Prosperity Bancshares, Inc.® Reports Strong Second Quarter 2013 Earnings

HOUSTON, July 24, 2013 /PRNewswire/ -- Prosperity Bancshares, Inc.^® (NYSE: PB), the parent company of Prosperity Bank^®, reported net income for the quarter ended June 30, 2013, of $53.844 million or $0.89 per diluted common share, an increase in net income of $16.872 million or 45.6%, compared with $36.972 million and an increase in diluted earnings per share of 14.1% compared with $0.78 per diluted common share for the same period in 2012. 

"Again I am delighted to be able to announce record earnings of $53.844 million for the second quarter of 2013, as well as record earnings per diluted share of $0.89, representing a 14.1% increase over the same period last year.  As you can see, our bank has experienced significant growth.  In fact, our assets increased $5.533 billion, or 51.5%, when compared with the same quarter last year," said David Zalman, Prosperity's Chairman and Chief Executive Officer.

"During the past quarter, we completed our merger with Coppermark Bancshares, Inc. based in Oklahoma. The operational integration went very well and we believe the entire Coppermark team is ahead of schedule.  We have thoroughly enjoyed working with the former Coppermark, now Prosperity, associates and customers in Oklahoma.  You could not ask for a more professional group to work and grow with," said Zalman.

"On July 1, 2013, Prosperity announced the signing of a definitive merger agreement with FVNB Corp. and its wholly-owned subsidiary First Victoria National Bank headquartered in Victoria, Texas.  I could not be more excited about joining forces with all of the professionals of First Victoria National Bank.  We have always had a great deal of respect for the bank and all of the people that have contributed to its success  Both of our banks do business in many of the same communities and we have knowledge of the specific needs of those communities in terms of financial products as well as community support.  We believe this combination will further strengthen our already strong management and operations teams in South Texas and increase our ability to effectively compete and serve our customers," continued Zalman.   

"We are also very pleased with our organic loan growth of 3.7% (14.6% annualized) on a linked quarter basis.  It appears that customers are starting to invest more in their businesses by taking out more loans and using their deposits on hand to grow their business.  The future for Oklahoma and Texas looks very bright with increasing populations and business moving to our states primarily because of structures that favor business and growth," added Zalman.

"Again we owe all of our success to our team of associates and board members who have helped grow the company in the right direction with all of their hard work, insight and dedication and for that I say thank you!  We would also like to thank all of our customers for their business and loyalty to the bank," 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 June 30, 2013

For the three months ended June 30, 2013, net income was $53.844 million compared with $36.972 million for the same period in 2012.  Net income per diluted common share was $0.89 for the three months ended June 30, 2013 compared with $0.78 for the same period in 2012. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended June 30, 2013 were 1.33%, 9.27% and 22.32%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 42.51% for the three months ended June 30, 2013.

Net interest income before provision for credit losses for the quarter ended June 30, 2013, increased 41.9% to $118.742 million compared with $83.666 million during the same period in 2012.  The increase is primarily due to a 47.5% increase in average interest-earning assets for the same period.  Linked quarter net interest income before provision for credit losses increased 9.9% or $10.660 million to $118.742 million compared with $108.082 million during the three months ended March 31, 2013.  The net interest margin on a tax equivalent basis decreased to 3.43% for the three months ended June 30, 2013, compared with 3.55% for the same period in 2012 and increased from 3.42% for the three months ended March 31, 2013.   

Noninterest income increased $11.618 million or 85.1% to $25.274 million for the three months ended June 30, 2013, compared with $13.656 million for the same period in 2012.  The increase was primarily due to increases in NSF fees, ATM and debit card income and service charges, as a result of a larger customer base, and trust and mortgage income as a result of the acquisition of American State Financial Corporation ("ASB") on July 1, 2012.   Through ASB, Prosperity acquired additional services and products including trust, credit cards and mortgage lending operations.  On a linked quarter basis, noninterest income increased 7.8% or $1.833 million.

Noninterest expense increased $20.512 million or 50.3% to $61.300 million for the three months ended June 30, 2013, compared with $40.788 million for the same period in 2012.  The increase is primarily due to additional noninterest expenses associated with the acquisition of ASB on July 1, 2012 and Coppermark Bancshares, Inc. ("Coppermark Bank") on April 1, 2013.  On a linked quarter basis, noninterest expense increased 9.9% or $5.533 million primarily due to an increase in salaries and benefits as a result of the acquisition of Coppermark Bank.  Additionally, total noninterest expense for the three months ended June 30, 2013 included one-time pre-tax merger expenses of $610,000 primarily related to the Coppermark Bank acquisition.

Average loans increased 56.2% or $2.200 billion to $6.115 billion for the quarter ended June 30, 2013, compared with $3.914 billion for the same period in 2012.  On a linked quarter basis, average loans increased 16.2% or $850.814 million from $5.264 billion at March 31, 2013. Average deposits increased 50.3% to $12.681 billion for the quarter ended June 30, 2013, compared with $8.436 billion for the same period of 2012.  On a linked quarter basis, average deposits increased 7.8% or $921.297 million from $11.760 billion at March 31, 2013.

Loans at June 30, 2013 were $6.172 billion, an increase of $2.222 billion or 56.3%, compared with $3.950 billion at June 30, 2012.  On a linked quarter basis, loans increased $909.459 million or 17.3% from $5.263 billion at March 31, 2013.  Deposits at June 30, 2013 were $12.509 billion, an increase of $4.114 billion or 49.0% compared with $8.395 billion at June 30, 2012.  On a linked quarter basis, deposits increased $795.183 million or 6.8% from $11.713 billion at March 31, 2013. 

Results of operations for the six months ended June 30, 2013

For the six months ended June 30, 2013, net income was $103.149 million compared with $73.459 million for the same period in 2012.  Net income per diluted common share was $1.76 for the six months ended June 30, 2013 compared with $1.55 for the same period in 2012.  Returns on average assets, average common equity and average tangible common equity, each on an annualized basis, for the six months ended June 30, 2013 were 1.33%, 9.25%, and 22.31%, respectively.  Prosperity's efficiency ratio (excluding credit loss provisions, net gains and losses on the sale of assets and securities and taxes) was 42.46% for the six months ended June 30, 2013. 

Net interest income before provision for credit losses for the six months ended June 30, 2013 increased $61.312 million or 37.0% to $226.824 million compared with $165.512 million during the same period in 2012.  The increase was attributable primarily to a 45.2% increase in average earning assets over the same period. 

Noninterest income increased $21.114 million or 76.5% to $48.715 million for the six months ended June 30, 2013 compared with $27.601 million for the same period in 2012.  The increase was primarily due to the additional services and products acquired through the acquisition of ASB on July 1, 2012. 

Noninterest expense increased $35.820 million or 44.1% to $117.067 million for the six months ended June 30, 2013 compared with $81.247 million for the same period in 2012.  This increase was primarily attributable to the increase in salaries and benefits as a result of the completion of five acquisitions over the past year.  Additionally, total noninterest expense for the six months ended June 30, 2013 included one-time pre-tax merger expenses of $862,000.

Average loans increased 47.2% or $1.825 billion to $5.692 billion for the six months ended June 30, 2013, compared with $3.867 billion for the same period in 2012.  Average deposits increased 45.0% to $12.223 billion for the six months ended June 30, 2013, compared with $8.432 billion for the same period in 2012. 

The table below provides detail on loans acquired and deposits assumed in the The Bank Arlington, ASB, Community National Bank ("Community National"), East Texas Financial Services and Coppermark Bank transactions completed on April 1, 2012, July 1, 2012, October 1, 2012, January 1, 2013 and April 1, 2013, respectively:

As reflected in the table above, loan and deposit growth was impacted by the acquisitions of The Bank Arlington, ASB, Community National, East Texas Financial Services and Coppermark Bank.  Excluding loans acquired in these acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at June 30, 2013 grew 7.8% compared with June 30, 2012 and 3.7% (14.6% annualized) on a linked quarter basis. Excluding deposits assumed in these acquisitions and new deposits generated at the acquired banking centers since the respective acquisition dates, deposits at June 30, 2013 grew 5.0% compared with June 30, 2012 and decreased 2.1% on a linked quarter basis.

At June 30, 2013, Prosperity had $16.271 billion in total assets, $6.172 billion in loans and $12.509 billion in deposits. Assets, loans and deposits at June 30, 2013 increased by 51.5%, 56.3% and 49.0%, respectively, compared with their respective levels at June 30, 2012.

Asset Quality

Nonperforming assets totaled $14.864 million or 0.11% of quarterly average earning assets at June 30, 2013, compared with $11.873 million or 0.12% of quarterly average earning assets at June 30, 2012, and $18.133 million or 0.14% of quarterly average earnings assets at March 31, 2013.  The allowance for credit losses was 0.91% of total loans at June 30, 2013, 1.28% of total loans at June 30, 2012 and 1.05% of total loans at March 31, 2013.  Excluding loans acquired that are accounted for under ASC Topics 310-20 and 310-30, the allowance for credit losses was 1.18% and 1.25% of remaining loans as of June 30, 2013 and March 31, 2013, respectively.  Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure. 

The provision for credit losses was $2.550 million for the three months ended June 30, 2013 compared to $2.800 million for the three months ended March 31, 2013 and $600,000 for the three months ended June 30, 2012.  Net charge offs were $1.423 million for the three months ended June 30, 2013 compared to $315,000 for the three months ended March 31, 2013 and $1.860 million for the three months ended June 30, 2012.

Conference Call

Prosperity's management team will host a conference call on Wednesday, July 24, 2013 at 10:30 a.m. Eastern Standard Time (9:30 a.m. Central Standard Time) to discuss Prosperity's second quarter 2013 earnings. Individuals and investment professionals may participate in the call by dialing 866-952-7532, the reference code is PBUS.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at http://www.prosperitybankusa.com.  The webcast may be accessed directly from Prosperity's home page by clicking the "About Us" tab and then the "Presentations & Calls" link.

Pending Acquisition of FVNB Corp.

On July 1, 2013, Prosperity announced the signing of a definitive merger agreement with FVNB Corp. and its wholly-owned subsidiary First Victoria National Bank (collectively referred to as "FVNB") headquartered in Victoria, Texas.  First Victoria National Bank operates thirty-four (34) banking offices; seven (7) in the South Texas area including Corpus Christi; six (6) in the Bryan/College Station area; five (5) in the Central Texas area including New Braunfels; and twelve (12) in the Houston area including The Woodlands and Huntsville.  As of June 30, 2013, FVNB, on a consolidated basis, reported total assets of $2.417 billion, total loans of $1.648 billion and total deposits of $2.150 billion. 

Under the terms of the definitive agreement, Prosperity will issue approximately 5,570,818 shares of Prosperity common stock plus $91.250 million in cash for all outstanding shares of FVNB Corp. capital stock, subject to certain conditions and potential adjustments.  The transaction is subject to customary closing conditions, including the receipt of customary regulatory approvals and approval by FVNB's shareholders.

Acquisition of Coppermark Bancshares, Inc.

On April 1, 2013, Prosperity completed the previously announced acquisition of Coppermark Bancshares, Inc. and its wholly-owned subsidiary, Coppermark Bank ("Coppermark") headquartered in Oklahoma City, Oklahoma. Coppermark operated 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 March 31, 2013, Coppermark reported, on a consolidated basis, total assets of $1.2 billion, total loans of $847.6 million and total deposits of $1.1 billion.

Pursuant to the terms of the acquisition agreement, Prosperity issued 3,258,718 shares of Prosperity common stock plus $60.0 million in cash for all outstanding shares of Coppermark Bancshares capital stock, which resulted in a premium of $91.7 million.

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, which resulted in a premium of $7.0 million.

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 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 $3.2 billion, total loans of $1.2 billion and total deposits of $2.5 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.

Prosperity Bancshares, Inc. ^®

Prosperity Bancshares Inc. ^® is a $16.271 billionHouston, 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.prosperitybankusa.com, Retail Brokerage Services, MasterMoney Debit Cards, 24 hour voice response banking, Trust and Wealth Management; and Mobile Banking. Prosperity now operates two hundred nineteen (219) full-service banking locations; fifty-eight (58) 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-two (22) 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; ten (10) in the Bryan/College Station area and six (6) in the Central Oklahoma area.

In connection with the proposed merger of FVNB Corp. into Prosperity Bancshares, Prosperity Bancshares 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 FVNB Corp.  The registration statement will include a proxy statement/prospectus which will be sent to the shareholders of FVNB Corp. 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, FVNB CORP. 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, 2012 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 fromhttp://www.prosperitybankusa.com.