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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 March 31, 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 May 6, 2024, there were 95,937,934 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 March 31, 2024 (unaudited) and December 31, 2023

3

Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023 (unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

6

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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

32

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4.

Controls and Procedures

54

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

55

Item 1A.

Risk Factors

55

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

56

Signatures

57

 

 

2


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

 

 

(Dollars in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

1,086,444

 

 

$

458,153

 

Federal funds sold

 

 

250

 

 

 

260

 

Total cash and cash equivalents

 

 

1,086,694

 

 

 

458,413

 

Available for sale securities, at fair value

 

 

315,300

 

 

 

438,588

 

Held to maturity securities, at cost (fair value of $10,478,359 and $10,984,598, respectively)

 

 

11,985,838

 

 

 

12,365,308

 

Total securities

 

 

12,301,138

 

 

 

12,803,896

 

Loans held for sale

 

 

6,380

 

 

 

5,734

 

Loans held for investment

 

 

20,393,943

 

 

 

20,352,559

 

Loans held for investment - Warehouse Purchase Program

 

 

864,924

 

 

 

822,245

 

Total loans

 

 

21,265,247

 

 

 

21,180,538

 

Less: allowance for credit losses on loans

 

 

(330,219

)

 

 

(332,362

)

Loans, net

 

 

20,935,028

 

 

 

20,848,176

 

Accrued interest receivable

 

 

97,671

 

 

 

96,327

 

Goodwill

 

 

3,396,402

 

 

 

3,396,086

 

Core deposit intangibles, net

 

 

60,757

 

 

 

63,994

 

Bank premises and equipment, net

 

 

372,333

 

 

 

369,992

 

Other real estate owned

 

 

2,204

 

 

 

1,708

 

Bank owned life insurance (BOLI)

 

 

380,615

 

 

 

379,447

 

Federal Home Loan Bank of Dallas stock

 

 

8,750

 

 

 

8,750

 

Other assets

 

 

114,928

 

 

 

121,088

 

TOTAL ASSETS

 

$

38,756,520

 

 

$

38,547,877

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

9,526,535

 

 

$

9,776,572

 

Interest-bearing

 

 

17,648,983

 

 

 

17,403,237

 

Total deposits

 

 

27,175,518

 

 

 

27,179,809

 

Other borrowings

 

 

3,900,000

 

 

 

3,725,000

 

Securities sold under repurchase agreements

 

 

261,671

 

 

 

309,277

 

Accrued interest payable

 

 

75,871

 

 

 

34,819

 

Allowance for credit losses on off-balance sheet credit exposures

 

 

36,503

 

 

 

36,503

 

Other liabilities

 

 

202,413

 

 

 

183,139

 

Total liabilities

 

 

31,651,976

 

 

 

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; 93,525,291 issued and outstanding at March 31, 2024; 93,722,383 shares issued and outstanding at December 31, 2023

 

 

93,525

 

 

 

93,723

 

Capital surplus

 

 

3,672,090

 

 

 

3,703,795

 

Retained earnings

 

 

3,341,262

 

 

 

3,283,210

 

Accumulated other comprehensive loss —net unrealized loss on available for sale securities, net of tax benefit of $(620) and $(372), respectively

 

 

(2,333

)

 

 

(1,398

)

Total shareholders’ equity

 

 

7,104,544

 

 

 

7,079,330

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

38,756,520

 

 

$

38,547,877

 

 

 

See notes to consolidated financial statements.

 

3


 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands, except per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

Loans, including fees

 

$

306,228

 

 

$

247,118

 

Securities

 

 

66,421

 

 

 

73,185

 

Federal funds sold and other earning assets

 

 

9,265

 

 

 

7,006

 

Total interest income

 

 

381,914

 

 

 

327,309

 

INTEREST EXPENSE:

 

 

 

 

 

 

Deposits

 

 

92,692

 

 

 

47,343

 

Other borrowings

 

 

48,946

 

 

 

34,396

 

Securities sold under repurchase agreements

 

 

2,032

 

 

 

2,103

 

Total interest expense

 

 

143,670

 

 

 

83,842

 

NET INTEREST INCOME

 

 

238,244

 

 

 

243,467

 

PROVISION FOR CREDIT LOSSES

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

 

238,244

 

 

 

243,467

 

NONINTEREST INCOME:

 

 

 

 

 

 

Nonsufficient funds (NSF) fees

 

 

8,288

 

 

 

8,095

 

Credit card, debit card and ATM card income

 

 

8,861

 

 

 

8,666

 

Service charges on deposit accounts

 

 

6,406

 

 

 

5,926

 

Trust income

 

 

4,156

 

 

 

3,225

 

Mortgage income

 

 

610

 

 

 

238

 

Brokerage income

 

 

1,235

 

 

 

1,149

 

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

 

 

(35

)

 

 

121

 

Net gain on sale of securities

 

 

298

 

 

 

 

Other

 

 

9,051

 

 

 

10,846

 

Total noninterest income

 

 

38,870

 

 

 

38,266

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

Salaries and employee benefits

 

 

85,771

 

 

 

77,798

 

Net occupancy and equipment

 

 

8,623

 

 

 

8,025

 

Credit and debit card, data processing and software amortization

 

 

10,975

 

 

 

9,566

 

Regulatory assessments and FDIC insurance

 

 

5,538

 

 

 

4,973

 

Core deposit intangibles amortization

 

 

3,237

 

 

 

2,374

 

Depreciation

 

 

4,686

 

 

 

4,433

 

Communications

 

 

3,402

 

 

 

3,462

 

Net other real estate income

 

 

49

 

 

 

45

 

Merger related expenses

 

 

 

 

 

860

 

Other

 

 

13,567

 

 

 

11,464

 

Total noninterest expense

 

 

135,848

 

 

 

123,000

 

INCOME BEFORE INCOME TAXES

 

 

141,266

 

 

 

158,733

 

PROVISION FOR INCOME TAXES

 

 

30,840

 

 

 

34,039

 

NET INCOME

 

$

110,426

 

 

$

124,694

 

EARNINGS PER SHARE:

 

 

 

 

 

 

Basic

 

$

1.18

 

 

$

1.37

 

Diluted

 

$

1.18

 

 

$

1.37

 

 

See notes to consolidated financial statements.

 

4


 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands)

 

Net income

 

$

110,426

 

 

$

124,694

 

Other comprehensive income, before tax:

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

Change in unrealized loss during the period

 

 

(1,184

)

 

 

(4

)

Total other comprehensive loss

 

 

(1,184

)

 

 

(4

)

Deferred tax benefit related to other comprehensive income

 

 

249

 

 

 

1

 

Other comprehensive loss, net of tax

 

 

(935

)

 

 

(3

)

Comprehensive income

 

$

109,491

 

 

$

124,691

 

 

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)

 

BALANCE AT DECEMBER 31, 2022

 

 

91,313,615

 

 

$

91,314

 

 

$

3,541,924

 

 

$

3,069,609

 

 

$

(3,473

)

 

$

6,699,374

 

Net income

 

 

 

 

 

 

 

 

 

 

 

124,694

 

 

 

 

 

 

124,694

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

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

 

 

(9,250

)

 

 

(9

)

 

 

9

 

 

 

 

 

 

 

 

 

 

Common stock repurchase

 

 

(611,263

)

 

 

(611

)

 

 

(37,429

)

 

 

 

 

 

 

 

 

(38,040

)

Stock based compensation expense

 

 

 

 

 

 

 

 

3,166

 

 

 

 

 

 

 

 

 

3,166

 

Cash dividends declared, $0.55 per share

 

 

 

 

 

 

 

 

 

 

 

(50,074

)

 

 

 

 

 

(50,074

)

BALANCE AT MARCH 31, 2023

 

 

90,693,102

 

 

$

90,694

 

 

$

3,507,670

 

 

$

3,144,229

 

 

$

(3,476

)

 

$

6,739,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2023

 

 

93,722,383

 

 

$

93,723

 

 

$

3,703,795

 

 

$

3,283,210

 

 

$

(1,398

)

 

$

7,079,330

 

Net income

 

 

 

 

 

 

 

 

 

 

 

110,426

 

 

 

 

 

 

110,426

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(935

)

 

 

(935

)

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

 

 

370,600

 

 

 

370

 

 

 

(370

)

 

 

 

 

 

 

 

 

 

Common stock repurchase

 

 

(567,692

)

 

 

(568

)

 

 

(34,714

)

 

 

 

 

 

 

 

 

(35,282

)

Stock based compensation expense

 

 

 

 

 

 

 

 

3,379

 

 

 

 

 

 

 

 

 

3,379

 

Cash dividends declared, $0.56 per share

 

 

 

 

 

 

 

 

 

 

 

(52,374

)

 

 

 

 

 

(52,374

)

BALANCE AT MARCH 31, 2024

 

 

93,525,291

 

 

$

93,525

 

 

$

3,672,090

 

 

$

3,341,262

 

 

$

(2,333

)

 

$

7,104,544

 

 

See notes to consolidated financial statements.

6


 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

(Dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

110,426

 

 

$

124,694

 

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

 

 

 

 

 

 

Depreciation and core deposit intangibles amortization

 

 

7,923

 

 

 

6,807

 

Provision for credit losses

 

 

 

 

 

 

Net amortization of premium on investments

 

 

5,822

 

 

 

7,384

 

Net gain on sale of investment securities

 

 

(298

)

 

 

 

Net gain on sale of other real estate and repossessed assets

 

 

(137

)

 

 

(13

)

Net loss (gain) on sale or write down of premises and equipment

 

 

35

 

 

 

(121

)

Net accretion of discount on loans

 

 

(1,860

)

 

 

(872

)

Net amortization of premium on deposits

 

 

(97

)

 

 

(53

)

Net gain on sale of loans

 

 

(612

)

 

 

(239

)

Proceeds from sale of loans held for sale

 

 

24,475

 

 

 

8,470

 

Originations of loans held for sale

 

 

(24,509

)

 

 

(9,280

)

Stock based compensation expense

 

 

3,379

 

 

 

3,166

 

Decrease (increase) in accrued interest receivable and other assets

 

 

2,811

 

 

 

(66,156

)

Increase in accrued interest payable and other liabilities

 

 

60,042

 

 

 

105,986

 

Net cash provided by operating activities

 

 

187,400

 

 

 

179,773

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from maturities and principal paydowns of held to maturity securities

 

 

391,803

 

 

 

412,524

 

Purchase of held to maturity securities

 

 

(18,947

)

 

 

(3,028

)

Proceeds from maturities, sales and principal paydowns of available for sale securities

 

 

5,631,402

 

 

 

2,515,280

 

Purchase of available for sale securities

 

 

(5,508,208

)

 

 

(2,527,704

)

Originations of Warehouse Purchase Program loans

 

 

(3,021,378

)

 

 

(2,468,101

)

Proceeds from pay-offs of Warehouse Purchase Program loans

 

 

2,978,699

 

 

 

2,409,606

 

Net increase in loans held for investment

 

 

(42,737

)

 

 

(434,029

)

Purchase of bank premises and equipment

 

 

(7,184

)

 

 

(10,224

)

Proceeds from sale of bank premises, equipment and other real estate

 

 

838

 

 

 

741

 

Proceeds from insurance claims

 

 

1,049

 

 

 

2,811

 

Net cash provided by (used in) investing activities

 

 

405,337

 

 

 

(102,124

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net decrease in noninterest-bearing deposits

 

 

(250,037

)

 

 

(807,100

)

Net increase (decrease) in interest-bearing deposits

 

 

245,843

 

 

 

(722,142

)

Net proceeds from other short-term borrowings

 

 

175,000

 

 

 

1,515,000

 

Net (decrease) increase in securities sold under repurchase agreements

 

 

(47,606

)

 

 

6,127

 

Repurchase of common stock

 

 

(35,282

)

 

 

(38,040

)

Payments of cash dividends

 

 

(52,374

)

 

 

(50,074

)

Net cash provided by (used in) financing activities

 

 

35,544

 

 

 

(96,229

)

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

628,281

 

 

 

(18,580

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

458,413

 

 

 

424,133

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,086,694

 

 

$

405,553

 

 

 

 

 

 

 

 

NONCASH ACTIVITIES:

 

 

 

 

 

 

Acquisition of real estate through foreclosure of collateral

 

$

969

 

 

$

468

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

Income taxes paid

 

$

487

 

 

$

327

 

Interest paid

 

 

102,618

 

 

 

79,968

 

 

 

See notes to consolidated financial statements

 

7


 

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(UNAUDITED)

 

 

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Prosperity Bancshares, Inc.® (“Bancshares”) and its wholly-owned subsidiary, Prosperity Bank® (the “Bank,” and together with Bancshares, the “Company”). All intercompany transactions and balances have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis; and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Operating results for the three-month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period.

2. INCOME PER COMMON SHARE

The following table illustrates the computation of basic and diluted earnings per share:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Amount

 

 

Per Share Amount

 

 

Amount

 

 

Per Share Amount

 

 

 

(Amounts in thousands, except per share data)

 

Net income

 

$

110,426

 

 

 

 

 

$

124,694

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

93,706

 

 

$

1.18

 

 

 

91,207

 

 

$

1.37

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

93,706

 

 

$

1.18

 

 

 

91,207

 

 

$

1.37

 

There were no stock options outstanding at March 31, 2024 or exercisable during the three months ended March 31, 2024 or 2023 that would have had an anti-dilutive effect on the above computation.

 

3. NEW ACCOUNTING STANDARDS

Accounting Standards Updates (“ASU”)

 

ASU 2024-01, CompensationStock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.

ASU 2024-01 clarifies the scope application of profits interest and similar awards by adding illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718,CompensationStock Compensation.” However, this amendment does not change the intent of that guidance, nor how it should be applied. The ASU’s amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. The Company does not expect ASU 2024-01 to have a significant impact on its financial statements.

 

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income. ASU 2023-09 focuses on the rate reconciliation and income taxes paid and requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For public business entities the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods,

8


PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(UNAUDITED)

 

or may apply the amendments retrospectively by providing the revised disclosures for all period presented. The Company does not expect ASU 2023-09 to have an impact on its financial statements.

ASU 2023-07, Segment Reporting (Topic 280)—Improvement to Reportable Segment Disclosures. ASU 2023-07 amends the disclosure requirements related to segment reporting primarily through enhanced disclosure about significant segment expenses and by requiring disclosure of segment information on an annual and interim basis. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect ASU 2023-07 to have a significant impact on its financial statements.

ASU 2023-06, Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU 2023-06 amends the FASB Accounting Standards Codification to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company does not expect ASU 2023-06 to have a significant impact on its financial statements.

 

ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in ASU 2022-02 eliminated the accounting guidance for troubled debt restructurings and enhanced disclosures for certain loan refinancing and restructurings to borrowers experiencing financial difficulty. This guidance was applied on a prospective basis. Additionally, ASU 2022-02 requires entities to disclose current-period gross charge-offs by year of origination. ASU 2022-02 became effective for the Company on January 1, 2023 and did not have a significant impact on the Company’s financial statements.

4. SECURITIES

The amortized cost and fair value of investment securities were as follows:

 

 

 

March 31, 2024

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

14,350

 

 

$

1,830

 

 

$

(335

)

 

$

15,845

 

Collateralized mortgage obligations

 

 

198,180

 

 

 

 

 

 

(3,374

)

 

 

194,806

 

Mortgage-backed securities

 

 

105,723

 

 

 

58

 

 

 

(1,132

)

 

 

104,649

 

Total

 

$

318,253

 

 

$

1,888

 

 

$

(4,841

)

 

$

315,300

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government agencies

 

$

7,691

 

 

$

 

 

$

(107

)

 

$

7,584

 

States and political subdivisions

 

 

111,699

 

 

 

764

 

 

 

(2,581

)

 

 

109,882

 

Corporate debt securities

 

 

12,000

 

 

 

 

 

 

(3,840

)

 

 

8,160

 

Collateralized mortgage obligations

 

 

256,216

 

 

 

 

 

 

(25,076

)

 

 

231,140

 

Mortgage-backed securities

 

 

11,598,232

 

 

 

388

 

 

 

(1,477,027

)

 

 

10,121,593

 

Total

 

$

11,985,838

 

 

$

1,152

 

 

$

(1,508,631

)

 

$

10,478,359

 

 

9


PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(UNAUDITED)

 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

20,698

 

 

$

1,827

 

 

$

(738

)

 

$

21,787

 

Collateralized mortgage obligations

 

 

321,881

 

 

 

967

 

 

 

(2,804

)

 

 

320,044

 

Mortgage-backed securities

 

 

97,779

 

 

 

96

 

 

 

(1,118

)

 

 

96,757

 

Total

 

$

440,358

 

 

$

2,890

 

 

$

(4,660

)

 

$

438,588

 

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government agencies

 

$

7,631

 

 

$

 

 

$

(52

)

 

$

7,579

 

States and political subdivisions

 

 

116,497

 

 

 

1,864

 

 

 

(2,306

)

 

 

116,055

 

Corporate debt securities

 

 

12,000

 

 

 

 

 

 

(4,200

)

 

 

7,800

 

Collateralized mortgage obligations

 

 

263,250

 

 

 

 

 

 

(20,864

)

 

 

242,386

 

Mortgage-backed securities

 

 

11,965,930

 

 

 

2,131

 

 

 

(1,357,283

)

 

 

10,610,778

 

Total

 

$

12,365,308

 

 

$

3,995

 

 

$

(1,384,705

)

 

$

10,984,598

 

 

The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under FASB ASC 326,“Financial Instruments – Credit Losses.”

Available for sale securities. For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairment loss (“credit loss”) and the noncredit portion of the impairment loss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.

As of March 31, 2024, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2024, management believes that there is no potential for credit losses on available for sale securities.

 

Held to maturity securities. The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae and Freddie Mac issued securities are fully guaranteed by those respective United States government-sponsored agencies and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of March 31, 2024, the Company’s municipal securities represent 0.9% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature,

10


PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(UNAUDITED)

 

at which time the Company will receive full value for the securities. Accordingly, as of March 31, 2024, management believes that there is no potential for material credit losses on held to maturity securities.

Securities with unrealized losses, segregated by length of time, that have been in a continuous loss position were as follows:

 

 

 

March 31, 2024

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

 

 

(Dollars in thousands)

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

5,265

 

 

$

(335

)

 

$

 

 

$

 

 

$

5,265

 

 

$

(335

)

Collateralized mortgage obligations

 

 

58,266

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