PROSPERITY BANCSHARES INC - 10-Q Quarterly Report

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-25051

PROSPERITY BANCSHARES, INC.^{^®}

(Exact name of registrant as specified in its charter)

TEXAS

74-2331986

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Prosperity Bank Plaza

4295 San Felipe

Houston, Texas 77027

(Address of principal executive offices, including zip code)

(713) 693-9300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

As of May 3, 2005, there were 27,492,313 shares of the registrant’s Common Stock, par value $1.00 per share, outstanding.

PROSPERITY BANCSHARES, INC.^{^®} AND SUBSIDIARIES

INDEX TO FORM 10-Q


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Interim Financial Statements	3
	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004 (unaudited)	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2005 and 2004 (unaudited)	4
	Consolidated Statements of Shareholders’ Equity for the Year Ended December 31, 2004 (unaudited) and for the Three Months Ended March 31, 2005 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 (unaudited)	6
	Notes to Interim Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		22

PART I – FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

PROSPERITY BANCSHARES, INC^{^®}. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31, 2005			December 31, 2004
	(Dollars in thousands, except share data)
ASSETS
Cash and due from banks	$	71,695		$	58,760
Federal funds sold		55,796			79,150

Total cash and cash equivalents		127,491			137,910
Interest-bearing deposits in financial institutions		196			200
Available for sale securities, at fair value (amortized cost of $285,192 and $182,450, respectively)		279,044			177,683
Held to maturity securities, at cost (fair value of $1,185,580 and $1,124,500, respectively)		1,207,419			1,125,109
Loans		1,500,138			1,035,513
Less allowance for credit losses		(16,934	)		(13,105	)

Loans, net		1,483,204			1,022,408
Accrued interest receivable		12,959			10,171
Goodwill		245,256			153,180
Core deposit intangibles, net of accumulated amortization of $3,515 and $2,792, respectively		24,883			11,492
Bank premises and equipment, net		49,996			35,793
Other real estate owned		720			341
Other assets		48,579			22,941

TOTAL	$	3,479,747		$	2,697,228

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	592,238		$	518,358
Interest-bearing		2,301,443			1,798,718

Total deposits		2,893,681			2,317,076
Other borrowings		43,543			13,116
Securities sold under repurchase agreements		25,726			25,058
Accrued interest payable		3,002			3,102
Other liabilities		12,291			15,805
Junior subordinated debentures		75,775			47,424

Total liabilities		3,054,018			2,421,581
SHAREHOLDERS’ EQUITY:
Common stock, $1 par value; 50,000,000 shares authorized; 27,513,484 and 22,418,128 shares issued at March 31, 2005 and December 31, 2004, respectively; 27,476,396 and 22,381,040 shares outstanding at March 31, 2005 and December 31, 2004, respectively		27,513			22,418
Capital surplus		271,916			134,288
Retained earnings		130,903			122,647
Accumulated other comprehensive income — net unrealized losses on available for sale securities, net of tax benefit of $2,152 and $1,669, respectively		(3,996	)		(3,099	)
Less treasury stock, at cost, 37,088 shares at March 31, 2005 and December 31, 2004, respectively		(607	)		(607	)

Total shareholders’ equity		425,729			275,647

TOTAL	$	3,479,747		$	2,697,228

See notes to interim consolidated financial statements.

PROSPERITY BANCSHARES, INC.^{^®} AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended March 31,
	2005		2004
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees	$	19,670	$	12,313
Securities:
Taxable		13,447		13,168
Nontaxable		346		385
70% nontaxable preferred dividends		128		452
Federal funds sold		441		53
Deposits in other financial institutions		1		1

Total interest income		34,033		26,372

INTEREST EXPENSE:
Deposits		8,271		5,781
Junior subordinated debentures		889		996
Note payable and other borrowings		396		248

Total interest expense		9,556		7,025

NET INTEREST INCOME		24,477		19,347
PROVISION FOR CREDIT LOSSES		120		120

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		24,357		19,227

NONINTEREST INCOME:
Customer service fees		5,408		4,760
Other		1,125		512

Total noninterest income		6,533		5,272

NONINTEREST EXPENSE:
Salaries and employee benefits		8,531		6,704
Net occupancy expense		1,371		1,043
Depreciation expense		970		701
Data processing		596		447
Communications expense		820		725
Core deposit intangibles amortization		723		383
Other		2,823		2,456

Total noninterest expense		15,834		12,459

INCOME BEFORE INCOME TAXES		15,056		12,040
PROVISION FOR INCOME TAXES		4,502		3,977

NET INCOME	$	10,554	$	8,063

EARNINGS PER SHARE
Basic	$	0.44	$	0.39

Diluted	$	0.43	$	0.38

See notes to interim consolidated financial statements.

PROSPERITY BANCSHARES, INC.^{^®} AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


	Common Stock								Accumulated Other Comprehensive Income
	Shares	Amount		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total Shareholders’ Equity
	(Dollars in thousands, except share data)
BALANCE AT JANUARY 31, 2004	20,966,706	$	20,967	$	102,594	$	94,610		$	2,024		$	(607	)	$	219,588
Net income							34,707									34,707
Net change in unrealized (loss) gain on available for sale securities										(5,123	)					(5,123	)

Total comprehensive income																29,584

Sale of common stock in connection with the exercise of stock options	206,321		206		840											1,046
Common stock issued in connection with the Liberty acquisition	1,245,191		1,245		30,713											31,958
Stock option compensation expense					141											141
Cash dividends declared, $0.31 per share							(6,670	)								(6,670	)

BALANCE AT DECEMBER 31, 2004	22,418,218		22,418		134,288		122,647			(3,099	)		(607	)		275,647
Net income							10,554									10,554
Net change in unrealized loss on available for sale securities										(897	)					(897	)

Total comprehensive income																9,657

Sale of common stock in connection with the exercise of stock options	16,500		17		59											76
Common stock issued in connection with the First Capital acquisition	5,078,856		5,079		137,439											142,518
Stock option compensation expense					130											130
Cash dividends declared, $0.0825							(2,298	)								(2,298	)

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