HOUSTON, Jan. 24 /PRNewswire-FirstCall/ -- Prosperity Bancshares,Inc.(R), the parent company of Prosperity Bank(R), reportedrecord earnings for the quarter ended December 31, 2006. Net income for thequarter was $16.602 million or $0.50 per diluted common share, an increasein net income of $3.975 million or 31.5%, compared with $12.627 million or$0.45 per diluted common share for the same period in the prior year. Prosperity completed its acquisition of SNB Bancshares Inc. andits subsidiary Southern National Bank of Texas on April 1, 2006. Prosperityalso completed its acquisition of Grapeland Bancshares, Inc. and itssubsidiary, First State Bank, on December 1, 2005. The results ofoperations for these acquisitions have been included in Prosperity'sconsolidated financial statements since their respective purchase dates. "I am proud to announce that 2006 was another year of record earnings,"said David Zalman, Prosperity's Chairman and Chief Executive Officer."Despite the effects of the challenging interest rate environment, we havecontinued to see successful financial results." "During 2006, we completed the acquisition of SNB Bancshares, Inc. andits six banking centers in April. This was our largest acquisition to date.We also announced the merger with Texas United Bancshares, Inc. in July.Upon completion of that acquisition with its four banks and $1.806 billionin assets, we will exceed $6 billion in assets; and establish Prosperity asthe second largest Texas based bank in terms of deposits," continuedZalman. "We will remain focused on consistent organic growth and strategicacquisitions in an effort to maintain the steady increase in shareholdervalue for 2007," concluded Zalman. "Our committed team of bankers produced total loan growth of 41.1% over2005. We also grew deposits by 27.6%," stated Dan Rollins. Rollins added, "We are working diligently on completing the acquisitionof Texas United Bancshares, Inc. After receiving shareholder approval fromTexas United's and Prosperity's shareholders in December, we are onschedule to close within the next few weeks. Our merger integration team isplanning the system conversion of Texas United's four subsidiary banks,which will be staggered throughout the first half of the year. We lookforward to joining the two teams together, and believe the acquisition willcontinue to strengthen our presence across Texas as Real Bankers. With atotal of 125 locations, we look forward to a successful 2007 with a strongfocus on providing excellent personal service to our customers." Results of operations for the three months ended December 31, 2006 For the three months ended December 31, 2006, net income was $16.602million compared with $12.627 million for the same period in 2005. Netincome per diluted common share was $0.50 for the three months endedDecember 31, 2006 compared with $0.45 for the same period in 2005. Returnson average assets, average common equity and average tangible common equityfor the three months ended December 31, 2006 were 1.47%, 10.08% and 31.64%,respectively. Prosperity's efficiency ratio was 43.03% for the three monthsended December 31, 2006. Net interest income before provisions for credit losses for the quarterended December 31, 2006 increased 25.4%, to $36.406 million compared with$29.021 million during the same period in 2005. The increase wasattributable primarily to an 25.1 % increase in average earning assets. Non-interest income increased 9.7% to $8.241 million for the threemonths ended December 31, 2006 compared with $7.515 million for the sameperiod in 2005. The increase was attributable primarily to deposit servicecharges on the increased number of deposit accounts as a result of theadditional banking centers acquired in December 2005 and April 2006. Linkedquarter non- interest income decreased $677,000 or 7.6%. Non-interest expenses increased $1.951 million or 11.3% to $19.192million for the fourth quarter of 2006 compared with $17.241 million forthe fourth quarter of 2005. The increase was attributable primarily to theincreased operating costs associated with the additional banking centersacquired as a part of the acquisitions completed in December 2005 and April2006. Loans at December 31, 2006 were $2.177 billion, an increase of $634.4million, or 41.1%, compared with $1.542 billion at December 31, 2005. Asreflected in the table below, linked quarter loan growth for the fourthquarter of 2006 was impacted by the loans acquired as a part of theGrapeland and SNBT mergers. Excluding the loans acquired as a part of theGrapeland and SNBT mergers, linked quarter loan growth was 1.8% on anannualized basis and year to date growth was 7.7%. Deposits at December 31, 2006 were $3.726 billion, an increase of $805.4million or 27.6%, compared with $2.920 billion at December 31, 2005. Asreflected in the table below, annualized deposit growth for the fourth quarterof 2006 was impacted by the deposits assumed as a part of the Grapeland andSNBT mergers. Excluding deposits assumed as a part of the Grapeland and SNBTmergers, linked quarter deposit growth was 7.8% on an annualized basis andyear to date growth was 2.7%. Balance Sheet Data Dec 31, 2006 Sept 30, 2006 Dec 31, 2005 (at period end) (Unaudited) (Unaudited) (Unaudited) (In Thousands) Loans: Acquired with First State Grapeland $44,169 $45,962 $44,656 Acquired with Southern National Bank 519,314 562,728 0 All other 1,613,024 1,605,711 1,497,469 Total Loans $2,176,507 $2,214,401 $1,542,125 Deposits: Assumed with First State Grapeland $45,713 $47,864 $47,332 Assumed with Southern National Bank 728,467 650,364 0 All other 2,951,498 2,894,917 2,872,986 Total Deposits $3,725,678 $3,593,145 $2,920,318 Average loans increased 46.2% or $696.4 million to $2.203 billion forthe quarter ended December 31, 2006 compared with $1.507 billion for thesame period of 2005. The provision for credit losses was $144,000 for thethree months ended December 31, 2006 and $120,000 for the three monthsended December 31, 2005. Non-performing assets totaled $1.120 million or 0.03% of averageearning assets at December 31, 2006 compared with $1.408 million or 0.05%of average earning assets at December 31, 2005. At December 31, 2006, theallowance for credit losses was 1.10% of total loans, compared with 1.12%at December 31, 2005. Results of operations for the twelve months ended December 31, 2006 For the twelve months ended December 31, 2006, net income was $61.725million compared with $47.860 million for the same period in 2005. Netincome per diluted common share was $1.94 for the twelve months endedDecember 31, 2006 compared with $1.77 for the same period in 2005. Returnson average assets, average common equity and average tangible common equityfor the twelve months ended December 31, 2006 were 1.44%, 10.24% and31.53%, respectively. Prosperity's efficiency ratio was 45.29% for thetwelve months ended December 31, 2006. Net interest income before provision for credit losses for the twelvemonths ended December 31, 2006 increased 24.6%, to $138.145 millioncompared with $110.897 million during the same period in 2005. The increasewas attributable primarily to a 24.8% increase in average earning assets. Non-interest income increased 13.2% to $33.982 million for the twelvemonths ended December 31, 2006 compared with $30.021 million for the sameperiod in 2005. The increase was attributable primarily to deposit servicecharges on the increased number of deposit accounts as a result of theadditional banking centers acquired in December 2005 and April 2006. Non-interest expenses increased $8.712 million or 12.6% to $77.669million for the twelve months of 2006 compared with $68.957 million for thesame period in 2005. The increase in non-interest expenses was attributableprimarily to the increased operating costs associated with the additionalbanking centers acquired as a part of the acquisitions completed inDecember 2005 and April 2006. At December 31, 2006, Prosperity had $4.587 billion in total assets,$2.177 billion in loans, $3.726 billion in deposits, and approximately215,000 deposit and loan accounts. Assets, loans and deposits at December31, 2006 grew by 27.9%, 41.1% and 27.6%, respectively, compared withDecember 31, 2005. Conference Call Prosperity's management team will host a conference call on Wednesday,January 24, 2007 at 10:30 a.m. Eastern Daylight Time (9:30 a.m. CentralDaylight Time) to discuss Prosperity's fourth quarter and year end earningsresults, the recently announced acquisition of Texas United Bancshares,Inc., the recently completed acquisition of SNB Bancshares, Inc., businesstrends and their outlook for 2007. Individuals and investment professionalsmay participate in the call by dialing 1-800-362-0595, the reference codeis PBTX. Alternatively, individuals may listen to the live webcast of thepresentation by visiting Prosperity's website at http://www.prosperitybanktx.com.The webcast may be accessed directly from Prosperity's Investor Relationspage by clicking on the "4th Quarter Results and Webcast" link. Acquisition of Grapeland Bancshares, Inc. On December 1, 2005, Prosperity completed the acquisition of GrapelandBancshares, Inc. and its Grapeland, Texas-based subsidiary bank, FirstState Bank. First State Bank operated two (2) offices in Grapeland andCrockett, Texas that now operate as full service banking centers ofProsperity Bank. Acquisition of SNB Bancshares, Inc. On April 1, 2006, Prosperity completed the acquisition of SNBBancshares, Inc. and its subsidiary, Southern National Bank of Texas, in astock and cash transaction. Southern National Bank operated five (5) fullservice offices in the Greater Houston Metropolitan Area, all of whichbecame full service banking centers of Prosperity Bank. In addition,Southern National Bank had a banking center under construction in Katy,Texas that opened as a full service banking center of Prosperity Bank inJuly 2006. Acquisition of Texas United Bancshares, Inc. On July 19, 2006, Prosperity announced the acquisition of Texas UnitedBancshares, Inc. (TXUI). TXUI operates through four (4) wholly-ownedsubsidiary banks, State Bank, GNB Financial, n.a., Gateway National Bankand Northwest Bank, each of which offer a complete range of bankingservices. State Bank is headquartered in La Grange, Texas with 25full-service banking centers located in central and south central Texas,including Austin and Bryan/College Station. GNB Financial, n.a. isheadquartered in Gainesville, Texas with seven (7) full-service bankingcenters located in Cooke, Denton and Ellis counties, north and south of theDallas-Fort Worth metroplex. Gateway National Bank is headquartered inDallas, Texas with six (6) Dallas area full- service banking centers.Northwest Bank is located in Roanoke, Texas with five (5) full-servicebanking centers located in and around the Dallas-Fort Worth metroplex. Asof December 31, 2006, TXUI had, on a consolidated basis, total assets of$1.806 billion, loans of $1.212 billion, deposits of $1.362 billion andshareholders' equity of $161.9 million. Prosperity Bancshares, Inc.(R) Prosperity Bancshares, Inc.(R), a $4.6 billion Houston, Texas - basedregional financial holding company, formed in 1983, was named to the KeefeBruyette & Woods, Inc. 2006 Honor Roll for achieving exceptional earningsper share growth for the past 10 years. Other recent honors include beingnamed to the Sandler O'Neill & Partners 2005 Bank and Thrift Small AllStars, listed in US Banker's August 2005 Top 100 Publicly Traded Mid-TierBanks, ranked #2 out of 195 publicly traded companies in the 2005 Stephens,Inc. Bank and Thrift Performance Matrix and listed on the HoustonChronicle's Houston 100 list. Operating under a community banking philosophy, Prosperity seeks todevelop broad customer relationships based on service and convenience.Prosperity offers a variety of traditional loan and deposit products to itscustomers, which consist primarily of consumers and small and medium sizedbusinesses. In addition to established banking products, Prosperity offersa complete line of services including: Internet Banking services athttp://www.prosperitybanktx.com, Retail Brokerage Services, MasterMoney DebitCards, and 24 hour voice response banking. Prosperity currently operateseighty- eight (88) full service banking locations, thirty-eight (38) in theHouston CMSA; fifteen (15) in the Corpus Christi area; eleven (11) in theDallas / Fort Worth area; five (5) in the Austin area; two (2) in EastTexas; and seventeen (17) in fifteen contiguous counties south andsouthwest of Houston generally along the NAFTA highway. Prosperity Bank(R) operates the following full service banking centers: Austin Area - Allandale Congress Lakeway Oak Hill Research Blvd Dallas / Fort Worth Area - Abrams Centre Blooming Grove Camp Wisdom Cedar Hill Corsicana Ennis Kiest Preston Road Red Oak Turtle Creek Westmoreland Corpus Christi Area - Airline Alice Aransas Pass Carmel Everhart Northwest Kingsville Mathis Port Aransas Portland Rockport Saratoga Sinton Water Street Woodlawn East Texas Area - Crockett Grapeland Houston Area - Aldine Angleton Bellaire Cinco Ranch CityWest Clear Lake Cleveland Copperfield Cypress Dayton Downtown Fairfield Galveston Gladebrook Heights Highway 6 Hitchcock Holcombe Katy Liberty Magnolia Medical Center Memorial Mont Belvieu Needville Pecan Grove Post Oak River Oaks Sweeny SW Medical Center Sugar Land Tanglewood Waugh Drive West Columbia Westheimer Winnie Woodcreek Uptown South Texas Area - Bay City Beeville Cuero East Bernard Edna El Campo Goliad Gonzales Hallettsville Palacios Port Lavaca Seguin Victoria Victoria - North Wharton Yoakum Yorktown "Safe Harbor" Statement under the Private Securities Litigation ReformAct of 1995: This release contains, and the remarks by our management onthe conference call may contain, forward-looking statements within themeaning of the securities laws that are based on current expectations,assumptions' estimates and projections about Prosperity Bancshares(R), andits subsidiaries. These forward-looking statements are not guarantees offuture performance and are subject to risks and uncertainties, many ofwhich are outside of Prosperity's control, that may cause actual results todiffer materially from those expressed or implied by the forward-lookingstatements. These risks and uncertainties include but are not limited to:the risk that the businesses of Prosperity and Texas United will not beintegrated successfully or such integration may be more difficult,time-consuming or costly than expected; expected revenue synergies and costsavings from the merger may not be fully realized or realized within theexpected time frame; revenues following the merger may be lower thanexpected; deposit attrition, operating costs, customer loss and businessdisruption following the merger, including, without limitation,difficulties in maintaining relationships with employees, may be greaterthan expected; the ability to obtain regulatory approvals of the merger onthe proposed terms and schedule; the failure of Prosperity's or TexasUnited's shareholders to approve the merger agreement; Prosperity's abilityto continue to provide products and services that appeal to its customers;access to debt and equity capital markets may be limited or not available;and Prosperity's sales objectives may not be achieved. Other risks includethe possibility that credit quality could deteriorate; actions ofcompetitors; changes in laws and regulations (including changes ingovernmental interpretations of regulations and changes in accountingstandards); customer and consumer demand, including customer and consumerresponse to marketing; effectiveness of spending, investments or programs;fluctuations in the cost and availability of supply chain resources;economic conditions, including currency rate fluctuations and interest ratefluctuations; weather; and the stock price volatility associated with"small- cap" companies. These and various other factors are discussed inour most recent Annual Report on Form 10-K and other reports and statementswe have filed with the SEC. Copies of Prosperity Bancshares's(R) SEC filings may be downloaded fromthe Internet at no charge from http://www.prosperitybanktx.com. Additional Information About the Prosperity - Texas United Transaction In connection with the proposed merger of Texas United Bancshares, Inc.("Texas United") into Prosperity Bancshares, Inc., Prosperity filed withthe Securities and Exchange Commission ("SEC") a Registration Statement onForm S- 4 to register the shares of Prosperity's common stock to be issuedto the shareholders of Texas United. The registration statement includes ajoint proxy statement/prospectus which was sent to the shareholders ofProsperity and Texas United seeking their approval of the proposedtransaction. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATIONSTATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDEDWITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANTDOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTIONWITH THE PROPOSED TRANSACTION, BECAUSE THEY CONTAIN IMPORTANT INFORMATIONABOUT PROSPERITY, TEXAS UNITED AND THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the jointproxy statement/prospectus (when available) and other related documentsfiled by Prosperity and Texas United with the SEC through the SEC's websiteat http://www.sec.gov. Documents filed with the SEC by Prosperity will beavailable free of charge by directing a request by telephone or mail toProsperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe,Houston, Texas 77027 Attn: Investor Relations. Prosperity's telephonenumber is (713) 693-9300. Documents filed with the SEC by Texas United willbe available free of charge by directing a request by telephone or mail toTexas United Bancshares, Inc., 109 N. Main Street, La Grange, Texas 78645.Texas United's telephone number is (979) 968-7294. Participants in the Prosperity - Texas United Transaction Prosperity, Texas United and their respective directors, executiveofficers, and certain other members of management and employees may besoliciting proxies in favor of the merger from Prosperity's shareholdersand Texas United's shareholders. Information about Prosperity's directors,executive officers, and members of management is set forth in the proxystatement for Prosperity's 2006 Annual Meeting of Shareholders filed withthe SEC on March 17, 2006. Information about Texas United's directors,executive officers, and members of management is set forth in the proxystatement for Texas United's 2006 Annual Meeting of Shareholders filed withthe SEC on April 24, 2006. Prosperity Bancshares, Inc. (R) Financial Highlights (Dollars and share amounts in thousands, except per share data) Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2006 2005 2006 2005 Selected Earnings (Unaudited) (Unaudited) (Unaudited) (Unaudited) and Per Share Data Total interest income $62,893 $44,277 $231,739 $162,123 Total interest expense 26,487 15,256 93,594 51,226 Net interest income 36,406 29,021 138,145 110,897 Provision for credit losses 144 120 504 480 Net interest income after provision for credit losses 36,262 28,901 137,641 110,417 Total non-interest income 8,241 7,515 33,982 30,021 Total non-interest expense 19,192 17,241 77,669 68,957 Net income before taxes 25,311 19,175 93,954 71,481 Federal income taxes 8,709 6,548 32,229 23,621 Net income $16,602 $12,627 $61,725 $47,860 Basic earnings per share (A) $0.51 $0.46 $1.96 $1.79 Diluted earnings per share (A) $0.50 $0.45 $1.94 $1.77 Period end shares outstanding 32,793 27,821 32,793 27,821 Weighted average shares outstanding (basic) 32,791 27,646 31,491 26,706 Weighted average shares outstanding (diluted) 33,199 27,988 31,893 27,024 (A) Earnings per share in each quarter is computed individually using the weighted- average number of shares outstanding during that quarter while earnings per share for the full period is computed using the weighted average number of shares outstanding during the year. Thus, the sum for the quarters does not necessarily equal the full period earnings per share. Prosperity Bancshares, Inc. (R) Financial Highlights (Dollars in thousands) Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2006 2005 2006 2005 Balance Sheet (Unaudited) (Unaudited) (Unaudited) (Unaudited) Averages Total loans $2,203,459 $1,507,087 $2,037,379 $1,435,376 Investment securities 1,576,469 1,535,898 1,612,221 1,471,067 Federal funds sold and other temporary investments 83,966 45,483 32,522 42,859 Total earning assets 3,863,894 3,088,468 3,682,122 2,949,302 Allowance for credit losses (24,034) (17,003) (22,476) (16,334) Cash and due from banks 90,942 81,497 90,246 74,388 Goodwill 425,072 249,396 383,543 233,586 Core Deposit Intangibles (CDI) 23,652 21,584 23,377 20,117 Other real estate 125 768 118 384 Fixed assets, net 63,618 48,649 61,948 47,379 Other assets 64,019 56,109 64,917 52,795 Total assets $4,507,288 $3,529,468 $4,283,795 $3,361,617 Non-interest bearing deposits $822,458 $666,051 $783,431 $609,230 Interest bearing deposits 2,813,906 2,236,601 2,665,669 2,182,583 Total deposits 3,636,364 2,902,652 3,449,100 2,791,813 Federal funds purchased and interest bearing liabilities 78,405 83,072 109,540 70,644 Junior subordinated debentures 100,519 75,775 92,271 69,869 Other liabilities 33,420 14,444 30,172 15,427 Shareholders' equity (B) 658,580 453,525 602,712 413,864 Total liabilities and equity $4,507,288 $3,529,468 $4,283,795 $3,361,617 (B) Includes ($3,545) and ($4,570), in after tax unrealized (losses) on available for sale securities for the three month periods ending December 31, 2006 and December 31, 2005, respectively, and ($4,228) and ($4,140) for the twelve month periods ending December 31, 2006 and December 31, 2005, respectively. Prosperity Bancshares, Inc.(R) Financial Highlights (Dollars in thousands) Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2006 2005 2006 2005 Income Statement (Unaudited) (Unaudited) (Unaudited) (Unaudited) Data Interest on loans $43,741 $27,580 $157,426 $99,958 Interest on securities 18,034 16,236 72,632 60,866 Interest on federal funds sold and other earning assets 1,118 461 1,681 1,299 Total interest income 62,893 44,277 231,739 162,123 Interest expense - deposits 23,455 13,018 80,942 43,643 Interest expense - debentures 2,095 1,396 7,592 4,895 Interest expense - other 937 842 5,060 2,688 Total interest expense 26,487 15,256 93,594 51,226 Net interest income (C) 36,406 29,021 138,145 110,897 Provision for credit losses 144 120 504 480 Net interest income after provision for credit losses 36,262 28,901 137,641 110,417 Service charges on deposit accounts 6,769 6,325 27,379 24,985 Net gain on sale of assets 44 9 622 72 Brokered mortgage income 178 179 839 867 (Loss)/gain on sale of securities 0 (79) 0 (79) Other non-interest income 1,250 1,081 5,142 4,176 Total non-interest income 8,241 7,515 33,982 30,021 Salaries and benefits (D) 10,103 8,968 41,298 36,672 CDI amortization 1,253 1,066 4,869 3,912 Net occupancy and equipment 2,070 1,791 7,884 6,663 Depreciation 1,281 1,125 5,048 4,462 Data processing and software amortization 884 778 3,612 2,837 Other non-interest expenses 3,601 3,513 14,958 14,411 Total non-interest expenses 19,192 17,241 77,669 68,957 Net income before taxes 25,311 19,175 93,954 71,481 Federal income taxes 8,709 6,548 32,229 23,621 Net income available to common shareholders $16,602 $12,627 $61,725 $47,860 (C) Net interest income on a tax equivalent basis would be $36,891 and $29,356, for the three months ended December 31, 2006 and December 31, 2005, respectively, and $139,961 and $112,262 for the twelve months ended December 31, 2006 and December 31, 2005, respectively. (D) Salaries and benefits includes equity compensation expenses of $244 and $139 for the three months ended December 31, 2006 and December 31, 2005, respectively, and $850 and $619 for the twelve months ended December 31, 2006 and December 31, 2005, respectively. Prosperity Bancshares, Inc.(R) Financial Highlights (Dollars and share amounts in thousands, except per share data) Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2006 2005 2006 2005 Common Share and (Unaudited) (Unaudited) (Unaudited) (Unaudited) Other Data Employees - FTE 908 859 908 859 Book value per share $20.26 $16.70 $20.26 $16.70 Tangible book value per share $6.62 $6.48 $6.62 $6.48 Period end shares outstanding 32,793 27,821 32,793 27,821 Weighted average shares outstanding (basic) 32,791 27,646 31,491 26,706 Weighted average shares outstanding (diluted) 33,199 27,988 31,893 27,024 Non-accrual loans $181 $355 $181 $355 Accruing loans 90 or more days past due 767 788 767 788 Restructured loans 0 0 0 0 Total non-performing loans 948 1,143 948 1,143 Repossessed assets 32 26 32 26 Other real estate 140 239 140 239 Total non-performing assets $1,120 $1,408 $1,120 $1,408 Allowance for credit losses at end of period $23,990 $17,203 $23,990 $17,203 Net charge-offs $247 $312 $771 $410 Basic earnings per share $0.51 $0.46 $1.96 $1.79 Diluted earnings per share $0.50 $0.45 $1.94 $1.77 Prosperity Bancshares, Inc.(R) Financial Highlights Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2006 2005 2006 2005 Performance Ratios (Unaudited) (Unaudited) (Unaudited) (Unaudited) Return on average assets (annualized) 1.47% 1.43% 1.44% 1.42% Return on average common equity (annualized) 10.08% 11.14% 10.24% 11.56% Return on average tangible common equity (annualized) 31.64% 27.67% 31.53% 29.88% Net interest margin (E) (tax equivalent) (annualized) 3.79% 3.77% 3.80% 3.81% Efficiency ratio (F) 43.03% 47.10% 45.29% 48.93% Asset Quality Ratios Non-performing assets to average earning assets 0.03% 0.05% 0.03% 0.05% Non-performing assets to loans and other real estate 0.05% 0.09% 0.05% 0.09% Net charge-offs to average loans 0.01% 0.02% 0.04% 0.03% Allowance for credit losses to total loans 1.10% 1.12% 1.10% 1.12% Common Stock Market Price High $35.38 $32.12 $36.16 $32.12 Low $32.54 $27.97 $28.50 $25.05 Period end market price $34.51 $28.74 $34.51 $28.74 (E) Net Interest Margin for all periods presented is calculated on an actual/365 day basis. (F) Calculated by dividing total non-interest expense (excluding credit loss provisions) by net interest income plus non-interest income (excluding net gains and losses on the sale of securities and on the sale of assets). Additionally, taxes are not part of this calculation. Prosperity Bancshares, Inc.(R) Financial Highlights (Dollars in thousands) December 31, 2006 September 30, 2006 Balance Sheet Data (Unaudited) (Unaudited) (at period end) Loan Portfolio Commercial $297,677 13.7% $312,785 14.1% Construction 433,178 19.9% 432,424 19.5% 1-4 family residential 376,996 17.3% 378,846 17.1% Home equity 63,427 2.9% 63,694 2.9% Commercial real estate 881,125 40.5% 892,938 40.3% Agriculture 57,429 2.6% 66,145 3.0% Consumer 66,675 3.1% 67,569 3.1% Total Loans $ 2,176,507 $ 2,214,401 Deposit Types Non-interest bearing DDA $835,876 22.4% $809,836 22.5% Interest bearing DDA 736,962 19.8% 640,372 17.8% Money Market 825,510 22.2% 792,697 22.1% Savings 168,677 4.5% 164,751 4.6% Time < $100 584,360 15.7% 589,141 16.4% Time > $100 574,293 15.4% 596,348 16.6% Total Deposits $3,725,678 $3,593,145 Loan to Deposit Ratio 58.4% 61.6% June 30, 2006 Mar 31, 2006 Balance Sheet Data (Unaudited) (Unaudited) (at period end) Loan Portfolio Commercial $297,230 13.5% $233,812 15.0% Construction 396,246 18.0% 239,135 15.3% 1-4 family residential 373,783 17.0% 311,586 20.0% Home equity 64,540 2.9% 58,797 3.8% Commercial real estate 934,554 42.4% 600,630 38.5% Agriculture 67,007 3.0% 56,796 3.6% Consumer 71,432 3.2% 60,711 3.8% Total Loans $ 2,204,792 $ 1,561,467 Deposit Types Non-interest bearing DDA $839,317 23.1% $692,713 23.8% Interest bearing DDA 655,081 18.0% 443,193 15.2% Money Market 761,992 20.9% 585,867 20.1% Savings 168,543 4.6% 163,545 5.6% Time < $100 598,038 16.4% 540,326 18.5% Time > $100 617,029 17.0% 489,698 16.8% Total Deposits Loan to Deposit Ratio 60.6% 53.6% Prosperity Bancshares, Inc.(R) Financial Highlights (Dollars in thousands) Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2006 2006 2006 2006 2005 Balance Sheet (Unaudited)(Unaudited)(Unaudited) (Unaudited) (Unaudited) Data (at period end) Total loans $2,176,507 $2,214,401 $2,204,792 $1,561,467 $1,542,125 Investment securities (G) 1,590,303 1,566,478 1,643,412 1,555,028 1,572,602 Federal funds sold and other temporary investments 154,040 31,471 20,619 6,246 6,143 Total earning assets 3,920,850 3,812,350 3,868,823 3,122,741 3,120,870 Allowance for credit losses (23,990) (24,093) (24,280) (17,312) (17,203) Cash and due from banks 116,078 85,106 102,921 77,056 91,518 Goodwill 424,339 425,073 423,534 263,406 261,964 Core deposit intangibles 23,032 24,285 25,476 21,100 22,461 Other real estate 140 59 77 37 239 Fixed assets, net 63,057 63,118 64,242 48,316 49,244 Other assets 63,263 69,818 71,158 56,269 56,889 Total assets $4,586,769 $4,455,716 $4,531,951 $3,571,613 $3,585,982 Demand deposits $835,876 $809,836 $839,317 $692,713 $674,407 Interest bearing deposits 2,889,802 2,783,309 2,800,683 2,222,629 2,245,911 Total deposits 3,725,678 3,593,145 3,640,000 2,915,342 2,920,318 Securities sold under repurchase agreements 47,225 48,459 47,494 46,957 46,985 Federal funds purchased and other interest bearing liabilities 26,408 31,484 77,711 38,184 55,404 Junior subordinated debentures 100,519 100,519 100,519 69,589 75,775 Other liabilities 22,528 31,956 30,854 26,084 22,783 Total liabilities 3,922,358 3,805,563 3,896,578 3,096,156 3,121,265 Shareholders' equity (H) 664,411 650,153 635,373 475,457 464,717 Total liabilities and equity $4,586,769 $4,455,716 $4,531,951 $3,571,613 $3,585,982 (G) Includes ($4,538), ($6,202), ($7,848), ($6,370), and ($6,063) in unrealized (losses) on available for sale securities for the quarterly periods ending December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006, and December 31, 2005, respectively. (H) Includes ($2,950), ($4,032), ($5,101), ($4,140), and ($3,941) in after tax unrealized (losses) on available for sale securities for the quarterly periods ending December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006, December 31, 2005, respectively. Prosperity Bancshares, Inc.(R) Financial Highlights Three Months Ended Dec 31, Sept 30, June 30, Mar 31, Dec 31, 2006 2006 2006 2006 2005 Income (Unaudited)(Unaudited) (Unaudited)(Unaudited) (Unaudited) Statement Data Interest on loans $43,741 $43,625 $41,578 $28,482 $27,580 Interest on securities 18,034 18,302 19,300 16,996 16,236 Interest on federal funds sold and other earning assets 1,118 223 134 206 461 Total interest income 62,893 62,150 61,012 45,684 44,277 Interest expense- deposits 23,455 22,519 20,875 14,093 13,018 Interest expense- debentures 2,095 2,106 1,994 1,397 1,396 Interest expense- other 937 1,558 1,561 1,004 842 Total interest expense 26,487 26,183 24,430 16,494 15,256 Net interest income 36,406 35,967 36,582 29,190 29,021 Provision for credit losses 144 120 120 120 120 Net interest income after provision for credit losses 36,262 35,847 36,462 29,070 28,901 Service charges on deposits accounts 6,769 7,079 7,206 6,325 6,325 Net gain on sale of assets 44 132 436 10 9 Loss on sale of securities 0 0 0 0 (79) Brokered mortgage income 178 233 245 183 179 Other non-interest income 1,250 1,474 1,269 1,149 1,081 Total non-interest income 8,241 8,918 9,156 7,667 7,515 Salaries and benefits 10,103 10,268 11,732 9,195 8,968 CDI amortization 1,253 1,191 1,358 1,067 1,066 Net occupancy and equipment 2,070 2,166 1,967 1,681 1,791 Depreciation 1,281 1,265 1,327 1,175 1,125 Data processing and software amortization 884 928 989 811 778 Other non-interest expenses 3,601 4,011 4,026 3,320 3,513 Total non-interest expenses 19,192 19,829 21,399 17,249 17,241 Net income before taxes 25,311 24,936 24,219 19,488 19,175 Federal income taxes 8,709 8,572 8,324 6,624 6,548 Net income available to common shareholders $16,602 $16,364 $15,895 $12,864 $12,627 Prosperity Bancshares, Inc.(R) Financial Highlights Three Months Ended Dec 31, Sep 30, June 30, Mar 31, Dec 31, 2006 2006 2006 2006 2005 Comparative (Unaudited)(Unaudited)(Unaudited)(Unaudited) (Unaudited) Quarterly Asset Quality, Performance & Capital Ratios Return on average assets (annualized) 1.47% 1.46% 1.40% 1.43% 1.43% Return on average common equity (annualized) 10.08% 10.17% 10.15% 10.92% 11.14% Return on average tangible equity (annualized) 31.64% 33.61% 34.81% 27.50% 27.67% Net interest margin (tax equivalent) (annualized) 3.79% 3.77% 3.82% 3.81% 3.77% Employees - FTE 908 914 931 844 859 Efficiency ratio 43.03% 44.31% 47.24% 46.81% 47.10% Non-performing assets to average earning assets 0.03% 0.03% 0.03% 0.04% 0.05% Non-performing assets to loans and other real estate 0.05% 0.06% 0.05% 0.08% 0.09% Net charge-offs to average loans 0.01% 0.01% 0.01% 0.00% 0.02% Allowance for credit losses to total loans 1.10% 1.09% 1.10% 1.11% 1.12% Tier 1 risk- based capital 13.55% 13.11% 12.47% 15.65% 15.34% Total risk- based capital 14.58% 14.16% 13.53% 16.69% 16.37% Tier 1 leverage capital 7.76% 7.44% 6.98% 7.86% 7.83% Tangible equity to tangible assets 5.24% 5.01% 4.56% 5.81% 5.46% Equity to assets 14.49% 14.59% 14.02% 13.31% 12.96% Prosperity Bancshares, Inc.(R) Supplemental Financial Data (Unaudited) (Dollars in thousands) Three Months Ended Dec 31, 2006 YIELD ANALYSIS Average Interest Earned Average Balance /Interest Paid Yield/Rate Interest Earning Assets: Loans $2,203,459 $43,741 7.88% Investment securities 1,576,469 18,034 4.58% Federal funds sold and other temporary investments 83,966 1,118 5.28% Total interest earning assets 3,863,894 $62,893 6.46% Allowance for credit losses (24,034) Non-interest earning assets 667,428 Total assets $4,507,288 Interest Bearing Liabilities: Interest bearing demand deposits $647,012 $ 3,490 2.14% Savings and money market deposits 989,484 7,148 2.87% Certificates and other time deposits 1,177,410 12,817 4.32% Junior subordinated debentures 100,519 2,095 8.27% Securities sold under repurchase agreements 47,361 528 4.42% Federal funds purchased and other borrowings 31,044 409 5.23% Total interest bearing liabilities 2,992,830 $26,487 3.51% Non-interest bearing liabilities: Non-interest bearing demand deposits 822,458 Other liabilities 33,420 Total liabilities 3,848,718 Shareholders' equity 658,580 Total liabilities and shareholders' equity $4,507,288 Net Interest Income & Margin $36,406 3.74% Net Interest Income & Margin (tax equivalent) $36,891 3.79% Prosperity Bancshares, Inc.(R) Supplemental Financial Data (Unaudited) (Dollars in thousands) Three Months Ended Dec 31, 2005 YIELD ANALYSIS Average Interest Earned Average Balance /Interest Paid Yield/Rate Interest Earning Assets: Loans $1,507,087 $27,580 7.26% Investment securities 1,535,898 16,236 4.23% Federal funds sold and other temporary investments 45,483 461 4.02% Total interest earning assets 3,088,468 $44,277 5.69% Allowance for credit losses (17,003) Non-interest earning assets 458,003 Total assets $3,529,468 Interest Bearing Liabilities: Interest bearing demand deposits $452,782 $ 1,135 0.99% Savings and money market deposits 748,194 3,575 1.90% Certificates and other time deposits 1,035,625 8,308 3.18% Junior subordinated debentures 75,775 1,396 7.31% Securities sold under repurchase agreements 37,358 303 3.22% Federal funds purchased and other borrowings 45,714 539 4.68% Total interest bearing liabilities 2,395,448 $15,256 2.53% Non-interest bearing liabilities: Non-interest bearing demand deposits 666,051 Other liabilities 14,444 Total liabilities 3,075,943 Shareholders' equity 453,525 Total liabilities and shareholders' equity $3,529,468 Net Interest Income & Margin $29,021 3.73% Net Interest Income & Margin (tax equivalent) $29,356 3.77% Prosperity Bancshares, Inc.(R) Supplemental Financial Data (Unaudited) (Dollars in thousands) Twelve Months Ended Dec 31, 2006 YIELD ANALYSIS Average Interest Earned Average Balance /Interest Paid Yield/Rate Interest Earning Assets: Loans $2,037,379 $157,426 7.73% Investment securities 1,612,221 72,632 4.51% Federal funds sold and other temporary investments 32,522 1,681 5.17% Total interest earning assets 3,682,122 $231,739 6.29% Allowance for credit losses (22,476) Non-interest earning assets 624,149 Total assets $4,283,795 Interest Bearing Liabilities: Interest bearing demand deposits $602,946 $11,440 1.90% Savings and money market deposits 897,667 23,539 2.62% Certificates and other time deposits 1,165,056 45,963 3.95% Junior subordinated debentures 92,271 7,592 8.23% Securities sold under repurchase agreements 45,488 1,820 4.00% Federal funds purchased and other borrowings 64,052 3,240 5.06% Total interest bearing liabilities 2,867,480 $93,594 3.26% Non-interest bearing liabilities: Non-interest bearing demand deposits 783,431 Other liabilities 30,172 Total liabilities 3,681,083 Shareholders' equity 602,712 Total liabilities and shareholders' equity $4,283,795 Net Interest Income & Margin $138,145 3.75% Net Interest Income & Margin (tax equivalent) $139,961 3.80% Prosperity Bancshares, Inc.(R) Supplemental Financial Data (Unaudited) (Dollars in thousands) Twelve Months Ended Dec 31, 2005 YIELD ANALYSIS Average Interest Earned Average Balance /Interest Paid Yield/Rate Interest Earning Assets: Loans $1,435,376 $99,958 6.96% Investment securities 1,471,067 60,866 4.14% Federal funds sold and other temporary investments 42,859 1,299 3.03% Total interest earning assets 2,949,302 $162,123 5.50% Allowance for credit losses (16,334) Non-interest earning assets 428,649 Total assets $3,361,617 Interest Bearing Liabilities: Interest bearing demand deposits $477,199 $ 4,666 0.98% Savings and money market deposits 696,237 10,683 1.53% Certificates and other time deposits 1,009,147 28,294 2.80% Junior subordinated debentures 69,869 4,895 7.01% Securities sold under repurchase agreements 29,850 768 2.57% Federal funds purchased and other borrowings 40,794 1,920 4.71% Total interest bearing liabilities 2,323,096 $51,226 2.21% Non-interest bearing liabilities: Non-interest bearing demand deposits 609,230 Other liabilities 15,427 Total liabilities 2,947,753 Shareholders' equity 413,864 Total liabilities and shareholders' equity $3,361,617 Net Interest Income & Margin $110,897 3.76% Net Interest Income & Margin (tax equivalent) $112,262 3.81%
