Prosperity Bancshares, Inc. (PB)

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Prosperity Bancshares (PB)

Q1 2013 Earnings Call

April 24, 2013 10:30 am ET

Executives

Charlotte M. Rasche - Executive Vice President, General Counsel, Senior Executive Vice President of Prosperity Bank and General Counsel of Prosperity Bank

David Zalman - Chairman, Chief Executive Officer, President, Senior Chairman of the Board for Prosperity Bank, Chief Executive Officer of Prosperity Bank and President of Prosperity Bank

David Hollaway - Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Chief Financial Officer of Prosperity Bank and Senior Vice President of Prosperity Bank

H. E. Timanus - Vice Chairman, Chairman of Prosperity Bank and Chief Operating Officer of Prosperity Bank

Analysts

Rahul Patil - Evercore Partners Inc., Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Christopher W. Marinac - FIG Partners, LLC, Research Division

Bryce W. Rowe - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Prosperity Bank First Quarter Earnings Call. [Operator Instructions] Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Charlotte Rasche. Please go ahead.

Charlotte M. Rasche

Thank you, Zach. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares' First Quarter 2013 Earnings Conference Call. This call is being broadcast live over the Internet at www.prosperitybankusa.com and will be available for replay at the same location for the next few weeks.

I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me with me today is: David Zalman, Chairman and Chief Executive Officer; H.E. Tim Timanus, Jr., Vice Chairman; David Hollaway, Chief Financial Officer; Randy Hester, Chief Lending Officer; and Chris Bagley, our Chief Credit Officer. David Zalman will lead off with a review of the highlights for the recent quarter and an update on our recently announced merger and acquisition activity. He will be followed by David Hollaway, who will spend a few minutes reviewing some of our recent financial statistics, and Tim Timanus will discuss our lending activity, including asset quality. 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, Zach, or you may email questions to investor.relations@prosperitybankusa.com. I assume you have all received a copy of the earnings announcement we released earlier this morning. If not, please call Tracy Elkowitz at (281) 269-7221, 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 the federal securities laws, and as such, may involve known and unknown risk, 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 the 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 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.

Now let me turn the call over to David Zalman.

David Zalman

Thank you, Charlotte. I would like to welcome and thank everyone for listening to our first quarter 2013 conference call. Some of our successes this quarter include our quarterly earnings increased to $49,305,000 in the first quarter compared to $36,487,000 for the same period in the prior year, an increase of $12.8 million or 35.1%. Our diluted earnings per share were $0.86 for the first quarter of 2013 compared to $0.77 for the same period in the prior year, an 11.7% increase.

Our loans increased in the first quarter of 2013 by $83,084,000, which represents a 1.6% increase or 6.4% on an annualized basis compared to loans at December 31, 2012. When comparing this quarter to the same quarter of 2012 and excluding loans acquired in our recent acquisitions and the new production at those banking centers since the acquisition date, we showed an organic growth rate of 5.5%. And again, excluding loans acquired in our recent acquisitions on a linked-quarter basis, we had an annualized growth rate of 6%.

Our nonperforming assets at March 31, 2013, were 14 basis points of quarterly average earning assets, one of the lowest in the industry and a sign of strong asset quality. We continue to see strong loan demand, although we are also experiencing a high amount of loan payoffs. Overall, we believe our customers are experiencing increasing business trends as the population and job growth in Texas and Oklahoma is outperforming most other areas of the country. However, we also believe that many of our customers are unwilling to take risks as there are a number of unknowns with respect to tax rates, government regulation, health care and the general economy.

We saw deposits increase to $11,713,000,000 at March 31, 2013, an increase of $3,169,000,000 or 37%, compared to the $8,544,000,000 at March 31, 2012. Our linked-quarter deposits increased $71,623,000, 0.6% or 2.5% on an annualized basis. As you may recall, in the fourth quarter of 2012, we saw an unusually large increase in deposits, specifically, a 26% annualized increase when comparing deposits at December 31, 2012, to those at September 30, 2012. At that time, we expected and commented that some portion of those deposits would flow into other investments. We generally see stronger deposit growth during the last half of the year and believe that much of the deposit increase at year-end 2012 was related to tax planning strategies.

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