FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
| ¨ | 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: 000-25051
PROSPERITY BANCSHARES, INC.SM
(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, including zip code)
(713) 693-9300
(Registrant’s telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of April 30, 2004, there were 20,954,705 shares of the registrant’s Common Stock, par value $1.00 per share, outstanding.
PROSPERITY BANCSHARES, INC.SM AND SUBSIDIARIES
INDEX TO FORM 10-Q
| Page | ||||
| PART I - FINANCIAL INFORMATION |
||||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 (unaudited) |
3 | |||
| Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 (unaudited) |
4 | |||
| 5 | ||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (unaudited) |
6 | |||
| Notes to Interim Consolidated Financial Statements (Unaudited) |
7 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3. |
20 | |||
| Item 4. |
20 | |||
| PART II - OTHER INFORMATION |
||||
| Item 1. |
21 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
21 | ||
| Item 3. |
21 | |||
| Item 4. |
21 | |||
| Item 5. |
21 | |||
| Item 6. |
21 | |||
| 22 | ||||
2
PART I – FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
PROSPERITY BANCSHARES, INC.SM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Dollars in thousands, except share data) |
||||||||
| ASSETS |
||||||||
| Cash and due from banks |
$ | 55,374 | $ | 71,983 | ||||
| Federal funds sold |
28,323 | 11,730 | ||||||
| Total cash and cash equivalents |
83,697 | 83,713 | ||||||
| Interest-bearing deposits in financial institutions |
150 | 262 | ||||||
| Available for sale securities, at fair value (amortized cost of $242,744 and $260,533, respectively) |
244,478 | 263,648 | ||||||
| Held to maturity securities, at cost (fair value of $1,201,471 and $1,122,451, respectively) |
1,182,158 | 1,113,232 | ||||||
| Loans |
770,223 | 770,053 | ||||||
| Less allowance for credit losses |
(10,460 | ) | (10,345 | ) | ||||
| Loans, net |
759,763 | 759,708 | ||||||
| Accrued interest receivable |
9,440 | 10,119 | ||||||
| Goodwill |
116,123 | 118,012 | ||||||
| Core deposit intangibles, net of accumulated amortization of $1,394 and $1,010, respectively |
8,461 | 6,743 | ||||||
| Bank premises and equipment, net |
33,651 | 34,299 | ||||||
| Other real estate owned |
80 | 246 | ||||||
| Other assets |
11,552 | 10,505 | ||||||
| TOTAL |
$ | 2,449,553 | $ | 2,400,487 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| LIABILITIES: |
||||||||
| Deposits: |
||||||||
| Noninterest-bearing |
$ | 443,137 | $ | 467,389 | ||||
| Interest-bearing |
1,679,724 | 1,616,359 | ||||||
| Total deposits |
2,122,861 | 2,083,748 | ||||||
| Other borrowings |
11,746 | 11,929 | ||||||
| Securities sold under repurchase agreements |
18,832 | 19,007 | ||||||
| Accrued interest payable |
2,090 | 2,522 | ||||||
| Other liabilities |
8,293 | 3,889 | ||||||
| Junior subordinated debentures |
59,804 | 59,804 | ||||||
| Total liabilities |
2,223,626 | 2,180,899 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Common stock, $1 par value; 50,000,000 shares authorized; 20,981,793 and 20,966,706 shares issued at March 31, 2004 and December 31, 2003, respectively; 20,944,705 and 20,929,618 shares outstanding at March 31, 2004 and December 31, 2003, respectively |
20,982 | 20,967 | ||||||
| Capital surplus |
102,642 | 102,594 | ||||||
| Retained earnings |
101,101 | 94,610 | ||||||
| Accumulated other comprehensive income — net unrealized gains on available for sale securities, net of tax of $974 and $1,090, respectively |
1,809 | 2,024 | ||||||
| Less treasury stock, at cost, 37,088 shares at March 31, 2004 and December 31, 2003, respectively |
(607 | ) | (607 | ) | ||||
| Total shareholders’ equity |
225,927 | 219,588 | ||||||
| TOTAL |
$ | 2,449,553 | $ | 2,400,487 | ||||
See notes to interim consolidated financial statements.
3
PROSPERITY BANCSHARES, INC.SM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| (Dollars in thousands, except per share data) | ||||||
| INTEREST INCOME: |
||||||
| Loans, including fees |
$ | 12,313 | $ | 11,430 | ||
| Securities: |
||||||
| Taxable |
13,168 | 9,864 | ||||
| Nontaxable |
385 | 426 | ||||
| 70% nontaxable preferred dividends |
452 | 452 | ||||
| Federal funds sold |
53 | 34 | ||||
| Deposits in other financial institutions |
1 | 6 | ||||
| Total interest income |
26,372 | 22,212 | ||||
| INTEREST EXPENSE: |
||||||
| Deposits |
5,781 | 5,826 | ||||
| Junior subordinated debentures |
996 | 587 | ||||
| Note payable and other borrowings |
248 | 255 | ||||
| Total interest expense |
7,025 | 6,668 | ||||
| NET INTEREST INCOME |
19,347 | 15,544 | ||||
| PROVISION FOR CREDIT LOSSES |
120 | 120 | ||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES |
19,227 | 15,424 | ||||
| NONINTEREST INCOME: |
||||||
| Customer service fees |
4,760 | 3,255 | ||||
| Other |
512 | 584 | ||||
| Total noninterest income |
5,272 | 3,839 | ||||
| NONINTEREST EXPENSE: |
||||||
| Salaries and employee benefits |
6,704 | 5,407 | ||||
| Net occupancy expense |
1,043 | 954 | ||||
| Depreciation expense |
701 | 605 | ||||
| Data processing |
447 | 615 | ||||
| Communications expense |
725 | 618 | ||||
| Core deposit intangibles amortization |
383 | 193 | ||||
| Other |
2,456 | 1,539 | ||||
| Total noninterest expense |
12,459 | 9,931 | ||||
| INCOME BEFORE INCOME TAXES |
12,040 | 9,332 | ||||
| PROVISION FOR INCOME TAXES |
3,977 | 2,943 | ||||
| NET INCOME |
$ | 8,063 | $ | 6,389 | ||
| EARNINGS PER SHARE |
||||||
| Basic |
$ | 0.39 | $ | 0.34 | ||
| Diluted |
$ | 0.38 | $ | 0.33 | ||
See notes to interim consolidated financial statements.
4
PROSPERITY BANCSHARES, INC.SM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock |
Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income |
Treasury Stock |
Total Shareholders’ Equity |
||||||||||||||||||||
| Shares |
Amount |
||||||||||||||||||||||||
| (Amounts in thousands, except share data) | |||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2002 |
18,903,028 | $ | 18,903 | $ | 60,312 | $ | 72,917 | $ | 2,644 | $ | (37 | ) | $ | 154,739 | |||||||||||
| Net income |
26,548 | 26,548 | |||||||||||||||||||||||
| Net change in unrealized gain on available for sale securities |
(620 | ) | (620 | ) | |||||||||||||||||||||
| Total comprehensive income |
25,928 | ||||||||||||||||||||||||
| Exercise of stock options |
170,638 | 171 | 824 | 995 | |||||||||||||||||||||
| Refund of escrow shares in connection with the Paradigm acquisition |
(570 | ) | (570 | ) | |||||||||||||||||||||
| Common stock issued in connection with the MainBancorp acquisition |
1,499,966 | 1,500 | 33,149 | 34,649 | |||||||||||||||||||||
| Common stock issued in connection with the FSBNT acquisition |
393,074 | 393 | 8,538 | 8,931 | |||||||||||||||||||||
| Stock option compensation |
25 | 25 | |||||||||||||||||||||||
| Junior subordinated debentures issuance costs |
(254 | ) | (254 | ) | |||||||||||||||||||||
| Cash dividends declared, $0.25 per share |
(4,855 | ) | (4,855 | ) | |||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2003 |
20,966,706 | 20,967 | 102,594 | 94,610 | 2,024 | (607 | ) | 219,588 | |||||||||||||||||
| Net income |
8,063 | 8,063 | |||||||||||||||||||||||
| Net change in unrealized gain on available for sale securities |
(215 | ) | (215 | ) | |||||||||||||||||||||
| Total comprehensive income |
7,848 | ||||||||||||||||||||||||
| Exercise of stock options |
15,087 | 15 | 48 | 63 | |||||||||||||||||||||
| Cash dividends declared, $0.075 |
(1,572 | ) | (1,572 | ) | |||||||||||||||||||||
| BALANCE AT MARCH 31, 2004 |
20,981,793 | $ | 20,982 | $ | 102,642 | $ | 101,101 | $ | 1,809 | $ | (607 | ) | $ | 225,927 | |||||||||||
See notes to interim consolidated financial statements.
5
PROSPERITY BANCSHARES, INC.SM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Dollars in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 8,063 | $ | 6,389 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,084 | 799 | ||||||
| Provision for credit losses |
120 | 120 | ||||||
| Net amortization of discount/premium on investments |
1,259 | 2,246 | ||||||
| Loss on sale of other real estate |
15 | 1 | ||||||
| Gain on sale of premises and equipment |
(68 | ) | (6 | ) | ||||
| (Increase) decrease in other assets and accrued interest receivable |
(368 | ) | 1,455 | |||||
| Increase in accrued interest payable and other liabilities |
4,088 | 1,849 | ||||||
| Total adjustments |
6,130 | 6,464 | ||||||
| Net cash provided by operating activities |
14,193 | 12,853 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Proceeds from maturities and principal paydowns of held to maturity securities |
62,776 | 86,445 | ||||||
| Purchase of held to maturity securities |
(132,668 | ) | (232,875 | ) | ||||
| Proceeds from maturities and principal paydowns of available for sale securities |
18,545 | 38,367 | ||||||
| Purchase of available for sale securities |
— | — | ||||||
| Net (increase) decrease loans |
(434 | ) | 22,072 | |||||
| Purchase of bank premises and equipment |
(272 | ) | (1,065 | ) | ||||
| Net decrease in interest-bearing deposits in financial institutions |
112 | 99 | ||||||
| Net proceeds acquired from sale of bank premises, equipment, and other real estate |
485 | 205 | ||||||
| Net cash used in investing activities |
(51,456 | ) | (86,752 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Net decrease in noninterest-bearing deposits |
(24,252 | ) | (15,595 | ) | ||||
| Net increase in interest-bearing deposits |
63,365 | 63,249 | ||||||
| Net (repayments) proceeds from lines of credit |
(358 | ) | 2,027 | |||||
| Proceeds from exercise of stock options |
63 | 200 | ||||||
| Payments of cash dividends |
(1,571 | ) | (1,183 | ) | ||||