Market Overview

Prosperity Bancshares, Inc.® Reports Third Quarter 2017 Earnings

Share:

- Third quarter earnings per common share (diluted) of $0.98

- Third quarter net income of $67.908 million

- Nonperforming assets remain low at 0.24% of third quarter average interest-earning assets

- Return (annualized) on third quarter average assets of 1.22%

- Returns (annualized) on third quarter average common equity of 7.20% and average tangible common equity of 14.83%‍(1)

- Loans increased 4.0% (annualized) as of September 30, 2017 (year-to-date)

- Increase in dividend of 5.9% to $0.36 per share for the fourth quarter 2017

HOUSTON, Oct. 25, 2017 /PRNewswire/ -- Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank® (collectively, "Prosperity"), reported net income for the quarter ended September 30, 2017 of $67.908 million or $0.98 per diluted common share. Additionally, nonperforming assets remain low at 0.24% of third quarter average interest-earning assets.

"Texas accounts for 8.8% of the U.S. GDP and 8.4% of the U.S. nonfarm employment.  It is the largest exporting state in the U.S. and is home to more than 50 Fortune 500 companies.  When a natural disaster such as Hurricane Harvey strikes several areas of the state, it can have a far-reaching impact," said David Zalman, Prosperity's Chairman and Chief Executive Officer. 

"Hurricane Harvey made landfall near Rockport, Texas on Friday, August 25 and continued to impact the Houston and Beaumont areas through much of the following week.   Within seven days after landfall, we had 91% of affected banking centers open (86 of 94) and today, every banking center except one is open for business," continued Zalman.

"Our lenders have visited with every loan relationship we have in the affected areas in excess of $1 million.  The vast majority of our customers affected had flood insurance and/or business interruption insurance.  We did however make a small provision this quarter given the increased risk on loan performance and the possibility of some adverse economic impact from the storm," added Zalman.

"During the first two quarters of  2017, we experienced approximately 5% annualized organic loan growth, however, given the distraction of the Hurricane and recovery process, organic loan growth for the third quarter was approximately 1.9% annualized.  Our fee income was also slightly impacted this quarter as we waived certain ATM, overdraft and late payment fees for customers in the affected areas," stated Zalman.

"We are pleased with our results for the third quarter considering the challenges in some of our areas.  The Federal Reserve Bank of Dallas expects that the fourth quarter will show a rebound in economic activity that will more than offset the economic decline in the third quarter.  We are excited about the opportunities we have for the fourth quarter," concluded Zalman.

Results of Operations for the Three Months Ended September 30, 2017

Net income was $67.908 million(2) for the three months ended September 30, 2017 compared with $68.651 million(3) for the same period in 2016. Net income per diluted common share was $0.98 for the three months ended September 30, 2017 compared with $0.99 for the same period in 2016. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended September 30, 2017 were 1.22%, 7.20% and 14.83%(1), respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 41.92%(1) for the three months ended September 30, 2017.

Net interest income before provision for credit losses for the three months ended September 30, 2017 was $156.147 million compared with $154.064 million during the same period in 2016, an increase of $2.083 million or 1.4%. This change was primarily due to an increase in the average balance and yield on interest-earning assets, partially offset by an increase in the average rate on interest-bearing liabilities. Linked quarter net interest income before provision for credit losses increased $3.916 million or 2.6% to $156.147 million compared with $152.231 million during the three months ended June 30, 2017. This increase was primarily due to an increase in loan discount accretion of $3.415 million.

The net interest margin on a tax equivalent basis was 3.22% for the three months ended September 30, 2017 compared with 3.29% for the same period in 2016. This change was primarily due to an increase in the average rates on interest-bearing liabilities. On a linked quarter basis, the net interest margin was 3.22% compared with 3.14% for the three months ended June 30, 2017. This increase was primarily due to an increase in loan discount accretion.

Noninterest income was $28.809 million for the three months ended September 30, 2017 compared with $29.684 million for the same period in 2016, a decrease of $875 thousand or 2.9%. This change was primarily due to a decrease in mortgage income. On a linked quarter basis, noninterest income increased $1.029 million or 3.7% compared with the three months ended June 30, 2017. This change was primarily due to an increase in other noninterest income and NSF fees.

Noninterest expense was $77.509 million for the three months ended September 30, 2017 compared with $79.476 million for the same period in 2016, a decrease of $1.967 million or 2.5%. This change was primarily due to a decrease in amortization of core deposit intangibles and salaries and benefits. On a linked quarter basis, noninterest expense increased $1.067 million or 1.4% compared with the three months ended June 30, 2017. This increase was primarily due to an increase in salaries and benefits and other noninterest expense.

Results of Operations for the Nine Months Ended September 30, 2017

Net income was $205.027 million(4) for the nine months ended September 30, 2017 compared with $205.673 million(5) for the same period in 2016.  Net income per diluted common share was $2.95 for the nine months ended September 30, 2017 and 2016. Annualized returns on average assets, average common equity and average tangible common equity for the nine months ended September 30, 2017 were 1.22%, 7.34% and 15.34%(1), respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 42.42%(1) for the nine months ended September 30, 2017.

Net interest income before provision for credit losses for the nine months ended September 30, 2017 was $460.813 million compared with $478.788 million for the same period in 2016, a decrease of $17.975 million or 3.8%. This change was primarily due to a decrease in loan discount accretion of $14.308 million.

The net interest margin on a tax equivalent basis for the nine months ended September 30, 2017 was 3.18% compared with 3.38% for the same period in 2016. This change was primarily due to a decrease in loan discount accretion and an increase in the average rate on interest-bearing liabilities.

Noninterest income was $87.413 million for the nine months ended September 30, 2017 compared with $88.950 million for the same period in 2016, a decrease of $1.537 million or 1.7%. This change was primarily due to the net loss on sale of assets and a decrease in brokerage and mortgage income, partially offset by a gain on sale of securities and an increase in service charges on deposit accounts.

Noninterest expense was $232.013 million for the nine months ended September 30, 2017 compared with $239.239 million for the same period in 2016, a decrease of $7.226 million or 3.0%.  This change was primarily due to decreases in salaries and benefits, core deposit intangibles amortization and communications expense.










(1)

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.

(2)

Includes purchase accounting adjustments of $4.903 million, net of tax, primarily comprised of loan discount accretion of $7.886 million for the three months ended September 30, 2017.

(3)

Includes purchase accounting adjustments of $4.796 million, net of tax, primarily comprised of loan discount accretion of $7.620 million for the three months ended September 30, 2016.

(4)

Includes purchase accounting adjustments of $10.138 million, net of tax, primarily comprised of loan discount accretion of $17.110 million for the nine months ended September 30, 2017.

(5)

Includes purchase accounting adjustments of $19.220 million, net of tax, primarily comprised of loan discount accretion of $31.418 million for the nine months ended September 30, 2016.

Balance Sheet Information

At September 30, 2017, Prosperity had $22.143 billion in total assets, an increase of $739.219 million or 3.5%, compared with $21.404 billion at September 30, 2016.

Loans at September 30, 2017 were $9.911 billion, an increase of $362.888 million or 3.8%, compared with $9.548 billion at September 30, 2016. Linked quarter loans increased $47.183 million or 0.5% (1.9% annualized) from $9.864 billion at June 30, 2017.

As part of its commercial and industrial lending activities, Prosperity extends credit to oil and gas production and service companies. Oil and gas production loans are loans to companies directly involved in the exploration and/or production of oil and gas. Oil and gas service loans are loans to companies that provide services for oil and gas production and exploration. At September 30, 2017, oil and gas loans totaled $291.827 million or 2.9% of total loans, of which $106.524 million were to production companies and $185.303 million were to service companies. This compares with total oil and gas loans of $308.951 million or 3.2% of total loans at September 30, 2016, of which $139.913 million were to production companies and $169.038 million were to service companies. At June 30, 2017, oil and gas loans totaled $287.815 million or 2.9% of total loans, of which $115.358 million were production loans and $172.457 million were service loans.

Deposits at September 30, 2017 were $16.907 billion, a decrease of $13.933 million or 0.1%, compared with $16.921 billion at September 30, 2016. Linked quarter deposits decreased $163.054 million or 1.0% from $17.071 billion at June 30, 2017.

Asset Quality

Nonperforming assets totaled $45.823 million or 0.24% of quarterly average interest-earning assets at September 30, 2017, compared with $60.166 million or 0.32% of quarterly average interest-earning assets at September 30, 2016, and $47.618 million or 0.24% of quarterly average interest-earning assets at June 30, 2017.

The allowance for credit losses was $86.812 million or 0.88% of total loans at September 30, 2017, $85.585 million or 0.90% of total loans at September 30, 2016 and $83.783 million or 0.85% of total loans at June 30, 2017.  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 0.95%(1) of remaining loans as of September 30, 2017, compared with 1.03%(1) at September 30, 2016 and 0.93%(1) at June 30, 2017.

The provision for credit losses was $6.900 million for the three months ended September 30, 2017 compared with $2.000 million for the three months ended September 30, 2016 and $2.750 million for the three months ended June 30, 2017.  The provision for credit losses was $12.325 million for the nine months ended September 30, 2017 compared with $22.000 million for the nine months ended September 30, 2016.

Net charge-offs were $3.871 million for the three months ended September 30, 2017 compared with $241 thousand for the three months ended September 30, 2016 and $3.062 million for the three months ended June 30, 2017. Net charge-offs for the third quarter of 2017 were primarily comprised of two commercial and industrial loans.  Net charge-offs were $10.839 million for the nine months ended September 30, 2017 compared with $17.799 million for the nine months ended September 30, 2016.

Dividend

Prosperity Bancshares, Inc. declared a fourth quarter cash dividend of $0.36 per share, to be paid on January 2, 2018 to all shareholders of record as of December 15, 2017, an increase of 5.9% compared with the third quarter 2017 dividend.

Hurricane Harvey

On August 25, 2017, Hurricane Harvey came ashore in Rockport, Texas impacting numerous communities along the Texas Gulf coast. Prosperity Bank operates 94 banking centers in the Houston and South Texas areas, which include Beaumont, Corpus Christi and Victoria. All except one of those banking centers are currently operational. As of September 30, 2017, we have experienced manageable financial impact related to Hurricane Harvey.

Conference Call

Prosperity's management team will host a conference call on Wednesday, October 25, 2017 at 10:30 a.m. Eastern Time (9:30 a.m. Central Time) to discuss Prosperity's third quarter 2017 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383. The elite entry number is 4077605.

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 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 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, 2017, Prosperity Bancshares, Inc. ® is a $22.143 billion Houston, Texas based regional financial holding company, formed in 1983. Operating under a community banking philosophy and seeking to develop broad customer relationships based on service and convenience, Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at www.prosperitybankusa.com, Retail Brokerage Services, Credit Cards, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services, Cash Management and Mobile Banking.

As of September 30, 2017, Prosperity operated 243 full-service banking locations: 65 in the Houston area, including The Woodlands; 29 in the South Texas area including Corpus Christi and Victoria; 34 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.

PROSPERITY BANCSHARES, INC. (PRNewsfoto/Prosperity Bancshares, Inc.)

Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity's management on the conference call may contain, forward-looking statements within the meaning of the securities laws. Forward-looking statements include all statements other than statements of historical fact, including forecasts or trends, and are based on current expectations, assumptions, estimates and projections about Prosperity Bancshares and its subsidiaries.  These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity's control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements.  These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks; continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives.  Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity's securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate, interest rate and commodity price fluctuations; and weather.  These and various other factors are discussed in Prosperity Bancshares' Annual Report on Form 10-K for the year ended December 31, 2016 and other reports and statements Prosperity Bancshares has filed with the SEC. Copies of the SEC filings for Prosperity Bancshares may be downloaded from the Internet at no charge from http://www.prosperitybankusa.com.

 

Bryan/College Station Area -


Fort Worth -


Waugh Drive


Taft

Bryan


Haltom City


Westheimer


Yoakum

Bryan-29th Street


Keller


West University


Yorktown

Bryan-East


Roanoke


Woodcreek



Bryan-North


Stockyards




West Texas Area -

Caldwell




Katy -


Abilene -

College Station


Other Dallas/Fort Worth Area


Cinco Ranch


Antilley Road

Crescent Point


Locations -


Katy-Spring Green


Barrow Street

Hearne


Arlington




Cypress Street

Huntsville


Azle


The Woodlands -


Judge Ely

Madisonville


Ennis


The Woodlands-College Park


Mockingbird

Navasota


Gainesville


The Woodlands-I-45



New Waverly


Glen Rose


The Woodlands-Research Forest


Lubbock -

Rock Prairie


Granbury




4th Street

Southwest Parkway


Mesquite


Other Houston Area


66th Street

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