Prosperity Bancshares, Inc.® Reports First Quarter 2015 Earnings

HOUSTON, April 24, 2015 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, "Prosperity"), reported net income for the quarter ended March 31, 2015 of $73.641 million, an increase of $6.504 million or 9.7%, compared with $67.137 million in net income for the quarter ended March 31, 2014. Additionally, diluted earnings per share increased 4.0% to $1.05 per diluted common share for the quarter ended March 31, 2015 compared with $1.01 per diluted common share for the same period in 2014.

"Despite a lot of press and articles concerning the demise of the Texas and Oklahoma economies due to the lower price of oil, we are not experiencing this as evidenced by the loan growth we had in our Houston market and other major metropolitan areas in Texas.  Although jobs are being reduced in the oil related fields, we still see good economics in other areas.  People continue to move to Texas and Oklahoma because of the states' friendly business climate with regulation and legislation favoring business and, in Texas, no state income taxes," said David Zalman, Prosperity's Chairman and Chief Executive Officer.   

"Most forecasters are projecting the Texas population to double in size by the year 2050.  We believe that the Texas economy is much more diversified than it was in 1980, and that resiliency is showing.  In 1980, the population in Texas was 14.2 million people, and today it is 27 million people.  In 1980, the workforce was 7 million people, and today it is 13 million people. In conclusion, we believe our market areas in Texas and Oklahoma are, and will be, dynamic growth markets into the future," continued Zalman.

"I am pleased to announce Prosperity Bancshares' inclusion in the 2014 Keefe Bruyette & Woods' Honor Roll based on our strong performance over the past ten years.  This is the tenth year that our company has received this award.  I would like to thank our whole team once again for a job well done," concluded Zalman.

Results of operations for the three months ended March 31, 2015

For the three months ended March 31, 2015, net income was $73.641 million compared with $67.137 million for the same period in 2014.  Net income per diluted common share was $1.05 for the three months ended March 31, 2015 compared with $1.01 for the same period in 2014.  Annualized returns on average assets, average common equity and average tangible common equity for the three months ended March 31, 2015 were 1.37%, 8.98% and 21.84%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 41.83% for the three months ended March 31, 2015.

Net interest income before provision for credit losses for the quarter ended March 31, 2015, increased 13.4% to $162.905 million compared with $143.691 million during the same period in 2014.  The increase was primarily due to a 14.5% increase in average interest-earning assets for the same period.  Linked quarter net interest income before provision for credit losses decreased $14.846 million or 8.4% to $162.905 million compared with $177.751 million during the three months ended December 31, 2014. This was primarily due to an $8.943 million decrease in loan discount accretion. Additionally, interest expense was impacted during the fourth quarter 2014 by a $2.428 million credit to interest expense recorded after finalizing the fair value adjustments for certificates of deposit acquired from F&M Bancorporation Inc. and its wholly-owned subsidiary, The F&M Bank & Trust Company (collectively, "F&M"), and FVNB Corp. and its wholly-owned subsidiary, First Victoria National Bank. The net interest margin on a tax equivalent basis decreased to 3.57% for the three months ended March 31, 2015, compared with 3.62% for the same period in 2014 and 3.89% for the three months ended December 31, 2014.  Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis decreased on a linked quarter basis from 3.25% for the quarter ended December 31, 2014 to 3.17% for the quarter ended March 31, 2015. This was primarily due to liquidity from additional deposits being invested in securities at a lower yield than the average loan yield.  

Noninterest income decreased $243 thousand or 0.8% to $28.421 million for the three months ended March 31, 2015, compared with $28.664 million for the same period in 2014.  On a linked quarter basis, noninterest income decreased $959 thousand or 3.3% compared with the quarter ended December 31, 2014.

Noninterest expense increased $8.368 million or 11.8% to $79.462 million for the three months ended March 31, 2015, compared with $71.094 million for the same period in 2014. This increase was primarily due to increased salary and benefits expense, increased regulatory assessments and FDIC insurance and increased operational expenses associated with the addition of F&M.  On a linked quarter basis, noninterest expense decreased $4.574 million or 5.4%, compared with the quarter ended December 31, 2014. This was primarily due to decreases in most categories of noninterest expense and a decrease in depreciation expense resulting from finalized fair value adjustments recorded on building and equipment acquired from F&M.

Loans at March 31, 2015 were $9.166 billion, an increase of $1.414 billion or 18.2%, compared with $7.752 billion at March 31, 2014, primarily due to the acquisition of F&M. Linked quarter loans decreased $78.178 million or 0.8% from $9.244 billion at December 31, 2014. 

Deposits at March 31, 2015 were $17.561 billion, an increase of $2.101 billion or 13.6% compared with $15.460 billion at March 31, 2014, primarily due to the acquisition of F&M.  Linked quarter deposits decreased $131.806 million or 0.7% from $17.693 billion at December 31, 2014. 

Average loans increased $1.433 billion or 18.5% to $9.189 billion for the quarter ended March 31, 2015, compared with $7.756 billion for the same period in 2014.  On a linked quarter basis, average loans decreased $135.950 million or 1.5% from $9.325 billion for the quarter ended December 31, 2014. Average deposits increased $2.195 billion or 14.3% to $17.576 billion for the quarter ended March 31, 2015, compared with $15.382 billion for the same period of 2014. On a linked quarter basis, average deposits increased $458.744 million or 2.7% from $17.118 billion for the quarter ended December 31, 2014.  

The table below provides detail on loans acquired and deposits assumed in the acquisition of F&M completed on April 1, 2014:

As reflected in the table above, loan and deposit growth was impacted by the acquisition of F&M.  Excluding loans acquired in the acquisition and new production at the acquired banking centers since the acquisition date, loans at March 31, 2015 increased $273.756 million or 3.5% compared with March 31, 2014 and increased $6.471 million or 0.1% (0.3% annualized) on a linked quarter basis. Excluding deposits assumed in the acquisition and new deposits generated at the acquired banking centers since the acquisition date, deposits at March 31, 2015 increased $396.092 million or 2.6% compared with March 31, 2014 and increased $226.220 million or 1.4% (5.8% annualized) on a linked quarter basis.

At March 31, 2015, Prosperity had $21.607 billion in total assets, $9.166 billion in loans and $17.561 billion in deposits. Assets, loans and deposits at March 31, 2015 increased by 14.2%, 18.2% and 13.6%, respectively, compared with their respective levels at March 31, 2014.

Asset Quality

Nonperforming assets totaled $35.376 million or 0.19% of quarterly average earning assets at March 31, 2015, compared with $18.696 million or 0.11% of quarterly average earning assets at March 31, 2014, and $36.919 million or 0.20% of quarterly average earning assets at December 31, 2014.  The allowance for credit losses was 0.88% of total loans at March 31, 2015 and 0.87% of total loans at both March 31, 2014 and December 31, 2014.  Excluding loans acquired that are accounted for under ASC Topics 310-20 and 310-30, the allowance for credit losses was 1.12% of remaining loans as of March 31, 2015, compared with 1.18% at March 31, 2014 and 1.14% at December 31, 2014.  Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP (generally accepted accounting principles) financial measure. 

The provision for credit losses was $1.250 million for the three months ended March 31, 2015 compared with $600 thousand for the three months ended March 31, 2014 and $6.350 million for the three months ended December 31, 2014. 

Net charge offs were $1.049 million for the three months ended March 31, 2015 compared with $786 thousand for the three months ended March 31, 2014 and $3.201 million for the three months ended December 31, 2014.

Conference Call

Prosperity's management team will host a conference call on Friday, April 24, 2015 at 10:30 a.m. Eastern Time (9:30 a.m. Central Time) to discuss Prosperity's first quarter 2015 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383. The elite entry number is 8937576.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at http://www.prosperitybankusa.com.  The webcast may be accessed directly from Prosperity's home page by clicking the "Investor Relations" tab and then the "Presentations & Calls" link.

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 and the tangible equity to tangible assets ratio.  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 FASB Accounting Standards Codification ("ASC") Topics 310-20, "Receivables-Nonrefundable Fees and Other Costs" and 310-30, "Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality").  Prosperity has included in this Earnings Release information related to these non-GAAP financial measures for the applicable periods presented.  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.

Dividend

Prosperity Bancshares, Inc. ("Bancshares") declared a second quarter cash dividend of $0.2725 per share, to be paid on July 1, 2015 to all shareholders of record as of June 15, 2015.

Capital Management

The Basel III Capital Rules adopted by the federal regulatory authorities in 2013 substantially revised the risk-based capital requirements applicable to Bancshares and Prosperity Bank. The Basel III Capital Rules became effective for Prosperity on January 1, 2015, subject to a phase-in period for certain provisions. Among other things, the Basel III Capital Rules introduced a new capital measure called "Common Equity Tier 1," which is a comparison of the sum of certain equity capital components to total risk-weighted assets, and revised the risk-weighting approach of the capital ratios with a more risk-sensitive approach that expanded the risk-weighting categories from the previous Basel I derived categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets.

In addition, during the first quarter of 2015, Bancshares redeemed all $167.5 million of its outstanding trust preferred securities which, beginning January 1, 2015, are no longer fully includable as tier 1 capital under the Basel III Capital Rules.  These redemptions were funded through dividends from Prosperity Bank.

While Prosperity's capital ratios as of March 31, 2015 reflect both the phase-in provisions of the new Basel III Capital Rules and the redemption of the trust preferred securities, the decrease in capital ratios was primarily attributable to the redemption of the trust preferred securities.

Acquisition of F&M Bancorporation Inc.

On April 1, 2014, Prosperity completed the acquisition of F&M Bancorporation Inc. ("FMBC") and its wholly-owned subsidiary, The F&M Bank & Trust Company ("F&M Bank") headquartered in Tulsa, Oklahoma.  F&M Bank operated 13 banking offices: 9 in Tulsa, Oklahoma and surrounding areas; 3 in Dallas, Texas; and 1 loan production office in Oklahoma City, Oklahoma.  As of March 31, 2014, FMBC, on a consolidated basis, reported total assets of $2.412 billion, total loans of $1.738 billion and total deposits of $2.267 billion.

Pursuant to the terms of the acquisition agreement, Prosperity issued 3,298,022 shares of Prosperity common stock plus $34.240 million in cash for all outstanding shares of FMBC capital stock, which resulted in goodwill of $206.010 million as of March 31, 2015. Additionally, Prosperity recognized $27.140 million of core deposit intangibles as of March 31, 2015.

Prosperity Bancshares, Inc. ^®

As of March 31, 2015, Prosperity Bancshares Inc. ^® is a $21.607 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 http://www.prosperitybankusa.com, Retail Brokerage Services, Credit Cards, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services and Mobile Banking.

Prosperity currently operates 244 full-service banking locations: 61 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 36 in the Dallas/Fort Worth area; 22 in the East Texas area; 30 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 9 in the Tulsa, Oklahoma area.

"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 that are based on current expectations, assumptions, estimates and projections about Prosperity 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 fluctuations and interest rate fluctuations; and weather.  These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2014 and other reports and statements Prosperity 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.

Prosperity Bancshares, Inc.^®
Notes to Selected Financial Data (Unaudited)
(Dollars and share amounts in thousands, except per share data)

Consolidated Financial Highlights

NOTES TO SELECTED FINANCIAL DATA

Prosperity's management uses certain non−GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity and the tangible equity to tangible assets ratio for internal planning and forecasting purposes. In addition, due to the application of purchase accounting, 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 and 310-30).  Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented.  Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and Prosperity believes that its presentation, together with the accompanying reconciliations, provides a 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 measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook.  These non-GAAP measures should not be considered a substitute for GAAP basis measures and results and 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.

SOURCE Prosperity Bancshares, Inc.