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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, 2021

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 November 1, 2021, there were 92,164,955 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, 2021 (unaudited) and December 31, 2020

3

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)

4

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)

5

 

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)

6

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

53

Item 4.

Controls and Procedures

53

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

54

Item 4.

Mine Safety Disclosures

54

Item 5.

Other Information

54

Item 6.

Exhibits

55

Signatures

56

                                                                                                                                    

 

 

2


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

 

 

(Dollars in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,055,386

 

 

$

1,342,996

 

Federal funds sold

 

 

237

 

 

 

553

 

Total cash and cash equivalents

 

 

1,055,623

 

 

 

1,343,549

 

Available for sale securities, at fair value

 

 

580,929

 

 

 

651,514

 

Held to maturity securities, at cost (fair value of $12,186,114 and $8,039,142, respectively)

 

 

12,048,439

 

 

 

7,891,306

 

Total securities

 

 

12,629,368

 

 

 

8,542,820

 

Loans held for sale

 

 

10,197

 

 

 

46,777

 

Loans held for investment

 

 

16,949,486

 

 

 

17,357,788

 

Loans held for investment - Warehouse Purchase Program

 

 

1,998,049

 

 

 

2,842,379

 

Total loans

 

 

18,957,732

 

 

 

20,246,944

 

Less: allowance for credit losses on loans

 

 

(287,187

)

 

 

(316,068

)

Loans, net

 

 

18,670,545

 

 

 

19,930,876

 

Accrued interest receivable

 

 

71,651

 

 

 

82,068

 

Goodwill

 

 

3,231,636

 

 

 

3,231,636

 

Core deposit intangibles, net

 

 

64,539

 

 

 

73,235

 

Bank premises and equipment, net

 

 

322,799

 

 

 

323,572

 

Other real estate owned

 

 

150

 

 

 

10,593

 

Bank owned life insurance (BOLI)

 

 

326,830

 

 

 

324,356

 

Federal Home Loan Bank of Dallas stock

 

 

8,901

 

 

 

8,901

 

Other assets

 

 

130,077

 

 

 

187,669

 

TOTAL ASSETS

 

$

36,512,119

 

 

$

34,059,275

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

10,326,489

 

 

$

9,151,233

 

Interest-bearing

 

 

19,125,163

 

 

 

18,209,259

 

Total deposits

 

 

29,451,652

 

 

 

27,360,492

 

Fed funds purchased and other borrowings

 

 

 

 

 

 

Securities sold under repurchase agreements

 

 

440,969

 

 

 

389,583

 

Subordinated notes

 

 

 

 

 

 

Accrued interest payable

 

 

1,499

 

 

 

3,462

 

Allowance for credit losses on off-balance sheet credit exposures

 

 

29,947

 

 

 

29,947

 

Other liabilities

 

 

242,611

 

 

 

145,122

 

Total liabilities

 

 

30,166,678

 

 

 

27,928,606

 

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; 92,160,455 shares issued and outstanding at September 30, 2021; 92,570,789 shares issued and outstanding at December 31, 2020

 

 

92,161

 

 

 

92,571

 

Capital surplus

 

 

3,591,949

 

 

 

3,634,140

 

Retained earnings

 

 

2,659,370

 

 

 

2,403,189

 

Accumulated other comprehensive income —net unrealized gain on available for sale securities, net of tax expense of $521 and $205, respectively

 

 

1,961

 

 

 

769

 

Total shareholders’ equity

 

 

6,345,441

 

 

 

6,130,669

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

36,512,119

 

 

$

34,059,275

 

 

 

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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

213,821

 

 

$

244,255

 

 

$

663,699

 

 

$

734,270

 

Securities

 

 

46,217

 

 

 

38,033

 

 

 

128,602

 

 

 

130,091

 

Federal funds sold and other earning assets

 

 

302

 

 

 

144

 

 

 

993

 

 

 

902

 

Total interest income

 

 

260,340

 

 

 

282,432

 

 

 

793,294

 

 

 

865,263

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

11,578

 

 

 

22,458

 

 

 

44,228

 

 

 

82,745

 

Other borrowings

 

 

 

 

 

52

 

 

 

 

 

 

3,517

 

Securities sold under repurchase agreements

 

 

195

 

 

 

309

 

 

 

518

 

 

 

1,403

 

Subordinated notes

 

 

 

 

 

1,500

 

 

 

 

 

 

4,499

 

Total interest expense

 

 

11,773

 

 

 

24,319

 

 

 

44,746

 

 

 

92,164

 

NET INTEREST INCOME

 

 

248,567

 

 

 

258,113

 

 

 

748,548

 

 

 

773,099

 

PROVISION FOR CREDIT LOSSES

 

 

 

 

 

10,000

 

 

 

 

 

 

20,000

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

 

248,567

 

 

 

248,113

 

 

 

748,548

 

 

 

753,099

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonsufficient funds (NSF) fees

 

 

7,962

 

 

 

7,156

 

 

 

21,209

 

 

 

22,244

 

Credit card, debit card and ATM card income

 

 

8,837

 

 

 

8,315

 

 

 

25,786

 

 

 

23,052

 

Service charges on deposit accounts

 

 

6,115

 

 

 

5,920

 

 

 

18,155

 

 

 

17,814

 

Trust income

 

 

2,467

 

 

 

2,502

 

 

 

7,580

 

 

 

7,406

 

Mortgage income

 

 

1,396

 

 

 

2,958

 

 

 

7,617

 

 

 

6,788

 

Brokerage income

 

 

861

 

 

 

628

 

 

 

2,367

 

 

 

1,862

 

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

 

 

255

 

 

 

(528

)

 

 

(68

)

 

 

(4,858

)

Other

 

 

6,752

 

 

 

7,973

 

 

 

21,563

 

 

 

20,679

 

Total noninterest income

 

 

34,645

 

 

 

34,924

 

 

 

104,209

 

 

 

94,987

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

78,412

 

 

 

75,068

 

 

 

234,060

 

 

 

231,459

 

Net occupancy and equipment

 

 

8,165

 

 

 

8,644

 

 

 

24,044

 

 

 

26,814

 

Credit and debit card, data processing and software amortization

 

 

9,103

 

 

 

8,776

 

 

 

26,054

 

 

 

31,887

 

Regulatory assessments and FDIC insurance

 

 

2,497

 

 

 

2,512

 

 

 

7,837

 

 

 

7,191

 

Core deposit intangibles amortization

 

 

2,878

 

 

 

3,270

 

 

 

8,696

 

 

 

9,926

 

Depreciation

 

 

4,524

 

 

 

4,605

 

 

 

13,577

 

 

 

13,971

 

Communications

 

 

3,013

 

 

 

3,027

 

 

 

8,894

 

 

 

9,546

 

Net other real estate expense (income)

 

 

34

 

 

 

121

 

 

 

(2,250

)

 

 

81

 

Merger related expenses

 

 

 

 

 

 

 

 

 

 

 

8,018

 

Other

 

 

11,189

 

 

 

11,896

 

 

 

33,170

 

 

 

38,135

 

Total noninterest expense

 

 

119,815

 

 

 

117,919

 

 

 

354,082

 

 

 

377,028

 

INCOME BEFORE INCOME TAXES

 

 

163,397

 

 

 

165,118

 

 

 

498,675

 

 

 

471,058

 

PROVISION FOR INCOME TAXES

 

 

34,807

 

 

 

35,054

 

 

 

106,165

 

 

 

79,245

 

NET INCOME

 

$

128,590

 

 

$

130,064

 

 

$

392,510

 

 

$

391,813

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.39

 

 

$

1.40

 

 

$

4.23

 

 

$

4.20

 

Diluted

 

$

1.39

 

 

$

1.40

 

 

$

4.23

 

 

$

4.20

 

 

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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Net income

 

$

128,590

 

 

$

130,064

 

 

$

392,510

 

 

$

391,813

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains (losses) during the period

 

 

1,089

 

 

 

1,325

 

 

 

1,509

 

 

 

(1,204

)

Total other comprehensive income (loss)

 

 

1,089

 

 

 

1,325

 

 

 

1,509

 

 

 

(1,204

)

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

 

 

(229

)

 

 

(278

)

 

 

(317

)

 

 

253

 

Other comprehensive income (loss), net of tax

 

 

860

 

 

 

1,047

 

 

 

1,192

 

 

 

(951

)

Comprehensive income

 

$

129,450

 

 

$

131,111

 

 

$

393,702

 

 

$

390,862

 

 

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, 2021

 

 

92,934,789

 

 

$

92,935

 

 

$

3,640,266

 

 

$

2,576,035

 

 

$

1,101

 

 

$

6,310,337

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

128,590

 

 

 

 

 

 

 

128,590

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

860

 

 

 

860

 

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

 

 

(7,200

)

 

 

(7

)

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchase

 

 

(767,134

)

 

 

(767

)

 

 

(51,322

)

 

 

 

 

 

 

 

 

 

 

(52,089

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

2,998

 

 

 

 

 

 

 

 

 

 

 

2,998

 

Cash dividends declared, $0.49 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,255

)

 

 

 

 

 

 

(45,255

)