loan losses, future capital structure or changes therein, as well as the plans and objectives of management for Prosperity’s or LegacyTexas’s future operations, future or proposed acquisitions, the future or expected effect of acquisitions on Prosperity’s or LegacyTexas’s operations, results of operations, financial condition, and future economic performance, statements about the anticipated benefits of the proposed transaction, and statements about the assumptions underlying any such statement. The forward-looking statements are based on expectations and assumptions Prosperity and LegacyTexas currently believe to be valid. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Many possible events or factors could adversely affect the future financial results and performance of Prosperity, LegacyTexas or the combined company and could cause

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those results or performance to differ materially from those expressed in the forward-looking statements. Such risks and uncertainti es include, among others: the occurrence of any event, change or other circumstance that could give rise to the right of one or both of the parties to terminate the m erger a greement, the outcome of any legal proceedings that may be instituted against Prosp erity or LegacyTexas, delays in completing the transaction, the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected b enefits of the transaction) or shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, includ ing as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors generally, or specifically in the Dallas/Fort Worth area where LegacyTexas does a majorit y of its business and Prosperity has a significant presence, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing bu siness operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, Prosperity’s ability to complete the acquisition and integr ation of LegacyTexas successfully, and the dilution caused by Prosperity’s issuance of additional shares of its common stock in connection with the transaction. Each of Prosperity and LegacyTexas disclaims any obligation to update such factors or to public ly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Further information on Prosperity, LegacyTexas and factors which could affect the forward-looking statements contain ed herein can be found in Prosperity’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Report on Form 10-Q for the three-month period ended March 31, 2019 and its other filings with the SEC , and in LegacyTexas’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Report on Form 10-Q for the three-month period ended March 31, 2019 and its other filings with the SEC.

Additional Information about the Merger and Where to Find It

In connection with the proposed merger of LegacyTexas into Prosperity, Prosperity will file with the SEC a registration statement on Form S-4 to register the shares of Prosperity Common Stock to be issued to the stockholders of LegacyTexas. The registration statement will include a joint proxy statement/prospectus which will be sent to the stockholders of LegacyTexas and Prosperity seeking their approval of the proposed transaction.

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

Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Documents filed with the SEC by Prosperity will be available free of charge by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations, (281) 269-7199 and documents filed with the SEC by LegacyTexas will be available free of charge by directing a request by telephone or mail to LegacyTexas Financial Group, Inc., 5851 Legacy Circle, Suite 1200, Plano, Texas 75024, (972) 578-5000.

Participants in the Solicitation

Prosperity, LegacyTexas and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Prosperity and stockholders of LegacyTexas in connection with the proposed transaction. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available.  Additional information about Prosperity and its directors and executive officers may be found in the definitive proxy statement of Prosperity relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 14, 2019, and other documents filed by Prosperity with the SEC. Additional information about LegacyTexas and its directors and executive officers may be found in the definitive proxy statement of LegacyTexas relating to its 2019 Annual Meeting of Stockholders filed with the SEC on April 12, 2019, and other documents filed by LegacyTexas with the SEC. These documents can be obtained free of charge from the sources described above.

No Offer or Solicitation

This communication is for informational purposes only and is not intended to and does not constitute an offer to subscribe for, buy or sell, or the solicitation of an offer to subscribe for, buy or sell, or an invitation to subscribe for, buy or sell any securities or a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, invitation, sale or solicitation would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

 

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Bryan/College Station Area -		Keller		West University		Taft
Bryan		Roanoke		Woodcreek		Yoakum
Bryan-29 th Street		Stockyards				Yorktown
Bryan-East				Katy -
Bryan-North		Other Dallas/Fort Worth Area		Cinco Ranch		West Texas Area -
Caldwell		Locations -		Katy-Spring Green		Abilene -
College Station		Arlington				Antilley Road
Crescent Point		Azle		The Woodlands -		Barrow Street
Hearne		Ennis		The Woodlands-College Park		Cypress Street
Huntsville		Gainesville		The Woodlands-I-45		Judge Ely
Madisonville		Glen Rose		The Woodlands-Research Forest		Mockingbird
Navasota		Granbury
New Waverly		Mesquite		Other Houston Area		Lubbock -
Rock Prairie		Muenster		Locations -		4 th Street
Southwest Parkway		Sanger		Angleton		66 th Street
Tower Point		Waxahachie		Bay City		82 nd Street
Wellborn Road		Weatherford		Beaumont		86 th Street
				Cleveland		98 th Street
Central Texas Area -		East Texas Area -		East Bernard		Avenue Q
Austin -		Athens		El Campo		North University
Allandale		Blooming Grove		Dayton		Texas Tech Student Union
Cedar Park		Canton		Galveston
Congress		Carthage		Groves		Midland -
Lakeway		Corsicana		Hempstead		Wadley
Liberty Hill		Crockett		Hitchcock		Wall Street
Northland		Eustace		Liberty
Oak Hill		Gilmer		Magnolia		Odessa -
Research Blvd		Grapeland		Magnolia Parkway		Grandview
Westlake		Gun Barrel City		Mont Belvieu		Grant
		Jacksonville		Nederland		Kermit Highway
Other Central Texas Area		Kerens		Needville		Parkway
Locations -		Longview		Rosenberg
Bastrop		Mount Vernon		Shadow Creek		Other West Texas Area
Canyon Lake		Palestine		Spring		Locations -
Dime Box		Rusk		Tomball		Big Spring
Dripping Springs		Seven Points		Waller		Brownfield
Elgin		Teague		West Columbia		Brownwood
Flatonia		Tyler-Beckham		Wharton		Cisco
Georgetown		Tyler-South Broadway		Winnie		Comanche
Gruene		Tyler-University		Wirt		Early
Kingsland		Winnsboro				Floydada
La Grange				South Texas Area -		Gorman
Lexington		Houston Area -		Corpus Christi -		Levelland
New Braunfels		Houston -		Calallen		Littlefield
Pleasanton		Aldine		Carmel		Merkel
Round Rock		Alief		Northwest		Plainview
San Antonio		Bellaire		Saratoga		San Angelo
Schulenburg		Beltway		Timbergate		Slaton
Seguin		Clear Lake		Water Street		Snyder
Smithville		Copperfield
Thorndale		Cypress		Victoria -		Oklahoma
Weimar		Downtown		Victoria Main		Central Oklahoma Area-
		Eastex		Victoria-Navarro		Oklahoma City -
Dallas/Fort Worth Area -		Fairfield		Victoria-North		23 rd Street
Dallas -		First Colony		Victoria Salem		Expressway
Abrams Centre		Fry Road				I-240
Balch Springs		Gessner		Other South Texas Area		Memorial
Camp Wisdom		Gladebrook		Locations -
Cedar Hill		Grand Parkway		Alice		Other Central Oklahoma Area
Frisco		Heights		Aransas Pass		Locations -
Frisco-West		Highway 6 West		Beeville		Edmond
Kiest		Little York		Colony Creek		Norman
McKinney		Medical Center		Cuero
McKinney-Stonebridge		Memorial Drive		Edna		Tulsa Area-
Midway		Northside		Goliad		Tulsa -
Plano		Pasadena		Gonzales		Garnett
Preston Forest		Pecan Grove		Hallettsville		Harvard
Preston Road		Pin Oak		Kingsville		Memorial
Red Oak		River Oaks		Mathis		Sheridan
Sachse		Sugar Land		Padre Island		S. Harvard
The Colony		SW Medical Center		Palacios		Utica Tower
Turtle Creek		Tanglewood		Port Lavaca		Yale
Westmoreland		The Plaza		Portland
		Uptown		Rockport		Other Tulsa Area Locations -
Fort Worth -		Waugh Drive		Sinton		Owasso
Haltom City		Westheimer

  - - -

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(In thousands)

 

 

		Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018
Balance Sheet Data (at period end)
Loans		$	10,587,375			$	10,414,022			$	10,370,313			$	10,292,846			$	10,146,565
Investment securities (A)			8,951,940				9,137,645				9,408,966				9,504,733				9,620,614
Federal funds sold			555				566				552				639				577
Allowance for credit losses			(87,006	)			(86,091	)			(86,440	)			(85,996	)			(84,964	)
Cash and due from banks			302,069				291,498				410,575				293,831				274,902
Goodwill			1,900,845				1,900,845				1,900,845				1,900,845				1,900,845
Core deposit intangibles, net			30,299				31,564				32,883				34,295				35,773
Other real estate owned			2,005				2,096				1,805				889				10,316
Fixed assets, net			262,479				257,595				257,046				256,426				255,465
Other assets			424,660				404,501				396,857				414,075				410,647
Total assets		$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583			$	22,570,740
Noninterest-bearing deposits		$	5,691,236			$	5,673,707			$	5,666,115			$	5,700,242			$	5,657,589
Interest-bearing deposits			11,196,393				11,524,063				11,590,443				11,033,522				11,321,015
Total deposits			16,887,629				17,197,770				17,256,558				16,733,764				16,978,604
Other borrowings			940,874				680,952				1,031,126				1,501,207				1,254,849
Securities sold under repurchase agreements			313,825				254,573				284,720				297,126				293,039
Other liabilities			104,998				111,156				68,174				84,789				108,796
Total liabilities			18,247,326				18,244,451				18,640,578				18,616,886				18,635,288
Shareholders' equity (B)			4,127,895				4,109,790				4,052,824				3,995,697				3,935,452
Total liabilities and equity		$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583			$	22,570,740

 

(A) Includes $1,611, $895, $392 , $586 and $436 in unrealized gains on available for sale securities for the quarterly periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.

(B) Includes $1,273, $706, $310 , $463 and $345 in after-tax unrealized gains on available for sale securities for the quarterly periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.

 

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(In thousands)

 

 

		Three Months Ended																				Year-to-Date
		Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018				Jun 30, 2019				Jun 30, 2018
Income Statement Data
Interest income:
Loans		$	133,525			$	130,065			$	130,627			$	128,645			$	128,445			$	263,590			$	244,691
Securities (C)			53,944				55,648				56,170				55,705				55,577				109,592				110,034
Federal funds sold and other earning assets			318				402				397				326				299				720				614
Total interest income			187,787				186,115				187,194				184,676				184,321				373,902				355,339
Interest expense:
Deposits			26,562				25,128				21,643				19,208				16,061				51,690				30,533
Other borrowings			5,556				5,317				7,639				7,583				6,046				10,873				9,019
Securities sold under repurchase agreements			831				759				664				566				411				1,590				761
Total interest expense			32,949				31,204				29,946				27,357				22,518				64,153				40,313
Net interest income			154,838				154,911				157,248				157,319				161,803				309,749				315,026
Provision for credit losses			800				700				1,000				2,350				4,000				1,500				13,000
Net interest income after provision for credit losses			154,038				154,211				156,248				154,969				157,803				308,249				302,026
Noninterest income:
Nonsufficient funds (NSF) fees			7,973				7,816				8,902				8,606				7,828				15,789				15,655
Credit card, debit card and ATM card income			6,480				5,971				6,508				6,242				6,335				12,451				12,296
Service charges on deposit accounts			4,989				4,998				5,090				5,137				5,150				9,987				10,425
Trust income			2,558				2,595				2,507				2,692				2,251				5,153				4,979
Mortgage income			990				722				627				856				1,109				1,712				1,872
Brokerage income			541				673				521				784				687				1,214				1,312
Bank owned life insurance income			1,321				1,289				1,330				1,326				1,317				2,610				2,628
Net gain (loss) on sale of assets			2				58				(715	)			4				(44	)			60				(44	)
Net loss on sale of securities			—				—				—				—				(13	)			—				(13	)
Other noninterest income			5,104				4,022				4,309				4,977				3,751				9,126				7,199
Total noninterest income			29,958				28,144				29,079				30,624				28,371				58,102				56,309
Noninterest expense:
Salaries and benefits			52,941				51,073				51,852				51,906				53,360				104,014				103,759
Net occupancy and equipment			5,492				5,466				5,651				5,808				5,692				10,958				11,301
Credit and debit card, data processing and software amortization			4,904				4,573				4,474				4,512				4,356				9,477				8,804
Regulatory assessments and FDIC insurance			2,325				2,374				2,764				3,347				3,575				4,699				7,150
Core deposit intangibles amortization			1,265				1,319				1,412				1,478				1,501				2,584				3,069
Depreciation			3,111				3,104				3,139				3,139				3,054				6,215				6,087
Communications			2,183				2,270				2,404				2,442				2,606				4,453				5,186
Other real estate expense			120				83				110				219				83				203				172
Net (gain) loss on sale or write-down of other real estate			(54	)			(177	)			91				(2	)			10				(231	)			132
Other noninterest expense			8,534				8,486				8,907				8,911				9,365				17,020				17,996
Total noninterest expense			80,821				78,571				80,804				81,760				83,602				159,392				163,656
Income before income taxes			103,175				103,784				104,523				103,833				102,572				206,959				194,679
Provision for income taxes			20,917				21,382				21,192				21,310				20,975				42,299				38,721
Net income available to common shareholders		$	82,258			$	82,402			$	83,331			$	82,523			$	81,597			$	164,660			$	155,958

 

(C) Interest income on securities was reduced by net premium amortization of $7,607, $6,589, $7,338 , $8,073 and $7,753 for the three-month periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively, and $14,196 and $16,203 for the six-month periods ended June 30, 2019 and June 30, 2018, respectively.

Page 8 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

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

 

 

		Three Months Ended																				Year-to-Date
		Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018				Jun 30, 2019				Jun 30, 2018
Profitability
Net income (D) (E)		$	82,258			$	82,402			$	83,331			$	82,523			$	81,597			$	164,660			$	155,958
Basic earnings per share		$	1.18			$	1.18			$	1.19			$	1.18			$	1.17			$	2.36			$	2.23
Diluted earnings per share		$	1.18			$	1.18			$	1.19			$	1.18			$	1.17			$	2.36			$	2.23
Return on average assets (F)			1.46	%			1.46	%			1.47	%			1.46	%			1.44	%			1.46	%			1.38	%
Return on average common equity (F)			7.92	%			8.05	%			8.25	%			8.30	%			8.33	%			7.99	%			8.01	%
Return on average tangible common equity   (F)   (G)			14.82	%			15.24	%			15.84	%			16.17	%			16.48	%			15.03	%			15.96	%
Tax equivalent net interest margin (D) (E)   (H)			3.16	%			3.20	%			3.15	%			3.15	%			3.28	%			3.18	%			3.22	%
Efficiency ratio (G) (I)			43.74	%			42.94	%			43.20	%			43.50	%			43.95	%			43.34	%			44.07	%
Liquidity and Capital Ratios
Equity to assets			18.45	%			18.38	%			17.86	%			17.67	%			17.44	%			18.45	%			17.44	%
Common equity tier 1 capital			16.59	%			16.76	%			16.32	%			15.94	%			15.65	%			16.59	%			15.65	%
Tier 1 risk-based capital			16.59	%			16.76	%			16.32	%			15.94	%			15.65	%			16.59	%			15.65	%
Total risk-based capital			17.25	%			17.42	%			16.99	%			16.60	%			16.32	%			17.25	%			16.32	%
Tier 1 leverage capital			10.67	%			10.59	%			10.23	%			9.94	%			9.68	%			10.67	%			9.68	%
Period end tangible equity to period end tangible assets (G)			10.75	%			10.66	%			10.21	%			9.97	%			9.69	%			10.75	%			9.69	%
Other Data
Weighted-average shares used in computing earnings per common share
Basic			69,806				69,847				69,838				69,838				69,839				69,832				69,803
Diluted			69,806				69,847				69,838				69,838				69,839				69,832				69,803
Period end shares outstanding			69,261				69,846				69,847				69,838				69,838				69,261				69,838
Cash dividends paid per common share		$	0.41			$	0.41			$	0.41			$	0.36			$	0.36			$	0.82			$	0.72
Book value per common share		$	59.60			$	58.84			$	58.02			$	57.21			$	56.35			$	59.60			$	56.35
Tangible book value per common share (G)		$	31.72			$	31.17			$	30.34			$	29.50			$	28.62			$	31.72			$	28.62
Common Stock Market Price
High		$	74.50			$	75.36			$	72.24			$	76.25			$	76.92			$	75.36			$	79.20
Low		$	61.85			$	61.65			$	57.01			$	67.27			$	67.30			$	61.65			$	67.30
Period end closing price		$	66.05			$	69.06			$	62.30			$	69.35			$	68.36			$	66.05			$	68.36
Employees – FTE			3,046				3,065				3,036				3,029				3,044				3,046				3,044
Number of banking centers			243				242				242				242				242				243				242

 

(D) Includes purchase accounting adjustments for the periods presented as follows:

	Three Months Ended										Year-to-Date
	Jun 30, 2019		Mar 31, 2019		Dec 31, 2018		Sep 30, 2018		Jun 30, 2018		Jun 30, 2019		Jun 30, 2018
Loan discount accretion
ASC 310-20	$880		$1,474		$1,289		$1,287		$1,452		$2,354		$3,092
ASC 310-30	$347		$319		$1,614		$2,170		$3,771		$666		$4,457
Securities net amortization	$255		$234		$270		$291		$366		$489		$843
Time deposits amortization	—		—		—		—		$53		—		$106

 

 

(E) Using effective tax rate of 20.3%, 20.6%, 20.3%, 20.5% and 20.4% for the three-month periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively, and 20.4% and 19.9% for the six-month periods ended June 30, 2019 and June 30, 2018, respectively.

(F) Interim periods annualized.

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

(H) Net interest margin for all periods presented is based on average balances on an actual 365 day basis.

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

 

Page 9 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

 

YIELD ANALYSIS		Three Months Ended
		Jun 30, 2019												Mar 31, 2019												Jun 30, 2018
		Average Balance				Interest Earned/ Interest Paid				Average Yield/ Rate			(J)	Average Balance				Interest Earned/ Interest Paid				Average Yield/ Rate			(J)	Average Balance				Interest Earned/ Interest Paid				Average Yield/ Rate			(J)
Interest-Earning Assets:
Loans		$	10,520,425			$	133,525			5.09%				$	10,392,235			$	130,065			5.08%				$	10,044,064			$	128,445			5.13%
Investment securities			9,185,877				53,944			2.36%			(K)		9,299,963				55,648			2.43%			(K)		9,770,963				55,577			2.28%			(K)
Federal funds sold and other earning assets			64,335				318			1.98%					71,842				402			2.27%					79,947				299			1.50%
Total interest-earning assets			19,770,637				187,787			3.81%					19,764,040				186,115			3.82%					19,894,974				184,321			3.72%
Allowance for credit losses			(86,158	)											(86,507	)											(84,285	)
Noninterest-earning assets			2,842,478												2,864,039												2,809,197
Total assets		$	22,526,957											$	22,541,572											$	22,619,886
Interest-Bearing Liabilities:
Interest-bearing demand deposits		$	3,714,968			$	5,813			0.63%				$	4,148,377			$	6,812			0.67%				$	3,971,356			$	4,983			0.50%
Savings and money market deposits			5,647,494				12,722			0.90%					5,472,789				11,184			0.83%					5,342,323				6,709			0.50%
Certificates and other time deposits			2,057,033				8,027			1.57%					2,062,753				7,132			1.40%					2,094,065				4,369			0.84%
Other borrowings			883,557				5,556			2.52%					844,873				5,317			2.55%					1,272,032				6,046			1.91%
Securities sold under repurchase agreements			288,666				831			1.15%					272,630				759			1.13%					300,471				411			0.55%
Total interest-bearing liabilities			12,591,718				32,949			1.05%			(L)		12,801,422				31,204			0.99%			(L)		12,980,247				22,518			0.70%			(L)
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			5,674,615												5,557,821												5,646,114
Other liabilities			108,246												86,868												75,161
Total liabilities			18,374,579												18,446,111												18,701,522
Shareholders' equity			4,152,378												4,095,461												3,918,364
Total liabilities and shareholders' equity		$	22,526,957											$	22,541,572											$	22,619,886
Net interest income and margin						$	154,838			3.14%								$	154,911			3.18%								$	161,803			3.26%
Non-GAAP to GAAP reconciliation:
Tax equivalent adjustment							827												863												903
Net interest income and margin (tax equivalent basis)						$	155,665			3.16%								$	155,774			3.20%								$	162,706			3.28%

 

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

(K) Yield on securities was impacted by net premium amortization of $7,607, $6,589 and $7,753 for the three-month periods ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.

(L) Total cost of funds, including noninterest bearing deposits, was 0.72%, 0.69% and 0.48% for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.

 

 

 

Page 10 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

YIELD ANALYSIS		Year-to-Date
		Jun 30, 2019												Jun 30, 2018
		Average Balance				Interest Earned/ Interest Paid				Average Yield/ Rate			(M)	Average Balance				Interest Earned/ Interest Paid				Average Yield/ Rate			(M)
Interest-Earning Assets:
Loans		$	10,456,684			$	263,590			5.08%				$	10,017,340			$	244,691			4.93%
Investment securities			9,242,605				109,592			2.39%			(N)		9,756,861				110,034			2.27%			(N)
Federal funds sold and other earning assets			68,068				720			2.13%					80,858				614			1.53%
Total interest-earning assets			19,767,357				373,902			3.81%					19,855,059				355,339			3.61%
Allowance for credit losses			(86,332	)											(83,140	)
Noninterest-earning assets			2,853,199												2,816,449
Total assets		$	22,534,224											$	22,588,368
Interest-Bearing Liabilities:
Interest-bearing demand deposits		$	3,930,475			$	12,625			0.65%				$	4,180,631			$	10,046			0.48%
Savings and money market deposits			5,560,625				23,906			0.87%					5,409,991				11,951			0.45%
Certificates and other time deposits			2,059,877				15,159			1.48%					2,131,301				8,536			0.81%
Other borrowings			864,322				10,873			2.54%					1,003,259				9,019			1.81%
Securities sold under repurchase agreements			280,692				1,590			1.14%					313,730				761			0.49%
Total interest-bearing liabilities			12,695,991				64,153			1.02%			(O)		13,038,912				40,313			0.62%			(O)
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			5,616,541												5,578,592
Other liabilities			97,610												78,270
Total liabilities			18,410,142												18,695,774
Shareholders' equity			4,124,082												3,892,594
Total liabilities and shareholders' equity		$	22,534,224											$	22,588,368
Net interest income and margin						$	309,749			3.16%								$	315,026			3.20%
Non-GAAP to GAAP reconciliation:
Tax equivalent adjustment							1,690												1,844
Net interest income and margin (tax equivalent basis)						$	311,439			3.18%								$	316,870			3.22%

 

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

(N) Yield on securities was impacted by net premium amortization of $14,196 and $16,203 for the six-month periods ended June 30, 2019 and 2018, respectively.

(O) Total cost of funds, including noninterest bearing deposits, was 0.71% and 0.44% for the six-month periods ended June 30, 2019 and 2018, respectively.

Page 11 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

  

	Three Months Ended
	Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018
YIELD TREND (P)
Interest-Earning Assets:
Loans		5.09	%			5.08	%			5.02	%			5.00	%			5.13	%
Investment securities (Q)		2.36	%			2.43	%			2.35	%			2.29	%			2.28	%
Federal funds sold and other earning assets		1.98	%			2.27	%			1.57	%			1.90	%			1.50	%
Total interest-earning assets		3.81	%			3.82	%			3.73	%			3.68	%			3.72	%
Interest-Bearing Liabilities:
Interest-bearing demand deposits		0.63	%			0.67	%			0.57	%			0.51	%			0.50	%
Savings and money market deposits		0.90	%			0.83	%			0.73	%			0.67	%			0.50	%
Certificates and other time deposits		1.57	%			1.40	%			1.23	%			1.02	%			0.84	%
Other borrowings		2.52	%			2.55	%			2.34	%			2.08	%			1.91	%
Securities sold under repurchase agreements		1.15	%			1.13	%			0.92	%			0.78	%			0.55	%
Total interest-bearing liabilities		1.05	%			0.99	%			0.93	%			0.84	%			0.70	%
Net Interest Margin		3.14	%			3.18	%			3.13	%			3.13	%			3.26	%
Net Interest Margin (tax equivalent)		3.16	%			3.20	%			3.15	%			3.15	%			3.28	%

 

(P)  Annualized and based on average balances on an actual 365 day basis.

(Q) Yield on securities was impacted by net premium amortization of $7,607, $6,589, $7,338, $8,073 and $7,753 for the three-month periods ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.

 

Page 12 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

 

		Three Months Ended
		Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018
Balance Sheet Averages
Loans		$	10,520,425			$	10,392,235			$	10,319,596			$	10,208,171			$	10,044,064
Investment securities			9,185,877				9,299,963				9,499,166				9,647,744				9,770,963
Federal funds sold and other earning assets			64,335				71,842				100,339				67,974				79,947
Total interest-earning assets			19,770,637				19,764,040				19,919,101				19,923,889				19,894,974
Allowance for credit losses			(86,158	)			(86,507	)			(86,464	)			(85,254	)			(84,285	)
Cash and due from banks			227,653				266,316				252,481				232,643				234,856
Goodwill			1,900,845				1,900,845				1,900,845				1,900,845				1,900,845
Core deposit intangibles, net			30,933				32,243				33,580				35,041				36,550
Other real estate			2,053				2,100				1,325				9,193				10,386
Fixed assets, net			260,054				257,811				257,726				256,458				256,281
Other assets			420,940				404,724				415,412				385,976				370,279
Total assets		$	22,526,957			$	22,541,572			$	22,694,006			$	22,658,791			$	22,619,886
Noninterest-bearing deposits		$	5,674,615			$	5,557,821			$	5,785,882			$	5,646,183			$	5,646,114
Interest-bearing demand deposits			3,714,968				4,148,377				3,720,133				3,676,452				3,971,356
Savings and money market deposits			5,647,494				5,472,789				5,382,699				5,465,143				5,342,323
Certificates and other time deposits			2,057,033				2,062,753				2,087,871				2,055,652				2,094,065
Total deposits			17,094,110				17,241,740				16,976,585				16,843,430				17,053,858
Other borrowings			883,557				844,873				1,297,917				1,447,328				1,272,032
Securities sold under repurchase agreements			288,666				272,630				285,984				288,706				300,471
Other liabilities			108,246				86,868				95,124				102,092				75,161
Shareholders' equity			4,152,378				4,095,461				4,038,396				3,977,235				3,918,364
Total liabilities and equity		$	22,526,957			$	22,541,572			$	22,694,006			$	22,658,791			$	22,619,886

 

Page 13 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)   

 

		Jun 30, 2019							Mar 31, 2019							Dec 31, 2018							Sep 30, 2018							Jun 30, 2018
Period End Balances
Loan Portfolio
Commercial and industrial		$	1,158,657			10.9	%		$	1,117,753			10.7	%		$	1,111,089			10.7	%		$	1,159,735			11.3	%		$	1,168,892			11.5	%
Construction, land development and other land loans			1,739,308			16.4	%			1,709,283			16.4	%			1,622,289			15.7	%			1,560,142			15.2	%			1,542,771			15.2	%
1-4 family residential			2,456,506			23.2	%			2,444,434			23.5	%			2,438,949			23.5	%			2,440,157			23.7	%			2,418,021			23.8	%
Home equity			256,772			2.4	%			262,276			2.5	%			267,960			2.6	%			273,608			2.7	%			277,447			2.7	%
Commercial real estate (includes multi-family residential)			3,551,668			33.6	%			3,496,688			33.6	%			3,538,557			34.1	%			3,507,223			34.1	%			3,405,466			33.6	%
Agriculture (includes farmland)			736,470			7.0	%			708,348			6.8	%			729,501			7.0	%			705,750			6.8	%			709,617			7.0	%
Consumer and other			321,023			3.0	%			294,405			2.8	%			289,486			2.8	%			281,112			2.7	%			271,724			2.7	%
Energy			366,971			3.5	%			380,835			3.7	%			372,482			3.6	%			365,119			3.5	%			352,627			3.5	%
Total loans		$	10,587,375						$	10,414,022						$	10,370,313						$	10,292,846						$	10,146,565
Deposit Types
Noninterest-bearing DDA		$	5,691,236			33.7	%		$	5,673,707			33.0	%		$	5,666,115			32.8	%		$	5,700,242			34.1	%		$	5,657,589			33.3	%
Interest-bearing DDA			3,530,581			20.9	%			3,875,109			22.5	%			4,124,412			23.9	%			3,551,456			21.2	%			3,808,694			22.4	%
Money market			3,438,164			20.3	%			3,302,445			19.2	%			3,115,531			18.1	%			3,100,310			18.5	%			3,153,261			18.6	%
Savings			2,158,159			12.8	%			2,293,134			13.3	%			2,271,170			13.2	%			2,291,952			13.7	%			2,311,795			13.6	%
Certificates and other time deposits			2,069,489			12.3	%			2,053,375			12.0	%			2,079,330			12.0	%			2,089,804			12.5	%			2,047,265			12.1	%
Total deposits		$	16,887,629						$	17,197,770						$	17,256,558						$	16,733,764						$	16,978,604
Loan to Deposit Ratio			62.7	%						60.6	%						60.1	%						61.5	%						59.8	%

Page 14 of 17

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Prospe rity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

Construction Loans

		Jun 30, 2019							Mar 31, 2019							Dec 31, 2018							Sep 30, 2018							Jun 30, 2018
Single family residential construction		$	446,868			25.7	%		$	454,041			26.5	%		$	441,487			27.2	%		$	422,738			27.1	%		$	426,767			27.6	%
Land development			87,825			5.0	%			84,562			4.9	%			89,226			5.5	%			89,357			5.7	%			88,562			5.7	%
Raw land			168,531			9.7	%			156,674			9.2	%			152,516			9.4	%			137,400			8.8	%			134,906			8.7	%
Residential lots			121,586			7.0	%			119,301			7.0	%			124,429			7.6	%			122,366			7.8	%			118,759			7.7	%
Commercial lots			105,633			6.1	%			92,683			5.4	%			92,234			5.7	%			95,982			6.1	%			92,283			6.0	%
Commercial construction and other			809,680			46.5	%			802,996			47.0	%			723,740			44.6	%			693,917			44.5	%			683,255			44.3	%
Net unaccreted discount			(815	)						(974	)						(1,343	)						(1,618	)						(1,761	)
Total construction loans		$	1,739,308						$	1,709,283						$	1,622,289						$	1,560,142						$	1,542,771

 

 

Non-Owner Occupied Commercial Real Estate Loans by Metropolitan Statistical Area (MSA) as of June 30, 2019

	Houston				Dallas				Austin				OK City				Tulsa				Other (R)				Total
Collateral Type
Shopping center/retail	$	276,646			$	79,664			$	25,681			$	16,473			$	31,556			$	142,991			$	573,011
Commercial and industrial buildings		125,634				32,462				15,156				10,278				19,105				80,794				283,429
Office buildings		81,171				119,899				28,339				44,684				6,827				71,588				352,508
Medical buildings		29,970				2,388				13,048				5,084				26,874				38,191				115,555
Apartment buildings		46,347				12,212				18,167				11,256				9,029				88,119				185,130
Hotel		52,113				81,100				21,881				31,455				—				153,999				340,548
Other		50,427				14,711				13,911				10,486				14,340				80,656				184,531
Total	$	662,308			$	342,436			$	136,183			$	129,716			$	107,731			$	656,338			$	2,034,712		(S)

 

 

Acquired Loans

		Acquired Loans Accounted for Under ASC 310-20												Acquired Loans Accounted for Under ASC 310-30												Total Loans Accounted for Under ASC 310-20 and 310-30
		Balance at Acquisition Date				Balance at Mar 31, 2019				Balance at Jun 30, 2019				Balance at Acquisition Date				Balance at Mar 31, 2019				Balance at Jun 30, 2019				Balance at Acquisition Date				Balance at Mar 31, 2019				Balance at Jun 30, 2019
Loan marks:
Acquired banks (T)		$	229,080			$	13,359			$	12,479			$	142,128			$	2,512			$	2,165			$	371,208			$	15,871			$	14,644
Acquired portfolio loan balances:
Acquired banks (T)			5,690,998				490,442				467,645				275,221				10,844				10,110				5,966,219		(U)		501,286				477,755
Acquired portfolio loan balances less loan marks		$	5,461,918			$	477,083			$	455,166			$	133,093			$	8,332			$	7,945			$	5,595,011			$	485,415			$	463,111

 

 

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

(S) Represents a portion of total commercial real estate loans of $3.552 billion as of June 30, 2019.

(T) Includes Bank of Texas, Bank Arlington, American State Bank, Community National Bank, First Federal Bank Texas, Coppermark Bank, First Victoria National Bank, The F&M Bank & Trust Company and Tradition Bank.

(U) Actual principal balances acquired.

 

Page 15 of 17

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Prosperity Bancshares, Inc. ^®

Financial Highlights (Unaudited)

(Dollars in thousands)

   

	Three Months Ended																				Year-to-Date
	Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018				Jun 30, 2019				Jun 30, 2018
Asset Quality
Nonaccrual loans	$	37,289			$	37,491			$	13,147			$	13,399			$	20,415			$	37,289			$	20,415
Accruing loans 90 or more days past due		1,594				647				4,004				2,379				854				1,594				854
Total nonperforming loans		38,883				38,138				17,151				15,778				21,269				38,883				21,269
Repossessed assets		670				649				—				110				—				670				—
Other real estate		2,005				2,096				1,805				889				10,316				2,005				10,316
Total nonperforming assets	$	41,558			$	40,883			$	18,956			$	16,777			$	31,585			$	41,558			$	31,585
Nonperforming assets:
Commercial and industrial (includes energy)	$	17,592			$	17,119			$	4,435			$	6,620			$	12,234			$	17,592			$	12,234
Construction, land development and other land loans		2,296				1,488				3,100				2,046				1,829				2,296				1,829
1-4 family residential (includes home equity)		16,641				17,508				8,135				4,527				4,884				16,641				4,884
Commercial real estate (includes multi-family residential)		4,352				4,166				2,982				3,254				12,038				4,352				12,038
Agriculture (includes farmland)		616				542				256				262				519				616				519
Consumer and other		61				60				48				68				81				61				81
Total	$	41,558			$	40,883			$	18,956			$	16,777			$	31,585			$	41,558			$	31,585
Number of loans/properties		92				84				83				83				90				92				90
Allowance for credit losses at end of period	$	87,006			$	86,091			$	86,440			$	85,996			$	84,964			$	87,006			$	84,964
Net charge-offs (Recoveries):
Commercial and industrial (includes energy)	$	(828	)		$	1,719			$	(685	)		$	657			$	1,047			$	891			$	9,063
Construction, land development and other land loans		7				—				97				(1	)			(1	)			7				122
1-4 family residential (includes home equity)		11				(3	)			42				11				114				8				371
Commercial real estate (includes multi-family residential)		(1	)			(1	)			34				(10	)			986				(2	)			1,488
Agriculture (includes farmland)		46				(1,278	)			(54	)			(113	)			(45	)			(1,232	)			(106	)
Consumer and other		650				612				1,122				774				535				1,262				1,139
Total	$	(115	)		$	1,049			$	556			$	1,318			$	2,636			$	934			$	12,077
Asset Quality Ratios
Nonperforming assets to average interest-earning assets		0.21	%			0.21	%			0.10	%			0.08	%			0.16	%			0.21	%			0.16	%
Nonperforming assets to loans and other real estate		0.39	%			0.39	%			0.18	%			0.16	%			0.31	%			0.39	%			0.31	%
Net charge-offs to average loans (annualized)	—					0.04	%			0.02	%			0.05	%			0.10	%			0.02	%			0.24	%
Allowance for credit losses to total loans		0.82	%			0.83	%			0.83	%			0.84	%			0.84	%			0.82	%			0.84	%
Allowance for credit losses to total loans (excluding acquired loans accounted for under ASC Topics 310-20 and 310-30)   (G)		0.86	%			0.87	%			0.88	%			0.88	%			0.89	%			0.86	%			0.89	%

 

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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, the tangible equity to tangible assets ratio and the efficiency ratio, excluding net gains and losses on the sale of assets and securities, for internal planning and forecasting purposes. In addition, due to the application of purchase accounting, Prosperity uses certain non-GAAP financial 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 information below relating to these non-GAAP financial measures for the applicable periods presented.

 

		Three Months Ended																				Year-to-Date
		Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018				Jun 30, 2019				Jun 30, 2018
Reconciliation of return on average common equity to return on average tangible common equity:
Net income		$	82,258			$	82,402			$	83,331			$	82,523			$	81,597			$	164,660			$	155,958
Average shareholders' equity		$	4,152,378			$	4,095,461			$	4,038,396			$	3,977,235			$	3,918,364			$	4,124,082			$	3,892,594
Less: Average goodwill and other intangible assets			(1,931,778	)			(1,933,088	)			(1,934,425	)			(1,935,886	)			(1,937,395	)			(1,932,429	)			(1,938,148	)
Average tangible shareholders’ equity		$	2,220,600			$	2,162,373			$	2,103,971			$	2,041,349			$	1,980,969			$	2,191,653			$	1,954,446
Return on average tangible common equity   (F)			14.82	%			15.24	%			15.84	%			16.17	%			16.48	%			15.03	%			15.96	%
Reconciliation of book value per share to tangible book value per share:
Shareholders’ equity		$	4,127,895			$	4,109,790			$	4,052,824			$	3,995,697			$	3,935,452			$	4,127,895			$	3,935,452
Less: Goodwill and other intangible assets			(1,931,144	)			(1,932,409	)			(1,933,728	)			(1,935,140	)			(1,936,618	)			(1,931,144	)			(1,936,618	)
Tangible shareholders’ equity		$	2,196,751			$	2,177,381			$	2,119,096			$	2,060,557			$	1,998,834			$	2,196,751			$	1,998,834
Period end shares outstanding			69,261				69,846				69,847				69,838				69,838				69,261				69,838
Tangible book value per share:		$	31.72			$	31.17			$	30.34			$	29.50			$	28.62			$	31.72			$	28.62
Reconciliation of equity to assets ratio to period end tangible equity to period end tangible assets ratio:
Tangible shareholders’ equity		$	2,196,751			$	2,177,381			$	2,119,096			$	2,060,557			$	1,998,834			$	2,196,751			$	1,998,834
Total assets		$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583			$	22,570,740			$	22,375,221			$	22,570,740
Less: Goodwill and other intangible assets			(1,931,144	)			(1,932,409	)			(1,933,728	)			(1,935,140	)			(1,936,618	)			(1,931,144	)			(1,936,618	)
Tangible assets		$	20,444,077			$	20,421,832			$	20,759,674			$	20,677,443			$	20,634,122			$	20,444,077			$	20,634,122
Period end tangible equity to period end tangible assets ratio:			10.75	%			10.66	%			10.21	%			9.97	%			9.69	%			10.75	%			9.69	%
Reconciliation of allowance for credit losses to total loans to allowance for credit losses to total loans, excluding acquired loans:
Allowance for credit losses		$	87,006			$	86,091			$	86,440			$	85,996			$	84,964			$	87,006			$	84,964
Total loans		$	10,587,375			$	10,414,022			$	10,370,313			$	10,292,846			$	10,146,565			$	10,587,375			$	10,146,565
Less: Fair value of acquired loans (acquired portfolio loan balances less loan marks)		$	463,111			$	485,415			$	520,595			$	572,095			$	622,534			$	463,111			$	622,534
Total loans less acquired loans		$	10,124,264			$	9,928,607			$	9,849,718			$	9,720,751			$	9,524,031			$	10,124,264			$	9,524,031
Allowance for credit losses to total loans, excluding acquired loans (non-GAAP basis)			0.86	%			0.87	%			0.88	%			0.88	%			0.89	%			0.86	%			0.89	%
Reconciliation of efficiency ratio to efficiency ratio, excluding net gains and losses on the sale of assets and securities:
Noninterest expense		$	80,821			$	78,571			$	80,804			$	81,760			$	83,602			$	159,392			$	163,656
Net interest income		$	154,838			$	154,911			$	157,248			$	157,319			$	161,803			$	309,749			$	315,026
Noninterest income			29,958				28,144				29,079				30,624				28,371				58,102				56,309
Less: net gain (loss) on sale of assets			2				58				(715	)			4				(44	)			60				(44	)
Less: net loss on sale of securities			—				—				—				—				(13	)			—				(13	)
Noninterest income excluding net gains and losses on the sale of assets and securities			29,956				28,086				29,794				30,620				28,428				58,042				56,366
Total income excluding net gains and losses on the sale of assets and securities		$	184,794			$	182,997			$	187,042			$	187,939			$	190,231			$	367,791			$	371,392
Efficiency ratio, excluding net gains and losses on the sale of assets and securities			43.74	%			42.94	%			43.20	%			43.50	%			43.95	%			43.34	%			44.07	%

 

Page 17 of 17