Prosperity Bancshares, Inc.® Reports Strong 2012 Earnings - 4Q 2012 Earnings Per Share of $0.85 (diluted)

- Six acquisitions announced and five completed within the past fifteen months

- Announced expansion into Oklahoma City and surrounding areas

- Non-Performing Assets remain low at 0.10% of 4Q Average Earning Assets

- Deposits increased $3.582 billion or 44.4%

- Loans increased $1.414 billion or 37.6%

HOUSTON, Jan. 25, 2013 /PRNewswire/ -- Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank®, reported net income for the quarter ended December 31, 2012, of $48.266 million or $0.85 per diluted common share, an increase in net income of $11.860 million or 32.6%, compared with $36.406 million or $0.77 per diluted common share for the same period in 2011.  Prosperity also reported net income for the year ended December 31, 2012 of $167.901 million or $3.23 per diluted common share, up 18.4% from 2011 net income of $141.749 million and up 7.3% from 2011 diluted earnings per common share of $3.01.

"We experienced many successes during 2012.  To start the year, we were rated by Forbes magazine as the Best Bank in America.  Our assets grew 49% from $9.823 billion as of December 31, 2011 to $14.584 billion as of December 31, 2012.  We reported our highest levels of net income and earnings per share, with $168 million in net income and diluted EPS of $3.23.  In addition to our large increase in deposit and loan growth overall, we saw an organic growth rate on deposits of 10% and an organic loan growth rate of 6% from December 31, 2011 to December 31, 2012.  Finally, in December, we announced our merger  with Coppermark Bank, our first merger outside the state of Texas, which will result in our expansion into Oklahoma City and surrounding areas," said David Zalman, Prosperity's Chairman and Chief Executive Officer.

"We are fortunate to be located in the area of the U.S. that we are.  Our market areas continue to experience low unemployment rates, population growth and increasing sales for homes and other products.  Further, our market areas are experiencing growth in many industries, particularly the oil and gas, chemical, manufacturing, medical and technology areas," added Zalman.

"I am very proud of all our associates who go above and beyond to help us achieve the success we enjoy. Their commitment to our customer satisfaction is admirable.  Without their hard work and dedication, none of this is possible," concluded Zalman.

Prosperity's management uses certain non−GAAP (generally accepted accounting principles) financial measures to evaluate its performance. Specifically, Prosperity reviews tangible book value per share, return on average tangible common equity and the tangible equity to tangible assets ratio.  In addition, due to the application of purchase accounting, Prosperity uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate its allowance for credit losses to total loans (excluding acquired loans accounted for under ASC Topics 310-20 and 310-30).  Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented.  Please refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of these non-GAAP financial measures.

Results of operations for the three months ended December 31, 2012

For the three months ended December 31, 2012, net income was $48.266 million compared with $36.406 million for the same period in 2011.  Net income per diluted common share was $0.85 for the three months ended December 31, 2012 compared with $0.77 for the same period in 2011. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2012 were 1.36%, 9.28% and 22.92%, respectively.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of assets and securities) was 42.95% for the three months ended December 31, 2012.

Net interest income before provision for credit losses for the quarter ended December 31, 2012, increased 35.2% to $108.301 million compared with $80.087 million during the same period in 2011 and increased 1.3% or $1.408 million compared with $106.893 million during the three months ended September 30, 2012.  The net interest margin on a tax equivalent basis decreased to 3.53% for the three months ended December 31, 2012, compared with 3.82% for the same period in 2011 and increased one basis point from 3.52% for the three months ended September 30, 2012.  Net interest income and net interest margin were positively impacted by the accretion of purchase accounting loan discounts of $14.523 million during the three month period ended December 31, 2012.

Non-interest income increased $10.041 million or 71.4% to $24.106 million for the three months ended December 31, 2012, compared with $14.065 million for the same period in 2011.  The change includes increases in NSF fees, debit card and ATM card income, service charges on deposit accounts, trust, mortgage origination and other income due to the acquisition of American State Financial Corporation ("ASB") on July 1, 2012.   Through ASB, Prosperity acquired additional lines of business including trust, credit cards and mortgage lending operations.

Non-interest expense increased $18.583 million or 48.4% to $56.968 million for the three months ended December 31, 2012, compared with $38.385 million for the same period in 2011.  The change is primarily due to the acquisition of ASB. Additionally, total noninterest expense for the three months ended December 31, 2012, included one-time merger expenses of approximately $700 thousand, pre-tax, related to the 2012 acquisitions.

Average loans increased 37.1% or $1.390 billion to $5.140 billion for the quarter ended December 31, 2012, compared with $3.750 billion for the same period of 2011.  On a linked quarter basis, average loans decreased $28.938 million from $5.169 billion at September 30, 2012. Average deposits increased 42.5% to $11.259 billion for the quarter ended December 31, 2012, compared with $7.899 billion for the same period of 2011.  On a linked quarter basis, average deposits increased 3.8% or $413.018 million from $10.846 billion at September 30, 2012.

Loans at December 31, 2012 were $5.180 billion, an increase of $1.414 billion or 37.6%, compared with $3.766 billion at December 31, 2011.  Loans increased 2.0% (7.9% annualized) or $100.837 million on a linked quarter basis compared with loans of $5.079 billion at September 30, 2012.  As reflected in the table below, loan growth was impacted by the acquisitions of Texas Bankers, Inc., The Bank Arlington, ASB and Community National Bank ("Community National").  Excluding loans acquired in these acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at December 31, 2012 grew 6.2% compared with December 31, 2011 and 2.5% (10.1% annualized) on a linked quarter basis.

Deposits at December 31, 2012 were $11.642 billion, an increase of $3.582 billion or 44.4% compared with $8.060 billion at December 31, 2011.  Linked quarter deposits increased $687.247 million or 6.3% from $10.955 billion at September 30, 2012.  As reflected in the table below, deposit growth was impacted by the acquisitions of Texas Bankers, Inc., The Bank Arlington, ASB and Community National.  Excluding deposits assumed and new deposits generated at the acquired banking centers since the respective acquisition dates, deposits at December 31, 2012 grew 10.1% compared with December 31, 2011 and 6.5% (25.9% annualized) on a linked quarter basis.

The table below provides detail on loans acquired and deposits assumed in the Texas Bankers, Inc., The Bank Arlington, ASB and Community National transactions completed on January 1, 2012, April 1, 2012, July 1, 2012 and October 1, 2012 respectively:

 

Balance Sheet Data (at period end)

 Dec 31, 2012 


 Sep 30, 2012 


 Jun 30, 2012 


 Mar 31, 2012 


 Dec 31, 2011 

(In thousands)

(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Loans acquired (including new production since respective acquisition dates):










   Texas Bankers, Inc.

$                 23,803


$                 24,229


$               28,421


$               27,053


$                      -

   The Bank Arlington

23,308


21,806


22,542


-


-

   ASB

1,068,077


1,131,005


-


-


-

   Community National

63,940


-


-


 . 


-

All other

4,000,812


3,902,063


3,899,369


3,847,809


3,765,906

Total Loans

$            5,179,940


$            5,079,103


$          3,950,332


$          3,874,862


$          3,765,906













Deposits assumed (including new deposits since respective acquisition dates):










   Texas Bankers, Inc.

$                 68,965


$                 69,818


$               62,739


$               63,681


$                      -

   The Bank Arlington

29,842


33,609


33,505


-


-

   ASB

2,510,855


2,518,178


-


-


-

   Community National

160,404


-


-


-


-

All other

8,871,778


8,332,992


8,298,338


8,480,770


8,060,254

Total Deposits

$          11,641,844


$          10,954,597


$          8,394,582


$          8,544,451


$          8,060,254











At December 31, 2012, Prosperity had $14.584 billion in total assets, $5.180 billion in loans and $11.642 billion in deposits. Assets, loans and deposits at December 31, 2012 increased by 48.5%, 37.6% and 44.4%, respectively, compared with their respective levels at December 31, 2011.

Asset Quality

Non-performing assets totaled $13.015 million or 0.10% of quarterly average earning assets at December 31, 2012, compared with $12.052 million or 0.14% of quarterly average earning assets at December 31, 2011, and $14.051 million or 0.11% of quarterly average earnings assets at September 30, 2012.  The allowance for credit losses was 1.01% of total loans at December 31, 2012, 1.00% of total loans at September 30, 2012, and 1.37% of total loans at December 31, 2011.  Excluding loans acquired from Texas Bankers, Inc., The Bank of Arlington, ASB and Community National accounted for under ASC Topics 310-20 and 310-30, the allowance for credit losses was 1.22% and 1.27% of remaining loans as of December 31, 2012 and September 30, 2012, respectively.  Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of the non-GAAP financial measure. 

The provision for credit losses was $3.550 million for the three months ended December 31, 2012 and $1.150 million for the three months ended December 31, 2011.  Net charge offs were $1.913 million for the three months ended December 31, 2012 and $2.069 million for the three months ended December 31, 2011.

Non-performing assets

Dec 31, 2012


Sep 30, 2012


Dec 31, 2011

(In thousands)




Amount


#


Amount

#


Amount

#


(Unaudited)




(Unaudited)



(Unaudited)


Commercial

$          1,568


22


$            1,599

19


$          767

17

Construction

3,522


29


3,182

34


4,649

28

1-4 family (including home equity)

3,081


34


3,089

36


3,689

38

Commercial real estate (including multi-family)

2,608


7


4,671

15


2,877

9

Agriculture 

1,463


14


1,476

9


49

3

Consumer and other

773


10


34

6


21

4

Total 

$         13,015


116


$          14,051

119


$      12,052

99





















Net Charge-offs 

Three Months Ended





(In thousands)

Dec 31, 2012


Sep 30, 2012


Dec 31, 2011






(Unaudited)


(Unaudited)


(Unaudited)





Commercial

$             205


$                 (511)


$               676





Construction

21


155


153





1-4 family (including home equity)

65


251


843





Commercial real estate  (including multi-family)

1,012


800


218





Agriculture

70


(30)


-





Consumer and other

540


590


179





Total 

$          1,913


$               1,255


$            2,069





The provision for credit losses was $6.100 million for the twelve months ended December 31, 2012, an increase of $900 thousand compared with $5.200 million for the twelve months ended December 31, 2011.  Net charge offs were $5.130 million for the twelve months ended December 31, 2012 and $5.190 million for the twelve months ended December 31, 2011.

Results of operations for the twelve months ended December 31, 2012

For the twelve months ended December 31, 2012, net income was $167.901 million compared with $141.749 million for the same period in 2011.  Net income per diluted common share was $3.23 for the twelve months ended December 31, 2012 compared with $3.01 for the same period in 2011.

Returns on average assets, average common equity and average tangible common equity for the twelve months ended December 31, 2012 were 1.35%, 9.10% and 21.93%, respectively.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of assets and securities) was 43.48% for the twelve months ended December 31, 2012.

Net interest income before provision for credit losses for the twelve months ended December 31, 2012 increased $54.038 million or 16.5%, to $380.706 million compared with $326.668 million during the same period in 2011. The net interest margin on a tax equivalent basis decreased to 3.53% for the twelve months ended December 31, 2012 compared with 3.98% for the same period in 2011. Net interest income included additional interest income of $26.413 million during the twelve month period ended December 31, 2012, related to the accretion of purchase accounting loan discounts.

Non-interest income increased $19.492 million or 34.8% to $75.535 million for the twelve months ended December 31, 2012, compared with $56.043 million for the same period in 2011.  The increase in all categories of noninterest income was due primarily to the acquisition of ASB. 

Non-interest expense increased $34.712 million or 21.2% to $198.457 million for the twelve months ended December 31, 2012, compared with $163.745 million for the same period in 2011.  Salaries and employee benefits expense increased $23.448 million for the twelve months ended December 31, 2012 compared to the same period in 2011 due primarily to the acquisition of ASB. Additionally, total noninterest expense for the twelve months ended December 31, 2012, included one-time merger expenses of $7.020 million, pre-tax, related to the 2012 acquisitions.

Conference Call

Prosperity's management team will host a conference call on Friday, January 25, 2013 at 10:30 a.m. Eastern Standard Time (9:30 a.m. Central Standard Time) to discuss Prosperity's fourth quarter and full year 2012 earnings. Individuals and investment professionals may participate in the call by dialing 866-952-1906, the reference code is PBTX.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at www.prosperitybanktx.com.  The webcast may be accessed directly from Prosperity's Investor Relations page by clicking on the "4th Quarter Results and Webcast" link.

Acquisition of East Texas Financial Services, Inc.

On January 1, 2013, Prosperity completed the previously announced acquisition of East Texas Financial Services, Inc. (OTC BB: FFBT) and its wholly-owned subsidiary, First Federal Bank Texas ("Firstbank"). Firstbank operated four (4) banking offices in the Tyler MSA, including three locations in Tyler, Texas and one location in Gilmer, Texas. As of December 31, 2012, East Texas Financial Services reported, on a consolidated basis, total assets of $165.0 million, total loans of $129.3 million and total deposits of $112.3 million.

Pursuant to the terms of the acquisition agreement, Prosperity issued 530,940 shares of Prosperity common stock for all outstanding shares of East Texas Financial Services capital stock.

Acquisition of Community National Bank

On October 1, 2012, Prosperity completed the previously announced acquisition of Community National Bank, Bellaire, Texas.  Community National operated one (1) banking office in Bellaire, Texas, in the Houston Metropolitan Area. As of September 30, 2012, Community National reported total assets of $183.0 million, total loans of $68.0 million and total deposits of $164.6 million

Pursuant to the terms of the acquisition agreement, Prosperity issued 372,282 shares of Prosperity common stock plus $11.4 million in cash for all outstanding shares of Community National Bank capital stock which resulted in a premium of $10.6 million.

Acquisition of American State Financial Corporation

On July 1, 2012, Prosperity completed the previously announced acquisition of American State Financial Corporation and its wholly owned subsidiary American State Bank.  American State Bank operated thirty-seven (37) full service banking offices in eighteen (18) counties across West Texas. As of June 30, 2012, ASB, on a consolidated basis, reported total assets of $3.16 billion, total loans of $1.24 billion and total deposits of $2.51 billion.

Pursuant to the terms of the acquisition agreement, Prosperity issued 8,524,835 shares of Prosperity common stock plus $178.5 million in cash for all outstanding shares of American State Financial Corporation capital stock which resulted in a premium of $240.4 million.

Acquisition of The Bank Arlington

On April 1, 2012, Prosperity completed the previously announced acquisition of The Bank Arlington.  The Bank Arlington operated one (1) banking office in Arlington, Texas, in the Dallas/Fort Worth CMSA. As of March 31, 2012, The Bank Arlington reported total assets of $37.3 million, total loans of $22.8 million and total deposits of $33.2 million.

Pursuant to the terms of the acquisition agreement, Prosperity issued 135,389 shares of Prosperity common stock for all outstanding shares of The Bank Arlington capital stock which resulted in a premium of $2.8 million.

Acquisition of Texas Bankers, Inc.

On January 1, 2012, Prosperity completed the previously announced acquisition of Texas Bankers, Inc. and its wholly-owned subsidiary, Bank of Texas, Austin, Texas.  The three (3) Bank of Texas banking offices in the Austin, Texas CMSA consisted of a location in Rollingwood, which was consolidated with Prosperity's Westlake location and remains in Bank of Texas' Rollingwood banking office; one banking center in downtown Austin, which was consolidated into Prosperity's downtown Austin location; and another banking center in Thorndale. Prosperity now operates thirty-four (34) banking centers in the Central Texas area including Austin and San Antonio. Texas Bankers, Inc. reported, on a consolidated basis, total assets of $77.0 million, total loans of $27.6 million and total deposits of $70.4 million as of December 31, 2011.

Pursuant to the terms of the acquisition agreement, Prosperity issued 314,953 shares of Prosperity common stock for all outstanding shares of Texas Bankers capital stock which resulted in a premium of $5.2 million.

Pending Acquisition of Coppermark Bancshares Inc.

On December 10, 2012, Prosperity entered into a definitive agreement to acquire Coppermark Banchsares, Inc. and its wholly-owned subsidiary, Coppermark Bank ("Coppermark") headquartered in Oklahoma City, Oklahoma. Coppermark operates nine (9) full-service banking offices; six (6) in Oklahoma City, Oklahoma and surrounding areas and three (3) in the Dallas, Texas area. As of December 31, 2012, Coppermark reported, on a consolidated basis, total assets of $1.3 billion, total loans of $853.4 million and total deposits of $1.2 billion.

Pursuant to the terms of the acquisition agreement, Prosperity will issue up to 3,258,845 shares of Prosperity common stock plus $60.0 million in cash for all outstanding shares of Coppermark Bancshares capital stock, subject to certain conditions and potential adjustments. Pending the satisfaction of closing conditions, the closing is expected to occur in the late first quarter or early second quarter of 2013, although delays may occur.

Prosperity Bancshares, Inc.®

Prosperity Bancshares Inc.® was named "America's Best Bank" by Forbes in 2012 and is a $14.6 billion Houston, Texas based regional financial holding company, formed in 1983. Operating under a community banking philosophy and seeking to develop broad customer relationships based on service and convenience, Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of small and medium sized businesses and consumers. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at http://www.prosperitybanktx.com, Retail Brokerage Services, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management; and Mobile Banking.  Prosperity currently operates two hundred seventeen (217) full service banking locations; fifty-nine (59) in the Houston area; twenty (20) in the South Texas area including Corpus Christi and Victoria; thirty-five (35) in the Dallas/Fort Worth area; twenty-five (25) in the East Texas area; thirty-four (34) in the Central Texas area including Austin and San Antonio; thirty-four (34) in the West Texas area including Lubbock, Midland-Odessa and Abilene; and ten (10) in the Bryan/College Station area.

Bryan/College Station Area -


Downtown

Other South Texas


McKinney

Eastex

Locations -

Bryan

McKinney-Stonebridge

Fairfield

Alice

Bryan-East

Midway

First Colony

Aransas Pass

Bryan-North

Preston Forest

Gessner

Beeville

Caldwell

Preston Road

Gladebrook

Edna

College Station

Red Oak

Harrisburg

Goliad

Greens Prairie

Sachse

Heights

Kingsville

Madisonville

The Colony

Highway 6 West

Mathis

Navasota

Turtle Creek

Hillcroft

Padre Island

Rock Prairie

Westmoreland

Little York

Palacios

Wellborn Road


Medical Center

Port Lavaca


Fort Worth -

Memorial Drive

Portland

Central Texas Area -

Haltom City

Northside

Rockport


Keller

Pasadena

Sinton

Austin -

Roanoke

Pecan Grove

Victoria

183

Stockyards

Piney Point

Victoria-North

Allandale


River Oaks


Cedar Park

Other Dallas/Fort Worth Locations -

Royal Oaks

West Texas Area -

Congress

Arlington

Sugar Land


Lakeway

Azle

SW Medical Center

Abilene -

Liberty Hill

Ennis

Tanglewood

Antilley Road

Northland

Gainesville

Uptown

Barrow Street

Oak Hill

Glen Rose

Waugh Drive

Cypress Street

Parmer Lane

Granbury

West University

Judge Ely

Research Blvd

Mesquite

Woodcreek

Mockingbird

Westlake

Muenster




Sanger

Other Houston Area

Lubbock -

Other Central Texas Locations -

Waxahachie

Locations -

4th Street

Bastrop

Weatherford

Angleton

66th Street

Cuero


Bay City

82nd Street

Dime Box

East Texas Area -

Beaumont

86th Street

Dripping Springs


Cinco Ranch

98th Street

Elgin

Athens

Cleveland

Avenue Q

Flatonia

Athens-South

East Bernard

North University

Georgetown

Blooming Grove

El Campo

Texas Tech Student Union

Gonzales

Canton

Dayton


Hallettsville

Carthage

Galveston

Midland -

Kingsland

Corsicana

Groves

Wadley

La Grange

Crockett

Hempstead

Wall Street

Lexington

Eustace

Hitchcock



Gilmer



New Braunfels

Grapeland

Katy

Odessa -

Pleasanton

Gun Barrel City

Liberty

Grandview

Round Rock

Jacksonville

Magnolia

Grant

San Antonio

Kerens

Mont Belvieu

Kermit Highway

Schulenburg

Longview

Nederland

Parkway

Seguin

Mount Vernon

Needville


Smithville

Palestine

Shadow Creek

Other West Texas Locations -

Thorndale

Rusk

Sweeny

Big Spring

Weimar

Seven Points

Tomball

Brownfield

Yoakum

Teague

Waller

Brownwood

Yorktown

Tyler

West Columbia

Cisco


Tyler-Beckham

Wharton

Comanche


Tyler-Gresham

Winnie

Early


Tyler-South Broadway

Wirt

Floydada


Tyler-University


Gorman

Dallas/Fort Worth Area -

Winnsboro


Levelland




Littlefield

Dallas -

Houston Area -


Merkel

Abrams Centre


South Texas Area -

Plainview

Balch Springs

Houston -


San Angelo

Camp Wisdom

Aldine

Corpus Christi -

Slaton

Cedar Hill

Allen Parkway

Airline

Snyder

Central Expressway

Bellaire

Carmel


East Renner

Beltway

Northwest


Frisco

Clear Lake

Saratoga


Frisco-West

Copperfield

Water Street


Independence

Cypress



Kiest




In connection with the proposed merger of Coppermark Bancshares, Inc. into Prosperity, Prosperity will file with the Securities and Exchange Commission a registration statement on Form S-4 to register the shares of Prosperity's common stock to be issued to the shareholders of Coppermark Bancshares, Inc.  The registration statement will include a proxy statement/prospectus which will be sent to the shareholders of Coppermark Bancshares, Inc. seeking their approval of the proposed transaction.

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY, COPPERMARK BANCSHARES, INC. AND THE PROPOSED TRANSACTION.

Investors and security holders may obtain free copies of these documents through the website maintained by the Securities and Exchange Commission at http://www.sec.gov.  Documents filed with the SEC by Prosperity will be available free of charge by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations. Prosperity's telephone number is (281) 269-7199.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity's management on the conference call may contain, forward-looking statements within the meaning of the securities laws that are based on current expectations, assumptions, estimates and projections about Prosperity, and its subsidiaries.  These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity's control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements.  These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks;  continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives.  Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity's securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate fluctuations and interest rate fluctuations; and weather.  These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2011 and other reports and statements Prosperity has filed with the SEC. Copies of the SEC filings for Prosperity Bancshares® may be downloaded from the Internet at no charge from www.prosperitybanktx.com.

 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars and share amounts in thousands, except per share data)


















Three Months Ended


Twelve Months Ended


Dec 31, 2012


Dec 31, 2011


Dec 31, 2012


Dec 31, 2011

Selected Earnings and Per








     Share Data
















Total interest income

$       117,719


$         89,658


$       419,842


$       371,908

Total interest expense

9,418


9,571


39,136


45,240

Net interest income

108,301


80,087


380,706


326,668

Provision for credit losses

3,550


1,150


6,100


5,200

Net interest income after








     provision for credit losses

104,751


78,937


374,606


321,468

Total non-interest income

24,106


14,065


75,535


56,043

Total non-interest expense

56,968


38,385


198,457


163,745

Net income before taxes

71,889


54,617


251,684


213,766

Federal income taxes

23,623


18,211


83,783


72,017









Net income

$         48,266


$         36,406


$       167,901


$       141,749









Basic earnings per share

$            0.86


$            0.78


$            3.24


$            3.03









Diluted earnings per share

$            0.85


$            0.77


$            3.23


$            3.01









Period end shares outstanding

56,447


46,910


56,447


46,910

Weighted average shares








     outstanding (basic)

56,427


46,893


51,794


46,846

Weighted average shares








     outstanding (diluted)

56,554


47,028


51,941


47,017









Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)












 Dec 31, 2012 


 Sep 30, 2012 


 Jun 30, 2012 


 Mar 31, 2012 


 Dec 31, 2011 

Balance Sheet Data










 (at period end)





Total loans(A)

$       5,179,940


$       5,079,103


$       3,950,332


$         3,874,862


$      3,765,906

Investment securities(B)

7,442,065


6,799,513


5,400,044


5,646,529


4,658,936

Federal funds sold 

352


302


133


445


642

Allowance for credit losses

(52,564)


(50,927)


(50,382)


(51,642)


(51,594)

Cash and due from banks

325,952


207,650


152,678


151,467


212,800

Goodwill

1,217,162


1,200,098


932,965


929,161


924,537

Core deposit intangibles

26,159


28,092


17,706


19,301


20,996

Other real estate

7,234


8,846


10,236


7,718


8,328

Fixed assets, net

205,268


201,445


166,273


162,676


159,656

Other assets

232,005


237,997


157,366


149,438


122,464

Total assets

$      14,583,573


$      13,712,119


$      10,737,351


$  10,889,955


$      9,822,671











Demand deposits

$       3,016,205


$       2,827,748


$       2,083,910


$         2,088,749


$      1,972,226

Interest bearing deposits

8,625,639


8,126,849


6,310,672


6,455,702


6,088,028

Total deposits

11,641,844


10,954,597


8,394,582


8,544,451


8,060,254

Securities sold under 










     repurchase agreements

454,502


443,856


122,743


58,481


54,883

Federal funds purchased and 










     other borrowings

256,753


112,017


437,278


527,536


12,790

Junior subordinated debentures

85,055


85,055


85,055


85,055


85,055

Other liabilities

56,030


78,418


53,876


64,899


42,424

Total liabilities

12,494,184


11,673,943


9,093,534


9,280,422


8,255,406

Shareholders' equity(C)

2,089,389


2,038,176


1,643,817


1,609,533


1,567,265

Total liabilities and equity

$      14,583,573


$      13,712,119


$      10,737,351


$  10,889,955


$      9,822,671












(A) Net of discount on acquired loans of $79,943, $92,832 and $431 at December 31, 2012, September 30, 2012 and June 30, 2012, respectively, of which $23,754, $27,117 and $0 respectively, relate to loans accounted for under ASC Topic 310-30 (formerly SOP 03-03).  There was no discount outstanding at March 31, 2012 and December 31, 2011.

(B)Includes $13,824, $16,991, $17,709, $19,542,  and $20,726 in unrealized gains on available for sale securities for the quarterly periods ending  December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011,  respectively.

(C)Includes $8,986, $11,044, $11,511, $12,702,  and $13,472 in after-tax unrealized gains on available for sale securities for the quarterly periods ending December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively.

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)










Three Months Ended


Twelve Months Ended


Dec 31, 2012


Dec 31, 2011


Dec 31, 2012


Dec 31, 2011

Income Statement Data
















Interest income:








   Interest on loans(D)

$              82,727


$            53,899


$           271,324


$           214,273

   Interest on securities(E)

34,956


35,719


148,374


157,580

   Interest on federal funds sold and








        other earning assets

36


40


144


55

Total interest income

117,719


89,658


419,842


371,908

Interest expense: 








   Interest expense - deposits

8,217


8,682


34,486


40,975

   Interest expense - debentures

631


632


2,593


2,984

   Interest expense - other

570


257


2,057


1,281

      Total interest expense

9,418


9,571


39,136


45,240

      Net interest income

108,301


80,087


380,706


326,668

Provision for credit losses

3,550


1,150


6,100


5,200

Net interest income after








     provision for credit losses

104,751


78,937


374,606


321,468

Non-interest income:








   Non-sufficient funds (NSF) fees

9,292


5,860


29,113


24,442

   Debit card and ATM card income

6,683


4,189


21,057


15,391

   Service charges on deposit accounts

2,877


2,515


11,112


9,981

   Trust income

915


-


1,746


-

   Mortgage income

1,120


-


2,681


-

   Bank Owned Life Insurance

1,242


347


2,673


1,382

   Net (loss) gain on sale of assets

(244)


-


(231)


377

   Net loss on sale of ORE

(113)


(473)


(457)


(904)

   Net loss on sale of securities

-


-


-


(581)

   Other non-interest income

2,334


1,627


7,841


5,955

Total non-interest income

24,106


14,065


75,535


56,043

Non-interest expense:








   Salaries and benefits(F)

31,980


21,258


115,505


92,057

   CDI amortization

1,932


1,879


7,229


7,780

   Net occupancy and equipment

4,812


3,655


16,475


14,634

   Depreciation

2,491


2,051


8,923


8,150

   Data processing and software amortization

3,106


1,417


9,445


6,823

   Regulatory assessments and FDIC insurance

2,365


1,518


7,679


8,901

   ORE expense

465


680


1,810


1,501

   Other non-interest expense

9,817


5,927


31,391


23,899

      Total non-interest expense

56,968


38,385


198,457


163,745

Net income before taxes

71,889


54,617


251,684


213,766

Federal income taxes

23,623


18,211


83,783


72,017

Net income available to common shareholders

$              48,266


$            36,406


$           167,901


$           141,749









(D) Interest income on loans includes additional interest income related to the accretion of purchase accounting loan discounts of $14,523 and $26,413 for the three and twelve month periods ended  December 31, 2012, respectively.  There was no loan discount accretion recorded during the three and twleve month periods ended December 31, 2011.

(E) Interest income on securities was reduced by net premium amortization of $23,992 and $8,989 for the three month periods ended December 31, 2012 and 2011, respectively and $66,889 and $28,676 for the twelve month periods ended December 31, 2012 and 2011, respectively.

(F) Salaries and benefits includes equity compensation expenses of $389 and $972 for the three months ended December 31, 2012 and December 31, 2011, respectively, and $3,607 and $3,576 for the twelve months ended December 31, 2012 and December 31, 2011, respectively.

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)












Three Months Ended


Dec 31, 2012


Sep 30, 2012


Jun 30, 2012


Mar 31, 2012


Dec 31, 2011

Income Statement Data




















Interest income:










  Interest on loans(G)

$     82,727


$    80,587


$     54,793


$     53,217


$     53,899

  Interest on securities(H)

34,956


37,025


38,072


38,321


35,719

  Interest on federal funds









-

     sold and other earning assets

36


21


9


78


40

    Total interest income

117,719


117,633


92,874


91,616


89,658











Interest expense:










  Interest expense - deposits

8,217


9,395


8,083


8,791


8,682

  Interest expense - debentures

631


651


648


663


632

  Interest expense - other

570


694


477


316


257

    Total interest expense

9,418


10,740


9,208


9,770


9,571

    Net interest income

108,301


106,893


83,666


81,846


80,087

Provision for credit losses

3,550


1,800


600


150


1,150

    Net interest income after










        provision for credit losses

104,751


105,093


83,066


81,696


78,937











Non-interest income:










  Non-sufficient funds (NSF) fees

9,292


9,265


5,167


5,389


5,860

  Debit card and ATM card income

6,683


6,246


4,292


3,836


4,189

  Service charges on deposit accounts

2,877


3,362


2,432


2,441


2,515

  Trust income

915


831


-


-


-

  Mortgage income

1,120


1,437


65


59


-

  Bank Owned Life Insurance

1,242


736


345


350


347

  Net (loss) gain on sale of assets

(244)


(50)


70


(7)


-

  Net (loss) gain on sale of  ORE                         

(113)


(597)


(165)


418


(473)

 Other non-interest income

2,334


2,598


1,450


1,459


1,627

    Total non-interest income

24,106


23,828


13,656


13,945


14,065











Non-interest expense:










  Salaries and benefits

31,980


36,701


23,572


23,252


21,258

  CDI amortization

1,932


2,007


1,595


1,695


1,879

  Net occupancy and equipment

4,812


4,614


3,492


3,557


3,655

  Depreciation

2,491


2,369


2,028


2,035


2,051

   Data processing and software amortization

3,106


2,901


1,906


1,532


1,417

   Regulatory assessments and FDIC insurance

2,365


2,107


1,659


1,548


1,518

  Communications (includes telephone, courier and postage)

2,381


2,226


1,802


1,748


1,758

  ORE expense

465


271


383


691


680

  Other non-interest expense

7,436


7,046


4,351


4,401


4,169

    Total non-interest expense

56,968


60,242


40,788


40,459


38,385

Net income before taxes

71,889


68,679


55,934


55,182


54,617

Federal income taxes

23,623


22,503


18,962


18,695


18,211

Net income available to common shareholders

$     48,266


$    46,176


$     36,972


$     36,487


$     36,406











(G) Interest income on loans includes additional interest income related to the accretion of purchase accounting loan discounts of $14,523, $11,188 and $702  for the three month periods ended  December 31, 2012, September 30, 2012, and June 30, 2012, respectively.  There was no loan discount accretion recorded during the three month periods ended March 31, 2012 and December 31, 2011.

(H) Interest income on securities was reduced by net premium amortization of $23,992, $21,423, $11,755, $9,719 and  $8,989 for the three month periods ended December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively.











Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)















Three Months Ended



Dec 31, 2012


Sep 30, 2012


Dec 31, 2011


YIELD ANALYSIS 

Average Balance

Interest Earned/ Interest Paid

Yield/Rate


Average Balance

Interest Earned/ Interest Paid

Yield/Rate


Average Balance

Interest Earned/ Interest Paid

Yield/Rate















Interest Earning Assets: 













Loans

$   5,140,163

$    82,727

6.40%

(I)

$   5,169,101

$   80,587

6.20%

(I)

$ 3,749,923

$    53,899

5.70%


Investment securities

7,228,418

34,956

1.92%

(J)

7,106,871

37,025

2.07%

(J)

4,596,017

35,719

3.11%

(J)

Federal funds sold and other













   earning assets

75,135

36

0.19%


53,111

21

0.16%


62,035

40

0.26%


  Total interest earning assets 

12,443,716

$  117,719

3.76%


12,329,083

$ 117,633

3.80%


8,407,975

$    89,658

4.23%


Allowance for credit losses 

(50,775)




(53,944)




(51,713)




Non-interest earning assets 

1,844,756




1,730,120




1,373,217




  Total assets

$ 14,237,697




$ 14,005,259




$ 9,729,479

















Interest Bearing Liabilities: 













Interest bearing demand deposits

$   2,328,969

$      1,803

0.31%


$   2,181,928

$     2,273

0.41%


$ 1,363,900

$      1,450

0.42%


Savings and money market deposits

3,600,109

2,580

0.29%


3,516,601

2,987

0.34%


2,553,227

2,450

0.38%


Certificates and other time deposits 

2,366,155

3,834

0.64%


2,387,279

4,135

0.69%


2,057,954

4,782

0.92%


Securities sold under repurchase













    agreements 

459,998

294

0.25%


438,410

315

0.29%


60,999

63

0.41%


Federal funds purchased and other













   borrowings 

272,239

276

0.40%


512,739

379

0.29%


66,834

194

1.15%


Junior subordinated debentures 

85,055

631

2.95%


85,055

651

3.04%


85,055

632

2.95%


  Total interest bearing liabilities 

$   9,112,525

$      9,418

0.41%

(K)

$   9,122,012

$   10,740

0.47%

(K)

$ 6,187,969

$      9,571

0.61%

(K)

Non-interest bearing liabilities: 













Non-interest bearing demand deposits

$   2,963,998




$   2,760,405




$ 1,924,037




Other liabilities 

80,085




92,873




60,628




  Total liabilities

$ 12,156,608




$ 11,975,290




$ 8,172,634




Shareholders' equity 

2,081,089




2,029,969




1,556,845




  Total liabilities and shareholders' equity 

$ 14,237,697




$ 14,005,259




$ 9,729,479

















Net Interest Income & Margin 


$  108,301

3.46%



$ 106,893

3.45%



$    80,087

3.78%















Non-GAAP to GAAP reconciliation:













Tax equivalent adjustment


2,099




2,135




850
















Net Interest Income & Margin













     (tax equivalent)


$  110,400

3.53%



$ 109,028

3.52%



$    80,937

3.82%




(I) Yield on loans was impacted by additional interest income related to the accretion of purchase accounting loan discounts of $14,523, $11,188 and $702  for the three month periods ended  December 31, 2012, September 30, 2012, and June 30, 2012, respectively.  There was no loan discount accretion recorded during the three month periods ended March 31, 2012 and December 31, 2011.


(J) Yield on securities was impacted by net premium amortization of $23,992, $21,423, $11,755, $9,719 and  $8,989 for the three month periods ended December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively.


(K) Total cost of funds, including non-interest bearing deposits, was 0.31%, 0.36%, and 0.47% for the three months ended December 31, 2012, September 30, 2012 and December 31, 2011, respectively.


Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)











Twelve Months Ended



Dec 31, 2012


Dec 31, 2011


YIELD ANALYSIS 

Average Balance

Interest Earned/ Interest Paid

Average Yield/Rate


Average Balance

Interest Earned/ Interest Paid

Average Yield/Rate











Interest Earning Assets: 









Loans

$     4,514,171

$        271,324

6.01%

(L)

$     3,648,701

$        214,273

5.87%


Investment securities

6,364,917

148,374

2.33%

(M)

4,625,833

157,580

3.41%

(M)

Federal funds sold and other









   earning assets

68,900

144

0.21%


26,879

55

0.20%


  Total interest earning assets 

10,947,988

$        419,842

3.83%


8,301,413

$        371,908

4.48%


Allowance for credit losses 

(51,770)




(51,871)




Non-interest earning assets 

1,536,448




1,379,342




  Total assets

$   12,432,666




$     9,628,884













Interest Bearing Liabilities: 









Interest bearing demand deposits

$     1,979,345

$            8,228

0.42%


$     1,393,501

$            7,416

0.53%


Savings and money market deposits

3,174,256

10,600

0.33%


2,421,735

11,836

0.49%


Certificates and other time deposits 

2,152,382

15,658

0.73%


2,135,858

21,723

1.02%


Securities sold under repurchase agreements 

263,689

705

0.27%


68,049

369

0.54%


Federal funds purchased and other borrowings 

416,925

1,352

0.32%


152,716

912

0.60%


Junior subordinated debentures 

85,055

2,593

3.05%


86,557

2,984

3.45%


  Total interest bearing liabilities 

$     8,071,652

$          39,136

0.48%

(N)

$     6,258,416

$          45,240

0.72%

(N)

Non-interest bearing liabilities: 









Non-interest bearing demand deposits

$     2,442,860




$     1,800,102




Other liabilities 

73,820




56,617




  Total liabilities

$   10,588,332




$     8,115,135




Shareholders' equity 

1,844,334




1,513,749




  Total liabilities and shareholders' equity 

$   12,432,666




$     9,628,884




Net Interest Income & Margin 


$        380,706

3.48%



$        326,668

3.94%











Non-GAAP to GAAP reconciliation:









Tax equivalent adjustment


5,965




3,614












Net Interest Income & Margin









     (tax equivalent)


$        386,671

3.53%



$        330,282

3.98%











(L) Yield on loans was impacted by additional interest income related to the accretion of purchase accounting loan discounts of $26,413 for the  twelve month period ended  December 31, 2012.  There was no loan discount accretion recorded during the twleve month period ended December 31, 2011.


(M) Yield on securities was impacted by net premium amortization of $66,889 and $28,676 for the twelve month periods ended December 31, 2012 and 2011, respectively.


(N) Total cost of funds, including non-interest bearing deposits, was 0.37% and 0.56% for the twelve months ended December 31, 2012 and December 31, 2011, respectively.


Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)






























Three Months Ended


Twelve Months Ended


 Dec 31,

 2012 


 Sep 30,

2012 


 Jun 30,

2012 


 Mar 31,

2012 


 Dec 31,

2011 


 Dec 31,

 2012 


 Dec 31,

2011 

YIELD ANALYSIS 




























Interest Earning Assets: 














Loans(I) (L) 

6.40%


6.20%


5.63%


5.60%


5.70%


6.01%


5.87%

Investment securities(J) (M) 

1.92%


2.07%


2.70%


2.95%


3.11%


2.33%


3.41%

Federal funds sold and other














   earning assets

0.19%


0.16%


0.17%


0.25%


0.26%


0.21%


0.20%

  Total interest earning assets 

3.76%


3.80%


3.90%


4.03%


4.23%


3.83%


4.48%















Interest Bearing Liabilities: 














Interest bearing demand deposits

0.31%


0.41%


0.49%


0.49%


0.42%


0.42%


0.53%

Savings and money market deposits

0.29%


0.34%


0.35%


0.37%


0.38%


0.33%


0.49%

Certificates and other time deposits 

0.64%


0.69%


0.76%


0.84%


0.92%


0.73%


1.02%

Securities sold under repurchase agreements

0.25%


0.29%


0.24%


0.28%


0.41%


0.27%


0.54%

Federal funds purchased and other borrowings 

0.40%


0.29%


0.28%


0.41%


1.15%


0.32%


0.60%

Junior subordinated debentures 

2.95%


3.04%


3.06%


3.14%


2.95%


3.05%


3.45%

  Total interest bearing liabilities 

0.41%


0.47%


0.52%


0.57%


0.61%


0.48%


0.72%















Net Interest Margin 

3.46%


3.45%


3.52%


3.60%


3.78%


3.48%


3.94%

Net Interest Margin (tax equivalent)

3.53%


3.52%


3.55%


3.64%


3.82%


3.53%


3.98%















Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)
















Three Months Ended


Twelve Months Ended


 Dec 31,

2012 


 Sep 30,

2012 


 Jun 30,

2012 


 Mar 31,

 2012 


 Dec 31,

2011 


 Dec 31,

2012 


 Dec 31,

2011 














Comparative Asset Quality, Performance














     & Capital Ratios




























Return on average














     assets (annualized)

1.36%


1.32%


1.35%


1.39%


1.50%


1.35%


1.47%

Return on average common














     equity (annualized) 

9.28%


9.10%


9.06%


9.15%


9.35%


9.10%


9.36%

Return on average tangible














     equity (annualized)(O) 

22.92%


21.59%


21.70%


22.57%


23.86%


21.93%


25.11%

Net interest margin (tax














     equivalent) (annualized)(P)

3.53%


3.52%


3.55%


3.64%


3.82%


3.53%


3.98%















Employees – FTE

2,266


2,260


1,666


1,690


1,664


2,266


1,664















Efficiency ratio(Q)

42.95%


46.07%


41.94%


42.23%


40.77%


43.48%


42.76%

Non-performing assets to














     average earning assets

0.10%


0.11%


0.12%


0.16%


0.14%


0.12%


0.15%

Non-performing assets to loans














     and other real estate

0.25%


0.28%


0.30%


0.38%


0.32%


0.25%


0.32%

Net charge-offs to














     average loans  (annualized)

0.15%


0.08%


0.20%


0.00%


0.24%


0.11%


0.14%

Allowance for credit losses to














     total loans

1.01%


1.00%


1.28%


1.33%


1.37%


1.01%


1.37%

Allowance for credit losses to














total loans (excluding acquired loans)(O)

1.22%


1.27%


    N/A


     N/A


     N/A


1.22%


     N/A















Book value per share

$ 37.02


$ 36.36


$ 34.63


$ 34.03


$ 33.41


$   37.02


$ 33.41















Tangible book value per share(O)

$ 14.99


$ 14.45


$ 14.60


$ 13.98


$ 13.25


$   14.99


$ 13.25















Tier 1 risk-based capital

14.40%


14.43%


16.42%


15.70%


15.90%


14.40%


15.90%















Total risk-based capital

15.22%


15.26%


17.49%


16.80%


17.09%


15.22%


17.09%















Tier 1 leverage capital

7.10%


6.92%


7.69%


7.68%


7.89%


7.10%


7.89%















Tangible equity to tangible assets(O)

6.34%


6.49%


7.08%


6.65%


7.00%


6.34%


7.00%















Equity to assets

14.33%


14.86%


15.31%


14.78%


15.96%


14.33%


15.96%















Basic earnings per share

$   0.86


$   0.83


$   0.78


$   0.77


$   0.78


$    3.24


$   3.03















Diluted earnings per share

$   0.85


$   0.82


$   0.78


$   0.77


$   0.77


$    3.23


$   3.01















(O) Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconcilation of this non-GAAP financial measure.

(P) Net interest margin for all periods presented is calculated on an actual 365 day basis or 366 day basis.

(Q) Prosperity's efficiency ratio is calculated by dividing total non-interest expense (excluding credit loss provisions) by net interest income plus non-interest income (excluding net gains and losses on the sale of assets and securities).  Additionally, taxes are not part of this calculation. 

Prosperity Bancshares, Inc.®

Financial Highlights (Unaudited)

(Dollars in thousands)


















As of and for the 


As of and for the


Three Months Ended


Twelve Months Ended


Dec 31, 2012


Dec 31, 2011


Dec 31, 2012


Dec 31, 2011

Common Share and








     Other Data








Employees - FTE

2,266


1,664


2,266


1,664









Book value per share

$          37.02


$          33.41


$          37.02


$          33.41

Tangible book value per share(O)

$          14.99


$          13.25


$          14.99


$          13.25









Period end shares outstanding

56,447


46,910


56,447


46,910

Weighted average shares








     outstanding (basic)

56,427


46,893


51,794


46,846

Weighted average shares








     outstanding (diluted) 

56,554


47,028


51,941