PB - Prosperity Bancshares Inc.® Reports Third Quarter 2019 Earnings

HOUSTON, Oct. 23, 2019 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, "Prosperity"), reported net income for the quarter ended September 30, 2019 of $81.758 million compared with $82.523 million for the same period in 2018. Net income per diluted common share increased to $1.19 compared with $1.18 for the same period in 2018. Additionally, loans increased 3.2% (annualized) during the third quarter 2019 and nonperforming assets remain low at 0.26% of third quarter average interest-earning assets.

"I am very excited with all that is going on at Prosperity.  We had strong financial results in the third quarter, with net income of $81.758 million, return on average assets of 1.47% annualized and return on average tangible common equity of 14.77% annualized.  We were pleased with the net interest margin on a tax equivalent basis of 3.16% for the third quarter 2019, compared with 3.15% for the same period in 2018 and 3.16% on a linked quarter basis for the second quarter 2019," said David Zalman, Prosperity's Chairman and Chief Executive Officer.

"Additionally, our board of directors voted to increase the fourth quarter dividend to $0.46 per share, a 12.2% increase.  Our company continues to perform well and we want to share that success with our shareholders," continued Zalman.

"Completion of our merger with LegacyTexas Financial Group remains on schedule, as we have received all required regulatory approvals and shareholder meetings for each company are scheduled for next week. The management teams from both companies meet on a weekly basis and share many similar viewpoints.  Both Legacy's and our goal is to develop people to be the next generation of leaders, make every customer's experience easy and enjoyable and operate in a safe and sound manner.  We want to expand our use of technology and digital products, making it easier for our customers to do business and continue to enhance shareholder value," added Zalman.

"We believe our customers remain positive about the economy.  In Texas and Oklahoma, unemployment remains low and demand at businesses is good.  In my personal opinion, the economy in our market areas remains sustainable.  I want to thank all of our associates, directors, customers and shareholders for helping us to achieve the success we have had over the years," concluded Zalman.

Results of Operations for the Three Months Ended September 30, 2019

Net income was $81.758 million⁽²⁾ for the three months ended September 30, 2019 compared with $82.523 million⁽³⁾ for the same period in 2018. Net income per diluted common share was $1.19 for the three months ended September 30, 2019 compared with $1.18 for the same period in 2018. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended September 30, 2019 were 1.47%, 7.89% and 14.77%⁽¹⁾, respectively. Prosperity's efficiency ratio (excluding credit loss provisions, net gains on the sale of assets and taxes) was 43.70%⁽¹⁾ for the three months ended September 30, 2019.

Net interest income before provision for credit losses for the three months ended September 30, 2019 was $153.990 million compared with $157.319 million for the same period in 2018, a decrease of $3.329 million or 2.1%. This change was primarily due to higher rates on interest-bearing liabilities and lower investment securities balances, partially offset by an increase in loan balances and loan yield. On a linked quarter basis, net interest income before provision for credit losses was $153.990 million compared with $154.838 million for the three months ended June 30, 2019.

The net interest margin on a tax equivalent basis was 3.16% for the three months ended September 30, 2019 compared with 3.15% for the same period in 2018. On a linked quarter basis, the net interest margin remained unchanged at 3.16% compared with the three months ended June 30, 2019.

Noninterest income was $30.673 million for the three months ended September 30, 2019 compared with $30.624 million for the same period in 2018. On a linked quarter basis, noninterest income increased $715 thousand or 2.4% to $30.673 million compared with $29.958 million for the three months ended June 30, 2019. This increase was primarily due to an increase in nonsufficient funds fees.

Noninterest expense was $80.699 million for the three months ended September 30, 2019 compared with $81.760 million for the same period in 2018, a decrease of $1.061 million or 1.3%. This change was primarily due to decreases in regulatory assessments and FDIC insurance and other noninterest expense, partially offset by an increase in salaries and benefits. On a linked quarter basis, noninterest expense decreased $122 thousand or 0.2% to $80.699 million compared with $80.821 million for the three months ended June 30, 2019.

Results of Operations for the Nine Months Ended September 30, 2019

Net income was $246.418 million⁽⁴⁾ for the nine months ended September 30, 2019 compared with $238.481 million⁽⁵⁾ for the same period in 2018, an increase of $7.937 million or 3.3%. Net income per diluted common share was $3.55 for the nine months ended September 30, 2019 compared with $3.42 for the same period in 2018, an increase of 3.8%. Annualized returns on average assets, average common equity and average tangible common equity for the nine months ended September 30, 2019 were 1.47%, 7.95% and 14.94%⁽¹⁾, respectively. Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 43.46%⁽¹⁾ for the nine months ended September 30, 2019.

Net interest income before provision for credit losses for the nine months ended September 30, 2019 was $463.739 million compared with $472.345 million for the same period in 2018, a decrease of $8.606 million or 1.8%. This change was primarily due to higher rates on deposits, lower investment securities balances, a decrease in loan discount accretion and the collection of previously identified troubled assets during the second quarter of 2018. This change was partially offset by an increase in loan balances and higher loan yields.

The net interest margin on a tax equivalent basis for the nine months ended September 30, 2019 was 3.17% compared with 3.20% for the same period in 2018. This change was primarily due to a decrease in loan discount accretion of $6.703 million and the collection of previously identified troubled assets during the second quarter of 2018.

Noninterest income was $88.775 million for the nine months ended September 30, 2019 compared with $86.933 million for the same period in 2018, an increase of $1.842 million or 2.1%. This increase was primarily due to an increase in other noninterest income.

Noninterest expense was $240.091 million for the nine months ended September 30, 2019 compared with $245.416 million for the same period in 2018, a decrease of $5.325 million or 2.2%. This change was primarily due to decreases in regulatory assessments and FDIC insurance and other noninterest expense.

Balance Sheet Information

At September 30, 2019, Prosperity had $22.093 billion in total assets, a decrease of $519.766 million or 2.3%, compared with $22.613 billion at September 30, 2018.

Loans at September 30, 2019 were $10.673 billion, an increase of $380.499 million or 3.7%, compared with $10.293 billion at September 30, 2018. Linked quarter loans increased $85.970 million or 0.8% (3.2% annualized) from $10.587 billion at June 30, 2019.

Deposits at September 30, 2019 were $16.930 billion, an increase of $196.156 million or 1.2%, compared with $16.734 billion at September 30, 2018. Linked quarter deposits increased $42.291 million or 0.3% from $16.888 billion at June 30, 2019.

Asset Quality

Nonperforming assets totaled $51.157 million or 0.26% of quarterly average interest-earning assets at September 30, 2019, compared with $16.777 million or 0.08% of quarterly average interest-earning assets at September 30, 2018, and $41.558 million or 0.21% of quarterly average interest-earning assets at June 30, 2019. The increase during the third quarter 2019 was primarily due to the addition of two commercial real estate loans.

The allowance for credit losses was $87.061 million or 0.82% of total loans at September 30, 2019, $85.996 million or 0.84% of total loans at September 30, 2018 and $87.006 million or 0.82% of total loans at June 30, 2019. Excluding loans acquired that are accounted for under FASB Accounting Standards Codification ("ASC") Topics 310-20 and 310-30, the allowance for credit losses was 0.85%⁽¹⁾ of remaining loans as of September 30, 2019, compared with 0.88%⁽¹⁾ at September 30, 2018 and 0.86%⁽¹⁾ at June 30, 2019.

The provision for credit losses was $1.100 million for the three months ended September 30, 2019 compared with $2.350 million for the three months ended September 30, 2018 and $800 thousand for the three months ended June 30, 2019. The provision for credit losses was $2.600 million for the nine months ended September 30, 2019 compared with $15.350 million for the nine months ended September 30, 2018.

Net charge-offs were $1.046 million for the three months ended September 30, 2019 compared with net charge-offs of $1.318 million for the three months ended September 30, 2018 and net recoveries of $115 thousand for the three months ended June 30, 2019. Net charge-offs were $1.980 million for the nine months ended September 30, 2019 compared with $13.395 million for the nine months ended September 30, 2018.

Dividend

Prosperity Bancshares declared a fourth quarter cash dividend of $0.46 per share to be paid on January 2, 2020 to all shareholders of record as of December 16, 2019.

Stock Repurchase Program

On January 19, 2018, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately 3.47 million shares, of its outstanding common stock may be acquired over a two-year period expiring on January 16, 2020, at the discretion of management. Prosperity Bancshares repurchased 654.6 thousand shares of its common stock at an average weighted price of $63.59 per share during the three months ended September 30, 2019 and 1.473 million shares of its common stock at an average weighted price of $64.10 per share during the nine months ended September 30, 2019.

Pending Merger with LegacyTexas Financial Group, Inc.

On June 17, 2019 Prosperity Bancshares and LegacyTexas Financial Group, Inc. ("LegacyTexas") jointly announced the signing of a definitive agreement whereby LegacyTexas, the parent company of LegacyTexas Bank will merge into Prosperity. LegacyTexas Bank operates 42 locations in 19 North Texas cities in and around the Dallas-Fort Worth area. As of September 30, 2019, LegacyTexas, on a consolidated basis, reported total assets of $10.5 billion, total gross loans of $9.1 billion and total deposits of $6.5 billion.

Under the terms of the merger agreement, stockholders of LegacyTexas will receive 0.5280 shares of Prosperity common stock and $6.28 cash for each LegacyTexas share. Consummation of the merger is subject to certain conditions, including the approval by the shareholders of Prosperity Bancshares and LegacyTexas and customary regulatory approvals. Based on Prosperity's closing price of $67.24 on June 14, 2019, the total consideration was valued at approximately $2.1 billion, or approximately $41.78 per share.

Conference Call

Prosperity's management team will host a conference call on Wednesday, October 23, 2019 at 11:30 a.m. Eastern Time (10:30 a.m. Central Time) to discuss Prosperity's third quarter 2019 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383 for domestic participants, or 412-902-6506 for international participants. The elite entry number is 6181935.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at www.prosperitybankusa.com. The webcast may be accessed from Prosperity's home page by selecting "Presentations & Calls" from the drop-down menu on the Investor Relations tab and following the instructions.

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, tangible equity to tangible assets ratio and the efficiency ratio, excluding net gains and losses on the sale of assets and securities. Further, as a result of acquisitions and the related purchase accounting adjustments, Prosperity uses certain non-GAAP financial 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, "Receivables-Nonrefundable Fees and Other Costs" and 310-30, "Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality"). Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and that their presentation, together with the accompanying reconciliations, provides a more 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 financial measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook. These non-GAAP financial measures should not be considered a substitute for, nor of greater importance than, GAAP basis financial measures and results; 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. 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 to the nearest respective GAAP financial measures.

Prosperity Bancshares, Inc. ®

As of September 30, 2019, Prosperity Bancshares, Inc. ^® is a $22.093 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 financial services including: Internet Banking services at www.prosperitybankusa.com, Retail Brokerage Services, Credit Cards, Debit Cards, 24 hour voice response banking, Trust and Wealth Management, Mortgage Services, Cash Management and Mobile Banking.

As of September 30, 2019, Prosperity operated 243 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 33 in the Dallas/Fort Worth area; 22 in the East Texas area; 29 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 8 in the Tulsa, Oklahoma area.

Cautionary Notes on Forward-Looking Statements

This communication contains, and the remarks by Prosperity's management on the conference call may contain, statements which, to the extent they are not statements of historical fact, constitute "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, oral or written forward-looking statements may also be included in other information released to the public. Such statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as "aim," "anticipate," "estimate," "expect," "goal," "guidance," "intend," "is anticipated," "is expected," "is intended," "objective," "plan," "projected," "projection," "will affect," "will be," "will continue," "will decrease," "will grow," "will impact," "will increase," "will incur," "will reduce," "will remain," "will result," "would be," variations of such words or phrases (including where the word "could," "may," or "would" is used rather than the word "will" in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. These forward-looking statements may include information about Prosperity's and LegacyTexas's possible or assumed future economic performance or future results of operations, including future revenues, income, expenses, provision for loan losses, provision for taxes, effective tax rate, earnings per share and cash flows and Prosperity's or LegacyTexas's future capital expenditures and dividends, future financial condition and changes therein, including changes in Prosperity's and LegacyTexas's loan portfolio and allowance for loan losses, future capital structure or changes therein, as well as the plans and objectives of management for Prosperity's or LegacyTexas's future operations, future or proposed acquisitions, the future or expected effect of acquisitions on Prosperity's or LegacyTexas's operations, results of operations, financial condition, and future economic performance, statements about the anticipated benefits of the proposed transaction, and statements about the assumptions underlying any such statement. The forward-looking statements are based on expectations and assumptions Prosperity and LegacyTexas currently believe to be valid. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Many possible events or factors could adversely affect the future financial results and performance of Prosperity, LegacyTexas or the combined company and could cause those results or performance to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, among others: the occurrence of any event, change or other circumstance that could give rise to the right of one or both of the parties to terminate the merger agreement, the outcome of any legal proceedings that may be instituted against Prosperity or LegacyTexas, delays in completing the transaction, the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) or shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors generally, or specifically in the Dallas/Fort Worth area where LegacyTexas does a majority of its business and Prosperity has a significant presence, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management's attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, Prosperity's ability to complete the acquisition and integration of LegacyTexas successfully, and the dilution caused by Prosperity's issuance of additional shares of its common stock in connection with the transaction. Each of Prosperity and LegacyTexas disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Further information on Prosperity, LegacyTexas and factors which could affect the forward-looking statements contained herein can be found in Prosperity's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Report on Form 10-Q for the three- and six-month periods ended June 30, 2019 and its other filings with the Securities and Exchange Commission ("SEC"), and in LegacyTexas's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Report on Form 10-Q for the three- and six-month periods ended June 30, 2019 and its other filings with the SEC.

Additional Information about the Merger and Where to Find It

In connection with the proposed merger of LegacyTexas into Prosperity, Prosperity has filed with the SEC a registration statement on Form S-4 to register the shares of Prosperity common stock to be issued to the stockholders of LegacyTexas. The registration statement includes a joint proxy statement/prospectus which has been sent to the stockholders of LegacyTexas and the shareholders of Prosperity seeking their approval of the proposed transaction.

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY, LEGACYTEXAS AND THE PROPOSED TRANSACTION.

Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Documents filed with the SEC by Prosperity will be available free of charge by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations, (281) 269-7199 and documents filed with the SEC by LegacyTexas will be available free of charge by directing a request by telephone or mail to LegacyTexas Financial Group, Inc., 5851 Legacy Circle, Suite 1200, Plano, Texas 75024, (972) 578-5000.

Participants in the Solicitation

Prosperity, LegacyTexas and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Prosperity and the stockholders of LegacyTexas in connection with the proposed transaction. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, is included in the joint proxy statement/prospectus regarding the proposed transaction filed with the SEC by Prosperity and LegacyTexas. Additional information about Prosperity and its directors and executive officers may be found in the definitive proxy statement of Prosperity relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 14, 2019, and other documents filed by Prosperity with the SEC. Additional information about LegacyTexas and its directors and executive officers may be found in the definitive proxy statement of LegacyTexas relating to its 2019 Annual Meeting of Stockholders filed with the SEC on April 12, 2019, and other documents filed by LegacyTexas with the SEC. These documents can be obtained free of charge from the sources described above.

No Offer or Solicitation

This communication is for informational purposes only and is not intended to and does not constitute an offer to subscribe for, buy or sell, or the solicitation of an offer to subscribe for, buy or sell, or an invitation to subscribe for, buy or sell any securities or a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, invitation, sale or solicitation would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.