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Prosperity Bancshares Inc. (PRSP)

Q2 2009 Earnings Call

July 17, 2009 10:30 am ET

Executives

David Zalman - Chairman, Chief Executive Officer

Dan Rollins - President, Chief Operating Officer

David Hollaway - Chief Financial Officer

Tim Timanus - Vice Chairman

Analysts

John Pancari - Fox-Pitt Kelton

Jon Arfstrom - RBC Capital Markets

Joe Stieven - Stieven Capital

Brett Rabatin - Sterne, Agee

Jennifer Demba - SunTrust Robinson Humphrey

Bain Slack - KBW

Terry McEvoy - Oppenheimer

Andy Stapp - B. Riley & Company

Carl Dorf - Dorf Asset Management

Dave Bishop - Stifel Nicolaus

Presentation

Operator

Good day. All sites are on the conference line in a listen-only mode. Later you���ll have the opportunity to ask questions during the question-and-answer session and please note this call is being recorded. It is now my pleasure to turn the conference over to Mr. Dan Rollins. Please go ahead.

Dan Rollins

Thank you, Tasha. Good morning, ladies and gentlemen. Welcome to Prosperity Bancshares second quarter 2009 earnings conference call. This call is being broadcast live over the Internet at prosperitybanktx.com and will be available for replay at the same location for the next few weeks.

I am Dan Rollins, President and Chief Operating Officer of Prosperity Bancshares and here with me today is David Zalman, our Chairman and Chief Executive Officer, Tim Timanus, our Vice Chairman and David Hollaway, our Chief Financial Officer. David Zalman will lead off with the review of the highlights of the recent quarter. He will be followed by David Hollaway, who will spend a few minutes reviewing some of the financial statistics. Tim Timanus will discuss our lending activities including asset quality and finally we will open the call for questions.

During the call, interested parties may participate live by following the instructions that will be provided by our call moderator Tasha or you may email questions to investor.relations@prosperitybanktx.com. I assume you have all received a copy of the earnings announcement we released earlier this morning. If not, please call [Lee Kressmann] at 281-269-7216 and she will fax a copy to you. Before we begin, let me make the usual disclaimers.

Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of federal securities laws and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results performance or achievements expressed or implied by such forward-looking statements.

Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares filings with the Securities and Exchange Commission, including its Forms 10-Q and 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

Let me turn our call over to David.

David Zalman

Thank you, Dan. I’m very pleased to be able to announce the results of another very successful quarter for our bank. Some of our successes this quarter include our second quarter earnings were up 13.1% to $26.5 million compared to $23.4 million for the same period last year, an increase of $3.1 million.

Our diluted earnings per share were up 9.1% up to $0.57 for the second quarter of 2009 compared to $0.52 for the same period last year. Our non-performing assets remained low at 26 basis points of average earning assets. This is a slight increase from last quarter, but remains within our target range. Additionally, the net charge-offs actually declined on a linked-quarter basis.

Our tangible common equity ratio increased to 4.84%. Our total risk-based capital increased to 12.28%. Our return on average assets for the quarter increased to 1.2% compared to 1.15% for the prior quarter. Our return on average tangible equity on an annualized basis was 27.98% and last our efficiency ratio decreased to 48.98% from 49.47% for the prior quarter.

Our deposits at June 30, 2009, were $7.3 billion, an increase of $2 billion or 37.3% increase from June 30 of 2008. Our deposits were impacted by the deposits assumed in our FDIC assisted acquisition of Franklin Bank on a linked-quarter basis, we saw our Legacy deposits or deposits not acquired as part of our recent acquisitions increased $206 million were it will been 16.2% on an annualized basis.

Talking about loans on a linked-quarter basis, excluding loans from the acquisitions, loans reduced less than 1.5% or 1%. At the same time, we continued to reduce our exposure to construction and development loans in the quarter by $30 million.

As I mentioned earlier, our nonperforming assets to total assets increased to 26 basis points from 22 basis points one year ago and nonperforming assets to loans increased to 57 basis points from 36 basis points last quarter, but still within the boundaries we expressed on previous calls.

We provisioned $5.6 million more than our net charge-offs during the first half of 2009. This increased our allowance for credit losses to 1.23% of totaled loans at June 30, 2009, compared with 1.03% of June 30, 2008.

Talking a little bit about extraordinary expenses in this quarter, our FDIC insurance premium for 2008 was approximately $1.4 million. We currently expect our full year 2009 FDIC insurance premium to be between $8 million and $9 million. Additionally, the FDIC imposed in emergency special assessment as of June 30, 2009, totaling $4.2 million were approximately $0.6 per diluted share.

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