<PAGE> 1
FORM 10-Q/A*
UNITED STATES
(Mark One) SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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.
(Exact name of registrant as specified in its charter)
TEXAS 74-2331986
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3040 Post Oak Blvd.
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 993-0002
(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
--- ---
As of October 31, 2000, there were 5,251,525 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
* The Company's Form 10-Q for the quarter ended September 30, 2000
is hereby amended to clarify proofing errors made in Part I, Item 2.
1
<PAGE> 2
PROSPERITY BANCSHARES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
3. RECENT ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. This statement is effective for periods beginning after June 15, 2000.
Management believes the implementation of this pronouncement will not have a
material effect on the Company's financial statements.
4. RECENT ACQUISITION
On September 15, 2000, the Company's wholly owned subsidiary, First
Prosperity Bank, purchased certain assets and assumed certain liabilities of
five branches of Compass Bancshares, Inc. located in El Campo, Hitchcock,
Needville, Palacios and Sweeny, Texas. The Company accounted for the acquisition
under the purchase method of accounting. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Overview."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Prosperity Bancshares, Inc. (the "Company") is a registered bank
holding company that derives substantially all of its revenues and income from
the operation of First Prosperity Bank (the "Bank"). The Bank is a full-service
bank that provides a broad line of financial products and services to small and
medium-sized businesses and consumers through 18 full-service banking locations
in the greater Houston metropolitan area and in the nine contiguous counties
south and southwest of Houston and extending into South Texas.
Statements and financial discussion and analysis contained in the Form
10-Q that are not historical facts are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are based on assumptions and involve a number
of risks and uncertainties, many of which are beyond the Company's control. The
important factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation:
o changes in interest rates and market prices, which could reduce the
Company's net interest margins, asset valuations and expense expectations;
o changes in the levels of loan prepayments and the resulting effects on the
value of the Company's loan portfolio;
o changes in local economic and business conditions which adversely affect
the Company's customers and their ability to transact profitable business
with the company, including the ability of the Company's borrowers to repay
their loans according to their terms or a change in the value of the
related collateral.
o increased competition for deposits and loans adversely affecting rates and
terms;
o the timing, impact and other uncertainties of future acquisitions,
including the Company's ability to identify suitable future acquisition
candidates, the success or failure in the integration of their operations,
and the ability to enter new markets successfully and capitalize on growth
opportunities;
o increased credit risk in the Company's assets and increased operating risk
caused by a material change in commercial, consumer and/or real estate
loans as a percentage of the total loan portfolio;
8
<PAGE> 3
o the failure of assumptions underlying the establishment of and provisions
made to the allowance for credit losses;
o changes in the availability of funds resulting in increased costs or
reduced liquidity;
o increased asset levels and changes in the composition of assets and the
resulting impact on the Company's capital levels and regulatory capital
ratios;
o the Company's ability to acquire, operate and maintain cost effective and
efficient systems without incurring unexpectedly difficult or expensive but
necessary technological changes;
o the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
and
o changes in statutes and government regulations or their interpretations
applicable to bank holding companies and the Company's present and future
banking and other subsidiaries, including changes in tax requirements and
tax rates.
OVERVIEW
The Company showed positive earnings growth for the nine month period
ended September 30, 2000 due to the increase in loan volume, and the acquisition
of five branches of Compass Bancshares, Inc. (the "Compass Acquisition") in the
third quarter of 2000 and the acquisition of South Texas Bancshares and its
wholly-owned subsidiary, The Commercial National Bank of Beeville, (the "South
Texas Acquisition") in the fourth quarter of 1999. Net income available to
common shareholders was $2.0 million ($0.37 per common share on a diluted basis)
for the quarter ended September 30, 2000 compared with $1.6 million ($0.29 per
common share on a diluted basis) for the quarter ended September 30, 1999, an
increase of $431,000, or 27.2%. The Company posted returns on average common
equity of 17.18% and 14.79% and returns on average assets of 1.32% and 1.42% for
the quarters ended September 30, 2000 and 1999, respectively. For the nine
months ended September 30, 2000, net income available to common shareholders was
$6.0 million ($1.10 per common share on a diluted basis) compared with $4.5
million ($0.84 per common share on a diluted basis) for the same period in 1999,
an increase of $1.4 million or 31.9%.
Total assets were $693.1 million at September 30, 2000 compared with
$608.7 million at December 31, 1999. Total loans increased to $241.1 million at
September 30, 2000 from $223.5 million at December 31, 1999, an increase of
$17.6 million, or 7.9%. Total deposits were $628.5 million at September 30, 2000
compared with $534.8 million at December 31, 1999, an increase of $93.7 million,
or 17.5%. Shareholders' equity increased $5.0 million or 11.6%, to $48.3 million
at September 30, 2000 compared with $43.3 million at December 31, 1999.
On September 15, 2000, the Bank consummated a transaction with Compass
Bank (the "Bank") whereby the Bank purchased certain assets and assumed certain
liabilities of five Compass branches. The branches are located in El Campo,
Hitchcock, Needville, Palacios and Sweeny, Texas. The Bank assumed approximately
$87 million in deposits as a result of the transaction. With the exception of
the El Campo location, the former Compass branches are being operated as
full-service banking centers. The El Campo location has been combined with the
Bank's El Campo Banking Center.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income was $5.5 million for the quarter ended September
30, 2000 compared with $4.4 million for the quarter ended September 30, 1999, an
increase of $1.1 million, or 25.0%. Net interest income increased as a result of
an increase in average interest-earning assets to $557.8 million for the quarter
ended September 30, 2000 from $413.4 million for the quarter ended September 30,
9
<PAGE> 4
1999, an increase of $144.4 million, or 34.9%. The net interest margin on a
tax-equivalent basis decreased to 4.12% from 4.26% for the same periods,
principally due to an increase in the yield on interest-bearing liabilities. Net
interest income increased $3.7 million, or 28.9%, to $16.5 million for the nine
months ended September 30, 2000 from $12.8 million for the same period in 1999.
This increase is mainly attributable to higher average interest-earning assets
and the purchase by the Company in December 1999, of a Qualified Zone Academy
Bond ("QZAB") which generates a tax credit that is included in income.
The Company's net interest income is affected by changes in the amount
and mix of interest-earning assets and interest-bearing liabilities, referred to
as a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the quarters ended September 30, 2000
and 1999 and the nine months ended September 30, 2000 and 1999. The tables also
set forth the average rate paid on total interest-bearing liabilities, and the
net interest margin on average total interest-earning assets for the same
periods.
10
<PAGE> 5
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------
2000 1999
------------------------------------ --------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- -------- -------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans ....................................... $ 235,636 $ 5,282 8.92% $191,815 $4,063 8.40%
Securities(1) ............................... 307,390 4,826 6.28 218,663 3,210 5.87
Federal funds sold and other temporary
investments ................................ 14,795 235 6.22 2,896 37 5.00
--------- --------- -------- ------
Total interest-earning assets ............. 557,821 10,343 7.39 413,374 7,310 7.04%
--------- ------
Less allowance for credit losses ............ (2,954) (2,031)
--------- --------
Total interest-earning assets, net
of allowance ............................. 554,867 411,343
Noninterest-earning assets ............... 53,944 31,449
--------- --------
Total assets .............................. $ 608,811 $442,792
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits ............ $ 67,590 $ 295 1.74% $ 44,266 $ 171 1.53%
Savings and money market accounts ........... 136,697 1,346 3.92 114,228 938 3.26
Certificates of deposit ..................... 218,875 3,038 5.52 154,635 1,800 4.62
Federal funds purchased and other
borrowings ................................. 10,819 187 6.76 3,775 50 5.18
--------- --------- -------- ------
Total interest-bearing
liabilities .............................. 433,981 4,866 4.45% 316,904 2,959 3.70%
--------- --------- -------- ------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits ......... 113,417 82,425
Company-obligated mandatorily
redeemable trust preferred securities
of subsidiary trust ...................... 12,000 --
Other liabilities ........................... 2,720 1,073
--------- --------
Total liabilities ......................... 562,118 400,402
--------- --------
Shareholders' equity .......................... 46,693 42,390
--------- --------
Total liabilities and shareholders'
equity .................................. $ 608,811 $442,792
========= ========
Net interest rate spread ...................... 2.94% 3.34%
Net interest income and margin(2) ............. $ 5,477 3.91% $4,351 4.18%
========= ======
Net interest income and margin
(tax-equivalent basis)(3) .................... $ 5,771 4.12% $4,435 4.26%
========= ======
</TABLE>
-------------------------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
(4) Annualized.
11
<PAGE> 6
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- --------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- --------- -------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans........................................ $ 229,224 $ 15,095 8.80% $183,213 $11,519 8.41%
Securities(1)................................ 312,141 14,588 6.23 224,673 9,883 5.87
Federal funds sold and other temporary
investments................................. 5,914 280 6.22 12,537 460 4.84
--------- --------- -------- -------
Total interest-earning assets.............. 547,279 29,963 7.17% 420,423 21,862 6.94%
--------- -------
Less allowance for credit losses............. (2,878) (1,954)
Total interest-earning assets, net
of allowance.............................. 544,401 418,469
Noninterest-earning assets................ 53,946 33,404
--------- --------
Total assets............................... $ 598,347 $451,873
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits............. $ 69,025 $ 894 1.73% $ 47,706 $ 543 1.52%
Savings and money market accounts............ 143,042 4,001 3.74 119,563 2,951 3.30
Certificates of deposit...................... 206,152 8,081 5.24 157,248 5,538 4.71
Federal funds purchased and other
borrowings.................................. 9,465 470 6.52 1,472 57 5.11
--------- --------- -------- -------
Total interest-bearing
liabilities............................... 427,684 13,446 4.20% 325,989 9,089 3.73%
--------- --------- -------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits.......... 111,980 81,959
Company-obligated mandatorily
redeemable trust preferred securities
of subsidiary trust....................... 12,000 --
Other liabilities............................ 2,022 1,662
--------- --------
Total liabilities.......................... 553,686 409,610
--------- --------
Shareholders' equity........................... 44,661 42,263
--------- --------
Total liabilities and shareholders'
equity................................... $ 598,347 $451,873
========= ========
Net interest rate spread....................... 2.97% 3.21%
Net interest income and margin(2).............. $ 16,517 4.03% $12,773 4.06%
========= =======
Net interest income and margin
(tax-equivalent basis)(3)..................... $ 17,349 4.23% $13,032 4.14%
========= =======
</TABLE>
-------------------------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
(4) Annualized.
12
<PAGE> 7
The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates
for the periods indicated. For purposes of these tables, changes attributable to
both rate and volume which cannot be segregated have been allocated to rate.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 vs. 1999
------------------------------
Increase
(Decrease)
Due to
-----------------
Volume Rate Total
------ ----- ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans......................................... $ 916 $ 303 $1,219
Securities.................................... 1,303 313 1,616
Federal funds sold and other temporary
investments................................. 152 46 198
------ ----- ------
Total increase (decrease) in interest
income.................................... 2,371 662 3,033
------ ----- ------
Interest-bearing liabilities:
Interest-bearing demand deposits.............. 89 35 124
Savings and money market accounts............. 184 224 408
Certificates of deposit....................... 746 492 1,238
Federal funds purchased and other borrowings.. 93 44 137
------ ----- ------
Total increase (decrease) in interest
expense................................... 1,112 795 1,907
------ ----- ------
Increase (decrease) in net interest income...... $1,259 $(133) $1,126
====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 vs. 1999
-----------------------------
Increase
(Decrease)
Due to
-----------------
Volume Rate Total
------- ----- ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans......................................... $ 2,906 $ 670 $3,576
Securities.................................... 3,848 857 4,705
Federal funds sold and other temporary
investments................................. (244) 64 (180)
------- ------ ------
Total increase (decrease) in interest
income.................................... 6,510 1,591 8,101
------- ------ ------
Interest-bearing liabilities:
Interest-bearing demand deposits.............. 243 108 351
Savings and money market accounts............. 580 470 1,050
Certificates of deposit....................... 1,729 814 2,543
Federal funds purchased and other borrowings.. 311 102 413
------- ------ ------
Total increase (decrease) in interest
expense................................... 2,863 1,494 4,357
------- ------ ------
Increase (decrease) in net interest income...... $ 3,647 $ 97 $3,744
======= ====== ======
</TABLE>
Provision for Credit Losses
Provisions for credit losses are charged to income in order to bring
the total allowance for credit losses to a level deemed appropriate by
management of the Company based on such factors as historical loan loss
experience, industry diversification of the commercial loan portfolio, the
amount of nonperforming loans and related collateral, the volume, growth and
composition of the loan portfolio, current economic conditions that may affect
the
13
<PAGE> 8
borrower's ability to pay and the value of collateral, the evaluation of the
loan portfolio through the internal loan review process and other relevant
factors.
The provision for credit losses for the nine months ended September 30,
2000 increased $20,000 to $225,000 from $205,000 in the corresponding period
last year. The provision for credit losses for the three months ended September
30, 2000 and September 30, 1999 was $75,000.
Noninterest Income
The Company's primary sources of noninterest income are service charges
on deposit accounts and other banking service related fees. Noninterest income
totaled $1.4 million for the three months ended September 30, 2000 compared with
$789,000 for the same period in 1999, an increase of $607,000, or 76.9%
Noninterest income increased $1.7 million, or 77.3%, to $3.9 million for the
nine month period ending September 30, 2000 from $2.2 million for the same
period in 1999. The increase in noninterest income was principally due to the
South Texas Acquisition.
The following table presents, for the periods indicated, the major
categories of noninterest income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service charges on deposit accounts....... $ 1,131 $ 677 $ 3,275 $ 1,919
Other noninterest income.................. 265 112 671 318
------- ------- ------- --------
Total noninterest income.............. $ 1,396 $ 789 $ 3,946 $ 2,237
======= ======= ======= ========
</TABLE>
Noninterest Expense
Noninterest expense totaled $4.0 million for the quarter ended
September 30, 2000 compared with $2.7 million for the quarter ended September
30, 1999, an increase of $1.3 million, or 48.1%. Noninterest expense totaled
$11.9 million for the nine months ended September 30, 2000, an increase of $3.7
million, or 45.1%, from $8.2 million for the same period in 1999. The increase
in noninterest expense was primarily due to the South Texas Acquisition.
14
<PAGE> 9
The following table presents, for the periods indicated, the major
categories of noninterest expense:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------
2000 1999 2000 1999
--------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits....................... $ 1,752 $ 1,394 $ 5,340 $ 4,213
Non-staff expenses:
Net occupancy expense............................ 218 183 639 475
Equipment depreciation........................... 233 153 698 457
Data processing.................................. 273 209 811 625
Professional fees................................ 102 66 249 162
Regulatory assessments and FDIC insurance........ 43 21 126 64
Ad valorem and franchise taxes................... 81 51 232 149
Goodwill amortization............................ 264 162 792 485
Minority interest trust preferred securities..... 288 -- 863 --
Other............................................ 712 495 2,105 1,538
--------- --------- -------- --------
Total non-staff expenses..................... 2,214 1,340 6,515 3,955
Total noninterest expense.................... $ 3,966 $ 2,734 $ 11,855 $ 8,168
========= ========= ======== ========
</TABLE>
Salaries and employee benefit expenses were $1.8 million for the
quarter ended September 30, 2000 compared with $1.4 million for the quarter
ended September 30, 1999, an increase of $358,000, or 25.7%. For the nine month
period ended September 30, 2000, salaries and employee benefits totaled $5.3
million, an increase of $1.1 million, or 26.2%, from $4.2 million for the nine
month period ending September 30, 1999. The change was due primarily to an
increase in the number of employees due to the South Texas Acquisition and
regular annual employee salary increases.
Non-staff expenses increased $874,000, or 65.2%, to $2.2 million for
the quarter ended September 30, 2000 compared with the same period in 1999. For
the nine month period ended September 30, 2000, non-staff expenses increased
$2.5 million, or 62.5%, to $6.5 million from $4.0 million for the same period in
1999. The increase was principally due to the South Texas Acquisition and the
issuance of trust preferred securities.
Income Taxes
For the three month period ended September 30, 2000, income tax expense
increased $70,000, or 9.4%, to $816,000 from $746,000 for the same period in
1999. Income tax expense increased $302,000, or 14.3%, to $2.4 million for the
nine months ended September 30, 2000 from $2.1 million for the same period in
1999. Both increases were primarily attributable to higher pretax net earnings.
FINANCIAL CONDITION
Loan Portfolio
Total loans were $241.1 million at September 30, 2000, an increase of
$17.6 million, or 7.9% from $223.5 million at December 31, 1999. Loan growth
occurred primarily in commercial mortgages and home equity loans. Period end
loans comprised 44.0% of average earning assets at September 30, 2000 compared
with 49.7% at December 31, 1999.
15
<PAGE> 10
The following table summarizes the loan portfolio of the Company by
type of loan as of September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------- ----------------
Amount Percent Amount Percent
-------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial ........... $ 25,818 10.7% $ 28,279 12.7%
Real estate:
Construction and land
development .................. 4,774 2.0 4,015 1.8
1-4 family residential ............ 100,842 41.8 97,359 43.5
Home equity ....................... 16,355 6.8 11,343 5.1
Commercial mortgages .............. 44,711 18.6 38,752 17.3
Farmland .......................... 10,200 4.2 7,404 3.3
Multifamily residential ........... 956 0.4 1,837 0.8
Agriculture ......................... 12,101 5.0 12,735 5.7
Consumer ............................ 25,312 10.5 21,781 9.8
-------- ----- -------- -----
Total loans .................... $241,069 100.0% $223,505 100.0%
======== ===== ======== =====
</TABLE>
Allowance for Credit Losses
Management actively monitors the Company's asset quality and provides
specific loss allowances when necessary. Loans are charged-off against the
allowance for credit losses when appropriate. Although management believes it
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the assumptions used in making the initial
determinations. As of September 30, 2000, the allowance for credit losses
amounted to $3.0 million, or 1.2% of total loans, compared with $2.8 million, or
1.2% of total loans, at December 31, 1999.
Set forth below is an analysis of the allowance for credit losses for
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
2000 1999
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Average loans outstanding.......................... $ 229,224 $ 193,687
========== ==========
Gross loans outstanding at end of period........... $ 241,069 $ 223,505
========== ==========
Allowance for credit losses at
beginning of period.............................. $ 2,753 $ 1,850
Balance acquired with South Texas Acquisition...... -- 566
Provision for credit losses........................ 225 280
Charge-offs:
Commercial and industrial........................ (13) (13)
Real estate and agriculture...................... (37) (43)
Consumer......................................... (19) (55)
Recoveries:
Commercial and industrial........................ 30 34
Real estate and agriculture...................... 41 117
Consumer......................................... 23 17
---------- ----------
Net recoveries (charge-offs)....................... 25 57
---------- ----------
Allowance for credit losses at end of period....... $ 3,003 $ 2,753
========== ==========
Ratio of allowance to end of period loans.......... 1.25% 1.23%
Ratio of net (recoveries) charge-offs to average
loans............................................ (0.01) (0.03)
Ratio of allowance to end of period
nonperforming loans.............................. -- --
</TABLE>
16
<PAGE> 11
Nonperforming Assets
The Company had no nonperforming assets for the periods ended September
30, 2000 and December 31, 1999, respectively. The Company generally places a
loan on nonaccrual status and ceases accruing interest when the payment of
principal or interest is delinquent for 90 days, or earlier in some cases,
unless the loan is in the process of collection and the underlying collateral
fully supports the carrying value of the loan. The Company generally charges off
all loans before attaining nonaccrual status.
The following table presents information regarding nonperforming
assets as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans.................................. $ -- $ --
Accruing loans 90 or more days past due........... -- --
------ -------
Total nonperforming loans...................... -- --
Other real estate................................. -- --
------ -------
Total nonperforming assets..................... $ -- $ --
====== =======
</TABLE>
Securities
Securities totaled $331.2 million at September 30, 2000 compared with
$312.7 million at December 31, 1999, an increase of $18.5 million, or 6.0%. The
increase was primarily due to acquisitions. At September 30, 2000, securities
represented 47.8% of total assets compared with 51.4% of total assets at
December 31, 1999.
Premises and Equipment
Premises and equipment, net of accumulated depreciation, totaled $9.6
million and $9.8 million at September 30, 2000 and December 31, 1999,
respectively.
Deposits
Total deposits were $628.5 million at September 30, 2000 compared with
$534.8 million at December 31, 1999, an increase of $93.7 million or 17.5%. At
September 30, 2000, noninterest-bearing deposits accounted for approximately
19.5% of total deposits compared with 21.2% of total deposits at December 31,
1999. Pursuant to the Compass Acquisition, the Company acquired $87.3 million
in deposits on September 15, 2000.
Federal Funds Purchased and Other Borrowings
The Company had no Federal Home Loan Bank ("FHLB") advances at
September 30, 2000 compared with $5.7 million in FHLB advances at December 31,
1999. The amount of FHLB advances the Company has at any given time is based on
the Company's daily liquidity position and will increase or decrease according
to the Company's funding needs. At September 30, 2000, the Company had no
federal funds purchased compared with $10.0 million in federal funds purchased
at December 31, 1999.
Liquidity
Effective management of balance sheet liquidity is necessary to fund
growth in earning assets and to pay liability maturities, depository customers'
withdrawal requirements and shareholders' dividends. Thc Company has numerous
sources of liquidity including a significant portfolio of shorter-term assets,
marketable investment
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securities (excluding those presently classified as "held-to-maturity"),
increases in customers' deposits, and access to borrowing arrangements.
Available borrowing arrangements maintained by the Company include federal funds
lines with other commercial banks and an advancement arrangement with the FHLB.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. As of September 30, 2000,
the Company had cash and cash equivalents of $80.3 million, up from $36.8
million at December 31, 1999. The increase was due to an increase in federal
funds sold.
Capital Resources
Total shareholders' equity was $48.3 million at September 30, 2000
compared with $43.3 million at December 31, 1999, an increase of $5.0 million,
or 1.2%. The increase was primarily due to net earnings of $6.0 million, cash
dividends paid of $1.4 million, and a sale of common stock pursuant to 401(k)
plan, dividend reinvestment plan, option exercises which resulted in proceeds of
$247,000 for the nine months ended September 30, 2000.
Both the Board of Governors of the Federal Reserve System, with respect
to the Company, and the Federal Deposit Insurance Corporation ("FDIC"), with
respect to the Bank, have established certain minimum risk-based capital
standards that apply to bank holding companies and federally insured banks. As
of September 30, 2000, the Company's Tier 1 risk-based capital, total risk-based
capital and leverage capital ratios were 13.94%, 15.02% and 6.64%, respectively.
As of September 30, 2000, the Bank's risk-based capital ratios were above the
levels required for the Bank to be designated as "well capitalized" by the FDIC,
with Tier-1 risk-based capital, total risk-based capital and leverage capital
ratios of 13.49%, 14.57% and 6.43%, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages market risk, which for the Company is primarily
interest rate risk, through its Asset Liability Committee which is composed of
senior officers of the Company, in accordance with policies approved by the
Company's Board of Directors. The Company uses simulation analysis to examine
the potential effects of market changes on net interest income and market value.
It considers macroeconomic variables, Company strategy, liquidity and other
factors as it quantifies market risk. There have been no material changes of
this nature since the filing of the Company's Form 10-K on March 8, 2000. See
Form 10-K, Item 7 "Management's Discussion and Analysis and Results of
Operations-Interest Rate Sensitivity and Liquidity".
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not applicable
b. Not applicable
c. Not applicable
d. Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit 27 Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the three
months ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROSPERITY BANCSHARES, INC.
(Registrant)
Date: November 15, 2000 /s/ DAVID ZALMAN
----------------- -------------------------
David Zalman
President/Secretary
Date: November 15, 2000 /s/ DAVID HOLLAWAY
------------------ -------------------------
David Hollaway
Chief Financial Officer
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