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Prosperity Bancshares, Inc.® Reports Fourth Quarter 2016 Earnings
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PR Newswire
HOUSTON, Jan. 25, 2017
HOUSTON, Jan. 25, 2017 /PRNewswire/ -- Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank® (collectively, "Prosperity"), reported net income for the quarter ended December 31, 2016 of $68.793 million or $0.99 per diluted common share. Additionally, nonperforming assets remain low at 0.25% of fourth quarter average earning assets.
"We were pleased with our fourth quarter 2016 performance. Our nonperforming assets decreased 19.7% as the Texas economy continues to improve. Our annualized return on fourth quarter average tangible common equity was 16.33%," said David Zalman, Prosperity's Chairman and Chief Executive Officer.
"We are excited going into 2017. We believe that the Texas and Oklahoma economies are improving with rising oil and gas prices. Further, expected increases in interest rates will help our net interest margin over the longer term," continued Zalman.
"We see optimism in our customer base, as businesses are now willing to expand purchasing. With a better economy and the absence of the loan contraction we experienced over the last several years, we believe that we will have more normalized organic growth in loans and deposits during 2017," concluded Zalman.
| (1) | Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure. |
Results of Operations for the Three Months Ended December 31, 2016
Net income was $68.793 million for the three months ended December 31, 2016 compared with $70.475 million for the same period in 2015. Net income per diluted common share was $0.99 for the three months ended December 31, 2016 compared with $1.01 for the same period in 2015. Net income (excluding purchase accounting adjustments) was $64.191 million for the three months ended December 31, 2016 compared with $66.147 million for the three months ended December 31, 2015. Net income per diluted common share (excluding purchase accounting adjustments) was $0.92 for the three months ended December 31, 2016 compared with $0.94 for the same period in 2015. The reconciliations of these non-GAAP financial measures to the nearest respective GAAP financial measures are shown on page 12. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2016 were 1.26%, 7.58% and 16.33%(1), respectively. Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 43.29% for the three months ended December 31, 2016.
Net interest income before provision for credit losses for the three months ended December 31, 2016 was $153.832 million compared with $153.258 million during the same period in 2015, an increase of $574 thousand or 0.4%. This change was primarily due to an increase in average interest-earning assets, which was partially offset by an increase in the average rate paid on interest-bearing liabilities for the three months ended December 31, 2016. Linked quarter net interest income before provision for credit losses decreased $232 thousand or 0.2% to $153.832 million compared with $154.064 million during the three months ended September 30, 2016, primarily due to a slight increase in the average rate paid on interest-bearing liabilities.
The net interest margin on a tax equivalent basis was 3.26% for the three months ended December 31, 2016, compared with 3.24% for the same period in 2015. On a linked quarter basis the net interest margin was 3.26% compared with 3.29% for the three months ended September 30, 2016. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis was 3.12% for the three months ended December 31, 2016, compared with 3.11% for the same period in 2015 and 3.14% for the three months ended September 30, 2016. The reconciliations of these non-GAAP financial measures to the nearest respective GAAP financial measures are shown on page 12.
Noninterest income was $29.475 million for the three months ended December 31, 2016 compared with $30.283 million for the same period in 2015, a decrease of $808 thousand or 2.7%. On a linked quarter basis, noninterest income decreased $209 thousand or 0.7% compared with the three months ended September 30, 2016.
Noninterest expense was $79.148 million for the three months ended December 31, 2016 compared with $77.909 million for the same period in 2015, an increase of $1.239 million or 1.6%. This change was primarily due to an increase in incentive compensation and the Tradition acquisition. On a linked quarter basis, noninterest expense decreased $328 thousand or 0.4% compared with the three months ended September 30, 2016.
Results of Operations for the Year Ended December 31, 2016
Net income was $274.466 million for the year ended December 31, 2016 compared with $286.646 million for the same period in 2015. Net income per diluted common share was $3.94 for the year ended December 31, 2016 compared with $4.09 for the same period in 2015. Net income (excluding purchase accounting adjustments) was $250.644 million for the year ended December 31, 2016 compared with $255.479 million for the year ended December 31, 2015. Net income per diluted common share (excluding purchase accounting adjustments) was $3.60 for the year ended December 31, 2016 compared with $3.65 for the year ended December 31, 2015. The reconciliations of these non-GAAP financial measures to the nearest respective GAAP financial measures are shown on page 12. Annualized returns on average assets, average common equity and average tangible common equity for the year ended December 31, 2016 were 1.25%, 7.69% and 16.95%(1), respectively. Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and taxes) was 42.50% for the year ended December 31, 2016.
Net interest income before provision for credit losses for the year ended December 31, 2016 was $632.620 million compared with $630.510 million for the same period in 2015, an increase of $2.110 million or 0.3%. The net interest margin on a tax equivalent basis for the year ended December 31, 2016 was 3.35% compared with 3.38% for the same period in 2015. This change was primarily due to a decrease in loan discount accretion of $13.152 million. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis was 3.16% for the year ended December 31, 2016 compared with 3.13% for the same period in 2015. The reconciliations of these non-GAAP financial measures to the nearest respective GAAP financial measures are shown on page 12.
Noninterest income was $118.425 million for the year ended December 31, 2016 compared with $120.781 million for the same period in 2015, a decrease of $2.356 million or 2.0%. This change was primarily due to a decrease in other noninterest income, brokerage income and NSF fees, which was partially offset by an increase in service charges on deposit accounts and mortgage income.
Noninterest expense was $318.387 million for the year ended December 31, 2016 compared with $313.536 million for the same period in 2015, an increase of $4.851 million or 1.5%. This change was primarily due to the full year effect of the Tradition acquisition. Additionally, for the year ended December 31, 2016, one-time pretax merger-related expenses for the Tradition acquisition totaled $670 thousand.
Balance Sheet Information
At December 31, 2016, Prosperity had $22.331 billion in total assets, an increase of $293.856 million or 1.3%, compared with $22.037 billion at December 31, 2015.
Loans at December 31, 2016 were $9.622 billion, an increase of $183.471 million or 1.9%, compared with $9.439 billion at December 31, 2015. Linked quarter loans increased $73.746 million or 0.8% (3.1% annualized) from $9.548 billion at September 30, 2016.
As part of its commercial and industrial lending activities, Prosperity extends credit to oil and gas production and service companies. Oil and gas production loans are loans to companies directly involved in the exploration and/or production of oil and gas. Oil and gas service loans are loans to companies that provide services for oil and gas production and exploration. At December 31, 2016, oil and gas loans totaled $284.539 million or 3.0% of total loans, of which $119.934 million were to production companies and $164.605 million were to service companies. This compares with total oil and gas loans of $399.084 million or 4.2% of total loans at December 31, 2015, of which $178.614 million were to production companies and $220.470 million were to service companies. On a linked quarter basis, oil and gas loans decreased $24.412 million, from $308.951 million or 3.2% of total loans at September 30, 2016, of which $139.913 million were production loans and $169.038 million were service loans.
Deposits at December 31, 2016 were $17.307 billion, a decrease of $373.817 million or 2.1%, compared with $17.681 billion at December 31, 2015. Linked quarter deposits increased $385.893 million or 2.3% (9.1% annualized) from $16.921 billion at September 30, 2016. This change primarily resulted from seasonality.
The table below provides detail on the impact of loans acquired and deposits assumed in the acquisition of Tradition completed on January 1, 2016:
| Balance Sheet Data (at period end) | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| | | Dec 31, 2016 | | | Sep 30, 2016 | | | Jun 30, 2016 | | | Mar 31, 2016 | | | Dec 31, 2015 | | |||||
| | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | |||||
| Loans acquired (including new production since acquisition date): | | | | | | | | | | | | | | | | | | | | |
| Tradition | | $ | 226,830 | | | $ | 228,357 | | | $ | 233,340 | | | $ | 232,160 | | | $ | — | |
| All other loans | | | 9,395,230 | | | | 9,319,957 | | | | 9,416,668 | | | | 9,422,248 | | | | 9,438,589 | |
| Total loans | | $ | 9,622,060 | | | $ | 9,548,314 | | | $ | 9,650,008 | | | $ | 9,654,408 | | | $ | 9,438,589 | |
| | | | | | | | | | | | | | | | | | | | | |
| Deposits assumed (including new deposits since acquisition date): | | | | | | | | | | | | | | | | | | | | |
| Tradition | | $ | 417,837 | | | $ | 432,858 | | | $ | 440,110 | | | $ | 476,203 | | | $ | — | |
| All other deposits | | | 16,889,465 | | | | 16,488,551 | | | | 16,779,035 | | | | 17,396,563 | | | | 17,681,119 | |
| Total deposits | | $ | 17,307,302 | | | $ | 16,921,409 | | | $ | 17,219,145 | | | $ | 17,872,766 | | | $ | 17,681,119 | |
Excluding loans acquired in the Tradition acquisition and new production at the acquired banking centers since the acquisition date, loans at December 31, 2016 decreased $43.359 million or 0.5% compared with December 31, 2015 and, on a linked quarter basis, increased $75.273 million or 0.8%.
Excluding deposits assumed in the Tradition acquisition and new deposits generated at the acquired banking centers since the acquisition date, deposits at December 31, 2016 decreased $791.654 million or 4.5% compared with December 31, 2015 and, on a linked quarter basis, increased $400.914 million or 2.4%.
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