pb-10q_20210930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-35388

PROSPERITY BANCSHARES, INC.^®

(Exact name of registrant as specified in its charter)

Texas

74-2331986

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

Prosperity Bank Plaza
4295 San Felipe, Houston, Texas	77027
(Address of principal executive offices)	(Zip Code)

(281) 269-7199

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $1.00 per share		PB		New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2021, there were 92,164,955 outstanding shares of the registrant’s Common Stock, par value $1.00 per share.

PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES

INDEX TO FORM 10-Q

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	53

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
Signatures		56

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC.^® AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2021			2020
	(unaudited)
	(Dollars in thousands, except par value)
ASSETS
Cash and due from banks	$	1,055,386		$	1,342,996
Federal funds sold		237			553
Total cash and cash equivalents		1,055,623			1,343,549
Available for sale securities, at fair value		580,929			651,514
Held to maturity securities, at cost (fair value of $12,186,114 and $8,039,142, respectively)		12,048,439			7,891,306
Total securities		12,629,368			8,542,820
Loans held for sale		10,197			46,777
Loans held for investment		16,949,486			17,357,788
Loans held for investment - Warehouse Purchase Program		1,998,049			2,842,379
Total loans		18,957,732			20,246,944
Less: allowance for credit losses on loans		(287,187	)		(316,068	)
Loans, net		18,670,545			19,930,876
Accrued interest receivable		71,651			82,068
Goodwill		3,231,636			3,231,636
Core deposit intangibles, net		64,539			73,235
Bank premises and equipment, net		322,799			323,572
Other real estate owned		150			10,593
Bank owned life insurance (BOLI)		326,830			324,356
Federal Home Loan Bank of Dallas stock		8,901			8,901
Other assets		130,077			187,669
TOTAL ASSETS	$	36,512,119		$	34,059,275
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	10,326,489		$	9,151,233
Interest-bearing		19,125,163			18,209,259
Total deposits		29,451,652			27,360,492
Fed funds purchased and other borrowings		—			—
Securities sold under repurchase agreements		440,969			389,583
Subordinated notes		—			—
Accrued interest payable		1,499			3,462
Allowance for credit losses on off-balance sheet credit exposures		29,947			29,947
Other liabilities		242,611			145,122
Total liabilities		30,166,678			27,928,606
COMMITMENTS AND CONTINGENCIES		—			—
SHAREHOLDERS’ EQUITY:
Preferred stock, $1 par value; 20,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $1 par value; 200,000,000 shares authorized; 92,160,455 shares issued and outstanding at September 30, 2021; 92,570,789 shares issued and outstanding at December 31, 2020		92,161			92,571
Capital surplus		3,591,949			3,634,140
Retained earnings		2,659,370			2,403,189
Accumulated other comprehensive income —net unrealized gain on available for sale securities, net of tax expense of $521 and $205, respectively		1,961			769
Total shareholders’ equity		6,345,441			6,130,669
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	36,512,119		$	34,059,275

See notes to consolidated financial statements.

PROSPERITY BANCSHARES, INC.^® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021			2020
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees	$	213,821	$	244,255		$	663,699		$	734,270
Securities		46,217		38,033			128,602			130,091
Federal funds sold and other earning assets		302		144			993			902
Total interest income		260,340		282,432			793,294			865,263
INTEREST EXPENSE:
Deposits		11,578		22,458			44,228			82,745
Other borrowings		—		52			—			3,517
Securities sold under repurchase agreements		195		309			518			1,403
Subordinated notes		—		1,500			—			4,499
Total interest expense		11,773		24,319			44,746			92,164
NET INTEREST INCOME		248,567		258,113			748,548			773,099
PROVISION FOR CREDIT LOSSES		—		10,000			—			20,000
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		248,567		248,113			748,548			753,099
NONINTEREST INCOME:
Nonsufficient funds (NSF) fees		7,962		7,156			21,209			22,244
Credit card, debit card and ATM card income		8,837		8,315			25,786			23,052
Service charges on deposit accounts		6,115		5,920			18,155			17,814
Trust income		2,467		2,502			7,580			7,406
Mortgage income		1,396		2,958			7,617			6,788
Brokerage income		861		628			2,367			1,862
Net gain (loss) on sale or write down of assets		255		(528	)		(68	)		(4,858	)
Other		6,752		7,973			21,563			20,679
Total noninterest income		34,645		34,924			104,209			94,987
NONINTEREST EXPENSE:
Salaries and employee benefits		78,412		75,068			234,060			231,459
Net occupancy and equipment		8,165		8,644			24,044			26,814
Credit and debit card, data processing and software amortization		9,103		8,776			26,054			31,887
Regulatory assessments and FDIC insurance		2,497		2,512			7,837			7,191
Core deposit intangibles amortization		2,878		3,270			8,696			9,926
Depreciation		4,524		4,605			13,577			13,971
Communications		3,013		3,027			8,894			9,546
Net other real estate expense (income)		34		121			(2,250	)		81
Merger related expenses		—		—			—			8,018
Other		11,189		11,896			33,170			38,135
Total noninterest expense		119,815		117,919			354,082			377,028
INCOME BEFORE INCOME TAXES		163,397		165,118			498,675			471,058
PROVISION FOR INCOME TAXES		34,807		35,054			106,165			79,245
NET INCOME	$	128,590	$	130,064		$	392,510		$	391,813
EARNINGS PER SHARE:
Basic	$	1.39	$	1.40		$	4.23		$	4.20
Diluted	$	1.39	$	1.40		$	4.23		$	4.20

See notes to consolidated financial statements.

PROSPERITY BANCSHARES, INC.^® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
	(Dollars in thousands)
Net income	$	128,590		$	130,064		$	392,510		$	391,813
Other comprehensive income (loss), before tax:
Securities available for sale:
Change in unrealized gains (losses) during the period		1,089			1,325			1,509			(1,204	)
Total other comprehensive income (loss)		1,089			1,325			1,509			(1,204	)
Deferred tax (expense) benefit related to other comprehensive income (loss)		(229	)		(278	)		(317	)		253
Other comprehensive income (loss), net of tax		860			1,047			1,192			(951	)
Comprehensive income	$	129,450		$	131,111		$	393,702		$	390,862

See notes to consolidated financial statements.

PROSPERITY BANCSHARES, INC.^® AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

													Accumulated
													Other		Total
	Common Stock						Capital			Retained			Comprehensive		Shareholders’
	Shares			Amount			Surplus			Earnings			Income (Loss)		Equity
	(In thousands, except share and per share data)
Three Months Ended
BALANCE AT JUNE 30, 2021		92,934,789		$	92,935		$	3,640,266		$	2,576,035		$	1,101	$	6,310,337
Net income											128,590					128,590
Other comprehensive income														860		860
Common stock issued in connection with the issuance of restricted stock awards, net		(7,200	)		(7	)		7								—
Common stock repurchase		(767,134	)		(767	)		(51,322	)							(52,089	)
Stock based compensation expense								2,998								2,998
Cash dividends declared, $0.49 per share											(45,255	)				(45,255	)
BALANCE AT SEPTEMBER 30, 2021		92,160,455		$	92,161		$	3,591,949		$	2,659,370		$	1,961	$	6,345,441