Prosperity Bancshares, Inc.® Reports Strong Third Quarter Earnings

- 3Q10 Earnings Per Share of $0.69 (diluted)

- Allowance for Credit Losses to Total Loans 1.50%

- Tangible Common Equity Ratio increased to 5.73%

- Non-Performing Assets remain low at 0.26% of Average Earning Assets

Oct 22, 2010, 06:03 ET from Prosperity Bancshares, Inc.

HOUSTON, Oct. 22 /PRNewswire-FirstCall/ -- Prosperity Bancshares, Inc.® (Nasdaq: PRSP), the parent company of Prosperity Bank®, reported net income for the quarter ended September 30, 2010 of $32.166 million or $0.69 per diluted common share, an increase in net income of $2.844 million or 9.7%, compared with $29.322 million or $0.63 per diluted common share for the same period in 2009.  

"Our bank continues to produce strong earnings in the current turbulent economic environment," commented David Zalman, Chairman and Chief Executive Officer.  "Our team remains focused on producing strong results for our shareholders."

"We continue to be cautiously optimistic about the Texas economy," continued Zalman.  "Our lenders are winning new business in all of our markets and we believe the opportunities for future growth are good."

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.  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 September 30, 2010

For the three months ended September 30, 2010, net income was $32.166 million compared with $29.322 million for the same period in 2009.  Net income per diluted common share was $0.69 for the three months ended September 30, 2010 and $0.63 for the same period in 2009.  Returns on average assets, average common equity and average tangible common equity for the three months ended September 30, 2010 were 1.36%, 9.06% and 27.62%, respectively.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of assets) was 45.35% for the three months ended September 30, 2010.

Net interest income before provision for credit losses for the quarter ended September 30, 2010 increased 3.7% to $80.267 million compared with $77.413 million during the same period in 2009. The increase was attributable primarily to a 6.4% increase in average earning assets during the same period primarily due to the U.S. Bank and First Bank branch acquisitions, which were completed in March and April of 2010, respectively.  The net interest margin on a tax equivalent basis decreased to 3.97% for the three months ended September 30, 2010 compared with 4.08% for the same period in 2009.  On a linked quarter basis, the tax equivalent net interest margin decreased three basis points to 3.97% for the three months ended September 30, 2010 from 4.00% reported for the three months ended June 30, 2010.

Non-interest income decreased $1.582 million or 10.4% to $13.654 million for the three months ended September 30, 2010 compared with $15.236 million for the same period in 2009.  The decrease was mainly attributable to an increase in net loss on the sale of other real estate. On a linked quarter basis, non-interest income increased $358,000 or 2.7% from $13.296 million for the three months ended June 30, 2010 to $13.654 million for the three months ended September 30, 2010.

Non-interest expense increased $1.392 million or 3.4% to $42.593 million for the third quarter of 2010 compared with $41.201 million for the third quarter of 2009.  The increase was attributable primarily due to the additional banking centers acquired in the U.S. Bank and First Bank acquisitions.  On a linked quarter basis, non-interest expense decreased $456,000 or 1.1% from $43.049 million for the three months ended June 30, 2010 to $42.593 million for the three months ended September 30, 2010.

Average loans decreased 0.7% or $22.739 million to $3.408 billion for the quarter ended September 30, 2010 compared with $3.431 billion for the same period in 2009.  Linked quarter average loans increased 0.1% or $4.195 million from $3.404 billion at June 30, 2010. Average deposits increased 5.3% or $384.425 million to $7.608 billion for the quarter ended September 30, 2010 compared with $7.224 billion for the same period in 2009.  Linked quarter average deposits decreased 2.6% or $204.089 million from $7.812 billion at June 30, 2010.

Loans at September 30, 2010 were $3.414 billion, an increase of $7.682 million or 0.2%, compared with $3.406 billion at September 30, 2009.  Loans decreased 0.3% or $11.221 million on a linked quarter basis compared with loans of $3.425 billion at June 30, 2010.  As reflected in the table below, linked quarter loans for the third quarter of 2010 were impacted by the loans acquired with the U.S. Bank and First Bank acquisitions.  Excluding the loans acquired in these acquisitions, linked quarter loans increased 3.0% on an annualized basis.  

Deposits at September 30, 2010 were $7.492 billion, an increase of $373.587 million or 5.2%, compared with $7.118 billion at September 30, 2009.  Linked quarter deposits decreased $322.349 million or 4.1% from $7.814 billion at June 30, 2010.  As reflected in the table below, linked quarter deposits for the third quarter of 2010 were impacted by the deposits assumed with the U.S. Bank and First Bank acquisitions.  Excluding the deposits assumed in these acquisitions, linked quarter deposits decreased 3.5%.

Balance Sheet Data (at period end)

Sept 30, 2010

June 30, 2010

Sept 30, 2009

(In thousands)

(Unaudited)

(Unaudited)

(Unaudited)

Loans:

Acquired with U.S. Bank branches

$         28,814

$          30,641

$                   0

Acquired with First Bank branches

           53,653

           88,039

                    0

All other

      3,331,352

      3,306,360

      3,406,137

Total Loans

$     3,413,819

$     3,425,040

$     3,406,137

Deposits:

Assumed with U.S. Bank branches

$        312,335

$        350,890

$                   0

Assumed with First Bank branches

         414,412

         454,686

                    0

All other

      6,764,833

      7,008,353

      7,117,993

Total Deposits

$     7,491,580

$     7,813,929

$     7,117,993

At September 30, 2010, construction loans totaled $498.400 million, consisting of $127.325 million of single family residential construction loans; $55.902 million of land development loans; $67.108 million of raw land loans; $88.611 million of residential lot loans; $48.346 million of commercial lot loans; and $111.108 million of commercial and other construction loans.  This is a decrease of $16.393 million from construction loans at June 30, 2010.

At September 30, 2010, Prosperity had $9.239 billion in total assets, $3.414 billion in loans, and $7.492 billion in deposits. Assets, loans and deposits at September 30, 2010 increased by 3.1%, 0.2% and 5.2%, respectively, compared with their level at September 30, 2009.

Asset Quality

Non-performing assets totaled $20.700 million or 0.26% of average earning assets at September 30, 2010 compared with $21.920 million or 0.29% of average earning assets at September 30, 2009 and $21.856 million or 0.27% of average earnings assets at June 30, 2010.  The allowance for credit losses was 1.50% of total loans at September 30, 2010 compared with 1.39% at September 30, 2009 and 1.54% of total loans at June 30, 2010.

Non-performing assets

(In thousands)

Sept 30, 2010

June 30, 2010

Sept 30, 2009

Amount

#

Amount

#

Amount

#

Commercial

$        1,446

20

$        1,670

22

$           920

26

Construction

      7,740

44

7,293

42

10,975

40

1-4 family (including home equity)

      4,024

46

4,920

50

1,285

16

Commercial real estate (including multi-family)

      7,383

9

7,691

13

8,592

13

Agriculture

            0

0

43

2

0

0

Consumer

            107

   15

            239

   11

            148

   13

Total

$      20,700

 134

$      21,856

 140

$      21,920

 108

Net Charge-offs

(In thousands)

Three Months Ended

Sept 30, 2010

Three Months Ended

June 30, 2010

Three Months Ended

Sept 30, 2009

Commercial

$           464

$           602

$           712

Construction

          829

          255

          780

1-4 family (including home equity)

           392

           1,015

           297

Commercial real estate  (including multi-family)

        2,138

                249

                215

Agriculture

               (4)

               3

               53

Consumer

            554

            316

            492

Total

$         4.373

$         2,440

$         2,549

The provision for credit losses was $3.000 million for the three months ended September 30, 2010 and $7.250 million for the three months ended September 30, 2009.  Net charge offs were $4.373 million for the three months ended September 30, 2010 and $2.549 million for the three months ended September 30, 2009.

The provision for credit losses was $10.685 million for the nine months ended September 30, 2010 compared to $20.275 million for the nine months ended September 30, 2009.  Net charge offs were $11.194 million for the nine months ended September 30, 2010 compared to $9.932 million for the nine months ended September 30, 2009.

Results of operations for the nine months ended September 30, 2010

For the nine months ended September 30, 2010, net income was $94.910 million compared with $81.310 million for the same period in 2009.  Net income per diluted common share was $2.03 for the nine months ended September 30, 2010 compared with $1.76 for the same period in 2009.  Returns on average assets, average common equity and average tangible common equity for the nine months ended September 30, 2010 were 1.36%, 9.08% and 27.65%, respectively.  Prosperity's efficiency ratio was 47.07% for the nine months ended September 30, 2010.

Net interest income before provision for credit losses for the nine months ended September 30, 2010 increased $11.627 million or 5.1%, to $238.639 million compared with $227.012 million during the same period in 2009.  The increase was attributable primarily to a 4.6% increase in average earning assets during the same period.

Non-interest income decreased $5.458 million or 12.0% to $39.928 million for the nine months ended September 30, 2010 compared with $45.386 million for the same period in 2009.  The decrease was mainly attributable to an increase in net loss on the sale of other real estate and a decrease in service charges on deposit accounts resulting from decreased NSF income.

Non-interest expense decreased $4.157 million or 3.2% to $125.367 million for the nine months ended September 30, 2010 compared with $129.524 million for the same period in 2009.  The decrease was primarily attributable to a reduction in FDIC insurance assessments.  The FDIC imposed an emergency special assessment as of June 30, 2009, which for Prosperity totaled approximately $4.2 million in pre-tax expense or $0.06 per diluted common share after tax.  

Dividend Increase

Prosperity Bancshares, Inc. announced an increase of their regular cash dividend to $0.70 per share per year. The fourth quarter cash dividend of $0.175, an increase of 12.9%, is payable on December 31, 2010 to all shareholders of record as of December 17, 2010.  The dividend payment date was moved forward one business day from past dividend payment dates for this quarter only due to the current uncertainty of federal tax laws.  Future dividend payment dates will be revert back to the first working day of each quarter.

Conference Call

Prosperity's management team will host a conference call on Friday, October 22, 2010 at 10:30 a.m. Eastern Daylight Time (9:30 a.m. Central Daylight Time) to discuss Prosperity's third quarter earnings. Individuals and investment professionals may participate in the call by dialing 1-800-895-0231, 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 Home page under News and Events.

Acquisition of First Bank's Texas Branches

On April 30, 2010, Prosperity completed the previously announced acquisition of nineteen (19) Texas retail bank branches of First Bank, a Missouri state-chartered bank. Prosperity Bank paid a premium of 5.5% for approximately $500 million in deposits and purchased approximately $100 million in loans and other assets attributable to the branches.

First Bank's Texas locations were all in the Houston and Dallas metropolitan areas and represented a strategic enhancement to Prosperity's presence in these markets. After the consolidation of locations near existing Prosperity banking centers, Prosperity operates (31) Dallas/Fort Worth area banking centers and sixty (60) Houston area banking centers.

The deposits assumed were primarily core deposits and the $100 million in loans purchased were individually selected by Prosperity from First Bank's loan portfolio associated with the Texas branches and consisted of performing business and consumer-related Texas-based loans.

Acquisition of U. S. Bank's Texas Branches

On March 29, 2010, Prosperity completed the previously announced acquisition of the three (3) Texas retail bank branches of U.S. Bank. The transaction continued Prosperity's strategic growth and expansion of the franchise in Texas.  Prosperity Bank paid a premium for approximately $375 million in deposits, as well as purchased certain loans and other assets attributable to the branches.  

The three locations acquired by Prosperity were the Texas locations U.S. Bank acquired from the FDIC on October 30, 2009 when U.S. Bank acquired the nine (9) subsidiary banks of FBOP Corporation.  The Texas banks were Madisonville State Bank in Madisonville, Texas; Citizens National Bank in Teague, Texas; and North Houston Bank in Houston, Texas. 

Prosperity Bancshares, Inc.®

Prosperity Bancshares, Inc.®, a $9.2 billion Houston, Texas based regional financial holding company, formed in 1983, operates under a community banking philosophy and seeks 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, and 24 hour voice response banking. Prosperity currently operates one hundred seventy five (175) full service banking locations; sixty (60) in the Houston area; twenty (20) in the South Texas area including Corpus Christi and Victoria; thirty-one (31) in the Dallas/Fort Worth area; twenty-one (21) in the East Texas area; thirty-three (33) in the Central Texas area including Austin and San Antonio; and ten (10) in the Bryan/College Station area.

Bryan/College Station Area -

Bryan

Bryan-East

Bryan-North

Caldwell

College Station

Greens Prairie

Madisonville

Navasota

Rock Prairie

Wellborn Road

Central Texas Area -

Austin -

183

Allandale

Cedar Park

Congress

Lakeway

Liberty Hill

Northland

Oak Hill

Parmer Lane

Research Blvd

West Lake

Other Central Texas Locations -

Bastrop

Cuero

Dime Box

Dripping Springs

Elgin

Flatonia

Georgetown

Gonzales

Hallettsville

Kingsland

La Grange

Lexington

New Braunfels

Pleasanton

Round Rock

San Antonio

Schulenburg

Seguin

Smithville

Weimar

Yoakum

Yorktown

Dallas/Fort Worth Area -

Dallas -

Abrams Centre

Balch Springs

Camp Wisdom

Cedar Hill

Central Expressway

East Renner

Frisco

Frisco-West

Independence

Kiest

McKinney

McKinney-Stonebridge

Midway

Preston Forest

Preston Road

Red Oak

Sachse

The Colony

Turtle Creek

Westmoreland

Fort Worth -

Haltom City

Keller

Roanoke

Stockyards

Other Dallas/Fort Worth Locations -

Azle

Ennis

Gainesville

Mesquite

Muenster

Sanger

Waxahachie

East Texas Area -

Athens

Athens-South

Blooming Grove

Canton

Carthage

Corsicana

Crockett

Eustace

Grapeland

Gun Barrel City

Jacksonville

Kerens

Longview

Mount Vernon

Palestine

Rusk

Seven Points

Teague

Tyler

Tyler-University

Winnsboro

Houston Area -

Houston -

Aldine

Allen Parkway

Bellaire

Beltway

Clear Lake

Copperfield

Cypress

Downtown

Eastex

Fairfield

First Colony

Gessner

Gladebrook

Harrisburg

Heights

Highway 6 West

Hillcroft

Little York

Medical Center

Memorial Drive

Northside

Pasadena

Pecan Grove

Piney Point

River Oaks

Royal Oaks

Sugar Land

SW Medical Center

Tanglewood

Uptown

Waugh Drive

West University

Westheimer

Woodcreek

Other Houston Area

Locations -

Angleton

Bay City

Beaumont

Cinco Ranch

Cleveland

East Bernard

El Campo

Dayton

Galveston

Groves

Hempstead

Hitchcock

Katy

Liberty

Magnolia

Mont Belvieu

Nederland

Needville

Shadow Creek

Sweeny

Tomball

Waller

West Columbia

Wharton

Winnie

Wirt

South Texas Area -

Corpus Christi -

Airline

Carmel  

Northwest  

Saratoga

Water Street

Other South Texas

Locations -

Alice

Aransas Pass

Beeville

Edna

Goliad

Kingsville

Mathis

Palacios

Port Aransas

Port Lavaca

Portland

Rockport

Sinton

Victoria

Victoria-North

"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, that 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; weather; and the stock price volatility associated with "small-cap" companies.  These and various other factors are discussed in Prosperity's Annual Report on Form 10-K for the year ended December 31, 2009 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

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

Three Months Ended

Nine Months Ended

Sept 30, 2010

Sept 30, 2009

Sept 30, 2010

Sept 30, 2009

Selected Earnings and Per

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Share Data

Total interest income

$          96,247

$          101,695

$         292,101

$         310,029

Total interest expense

            15,980

            24,282

          53,462

          83,017

Net interest income

80,267

77,413

          238,639

          227,012

Provision for credit losses

              3,000

              7,250

            10,685

            20,275

Net interest income after

    provision for credit losses

77,267

70,163

          227,954

          206,737

Total non-interest income

13,654

15,236

          39,928

          45,386

Total non-interest expense

            42,593

            41,201

          125,367

          129,524

Net income before taxes

48,328

44,198

          142,515

          122,599

Federal income taxes

            16,162

            14,876

          47,605

          41,289

Net income

$           32,166

$         29,322

$         94,910

$         81,310

Basic earnings per share

$0.69

$0.64

$2.04

$1.76

Diluted earnings per share

$0.69

$0.63

$2.03

$1.76

Period end shares outstanding

46,653

46,153

46,653

46,153

Weighted average shares

    outstanding (basic)

46,640

46,125

46,604

46,106

Weighted average shares

    outstanding (diluted)

46,774

46,347

46,835

46,243

Prosperity Bancshares, Inc. ®

Financial Highlights

(Dollars in thousands)

               Three Months Ended                             Nine Months Ended              

Sept 30, 2010

Sept 30, 2009

Sept 30, 2010

Sept 30, 2009

Balance Sheet Averages

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Total loans

$        3,408,322

$        3,431,061

3,385,337

3,477,972

Investment securities

4,667,697

4,062,796

4,497,623

4,019,370

Federal funds sold and

    other temporary

    investments

            12,812

            107,008

            60,618

            98,782

Total earning assets

8,088,831

7,600,865

        7,943,578

        7,596,124

Allowance for credit losses

(52,577)

(43,610)

           (52,354)

           (40,045)

Cash and due from banks

127,497

126,659

           129,520

           139,017

Goodwill

921,714

875,176

           902,109

           875,450

Core deposit intangibles (CDI)

32,178

39,027

             33,445

             39,217

Other real estate

15,840

13,910

              14,952

              11,508

Fixed assets, net

160,831

150,216

           158,158

           141,510

Other assets

                143,407

              105,304

          142,019

          106,204

Total assets

$        9,437,721

$        8,867,547

$      9,271,427

$      8,868,985

Non-interest bearing deposits

$        1,577,013

$        1,475,878

$      1,535,936

$      1,490,911

Interest bearing deposits

         6,031,270

         5,747,980

       6,023,479

       5,761,958

Total deposits

7,608,283

7,223,858

7,559,415

7,252,869

Securities sold under

    repurchase agreements

94,181

109,961

             82,925

             95,488

Federal funds purchased and

    other borrowings

159,423

49,539

79,127

53,733

Junior subordinated

    debentures

92,265

92,265

92,265

92,265

Other liabilities

63,785

77,913

64,433

82,492

Shareholders' equity(A)

         1,419,784

         1,314,011

       1,393,262

       1,292,138

Total liabilities and equity

$        9,437,721

$        8,867,547

$      9,271,427

$      8,868,985

(A) Includes $18,392 and $13,735 in after tax unrealized gains on available for sale securities for the three months ending September 30, 2010 and September 30, 2009, respectively, and $17,752 and $13,767 for the nine months ending September 30, 2010 and September 30, 2009, respectively.

Prosperity Bancshares, Inc. ®

Financial Highlights

(Dollars in thousands)

               Three Months Ended                             Nine Months Ended              

Sept 30, 2010

Sept 30, 2009

Sept 30, 2010

Sept 30, 2009

Income Statement Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Interest on loans

$            52,855

$            54,809

$         156,989

$         165,859

Interest on securities

43,382

46,812

              134,999

              143,990

Interest on federal funds sold

    and other temporary

    investments

                    10

                    74

                  113

                  180

Total interest income

           96,247

           101,695

           292,101

           310,029

Interest expense – deposits

14,702

22,694

              49,760

              77,772

Interest expense – debentures

857

879

                2,447

                2,957

Interest expense – other

                  421

                  709

               1,255

               2,288

Total interest expense

             15,980

             24,282

             53,462

             83,017

Net interest income (B)

80,267

77,413

             238,639

             227,012

Provision for credit losses

               3,000

               7,250

              10,685

              20,275

Net interest income after

    provision for credit losses

             77,267

             70,163

            227,954

            206,737

Service charges on

    deposit accounts

13,201

13,554

              37,470

              38,789

Net gain (loss) on sale of assets

1

(20)

                   400

                   277

Net (loss) gain on sale of ORE

(1,364)

115

              (3,347)

              552

Brokered mortgage income

64

59

                    127

                    269

Other non-interest income

               1,752

               1,528

               5,278

               5,499

Total non-interest income

             13,654

             15,236

             39,928

             45,386

Salaries and benefits (C)

22,016

21,507

              65,559

              64,649

CDI amortization

2,274

2,479

                6,844

                7,635

Net occupancy and equipment

4,036

3,624

                11,178

                11,116

Depreciation

2,161

2,100

                6,314

                6,170

Data processing

and software amortization

1,550

1,446

                4,707

                5,063

Regulatory assessments and

    FDIC insurance

2,817

2,436

8,227

11,189

Other non-interest expense

            7,739

            7,609

             22,538

             23,702

Total non-interest expense

            42,593

            41,201

             125,367

             129,524

Net income before taxes

48,328

44,198

              142,515

              122,599

Federal income taxes

            16,162

            14,876

             47,605

             41,289

Net income available

to common shareholders

$           32,166

$           29,322

$            94,910

$            81,310

(B) Net interest income on a tax equivalent basis would be $81,014 and $78,111 for the three months ended September 30, 2010 and September 30, 2009, respectively, and $240,811 and $229,096 for the nine months ended September 30, 2010 and September 30, 2009, respectively.

(C) Salaries and benefits includes stock-based compensation expense of $729 and $267 for the three months ended September 30, 2010 and September 30, 2009, respectively, and $2,212 and $887 for the nine months ended September 30, 2010 and September 30, 2009, respectively.

Prosperity Bancshares, Inc.®

Financial Highlights

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

Three Months Ended

Nine Months Ended

Sept 30, 2010

Sept 30, 2009

Sept 30, 2010

Sept 30, 2009

Common Share and

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

    Other Data

Employees - FTE

1,719

1,608

1,719

1,608

Book value per share

$            30.64

$            28.75

$            30.64

$          28.75

Tangible book value per share

$            10.17

$              8.93

$            10.17

$            8.93

Period end shares outstanding

46,653

46,153

          46,653

          46,153

Weighted average shares

    outstanding (basic)

46,640

46,125

          46,604

          46,106

Weighted average shares

    outstanding (diluted)

46,774

46,347

          46,835

          46,243

Non-accrual loans

$             7,530

$            2,878

$             7,530

$           2,878

Restructured loans

0

0

0

0

Accruing loans 90 or more

    days past due

                   1,776

                 5,938

                 1,776

                 5,938

Total non-performing loans

9,306

8,816

            9,306

            8,816

Repossessed assets

161

366

               161

               366

Other real estate

            11,233

            12,738

         11,233

         12,738

 Total non-performing assets

$           20,700

$           21,920

$           20,700

$        21,920

Allowance for credit losses at

    end of period

$           51,354

$           47,312

  $          51,354

$        47,312

Net charge-offs

$             4,373

$             2,549

$           11,194

$          9,932

Basic earnings per share

$               0.69

$               0.64

$               2.04

$            1.76

Diluted earnings per share

$               0.69

$               0.63

$              2.03

$            1.76

Prosperity Bancshares, Inc.®

Financial Highlights

Three Months Ended

Nine Months Ended

Sept 30, 2010

Sept 30, 2009

Sept 30, 2010

Sept 30, 2009

Performance Ratios

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Return on average assets (annualized)

1.36%

1.32%

1.36%

1.22%

Return on average common

    equity (annualized)  

9.06%

8.93%

9.08%

8.39%

Return on average tangible

    common equity (annualized)

27.62%

29.34%

27.65%

28.72%

Net interest margin

    (tax equivalent) (annualized) (D)

3.97%

4.08%

4.05%

4.03%

Efficiency ratio(E)

45.35%

44.46%

47.07%

47.60%

Asset Quality Ratios

Non-performing assets to

    average earning assets

0.26%

0.29%

0.26%

0.29%

Non-performing assets to loans

    and other real estate

0.60%

0.64%

0.60%

0.64%

Net charge-offs  to average loans

0.13%

0.07%

0.33%

0.29%

Allowance for credit losses to

    total loans

1.50%

1.39%

1.50%

1.39%

Common Stock Market Price

High

$36.05

$37.36

$43.66

$37.36

Low

$28.27

$28.13

$28.27

$20.04

Period end market price

$32.47

$34.79

$32.47

$34.79

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

(E)The efficiency ratio is calculated by dividing total non-interest expense (excluding provision for credit losses) by net interest income plus non-interest income (excluding net gains and losses on the sale of assets). Additionally, taxes are not part of this calculation.

Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)

Sept 30, 2010

June 30, 2010

March 31, 2010

Dec 31, 2009

Loan Portfolio

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Commercial

$   419,539

12.29%

$   440,274

12.85%

$   412,602

12.32%

$   415,512

12.31%

Construction

498,400

14.60%

514,793

15.03%

    539,430

16.11%

557,245

16.51%

1-4 family residential

789,859

23.14%

758,670

22.15%

    729,015

21.77%

     709,101

21.00%

Home equity

114,846

3.36%

116,071

3.39%

    119,754

3.58%

       117,661

3.48%

Commercial real estate

1,357,046

39.75%

1,349,834

39.42%

 1,302,357

38.90%

  1,339,219

39.66%

Agriculture

143,917

4.22%

148,770

4.34%

    140,418

4.19%

     135,529

4.01%

Consumer

    90,212

2.64%

    96,628

2.82%

    104,807

3.13%

    102,436

3.03%

Total Loans

$3,413,819

$3,425,040

$3,348,383

$3,367,703

Deposit Types

Non-interest bearing DDA

$1,623,078

21.66%

$1,576,727

20.18%

$1,525,079

20.07%

$1,492,612

20.56%

Interest bearing DDA

1,278,564

17.07%

1,359,041

17.39%

 1,354,393

17.82%

     1,391,133

19.17%

Money Market

1,799,923

24.03%

1,901,149

24.33%

 1,807,704

23.79%

  1,619,970

22.32%

Savings

402,707

5.38%

385,376

4.93%

    360,776

4.75%

     322,399

4.44%

Time < $100

1,224,226

16.34%

1,316,602

16.85%

 1,284,271

16.90%

    1,208,658

16.65%

Time > $100

 1,163,082

15.52%

 1,275,034

16.32%

 1,266,756

16.67%

    1,223,778

16.86%

Total Deposits

$7,491,580

$7,813,929

$7,598,979

$7,258,550

Loan to Deposit Ratio

45.6%

43.8%

44.1%

46.5%

Construction Loans

Single family residential      

    construction

$   127,325

25.55%

$   136,126

26.45%

$   134,963

25.03%

$   146,554

26.30%

Land development

55,902

11.22%

74,570

14.49%

76,871

14.25%

89,128

15.99%

Raw land

67,108

13.46%

68,112

13.23%

76,817

14.24%

79,055

14.19%

Residential lots

88,611

17.78%

93,764

18.21%

99,012

18.35%

101,090

18.14%

Commercial lots

48,346

9.70%

49,341

9.58%

49,863

9.24%

51,639

9.27%

Commercial

    construction and other

    111,108

22.29%

    92,879

18.04%

    101,904

18.89%

_       89,779

16.11%

Total Construction Loans

$   498,400

$   514,793

$   539,430

$   557,245

Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)

Sept 30, 2010

June 30, 2010

Mar 31, 2010

Dec 31, 2009

Sept 30, 2009

Balance Sheet Data

(at period end)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Total loans

$   3,413,819

$   3,425,040

$   3,348,383

$   3,376,703

$   3,406,137

Investment securities (F)

4,472,639

4,817,847

4,525,506

4,118,290

4,255,057

Federal funds sold

       553

       823

         577

         354

       264

Allowance for credit losses

(51,354)

(52,727)

(51,893)

(51,863)

(47,312)

Cash and due from banks

140,678

148,395

169,534

194,963

156,598

Goodwill

923,933

921,484

890,123

876,987

876,958

Core deposit intangibles

30,948

33,389

33,094

35,385

37,825

Other real estate

11,233

12,520

12,991

7,829

12,738

Fixed assets, net

159,717

161,267

152,886

148,855

149,725

Other assets

       136,336

       140,784

       137,532

       142,897

       109,342

Total assets

$   9,238,502

$   9,608,822

$   9,218,733

$   8,850,400

$   8,957,332

Demand deposits

$   1,623,078

$   1,576,727

$   1,525,079

$   1,492,612

$   1,473,189

Interest bearing deposits

    5,868,502

    6,237,202

    6,073,900

    5,765,938

    5,644,804

Total deposits

7,491,580

7,813,929

7,598,979

7,258,550

7,117,993

Securities sold under

    repurchase agreements

96,416

93,060

68,441

72,596

100,636

Federal funds purchased and

    other borrowings

71,686

154,935

15,879

26,140

253,855

Junior subordinated

    debentures

92,265

92,265

92,265

92,265

92,265

Other liabilities

         56,985

         50,499

        65,262

         49,604

         65,548

Total liabilities

7,808,932

8,204,688

7,840,826

7,499,155

7,630,297

Shareholders' equity (G)

    1,429,570

    1,404,134

    1,377,907

    1,351,245

    1,327,035

Total liabilities and equity

$   9,238,502

$   9,608,822

$   9,218,733

$   8,850,400

$   8,957,332

(F) Includes $26,869, $28,028, $27,710, $25,855 and $26,688 in unrealized gains on available for sale securities for the quarterly periods ending  September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009, and September 30, 2009,  respectively.

(G) Includes $17,465, $18,218, $18,011, $16,806 and $17,347 in after-tax unrealized gains on available for sale securities for the quarterly periods ending September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009, and September 30, 2009, respectively.

Prosperity Bancshares, Inc.®

Financial Highlights

(Dollars in thousands)

Three Months Ended

Sept 30, 2010

June 30, 2010

Mar 31, 2010

Dec 31, 2009

Sept 30, 2009

Income Statement Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Interest on loans

$           52,855

$        52,681

$        51,453

$        53,461

$        54,809

Interest on securities

43,382

46,603

     45,014

     46,116

46,812

Interest on federal funds

    sold and other earning assets

                   10

                74

                29

__               8

                74

   Total interest income

           96,247

_        99,358

_        96,496

         99,585

       101,695

Interest expense - deposits

14,702

17,573

         17,485

         18,062

22,694

Interest expense - debentures

857

799

           791

           803

879

Interest expense - other

                 421

              386

              448

__            631

              709

   Total interest expense

            15,980

         18,758

         18,724

         19,496

         24,282

   Net interest income

80,267

80,600

         77,772

         80,089

77,413

Provision for credit losses

              3,000

           3,275

           4,410

           8,500

           7,250

   Net interest income after

    provision for credit losses

            77,267

         77,325

         73,362

         71,589

         70,163

Service charges on

       deposits accounts

13,201

12,680

         11,589

         12,953

13,554

Net gain (loss) on sale of assets

1

399

              0

              145

(20)

Net (loss) gain on sale of  ORE                        

(1,364)

(1,689)

        (294)

        (135)

115

Brokered mortgage income

64

50

                13

                36

59

Other non-interest income

              1,752

           1,856

           1,670

           1,712

           1,528

   Total non-interest income

            13,654

         13,296

         12,978

         14,711

         15,236

Salaries and benefits

22,016

22,431

         21,112

         19,747

21,507

CDI amortization

2,274

2,280

           2,290

           2,441

2,479

Net occupancy and equipment

4,036

3,708

           3,434

           3,794

3,624

Depreciation

2,161

2,147

           2,006

           2,056

2,100

Data processing and

    software  amortization

1,550

1,742

           1,415

           1,386

1,446

Regulatory assessments and

    FDIC insurance

2,817

2,801

2,609

2,473

2,436

Other non-interest expense

              7,739

_          7,940

_          6,859

           8,279

_          7,609

   Total non-interest expense

            42,593

         43,049

         39,725

         40,176

         41,201

   Net income before taxes

48,328

47,572

         46,615

         46,124

44,198

Federal income taxes

            16,162

         15,826

         15,617

         15,555

         14,876

   Net income available

    to common shareholders

$           32,166

$        31,746

$        30,998

$        30,569

$        29,322

Prosperity Bancshares, Inc.®

Financial Highlights

Comparative Quarterly

Three Months Ended

Asset Quality, Performance

Sept 30, 2010

June 30, 2010

Mar 31, 2010

Dec 31, 2009

Sept 30, 2009

    & Capital Ratios

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Return on average

    assets (annualized)

     1.36%

     1.34%

     1.40%

     1.39%

     1.32%

Return on average common

    equity (annualized)

     9.06%

     9.12%

     9.07%

     9.11%

     8.93%

Return on average tangible

    equity (annualized)

   27.62%

   28.08%

   27.22%

   28.50%

   29.34%

Net interest margin

    (tax equivalent) (annualized)

    3.97%

    4.00%

    4.20%

    4.24%

    4.08%

Employees - FTE

    1,719

    1,753

    1,651

    1,594

    1,608

Efficiency ratio

  45.35%

  46.04%

  43.77%

  42.44%

  44.46%

Non-performing assets to

    average earning assets

   0.26%

   0.27%

   0.26%

   0.22%

   0.29%

Non-performing assets to loans

    and other real estate

   0.60%

   0.64%

   0.59%

   0.48%

   0.64%

Net charge-offs to

    average loans

   0.13%

   0.07%

   0.13%

   0.12%

   0.07%

Allowance for credit losses to

    total loans

   1.50%

   1.54%

   1.55%

   1.54%

   1.39%

Book value per share

  $30.64

  $30.12

  $29.58

  $29.03

  $28.75

Tangible book value per share

   $10.17

   $9.64

    $9.76

    $9.43

   $8.93

Tier 1 risk-based capital

 13.23%

 12.31%

 12.82%

    12.61%

 11.85%

Total risk-based capital

 14.47%

 13.56%

 14.07%

  13.86%

 13.01%

Tier 1 leverage capital

   6.45%

   6.10%

   6.61%

   6.47%

   6.09%

Tangible equity to tangible

    assets

   5.73%

   5.19%

   5.48%

   5.53%

   5.13%

Equity to assets

 15.47%

 14.61%

 14.95%

 15.27%

 14.82%

Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)

Three Months Ended September 30, 2010

Three Months Ended September 30, 2009

YIELD ANALYSIS

Average

Interest Earned

Average

Average

Interest Earned

Average

Balance

/ Interest Paid

Yield/Rate

Balance

/ Interest Paid

Yield/Rate

Interest Earning Assets:

Loans

$    3,408,322

$         52,855

6.15%

$     3,431,061

$          54,809

6.34%

Investment securities

4,667,697

43,382

3.72%

4,062,796

46,812

4.61%

Federal funds sold and other

    temporary investments

          12,812

                 10

0.31%

         107,008

                   74

0.27%

 Total interest earning assets

8,088,831

$         96,247

4.72%

7,600,865

$         101,695

5.31%

Allowance for credit losses

(52,577)

(43,610)

Non-interest earning assets

     1,401,467

      1,310,292

 Total assets

$    9,437,721

$     8,867,547

Interest Bearing Liabilities:

Interest bearing demand deposits

$       1,290,299

$           1,967

0.60%

$     1,092,719

$             2,253

0.82%

Savings and money market deposits

2,240,630

3,658

0.65%

1,969,427

4,579

0.92%

Certificates and other time deposits

2,500,341

9,077

1.44%

2,685,834

15,862

2.34%

Securities sold under repurchase agreements

94,181

162

0.68%

109,961

320

1.15%

Federal funds purchased and other borrowings

159,423

259

0.64%

49,539

389

3.12%

Junior subordinated debentures

        92,265

               857

3.69%

           92,265

                 879

3.78%

 Total interest bearing liabilities

6,377,139

$         15,980

0.99%

$     5,999,745

$           24,282

1.61%

Non-interest bearing liabilities:

Non-interest bearing demand deposits

1,577,013

$     1,475,878

Other liabilities

          63,785

           77,913

 Total liabilities

8,017,937

$     7,553,536

Shareholders' equity

     1,419,784

$     1,314,011

 Total liabilities and shareholders' equity

$    9,437,721

$     8,867,547

Net Interest Income & Margin

$         80,267

3.94%

$     77,413

4.04%

Net Interest Income & Margin

    (tax equivalent)

$         81,014

3.97%

$     78,111

4.08%

Prosperity Bancshares, Inc.®

Supplemental Financial Data (Unaudited)

(Dollars in thousands)

Nine Months Ended September 30, 2010

Nine Months Ended September 30, 2009

YIELD ANALYSIS

Average

Interest Earned

Average

Average

Interest Earned

Average

Balance

/ Interest Paid

Yield/Rate

Balance

/ Interest Paid

Yield/Rate

Interest Earning Assets:

Loans

$    3,385,337

$         156,989

6.20%

$    3,477,972

$         165,859

6.38%

Investment securities

4,497,623

134,999

4.00%

4,019,370

143,990

4.78%

Federal funds sold and other

    temporary investments

          60,618

                 113

0.25%

          98,782

               180

0.24%

 Total interest earning assets

7,943,578

$         292,101

4.92%

7,596,124

$         310,029

5.46%

Allowance for credit losses

(52,354)

(40,045)

Non-interest earning assets

     1,380,203

     1,312,906

 Total assets

$    9,271,427

$    8,868,985

Interest Bearing Liabilities:

Interest bearing demand deposits

$       1,351,595

$           7,222

0.71%

$     1,069,884

$           6,557

0.82%

Savings and money market deposits

2,176,350

11,970

0.74%

1,884,542

15,255

1.08%

Certificates and other time deposits

2,495,534

30,568

1.64%

2,807,532

55,960

2.66%

Securities sold under repurchase agreements

82,925

485

0.78%

95,488

948

1.33%

Federal funds purchased and other borrowings

79,127

770

1.30%

53,733

 1,340

3.33%

Junior subordinated debentures

        92,265

            2,447

3.55%

        92,265

            2,957

4.28%

 Total interest bearing liabilities

6,277,796

$         53,462

1.14%

6,003,444

$         83,017

1.85%

Non-interest bearing liabilities:

Non-interest bearing demand deposits

1,535,936

1,490,911

Other liabilities

          64,433

          82,492

 Total liabilities

7,878,165

7,567,847

Shareholders' equity

     1,393,262

     1,292,138

 Total liabilities and shareholders' equity

$    9,271,427

$    8,868,985

Net Interest Income & Margin

$         238,639

4.02%

$         227,012

4.00%

Net Interest Income & Margin

    (tax equivalent)

$         240,811

4.05%

$         229,096

4.03%

Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars in thousands)

Consolidated Financial Highlights

NOTES TO SELECTED FINANCIAL DATA

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 for internal planning and forecasting purposes.  Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented.  Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and Prosperity believes that its presentation, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting Prosperity's business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. Further, Prosperity believes that these non-GAAP measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook.  These non-GAAP measures should not be considered a substitute for GAAP basis measures and results and Prosperity strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Three months ended

Sept 30, 2010

June 30, 2010

Mar 31, 2010

Dec 31, 2009

Sept 30, 2009

Return on average tangible common equity:

Net income

$     32,166

$      31,746

$     30,998

$      30,569

$     29,322

Average shareholders' equity

1,419,784

1,392,493

1,367,511

1,342,583

1,314,011

Less: Average goodwill and other intangible assets

   (953,892)

(940,246)

(912,065)

(913,522)

(914,203)

      Average tangible shareholders' equity

$   465,892

$    452,247

$   455,446

$    429,061

$   399,808

      Return on average tangible common  equity:

27.62%

28.08%

27.22%

28.50%

29.34%

Tangible book value per share:

Shareholders' equity

$1,429,570

$ 1,404,134

$1,377,907

$ 1,351,245

$1,327,035

Less: Goodwill and other intangible assets

(954,881)

(954,873)

(923,217)

(912,372)

(914,783)

        Tangible shareholders' equity

$   474,689

$    449,261

$   454,690

$    438,873

$   412,252

Period end shares outstanding

46,653

46,622

46,575

46,541

46,153

Tangible book value per share:

$       10.17

$          9.64

$         9.76

$          9.43

$         8.93

Tangible equity to tangible assets ratio:

        Tangible shareholders' equity

$  474,689

$    449,261

$   454,690

$    438,873

$  412,252

Total assets

$9,238,502

$ 9,608,822

$9,218,733

$ 8,850,400

$8,957,332

Less: Goodwill and other intangible assets

(954,881)

(954,873)

(923,217)

(912,372)

(914,783)

      Tangible assets

$8,283,621

$ 8,653,949

$8,295,516

$ 7,938,028

$8,042,549

Tangible equity to tangible assets ratio:

5.73%

5.19%

5.48%

5.53%

5.13%

Prosperity Bancshares, Inc.®

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands)

Nine Months Ended

Sept 30, 2010

Sept 30, 2009

Return on average tangible common equity:

Net income

$                 94,910

$                 81,310

Average shareholders' equity

         1,393,262

         1,292,138

Less: Average goodwill and other intangible assets

           (935,554)

           (914,667)

        Average tangible shareholders' equity

$               457,708

$               377,471

        Return on average tangible common equity:

27.65%

28.72%

Tangible book value per share:

Shareholders equity

$            1,429,570

$            1,327,035

Less: Goodwill and other intangible assets

           (954,881)

           (914,783)

        Tangible shareholders' equity

$              474,689

$              412,252

Period end shares outstanding

             46,653

             46,153

Tangible book value per share:

$                   10.17

$                     8.93

Tangible equity to tangible assets ratio:

        Tangible shareholders' equity

$               474,689

$               412,252

Total assets

$            9,238,502

$            8,957,332

Less: Goodwill and other intangible assets

           (954,881)

           (914,783)

      Tangible assets

$            8,283,621

$            8,042,549

Tangible equity to tangible assets ratio:

5.73%

5.13%

SOURCE Prosperity Bancshares, Inc.



RELATED LINKS

http://www.prosperitybanktx.com