Prosperity Bancshares, Inc. (PB)

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Prosperity Bancshares, Inc. (PB)

Q1 2014 Earnings Conference Call

April 23, 2014 10:30 AM ET

Executives

Charlotte Rasche – General Counsel

David Zalman – Senior Chairman and CEO

H. E. Tim Timanus Jr., – Vice Chairman

David Hollaway – CFO

Randy Hester – Chief Lending Officer

Mike Epps – Senior EVP, Financial Operations and Administration.

Analysts

Dave Rochester – Deutsche Bank

Rahul Patil – Evercore Partners Inc

Jennifer H. Demba – SunTrust Robinson Humphrey, Inc

Jefferson Harralson – Keefe, Bruyette, & Woods, Inc

Ken Zerbe – Morgan Stanley

Brad J. Milsaps – Sandler O'Neill & Partners, L.P.

Jon G. Arfstrom – RBC Capital Markets, LLC

Mikhail Goberman – Portales Partners, LLC

Matt Olney – Stephens Inc

Gary P. Tenner – D.A. Davidson & Co

Presentation

Operator

Good everyone, and welcome to today's program. (Operator Instructions)

Please note, this call maybe 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. Please go ahead.

Charlotte Rasche

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares' First Quarter 2014 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 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 Mike Epps, Executive Vice President for Financial Operations and Administration.

David Zalman will lead off with a review of the highlights for the recent quarter and an update on our merger and acquisition activity. He will be followed by David Hollaway, who will review 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, John or you may e-mail 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 send 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 and good morning to everyone. I would like to welcome and thank everyone for listening to our first quarter 2014 earnings conference call. I'm honored and excited to share with everyone, the great results we had in the first quarter. We were again named the best bank in America by Forbes Magazine.

In fact, we were recognized in both 2012 and 2014 as the Best Bank in America. I'm also pleased to announce Prosperity Bancshares inclusion into the 2013 Keefe Bruyette & Woods Honor Roll. To qualify for this honor, the company must maintain extraordinarily high, quantitative metrics for the last 10 years. Thirty-one banking institutions posted a 10-year record worthy of admission to this year's KBW Honor Roll.

And just yesterday, we learned that Prosperity was rated in the top spot by SNL among 110 Eligible Commercial Banks with less than $15 billion in assets and at least 60 offices. SNL rank the companies based on six core financial metrics for the 2013 year. Some of our success this quarter include our quarterly earnings increased to $67,137 million in the first quarter compared to $49,305 million for the same period in the prior year, an increase of $17,832 million or 36.2%.

Our diluted earnings per share were $1.01 for the first quarter of 2014 compared to $0.86 for the same period in the prior year, a 17.4% increase. Net income for the quarter includes the effects of one-time gains on the sale of assets of $3,310 million and a one-time merger expense of $731,000.

Loans at March 31, 2014 were $7,752 billion an increase of $2,489 billion or 47.3% compared with $5,263 billion at March 31, 2013. Primarily due to the addition of Coppermark and First Victoria National Bank.

Linked quarter loans decreased by $22 million or 30 basis points from the $7,757 billion at December 31, 2013. However, excluding loans that were acquired in acquisitions loans at March 31, 2014 were 8.2% compared with their level at March 31, 2013 and 1.8% or 7.2% annualized on a linked quarter basis.

We are seeing good loan demand in the second quarter and still expect our organic loan growth for 2014 to be in the 7% to 8% range. Our non-performing assets at March 31, 2014 were $18,696 million were 11 basis points quarterly average earning assets. One of the lowest in the industry and a sign of strong asset quality.

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