LTXB LegacyTexas Financial Group Inc

 

 

Filed by Prosperity Bancshares, Inc. pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934

Subject Company: LegacyTexas Financial Group, Inc.

Commission File Number: 001-34737

 

 

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 THIRD QUARTER

2019 EARNINGS

 

HOUSTON, October 23, 2019. Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, “Prosperity”), reported net income for the quarter ended September 30, 2019 of $81.758 million compared with $82.523 million for the same period in 2018. Net income per diluted common share increased to $1.19 compared with $1.18 for the same period in 2018. Additionally, loans increased 3.2% (annualized) during the third quarter 2019 and nonperforming assets remain low at 0.26% of third quarter average interest-earning assets.

 

“I am very excited with all that is going on at Prosperity.  We had strong financial results in the third quarter, with net income of $81.758 million, return on average assets of 1.47% annualized and return on average tangible common equity of 14.77% annualized.  We were pleased with the net interest margin on a tax equivalent basis of 3.16% for the third quarter 2019, compared with 3.15% for the same period in 2018 and 3.16% on a linked quarter basis for the second quarter 2019,” said David Zalman, Prosperity’s Chairman and Chief Executive Officer.

 

“Additionally, our board of directors voted to increase the fourth quarter dividend to $0.46 per share, a 12.2% increase.  Our company continues to perform well and we want to share that success with our shareholders,” continued Zalman.

 

“Completion of our merger with LegacyTexas Financial Group remains on schedule, as we have received all required regulatory approvals and shareholder meetings for each company are scheduled for next week. The management teams from both companies meet on a weekly basis and share many similar viewpoints.  Both Legacy’s and our goal is 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.  We want to expand our use

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of technology and digital products, making it easier for our customers to do business and continue to enhance shareholder value,” added Zalman.

 

“We believe our customers remain positive about the economy.  In Texas and Oklahoma, unemployment remains low and demand at businesses is good.  In my personal opinion, the economy in our market areas remains sustainable. I want to thank all of our associates, directors, customers and shareholders for helping us to achieve the success we have had over the years,” concluded Zalman.

 

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

Net income was $81.758 million⁽²⁾ for the three months ended September 30, 2019 compared with $82.523 million⁽³⁾ for the same period in 2018. Net income per diluted common share was $1.19 for the three months ended September 30, 2019 compared with $1.18 for the same period in 2018. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended September 30, 2019 were 1.47%, 7.89% and 14.77%⁽¹⁾, respectively. Prosperity’s efficiency ratio (excluding credit loss provisions, net gains on the sale of assets and taxes) was 43.70%⁽¹⁾ for the three months ended September 30, 2019.

 

Net interest income before provision for credit losses for the three months ended September 30, 2019 was $153.990 million compared with $157.319 million for the same period in 2018, a decrease of $3.329 million or 2.1%. This change was primarily due to higher rates on interest-bearing liabilities and lower investment securities balances, partially offset by an increase in loan balances and loan yield. On a linked quarter basis, net interest income before provision for credit losses was $153.990 million compared with $154.838 million for the three months ended June 30, 2019.

The net interest margin on a tax equivalent basis was 3.16% for the three months ended September 30, 2019 compared with 3.15% for the same period in 2018. On a linked quarter basis, the net interest margin remained unchanged at 3.16% compared with the three months ended June 30, 2019.

Noninterest income was $30.673 million for the three months ended September 30, 2019 compared with $30.624 million for the same period in 2018. On a linked quarter basis, noninterest income increased $715 thousand or 2.4% to $30.673 million compared with $29.958 million for the three months ended June 30, 2019. This increase was primarily due to an increase in nonsufficient funds fees.

Noninterest expense was $80.699 million for the three months ended September 30, 2019 compared with $81.760 million for the same period in 2018, a decrease of $1.061 million or 1.3%. This change was primarily due to decreases in regulatory assessments and FDIC insurance and other noninterest expense, partially offset by an increase in salaries and benefits. On a linked quarter basis, noninterest expense decreased $122 thousand or 0.2% to $80.699 million compared with $80.821 million for the three months ended June 30, 2019.

Results of Operations for the Nine Months Ended September 30, 2019

Net income was $246.418 million⁽⁴⁾ for the nine months ended September 30, 2019 compared with $238.481 million⁽⁵⁾ for the same period in 2018, an increase of $7.937 million or 3.3%. Net income per diluted common share was $3.55 for the nine months ended September 30, 2019 compared with $3.42 for the same period in 2018, an increase of 3.8%. Annualized returns on average assets, average common equity and average tangible common equity for the nine months ended September 30, 2019 were 1.47%, 7.95% and 14.94%⁽¹⁾, respectively. Prosperity’s efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 43.46%⁽¹⁾ for the nine months ended September 30, 2019.

Net interest income before provision for credit losses for the nine months ended September 30, 2019 was $463.739 million compared with $472.345 million for the same period in 2018, a decrease of $8.606 million or 1.8%. This change was primarily due to higher rates on deposits, lower investment securities balances, a decrease in loan discount accretion and the collection of previously identified troubled assets during the second quarter of 2018. This change was partially offset by an increase in loan balances and higher loan yields.

The net interest margin on a tax equivalent basis for the nine months ended September 30, 2019 was 3.17% compared with 3.20% for the same period in 2018. This change was primarily due to a decrease in loan discount accretion of $6.703 million and the collection of previously identified troubled assets during the second quarter of 2018.

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Noninterest income was $88.775 million for the nine months ended September 30, 2019 compared with $86.933 million for the same period in 2018, an increase of $1.842 million or 2.1%. This increase was primarily due to an increase in other noninterest income.

Noninterest expense was $240.091 million for the nine months ended September 30, 2019 compared with $245.416 million for the same period in 2018, a decrease of $5.325 million or 2.2%. This change was primarily due to decreases in regulatory assessments and FDIC insurance and other noninterest expense.

Balance Sheet Information

At September 30, 2019, Prosperity had $22.093 billion in total assets, a decrease of $519.766 million or 2.3%, compared with $22.613 billion at September 30, 2018.

Loans at September 30, 2019 were $10.673 billion, an increase of $380.499 million or 3.7%, compared with $10.293 billion at September 30, 2018. Linked quarter loans increased $85.970 million or 0.8% (3.2% annualized) from $10.587 billion at June 30, 2019.

Deposits at September 30, 2019 were $16.930 billion, an increase of $196.156 million or 1.2%, compared with $16.734 billion at September 30, 2018. Linked quarter deposits increased $42.291 million or 0.3% from $16.888 billion at June 30, 2019.

Asset Quality

Nonperforming assets totaled $51.157 million or 0.26% of quarterly average interest-earning assets at September 30, 2019, compared with $16.777 million or 0.08% of quarterly average interest-earning assets at September 30, 2018, and $41.558 million or 0.21% of quarterly average interest-earning assets at June 30, 2019. The increase during the third quarter 2019 was primarily due to the addition of two commercial real estate loans.

The allowance for credit losses was $87.061 million or 0.82% of total loans at September 30, 2019, $85.996 million or 0.84% of total loans at September 30, 2018 and $87.006 million or 0.82% of total loans at June 30, 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 0.85%⁽¹⁾ of remaining loans as of September 30, 2019, compared with 0.88%⁽¹⁾ at September 30, 2018 and 0.86%⁽¹⁾ at June 30, 2019.

The provision for credit losses was $1.100 million for the three months ended September 30, 2019 compared with $2.350 million for the three months ended September 30, 2018 and $800 thousand for the three months ended June 30, 2019. The provision for credit losses was $2.600 million for the nine months ended September 30, 2019 compared with $15.350 million for the nine months ended September 30, 2018.

Net charge-offs were $1.046 million for the three months ended September 30, 2019 compared with net charge-offs of $1.318 million for the three months ended September 30, 2018 and net recoveries of $115 thousand for the three months ended June 30, 2019. Net charge-offs were $1.980 million for the nine months ended September 30, 2019 compared with $13.395 million for the nine months ended September 30, 2018.

Dividend

Prosperity Bancshares declared a fourth quarter cash dividend of $0.46 per share to be paid on January 2, 2020 to all shareholders of record as of December 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. Prosperity Bancshares repurchased 654.6 thousand shares of its common stock at an average weighted price of $63.59 per share during the three months ended September 30, 2019 and 1.473 million shares of its common stock at an average weighted price of $64.10 per share during the nine months ended September 30, 2019.

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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 September 30, 2019, LegacyTexas, on a consolidated basis, reported total assets of $10.5 billion, total gross loans of $9.1 billion and total deposits of $6.5 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, October 23, 2019 at 11:30 a.m. Eastern Time (10:30 a.m. Central Time) to discuss Prosperity’s third quarter 2019 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383 for domestic participants, or 412-902-6506 for international participants. The elite entry number is 6181935.

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 September 30, 2019, Prosperity Bancshares, Inc. ^® is a $22.093 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 financial 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 September 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.

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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 those results or performance to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties 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 merger agreement, the outcome of any legal proceedings that may be instituted against Prosperity 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 benefits 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, including 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 majority 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 business 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 integration 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 publicly 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 contained 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- and six-month periods ended June 30, 2019 and its other filings with the Securities and Exchange Commission (“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- and six-month periods ended June 30, 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 has filed 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 includes a joint proxy statement/prospectus which has been sent to the stockholders of LegacyTexas and the shareholders of 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.

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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 the 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, is included in the joint proxy statement/prospectus regarding the proposed transaction filed with the SEC by Prosperity and LegacyTexas. 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-29th 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 -		4th Street
Southwest Parkway		Sanger		Angleton		66th Street
Tower Point		Waxahachie		Bay City		82nd Street
Wellborn Road		Weatherford		Beaumont		86th Street
				Cleveland		98th 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		23rd 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)

 

 

		Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018
Balance Sheet Data (at period end)
Loans		$	10,673,345			$	10,587,375			$	10,414,022			$	10,370,313			$	10,292,846
Investment securities(A)			8,495,206				8,951,940				9,137,645				9,408,966				9,504,733
Federal funds sold			521				555				566				552				639
Allowance for credit losses			(87,061	)			(87,006	)			(86,091	)			(86,440	)			(85,996	)
Cash and due from banks			420,359				302,069				291,498				410,575				293,831
Goodwill			1,900,845				1,900,845				1,900,845				1,900,845				1,900,845
Core deposit intangibles, net			29,051				30,299				31,564				32,883				34,295
Other real estate owned			815				2,005				2,096				1,805				889
Fixed assets, net			263,703				262,479				257,595				257,046				256,426
Other assets			396,033				424,660				404,501				396,857				414,075
Total assets		$	22,092,817			$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583
Noninterest-bearing deposits		$	5,784,002			$	5,691,236			$	5,673,707			$	5,666,115			$	5,700,242
Interest-bearing deposits			11,145,918				11,196,393				11,524,063				11,590,443				11,033,522
Total deposits			16,929,920				16,887,629				17,197,770				17,256,558				16,733,764
Other borrowings			600,795				940,874				680,952				1,031,126				1,501,207
Securities sold under repurchase agreements			311,404				313,825				254,573				284,720				297,126
Other liabilities			123,892				104,998				111,156				68,174				84,789
Total liabilities			17,966,011				18,247,326				18,244,451				18,640,578				18,616,886
Shareholders' equity(B)			4,126,806				4,127,895				4,109,790				4,052,824				3,995,697
Total liabilities and equity		$	22,092,817			$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583

 

(A) Includes $49, $1,611, $895, $392 and $586 in unrealized gains on available for sale securities for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.

(B) Includes $38, $1,273, $706, $310, and $463 in after-tax unrealized gains on available for sale securities for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.

 

Page 8 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(In thousands)

 

 

		Three Months Ended																				Year-to-Date
		Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Sep 30, 2019				Sep 30, 2018
Income Statement Data
Interest income:
Loans		$	134,943			$	133,525			$	130,065			$	130,627			$	128,645			$	398,533			$	373,336
Securities(C)			50,872				53,944				55,648				56,170				55,705				160,464				165,739
Federal funds sold and other earning assets			363				318				402				397				326				1,083				940
Total interest income			186,178				187,787				186,115				187,194				184,676				560,080				540,015
Interest expense:
Deposits			26,939				26,562				25,128				21,643				19,208				78,629				49,741
Other borrowings			4,335				5,556				5,317				7,639				7,583				15,208				16,602
Securities sold under repurchase agreements			914				831				759				664				566				2,504				1,327
Total interest expense			32,188				32,949				31,204				29,946				27,357				96,341				67,670
Net interest income			153,990				154,838				154,911				157,248				157,319				463,739				472,345
Provision for credit losses			1,100				800				700				1,000				2,350				2,600				15,350
Net interest income after provision for credit losses			152,890				154,038				154,211				156,248				154,969				461,139				456,995
Noninterest income:
Nonsufficient funds (NSF) fees			8,835				7,973				7,816				8,902				8,606				24,624				24,261
Credit card, debit card and ATM card income			6,688				6,480				5,971				6,508				6,242				19,139				18,538
Service charges on deposit accounts			5,020				4,989				4,998				5,090				5,137				15,007				15,562
Trust income			2,492				2,558				2,595				2,507				2,692				7,645				7,671
Mortgage income			839				990				722				627				856				2,551				2,728
Brokerage income			522				541				673				521				784				1,736				2,096
Bank owned life insurance income			1,314				1,321				1,289				1,330				1,326				3,924				3,954
Net (loss) gain on sale of assets			(3	)			2				58				(715	)			4				57				(40	)
Net loss on sale of securities			—				—				—				—				—				—				(13	)
Other noninterest income			4,966				5,104				4,022				4,309				4,977				14,092				12,176
Total noninterest income			30,673				29,958				28,144				29,079				30,624				88,775				86,933
Noninterest expense:
Salaries and benefits			52,978				52,941				51,073				51,852				51,906				156,992				155,665
Net occupancy and equipment			5,607				5,492				5,466				5,651				5,808				16,565				17,109
Credit and debit card, data processing and software amortization			4,989				4,904				4,573				4,474				4,512				14,466				13,316
Regulatory assessments and FDIC insurance			1,814				2,325				2,374				2,764				3,347				6,513				10,497
Core deposit intangibles amortization			1,248				1,265				1,319				1,412				1,478				3,832				4,547
Depreciation			3,286				3,111				3,104				3,139				3,139				9,501				9,226
Communications			2,214				2,183				2,270				2,404				2,442				6,667				7,628
Other real estate expense			68				120				83				110				219				271				391
Net (gain) loss on sale or write-down of other real estate			(115	)			(54	)			(177	)			91				(2	)			(346	)			130
Other noninterest expense			8,610				8,534				8,486				8,907				8,911				25,630				26,907
Total noninterest expense			80,699				80,821				78,571				80,804				81,760				240,091				245,416
Income before income taxes			102,864				103,175				103,784				104,523				103,833				309,823				298,512
Provision for income taxes			21,106				20,917				21,382				21,192				21,310				63,405				60,031
Net income available to common shareholders		$	81,758			$	82,258			$	82,402			$	83,331			$	82,523			$	246,418			$	238,481

 

(C) Interest income on securities was reduced by net premium amortization of $8,027, $7,607, $6,589, $7,338 and $8,073 for the three-month periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively, and $22,223 and $24,276 for the nine-month periods ended September 30, 2019 and September 30, 2018, respectively.

Page 9 of 18

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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
		Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Sep 30, 2019				Sep 30, 2018
Profitability
Net income (D) (E)		$	81,758			$	82,258			$	82,402			$	83,331			$	82,523			$	246,418			$	238,481
Basic earnings per share		$	1.19			$	1.18			$	1.18			$	1.19			$	1.18			$	3.55			$	3.42
Diluted earnings per share		$	1.19			$	1.18			$	1.18			$	1.19			$	1.18			$	3.55			$	3.42
Return on average assets (F)			1.47	%			1.46	%			1.46	%			1.47	%			1.46	%			1.47	%			1.41	%
Return on average common equity (F)			7.89	%			7.92	%			8.05	%			8.25	%			8.30	%			7.95	%			8.11	%
Return on average tangible common equity (F) (G)			14.77	%			14.82	%			15.24	%			15.84	%			16.17	%			14.94	%			16.03	%
Tax equivalent net interest margin (D) (E) (H)			3.16	%			3.16	%			3.20	%			3.15	%			3.15	%			3.17	%			3.20	%
Efficiency ratio (G) (I)			43.70	%			43.74	%			42.94	%			43.20	%			43.50	%			43.46	%			43.88	%
Liquidity and Capital Ratios
Equity to assets			18.68	%			18.45	%			18.38	%			17.86	%			17.67	%			18.68	%			17.67	%
Common equity tier 1 capital			16.68	%			16.59	%			16.76	%			16.32	%			15.94	%			16.68	%			15.94	%
Tier 1 risk-based capital			16.68	%			16.59	%			16.76	%			16.32	%			15.94	%			16.68	%			15.94	%
Total risk-based capital			17.34	%			17.25	%			17.42	%			16.99	%			16.60	%			17.34	%			16.60	%
Tier 1 leverage capital			10.86	%			10.67	%			10.59	%			10.23	%			9.94	%			10.86	%			9.94	%
Period end tangible equity to period end tangible assets (G)			10.90	%			10.75	%			10.66	%			10.21	%			9.97	%			10.90	%			9.97	%
Other Data
Weighted-average shares used in computing earnings per common share
Basic			68,738				69,806				69,847				69,838				69,838				69,463				69,815
Diluted			68,738				69,806				69,847				69,838				69,838				69,463				69,815
Period end shares outstanding			68,397				69,261				69,846				69,847				69,838				68,397				69,838
Cash dividends paid per common share		$	0.41			$	0.41			$	0.41			$	0.41			$	0.36			$	1.23			$	1.08
Book value per common share		$	60.34			$	59.60			$	58.84			$	58.02			$	57.21			$	60.34			$	57.21
Tangible book value per common share (G)		$	32.12			$	31.72			$	31.17			$	30.34			$	29.50			$	32.12			$	29.50
Common Stock Market Price
High		$	71.86			$	74.50			$	75.36			$	72.24			$	76.25			$	75.36			$	79.20
Low		$	62.17			$	61.85			$	61.65			$	57.01			$	67.27			$	61.65			$	67.27
Period end closing price		$	70.63			$	66.05			$	69.06			$	62.30			$	69.35			$	70.63			$	69.35
Employees – FTE			3,044				3,046				3,065				3,036				3,029				3,044				3,029
Number of banking centers			243				243				242				242				242				243				242

 

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

	Three Months Ended										Year-to-Date
	Sep 30, 2019		Jun 30, 2019		Mar 31, 2019		Dec 31, 2018		Sep 30, 2018		Sep 30, 2019		Sep 30, 2018
Loan discount accretion
ASC 310-20	$1,006		$880		$1,474		$1,289		$1,287		$3,360		$4,379
ASC 310-30	$277		$347		$319		$1,614		$2,170		$943		$6,627
Securities net amortization	$157		$255		$234		$270		$291		$646		$1,134
Time deposits amortization	—		—		—		—		—		—		$106

 

 

(E) Using effective tax rate of 20.5%, 20.3%, 20.6%, 20.3% and 20.5% for the three-month periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively, and 20.5% and 20.1% for the nine-month periods ended September 30, 2019 and September 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 10 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

 

YIELD ANALYSIS		Three Months Ended
		Sep 30, 2019												Jun 30, 2019												Sep 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		$	10,610,349			$	134,943			5.05%				$	10,520,425			$	133,525			5.09%				$	10,208,171			$	128,645			5.00%
Investment securities			8,758,056				50,872			2.30%			(K)		9,185,877				53,944			2.36%			(K)		9,647,744				55,705			2.29%			(K)
Federal funds sold and other earning assets			74,751				363			1.93%					64,335				318			1.98%					67,974				326			1.90%
Total interest-earning assets			19,443,156				186,178			3.80%					19,770,637				187,787			3.81%					19,923,889				184,676			3.68%
Allowance for credit losses			(86,996	)											(86,158	)											(85,254	)
Noninterest-earning assets			2,849,936												2,842,478												2,820,156
Total assets		$	22,206,096											$	22,526,957											$	22,658,791
Interest-Bearing Liabilities:
Interest-bearing demand deposits		$	3,575,249			$	5,602			0.62%				$	3,714,968			$	5,813			0.63%				$	3,676,452			$	4,699			0.51%
Savings and money market deposits			5,524,277				12,588			0.90%					5,647,494				12,722			0.90%					5,465,143				9,206			0.67%
Certificates and other time deposits			2,083,803				8,749			1.67%					2,057,033				8,027			1.57%					2,055,652				5,303			1.02%
Other borrowings			749,814				4,335			2.29%					883,557				5,556			2.52%					1,447,328				7,583			2.08%
Securities sold under repurchase agreements			315,277				914			1.15%					288,666				831			1.15%					288,706				566			0.78%
Total interest-bearing liabilities			12,248,420				32,188			1.04%			(L)		12,591,718				32,949			1.05%			(L)		12,933,281				27,357			0.84%			(L)
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			5,701,419												5,674,615												5,646,183
Other liabilities			111,526												108,246												102,092
Total liabilities			18,061,365												18,374,579												18,681,556
Shareholders' equity			4,144,731												4,152,378												3,977,235
Total liabilities and shareholders' equity		$	22,206,096											$	22,526,957											$	22,658,791
Net interest income and margin						$	153,990			3.14%								$	154,838			3.14%								$	157,319			3.13%
Non-GAAP to GAAP reconciliation:
Tax equivalent adjustment							791												827												879
Net interest income and margin (tax equivalent basis)						$	154,781			3.16%								$	155,665			3.16%								$	158,198			3.15%

 

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

(K) Yield on securities was impacted by net premium amortization of $8,027, $7,607 and $8,073 for the three-month periods ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively.

(L) Total cost of funds, including noninterest bearing deposits, was 0.71%, 0.72% and 0.58% for the three months ended September 30, 2019, June 30 and September 30, 2018, respectively.

 

 

 

Page 11 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

YIELD ANALYSIS		Year-to-Date
		Sep 30, 2019												Sep 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		$	10,508,469			$	398,533			5.07%				$	10,081,649			$	373,336			4.95%
Investment securities			9,079,314				160,464			2.36%			(N)		9,720,089				165,739			2.28%			(N)
Federal funds sold and other earning assets			70,320				1,083			2.06%					76,516				940			1.64%
Total interest-earning assets			19,658,103				560,080			3.81%					19,878,254				540,015			3.63%
Allowance for credit losses			(86,556	)											(83,853	)
Noninterest-earning assets			2,852,098												2,817,700
Total assets		$	22,423,645											$	22,612,101
Interest-Bearing Liabilities:
Interest-bearing demand deposits		$	3,810,765			$	18,227			0.64%				$	4,010,724			$	14,745			0.49%
Savings and money market deposits			5,548,375				36,494			0.88%					5,428,577				21,157			0.52%
Certificates and other time deposits			2,067,940				23,908			1.55%					2,105,807				13,839			0.88%
Other borrowings			825,733				15,208			2.46%					1,152,909				16,602			1.93%
Securities sold under repurchase agreements			292,347				2,504			1.15%					305,297				1,327			0.58%
Total interest-bearing liabilities			12,545,160				96,341			1.03%			(O)		13,003,314				67,670			0.70%			(O)
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			5,645,145												5,601,370
Other liabilities			102,299												86,301
Total liabilities			18,292,604												18,690,985
Shareholders' equity			4,131,041												3,921,116
Total liabilities and shareholders' equity		$	22,423,645											$	22,612,101
Net interest income and margin						$	463,739			3.15%								$	472,345			3.18%
Non-GAAP to GAAP reconciliation:
Tax equivalent adjustment							2,481												2,723
Net interest income and margin (tax equivalent basis)						$	466,220			3.17%								$	475,068			3.20%

 

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

(N) Yield on securities was impacted by net premium amortization of $22,223 and $24,276 for the nine-month periods ended September 30, 2019 and 2018, respectively.

(O) Total cost of funds, including noninterest bearing deposits, was 0.71% and 0.49% for the nine-month periods ended September 30, 2019 and 2018, respectively.

Page 12 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

  

	Three Months Ended
	Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018
YIELD TREND (P)
Interest-Earning Assets:
Loans		5.05	%			5.09	%			5.08	%			5.02	%			5.00	%
Investment securities (Q)		2.30	%			2.36	%			2.43	%			2.35	%			2.29	%
Federal funds sold and other earning assets		1.93	%			1.98	%			2.27	%			1.57	%			1.90	%
Total interest-earning assets		3.80	%			3.81	%			3.82	%			3.73	%			3.68	%
Interest-Bearing Liabilities:
Interest-bearing demand deposits		0.62	%			0.63	%			0.67	%			0.57	%			0.51	%
Savings and money market deposits		0.90	%			0.90	%			0.83	%			0.73	%			0.67	%
Certificates and other time deposits		1.67	%			1.57	%			1.40	%			1.23	%			1.02	%
Other borrowings		2.29	%			2.52	%			2.55	%			2.34	%			2.08	%
Securities sold under repurchase agreements		1.15	%			1.15	%			1.13	%			0.92	%			0.78	%
Total interest-bearing liabilities		1.04	%			1.05	%			0.99	%			0.93	%			0.84	%
Net Interest Margin		3.14	%			3.14	%			3.18	%			3.13	%			3.13	%
Net Interest Margin (tax equivalent)		3.16	%			3.16	%			3.20	%			3.15	%			3.15	%

 

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

(Q) Yield on securities was impacted by net premium amortization of $8,027, $7,607, $6,589, $7,338 and $8,073 for the three-month periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.

 

Page 13 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

 

		Three Months Ended
		Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018
Balance Sheet Averages
Loans		$	10,610,349			$	10,520,425			$	10,392,235			$	10,319,596			$	10,208,171
Investment securities			8,758,056				9,185,877				9,299,963				9,499,166				9,647,744
Federal funds sold and other earning assets			74,751				64,335				71,842				100,339				67,974
Total interest-earning assets			19,443,156				19,770,637				19,764,040				19,919,101				19,923,889
Allowance for credit losses			(86,996	)			(86,158	)			(86,507	)			(86,464	)			(85,254	)
Cash and due from banks			230,986				227,653				266,316				252,481				232,643
Goodwill			1,900,845				1,900,845				1,900,845				1,900,845				1,900,845
Core deposit intangibles, net			29,682				30,933				32,243				33,580				35,041
Other real estate			997				2,053				2,100				1,325				9,193
Fixed assets, net			263,495				260,054				257,811				257,726				256,458
Other assets			423,931				420,940				404,724				415,412				385,976
Total assets		$	22,206,096			$	22,526,957			$	22,541,572			$	22,694,006			$	22,658,791
Noninterest-bearing deposits		$	5,701,419			$	5,674,615			$	5,557,821			$	5,785,882			$	5,646,183
Interest-bearing demand deposits			3,575,249				3,714,968				4,148,377				3,720,133				3,676,452
Savings and money market deposits			5,524,277				5,647,494				5,472,789				5,382,699				5,465,143
Certificates and other time deposits			2,083,803				2,057,033				2,062,753				2,087,871				2,055,652
Total deposits			16,884,748				17,094,110				17,241,740				16,976,585				16,843,430
Other borrowings			749,814				883,557				844,873				1,297,917				1,447,328
Securities sold under repurchase agreements			315,277				288,666				272,630				285,984				288,706
Other liabilities			111,526				108,246				86,868				95,124				102,092
Shareholders' equity			4,144,731				4,152,378				4,095,461				4,038,396				3,977,235
Total liabilities and equity		$	22,206,096			$	22,526,957			$	22,541,572			$	22,694,006			$	22,658,791

 

Page 14 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

		Sep 30, 2019							Jun 30, 2019							Mar 31, 2019							Dec 31, 2018							Sep 30, 2018
Period End Balances
Loan Portfolio
Commercial and industrial		$	1,120,913			10.5	%		$	1,158,657			10.9	%		$	1,117,753			10.7	%		$	1,111,089			10.7	%		$	1,159,735			11.3	%
Construction, land development and other land loans			1,764,648			16.5	%			1,739,308			16.4	%			1,709,283			16.4	%			1,622,289			15.7	%			1,560,142			15.2	%
1-4 family residential			2,472,907			23.2	%			2,456,506			23.2	%			2,444,434			23.5	%			2,438,949			23.5	%			2,440,157			23.7	%
Home equity			250,775			2.3	%			256,772			2.4	%			262,276			2.5	%			267,960			2.6	%			273,608			2.7	%
Commercial real estate (includes multi-family residential)			3,652,176			34.3	%			3,551,668			33.6	%			3,496,688			33.6	%			3,538,557			34.1	%			3,507,223			34.1	%
Agriculture (includes farmland)			729,585			6.8	%			736,470			7.0	%			708,348			6.8	%			729,501			7.0	%			705,750			6.8	%
Consumer and other			342,839			3.2	%			321,023			3.0	%			294,405			2.8	%			289,486			2.8	%			281,112			2.7	%
Energy			339,502			3.2	%			366,971			3.5	%			380,835			3.7	%			372,482			3.6	%			365,119			3.5	%
Total loans		$	10,673,345						$	10,587,375						$	10,414,022						$	10,370,313						$	10,292,846
Deposit Types
Noninterest-bearing DDA		$	5,784,002			34.2	%		$	5,691,236			33.7	%		$	5,673,707			33.0	%		$	5,666,115			32.8	%		$	5,700,242			34.1	%
Interest-bearing DDA			3,564,419			21.0	%			3,530,581			20.9	%			3,875,109			22.5	%			4,124,412			23.9	%			3,551,456			21.2	%
Money market			3,457,728			20.4	%			3,438,164			20.3	%			3,302,445			19.2	%			3,115,531			18.1	%			3,100,310			18.5	%
Savings			2,027,621			12.0	%			2,158,159			12.8	%			2,293,134			13.3	%			2,271,170			13.2	%			2,291,952			13.7	%
Certificates and other time deposits			2,096,150			12.4	%			2,069,489			12.3	%			2,053,375			12.0	%			2,079,330			12.0	%			2,089,804			12.5	%
Total deposits		$	16,929,920						$	16,887,629						$	17,197,770						$	17,256,558						$	16,733,764
Loan to Deposit Ratio			63.0	%						62.7	%						60.6	%						60.1	%						61.5	%

Page 15 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

 

Construction Loans

		Sep 30, 2019							Jun 30, 2019							Mar 31, 2019							Dec 31, 2018							Sep 30, 2018
Single family residential construction		$	462,714			26.2	%		$	446,868			25.7	%		$	454,041			26.5	%		$	441,487			27.2	%		$	422,738			27.1	%
Land development			80,711			4.6	%			87,825			5.0	%			84,562			4.9	%			89,226			5.5	%			89,357			5.7	%
Raw land			171,609			9.7	%			168,531			9.7	%			156,674			9.2	%			152,516			9.4	%			137,400			8.8	%
Residential lots			123,265			7.0	%			121,586			7.0	%			119,301			7.0	%			124,429			7.6	%			122,366			7.8	%
Commercial lots			102,084			5.8	%			105,633			6.1	%			92,683			5.4	%			92,234			5.7	%			95,982			6.1	%
Commercial construction and other			825,001			46.7	%			809,680			46.5	%			802,996			47.0	%			723,740			44.6	%			693,917			44.5	%
Net unaccreted discount			(736	)						(815	)						(974	)						(1,343	)						(1,618	)
Total construction loans		$	1,764,648						$	1,739,308						$	1,709,283						$	1,622,289						$	1,560,142

 

 

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

	Houston				Dallas				Austin				OK City				Tulsa				Other (R)				Total
Collateral Type
Shopping center/retail	$	261,581			$	63,644			$	24,892			$	14,627			$	31,282			$	141,383			$	537,409
Commercial and industrial buildings		122,025				33,309				13,649				10,703				20,765				78,210				278,661
Office buildings		79,109				117,264				62,387				43,436				6,416				73,076				381,688
Medical buildings		31,474				3,906				12,995				22,664				26,402				49,687				147,128
Apartment buildings		50,346				13,781				16,319				11,125				8,920				126,836				227,327
Hotel		50,726				83,816				23,287				30,905				-				129,757				318,491
Other		49,895				14,731				16,608				10,781				4,667				84,401				181,083
Total	$	645,156			$	330,451			$	170,137			$	144,241			$	98,452			$	683,350			$	2,071,787		(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 Jun 30, 2019				Balance at Sep 30, 2019				Balance at Acquisition Date				Balance at Jun 30, 2019				Balance at Sep 30, 2019				Balance at Acquisition Date				Balance at Jun 30, 2019				Balance at Sep 30, 2019
Loan marks:
Acquired banks (T)		$	229,080			$	12,479			$	11,473			$	142,128			$	2,165			$	1,888			$	371,208			$	14,644			$	13,361
Acquired portfolio loan balances:
Acquired banks (T)			5,690,998				467,645				431,319				275,221				10,110				9,630				5,966,219		(U)		477,755				440,949
Acquired portfolio loan balances less loan marks		$	5,461,918			$	455,166			$	419,846			$	133,093			$	7,945			$	7,742			$	5,595,011			$	463,111			$	427,588

 

 

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

(S) Represents a portion of total commercial real estate loans of $3.652 billion as of September 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 16 of 18

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Prosperity Bancshares, Inc.^®

Financial Highlights (Unaudited)

(Dollars in thousands)

  

	Three Months Ended																				Year-to-Date
	Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Sep 30, 2019				Sep 30, 2018
Asset Quality
Nonaccrual loans	$	49,973			$	37,289			$	37,491			$	13,147			$	13,399			$	49,973			$	13,399
Accruing loans 90 or more days past due		341				1,594				647				4,004				2,379				341				2,379
Total nonperforming loans		50,314				38,883				38,138				17,151				15,778				50,314				15,778
Repossessed assets		28				670				649				—				110				28				110
Other real estate		815				2,005				2,096				1,805				889				815				889
Total nonperforming assets	$	51,157			$	41,558			$	40,883			$	18,956			$	16,777			$	51,157			$	16,777
Nonperforming assets:
Commercial and industrial (includes energy)	$	15,974			$	17,592			$	17,119			$	4,435			$	6,620			$	15,974			$	6,620
Construction, land development and other land loans		874				2,296				1,488				3,100				2,046				874				2,046
1-4 family residential (includes home equity)		19,600				16,641				17,508				8,135				4,527				19,600				4,527
Commercial real estate (includes multi-family residential)		14,384				4,352				4,166				2,982				3,254				14,384				3,254
Agriculture (includes farmland)		285				616				542				256				262				285				262
Consumer and other		40				61				60				48				68				40				68
Total	$	51,157			$	41,558			$	40,883			$	18,956			$	16,777			$	51,157			$	16,777
Number of loans/properties		89				92				84				83				83				89				83
Allowance for credit losses at end of period	$	87,061			$	87,006			$	86,091			$	86,440			$	85,996			$	87,061			$	85,996
Net charge-offs (Recoveries):
Commercial and industrial (includes energy)	$	(83	)		$	(828	)		$	1,719			$	(685	)		$	657			$	808			$	9,720
Construction, land development and other land loans		(6	)			7				-				97				(1	)			1				121
1-4 family residential (includes home equity)		(9	)			11				(3	)			42				11				(1	)			382
Commercial real estate (includes multi-family residential)		(1	)			(1	)			(1	)			34				(10	)			(3	)			1,478
Agriculture (includes farmland)		278				46				(1,278	)			(54	)			(113	)			(954	)			(219	)
Consumer and other		867				650				612				1,122				774				2,129				1,913
Total	$	1,046			$	(115	)		$	1,049			$	556			$	1,318			$	1,980			$	13,395
Asset Quality Ratios
Nonperforming assets to average interest-earning assets		0.26	%			0.21	%			0.21	%			0.10	%			0.08	%			0.26	%			0.08	%
Nonperforming assets to loans and other real estate		0.48	%			0.39	%			0.39	%			0.18	%			0.16	%			0.48	%			0.16	%
Net charge-offs to average loans (annualized)		0.04	%		—					0.04	%			0.02	%			0.05	%			0.03	%			0.18	%
Allowance for credit losses to total loans		0.82	%			0.82	%			0.83	%			0.83	%			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)		0.85	%			0.86	%			0.87	%			0.88	%			0.88	%			0.85	%			0.88	%

 

Page 17 of 18

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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
		Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Sep 30, 2019				Sep 30, 2018
Reconciliation of return on average common equity to return on average tangible common equity:
Net income		$	81,758			$	82,258			$	82,402			$	83,331			$	82,523			$	246,418			$	238,481
Average shareholders' equity		$	4,144,731			$	4,152,378			$	4,095,461			$	4,038,396			$	3,977,235			$	4,131,041			$	3,921,116
Less: Average goodwill and other intangible assets			(1,930,527	)			(1,931,778	)			(1,933,088	)			(1,934,425	)			(1,935,886	)			(1,931,788	)			(1,937,386	)
Average tangible shareholders’ equity		$	2,214,204			$	2,220,600			$	2,162,373			$	2,103,971			$	2,041,349			$	2,199,253			$	1,983,730
Return on average tangible common equity (F)			14.77	%			14.82	%			15.24	%			15.84	%			16.17	%			14.94	%			16.03	%
Reconciliation of book value per share to tangible book value per share:
Shareholders’ equity		$	4,126,806			$	4,127,895			$	4,109,790			$	4,052,824			$	3,995,697			$	4,126,806			$	3,995,697
Less: Goodwill and other intangible assets			(1,929,896	)			(1,931,144	)			(1,932,409	)			(1,933,728	)			(1,935,140	)			(1,929,896	)			(1,935,140	)
Tangible shareholders’ equity		$	2,196,910			$	2,196,751			$	2,177,381			$	2,119,096			$	2,060,557			$	2,196,910			$	2,060,557
Period end shares outstanding			68,397				69,261				69,846				69,847				69,838				68,397				69,838
Tangible book value per share:		$	32.12			$	31.72			$	31.17			$	30.34			$	29.50			$	32.12			$	29.50
Reconciliation of equity to assets ratio to period end tangible equity to period end tangible assets ratio:
Tangible shareholders’ equity		$	2,196,910			$	2,196,751			$	2,177,381			$	2,119,096			$	2,060,557			$	2,196,910			$	2,060,557
Total assets		$	22,092,817			$	22,375,221			$	22,354,241			$	22,693,402			$	22,612,583			$	22,092,817			$	22,612,583
Less: Goodwill and other intangible assets			(1,929,896	)			(1,931,144	)			(1,932,409	)			(1,933,728	)			(1,935,140	)			(1,929,896	)			(1,935,140	)
Tangible assets		$	20,162,921			$	20,444,077			$	20,421,832			$	20,759,674			$	20,677,443			$	20,162,921			$	20,677,443
Period end tangible equity to period end tangible assets ratio:			10.90	%			10.75	%			10.66	%			10.21	%			9.97	%			10.90	%			9.97	%
Reconciliation of allowance for credit losses to total loans to allowance for credit losses to total loans, excluding acquired loans:
Allowance for credit losses		$	87,061			$	87,006			$	86,091			$	86,440			$	85,996			$	87,061			$	85,996
Total loans		$	10,673,345			$	10,587,375			$	10,414,022			$	10,370,313			$	10,292,846			$	10,673,345			$	10,292,846
Less: Fair value of acquired loans (acquired portfolio loan balances less loan marks)		$	427,588			$	463,111			$	485,415			$	520,595			$	572,095			$	427,588			$	572,095
Total loans less acquired loans		$	10,245,757			$	10,124,264			$	9,928,607			$	9,849,718			$	9,720,751			$	10,245,757			$	9,720,751
Allowance for credit losses to total loans, excluding acquired loans (non-GAAP basis)			0.85	%			0.86	%			0.87	%			0.88	%			0.88	%			0.85	%			0.88	%
Reconciliation of efficiency ratio to efficiency ratio, excluding net gains and losses on the sale of assets and securities:
Noninterest expense		$	80,699			$	80,821			$	78,571			$	80,804			$	81,760			$	240,091			$	245,416
Net interest income		$	153,990			$	154,838			$	154,911			$	157,248			$	157,319			$	463,739			$	472,345
Noninterest income			30,673				29,958				28,144				29,079				30,624				88,775				86,933
Less: net (loss) gain on sale of assets			(3	)			2				58				(715	)			4				57				(40	)
Less: net loss on sale of securities			—				—				—				—				—				—				(13	)
Noninterest income excluding net gains and losses on the sale of assets and securities			30,676				29,956				28,086				29,794				30,620				88,718				86,986
Total income excluding net gains and losses on the sale of assets and securities		$	184,666			$	184,794			$	182,997			$	187,042			$	187,939			$	552,457			$	559,331
Efficiency ratio, excluding net gains and losses on the sale of assets and securities			43.70	%			43.74	%			42.94	%			43.20	%			43.50	%			43.46	%			43.88	%

 

Page 18 of 18