Prosperity Bancshares Inc. PB

• Net income of $95.5 million and diluted earnings per share of $1.02 for fourth quarter 2023; excluding the FDIC special assessment of $19.9 million and merger related expenses, net income was $111.4 million⁽¹⁾ and diluted earnings per share was $1.19⁽¹⁾
• Loans, excluding Warehouse Purchase Program loans, increased $2.259 billion or 12.5% during 2023
• Loans, excluding Warehouse Purchase Program loans and loans acquired in the merger of First Bancshares of Texas, Inc, increased $882.7 million or 4.9% during 2023
• Noninterest-bearing deposits of $9.8 billion, representing 36.0% of total deposits
• Borrowings decreased by $525.0 million during the fourth quarter 2023
• Net interest margin increased 3 basis points to 2.75% during the fourth quarter 2023
• Allowance for credit losses on loans and on off-balance sheet credit exposure of $368.9 million and allowance for credit losses to total loans, excluding Warehouse Purchase Program, of 1.63%⁽¹⁾
• Nonperforming assets remain low at 0.21% of fourth quarter average interest-earning assets
• Pending merger of Lone Star State Bancshares, Inc., Lubbock, Texas
• Approved 2024 Stock Repurchase Program covering up to 5% of outstanding common stock

HOUSTON, Jan. 24, 2024 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^® (collectively, "Prosperity"), reported net income of $95.5 million for the quarter ended December 31, 2023 compared with $137.9 million for the same period in 2022. Net income per diluted common share was $1.02 for the quarter ended December 31, 2023 compared with $1.51 for the same period in 2022.  During the fourth quarter of 2023, Prosperity incurred a Federal Deposit Insurance Corporation ("FDIC") special assessment of $19.9 million, or $0.17⁽¹⁾ per diluted common share net of tax, which was assessed by the FDIC to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in early 2023. Excluding this assessment and merger related expenses, net income was $111.4 million⁽¹⁾ and earnings per diluted common share was $1.19⁽¹⁾ for the fourth quarter of 2023. The annualized return on fourth quarter average assets was 0.98%; excluding the FDIC special assessment, net of tax, and merger related expenses, net of tax, the return was 1.15%. Nonperforming assets remain low at 0.21% of fourth quarter average interest-earning assets. On May 1, 2023, First Bancshares of Texas, Inc. ("First Bancshares") merged with Prosperity Bancshares and FirstCapital Bank of Texas, N.A. ("FirstCapital Bank") merged with Prosperity Bank (collectively, the "Merger").

"We remain excited about the growth and future of our company. Prosperity operates in two of the best economies in the U.S. Even with the recent interest rate increases, economic activity and job growth in Texas and Oklahoma remain solid," said David Zalman, Prosperity's Senior Chairman and Chief Executive Officer.

"Prosperity has a strong capital position that provides us with flexibility in pursuing strategic opportunities, such as mergers and acquisitions and the repurchase of our stock when appropriate. We expect that our net interest margin will continue to expand to our historically normal level as our assets reprice over the next several years, increasing our earnings per share. Further, we have a strong core deposit base, with 36% of our deposits in noninterest-bearing accounts," concluded Zalman.

Results of Operations for the Three Months Ended December 31, 2023

For the three months ended December 31, 2023, net income was $95.5 million⁽²⁾ or $1.02 per diluted common share compared with $112.2 million⁽³⁾ or $1.20 per diluted common share for the three months ended September 30, 2023. The three months ended December 31, 2023 was impacted by the FDIC special assessment of $19.9 million and merger related expenses. For the three months ended December 31, 2023, net income was $95.5 million⁽²⁾ or $1.02 per diluted common share compared with $137.9 million⁽⁴⁾ or $1.51 per diluted common share for the same period in 2022. The change was primarily due to an increase in interest expense and an increase in noninterest expense that includes the FDIC special assessment, partially offset by an increase in loan interest income. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2023 were 0.98%, 5.39% and 10.54%⁽¹⁾, respectively.

Excluding the FDIC special assessment, net of tax, and merger related expenses, net of tax, net income was $111.4 million⁽¹⁾ or $1.19⁽¹⁾ per diluted common share for the three months ended December 31, 2023 and annualized returns on average assets, average common equity and average tangible common equity were 1.15%⁽¹⁾, 6.29%⁽¹⁾ and 12.30%⁽¹⁾, respectively, for the same period. Prosperity's efficiency ratio (excluding net gains and losses on the sale or write down of assets and securities) was 55.61%⁽¹⁾ for the three months ended December 31, 2023; and, excluding the FDIC special assessment and merger related expenses, the efficiency ratio was 48.23%⁽¹⁾.

Net interest income before provision for credit losses was $237.0 million for the three months ended December 31, 2023 compared with $239.5 million for the three months ended September 30, 2023. Net interest income before provision for credit losses decreased $19.2 million or 7.5% to $237.0 million for the three months ended December 31, 2023 compared with $256.1 million for the same period in 2022. The change was primarily due to an increase in the average balances and average rates on other borrowings and an increase in the average rates on interest-bearing deposits, partially offset by an increase in the average balances and average rates on loans.

The net interest margin on a tax equivalent basis was 2.75% for the three months ended December 31, 2023 compared with 2.72% for the three months ended September 30, 2023. The net interest margin on a tax equivalent basis was 2.75% for the three months ended December 31, 2023 compared with 3.05% for the same period in 2022. The change was primarily due to an increase in the average balances and average rates on other borrowings and an increase in the average rates on interest-bearing deposits, partially offset by an increase in the average balances and average rates on loans.

Noninterest income was $36.6 million for the three months ended December 31, 2023 compared with $38.7 million for the three months ended September 30, 2023 and $37.7 million for the three months ended December 31, 2022.

Noninterest expense was $152.2 million for the three months ended December 31, 2023 compared with $135.7 million for the three months ended September 30, 2023, an increase of $16.5 million or 12.2%. The change was primarily due to the FDIC special assessment of $19.9 million and an increase in other noninterest expense, partially offset by a decrease in salaries and benefits. Noninterest expense was $152.2 million for the three months ended December 31, 2023 compared with $119.2 million for the same period in 2022, an increase of $32.9 million or 27.6%. The change was primarily due to the FDIC special assessment of $19.9 million and additional expenses related to the Merger.

Results of Operations for the Year Ended December 31, 2023

For the year ended December 31, 2023, net income was $419.3 million⁽⁵⁾ or $4.51 per diluted common share compared with $524.5 million⁽⁶⁾ or $5.73 per diluted common share for the same period in 2022. The change was primarily due to lower net interest income, the FDIC special assessment of $19.9 million, merger related provision for credit losses of $18.5 million, merger related expenses of $15.1 million and additional expenses related to the Merger. Returns on average assets, average common equity and average tangible common equity for the year ended December 31, 2023 were 1.08%, 6.03% and 11.76%⁽¹⁾, respectively. Excluding the FDIC special assessment, net of tax, merger related provision for credit losses, net of tax, and merger related expenses, net of tax, net income was $461.7 million⁽¹⁾ or $4.97⁽¹⁾ per diluted common share for the year ended December 31, 2023 and returns on average assets, average common equity and average tangible common equity for the same period were 1.18%⁽¹⁾, 6.64%⁽¹⁾ and 12.95%⁽¹⁾, respectively. Prosperity's efficiency ratio (excluding net gains and losses on the sale or write down of assets and securities) was 50.26%⁽¹⁾ for the year ended December 31, 2023; and, excluding the FDIC special assessment and merger related expenses, the efficiency ratio was 47.09% ⁽¹⁾.

Net interest income before provision for credit losses for the year ended December 31, 2023 was $956.4 million compared with $1.005 billion for the same period in 2022, a decrease of $48.8 million or 4.9%. The change was primarily due to an increase in the average balances and average rates on other borrowings and an increase in the average rates on interest-bearing deposits, partially offset by increases in the average balances and average rates on loans.

The net interest margin on a tax equivalent basis for the year ended December 31, 2023 was 2.78% compared with 3.00% for the same period in 2022. The change was primarily due to an increase in the average balances and average rates on other borrowings and an increase in average rates on interest-bearing deposits, partially offset by an increase in the average balances and average rates on loans.

Noninterest income was $153.3 million for the year ended December 31, 2023 compared with $145.1 million for the same period in 2022, an increase of $8.1 million or 5.6%, primarily due to the Merger, partially offset by lower net gain on sale or write-down of assets.

Noninterest expense was $556.7 million for the year ended December 31, 2023 compared with $484.2 million for the same period in 2022, an increase of $72.5 million or 15.0%, primarily due to the FDIC special assessment of $19.9 million, merger related expenses of $15.1 million and additional expenses related to the Merger.

Balance Sheet Information

At December 31, 2023, Prosperity had $38.548 billion in total assets, an increase of $858.0 million or 2.3%, compared with $37.690 billion at December 31, 2022.

Loans were $21.181 billion at December 31, 2023, an increase of $2.341 billion or 12.4%, compared with $18.840 billion at December 31, 2022. Linked quarter loans decreased $252.2 million or 1.2% from $21.433 billion at September 30, 2023. Loans, excluding Warehouse Purchase Program loans, were $20.358 billion at December 31, 2023 compared with $18.099 billion at December 31, 2022, an increase of $2.259 billion or 12.5%, and compared with $20.520 billion at September 30, 2023, a decrease of $162.1 million.

Deposits were $27.180 billion at December 31, 2023, decreased $1.354 billion or 4.7%, compared with $28.534 billion at December 31, 2022, primarily due to a decrease in business deposits and public fund deposits, partially offset by an increase in Merger acquired deposits. Linked quarter deposits decreased $133.0 million or 0.5% from $27.313 billion at September 30, 2023.

The table below provides detail on the impact of loans acquired and deposits assumed in the Merger.

Excluding loans acquired in the Merger and new production since May 1, 2023 by the acquired lending operations, loans at December 31, 2023 grew $964.4 million or 5.1% compared with December 31, 2022 and decreased $134.2 million or 0.7% compared with September 30, 2023. Excluding loans acquired in the Merger, new production since May 1, 2023 by the acquired lending operations and Warehouse Purchase Program loans, loans at December 31, 2023 grew $882.7 million or 4.9% compared with December 31, 2022 and decreased $44.1 million or 0.2% compared with September 30, 2023.

Excluding deposits assumed in the Merger and new deposits generated at the acquired banking centers since May 1, 2023, deposits at December 31, 2023 decreased by $2.871 billion or 10.1% compared with December 31, 2022 and decreased by $24.5 million or 0.1% compared with September 30, 2023.

Asset Quality

Nonperforming assets totaled $72.7 million or 0.21% of quarterly average interest-earning assets at December 31, 2023 compared with $69.5 million or 0.20% of quarterly average interest-earning assets at September 30, 2023 and $27.5 million or 0.08% of quarterly average interest-earning assets at December 31, 2022. The increase during 2023 was primarily due to the Merger.

The allowance for credit losses on loans and off-balance sheet credit exposures was $368.9 million at December 31, 2023 compared with $311.5 million at December 31, 2022 and $388.0 million at September 30, 2023. There was no provision for credit losses for the three months ended December 31, 2023 and a provision for credit losses of $18.5 million for the year ended December 31, 2023 compared to no provision for credit losses for the three months and year ended December 31, 2022. The $18.5 million provision was made as a result of the loans acquired in the Merger, and included a $12.0 million provision for credit losses on loans and a $6.5 million provision for credit losses on off-balance sheet credit exposures. 

The allowance for credit losses on loans was $332.4 million or 1.57% of total loans at December 31, 2023 compared with $281.6 million or 1.49% of total loans at December 31, 2022 and $351.5 million or 1.64% of total loans at September 30, 2023. Excluding Warehouse Purchase Program loans, the allowance for credit losses on loans to total loans was 1.63%⁽¹⁾ at December 31, 2023 compared with 1.56%⁽¹⁾ at December 31, 2022 and 1.71%⁽¹⁾ at September 30, 2023.

Net charge-offs were $19.1 million for the three months ended December 31, 2023 compared with net charge-offs of $3.4 million for the three months ended September 30, 2023 and net charge-offs of $603 thousand for the three months ended December 31, 2022. Net charge-offs for the fourth quarter of 2023 included $16.3 million related to resolved purchased credit deteriorated ("PCD") loans. The PCD loans had reserves of $16.2 million assigned as of the acquisition date. Additionally, $7.4 million of reserves on resolved PCD loans was released to the general reserve.

Net charge-offs were $38.0 million for the year ended December 31, 2023 compared with $4.8 million for the year ended December 31, 2022. Net charge-offs for the year ended December 31, 2023 included $16.6 million related to resolved PCD loans and $15.0 million related to one commercial real estate loan acquired in a previous merger. The PCD loans had reserves of $16.3 million assigned as of the acquisition date. Additionally, reserves on PCD loans increased by $76.8 million due to the Merger and $23.5 million of reserves on resolved PCD loans was released to the general reserve.

Dividend

Prosperity Bancshares declared a first quarter 2024 cash dividend of $0.56 per share to be paid on April 1, 2024, to all shareholders of record as of March 15, 2024.

Stock Repurchase Program

On January 16, 2024, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately 4.7 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 16, 2025, at the discretion of management. Under its 2023 stock repurchase program, Prosperity Bancshares repurchased zero shares of its common stock during the three months ended December 31, 2023, and approximately 1.21 million shares of its common stock at an average weighted price of $59.88 per share during the year ended December 31, 2023.

Merger of First Bancshares of Texas, Inc.

On May 1, 2023, Prosperity completed the merger of First Bancshares and its wholly owned subsidiary FirstCapital Bank, headquartered in Midland, Texas. FirstCapital Bank operated 16 full-service banking offices in six different markets in West, North and Central Texas areas, including its main office in Midland, and banking offices in Midland, Lubbock, Amarillo, Wichita Falls, Burkburnett, Byers, Henrietta, Dallas, Horseshoe Bay, Marble Falls and Fredericksburg, Texas.

Pursuant to the terms of the definitive agreement, Prosperity issued 3,583,370 shares of Prosperity common stock plus approximately $91.5 million in cash for all outstanding shares of First Bancshares. This resulted in goodwill of $164.5 million as of December 31, 2023, which was subject to subsequent fair value adjustments. During the second quarter of 2023, Prosperity completed the operational conversion of FirstCapital Bank.

Pending Merger of Lone Star State Bancshares, Inc.

On October 11, 2022, Prosperity Bancshares and Lone Star State Bancshares, Inc. ("Lone Star") jointly announced the signing of a definitive merger agreement whereby Lone Star, the parent company of Lone Star State Bank of West Texas ("Lone Star Bank") will merge with and into Prosperity. Lone Star Bank operates 5 banking offices in the West Texas area, including its main office in Lubbock, and 1 banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. As of December 31, 2023, Lone Star, on a consolidated basis, reported total assets of $1.372 billion, total loans of $1.081 billion and total deposits of $1.211 billion.

Under the terms of the merger agreement, Prosperity will issue 2,376,182 shares of Prosperity common stock plus $64.1 million in cash for all outstanding shares of Lone Star capital stock, subject to certain conditions and potential adjustments. Based on Prosperity's closing price of $69.27 on October 7, 2022, the total consideration was valued at approximately $228.7 million. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals. The shareholders of Lone Star approved the transaction on March 28, 2023.

Conference Call

Prosperity's management team will host a conference call on Wednesday, January 24, 2024, at 11:30 a.m. Eastern Time (10:30 a.m. Central Time) to discuss Prosperity's fourth quarter 2023 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 participant elite entry number is 6674169.

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 Investor Relations page by selecting "Presentations, Webcasts & Calls" from the menu and following the instructions.

Non-GAAP Financial Measures

Prosperity's management uses certain non-GAAP financial measures to evaluate its performance. Specifically, for internal planning and forecasting purposes, Prosperity reviews each of diluted earnings per share, return on average assets, return on average common equity, and return on average tangible common equity, in each case excluding merger related provision for credit losses, net of tax, merger related expenses, net of tax, and the FDIC special assessment, net of tax; return on average tangible common equity; tangible book value per share; the tangible equity to tangible assets ratio; allowance for credit losses to total loans excluding Warehouse Purchase Program loans; the efficiency ratio, excluding net gains and losses on the sale or write down of assets and securities; and the efficiency ratio, excluding net gains and losses on the sale or write down of assets and securities, merger related expenses and the FDIC special assessment. Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and 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 December 31, 2023, Prosperity Bancshares, Inc.^® is a $38.548 billion Houston, Texas based regional financial holding company providing personal banking services and investments to consumers and businesses throughout Texas and Oklahoma.  Founded in 1983, Prosperity believes in a community banking philosophy, taking care of customers, businesses and communities in the areas it serves by providing financial solutions to simplify everyday financial needs. In addition to offering traditional deposit and loan products, Prosperity offers digital banking solutions, credit and debit cards, mortgage services, retail brokerage services, trust and wealth management, and treasury management.

Prosperity currently operates 285 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth area; 22 in the East Texas area; 32 in the Central Texas area including Austin and San Antonio; 44 in the West Texas area including Lubbock, Midland-Odessa, Abilene; Amarillo and Wichita Falls; 16 in the Bryan/College Station area, 6 in the Central Oklahoma area; 8 in the Tulsa, Oklahoma area.

Cautionary Notes on Forward-Looking Statements

"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 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 forward-looking statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as "aim," "anticipate," "believe," "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. Forward-looking statements include all statements other than statements of historical fact, including forecasts or trends, and are based on current expectations, assumptions, estimates and projections about Prosperity Bancshares and its subsidiaries. These forward-looking statements may include information about Prosperity'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 future capital expenditures and dividends, future financial condition and changes therein, including changes in Prosperity's loan portfolio and allowance for loan losses, changes in deposits, borrowings and the investment securities portfolio, future capital structure or changes therein, as well as the plans and objectives of management for Prosperity's future operations, future or proposed acquisitions, including the pending transaction with Lone Star, the future or expected effect of acquisitions on Prosperity's operations, results of operations, financial condition, and future economic performance, statements about the anticipated benefits of each of the proposed transactions, and statements about the assumptions underlying any such statement. These forward‑looking statements are not guarantees of future performance and are based on expectations and assumptions Prosperity currently believes to be valid.  Because forward-looking statements relate to future results and occurrences, many of which are outside of Prosperity's control, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. 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, including Lone Star; 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); the possibility that the anticipated benefits of an acquisition transaction, including the pending transaction with Lone Star, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of two companies or as a result of the strength of the economy and competitive factors generally; 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, interest rate and commodity price fluctuations; and the effect, impact, potential duration or other implications of weather and climate-related events. Prosperity 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. These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2022, and other reports and statements Prosperity has filed with the Securities and Exchange Commission ("SEC"). Copies of the SEC filings for Prosperity may be downloaded from the Internet at no charge from http://www.prosperitybankusa.com.