Prosperity Bancshares, Inc.® Reports Record Fourth Quarter 2014 Earnings

HOUSTON, Jan. 23, 2015 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, "Prosperity"), reported net income for the quarter ended December 31, 2014 of $78.228 million, an increase in net income of $15.257 million or 24.2%, compared with $62.971 million for the quarter ended December 31, 2013. Additionally, diluted earnings per share increased 14.3% to $1.12 per diluted common share for the quarter ended December 31, 2014 compared with $0.98 per diluted common share for the same period in 2013. Prosperity also reported net income for the year ended December 31, 2014 of $297.441 million or $4.32 per diluted common share, an increase of 34.3% from 2013 net income of $221.398 million and up 18.4% from 2013 diluted earnings per common share of $3.65.

"Prosperity continues to show strong fundamental results and is proud to announce another record year of earnings. Earnings per diluted share for the fourth quarter of 2014 increased 14.3% compared with the fourth quarter of 2013 and earnings per diluted share for the full year 2014 increased 18.4% compared with the full year 2013. We continue to show strong organic loan growth.  Excluding loans acquired in acquisitions during the last five quarters and new production at the acquired banking centers since the respective acquisition dates, loans at December 31, 2014 grew $549.523 million or 8.9% compared with December 31, 2013 and increased $148.230 million or 2.2% (9.0% annualized) on a linked quarter basis. While we saw loans decrease at the acquired banks, it is not unusual for Prosperity to move out certain loans that do not necessarily fit our risk appetite. We also saw strong organic deposit growth. Excluding deposits assumed in acquisitions and new deposits generated at the acquired banking centers since the respective acquisition dates, deposits at December 31, 2014 grew $461.751 million or 3.5% compared with December 31, 2013 and increased $507.535 million or 3.9% (15.6% annualized) on a linked quarter basis," said David Zalman, Prosperity's Chairman and Chief Executive Officer.

"Although our fundamentals are strong, our stock price has languished recently. We believe the stock price decline is due to investor sentiment regarding the decrease in crude oil prices. We have reviewed our energy credits and have not seen any negative effects in the loan portfolio to date, although we expect it may take 6 to 9 months to feel the impact of lower oil prices. Our management team has been in banking since the 1980's and is familiar lending to the energy industry and in Texas and Oklahoma," continued Zalman.  

"Texas and Oklahoma currently have low unemployment numbers and more diverse employment opportunities than they have in the past. While we expect growth in jobs will be impacted by lower oil prices, we believe that the Texas and Oklahoma economies are in a better position to weather such an impact," added Zalman. 

"I would like to thank all of our associates, directors and customers for all their help and support in making our company the success it is," concluded Zalman.

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.  As a result of acquisitions, and thus 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.

Results of operations for the three months ended December 31, 2014

For the three months ended December 31, 2014, net income was $78.228 million compared with $62.971 million for the same period in 2013.  Net income per diluted common share was $1.12 for the three months ended December 31, 2014 compared with $0.98 for the same period in 2013.  Annualized returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2014 were 1.48%, 9.70% and 23.87%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 40.78% for the three months ended December 31, 2014.

Net interest income before provision for credit losses for the quarter ended December 31, 2014, increased 22.2% to $177.751 million compared with $145.469 million during the same period in 2013.  The increase was primarily due to a 19.4% increase in average interest-earning assets for the same period.  Linked quarter net interest income before provision for credit losses increased $2.094 million or 1.2% to $177.751 million compared with $175.657 million during the three months ended September 30, 2014. This increase was primarily due to a credit to interest expense of $2.428 million.  More specifically, during the fourth quarter, Prosperity finalized 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 (collectively, "FVNB"), and recorded the total 2014 premium amortization for the acquired banks in the fourth quarter. The net interest margin on a tax equivalent basis increased to 3.89% for the three months ended December 31, 2014, compared with 3.82% for the same period in 2013 and 3.85% for the three months ended September 30, 2014.  Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis decreased on a linked quarter basis from 3.26% for the quarter ended September 30, 2014 to 3.25% for the quarter ended December 31, 2014. 

Noninterest income increased $4.948 million or 19.7% to $30.106 million for the three months ended December 31, 2014, compared with $25.158 million for the same period in 2013.  This increase was primarily due to an increase in service charges and credit, debit and ATM card income as a result of the additional accounts acquired from F&M and FVNB.  Additionally, trust and brokerage income increased as a result of the additional products and services acquired through the acquisition of FVNB in the fourth quarter 2013.  On a linked quarter basis, noninterest income decreased $55 thousand or 0.2% compared with the quarter ended September 30, 2014.

Noninterest expense increased $16.170 million or 23.6% to $84.762 million for the three months ended December 31, 2014, compared with $68.592 million for the same period in 2013. This increase was primarily due to increased salary and benefits expense and additional operational expenses associated with the acquisitions of FVNB and F&M.  On a linked quarter basis, noninterest expense decreased $748 thousand or 0.9%, compared with the quarter ended September 30, 2014.

Loans at December 31, 2014 were $9.244 billion, an increase of $1.469 billion or 18.9%, compared with $7.775 billion at December 31, 2013, primarily due to the acquisition of F&M. Linked quarter loans decreased $124.705 million or 1.3% from $9.369 billion at September 30, 2014. 

Deposits at December 31, 2014 were $17.693 billion, an increase of $2.402 billion or 15.7% compared with $15.291 billion at December 31, 2013, primarily due to the acquisition of F&M.  Linked quarter deposits increased $679.131 million or 4.0% from $17.014 billion at September 30, 2014. 

Average loans increased $2.087 billion or 28.8% to $9.325 billion for the quarter ended December 31, 2014, compared with $7.238 billion for the same period in 2013.  On a linked quarter basis, average loans decreased $55.918 million or 0.6% from $9.381 billion for the quarter ended September 30, 2014. Average deposits increased $2.927 billion or 20.6% to $17.118 billion for the quarter ended December 31, 2014, compared with $14.191 billion for the same period of 2013. On a linked quarter basis, average deposits increased $40.983 million or 0.2% from $17.077 billion for the quarter ended September 30, 2014. 

Results of operations for the year ended December 31, 2014

For the year ended December 31, 2014, net income was $297.441 million compared with $221.398 million for the same period in 2013.  Net income per diluted common share was $4.32 for the year ended December 31, 2014, compared with $3.65 for the same period in 2013.  Returns on average assets, average common equity and average tangible common equity for the year ended December 31, 2014 were 1.44%, 9.66%, and 24.24%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 41.81% for the year ended December 31, 2014. 

Net interest income before provision for credit losses for the year ended December 31, 2014 increased $172.328 million or 34.5% to $671.154 million compared with $498.826 million during the same period in 2013.  The increase was primarily due to a 25.9% increase in average interest-earning assets over the same period.  The net interest margin on a tax equivalent basis for the year ended December 31, 2014 increased to 3.80%, compared with 3.58% for the same period in 2013.  Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis increased to 3.29% for the year ended December 31, 2014 from 3.20% for the same period in 2013. 

Noninterest income increased $27.445 million or 28.8% to $122.872 million for the year ended December 31, 2014 compared with $95.427 million for the same period in 2013.  This increase was primarily due to the effects of the additional accounts acquired in the acquisitions of FVNB and F&M completed in 2013 and 2014. Trust and brokerage income increased as a result of the additional products and services acquired through the FVNB acquisition.  In addition, gain on the sale of assets increased $4.671 million during the year ended December 31, 2014 compared with the same period in 2013. This increase was primarily due to a $2.224 million gain that was recorded during the first quarter of 2014 on the sale of the agent bank credit card and agent bank merchant processing business of Bankers Credit Card Services, Inc., a subsidiary acquired as part of the acquisition of Coppermark Bancshares, Inc. and its wholly-owned subsidiary, Coppermark Bank.

Noninterest expense increased $82.806 million or 33.5% to $330.002 million for the year ended December 31, 2014 compared with $247.196 million for the same period in 2013.  This increase was primarily due to additional operational expenses associated with the acquisitions of FVNB and F&M.  Additionally, total noninterest expense for the year ended December 31, 2014 included one-time pre-tax merger expenses of $3.114 million related to the F&M and FVNB acquisitions compared with one-time pre-tax merger expenses of $3.203 million for the year ended December 31, 2013 related to prior acquisitions. 

Average loans increased $2.785 billion or 44.9% to $8.988 billion for the year ended December 31, 2014, compared with $6.203 billion for the same period in 2013.  Average deposits increased $3.926 billion or 30.8% to $16.690 billion for the year ended December 31, 2014, compared with $12.764 billion for the same period in 2013. 

The table below provides detail on loans acquired and deposits assumed in the acquisitions of FVNB and F&M completed on November 1, 2013 and April 1, 2014, respectively:

As reflected in the table above, loan and deposit growth was impacted by the acquisitions of FVNB and F&M.  Excluding loans acquired in these acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at December 31, 2014 grew $549.523 million or 8.9% compared with December 31, 2013 and increased $148.230 million or 2.2% (9.0% annualized) on a linked quarter basis. Excluding deposits assumed in these acquisitions and new deposits generated at the acquired banking centers since the respective acquisition dates, deposits at December 31, 2014 grew $461.751 million or 3.5% compared with December 31, 2013 and increased $507.535 million or 3.9% (15.6% annualized) on a linked quarter basis.

At December 31, 2014, Prosperity had $21.508 billion in total assets, $9.244 billion in loans and $17.693 billion in deposits. Assets, loans and deposits at December 31, 2014 increased by 15.4%, 18.9% and 15.7%, respectively, compared with their respective levels at December 31, 2013.

Asset Quality

Nonperforming assets totaled $36.919 million or 0.20% of quarterly average earning assets at December 31, 2014, compared with $22.504 million or 0.15% of quarterly average earning assets at December 31, 2013, and $50.082 million or 0.27% of quarterly average earning assets at September 30, 2014.  The allowance for credit losses was 0.87% of total loans at December 31, 2014 and 2013, and 0.83% of total loans at September 30, 2014.  Excluding loans acquired that are accounted for under ASC Topics 310-20 and 310-30, the allowance for credit losses was 1.14% of remaining loans as of December 31, 2014, compared with 1.25% at December 31, 2013 and 1.14% at September 30, 2014.  Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure. 

The provision for credit losses was $6.350 million for the three months ended December 31, 2014 compared with $7.865 million for the three months ended December 31, 2013 and $5.000 million for the three months ended September 30, 2014.  The provision for credit losses was $18.275 million for the year ended December 31, 2014 compared with $17.240 million for the year ended December 31, 2013. 

Net charge offs were $3.201 million for the three months ended December 31, 2014, primarily due to one acquired loan made to a company that filed bankruptcy and subsequently sold the collateral, compared with $496 thousand for the three months ended December 31, 2013 and $653 thousand for the three months ended September 30, 2014. Net charge offs were $4.795 million for the year ended December 31, 2014 compared with $2.522 million for the year ended December 31, 2013. 

Conference Call

Prosperity's management team will host a conference call on Friday, January 23, 2015 at 10:30 a.m. Eastern Time (9:30 a.m. Central Time) to discuss Prosperity's fourth quarter 2014 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383. The elite entry number is 6646422.

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.

Redemption of Outstanding Trust Preferred Securities ("TRUPS")

As of December 31, 2014, all of the $167.531 million of outstanding TRUPS of Prosperity Bancshares, Inc. ("Bancshares") were counted as Tier 1 capital. Under the new Basel III capital regulations, 75% of TRUPS will be eliminated from Tier 1 capital beginning on March 31, 2015 and fully eliminated by the end of 2016. Although the TRUPS are includable as Tier 2 capital, Bancshares redeemed one issue of TRUPS in early January 2015 and intends to redeem the remaining 11 issues of TRUPS by the end of the first quarter of 2015. Bancshares notified the Federal Reserve of its redemption intent and timing, and the Federal Reserve had no objections to these redemptions. Bancshares intends to fund the redemption of the TRUPS through dividends from Prosperity Bank.  

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 $198.245 million as of December 31, 2014. Additionally, Prosperity recognized $27.140 million of core deposit intangibles as of December 31, 2014. The goodwill balance as of December 31, 2014 does not include subsequent fair value adjustments that are still being finalized. 

Acquisition of FVNB Corp.

On November 1, 2013, Prosperity completed the acquisition of FVNB Corp. and its wholly-owned subsidiary, First Victoria National Bank headquartered in Victoria, Texas.  First Victoria National Bank operated 33 banking offices: 4 in Victoria, Texas; 7 in the South Texas area including Corpus Christi; 6 in the Bryan/College Station area; 5 in the Central Texas area including New Braunfels; and 11 in the Houston area including The Woodlands and Huntsville.  As of September 30, 2013, FVNB Corp., on a consolidated basis, reported total assets of $2.473 billion, total loans of $1.648 billion and total deposits of $2.195 billion. 

Pursuant to the terms of the acquisition agreement, Prosperity issued 5,570,667 shares of Prosperity common stock plus $91.250 million in cash for all outstanding shares of FVNB Corp. capital stock, which resulted in goodwill of $327.349 million as of December 31, 2014.  Additionally, Prosperity recognized $18.411 million of core deposit intangibles as of December 31, 2014.

Prosperity Bancshares, Inc. ^®

As of December 31, 2014, Prosperity Bancshares Inc. ^® is a $21.508 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, 2013 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.

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