Prosperity Bancshares, Inc.Â® Reports Strong 2011 Earnings HOUSTON, Jan. 20, 2012 /PRNewswire/ -- Prosperity Bancshares, Inc.® (NYSE: PB), the parent company of Prosperity Bank®, reported net income for the quarter ended December 31, 2011 of $36.406 million or $0.77 per diluted common share, an increase in net income of $3.608 million or 11.0%, compared with $32.798 million or $0.70 per diluted common share for the same period in 2010. Prosperity also reported net income for the year ended December 31, 2011 of $141.749 million or $3.01 per diluted common share, up 11.0% from 2010 net income of $127.708 million and up 10.3% from 2010 diluted earnings per common share of $2.73. We are proud of our performance in 2011. We finished the year with record net income of $141.749 million, an 11.0% increase over 2010. For the full year, our loans increased 8.1% or $280.883 million while our deposits also increased 8.1% or $605.334 million," said David Zalman, Prosperity's Chairman and Chief Executive Officer. Our entire team is honored to have been recognized by Forbes as the 'Best Bank in America' in their 2012 rankings. This recognition is the result of all of our associates hard work and dedication and reflects our industry leading asset quality, our strong earnings, and our continued focus on building shareholder value," 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. Prosperity has included in this Earnings Release information relating to these non-GAAP financial measures for the applicable periods presented. Please refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of these non-GAAP financial measures. Results of operations for the three months ended December 31, 2011 For the three months ended December 31, 2011, net income was $36.406 million compared with $32.798 million for the same period in 2010. Net income per diluted common share was $0.77 for the three months ended December 31, 2011 compared with $0.70 for the same period in 2010. Returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2011 were 1.50%, 9.35% and 23.86%, respectively. Prosperity's efficiency ratio (excluding net gains and losses on the sale of assets) was 40.77% for the three months ended December 31, 2011. Net interest income before provision for credit losses for the quarter ended December 31, 2011 increased 0.7% to $80.087 million compared with $79.509 million during the same period in 2010 and decreased 3.0% or $2.451 million compared with $82.538 million during the three months ended September 30, 2011. The net interest margin on a tax equivalent basis decreased to 3.82% for the three months ended December 31, 2011 compared with 3.99% for the same period in 2010 and decreased 20 basis points from 4.02% for the three months ended September 30, 2011. The 20 basis point linked quarter decrease was impacted by increased amortization expense from the securities portfolio. Amortization expense for the three months ended December 31, 2011 increased $2.086 million on a linked quarter basis to $9.670 million. At December 31, 2011, the Company had $68.194 million in premium remaining on its securities portfolio. Non-interest income increased $160 thousand or 1.2% to $14.065 million for the three months ended December 31, 2011 compared with $13.905 million for the same period in 2010. The increase was mainly attributable to an increase in debit card and ATM card income, partially offset by a decrease NSF fees. Non-interest expense decreased $2.842 million or 6.9% to $38.385 million for the three months ended December 31, 2011 compared with $41.227 million during the same period in 2010. The decrease was mainly attributable to a decrease in ORE expenses and reduced FDIC assessments. Loans at December 31, 2011 were $3.766 billion, an increase of $280.883 million or 8.1%, compared with $3.485 billion at December 31, 2010. Loans increased 0.8% (3.0% annualized) or $28.276 million on a linked quarter basis compared with loans of $3.737 billion at September 30, 2011. Deposits at December 31, 2011 were $8.060 billion, an increase of $605.334 million or 8.1% compared with $7.455 billion at December 31, 2010. Linked quarter deposits increased $261.515 million or 3.4% (13.4% annualized) from $7.799 billion at September 30, 2011. Average loans increased 9.6% or $328.225 million to $3.750 billion for the quarter ended December 31, 2011 compared with $3.422 billion for the same period of 2010. Linked quarter average loans increased 1.5% or $55.884 million from $3.694 billion at September 30, 2011. Average deposits increased 6.0% to $7.899 billion for the quarter ended December 31, 2011 compared with $7.453 billion for the same period of 2010. Linked quarter average deposits increased 3.2% or $246.534 million from $7.653 billion at September 30, 2011. At December 31, 2011, construction loans totaled $482.140 million, consisting of approximately $136 million of single family residential construction loans; $43 million of land development loans; $61 million of raw land loans; $87 million of residential lot loans; $50 million of commercial lot loans; and $105 million of commercial construction and other construction loans. This is a decrease of $8.053 million from construction loans at September 30, 2011. At December 31, 2011, Prosperity had $9.823 billion in total assets, $3.766 billion in loans and $8.060 billion in deposits. Assets, loans and deposits at December 31, 2011 increased by 3.7%, 8.1% and 8.1%, respectively, compared with their level at December 31, 2010. Asset Quality Non-performing assets totaled $12.052 million or 0.14% of quarterly average earning assets at December 31, 2011 compared with $15.842 million or 0.20% of quarterly average earning assets at December 31, 2010 and $13.363 million or 0.16% of quarterly average earnings assets at September 30, 2011. The allowance for credit losses was 1.37% of total loans at December 31, 2011, 1.40% at September 30, 2011 and 1.48% of total loans at December 31, 2010. The provision for credit losses was $1.150 million for the three months ended December 31, 2011 and $2.900 million for the three months ended December 31, 2010. Net charge offs were $2.069 million for the three months ended December 31, 2011 and $2.670 million for the three months ended December 31, 2010. Non-performing assets Construction 1-4 family (including home equity) Commercial real estate (including multi-family) Agriculture Net Charge-offs The provision for credit losses was $5.200 million for the twelve months ended December 31, 2011; a decrease of $8.385 million compared with $13.585 million for the twelve months ended December 31, 2010. Net charge offs were $5.190 million for the twelve months ended December 31, 2011 and $13.864 million for the twelve months ended December 31, 2010. Results of operations for the twelve months ended December 31, 2011 For the twelve months ended December 31, 2011, net income was $141.749 million compared with $127.708 million for the same period in 2010. Net income per diluted common share was $3.01 for the twelve months ended December 31, 2011 compared with $2.73 for the same period in 2010. Returns on average assets, average common equity and average tangible common equity for the twelve months ended December 31, 2011 were 1.47%, 9.36% and 25.11%, respectively. Prosperity's efficiency ratio (excluding net gains and losses on the sale of assets) was 42.76% for the twelve months ended December 31, 2011. Net interest income before provision for credit losses for the twelve months ended December 31, 2011 increased $8.520 million or 2.7%, to $326.668 million compared with $318.148 million during the same period in 2010. The net interest margin on a tax equivalent basis decreased to 3.98% for the twelve months ended December 31, 2011 compared with 4.04% for the same period in 2010. Non-interest income increased $2.210 million or 4.1% to $56.043 million for the twelve months ended December 31, 2011 compared with $53.833 million for the same period in 2010. The increase was mainly attributable to an increase in debit card and ATM card income and a decrease in loss on sale of ORE, partially offset by a decrease NSF fees. Non-interest expense decreased $2.849 million or 1.7% to $163.745 million for the twelve months ended December 31, 2011 compared with $166.594 million for the same period in 2010. The decrease was due primarily to decreases in FDIC assessments, CDI amortization, ORE expenses and other non-interest expenses partially offset by an increase in salaries and benefits expense. Prosperity's management team will host a conference call on Friday, January 20, 2012 at 10:30 a.m. Eastern Standard Time (9:30 a.m. Central Standard Time) to discuss Prosperity's fourth quarter and full year 2011 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 Investor Relations page by clicking on the "4th Quarter Results and Webcast" link. Prosperity Transfers Listing to NYSE Under Symbol "PB" Prosperity transferred the listing of its common stock from the NASDAQ Global Select Market to the New York Stock Exchange (NYSE). The Company began trading, under the new ticker symbol "PB" on the NYSE on December 28, 2011. Acquisition of The Bank Arlington On January 19, 2012, Prosperity announced the signing of a definitive agreement to acquire The Bank Arlington. The Bank Arlington operates one (1) banking office in Arlington, Texas, in the Dallas/Fort Worth CMSA. Acquisition of East Texas Financial Services, Inc. On December 9, 2011, Prosperity announced the signing of a definitive agreement to acquire East Texas Financial Services, Inc. (OTC BB: FFBT) and its wholly-owned subsidiary, First Federal Bank Texas ("Firstbank"). East Texas Financial Services operates four (4) banking offices in the Tyler MSA, including three (3) locations in Tyler, Texas and one (1) location in Gilmer, Texas. As of December 31, 2011, First Federal Bank reported total assets of $199.0 million, total loans of $163.1 million and total deposits of $126.7 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. 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 consist of a location in Rollingwood, which upon operational integration will be consolidated with Prosperity's Westlake location and remain in Bank of Texas' Rollingwood banking office; one banking center in downtown Austin, which upon operational integration will be 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 total assets of $77.0 million, total loans of $27.6 million and total deposits of $70.4 million on December 31, 2011. Under the terms of the 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. Bryan/College Station Area - Dallas/Fort Worth Area - Mount Vernon Bryan Bryan-East Bryan-North Caldwell College Station Greens Prairie Madisonville Navasota Rock Prairie Wellborn Road Central Texas Area - Austin - Allandale Cedar Park Congress Lakeway Liberty Hill Northland Oak Hill Parmer Lane Research Blvd Westlake 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 Thorndale Weimar Yoakum Yorktown 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 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 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 Woodcreek Other Houston Area Angleton Bay City Beaumont Cinco Ranch 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 Alice Aransas Pass Beeville Edna Goliad Kingsville Mathis Padre Island Palacios Port Lavaca Portland Rockport Sinton Victoria Victoria-North In connection with the proposed merger of The Bank Arlington into Prosperity Bank, Prosperity will file with the Securities and Exchange Commission a registration statement on Form S-4 to register the shares of Prosperity's common stock to be issued to the shareholders The Bank Arlington. 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. 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 Twelve Months Ended Selected Earnings and Per Share Data Provision for credit losses provision for credit losses Net income before taxes Federal income taxes Period end shares outstanding Weighted average shares outstanding (basic) outstanding (diluted) Dollars in thousands Balance Sheet Averages Investment securities Federal funds sold and other earning assets Allowance for credit losses Core Deposit Intangibles (CDI) Non-interest bearing deposits Interest bearing deposits Securities sold under repurchase agreements Federal funds purchased and other borrowings Junior subordinated debentures Shareholders' equity (A) (A) Includes $14,515 and $17,516, in after-tax unrealized gains on available for sale securities for the three month periods ending December 31, 2011 and December 31, 2010, respectively, and $14,680 and $17,693 for the twelve month periods ending December 31, 2011 and December 31, 2010, respectively. Income Statement Data Interest on loans Interest on securities Interest on federal funds sold and Interest expense - deposits Interest expense - debentures Interest expense - other Net interest income (B) Non-sufficient funds (NSF) fees Debit card and ATM card income Net gain on sale of assets Net (loss) gain on sale of ORE Net loss on sale of securities Other non-interest income Salaries and benefits (C) CDI amortization Net occupancy and equipment and software amortization Regulatory assessments and FDIC insurance ORE Expense Other non-interest expense Net income available to common shareholders (B) Net interest income on a tax equivalent basis would be $80,937 and $80,238 for the three months ended December 31, 2011 and December 31, 2010, respectively, and $330,282 and $321,049 for the twelve months ended December 31, 2011 and December 31, 2010, respectively. (C) Salaries and benefits includes equity compensation expenses of $972 and $825 for the three months ended December 31, 2011 and December 31, 2010, respectively, and $3,576 and $3,037 for the twelve months ended December 31, 2011 and December 31, 2010, respectively. As of and for the Common Share and Other Data Employees - FTE Tangible book value per share Non-accrual loans Accruing loans 90 or more days past due Restructured loans Total non-performing loans Repossessed assets Total non-performing assets Allowance for credit losses at end of period Net charge-offs Performance Ratios Return on average assets (annualized) Return on average common equity (annualized) Return on average tangible common equity (annualized) Net interest margin (D) (tax equivalent) (annualized) Efficiency ratio (E) Asset Quality Ratios Non-performing assets to average earning assets Non-performing assets to loans and other real estate to average loans Allowance for credit losses to total loans Common Stock Market Price Period end market price (D) Net interest margin for all periods presented is calculated on an actual 365 day basis. (E) Prosperity's efficiency ratio is calculated by dividing total non-interest expense (excluding credit loss provisions) by net interest income plus non-interest income (excluding net gains and losses on the sale of assets and securities). Additionally, taxes are not part of this calculation. Loan Portfolio 1-4 family residential Commercial real estate Total Loans Deposit Types Non-interest bearing DDA Interest bearing DDA Money Market Time < $100 Time > $100 Total Deposits Loan to Deposit Ratio Construction Loans Single family residential construction Land development Raw land Residential lots Commercial lots Commercial Construction and other Total Construction Loans Balance Sheet Data at period end Investment securities (F) Core deposit intangibles Demand deposits Junior subordinated debentures Shareholders' equity (G) (F) Includes $20,726, $24,278, $23,647, $21,088 and $22,007 in unrealized gains on available for sale securities for the quarterly periods ending December 31, 2011, September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010, respectively. (G) Includes $13,472, $15,781, $15,371, $13,707 and $14,304 in after-tax unrealized gains on available for sale securities for the quarterly periods ending December 31, 2011, September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010, respectively. Interest on federal funds sold and other earning assets Interest expense- deposits Interest expense- debentures Interest expense- other Service charges on deposits accounts Net loss on sale of ORE Net loss on the sale of securities Salaries and benefits Regulatory assessments and FDIC insurance ORE expense Sept. Comparative Quarterly Asset Quality, Performance & Capital Ratios Net charge-offs to average loans Tier 1 leverage capital Tangible equity to tangible assets Equity to assets Supplemental Financial Data (Unaudited) Interest Earned / Interest Paid Yield/Rate Interest Earning Assets: Federal funds sold and other earning assets Total interest earning assets Non-interest earning assets Interest Bearing Liabilities: Interest bearing demand deposits Savings and money market deposits Certificates and other time deposits Securities sold under repurchase agreements Federal funds purchased and other borrowings Total interest bearing liabilities Non-interest bearing liabilities: Non-interest bearing demand deposits Net Interest Income & Margin tax equivalent (H) The Company's total cost of funds, including non-interest bearing deposits was 0.47% and 0.66% for the three months ended December 31, 2011 and December 31, 2010, respectively. Twelve Months Ended December 31, 2011 Twelve Months Ended December 31, 2010 (I) The Company's total cost of funds, including non-interest bearing deposits was 0.56% and 0.85% for the years ended December 31, 2011 and December 31, 2010, respectively. Prosperity Bancshares, Inc.® Notes to Selected Financial Data (Dollars and share amounts in thousands, except per share data) Consolidated Financial Highlights 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 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 Return on average tangible common equity: Dec 31, Sept 30, Mar 31, Average shareholders' equity Less: Average goodwill and other intangible assets Average tangible shareholders' equity Tangible book value per share: Less: Goodwill and other intangible assets Tangible shareholders' equity Tangible equity to tangible assets ratio: Notes to Selected Financial Data (Unaudited) Shareholders equity