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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-35388

 

PROSPERITY BANCSHARES, INC.®

(Exact name of registrant as specified in its charter)

 

 

Texas

74-2331986

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

Prosperity Bank Plaza

 

4295 San Felipe, Houston, Texas

77027

(Address of principal executive offices)

(Zip Code)

 

(281) 269-7199

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $1.00 per share

 

PB

 

New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer

☒

 

Accelerated Filer

☐

 

 

 

 

 

Non-accelerated Filer

☐

 

Smaller Reporting Company

☐

 

 

 

 

 

 

 

 

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 30, 2023, there were 93,714,954 outstanding shares of the registrant’s Common Stock, par value $1.00 per share.

 

 

 

 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022

3

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

59

Item 4.

Controls and Procedures

59

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61

Signatures

62

 

 

2

 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

 

 

(Dollars in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

512,239

 

 

$

423,832

 

Federal funds sold

 

 

234

 

 

 

301

 

Total cash and cash equivalents

 

 

512,473

 

 

 

424,133

 

Available for sale securities, at fair value

 

 

446,165

 

 

 

456,502

 

Held to maturity securities, at cost (fair value of $10,834,219 and $12,387,125, respectively)

 

 

12,746,577

 

 

 

14,019,503

 

Total securities

 

 

13,192,742

 

 

 

14,476,005

 

Loans held for sale

 

 

10,187

 

 

 

554

 

Loans held for investment

 

 

20,510,199

 

 

 

18,098,653

 

Loans held for investment - Warehouse Purchase Program

 

 

912,327

 

 

 

740,620

 

Total loans

 

 

21,432,713

 

 

 

18,839,827

 

Less: allowance for credit losses on loans

 

 

(351,495

)

 

 

(281,576

)

Loans, net

 

 

21,081,218

 

 

 

18,558,251

 

Accrued interest receivable

 

 

97,006

 

 

 

88,438

 

Goodwill

 

 

3,396,459

 

 

 

3,231,636

 

Core deposit intangibles, net

 

 

67,553

 

 

 

51,348

 

Bank premises and equipment, net

 

 

370,237

 

 

 

339,453

 

Other real estate owned

 

 

9,320

 

 

 

1,963

 

Bank owned life insurance (BOLI)

 

 

379,498

 

 

 

327,439

 

Federal Home Loan Bank of Dallas stock

 

 

69,541

 

 

 

90,025

 

Other assets

 

 

119,637

 

 

 

101,138

 

TOTAL ASSETS

 

$

39,295,684

 

 

$

37,689,829

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

10,281,893

 

 

$

10,915,448

 

Interest-bearing

 

 

17,030,907

 

 

 

17,618,083

 

Total deposits

 

 

27,312,800

 

 

 

28,533,531

 

Other borrowings

 

 

4,250,000

 

 

 

1,850,000

 

Securities sold under repurchase agreements

 

 

300,714

 

 

 

428,134

 

Subordinated debentures

 

 

—

 

 

 

—

 

Accrued interest payable

 

 

79,561

 

 

 

4,495

 

Allowance for credit losses on off-balance sheet credit exposures

 

 

36,503

 

 

 

29,947

 

Other liabilities

 

 

283,429

 

 

 

144,348

 

Total liabilities

 

 

32,263,007

 

 

 

30,990,455

 

COMMITMENTS AND CONTINGENCIES

 

 

—

 

 

 

—

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

Preferred stock, $1 par value; 20,000,000 shares authorized; none issued or outstanding

 

 

—

 

 

 

—

 

Common stock, $1 par value; 200,000,000 shares authorized; 93,717,454 issued and outstanding at September 30, 2023; 91,313,615 shares issued and outstanding at December 31, 2022

 

 

93,718

 

 

 

91,314

 

Capital surplus

 

 

3,700,675

 

 

 

3,541,924

 

Retained earnings

 

 

3,240,214

 

 

 

3,069,609

 

Accumulated other comprehensive loss —net unrealized loss on available for sale securities, net of tax benefit of $(513) and $(923), respectively

 

 

(1,930

)

 

 

(3,473

)

Total shareholders’ equity

 

 

7,032,677

 

 

 

6,699,374

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

39,295,684

 

 

$

37,689,829

 

 

 

See notes to consolidated financial statements.

 

3

 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

308,678

 

 

$

210,268

 

 

$

842,434

 

 

$

596,063

 

Securities

 

 

69,987

 

 

 

68,761

 

 

 

215,225

 

 

 

187,883

 

Federal funds sold and other earning assets

 

 

1,689

 

 

 

525

 

 

 

10,452

 

 

 

2,297

 

Total interest income

 

 

380,354

 

 

 

279,554

 

 

 

1,068,111

 

 

 

786,243

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

76,069

 

 

 

14,669

 

 

 

187,376

 

 

 

32,064

 

Other borrowings

 

 

62,190

 

 

 

3,719

 

 

 

153,937

 

 

 

4,169

 

Securities sold under repurchase agreements

 

 

2,533

 

 

 

487

 

 

 

7,310

 

 

 

916

 

Subordinated debentures

 

 

38

 

 

 

—

 

 

 

38

 

 

 

—

 

Total interest expense

 

 

140,830

 

 

 

18,875

 

 

 

348,661

 

 

 

37,149

 

NET INTEREST INCOME

 

 

239,524

 

 

 

260,679

 

 

 

719,450

 

 

 

749,094

 

PROVISION FOR CREDIT LOSSES

 

 

—

 

 

 

—

 

 

 

18,540

 

 

 

—

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

 

239,524

 

 

 

260,679

 

 

 

700,910

 

 

 

749,094

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Nonsufficient funds (NSF) fees

 

 

8,719

 

 

 

8,887

 

 

 

25,326

 

 

 

25,495

 

Credit card, debit card and ATM card income

 

 

9,285

 

 

 

8,889

 

 

 

27,157

 

 

 

25,948

 

Service charges on deposit accounts

 

 

6,262

 

 

 

6,222

 

 

 

18,266

 

 

 

18,798

 

Trust income

 

 

3,326

 

 

 

3,174

 

 

 

9,909

 

 

 

8,752

 

Mortgage income

 

 

857

 

 

 

340

 

 

 

1,756

 

 

 

1,297

 

Brokerage income

 

 

1,067

 

 

 

940

 

 

 

3,216

 

 

 

2,749

 

Net (loss) gain on sale or write-down of assets

 

 

(45

)

 

 

50

 

 

 

2,070

 

 

 

1,847

 

Other

 

 

9,272

 

 

 

6,186

 

 

 

28,997

 

 

 

22,518

 

Total noninterest income

 

 

38,743

 

 

 

34,688

 

 

 

116,697

 

 

 

107,404

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

85,423

 

 

 

79,578

 

 

 

247,944

 

 

 

239,360

 

Net occupancy and equipment

 

 

9,464

 

 

 

8,412

 

 

 

26,424

 

 

 

24,299

 

Credit and debit card, data processing and software amortization

 

 

10,919

 

 

 

9,516

 

 

 

30,829

 

 

 

27,611

 

Regulatory assessments and FDIC insurance

 

 

5,155

 

 

 

2,807

 

 

 

15,225

 

 

 

8,508

 

Core deposit intangibles amortization

 

 

3,576

 

 

 

2,577

 

 

 

9,117

 

 

 

7,778

 

Depreciation

 

 

4,585

 

 

 

4,436

 

 

 

13,676

 

 

 

13,522

 

Communications

 

 

3,686

 

 

 

3,374

 

 

 

10,841

 

 

 

9,499

 

Net other real estate income

 

 

(581

)

 

 

(15

)

 

 

(1,033

)

 

 

(213

)

Merger related expenses

 

 

1,104

 

 

 

—

 

 

 

14,855

 

 

 

—

 

Other

 

 

12,326

 

 

 

11,529

 

 

 

36,649

 

 

 

34,578

 

Total noninterest expense

 

 

135,657

 

 

 

122,214

 

 

 

404,527

 

 

 

364,942

 

INCOME BEFORE INCOME TAXES

 

 

142,610

 

 

 

173,153

 

 

 

413,080

 

 

 

491,556

 

PROVISION FOR INCOME TAXES

 

 

30,402

 

 

 

37,333

 

 

 

89,240

 

 

 

104,920

 

NET INCOME

 

$

112,208

 

 

$

135,820

 

 

$

323,840

 

 

$

386,636

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.20

 

 

$

1.49

 

 

$

3.50

 

 

$

4.22

 

Diluted

 

$

1.20

 

 

$

1.49

 

 

$

3.50

 

 

$

4.22

 

 

See notes to consolidated financial statements.

 

4

 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Dollars in thousands)

 

Net income

 

$

112,208

 

 

$

135,820

 

 

$

323,840

 

 

$

386,636

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized income (loss) during the period

 

 

951

 

 

 

(1,813

)

 

 

1,953

 

 

 

(2,587

)

Total other comprehensive income (loss)

 

 

951

 

 

 

(1,813

)

 

 

1,953

 

 

 

(2,587

)

Deferred tax (expense) benefit related to other comprehensive income (loss)

 

 

(200

)

 

 

380

 

 

 

(410

)

 

 

543

 

Other comprehensive income (loss), net of tax

 

 

751

 

 

 

(1,433

)

 

 

1,543

 

 

 

(2,044

)

Comprehensive income

 

$

112,959

 

 

$

134,387

 

 

$

325,383

 

 

$

384,592

 

 

See notes to consolidated financial statements.

 

5

 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Capital

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Surplus

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

 

(In thousands, except share and per share data)

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2023

 

 

93,721,454

 

 

$

93,722

 

 

$

3,697,524

 

 

$

3,179,551

 

 

$

(2,681

)

 

$

6,968,116

 

Net income

 

 

 

 

 

 

 

 

 

 

 

112,208

 

 

 

 

 

 

112,208

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

751

 

 

 

751

 

Common stock issued in connection with the issuance (forfeiture) of restricted stock awards, net

 

 

(4,000

)

 

 

(4

)

 

 

4

 

 

 

 

 

 

 

 

 

—

 

Stock based compensation expense

 

 

 

 

 

 

 

 

3,147

 

 

 

 

 

 

 

 

 

3,147

 

Cash dividends declared, $0.55 per share

 

 

 

 

 

 

 

 

 

 

 

(51,545

)

 

 

 

 

 

(51,545

)

BALANCE AT SEPTEMBER 30, 2023

 

 

93,717,454

 

 

$

93,718

 

 

$

3,700,675

 

 

$

3,240,214

 

 

$

(1,930

)

 

$

7,032,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2022

 

 

91,313,615

 

 

$

91,314

 

 

$

3,541,924

 

 

$

3,069,609

 

 

$

(3,473

)

 

$

6,699,374

 

Net income

 

 

 

 

 

 

 

 

 

 

 

323,840

 

 

 

 

 

 

323,840

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,543

 

 

 

1,543

 

Common stock issued in connection with the issuance of restricted stock awards, net

 

 

27,200

 

 

 

27

 

 

 

(27

)

 

 

 

 

 

 

 

 

—

 

Common stock issued in connection with the acquisition of First Bancshares of Texas, Inc.

 

 

3,582,675

 

 

 

3,583

 

 

 

220,764

 

 

 

 

 

 

 

 

 

224,347

 

Common stock repurchase

 

 

(1,206,036

)

 

 

(1,206

)

 

 

(71,042

)

 

 

 

 

 

 

 

 

(72,248

)

Stock based compensation expense

 

 

 

 

 

 

 

 

9,056

 

 

 

 

 

 

 

 

 

9,056

 

Cash dividends declared, $1.65 per share