Prosperity Bancshares
Annual Report 2003

Plain-text annual report

CONTENTS Our Vision / Our Mission . . . . . . . . . . . . . . . . . . . . . . 1 Letter to our Shareholders . . . . . . . . . . . . . . . . . . . . . 2 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Was Prosperity a Good Investment? . . . . . . . . . . . . 9 Our Formula Works . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Directors & Executives . . . . . . . . . . . . . . . . . . . . . . . 12 Prosperity Bancshares, Inc.SM Board of Directors Prosperity Bancshares, Inc.SM Officers Prosperity Bank® Board of Directors Prosperity Bank® Executive Committee Form 10-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Banking Centers . . . . . . . . . . . . . . . Inside Back Cover Investor Information . . . . . . . . . . . . . . . . . Back Cover Our Vision... Provide our customers with a quality of product and service that will meet or exceed their expectations! Our Mission... • Smile; • Greet the Customer by Name; • Try to say “YES” instead of no! Sounds easy and perhaps simplistic, but it works. It’s the same issue over and over. Our focus has always been superior customer service. During 2003, we formalized that concept with this three sentence statement to remind us and our associates of a most basic tenant. As the statement has worked its way through the organization, we have seen a significant increase in enthusiastic customer feedback. 1 To Our Shareholders, Customers and Friends: Two thousand and three was a record year as earnings grew by 24.5% over the prior year. Earnings per share, fully diluted, reached $1.36. We were honored to be listed as one of the fastest growing companies by Fortune, Fortune Small Business, the American Banking Journal, and the Houston Chronicle. Two thousand and three was also a year to test management and to “Merge and Integrate”. With interest rates at historic lows, depositors seeking higher yields, and borrowers demanding low fixed rates all banks faced severe interest rate Ned S. Holmes, Chairman of the Board; David Zalman, President & Chief Executive Officer. margin compression. Whether the bank was heavily weighted in loans or in securities, the compression was a challenge throughout 2003. The slow economic recovery coupled with the low interest rates exacerbated an already competitive banking environment. While the mortgage market was red hot, the commercial markets were in some disarray. Several of our Texas peers failed to meet their earnings targets as these factors hammered their income statements. This same margin compression and competitive environment represented an opportunity for Prosperity as numerous smaller banks’ management groups concluded that 2003 was an opportune time to sell. In this environment, we completed four acquisitions, all of which were in the Dallas market. With the purchase of Abrams Centre National Bank, BankDallas, mainbank and First State Bank of North Texas, we increased our locations from two to eleven and added a total of $125 million in loans, $340 million in deposits, and over 100 associates. These additions have grown our Dallas area footprint to approximately $500 million in total assets. With these acquisitions came 13 experienced lenders. In the past twenty four months we have successfully integrated 9 banks and added $900+ million in assets. Our steady growth in income would evidence the success of our integration efforts. Throughout the year we worked to realign the loans we acquired to properly mirror our credit culture and historical asset quality. We continued our Houston focus with a year-long advertising campaign to increase prospect and customer awareness of Prosperity Bank®. The campaign took a multi-media form with TV, cable, radio and newspaper. Based upon customer and prospect feedback, we are excited about the results. 2 INTERNAL GROWTH Two thousand and four brings with it 51 locations including 29 in the Houston area and 11 in the Dallas area. Equally important are the 74 experienced lenders who serve as “Real Bankers” empowered to meet our customers’ banking needs. Additionally, we have introduced a “Treasury Management” function which provides state of the art cash management services. This includes balance and transaction reporting, electronic funds transfer, check imaging, electronic statements, and more through the convenience of the Internet. With these additions, we are positioned for solid and historically consistent internal (same store sales) growth. ACQUISITIONS While we continue to look for acquisition opportunities, we must remember that the opportunities are not as directly controllable as organic growth. While our business model incorporates the acquisition strategy as a value added aspect which produces a much more rapid return to shareholders than a “branching” model, we realize there is a serendipity element to acquisitions. This latter realization is exactly why we focus on internal growth as well as acquisitions. THE ECONOMY AND THE UNKNOWNS If we believe the economic indicators, it would appear we are on the road to economic recovery. GDP is growing at a rapid pace, housing starts continue strong, inventories are beginning to build, unemployment numbers are trending downward and the Fed reports growth in all regions of the country. While international uncertainty remains, the Texas economy is moving in a very positive direction. CONCLUSION Throughout 2004, asset quality will remain paramount. With our focus on loan growth, we pledge to maintain our vigilance of the loan portfolio. Additionally, we will continue to look for compatible merger partners as we strive to increase penetration in our Texas markets, both rural and urban. Ned S. Holmes Chairman of the Board David Zalman President & Chief Executive Officer 3 Financial Highlights 1998 1999 2000 2001 2002 2003 Change 2002 vs. 2003 Change 1998 vs. 2003 FINANCIAL HIGHLIGHTS Numbers for 1998, 1999, and 2000 have been restated to reflect the effect of the merger with Commercial Bancshares accounted for as a pooling of interests. Net Income (in 000's) Return on Average Assets Return on Average Shareholders’ Equity Net Interest Margin (Tax Equivalent) Efficiency Ratio $ 7,081 $ 9,431 $ 10,701 $ 12,958 $ 21,321 $ 26,548 1.01% 14.88% 3.75% 61.72% 1.08% 14.53% 3.77% 59.29% 1.02% 14.67% 3.69% 62.29% 1.09% 15.19% 3.86% 60.14% 1.45% 18.66% 4.16% 50.36% 1.32% 15.60% 3.78% 51.58% 24.5% (9%) (16%) (9%) (2%) 274.9% 30.7% 4.8% 0.8% (16.4%) WEIGHTED AVERAGE SHARES OUTSTANDING (in 000's) Weighted Average Shares Outstanding, Basic Weighted Average Shares Outstanding, Diluted 13,832 14,230 15,972 16,408 16,064 16,454 16,172 16,498 17,122 17,442 20,046 20,357 17.1% 16.7% 44.9% 43.1% PER SHARE Per Share Net Income (Diluted) Book Value at Year-End Per Share Cash Dividends Per Share CAPITAL RATIOS Equity to Assets Ratio Tier 1 Risk Based Capital Ratio Total Risk Based Capital Ratio Leverage Ratio $ 0.50 3.88 0.10 $ 0.58 $ 0.65 $ 0.79 $ 1.22 $ 1.36 4.32 0.10 4.98 0.18 5.47 0.195 8.19 0.22 10.49 0.25 11.5% 28.1% 13.6% 172.0% 170.4% 150.0% 7.72% 15.06% 16.14% 6.59% 6.72% 13.89% 15.74% 6.17% 7.01% 13.80% 14.93% 6.17% 7.03% 18.34% 19.52% 7.57% 8.49% 14.10% 15.30% 6.56% 9.15% 15.82% 16.90% 7.10% BALANCE SHEET DATA (YEAR-END) (in 000's) Loans Securities Deposits Shareholders' Equity Total Assets $276,106 $ 366,803 $ 411,203 $ 424,400 $ 679,559 $ 770,053 455,202 714,365 61,781 514,983 586,952 752,322 950,317 1,376,880 878,589 1,033,546 1,123,397 1,586,611 2,083,748 69,025 80,333 88,725 154,739 219,588 800,158 1,027,631 1,146,140 1,262,325 1,822,256 2,398,683 7.8% 12.2% 10.5% 8.2% 13.3% 44.9% 31.3% 41.9% 31.6% 18.5% 5.0% 4.7% 7.7% 178.9% 202.5% 191.7% 255.4% 199.8% ASSET QUALITY RATIOS Non-performing Assets to Loans & Other Real Estate Net Charge-offs to Average Loans Allowance for Credit Losses to Total Loans COMMON STOCK MARKET PRICE Common Stock Market Price-High Common Stock Market Price-Low 0.14% (0.08%) 1.33% 0.34% (0.11%) 1.37% 0.32% (0.04%) 1.34% 0.00% 0.06% 1.41% 0.38% 0.08% 1.41% 0.13% 0.23% 1.34% (65.8%) (7.1%) 187.5% (387.5%) (5.0%) 0.8% $ 6.31 6.00 $ 8.94 $ 10.00 $ 13.94 $ 19.95 6.03 6.44 8.75 13.48 $ 24.35 16.16 22.1% 19.9% 285.7% 169.3% 5 THE DALLAS CONNECTION AND THE HOUSTON INTEGRATION We completed the integration of the five banks which we acquired in 2002. Additionally, we acquired four banks in the Dallas area in 2003. The Dallas area banks attribute approximately $500 million in total assets, $340 million in total deposits and 11 full service locations, as of December 31, 2003. NET INCOME GROWTH In 2003, net income grew by 24.5% to $26.5 million or $1.36 per fully diluted common share. ASSET GROWTH During 2003, total assets grew by 31.6% to $2.4 billion, while total loans were up 13.3% to $770 million and total deposits were up 31.3% to $2.1 billion as compared to 2002. $26,548 $21,321 $12,958 $10,701 $9,431 $7,081 1998 1999 2000 2001 2002 2003 $2,398,683 $1,822,256 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 $2,500,000 $2,000,000 $1,500,000 $1,146,140 $1,027,631 $1,262,325 $1,000,000 $800,158 $500,000 $0 1998 1999 2000 2001 2002 2003 ASSET MIX At year-end the asset mix reflected securities at 58% and loans at 31%. With a 31% loan to asset ratio and 51 banking centers staffed by one or more lenders, our goal is to increase earnings through a reallocation of the assets with a heavier loan weighting. Investments 58% Loans 31% Goodwill 5% Other Assets 2% Cash & Due From 4% LOAN GROWTH With acquisitions, loan growth has continued and at year-end the balance exceeded $770 million. $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $276,106 $411,203 $424,400 $366,803 $770,053 $679,559 LOAN PORTFOLIO MAKEUP The makeup of the loan portfolio has also changed over time, with the addition of several commercially-oriented banks and our involvement in the Houston and Dallas markets. The one-to-four family category has fallen while the commercial real estate and industrial categories have grown. $200,000 $100,000 $0 1998 1999 2000 2001 2002 2003 Agriculture 3% Other 0% Consumer 7% Commercial and industrial 12% Construction and land development 5% Multi family residential 3% Farmland 2% Commercial mortgages 33% Home Equity 4% 1-4 family residential 31% 6 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.5% 0.0% ASSET / LOAN QUALITY As of year-end 2003, non-performing loans as a percentage of total loans and other real estate were 0.13%, with net charge-offs to average loans at 0.23% and allowance for credit losses to total loans at 1.34%. Our stated goals include increasing our loan to asset and loan to deposit ratios while maintaining the asset quality. During 2002 and 2003, as part of the due diligence on the nine banks we acquired, we identified numerous loans that did not fit our credit quality and underwriting standards. During the same period, we aggressively pursued a program of moving those non-Prosperity quality loans out of the bank. Under this strategy, the quality of the loan portfolio has improved as compared to 2002. As noted above, we ended the year with a ratio of non-performing loans to total loans and other real estate at 13 basis points (.13%) vs. 38 basis points (.38%) at year-end 2002. 0.38% 0.13% 2002 2003 DEPOSIT COMPOSITION The non-interest bearing portion of our deposit base has steadily increased. As of year-end 2003, non-interest demand deposits represented 22% of total deposits vs. 21% in 2002 and 17% in 2001. At year-end 2003, our deposits were concentrated in low cost demand, money market, NOW and savings categories representing 67% of total deposits. The Company's long term strategy of growing and acquiring core deposits is one of the factors which has enabled us to meet our earnings per share target. MMA & Savings $487.9 23% CDs & IRAs < 100 $343.2 17% CDs & IRAs > 100 $334.0 16% Interest bearing DDA $451.2 22% Non-interest bearing DDA $467.4 22% SHAREHOLDERS’ EQUITY Shareholders’ Equity ended the year at $219.6 million, a 41.9% increase over year-end 2002. RETURN ON AVERAGE SHAREHOLDERS’ EQUITY The return on shareholders’ equity fell from 18.66% to 15.60% (’02 - ’03) as weighted average diluted shares outstanding went from 17.4 million to 20.4 million for the same periods. This increase in weighted average shares was 16.7%. Even with the increase in weighted average shares outstanding, Prosperity was able to deliver a return on average shareholders’ equity in excess of 15%. $250,000 $200,000 $150,000 $100,000 $50,000 $0 20.00% 18.00% $219,588 $154,739 $61,781 $69,025 $80,333 $88,725 1998 1999 2000 2001 2002 2003 18.66% 16.00% 14.88% 14.53% 14.67% 15.19% 15.60% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1998 1999 2000 2001 2002 2003 7 RETURN ON AVERAGE ASSETS Return on average assets ended the year at 1.32%, as compared with the 1.45% for 2002. PER SHARE NET INCOME Per share net income grew at a rate of 172% over the period from 1998 through 2003. BOOK VALUE PER SHARE During this same time period, book value per share increased from $3.88 in 1998 to $10.49 in 2003, or 170%. DIVIDENDS PER SHARE The dividend payout has increased steadily and was $0.25 per share in 2003. We also announced a 20% increase for 2004 to $0.30 per share. 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0 $0.25 $0.20 $0.15 $0.10 $0.05 $0 1.45% 1.32% 1.01% 1.08% 1.02% 1.09% 1998 1999 2000 2001 2002 2003 $1.36 $1.22 $0.79 $0.65 $0.58 $0.50 1998 1999 2000 2001 2002 2003 $10.49 $8.19 $5.47 $4.98 $3.88 $4.32 1998 1999 2000 2001 2002 2003 $0.25 $0.22 $0.195 $0.18 $0.10 $0.10 1998 1999 2000 2001 2002 2003 THE HIGHS AND THE LOWS Over the past twelve months our stock has traded from a low of $16.16 to a high of $24.35. $30.00 $25.00 $20.00 $15.00 $10.00 $6.31 $24.35 $19.95 $13.94 $13.48 $16.16 $8.94 $10.00 $8.75 $6.00 $6.03 $6.44 $5.00 $0 1998 1999 2000 2001 2002 2003 Common Stock Market Price-High Common Stock Market Price-Low 8 WAS PROSPERITY A GOOD INVESTMENT? The Performance Graph compares the cumulative total sharehold- er return on the Company's Common Stock for the period beginning at the close of trading on December 31, 1998, to December 31, 2003, with the cumulative total return of the S&P 500 Total Return Index and the Nasdaq Bank Index for the same period. Dividend reinvest- ment has been assumed. The Performance Graph assumes $100 invested on December 31, 1998 in the Company's Common Stock, the S&P 500 Total Return Index and the Nasdaq Bank Index. 450 400 350 300 250 200 150 100 50 0 1998 100 100 100 1999 2000 2001 2002 2003 131.68 121.11 96.15 166.22 110.34 109.84 230.97 97.32 118.92 329.46 75.75 121.74 397.52 97.40 156.62 Prosperity Bancshares, Inc. S&P 500* NASDAQ Bank Index* The historical stock price performance for the Company's stock, *Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago 2004. Used with permission. All rights reserved. SNL Financial LC shown on the accompanying graph, is not necessarily indicative of future stock performance. WHAT’S IN STORE IN ’04? Fifty-one Banking Centers with seventy-four active lenders marketing loans, deposits and treasury management services positions Prosperity for a strong showing in two thousand and four. With the four Dallas acquisitions, we grew from two to eleven full service banking centers. The growth in Dallas has been especially rewarding as we increased both loans and deposits. This positions us to make further market inroads. In the greater Houston CMSA, we have 29 banking centers. Seventy-five percent of our locations now lie in the two largest CMSAs in Texas. As of year-end 2003, over 50% of our loans and deposits emanated from the same two dynamic markets. With the completion of our integration of nine banks in the past 17 months adding $900+ million in assets, we are positioned to be a strategic player in both the Dallas and Houston Markets —while not ignoring the commitment to our rural heritage and those elements of our franchise. TECHNOLOGY The in-house conversion of our data and item processing was completed during 2003. This move not only allows us to more effectively control costs, but also gives us more flexibility in the development of new banking products and services. Our Internet Banking product is just one area where our customers have seen major improvements. Through the Internet we are now able to deliver treasury management services to our commercial customer base. In addition, we continue our commitment to our consumer customers. 9 Our Formula Works EFFICIENCY Our Efficiency Ratio for 2003, ended the year at 51.6%. This is slightly above the 2002 level and is attributable to the acquisition of mainbank in November and First State Bank of North Texas in December. We believe our internal growth and acquisitions strategies should both orient and position us to maintain a very acceptable Efficiency Ratio. 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0% 61.72% 59.29% 62.29% 60.14% 50.36% 51.58% 1998 1999 2000 2001 2002 2003 A CONTINUING STRENGTH The Urban- Rural Franchise —this mix calls for a high level of involvement on the part of our officers and associates in their respective communities. From Mathis in the south through Houston and into Dallas, community involvement and leadership continue to be important as we deliver banking services and products. The “No 1-800 Numbers” message is delivered by our “Real Bankers”. As part of our commitment to our communities, each of our Banking Centers presented (and continues to present) at local high schools, the FDIC’s approved and endorsed “Money Smart” program which helps consumers understand and appreciate the benefits of commercial banks, their products, services and the role they play in each community. WHAT WORKS “Real Bankers…not just a bank SM! ” This is how we have differentiated ourselves from the competition since we started in 1983. We continue to believe that the availability of bankers with decision making authority on-site at each of our locations, remains relevant in an era of out-of-state mega-bank consolidations and staff reductions. This is why we staff each Banking Center with a senior decision maker! INTERNAL GROWTH AND ACQUISITIONS Internal growth remains an integral part of our business model. We continue to recognize the importance of growing market share within each of the communities we serve. Our image based advertising in the Houston and Dallas markets is designed to lever off our size and elevate market awareness. The addition of our Treasury Management services also adds value for our customers and allows us to offer many of the cash management tools available through the mega-banks. Acquisitions remain a key element of our growth strategy. As the costs of owning and operating a bank continue to escalate, owners of independent banks are coming to realize the benefits of partnering with us. The proof of this statement can be seen in that the senior managements of all four of our Dallas area acquisitions have become members of Prosperity’s senior management team. 11 PROSPERITY BANCSHARES, INC. SM BOARD OF DIRECTORS Ned S. Holmes Chairman of the Board James A. Bouligny Charles A. Davis, Jr. William H. Fagan, M. D. Charles J. Howard, M. D. Perry Mueller, Jr., D.D.S. A. Virgil Pace, Jr. Tracy T. Rudolph Harrison Stafford II Robert H. Steelhammer H. E. (Tim) Timanus, Jr. David Zalman PROSPERITY BANCSHARES, INC. SM OFFICERS standing, left to right David Zalman, President & Chief Executive Officer David Hollaway, CPA, Chief Financial Officer seated, left to right H. E. (Tim) Timanus, Jr., Executive Vice President & Chief Operating Officer James D. (Dan) Rollins III, Senior Vice President not pictured denise Urbanovsky, Secretary PROSPERITY BANK® BOARD OF DIRECTORS David Zalman Chairman & Chief Executive Officer H. E. (Tim) Timanus, Jr. President & Chief Operating Officer Peter Fisher Vice Chairman & General Counsel Gerald Clark Jason H. Downie Ned S. Holmes, Jr. Jack Lord Joseph B. Swinbank Fred Zeidman Charles A. Davis, Jr. Leah Henderson Clyde Lacy Errol John Dietze Ned S. Holmes Mohammad Ladjevardian Perry Mueller, Jr., D.D.S. Matthew W. Plummer, Jr., D.M.D. D. R. (Tom) Uher Jim Barta Advisory Director Joe Zalman, Jr. PROSPERITY BANK® EXECUTIVE COMMITTEE David Zalman Chairman & Chief Executive Officer David Hollaway, CPA Chief Financial Officer Chris A. Bagley Chief Credit Officer, President Waugh Drive Banking Center, Houston Chris J. Delaup President, River Oaks Banking Center, Houston Thomas A. Miller President, Wharton Banking Center, Wharton H. E. (Tim) Timanus, Jr. President & Chief Operating Officer James D. (Dan) Rollins III Executive Vice President Robert L. Benter President, Post Oak Banking Center, Houston Mark D. Humphrey President, Clear Lake & Hitchcock Banking Centers, Houston Peter Fisher Vice Chairman & General Counsel Randy D. Hester Chief Lending Officer, President Brazoria County Banking Centers, West Columbia Donald A. Bolton, Jr. President, Victoria Banking Center, Victoria Mark Lovvorn Chairman, Dallas Area Banking Centers, Dallas Jay W. Porter, Jr. President, North Houston Banking Centers, Houston Randall Reeves President, Downtown Banking Center, Houston 12 MONT BELVIEU 10305 Eagle Drive Mont Belvieu, Texas 77580 281-576-5444 NEEDVILLE 13325 Highway 36 Needville, Texas 77461 979-793-4211 PALACIOS 600 Henderson Palacios, Texas 77465 361-972-5481 PRESTON ROAD 18800 Preston Road Dallas, Texas 75252 972-312-9107 POST OAK 3040 Post Oak Blvd., Ste. 150 Houston, Texas 77056 713-993-0002 RED OAK 500 North I-35 Service Road Red Oak, Texas 75154 972-617-7377 RIVER OAKS Prosperity Bank Plaza 4295 San Felipe Houston, Texas 77027 713-693-9400 SWEENY 206 North McKinney Sweeny, Texas 77480 979-548-2717 TANGLEWOOD 5707 Woodway Houston, Texas 77057 713-693-9225 TURTLE CREEK 3802 Oak Lawn Avenue Dallas, Texas 75219 214-521-4800 VICTORIA 2702 North Navarro Victoria, Texas 77901 361-576-9223 WAUGH DRIVE 55 Waugh Drive, Ste. 100 Houston, Texas 77007 713-693-9100 WEST COLUMBIA 510 East Brazos West Columbia, Texas 77486 979-345-3141 WESTMORELAND 2415 South Westmoreland Road Dallas, Texas 75211 214-330-3800 WHARTON 143 West Burleson Street Wharton, Texas 77488 979-282-2000 WINNIE 146 Spur 5 Winnie, Texas 77665 409-296-3000 WOODCREEK 2828 FM 1960 East Houston, Texas 77073 281-443-7600 ABRAMS CENTRE 9330 LBJ Freeway, Ste. 150 Dallas, Texas 75243 972-238-9292 ALDINE 1906 Aldine Bender Houston, Texas 77032 281-987-7600 ANGLETON 116 South Velasco Angleton, Texas 77515 979-849-6404 BAY CITY 1600 Seventh Street Bay City, Texas 77414 979-245-4200 BEEVILLE 100 South Washington Beeville, Texas 78102 361-358-3612 CYPRESS 25820 US Highway 290 Cypress, Texas 77429 281-373-0062 DAYTON 106 North Main Dayton, Texas 77535 936-258-7681 DOWNTOWN 777 Walker, Ste. L140 Houston, Texas 77002 713-693-9250 GOLIAD 145 North Jefferson Goliad, Texas 77963 361-645-3246 HWY 6 – WEST 1070 Highway 6 South Houston, Texas 77077 281-496-9103 HITCHCOCK 8300 Highway 6 Hitchcock, Texas 77563 409-986-5547 EAST BERNARD 700 Church Street East Bernard, Texas 77435 979-335-7573 KIEST 333 West Kiest Boulevard Dallas, Texas 75224 214-371-6000 EDNA 102 North Wells Edna, Texas 77957 361-782-3533 BELLAIRE 6800 West Loop S., Ste. 100 Bellaire, Texas 77401 713-693-9200 EL CAMPO 1301 North Mechanic Street El Campo, Texas 77437 979-543-2200 BLOOMING GROVE 109 South Fordyce Street Blooming Grove, Texas 76626 903-695-2311 ENNIS 207 South Clay Ennis, Texas 75119 972-875-8461 LIBERTY 520 Main Street Liberty, Texas 77575 936-336-5731 MAGNOLIA 18935 FM 1488 Magnolia, Texas 77355 281-356-8211 MATHIS 103 North Highway 359 Mathis, Texas 78368 361-547-3336 CAMP WISDOM 3515 W. Camp Wisdom Rd. Dallas, Texas 75237 214-467-6996 CEDAR HILL 217 East FM 1382 Cedar Hill, Texas 75104 972-291-6246 FAIRFIELD 15050 Fairfield Village Square Dr. Cypress, Texas 77433 281-373-0080 MEDICAL CENTER 7505 South Main St., Ste. 100 Houston, Texas 77030 713-693-9275 GALVESTON 2424 Market Street Galveston, Texas 77550 409-762-2103 MEMORIAL 12602 Memorial Drive Houston, Texas 77024 713-465-0300 CITYWEST 2500 CityWest Boulevard Houston, Texas 77042 713-334-8000 GLADEBROOK 3934 FM 1960 West, Ste. 100 Houston, Texas 77068 832-249-7600 CLEAR LAKE 100 West Medical Center Blvd. Webster, Texas 77598 281-332-3595 CLEVELAND 104 West Crockett Street Cleveland, Texas 77327 281-592-2661 COPPERFIELD 8686 Highway 6 North Houston, Texas 77095 281-345-9555 CORSICANA 100 South Main Street Corsicana, Texas 75110 903-872-0077 CUERO 106 North Esplanade Cuero, Texas 77954 361-275-2374 ANNUAL REPORT ON FORM 10-K Copies of the Company’s 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission will be mailed to shareholders and other interested persons upon written request to: James D. (Dan) Rollins III Senior Vice President Prosperity Bancshares, Inc.SM Prosperity Bank Plaza 4295 San Felipe Houston, TX 77027 INVESTOR INQUIRIES Analysts, investors, and others desiring additional financial data about Prosperity Bancshares, Inc.SM may contact: James D. (Dan) Rollins III Senior Vice President Prosperity Bancshares, Inc.SM Prosperity Bank Plaza 4295 San Felipe Houston, TX 77027 Telephone (713) 693-9300 Facsimile (713) 693-9309 Investor information CORPORATE OFFICE Prosperity Bancshares, Inc.SM Prosperity Bank Plaza 4295 San Felipe Houston, TX 77027 Telephone (713) 693-9300 TRANSFER AGENT & REGISTRAR DIVIDEND REINVESTMENT PLAN ADMINISTRATOR Computershare Investor Services 350 Indiana Street, Suite 800 Golden, CO 80041 Telephone (303) 262-0600 INDEPENDENT AUDITORS Deloitte & Touche, L. L. P. 333 Clay Street, Suite 2300 Houston, TX 77002-4196 COUNSEL Bracewell & Patterson, L. L. P. 711 Louisiana Street, Suite 2900 Houston, TX 77002-2781 COMMON STOCK LISTING Shares of Prosperity Bancshares, Inc.SM common stock are listed on the NASDAQ Stock Market under the symbol PRSP. TRUST PREFERRED SECURITIES LISTING Shares of Prosperity Capital Trust I trust preferred securities are listed on NASDAQ Stock Market under the symbol PRSPP. Shares of Paradigm Capital Trust II trust preferred securities are listed on the OTC Bulletin Board under the symbol PDCTP. Prosperity Bancshares, Inc.SM is a registered financial holding company. Prosperity Bank®, its primary subsidiary, is a full service bank that provides a full range of financial products and services to small and medium-sized businesses and consumers through fifty-one (51) full-service banking locations in fifteen (15) contiguous counties surrounding and including the Greater Houston Metropolitan Area and the Dallas Area. © Prosperity Bancshares, Inc.SM 2004 

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