HOUSTON ( TheStreet) -- Prosperity Bancshares ( PRSP) will increase its quarterly dividend payout to 17.5 cents a share from 15.5 cents a share.

The dividend announcement came along with reported third-quarter earnings of $32.2 million, or 69 cents a share, meeting the average estimate of analysts polled by Thomson Reuters.

Earnings increased from $31.7 million, or 68 cents a share, in the second quarter and $29.3 million, or 63 cents a share, during the third quarter of 2009.

The lender has achieved remarkably consistent earnings performance through the credit crisis, with strong asset quality. The return on average assets (ROA) for the third quarter was 1.36%, and the ROA has exceeded 1% for every quarter since the end of 2007, except for the third quarter of 2008 when it was 0.91%, according to SNL Financial.

The company said its return on equity for the third quarter was 9.06%.

CEO David Zalman said ""We continue to be cautiously optimistic about the Texas economy," adding that the company was "winning new business in all of our markets and we believe the opportunities for future growth are good."

Total assets were $9.4 billion as of September 30, increasing 6% over the past year as the company acquired the three Texas branches that U.S. Bancorp ( USB). Prosperity then acquired 19 Texas branches in April from First Bank of Creve Coeur, Mo.

Net interest income for the third quarter was $77.3 million, reflecting lower credit costs and declining interest expenses as the bank benefitted from a 7% year-over-year increase in non-interest bearing deposits. That improvement was partially offset by declines in non-interest income and an increase in noninterest expenses. The company attributed the decline in noninterest income to increased losses on the sale of repossessed real estate. The increased noninterest expenses were from the acquired branches.

The net interest margin - essentially the average yield on loans and investments less the average cost of funds - for the third quarter was 3.97%, down from 4% in the second quarter. John Rodis of Howe Barnes Hoefer & Arnett termed the margin "relatively stable" in light of a 20 basis point decline the previous quarter, which spooked investors as shares declined 11% over the three weeks following the second-quarter earnings release in July.

Asset quality is very strong, with nonperforming assets - including loans past due 90 or more days or in nonaccrual status and repossessed real estate - totaling $20.7 million or 0.22% of total assets as of September 30. While aggregate industry figures for the third quarter won't be available for several weeks, the "noncurrent assets" ratio for all U.S. banks and thrifts at the end of the second quarter was 3.31% as of June 30.

Net charge-offs - loan losses less recoveries - totaled $4.4 million for the third quarter, while the provision for loan loss reserves was $3 million, meaning that prosperity "released" $1.4 million in loan loss reserves during the quarter. The annualized ratio of net charge-offs to average loans was a very low 0.13% during the third quarter and reserves covered 1.50% of total loans.

Prosperity's reserve release was small and didn't have a major impact on the company's bottom line, as third-quarter reserve releases did for the largest banks, including Citigroup ( C), which released $1.8 billion from loan loss reserves; Bank of America ( BAC), which also released $1.8 billion from reserves; Wells Fargo ( WFC), which released $650 million from reserves; and JPMorgan Chase ( JPM), which released $1.7 billion from reserves during the third quarter.

Prosperity reported a Tier 1 leverage ratio of 6.45% and a total risk-based capital ratio of 14.47% as of September 30, well above the 5% and 10% required for most banks to be considered well-capitalized by regulators. The tangible common equity ratio was 5.73% -- lower than many other banks, but in light of the strong asset quality and consistent profitability, sufficient for company management to increase the dividend payout.

Prosperity's shares closed at $32.44 Thursday, down 19% year-to-date. Out of 19 analysts covering the company, six recommend buying the shares and 13 recommend investors hold the shares. .

Rodis has a buy rating on the shares with a 12-month target of $38, although he told TheStreet that the target would be "reevaluated" now that the third quarter numbers are available. His forward earnings estimate for 2011 is $2.60 a share, while the consensus estimate is $2.82.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.