The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from PR Newswire

Prosperity Bancshares, Inc.® Reports Strong Third Quarter Earnings

Wednesday, October 24, 2012

Prosperity Bancshares, Inc.® Reports Strong Third Quarter Earnings06:05 EDT Wednesday, October 24, 2012- 3Q12 Diluted EPS increases 6.5% to $0.82 compared with 3Q11 - Net income increases 27.0% compared with 3Q11 - Tangible Common Equity Ratio at 6.49% - Non-Performing Assets remain low at 0.11% of Average Earning Assets - Dividend increases 10.3%HOUSTON, Oct. 24, 2012 /PRNewswire/ -- Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank®, reported net income for the quarter ended September 30, 2012 of $46.176 million or $0.82 per diluted common share, an increase in net income of $9.803 million or 27.0%, compared with $36.373  million or $0.77 per diluted common share for the same period in 2011.  Reported net income and earnings per share include the combined impact of preliminary purchase accounting adjustments and one-time merger expenses."I am proud to announce such positive results for the third quarter of 2012. We posted earnings of $46.2 million for the quarter, a 27% increase over the third quarter last year. Our diluted earnings per share for the quarter came in at $0.82 compared to $0.77 for the same period last year, representing a 6.5% increase," commented David Zalman, Chairman and Chief Executive Officer.  "While such earnings include adjustments related to our recent acquisitions, the performance of our core bank remains strong.  Additionally, our board of directors approved a 10.3% increase in our dividend to $0.86 per year or $0.215 per quarter for the next year.  We are pleased to reward our shareholders with increased dividends as we work to continue building shareholder value.""During the past quarter, we closed our merger with American State Financial Corporation in West Texas which added thirty-seven (37) locations in three new market areas: Lubbock, Midland-Odessa and Abilene. We are very excited about our new relationships and working together with their entire team," continued Zalman.  "The team has worked diligently and tirelessly over the last month with the operational integration and we thank them for their dedication and hard work.""We also recently completed our merger with Community National Bank, located in Bellaire, Texas in the Houston metropolitan area.  We are excited about the Bellaire team joining us and increasing our presence in an area we already service.  The management team and associates at Community National Bank will add to the already strong team we have in Houston," continued Zalman.  "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 their insight and efforts and for that I say "thank you"!  We would also like to thank all of our customers for their business and loyalty to our bank." 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 and related entries and one-time merger expenses, Prosperity uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate its performance, including yield on loans and securities, net income, diluted earnings per share, efficiency ratio and allowance for credit losses to total loans (excluding acquired loans).  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, 2012For the three months ended September 30, 2012, net income was $46.176 million compared with $36.373 million for the same period in 2011.  Net income per diluted common share was $0.82 for the three months ended September 30, 2012 and $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 September 30, 2012 were 1.32%, 9.10% and 21.59%, respectively.  Net interest income before provision for credit losses for the quarter ended September 30, 2012 increased 29.5% to $106.893 million compared with $82.538 million during the same period in 2011. The increase was attributable to a 49.7% increase in average earning assets during the same period.  Additionally, the average yield on interest earning assets decreased 69 basis points while the rate paid on interest bearing liabilities decreased 22 basis points for the same period. The net interest margin on a tax equivalent basis decreased to 3.52% for the three months ended September 30, 2012 compared with 4.02% for the same period in 2011.  On a linked quarter basis, the tax equivalent net interest margin decreased three basis points to 3.52% for the three months ended September 30, 2012 from 3.55% reported for the three months ended June 30, 2012.  The yield on loans was impacted by the purchase accounting adjustments from recent acquisitions as described in the table below.  As a result of these purchase accounting adjustments, Prosperity recorded a discount on loans of $104.931 million, of which $27.116 million relates to loans accounted for under ASC Topic 310-30 (formerly SOP 03-03) and the remaining $77.815 million relates to loans accounted for under ASC Topic 310-20 (formerly SFAS No. 91).  All purchase accounting entries are preliminary and could be subject to change. Three Months Ended September 30, 2012(In thousands, unaudited)Adjustment to Loan Yield (1)Interest on loans, as reported$       80,587   Less: Purchase accounting adjustment-loan discount accretion(11,188)Interest on loans without discount accretion69,399Average loans$  5,169,101Loan yield without discount accretion5.34%Loan yield, as reported6.20%(1) Non-GAAP financial measure.The yield on securities was also impacted by the purchase accounting adjustments from recent acquisitions as described in the table below. Prosperity recorded a premium on securities of $34.540 million which resulted in increased amortization of $3.451 million and a decreased yield on securities. In addition, in connection with the acquisition, American State Financial Corporation ("ASB") sold $574.0 million in securities yielding approximately 3.61% prior to July 1, 2012 and Prosperity reinvested those funds after acquisition date at a yield of approximately 1.70%. ASB recorded a gain of $44.2 million related to the sale of these securities which resulted in a lower fair value of the securities portfolio acquired from ASB. The effect of this sale is included in the table below.Three Months EndedSeptember 30, 2012(In thousands, unaudited)Adjustment to Securities Yield (1)Interest on securities, as reported$      37,025     Add: Purchase accounting adjustment-securities amortization3,451     Add: Impact of sale of ASB securities prior to acquisition2,741Interest on securities including amortization and impact of securities sale43,217Average securities$ 7,106,871Securities yield including amortization and impact of securities sale2.43%Securities yield, as reported2.08%(1) Non-GAAP financial measure.The following table shows the book value of the investment portfolio and related net amortization as of and for the three month periods indicated below. Sept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011Investment Portfolio(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(In thousands)Period End Securities$6,799,513$5,400,044$5,646,529$4,658,936$4,430,530Quarterly Average Securities7,106,8715,635,8105,192,2574,596,0174,524,213Net Premium Amortization21,423(1)11,7559,7198,9896,823% of Average Quarterly Securities0.30%0.21%0.19%0.20%0.15%(1) Includes the purchased premium amortization of $3.451 million.Non-interest income increased $9.247 million or 63.4% to $23.828 million for the three months ended September 30, 2012 compared with $14.581 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 and other income due to the acquisition of ASB on July 1, 2012.  Non-interest expense increased $19.091 million or 46.4% to $60.242 million for the three months ended September 30, 2012 compared with $41.151 million for the same period in 2011.  The change is primarily due to the acquisition of ASB.  Prosperity's efficiency ratio (excluding net gains and losses on the sale of securities and assets) was 46.07% for the three months ended September 30, 2012.  Non-interest expense for the three months ended September 30, 2012 includes one-time merger expenses of approximately $5.404 million, pre-tax ($3.513 million after tax). Excluding these charges, the efficiency ratio would have been 41.93% for the three months ended September 30, 2012. Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.Earnings per share and net income were also impacted by purchase accounting adjustments, one-time merger expenses of $5.404 million (pre-tax) and the sale of ASB securities prior to acquisition, as reflected in the table below.Three Months Ended September 30, 2012(In thousands, unaudited)Impact of Purchase Accounting Adjustments, One-time Merger Expenses and Securities Sale(1) Net income, as reported$    46,176  Less: Purchase accounting adjustment-loan accretion(11,188)  Add: Purchase accounting adjustment-securities amortization3,451  Add: one-time merger expenses5,404  Add:  Impact of sale of ASB securities prior to acquisition2,741     Adjustment subtotal408  Tax effect at 35%(143)     Adjustment subtotal, after tax265  Net income adjusted for purchase accounting adjustments,      one-time merger expenses and securities sale$    46,441  Weighted average diluted shares outstanding56,093  EPS (diluted) adjusted for purchase accounting adjustments,      one-time merger expenses and securities sale$        0.83  EPS (diluted), as reported$        0.82(1) Non-GAAP financial measure. As illustrated in the table above, the impact of purchase accounting adjustments, one-time merger expenses and the sale of ASB securities prior to acquisition had a minimal combined impact on net income and EPS (diluted).Average loans increased 39.9% or $1.475 billion to $5.169 billion for the quarter ended September 30, 2012 compared with $3.694 billion for the same period in 2011.  Average deposits increased 41.7% or $3.194 billion to $10.846 billion for the quarter ended September 30, 2012 compared with $7.653 billion for the same period in 2011.  Loans at September 30, 2012 were $5.079 billion, an increase of $1.341 billion or 35.9%, compared with $3.738 billion at September 30, 2011 and an increase of $1.313 billion or 34.9% compared with $3.766 billion at December 31, 2011.  Linked quarter loans increased $1.129 billion or 28.6% at September 30, 2012 compared with loans of $3.950 billion at June 30, 2012.  As reflected in the table below, loan growth was impacted by the acquisition of Texas Bankers, Inc., The Bank Arlington and ASB.  Excluding loans acquired in these acquisitions and new production at the acquired banking centers since the respective acquisition dates, year over year loan growth increased 4.4%.Deposits at September 30, 2012 were $10.955 billion, an increase of $3.156 billion or 40.5%, compared with $7.799 billion at September 30, 2011 and an increase of $2.894 billion or 35.9% compared with $8.060 billion at December 31, 2011.    Linked quarter deposits increased $2.560 billion or 30.5% at September 30, 2012 compared with deposits of $8.395 billion at June 30, 2012.  As reflected in the table below, deposit growth was impacted by the acquisition of Texas Bankers, Inc., The Bank Arlington and ASB.  Excluding deposits assumed and new deposits generated at the acquired banking centers since the respective acquisition dates, year over year deposit growth increased 6.9%.The table below provides detail on loans acquired and deposits assumed in the Texas Bankers, Inc., The Bank Arlington and the ASB transactions completed on January 1, 2012, April 1, 2012 and July 1, 2012, respectively:Balance Sheet Data (at period end)Sept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011(In thousands)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)Loans (including new production since respective acquisition dates):     Acquired with Texas Bankers, Inc.$   24,229$   28,421$   27,053$      --$       --     Acquired with The Bank Arlington21,80622,542------     Acquired with American State          Financial Corp.1,131,005--------     All other3,902,0633,899,3693,847,8093,765,9063,737,630          Total Loans$ 5,079,103$ 3,950,332$ 3,874,862$ 3,765,906$ 3,737,630Deposits (including new deposits since respective acquisition dates):     Assumed with Texas Bankers, Inc.$   69,818$   62,739$   63,681$      --$       --     Assumed with The Bank Arlington33,60933,505------     Assumed with American State            Financial Corp.2,518,178--------     All other8,332,9928,298,3388,480,7708,060,2547,798,739          Total Deposits$ 10,954,597$ 8,394,582$ 8,544,451$ 8,060,254$ 7,798,739At September 30, 2012, Prosperity had $13.712 billion in total assets, $5.079 billion in loans, and $10.955 billion in deposits. Assets, loans and deposits at September 30, 2012 increased by 43.3%, 35.9% and 40.5%, respectively, compared with levels at September 30, 2011.Asset QualityNon-performing assets totaled $14.051 million or 0.11% of average earning assets at September 30, 2012 compared with $13.363 million or 0.16% of average earning assets at September 30, 2011 and $11.873 million or 0.12% of average earnings assets at June 30, 2012.  The allowance for credit losses was 1.00% of total loans at September 30, 2012 compared with 1.40% at September 30, 2011 and 1.28% of total loans at June 30, 2012.  Excluding acquired loans from Texas Bankers, Inc., The Bank Arlington and the ASB transactions, the allowance for credit losses was 1.27% of remaining loans. Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.Non-performing assets(In thousands, unaudited)Sept 30, 2012June 30, 2012Sept 30, 2011Amount#Amount#Amount#Commercial$       1,59919$        39412$        1,44017Construction3,182344,056305,042301-4 family (including home equity)3,089362,284283,89438Commercial real estate (including multi-family)4,671155,077122,88511Agriculture and agriculture real estate1,4769443513Consumer346183514Total                                       $      14,051119$      11,87388$      13,363103Net Charge-offs (Recoveries)(In thousands, unaudited)Three Months EndedSept 30, 2012Three Months EndedJune 30, 2012Three Months EndedSept 30, 2011Commercial$        (511)$            180$             7Construction1551,179(197)1-4 family (including home equity)25190134Commercial real estate (including multi-family)800296271Agriculture and agriculture real estate(30)(3)--Consumer (including credit cards) 590118153Total $       1,255$         1,860$         368The provision for credit losses was $1.800 million for the three months ended September 30, 2012 and $950,000 for the three months ended September 30, 2011.  Net charge offs were $1.255 million for the three months ended September 30, 2012 and $368,000 for the three months ended September 30, 2011. The provision for credit losses was $2.550 million for the nine months ended September 30, 2012 compared to $4.050 million for the nine months ended September 30, 2011.  Net charge offs were $3.217 million for the nine months ended September 30, 2012 compared to $3.121 million for the nine months ended September 30, 2011. Results of operations for the nine months ended September 30, 2012For the nine months ended September 30, 2012, net income was $119.635 million compared with $105.343 million for the same period in 2011.  Net income per diluted common share was $2.37 for the nine months ended September 30, 2012 compared with $2.24 for the same period in 2011.  Annualized returns on average assets, average common equity and average tangible common equity for the nine months ended September 30, 2012 were 1.35%, 9.08% and 21.80%, respectively.  Net interest income before provision for credit losses for the nine months ended September 30, 2012 increased $25.824 million or 10.5%, to $272.405 million compared with $246.581 million during the same period in 2011.  The increase was attributable primarily to a 25.3% increase in average earning assets during the same period.Non-interest income increased $9.451 million or 22.5% to $51.429 million for the nine months ended September 30, 2012 compared with $41.978 million for the same period in 2011.  The change was mainly attributable to an increase in debit and ATM card income, an increase in service charges on deposits accounts and an increase in other income, primarily due to the acquisition of ASB.Non-interest expense increased $16.129 million or 12.9% to $141.489 million for the nine months ended September 30, 2012 compared with $125.360 million for the same period in 2011.  The change is primarily due to increases in salaries and employee benefits expense for the nine months ended September 30, 2012 compared to the same period in 2011 and is due to the acquisition of ASB. Prosperity's efficiency ratio was 43.69% for the nine months ended September 30, 2012. Non-interest expense for the nine months ended September 30, 2012 also includes one-time merger expenses of approximately $5.404 million, pre-tax ($3.513 million after tax). Excluding these charges, the efficiency ratio would have been 42.02% for the nine months ended September 30, 2012. Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.DividendProsperity Bancshares, Inc. declared a fourth quarter cash dividend of $0.215, an increase of 10.3% over the third quarter dividend of $0.195, to be paid on December 31, 2012 to all shareholders of record as of December 14, 2012. Conference CallProsperity's management team will host a conference call on Wednesday, October 24, 2012 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 800-862-9098, 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 Community National BankOn October 1, 2012, Prosperity completed the previously announced acquisition of Community National Bank, Bellaire, Texas.  Community National Bank operated one (1) banking office in Bellaire, Texas, in the Houston Metropolitan Area. As of September 30, 2012, Community National Bank 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 CorporationOn July 1, 2012, Prosperity completed the previously announced acquisition of American State Financial Corporation and its wholly owned subsidiary American State Bank (collectively referred to as "ASB").  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 East Texas Financial Services, Inc. On December 9, 2011, Prosperity entered into a definitive agreement to acquire East Texas Financial Services, Inc. (OTC BB: FFBT) and its wholly-owned subsidiary, First Federal Bank Texas ("Firstbank"). Firstbank operates four (4) banking offices in the Tyler MSA, including three locations in Tyler, Texas and one location in Gilmer, Texas. As of September 30, 2012, Firstbank reported total assets of $191.1 million, total loans of $139.2 million and total deposits of $116.0 million. Under the terms of the definitive agreement, Prosperity will issue up to 531,000 shares of Prosperity common stock for all outstanding shares of East Texas Financial Services capital stock, subject to certain conditions and potential adjustments. Pending the satisfaction of closing conditions, the closing is expected to occur in early 2013. Prosperity Bancshares, Inc.®Prosperity Bancshares Inc.®, recently named "America's Best Bank" by Forbes, is a $13.7 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 thirteen (213) 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-one (21) 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 -KiestDowntownOther South TexasMcKinneyEastex Locations - BryanMcKinney-StonebridgeFairfieldAliceBryan-East MidwayFirst ColonyAransas PassBryan-NorthPreston ForestGessnerBeevilleCaldwellPreston RoadGladebrookEdnaCollege StationRed OakHarrisburgGoliadGreens PrairieSachse HeightsKingsvilleMadisonvilleThe Colony Highway 6 WestMathisNavasotaTurtle CreekHillcroftPadre IslandRock PrairieWestmorelandLittle YorkPalaciosWellborn RoadMedical CenterPort Lavaca Fort Worth - Memorial DrivePortlandCentral Texas Area -Haltom CityNorthsideRockportKellerPasadenaSinton Austin -RoanokePecan GroveVictoria183StockyardsPiney PointVictoria-NorthAllandaleRiver OaksCedar ParkOther Dallas/Fort Worth Locations -Royal OaksWest Texas Area -  CongressArlingtonSugar Land LakewayAzleSW Medical CenterAbilene -Liberty HillEnnisTanglewoodAntilley RoadNorthlandGainesvilleUptownBarrow StreetOak HillGlen RoseWaugh DriveCypress StreetParmer LaneGranburyWest UniversityJudge ElyResearch BlvdMesquiteWoodcreekMockingbirdWestlakeMuensterSangerOther Houston AreaLubbock - Other Central Texas Locations -WaxahachieLocations - 4th StreetBastropWeatherfordAngleton66th StreetCueroBay City82nd StreetDime BoxEast Texas Area - Beaumont86th StreetDripping SpringsCinco Ranch98th StreetElginAthensClevelandAvenue QFlatoniaAthens-SouthEast BernardNorth UniversityGeorgetownBlooming GroveEl CampoTexas Tech Student UnionGonzalesCantonDaytonHallettsvilleCarthageGalveston Midland - KingslandCorsicanaGrovesWadleyLa GrangeCrockettHempsteadWall StreetLexingtonEustaceHitchcock New BraunfelsGrapelandKatyOdessa -PleasantonGun Barrel CityLiberty GrandviewRound RockJacksonvilleMagnoliaGrantSan AntonioKerensMont BelvieuKermit HighwaySchulenburgLongviewNederlandParkwaySeguin Mount VernonNeedvilleSmithvillePalestineShadow CreekOther West Texas Locations -ThorndaleRuskSweenyBig SpringWeimarSeven PointsTomballBrownfieldYoakumTeagueWallerBrownwoodYorktownTylerWest ColumbiaCiscoTyler-UniversityWhartonComancheDallas/Fort Worth Area - WinnsboroWinnieEarlyWirtFloydadaDallas - Houston Area -GormanAbrams CentreSouth Texas Area -LevellandBalch SpringsHouston - LittlefieldCamp WisdomAldineCorpus Christi -MerkelCedar HillAllen ParkwayAirline PlainviewCentral ExpresswayBellaireCarmel  San AngeloEast RennerBeltwayNorthwest  SlatonFriscoClear LakeSaratogaSnyderFrisco-West CopperfieldWater StreetIndependenceCypress ---In connection with the proposed merger of East Texas Financial Services, Inc. into Prosperity, Prosperity has filed 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 stockholders of East Texas Financial Services. The registration statement includes a proxy statement/prospectus which was sent to the stockholders of East Texas Financial Services 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 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY, EAST TEXAS FINANCIAL SERVICES 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, 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, 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(Dollars and share amounts in thousands, except per share data)Three Months EndedNine Months EndedSept 30, 2012Sept 30, 2011Sept 30, 2012Sept 30, 2011Selected Earnings and Per(Unaudited)(Unaudited)(Unaudited)(Unaudited)Share DataTotal interest income$          117,633$          93,189$         302,123$         282,250Total interest expense10,74010,65129,71835,669Net interest income106,89382,538272,405246,581Provision for credit losses1,8009502,5504,050Net interest income after     provision for credit losses105,09381,588269,855242,531Total non-interest income23,82814,58151,42941,978Total non-interest expense 60,24241,151141,489125,360Net income before taxes68,67955,018179,795159,149Federal income taxes22,50318,64560,16053,806Net income$           46,176$           36,373$         119,635$         105,343Basic earnings per share $0.83$0.78$2.38$2.25Diluted earnings per share $0.82$0.77$2.37$2.24Period end shares outstanding56,09346,89356,09346,893Weighted average shares     outstanding (basic)55,95846,89050,23946,830Weighted average shares     outstanding (diluted)56,09347,03350,39347,013 Prosperity Bancshares, Inc.®Financial Highlights(Dollars in thousands)Sept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011Balance Sheet Data (at period end)(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)Total loans$   5,079,103$   3,950,332$    3,874,862$    3,765,906$   3,737,630Investment securities (A)6,799,5135,400,0445,646,5294,658,9364,430,530Federal funds sold302133445642294Allowance for credit losses(50,927)(50,382)(51,642)(51,594)(52,513)Cash and due from banks207,650152,678151,467212,800211,261Goodwill1,200,098932,965929,161924,537924,537Core deposit intangibles28,09217,70619,30120,99622,874Other real estate8,84610,2367,7188,3288,216Fixed assets, net201,445166,273162,676159,656160,099Other assets237,997157,366149,438122,464124,159$ 13,712,119$   10,737,351$    10,889,955$    9,822,671$   9,567,087Demand deposits$   2,827,748$   2,083,910$    2,088,749$    1,972,226$   1,861,907Interest bearing deposits8,126,8496,310,6726,455,7026,088,0285,936,832Total deposits10,954,5978,394,5828,544,4518,060,2547,798,739Securities sold under      repurchase agreements443,856122,74358,48154,88366,166Federal funds purchased and      other borrowings112,017437,278527,53612,79013,583Junior subordinated      debentures85,05585,05585,05585,05585,055Other liabilities78,41853,87664,89942,42462,205Total liabilities11,673,9439,093,5349,280,4228,255,4068,025,748Shareholders' equity (B)2,038,1761,643,8171,609,5331,567,2651,541,339Total liabilities and equity$ 13,712,119$   10,737,351$    10,889,955$   9,822,671$   9,567,087(A) Includes $16,991, $17,709, $19,542, $20,726 and $24,278 in unrealized gains on available for sale securities for the quarterly periods ending  September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30, 2011,  respectively.(B) Includes $11,044, $11,511, $12,702, $13,472 and $15,781 in after-tax unrealized gains on available for sale securities for the quarterly periods ending September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30, 2011, respectively. Prosperity Bancshares, Inc. ®Financial Highlights(Dollars in thousands)Three Months EndedNine Months Ended Sept 30, 2012Sept 30, 2011Sept 30, 2012Sept 30, 2011Income Statement Data(Unaudited)(Unaudited)(Unaudited)(Unaudited)Interest on loans$   80,587$   54,471$  188,597$  160,374Interest on securities37,02538,714113,418121,861Interest on federal funds sold and     other temporary investments 21410815     Total interest income117,63393,189302,123282,250Interest expense ? deposits9,3959,71726,26932,293Interest expense ? debentures6516071,9622,352Interest expense ? other6943271,4871,024Total interest expense10,74010,65129,71835,669Net interest income (C)106,89382,538272,405246,581Provision for credit losses1,8009502,5504,050Net interest income afterprovision for credit losses105,09381,588269,855242,531Non-sufficient funds (NSF) fees8,4946,24919,05018,582Debit card and ATM card income6,2463,94114,37411,202Service charges on deposit accounts4,1332,4729,0067,466Trust income831--831--Mortgage origination income1,350--1,350--Bank Owned Life Insurance7363551,4301,035Net (loss)/gain on sale of assets(50)1713377Net (loss)/gain on sale of ORE(597)95(344)(431)Net loss on sale of securities------(581)Other non-interest income2,6851,4525,7194,328Total non-interest income  23,82814,58151,42941,978Salaries and benefits (D)36,70123,60183,52570,799CDI amortization2,0071,9245,2975,901Net occupancy and equipment4,6143,78411,66310,979Depreciation2,3692,0416,4326,099Debit card, data processing and software amortization2,9011,9546,3395,406Regulatory assessments and     FDIC insurance2,1071,4885,3147,383Communications (includes telephone, courier and postage)2,2261,7495,7775,188ORE expense1,5452352,619821Other non-interest expense5,7724,37514,52312,784Total non-interest expense60,24241,151141,489125,360Net income before taxes     68,67955,018179,795159,149Federal income taxes22,50318,64560,16053,806Net income availableto common shareholders$  46,176$  36,373$  119,635$  105,343(C) Net interest income on a tax equivalent basis would be $109,031 and $83,440 for the three months ended September 30, 2012 and September 30, 2011, respectively, and $276,271 and $249,345 for the nine months ended September 30, 2012 and September 30, 2011, respectively. (D) Salaries and benefits includes stock-based compensation expense of $1,057 and $961 for the three months ended September 30, 2012 and September 30, 2011, respectively, and $3,218 and $2,604 for the nine months ended September 30, 2012 and September 30, 2011, respectively.   Prosperity Bancshares, Inc.®Financial Highlights(Dollars in thousands)Three Months EndedSept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011Income Statement Data(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)Interest on loans$   80,587$   54,793$   53,217$   53,899$   54,471Interest on securities37,02538,07238,32135,71938,714Interest on federal funds     sold and other earning assets21978404    Total interest income117,63392,87491,61689,65893,189Interest expense - deposits9,3958,0838,7918,6829,717Interest expense - debentures651648663632607Interest expense - other694477316257327    Total interest expense10,7409,2089,7709,57110,651    Net interest income106,89383,66681,84680,08782,538Provision for credit losses1,8006001501,150950    Net interest income after        provision for credit losses105,09383,06681,69678,93781,588Non-sufficient funds (NSF) fees8,4945,1675,3895,8606,249Debit card and ATM card income6,2464,2923,8364,1893,941Service charges on deposit accounts4,1332,4322,4412,5152,472Trust income831--------Mortgage origination income1,350--------Bank Owned Life Insurance736345350347355Net (loss)/gain on sale of assets(50)70(7)--17Net (loss)/gain on sale of  ORE                         (597)(165)418(473)95Other non-interest income2,6851,5151,5181,6271,452    Total non-interest income23,82813,65613,94514,06514,581Salaries and benefits36,70123,57223,25221,25823,601CDI amortization2,0071,5951,6951,8791,924Net occupancy and equipment4,6143,4923,5573,6553,784Depreciation2,3692,0282,0352,0512,041Debit card, data processing and     software  amortization2,9011,9061,5321,4171,954Regulatory assessments and     FDIC insurance2,1071,6591,5481,5181,488Communications (includes    telephone, courier and postage)2,2261,8021,7481,7581,749ORE expense1,545383691680235Other non-interest expense5,7724,3514,4014,1694,375    Total non-interest expense60,24240,78840,45938,38541,151    Net income before taxes68,67955,93455,18254,61755,018Federal income taxes22,50318,96218,69518,21118,645    Net income available         to common shareholders$   46,176$   36,972$   36,487$   36,406$   36,373   Prosperity Bancshares, Inc.®Supplemental Financial Data (Unaudited)(Dollars in thousands)Three Months Ended September 30, 2012Three Months Ended September 30, 2011YIELD ANALYSIS AverageInterest EarnedAverageAverageInterest EarnedAverageBalance/ Interest PaidYield/RateBalance/ Interest PaidYield/RateInterest Earning Assets: Loans$  5,169,101$   80,5876.20%$  3,694,039$   54,4715.85%Investment securities7,106,87137,0252.08%4,524,21338,7143.42%Federal funds sold and other     temporary investments53,111210.16%18,63640.09%  Total interest earning assets 12,329,083$  117,6333.80%8,236,888$   93,1894.49%Allowance for credit losses (53,944)(52,208)Non-interest earning assets 1,730,1201,375,394  Total assets$ 14,005,259$  9,560,074Interest Bearing Liabilities: Interest bearing demand deposits$  2,181,928$    2,2730.41%$  1,319,800$    1,6670.50%Savings and money market deposits3,516,6012,9870.34%2,369,7452,7020.45%Certificates and other time deposits 2,387,2794,1350.69%2,134,0825,3480.99%Securities sold under repurchase agreements            438,4103150.29%90,8211270.55%Federal funds purchased and other borrowings 512,7393790.29%135,3362000.59%Junior subordinated debentures 85,0556513.04%85,0556072.83%  Total interest bearing liabilities 9,122,012$   10,7400.47%6,134,839$   10,6510.69%Non-interest bearing liabilities: Non-interest bearing demand deposits2,760,4051,828,957Other liabilities 92,87366,560  Total liabilities11,975,2908,030,356Shareholders' equity 2,029,9691,529,718  Total liabilities and shareholders' equity $ 14,005,259$  9,560,074Net Interest Income & Margin $   106,8933.45%$   82,5383.98%Net Interest Income & Margin     (tax equivalent)$   109,0313.52%$   83,4404.02%   Prosperity Bancshares, Inc.®Supplemental Financial Data (Unaudited)(Dollars in thousands)Nine Months Ended September 30, 2012Nine Months Ended September 30, 2011YIELD ANALYSIS AverageInterest EarnedAverageAverageInterest EarnedAverageBalance/ Interest PaidYield/RateBalance/ Interest PaidYield/RateInterest Earning Assets: Loans$  4,303,984$   188,5975.85%$  3,614,590$   160,3745.93%Investment securities5,983,102113,4182.53%4,635,880121,8613.50%Federal funds sold and other     temporary investments66,7711080.22%15,031150.13%  Total interest earning assets 10,353,857$   302,1233.90%8,265,501$   282,2504.57%Allowance for credit losses (52,104)(51,924)Non-interest earning assets 1,498,3321,388,905  Total assets$ 11,800,085$  9,602,482Interest Bearing Liabilities: Interest bearing demand deposits$  1,861,954$    6,4250.46%$  1,403,477$    5,9660.57%Savings and money market deposits3,031,2698,0200.35%2,377,4239,3860.53%Certificates and other time deposits 2,080,60611,8240.76%2,162,11216,9411.05%Securities sold under repurchase agreements            197,7754110.28%70,4253060.58%Federal funds purchased and other borrowings 465,5051,0760.31%181,6567180.53%Junior subordinated debentures 85,0551,9623.08%87,0582,3523.61%  Total interest bearing liabilities 7,722,164$   29,7180.51%6,282,151$   35,6690.76%Non-interest bearing liabilities: Non-interest bearing demand deposits2,267,8761,758,182Other liabilities 53,32062,765  Total liabilities10,043,3668,103,098Shareholders' equity 1,756,7251,499,384  Total liabilities and shareholders' equity $ 11,800,085$  9,602,482Net Interest Income & Margin $   272,4053.51%$   246,5813.99%Net Interest Income & Margin     (tax equivalent)$  276,2713.56%$   249,3454.03%Prosperity Bancshares, Inc.®Supplemental Financial Data (Unaudited)(Dollars in thousands)Three Months Ended June 30, 2012Three Months Ended June 30, 2011YIELD ANALYSIS AverageInterest EarnedAverageAverageInterest EarnedAverageBalance/ Interest PaidYield/RateBalance/ Interest PaidYield/RateInterest Earning Assets: Loans$  3,914,352$    54,7935.63%$  3,631,256$    53,7035.93%Investment securities5,635,81038,0722.70%4,707,21741,9193.56%Federal funds sold and other   earning assets20,91690.17%13,218300.91%  Total interest earning assets 9,571,078$    92,8743.90%8,351,691$    95,6524.59%Allowance for credit losses (50,746)(51,861)Non-interest earning assets 1,398,8571,378,738  Total assets$ 10,919,189$  9,678,568Interest Bearing Liabilities: Interest bearing demand deposits$  1,706,176$     2,0890.49%$  1,403,331$     2,0610.59%Savings and money market deposits2,779,5242,4440.35%2,403,3303,3480.56%Certificates and other time deposits 1,880,0963,5500.76%2,175,1655,6551.04%Securities sold under repurchase agreements            98,968590.24%68,4131100.64%Federal funds purchased and other borrowings 610,4994180.28%218,3102500.46%Junior subordinated debentures 85,0556483.06%85,0555982.82%  Total interest bearing liabilities $ 7,160,318$     9,2080.52%$  6,353,604$    12,0220.76%Non-interest bearing liabilities: Non-interest bearing demand deposits$ 2,069,965$ 1,770,664Other liabilities 56,74254,915  Total liabilities$ 9,287,025$ 8,179,183Shareholders' equity $ 1,632,164$ 1,499,385  Total liabilities and shareholders' equity $ 10,919,189$  9,678,568Net Interest Income & Margin $    83,6663.52%$    83,6304.02%Net Interest Income & Margin     (tax equivalent)$    84,4983.55%$    84,6034.06%  Prosperity Bancshares, Inc.®Financial HighlightsThree Months EndedNine Months EndedSept 30, 2012Sept 30, 2011Sept 30, 2012Sept 30, 2011Performance Ratios(Unaudited)(Unaudited)(Unaudited)(Unaudited)Return on average assets (annualized)1.32%1.52%1.35%1.46%Return on average common     equity (annualized)  9.10%9.51%9.08%9.37%Return on average tangible     common equity (annualized) (G)21.59%25.03%21.80%25.58%Net interest margin      (tax equivalent) (annualized) (E)3.52%4.02%3.56%4.03%Efficiency ratio(F)46.07%42.38%43.69%43.41%Asset Quality RatiosNon-performing assets to     average earning assets0.11%0.16%0.14%0.16%Non-performing assets to loans     and other real estate0.28%0.36%0.28%0.36%Net charge-offs  to average loans0.02%0.01%0.07%0.09%Allowance for credit losses to     total loans1.00%1.40%1.00%1.40%Allowance for credit losses to total     loans (excluding acquired loans) (G)1.27%1.40%1.27%1.40%Common Stock Market PriceHigh$45.40$46.87$47.66$46.87Low$38.90$30.91$38.90$30.91Period end market price$42.62$32.68$42.62$32.68(E) Net interest margin for all periods presented is calculated on an actual 365 day or 366 day basis. (F)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 securities and assets). Additionally, taxes are not part of this calculation.(G)Refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure.  Prosperity Bancshares, Inc.®Financial HighlightsComparative QuarterlyThree Months EndedAsset Quality, Performance Sept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011     & Capital Ratios(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)Return on average     assets (annualized) 1.32%1.35%1.39%1.50%1.52%Return on average common     equity (annualized)9.10%9.06%9.15%9.35%9.51%Return on average tangible     common equity (annualized)(G)21.59%21.70%22.57%23.86%25.03%Net interest margin     (tax equivalent) (annualized)(E)3.52%3.55%3.64%3.82%4.02%Employees ? FTE2,2601,6661,6901,6641,678Efficiency ratio(F)46.07%41.94%42.23%40.77%42.38%Non-performing assets to     average earning assets0.11%0.12%0.16%0.14%0.16%Non-performing assets to loans     and other real estate0.28%0.30%0.38%0.32%0.36%Net charge-offs to     average loans0.02%0.05%0.00%0.06%0.01%Allowance for credit losses to     total loans1.00%1.28%1.33%1.37%1.40%Allowance for credit losses tototal loans (excluding acquired loans)(G)1.27%    N/A     N/A     N/A     N/ABook value per share$36.36$34.63$34.03$33.41$32.87Tangible book value per share(G)$14.45$14.60$13.98$13.25$12.67Tier 1 risk-based capital14.43%16.42%15.70%15.90%15.47%Total risk-based capital15.26%17.49%16.80%17.09%16.69%Tier 1 leverage capital6.92%7.69%7.68%7.89%7.70%Tangible equity to tangible      assets(G)6.49%7.08%6.65%7.00%6.89%Equity to assets14.86%15.31%14.78%15.96%16.11% Prosperity Bancshares, Inc.®Financial Highlights(Dollars and share amounts in thousands, except per share data)Three Months EndedNine Months EndedSept 30, 2012Sept 30, 2011Sept 30, 2012Sept 30, 2011Common Share and(Unaudited)(Unaudited)(Unaudited)(Unaudited)     Other DataEmployees - FTE2,2601,6782,2601,678Book value per share$     36.36$     32.87$     36.36$     32.87Tangible book value per share(G)$     14.45$     12.67$     14.45$     12.67Period end shares outstanding56,05846,89356,05846,893Weighted average shares     outstanding (basic)55,95846,89050,23946,830Weighted average shares     outstanding (diluted) 56,09347,03350,39347,013Non-accrual loans$    5,063$   5,105$    5,063$     5,105Restructured loans--------Accruing loans 90 or more     days past due1322013220Total non-performing loans5,1955,1255,1955,125Repossessed assets10221022Other real estate8,8468,2168,8468,216  Total non-performing assets$    14,051$  13,363$    14,051$     13,363Allowance for credit losses at     end of period$    50,927$  52,513$    50,927$     52,513Net charge-offs$     1,255$      368$     3,217$     3,121Basic earnings per share$      0.83$      0.78$      2.38$     2.25Diluted earnings per share$      0.82$      0.77$      2.37$     2.24  Prosperity Bancshares, Inc. ®Financial Highlights(Dollars in thousands)Three Months EndedNine Months EndedSept 30, 2012Sept 30, 2011Sept 30, 2012Sept 30, 2011Balance Sheet Averages(Unaudited)(Unaudited)(Unaudited)(Unaudited)Total loans$  5,169,101$  3,694,0394,303,9843,614,590Investment securities7,106,8714,524,2135,983,1024,635,880Federal funds sold and     other temporary      investments53,11118,63666,77115,031Total earning assets12,329,0838,236,88810,353,8578,265,501Allowance for credit losses(53,944)(52,208)(52,104)(51,924)Cash and due from banks206,124125,750166,105129,526Goodwill1,157,330924,5371,006,506924,496Core deposit intangibles (CDI)17,28023,81418,61025,737Other real estate (ORE)11,6008,63710,14410,360Fixed assets, net192,542160,476173,907159,890Other assets145,244132,180123,060138,896Total assets$ 14,005,259$  9,560,074$ 11,800,085$  9,602,482Non-interest bearing deposits$  2,760,405$  1,828,957$  2,267,876$  1,758,182Interest bearing deposits8,085,8085,823,6276,973,8295,943,012Total deposits10,846,2137,652,5849,241,7057,701,194Securities sold under     repurchase agreements438,41090,821197,77570,425Federal funds purchased and     other borrowings512,739135,336465,505181,656Junior subordinated     debentures85,05585,05585,05587,058Other liabilities92,87366,56053,32062,765Shareholders' equity(H)2,029,9691,529,7181,756,7251,499,384Total liabilities and equity$ 14,005,259$  9,560,074$ 11,800,085$  9,602,482(H) Includes $11,821 and $15,702 in after tax unrealized gains on available for sale securities for the three months ending September 30, 2012 and September 30, 2011, respectively, and $12,612 and $14,735 for the nine months ending September 30, 2012 and September 30, 2011, respectively.  Prosperity Bancshares, Inc.®Financial Highlights(Dollars in thousands)Sept 30, 2012June 30, 2012March 31, 2012Dec 31, 2011(Unaudited)(Unaudited)(Unaudited)(Unaudited)Loan PortfolioCommercial$   792,24715.6%$   491,90712.5%$    475,86012.3%$   439,85411.7%Construction496,4179.8%466,88411.8%484,29512.5%482,14012.8%1-4 family residential1,213,87223.9%1,084,93627.4%1,036,31826.7%1,007,26626.8%Home equity183,8443.6%154,1473.9%149,5973.9%146,9993.8%Commercial real estate1,976,11238.9%1,484,78737.6%1,473,92538.0%1,441,22638.3%Agriculture304,1346.0%192,4624.9%178,4744.6%170,2344.5%Consumer112,4772.2%75,2091.9%76,3932.0%78,1872.1%Total Loans$5,079,103$3,950,332$ 3,874,862$3,765,906Deposit TypesNon-interest bearing DDA$2,827,74825.8%$2,083,91024.8%$ 2,088,74924.4%$ 1,972,22624.5%Interest bearing DDA2,208,56820.2%1,684,49220.1%1,671,76019.6%1,532,70119.0%Money Market2,303,68021.0%2,206,22026.3%2,312,10727.1%2,042,24325.3%Savings1,276,27111.6%581,4806.9%554,2116.5%514,7806.4%Time < $1001,103,10810.1%909,61610.8%938,91111.0%968,80612.0%Time > $1001,235,22211.3%928,86411.1%978,71311.5%1,029,49812.8%Total Deposits$10,954,597$8,394,582$ 8,544,451$8,060,254Loan to Deposit Ratio46.4%47.1%45.3%46.7%Construction LoansSingle family residential           construction$   150,95930.1%$   143,60030.8%$   142,58429.4%$   136,03028.2%Land development38,0757.6%39,7048.5%41,1778.5%43,0848.9%Raw land47,6209.5%51,07010.9%63,00613.0%61,17712.7%Residential lots97,44519.4%86,20118.5%88,05418.2%86,84818.0%Commercial lots63,41812.7%49,45410.6%51,64210.7%49,64510.3%Commercial     construction and other103,67720.7%96,85520.7%97,83220.2%105,35621.9%Net unaccreted discount(4,777)------Total Construction Loans$   496,417$   466,884$   484,295$   482,140Prosperity Bancshares, Inc.®Notes to Selected Financial Data (Unaudited)(Dollars in thousands)Consolidated Financial HighlightsNOTES TO SELECTED FINANCIAL DATAProsperity'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. In addition, due to the application of purchase accounting and related entries and one-time merger expenses, Prosperity uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate its performance, including yield on loans and securities, net income, diluted earnings per share, efficiency ratio and allowance for credit losses to total loans (excluding acquired loans).  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 EndedSept 30, 2012June 30, 2012Mar 31, 2012Dec 31, 2011Sept 30, 2011Return on average tangible common equity:Net income$    46,176$     36,972$     36,487$     36,406$     36,373Average shareholders' equity2,029,9691,632,1641,595,2841,556,8451,529,718Less: Average goodwill and other intangible assets(1,174,610)(950,577)(948,519)(946,427)(948,351)       Average tangible shareholders' equity$   855,359$    681,587$  646,765$   610,418$   581,367       Return on average tangible common  equity:21.59%21.70%22.57%23.86%25.03%Tangible book value per share:Shareholders' equity$2,038,176$ 1,643,817$ 1,609,533$1,567,265$1,541,339Less: Goodwill and other intangible assets(1,228,190)(950,671)(948,462)(945,533)(947,411)         Tangible shareholders' equity$   809,986$    693,146$   661,071$   621,732$   593,928Period end shares outstanding56,05847,47447,29746,91046,893Tangible book value per share:$       14.45$        14.60$       13.98$       13.25$       12.67Tangible equity to tangible assets ratio:Tangible shareholders' equity$  809,986$    693,146$    661,071$  621,732$   593,928Total assets$13,712,119$10,737,351$10,889,955$9,822,671$9,567,087Less: Goodwill and other intangible assets(1,228,190)(950,671)(948,462)(945,533)(947,411)       Tangible assets$12,483,929$ 9,786,680$9,941,493$8,877,138$8,619,676Tangible equity to tangible assets ratio:6.49%7.08%6.65%7.00%6.89%  Prosperity Bancshares, Inc.®Notes to Selected Financial Data (Unaudited)(Dollars and share amounts in thousands)Nine Months EndedSept 30, 2012Sept 30, 2011Return on average tangible common equity:Net income$     119,635$    105,343Average shareholders' equity1,756,7251,499,384Less: Average goodwill and other intangible assets(1,025,116)(950,233)         Average tangible shareholders' equity$     731,609$    549,151         Return on average tangible common equity:21.80%25.58%Tangible book value per share:Shareholders' equity$  2,038,176$   1,541,339Less: Goodwill and other intangible assets(1,228,190)(947,411)         Tangible shareholders' equity$    809,986$    593,928Period end shares outstanding56,05846,893Tangible book value per share:$        14.45$       12.67Tangible equity to tangible assets ratio:Tangible shareholders' equity$      809,986$     593,928Total assets$  13,712,119$    9,567,087Less: Goodwill and other intangible assets(1,228,190)(947,411)       Tangible assets$  12,483,929$    8,619,676Tangible equity to tangible assets ratio:6.49%6.89%  Prosperity Bancshares, Inc.®Notes to Selected Financial Data (Unaudited)(Dollars in thousands) Adjustment to loan yield:Three Months Ended Sept 30, 2012Nine Months Ended Sept 30, 2012  Interest on loans, as reported$            80,587$           188,597  Less: Purchase accounting adjustment-loan discount accretion(11,188)(11,889)        Interest on loans less discount accretion$            69,399$           176,708  Average loans$       5,169,101$        4,303,984  Loan yield without discount accretion (non-GAAP basis)5.34%5.48%  Loan yield, as reported6.20%5.85%Adjustment to securities yield:  Interest on securities$             37,025$            113,418  Add: Purchase accounting adjustment-securities amortization3,4513,451  Add: Impact of sale of ASB securities prior to acquisition2,7412,741   Interest on securities including amortization and impact of      securities sale$             43,217$            119,610  Average investment securities$        7,106,871$         5,983,102  Securities yield including amortization and impact of securities sales      (non-GAAP basis)2.43%2.67%  Securities yield, as reported2.08%2.53%Adjustment to net income and diluted EPS for purchase accounting adjustments, one-time merger expenses and securities sale:  Net income, as reported $          46,176$          119,635  Less: Purchase accounting adjustment-loan discount accretion(11,188)(11,889)  Add: Purchase accounting adjustment-securities premium amortization3,4513,451  Add: one-time merger expenses5,4045,404  Add: Impact of sale of ASB securities prior to acquisition2,7412,741       Adjustment subtotal408(293)  Tax effect at 35.0%(143)103  Adjustment subtotal, after tax 265(190)  Net income adjusted for purchase accounting adjustments, one-time merger expenses and securities sale46,441119,445  Weighted average shares outstanding (diluted)56,09350,393  EPS (diluted) adjusted for purchase accounting adjustments, one-time merger expenses and securities sale (non-GAAP basis)$                0.83$                 2.37  EPS (diluted), as reported$                0.82$                 2.37Adjustment to efficiency ratio for one-time merger expenses:  Net income, as reported $              46,176$             119,635  Non-interest expense60,242141,489  Less: one-time merger expenses(5,404)(5,404)  Non-interest expense less one-time merger expenses54,838136,085  Non-interest income (excluding gains and losses on assets)23,87851,416  Net interest income before allowance for credit losses106,893272,405Efficiency ratio adjusted for one-time merger expenses (non-GAAP basis)41.93%42.02%Efficiency ratio, as reported46.07%43.69%  Prosperity Bancshares, Inc.®Notes to Selected Financial Data (Unaudited)(Dollars in thousands)Allowance for credit losses to total loans, excluding acquired loans:Three Months Ended Sept 30, 2012Nine Months Ended Sept 30, 2012Allowance for credit losses$            50,927$             50,927Total loans5,079,1035,079,103Less: acquired loans (does not include new production)1,066,5671,066,567        Total loans less acquired loans$       4,012,536$        4,012,536Allowance for credit losses to total loans, excluding acquired loans (non-GAAP basis)1.27%1.27% SOURCE Prosperity Bancshares, Inc.For further information: Dan Rollins, President and Chief Operating Officer, +1-281-269-7199, dan.rollins@prosperitybanktx.com