Prosperity Bancshares, Inc. (PB)

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Prosperity Bancshares (PB)

Q2 2013 Earnings Call

July 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

Chris A. Bagley - Chief Credit Officer

Analysts

Rahul Patil - Evercore Partners Inc., Research Division

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

Matt Olney - Stephens Inc., Research Division

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

Gary P. Tenner - D.A. Davidson & Co., Research Division

Presentation

Operator

Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, this conference call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Charlotte Rasche.

Charlotte M. Rasche

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares Second 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 activities, 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, Leo. [Operator Instructions] 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 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 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 joining us for our second quarter earnings announcement. I'm very excited and proud to be able to announce such positive results for the second quarter of 2013. We posted net earnings of $53,844,000 for the 3 months ended June 30, 2013, compared to $36,972,000 for the same period in 2012, which represents a 45.6% increase.

Our diluted earnings per share for the quarter ended June 30, 2013, came in at $0.89, and that's compared to $0.78 for the same period last year, representing a 14.1% increase. Our asset quality continues to be one of the best in the industry with total nonperforming assets of $14,864,000, and a ratio of nonperforming assets to average earning assets of only 11 basis points for the second quarter of 2013 compared with 12 basis points for the second quarter of 2012.

Our provision for credit losses increased during the quarter based on our allowance methodology, which includes numerous factors, such as loan growth. Our allowance for credit losses was $56,176,000 as of June 30, 2013, with nonperforming loans at $4,620,000 at the same day, representing a healthy coverage ratio. Loans at June 30, 2013, were $6,172,000,000, an increase of $2,222,000,000 or 56.3%, compared with the $3,950,000,000 at June 30, 2012. On a linked-quarter basis, loans increased $909 million or 17.3% from $5.2 billion at March 31, 2013.

Looking at loan production on an organic basis, excluding loans acquired in acquisitions since the second quarter of 2012 and the new production at those acquired banking centers since the respective acquisition dates, loans at June 30, 2013, grew 7.8% compared with the June 30, 2012, at 3.7%, 14.6% annualized on a linked-quarter basis. We are pleased with the higher level of organic loan growth during the second quarter and we continue to see increased demand for new loans.

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