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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, 2024

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 4, 2024, there were 95,264,666 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, 2024 (unaudited) and December 31, 2023

3

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

61

Item 4.

Controls and Procedures

61

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

63

Signatures

64

 

 

2

 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

 

 

(Dollars in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

2,209,863

 

 

$

458,153

 

Federal funds sold

 

 

208

 

 

 

260

 

Total cash and cash equivalents

 

 

2,210,071

 

 

 

458,413

 

Available for sale securities, at fair value

 

 

331,414

 

 

 

438,588

 

Held to maturity securities, at cost (fair value of $9,964,060 and $10,984,598, respectively)

 

 

10,969,342

 

 

 

12,365,308

 

Total securities

 

 

11,300,756

 

 

 

12,803,896

 

Loans held for sale

 

 

6,113

 

 

 

5,734

 

Loans held for investment

 

 

21,146,033

 

 

 

20,352,559

 

Loans held for investment - Warehouse Purchase Program

 

 

1,228,706

 

 

 

822,245

 

Total loans

 

 

22,380,852

 

 

 

21,180,538

 

Less: allowance for credit losses on loans

 

 

(354,397

)

 

 

(332,362

)

Loans, net

 

 

22,026,455

 

 

 

20,848,176

 

Accrued interest receivable

 

 

107,534

 

 

 

96,327

 

Goodwill

 

 

3,504,388

 

 

 

3,396,086

 

Core deposit intangibles, net

 

 

70,178

 

 

 

63,994

 

Bank premises and equipment, net

 

 

373,812

 

 

 

369,992

 

Other real estate owned

 

 

5,757

 

 

 

1,708

 

Bank owned life insurance (BOLI)

 

 

384,228

 

 

 

379,447

 

Federal Home Loan Bank of Dallas stock

 

 

10,184

 

 

 

8,750

 

Other assets

 

 

121,957

 

 

 

121,088

 

TOTAL ASSETS

 

$

40,115,320

 

 

$

38,547,877

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

9,811,361

 

 

$

9,776,572

 

Interest-bearing

 

 

18,276,250

 

 

 

17,403,237

 

Total deposits

 

 

28,087,611

 

 

 

27,179,809

 

Other borrowings

 

 

3,900,000

 

 

 

3,725,000

 

Securities sold under repurchase agreements

 

 

228,896

 

 

 

309,277

 

Subordinated debentures

 

 

—

 

 

 

—

 

Accrued interest payable

 

 

174,229

 

 

 

34,819

 

Allowance for credit losses on off-balance sheet credit exposures

 

 

37,646

 

 

 

36,503

 

Other liabilities

 

 

325,689

 

 

 

183,139

 

Total liabilities

 

 

32,754,071

 

 

 

31,468,547

 

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; 95,260,666 issued and outstanding at September 30, 2024; 93,722,383 shares issued and outstanding at December 31, 2023

 

 

95,261

 

 

 

93,723

 

Capital surplus

 

 

3,793,435

 

 

 

3,703,795

 

Retained earnings

 

 

3,473,398

 

 

 

3,283,210

 

Accumulated other comprehensive loss —net unrealized loss on available for sale securities, net of tax benefit of $(225) and $(372), respectively

 

 

(845

)

 

 

(1,398

)

Total shareholders’ equity

 

 

7,361,249

 

 

 

7,079,330

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

40,115,320

 

 

$

38,547,877

 

 

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

337,451

 

 

$

308,678

 

 

$

980,107

 

 

$

842,434

 

Securities

 

 

59,617

 

 

 

69,987

 

 

 

188,466

 

 

 

215,225

 

Federal funds sold and other earning assets

 

 

20,835

 

 

 

1,689

 

 

 

44,195

 

 

 

10,452

 

Total interest income

 

 

417,903

 

 

 

380,354

 

 

 

1,212,768

 

 

 

1,068,111

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

107,758

 

 

 

76,069

 

 

 

306,574

 

 

 

187,376

 

Other borrowings

 

 

46,792

 

 

 

62,190

 

 

 

142,020

 

 

 

153,937

 

Securities sold under repurchase agreements

 

 

1,662

 

 

 

2,533

 

 

 

5,453

 

 

 

7,310

 

Subordinated debentures

 

 

—

 

 

 

38

 

 

 

—

 

 

 

38

 

Total interest expense

 

 

156,212

 

 

 

140,830

 

 

 

454,047

 

 

 

348,661

 

NET INTEREST INCOME

 

 

261,691

 

 

 

239,524

 

 

 

758,721

 

 

 

719,450

 

PROVISION FOR CREDIT LOSSES

 

 

—

 

 

 

—

 

 

 

9,066

 

 

 

18,540

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

 

261,691

 

 

 

239,524

 

 

 

749,655

 

 

 

700,910

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Nonsufficient funds (NSF) fees

 

 

9,016

 

 

 

8,719

 

 

 

25,457

 

 

 

25,326

 

Credit card, debit card and ATM card income

 

 

9,620

 

 

 

9,285

 

 

 

27,865

 

 

 

27,157

 

Service charges on deposit accounts

 

 

6,664

 

 

 

6,262

 

 

 

19,506

 

 

 

18,266

 

Trust income

 

 

3,479

 

 

 

3,326

 

 

 

11,236

 

 

 

9,909

 

Mortgage income

 

 

962

 

 

 

857

 

 

 

2,317

 

 

 

1,756

 

Brokerage income

 

 

1,258

 

 

 

1,067

 

 

 

3,679

 

 

 

3,216

 

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

 

 

3,178

 

 

 

(45

)

 

 

2,240

 

 

 

2,070

 

Net gain on sale or write-up of securities

 

 

224

 

 

 

—

 

 

 

11,245

 

 

 

—

 

Other

 

 

6,698

 

 

 

9,272

 

 

 

22,427

 

 

 

28,997

 

Total noninterest income

 

 

41,099

 

 

 

38,743

 

 

 

125,972

 

 

 

116,697

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

88,367

 

 

 

85,423

 

 

 

263,722

 

 

 

247,944

 

Net occupancy and equipment

 

 

9,291

 

 

 

9,464

 

 

 

26,829

 

 

 

26,424

 

Credit and debit card, data processing and software amortization

 

 

11,985

 

 

 

10,919

 

 

 

34,958

 

 

 

30,829

 

Regulatory assessments and FDIC insurance

 

 

5,726

 

 

 

5,155

 

 

 

21,581

 

 

 

15,225

 

Core deposit intangibles amortization

 

 

4,146

 

 

 

3,576

 

 

 

11,539

 

 

 

9,117

 

Depreciation

 

 

4,741

 

 

 

4,585

 

 

 

14,263

 

 

 

13,676

 

Communications

 

 

3,360

 

 

 

3,686

 

 

 

10,247

 

 

 

10,841

 

Net other real estate income

 

 

(85

)

 

 

(581

)

 

 

64

 

 

 

(1,033

)

Merger related expenses

 

 

63

 

 

 

1,104

 

 

 

4,444

 

 

 

14,855

 

Other

 

 

12,744

 

 

 

12,326

 

 

 

41,381

 

 

 

36,649

 

Total noninterest expense

 

 

140,338

 

 

 

135,657

 

 

 

429,028

 

 

 

404,527

 

INCOME BEFORE INCOME TAXES

 

 

162,452

 

 

 

142,610

 

 

 

446,599

 

 

 

413,080

 

PROVISION FOR INCOME TAXES

 

 

35,170

 

 

 

30,402

 

 

 

97,289

 

 

 

89,240

 

NET INCOME

 

$

127,282

 

 

$

112,208

 

 

$

349,310

 

 

$

323,840

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.34

 

 

$

1.20

 

 

$

3.68

 

 

$

3.50

 

Diluted

 

$

1.34

 

 

$

1.20

 

 

$

3.68

 

 

$

3.50

 

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands)

 

Net income

 

$

127,282

 

 

$

112,208

 

 

$

349,310

 

 

$

323,840

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain during the period

 

 

938

 

 

 

951

 

 

 

700

 

 

 

1,953

 

Total other comprehensive income

 

 

938

 

 

 

951

 

 

 

700

 

 

 

1,953

 

Deferred tax expense related to other comprehensive income

 

 

(197

)

 

 

(200

)

 

 

(147

)

 

 

(410

)

Other comprehensive income, net of tax

 

 

741

 

 

 

751

 

 

 

553

 

 

 

1,543

 

Comprehensive income

 

$

128,023

 

 

$

112,959

 

 

$

349,863

 

 

$

325,383

 

 

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, 2024

 

 

95,262,416

 

 

$

95,263

 

 

$

3,790,305

 

 

$

3,399,462

 

 

$

(1,586

)

 

$

7,283,444

 

Net income

 

 

 

 

 

 

 

 

 

 

 

127,282

 

 

 

 

 

 

127,282

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

741

 

 

 

741

 

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

 

 

(1,750

)

 

 

(2

)

 

 

2

 

 

 

 

 

 

 

 

 

—

 

Stock based compensation expense

 

 

 

 

 

 

 

 

3,128

 

 

 

 

 

 

 

 

 

3,128

 

Cash dividends declared, $0.56 per share

 

 

 

 

 

 

 

 

 

 

 

(53,346

)

 

 

 

 

 

(53,346

)

BALANCE AT SEPTEMBER 30, 2024

 

 

95,260,666

 

 

$

95,261

 

 

$

3,793,435

 

 

$

3,473,398

 

 

$

(845

)

 

$

7,361,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2023

 

 

93,722,383

 

 

$

93,723

 

 

$

3,703,795

 

 

$

3,283,210

 

 

$

(1,398

)

 

$

7,079,330

 

Net income

 

 

 

 

 

 

 

 

 

 

 

349,310

 

 

 

 

 

 

349,310

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

553

 

 

 

553

 

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

 

 

400,350

 

 

 

400

 

 

 

(400

)

 

 

 

 

 

 

 

 

—

 

Common stock issued in connection with the acquisition of Lone Star State Bancshares, Inc.

 

 

2,376,143

 

 

 

2,376

 

 

 

153,927

 

 

 

 

 

 

 

 

 

156,303

 

Common stock repurchase

 

 

(1,238,210

)

 

 

(1,238

)

 

 

(73,528

)

 

 

 

 

 

 

 

 

(74,766

)

Stock based compensation expense

 

 

 

 

 

 

 

 

9,641

 

 

 

 

 

 

 

 

 

9,641

 

Cash dividends declared, $1.68 per share

 

 

 

 

 

 

 

 

 

 

 

(159,122

)

 

 

 

 

 

(159,122

)

BALANCE AT SEPTEMBER 30, 2024

 

 

95,260,666

 

 

$

95,261

 

 

$

3,793,435

 

 

$

3,473,398

 

 

$

(845

)

 

$

7,361,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

(153,235

)

 

 

 

 

 

(153,235

)

BALANCE AT SEPTEMBER 30, 2023

 

 

93,717,454

 

 

$

93,718

 

 

$

3,700,675

 

 

$

3,240,214

 

 

$

(1,930

)

 

$

7,032,677

 

 

See notes to consolidated financial statements.

6

 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

349,310

 

 

$

323,840

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and core deposit intangibles amortization

 

 

25,802

 

 

 

22,793

 

Provision for credit losses

 

 

9,066

 

 

 

18,540

 

Net amortization of premium on investments

 

 

17,227

 

 

 

21,412

 

Net gain on sale or write-up of securities

 

 

(11,245

)

 

 

—

 

Net gain on sale of other real estate and repossessed assets

 

 

(204

)

 

 

(780

)

Net gain on sale or write-down of assets

 

 

(2,240

)

 

 

(2,070

)

Net accretion of discount on loans

 

 

(13,879

)

 

 

(5,566

)

Net amortization of premium on deposits

 

 

(133

)

 

 

(450