PR Newswire | Jan 27, 2021 06:31AM EST

01/27 05:30 CST

Prosperity Bancshares, Inc.(r) Reports Fourth Quarter 2020 Earnings- Fourth quarter earnings per share (diluted) of $1.48, an increase of 46.5% compared to the fourth quarter 2019- Fourth quarter net income of $137.1 million- Deposits increased $901.3 million or 3.4% (13.6% annualized) during the fourth quarter 2020- Deposits increased $3.161 billion or 13.1% during 2020- Allowance for credit losses to total loans, excluding Warehouse Purchase Program and SBA Paycheck Protection Program loans, of 1.92%(1)- Nonperforming assets remain low at 0.20% of fourth quarter average interest-earning assets- Return (annualized) on fourth quarter average assets of 1.63%- Returns (annualized) on fourth quarter average common equity of 8.98% and average tangible common equity of 19.57%(1)- Fourth quarter efficiency ratio of 40.77%(1) HOUSTON, Jan. 27, 2021

HOUSTON, Jan. 27, 2021 /PRNewswire/ -- Prosperity Bancshares, Inc.(r) (NYSE: PB), the parent company of Prosperity Bank(r) (collectively, "Prosperity"), reported net income for the quarter ended December 31, 2020 of $137.1 million compared with $86.1 million for the same period in 2019. Net income per diluted common share was $1.48 compared with $1.01 for the same period in 2019, which is net of merger related expenses of $0.43(1) per diluted common share. Excluding merger related expenses, the earnings per diluted common share was $1.44(1) for the fourth quarter 2019. Additionally, deposits increased $901.3 million or 3.4% (13.6% annualized) during the fourth quarter 2020 and nonperforming assets remain low at 0.20% of fourth quarter average interest-earning assets with an annualized return on fourth quarter average assets of 1.63%. On November 1, 2019, LegacyTexas Financial Group, Inc. ("LegacyTexas") merged with Prosperity Bancshares and LegacyTexas Bank merged with Prosperity Bank (collectively, the "Merger").

"Prosperity Bancshares reported some of the best results in our history, with net income of $137.1 million for the fourth quarter of 2020 and $528.9 million for the full year. Much of the success is attributed to the dedicated associates of Prosperity and LegacyTexas who helped make our combination with LegacyTexas successful. Also, during 2020 we had organic deposit growth of $3.161 billion, a 13.1% increase. Asset quality continued to improve with nonperforming assets at 0.20% of fourth quarter average earning assets. We ended the year with $59.6 million in nonperforming assets compared with $69.5 million at September 30, 2020, a 14.3% decrease," said David Zalman, Prosperity's Senior Chairman and Chief Executive Officer.

"Texas and Oklahoma continue to benefit from a pro-business attitude. Companies continue to move to Texas, with HP and Oracle announcing a headquarters move and other companies, such as Tesla, announcing a major expansion into Texas. The Federal Reserve Bank of Dallas has projected a nationwide 5% GDP growth by year-end 2021 and an unemployment rate of 4.5%, noting that the first half of the year will be slower, with an expected increase in the second half of the year. We believe Texas will have a higher growth rate and outperform other states over the next several years," continued Zalman.

"We expect that we will face several challenges over the next few years, such as higher tax rates that will affect income and continued low interest rates that will affect our net interest margin. However, a steeper yield curve could help to mitigate both issues," added Zalman.

"Again, I would like to thank all our customers, shareholders and associates for their dedication and support of our company," concluded Zalman.

Results of Operations for the Three Months Ended December 31, 2020

Net income was $137.1 million(2) for the three months ended December 31, 2020 compared with $86.1 million(3) for the same period in 2019, an increase of $51.0 million or 59.2%. Net income per diluted common share was $1.48 for the three months ended December 31, 2020 compared with $1.01 for the same period in 2019, an increase of 46.5%. Net income for the fourth quarter of 2019 included $46.4 million of merger related expenses, or $0.43(1) per diluted common share. Net income was $137.1 million(2) for the three months ended December 31, 2020 compared with $130.1 million(4) for the three months ended September 30, 2020, an increase of $7.0 million or 5.4%. Net income per diluted common share was $1.48 for the three months ended December 31, 2020 compared with $1.40 for the three months ended September 30, 2020, an increase of 5.7%. Net income for the fourth quarter of 2020 had no provision for credit losses, reflected a $3.3 million decrease in interest expense and a $6.5 million decrease in loan discount accretion compared to the net income for the third quarter of 2020. Annualized returns on average assets, average common equity and average tangible common equity for the three months ended December 31, 2020 were 1.63%, 8.98% and 19.57%(1), respectively. Prosperity's efficiency ratio (excluding net gains and losses on the sale or write down of assets and taxes) was 40.77%(1) for the three months ended December 31, 2020.

Net interest income before provision for credit losses for the three months ended December 31, 2020 was $257.6 million compared with $232.0 million for the same period in 2019, an increase of $25.6 million or 11.0%. The increase was primarily due to an increase in the average balance of interest-earning assets, a decrease in the average rate on interest-bearing liabilities and three months of combined bank earnings in the fourth quarter of 2020 compared to only two months in the fourth quarter of 2019 following the Merger, partially offset by decreases in interest income on securities and loan discount accretion of $7.7 million. On a linked quarter basis, net interest income before provision for credit losses was $257.6 million compared with $258.1 million for the three months ended September 30, 2020, a decrease of $479 thousand or 0.2%.

The net interest margin on a tax equivalent basis was 3.49% for the three months ended December 31, 2020 compared with 3.66% for the same period in 2019. The change was primarily due to an increase in lower yielding Warehouse Purchase Program and Paycheck Protection Program ("PPP") loans, a $7.7 million decrease in loan discount accretion and higher cash balances due to excess liquidity, partially offset by a decrease in the average rate on interest-bearing liabilities. On a linked quarter basis, the net interest margin on a tax equivalent basis was 3.49% for the three months ended December 31, 2020 compared with 3.57% for the three months ended September 30, 2020. This change was primarily due to a $6.5 million decrease in loan discount accretion, higher net premium amortization on securities and higher cash balances due to excess liquidity, partially offset by higher PPP loan fee income during the fourth quarter.

Noninterest income was $36.5 million for the three months ended December 31, 2020 compared with $35.5 million for the same period in 2019, an increase of $1.0 million or 2.9%. This increase was primarily due to an increase in mortgage income and lower loss on write-down of assets, partially offset by a decrease in nonsufficient funds ("NSF") fees. On a linked quarter basis, noninterest income increased $1.6 million or 4.6% to $36.5 million compared with $34.9 million for the three months ended September 30, 2020. This increase was primarily due to increases in mortgage income and NSF fees.

Noninterest expense was $120.2 million for the three months ended December 31, 2020 compared with $156.5 million for the same period in 2019, a decrease of $36.2 million or 23.2%, primarily due to the $46.4 million of merger related expenses recorded during the fourth quarter of 2019, partially offset by higher salaries and benefits expense in the fourth quarter of 2020 due to three months of salaries and benefits compared to two months in the fourth quarter of 2019 resulting from the Merger. On a linked quarter basis, noninterest expense increased $2.3 million or 1.9% to $120.2 million compared with $117.9 million for the three months ended September 30, 2020. The increase was primarily due to an increase in salaries and benefits.

Results of Operations for the Year Ended December 31, 2020

Net income was $528.9 million(5) for the year ended December 31, 2020 compared with $332.6 million(6) for the prior year, an increase of $196.4 million or 59.0%. Net income per diluted common share was $5.68 for the year ended December 31, 2020 compared with $4.52 for the prior year, an increase of 25.7%. The increase in net income and earnings per diluted common share for the year ended December 31, 2020 was primarily due to the Merger, a $38.4 million decrease in merger related expenses and a tax benefit for net operating losses ("NOL") of $20.1 million. Annualized returns on average assets, average common equity and average tangible common equity for the year ended December 31, 2020 were 1.62%, 8.85% and 19.83%(1), respectively. Excluding merger related expenses, net of tax, and the NOL tax benefit, annualized returns on average assets, average common equity and average tangible common equity for the year ended December 31, 2020 were 1.58%(1), 8.62%(1) and 19.31%(1), respectively. Prosperity's efficiency ratio (excluding net gains and losses on the sale or write down of assets and taxes) was 42.58%(1) for the year ended December 31, 2020. Excluding merger related expenses (and net gains and losses on the sale or write down of assets and taxes) the efficiency ratio was 41.89%(1) for the year ended December 31, 2020.

Net interest income before provision for credit losses for the year ended December 31, 2020 was $1.031 billion compared with $695.8 million for the prior year, an increase of $335.0 million or 48.1%. This change was primarily due to the Merger and the increase in loan discount accretion of $63.3 million.

The net interest margin on a tax equivalent basis for the year ended December 31, 2020 was 3.64% compared with 3.32% for the prior year. This change was primarily due to increased interest-earning assets due to the Merger and the increase in loan discount accretion of $63.3 million.

Noninterest income was $131.5 million for the year ended December 31, 2020 compared with $124.3 million for the prior year, an increase of $7.3 million or 5.8%. This increase was primarily due to increases in mortgage income, credit card, debit card and ATM card income and service charges on deposit accounts, all primarily due to the Merger, partially offset by a higher net loss on write-down of assets of $3.7 million and decrease in NSF fees.

Noninterest expense was $497.2 million for the year ended December 31, 2020 compared with $396.5 million for the prior year, an increase of $100.7 million or 25.4%. The change was primarily due to increases in salaries and benefits, credit and debit card, data processing and software amortization, net occupancy and equipment and other noninterest expense, all primarily due to the Merger, partially offset by a $38.4 million decrease in merger related expenses.

Balance Sheet Information

At December 31, 2020, Prosperity had $34.059 billion in total assets, an increase of $1.874 billion or 5.8% compared with $32.186 billion at December 31, 2019.

Loans at December 31, 2020 were $20.247 billion, an increase of $1.402 billion or 7.4%, compared with $18.845 billion at December 31, 2019. Linked quarter loans decreased $548.7 million or 2.6% from $20.796 billion at September 30, 2020, primarily due to a $430.6 million decrease in PPP loans. At December 31, 2020, the Company had $963.2 million of PPP loans.

As part of its lending activities, Prosperity extends credit to oil and gas production and servicing companies. Oil and gas production loans are loans to companies directly involved in the exploration and/or production of oil and gas. Oil and gas servicing loans are loans to companies that provide services for oil and gas production and exploration. At December 31, 2020, oil and gas loans totaled $512.7 million (net of discount and excluding PPP loans totaling $88.7 million) or 2.5% of total loans, of which $285.8 million were production loans and $226.9 million were servicing loans, compared with total oil and gas loans of $698.3 million (net of discount) or 3.7% of total loans at December 31, 2019, of which $401.5 million were production loans and $296.8 million were servicing loans. In addition, as of December 31, 2020, Prosperity had total unfunded commitments to oil and gas companies of $243.2 million compared with total unfunded commitments to oil and gas companies of $342.2 million as of December 31, 2019. Unfunded commitments to producers include letters of credit issued in lieu of oil well plugging bonds.

Additionally, Prosperity extends credit to hotels and restaurants. At December 31, 2020, loans to hotels totaled $393.8 million (excluding PPP loans totaling $6.5 million) or 1.9% of total loans and loans to restaurants totaled $214.7 million (excluding PPP loans totaling $83.6 million) or 1.1% of total loans.

Deposits at December 31, 2020 were $27.360 billion, an increase of $3.161 billion or 13.1%, compared with $24.200 billion at December 31, 2019. Linked quarter deposits increased $901.3 million or 3.4% from $26.459 billion at September 30, 2020.

The table below provides detail on the impact of loans acquired and deposits assumed in the Merger:

Balance Sheet Data (at period end)

(In thousands)

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Loans acquired (including newproduction since acquisitiondate):

LegacyTexas:

Loans held for sale ^(1) $ - $ - $ 15,725 $ 54,229 $ 66,745

Loans held for investment 6,013,305 6,349,251 6,601,006 6,713,337 6,636,855

Loans held for investment - 2,842,379 2,730,614 2,557,183 1,713,762 1,552,762Warehouse Purchase Program

All other loans 11,391,260 11,715,776 11,851,259 10,645,867 10,588,984

Total loans $ 20,246,944 $ 20,795,641 $ 21,025,173 $ 19,127,195 $ 18,845,346

Deposits assumed (including newdeposits since acquisition date):

LegacyTexas $ 6,047,363 $ 5,977,357 $ 5,997,395 $ 5,605,986 $ 6,141,546

All other deposits 21,313,129 20,481,849 20,155,293 18,220,371 18,058,186

Total deposits $ 27,360,492 $ 26,459,206 $ 26,152,688 $ 23,826,357 $ 24,199,732

The LegacyTexas mortgage business was combined with the Prosperity Bank(1) mortgage business in the second quarter of 2020. Accordingly, all loans held for sale will be reported only for Prosperity Bank going forward and not separately tracked for LegacyTexas.

Excluding loans acquired in the Merger and new production by the acquired lending operations since November 1, 2019, loans at December 31, 2020 grew $802.3 million or 7.6% compared with December 31, 2019 and decreased $324.5 million or 2.8% compared with September 30, 2020.

Excluding deposits assumed in the Merger and new deposits generated at the acquired banking centers since November 1, 2019, deposits at December 31, 2020 grew $3.255 billion or 18.0% compared with December 31, 2019 and grew $831.3 million or 4.1% compared with September 30, 2020.

Asset Quality

Nonperforming assets totaled $59.6 million or 0.20% of quarterly average interest-earning assets at December 31, 2020, compared with $62.9 million or 0.25% of quarterly average interest-earning assets at December 31, 2019, and $69.5 million or 0.24% of quarterly average interest-earning assets at September 30, 2020.

The allowance for credit losses on loans was $316.1 million or 1.56% of total loans at December 31, 2020 compared to $323.6 million or 1.56% of total loans at September 30, 2020 and $87.5 million or 0.46% of total loans at December 31, 2019. The allowance for credit losses on loans to total loans, excluding Warehouse Purchase Program and PPP loans, was 1.92%(1) at December 31, 2020 compared with 1.94%(1) at September 30, 2020 and 0.51%(1) at December 31, 2019. On January 1, 2020, Prosperity adopted the measurement of current expected credit losses ("CECL"). Upon adoption of CECL, Prosperity recognized an increase in allowance for credit losses on loans of $108.7 million, of which $102.5 million was related to LegacyTexas and an increase in allowance for credit losses on off-balance sheet credit exposures of $24.4 million, of which $6.3 million was related to LegacyTexas, with a corresponding decrease in retained earnings (pre-tax). Additionally, Prosperity recognized an increase in the allowance for credit losses on loans of $131.8 million, of which $130.3 million was related to LegacyTexas, due to the reclass of purchased credit deteriorated ("PCD") discounts as a result of adopting CECL.

There was no provision for credit losses for the three months ended December 31, 2020 compared with $1.7 million for the three months ended December 31, 2019 and $10.0 million for the three months ended September 30, 2020. The provision for credit losses was $20.0 million for the year ended December 31, 2020 compared with $4.3 million for the year ended December 31, 2019.

Net charge-offs were $7.6 million for the three months ended December 31, 2020 compared with net charge-offs of $1.3 million for the three months ended December 31, 2019 and net charge-offs of $10.6 million for the three months ended September 30, 2020. Net charge-offs for the fourth quarter of 2020 included $4.8 million related to resolved PCD loans. These PCD loans had specific reserves of $9.6 million, of which $4.8 million was allocated to the charge-offs and $4.8 million was moved to the general reserve. Further, an additional $4.8 million of specific reserves on resolved PCD loans without any related charge-offs was released to the general reserve. Net charge-offs were $31.9 million for the year ended December 31, 2020 compared with $3.3 million for the year ended December 31, 2019. Net charge-offs for the year ended December 31, 2020 included $25.7 million related to resolved PCD loans. These PCD loans had specific reserves of $53.8 million, of which $25.7 million was allocated to the charge-offs and $28.1 million was moved to the general reserve.

Dividend

Prosperity Bancshares declared a first quarter cash dividend of $0.49 per share to be paid on April 1, 2021 to all shareholders of record as of March 15, 2021.

Stock Repurchase Program

On January 26, 2021, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately 4.65 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 26, 2022, at the discretion of management. Prosperity Bancshares repurchased 4.0 thousand shares of its common stock at an average weighted price of $50.89 during the three months ended December 31, 2020 and 2.2 million shares of its common stock at an average weighted price of $52.47 per share during the year ended December 31, 2020.

Redemption of Outstanding Subordinated Notes

On November 30, 2020, $125.0 million in subordinated notes assumed in the Merger were redeemed. The redemption was funded by dividends from Prosperity Bank.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus disease ("COVID-19") was first reported in Wuhan, Hubei Province, China. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. On March 13, 2020, the U.S. President announced a national emergency relating to the pandemic, which has since been extended. On October 7, 2020, the Governor of Texas extended the proclamation certifying that COVID-19 poses an imminent threat of disaster in the state and declaring a state of disaster for all counties in Texas and detailed the ongoing plan to open businesses and activities in Texas. On December 14, 2020, the Governor of Oklahoma extended the executive order that declared an emergency caused by the impending threat of COVID-19 to the people of Oklahoma. The Bank is considered an essential business and is closely monitoring the latest developments regarding COVID-19. The COVID-19 pandemic has resulted in significant economic uncertainties that have had, and could continue to have, an adverse impact on the Company's operating income, financial condition and cash flows. The extent to which the COVID-19 pandemic will impact the Company's operations and financial results during 2021 cannot be reasonably or reliably estimated at this time.

The health and safety of the Bank's associates, customers, and communities are of utmost importance; and the Company has taken additional measures in an effort to ensure this safety, including restricting nonessential employee travel, expanding remote access availability, distancing work stations, professional cleaning of its facilities, and signs and distancing reminders for customers in the banking centers. Further, the Company remains committed to providing uninterrupted and reliable banking service and has business continuity plans and protocols in place to ensure critical operations are able to continue without disruption.

In response to the COVID-19 pandemic, on March 27, 2020 the President of the United States signed the CARES Act into law. The CARES Act provides assistance for American workers, families and small businesses. The Paycheck Protection Program ("PPP"), established by the CARES Act and implemented by the Small Business Administration ("SBA") with support from the Department of the Treasury, provides small businesses with funds to pay payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities and are 100% guaranteed by the SBA. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 ("PPP Flexibility Act"), which modified the covered expense period from eight weeks to 24 weeks, extended the maturity date of the loans out to five years and gave greater flexibility to employers having difficulty hiring workers. PPP loans originated prior to June 5, 2020, have a two year term and earn interest at 1%. PPP loans originated on and after June 5, 2020, have a minimum five year term, which can be extended for up to five additional years if the lender and borrower both agree. The Consolidated Appropriations Act of 2021 ("CAA"), which was signed into law on December 27, 2020, extends certain provisions of the CARES Act, provides additional funding and contains new relief provisions. The CAA extended the PPP application period to March 31, 2021 and permits eligible companies to obtain a second PPP loan ("second draw") under terms specified in the CAA, with a maximum amount of $2.0 million and limit of one second draw loan. Second draw PPP borrowers are eligible for loan forgiveness on the same terms as the first draw PPP borrowers, whose loans are eligible for early forgiveness by the SBA as provided by the CARES Act, the PPP Flexibility Act, the CAA and related regulations and guidance. Lenders that were permitted to approve first draw PPP loans are permitted to approve second draw loans. Additionally, the Bank is entitled to a per loan processing fee based on a tiered schedule ranging from 5% to 1% of the loan balance for the first draw PPP loans, and the CAA established pre-determined fees for processing and servicing the second draw PPP loans. In 2020, the Company obtained SBA approvals on approximately 11,900 loans totaling $1.397 billion and as of December 31, 2020, had an outstanding balance of 8,816 loans totaling $963.2 million after remittance. The Company has also provided relief to its loan customers through loan extensions and deferrals.

Merger with LegacyTexas Financial Group, Inc.

On November 1, 2019, Prosperity completed the merger with LegacyTexas and its wholly-owned subsidiary LegacyTexas Bank headquartered in Plano, Texas. LegacyTexas Bank operated 42 locations in 19 North Texas cities in and around the Dallas-Fort Worth area.

Pursuant to the terms of the merger agreement, Prosperity issued 26,228,148 shares of Prosperity common stock with a closing price of $69.02 per share plus $318.0 million in cash, made up of $308.6 million in cash and $9.4 million in cash for taxes withheld, for all outstanding shares of LegacyTexas. This resulted in goodwill of $1.331 billion as of December 31, 2020, which was subject to subsequent fair value adjustments. During the second quarter of 2020, Prosperity completed the operational conversion of LegacyTexas Bank.

Conference Call

Prosperity's management team will host a conference call on Wednesday, January 27, 2021 at 11:30 a.m. Eastern Time (10:30 a.m. Central Time) to discuss Prosperity's fourth quarter 2020 earnings. Individuals and investment professionals may participate in the call by dialing 877-883-0383 for domestic participants, or 412-902-6506 for international participants. The participant elite entry number is 9347138.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Prosperity's website at www.prosperitybankusa.com. The webcast may be accessed from Prosperity's home page by selecting "Presentations, Webcast & Calls" from the menu on the Investor Relations link and following the instructions.

Non-GAAP Financial Measures

Prosperity's management uses certain non-GAAP financial measures to evaluate its performance. Specifically, Prosperity reviews diluted earnings per share excluding merger related expenses, net of tax, and NOL tax benefit; return on average assets excluding merger related expenses, net of tax, and NOL tax benefit; return on average common equity excluding merger related expenses, net of tax, and NOL tax benefit; return on average tangible common equity; return on average tangible common equity excluding merger related expenses, net of tax, and NOL tax benefit; tangible book value per share; the tangible equity to tangible assets ratio; allowance for credit losses to total loans excluding Warehouse Purchase Program and PPP loans; the efficiency ratio, excluding net gains and losses on the sale or write down of assets and securities; and the efficiency ratio, excluding net gains and losses on the sale or write down of assets and securities and merger related expenses, for internal planning and forecasting purposes. Prosperity believes these non-GAAP financial measures provide information useful to investors in understanding Prosperity's financial results and their presentation, together with the accompanying reconciliations, provides a more complete understanding of factors and trends affecting Prosperity's business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. Further, Prosperity believes that these non-GAAP financial measures provide useful information by excluding certain items that may not be indicative of its core operating earnings and business outlook. These non-GAAP financial measures should not be considered a substitute for, nor of greater importance than, GAAP basis financial measures and results; Prosperity strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. Please refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of these non-GAAP financial measures to the nearest respective GAAP financial measures.

Prosperity Bancshares, Inc. (r)

As of December 31, 2020, Prosperity Bancshares, Inc.(r) is a $34.059 billionHouston, Texas based regional financial holding company providing personal banking services and investments to consumers and businesses throughout Texas and Oklahoma. Founded in 1983, Prosperity believes in a community banking philosophy, taking care of customers, businesses and communities in the areas it serves by providing financial solutions to simplify everyday financial needs. In addition to offering traditional deposit and loan products, Prosperity offers digital banking solutions, credit and debit cards, mortgage services, retail brokerage services, trust and wealth management, and treasury management.

As of December 31, 2020, Prosperity operated 275 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 65 in the Dallas/Fort Worth area; 22 in the East Texas area; 29 in the Central Texas area including Austin and San Antonio; 34 in the West Texas area including Lubbock, Midland-Odessa and Abilene; 16 in the Bryan/College Station area; 6 in the Central Oklahoma area; 8 in the Tulsa, Oklahoma area.

Cautionary Notes on Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by Prosperity's management on the conference call may contain, forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as "aim," "anticipate," "estimate," "expect," "goal," "guidance," "intend," "is anticipated," "is expected," "is intended," "objective," "plan," "projected," "projection," "will affect," "will be," "will continue," "will decrease," "will grow," "will impact," "will increase," "will incur," "will reduce," "will remain," "will result," "would be," variations of such words or phrases (including where the word "could," "may," or "would" is used rather than the word "will" in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. Forward-looking statements include all statements other than statements of historical fact, including forecasts or trends, and are based on current expectations, assumptions, estimates and projections about Prosperity Bancshares and its subsidiaries. These forward-looking statements may include information about Prosperity's possible or assumed future economic performance or future results of operations, including future revenues, income, expenses, provision for loan losses, provision for taxes, effective tax rate, earnings per share and cash flows and Prosperity's future capital expenditures and dividends, future financial condition and changes therein, including changes in Prosperity's loan portfolio and allowance for loan losses, future capital structure or changes therein, as well as the plans and objectives of management for Prosperity's future operations, future or proposed acquisitions, the future or expected effect of acquisitions on Prosperity's operations, results of operations, financial condition, and future economic performance, statements about the anticipated benefits of the proposed transaction, and statements about the assumptions underlying any such statement, as well as expectations regarding the effects of the COVID-19 pandemic on the Bank's operating income, financial condition and cash flows. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Prosperity's control, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include but are not limited to whether Prosperity can: successfully identify acquisition targets and integrate the businesses of acquired companies and banks, including LegacyTexas; continue to sustain its current internal growth rate or total growth rate; provide products and services that appeal to its customers; continue to have access to debt and equity capital markets; and achieve its sales objectives. Other risks include, but are not limited to: the possibility that credit quality could deteriorate; actions of competitors; changes in laws and regulations (including changes in governmental interpretations of regulations and changes in accounting standards); the possibility that the anticipated benefits of an acquisition transaction, including the LegacyTexas transaction, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of two companies or as a result of the strength of the economy and competitive factors generally; a deterioration or downgrade in the credit quality and credit agency ratings of the securities in Prosperity's securities portfolio; customer and consumer demand, including customer and consumer response to marketing; effectiveness of spending, investments or programs; fluctuations in the cost and availability of supply chain resources; economic conditions, including currency rate, interest rate and commodity price fluctuations; the effect, impact potential duration or other implications of the COVID-19 pandemic; and weather. These and various other factors are discussed in Prosperity Bancshares' Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Q for the period ended September 30, 2020, and other reports and statements Prosperity Bancshares has filed with the Securities and Exchange Commission ("SEC"). Copies of the SEC filings for Prosperity Bancshares may be downloaded from the Internet at no charge from http://www.prosperitybankusa.com.

Refer to the "Notes to Selected Financial Data" at the end of this Earnings(1) Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Includes purchase accounting adjustments of $13.3 million, net of tax,(2) primarily comprised of loan discount accretion of $16.1 million for the three months ended December 31, 2020.

Includes purchase accounting adjustments of $20.0 million, net of tax,(3) primarily comprised of loan discount accretion of $23.7 million, and merger related expenses of $46.4 million for the three months ended December 31, 2019.

Includes purchase accounting adjustments of $18.7 million, net of tax,(4) primarily comprised of loan discount accretion of $22.5 million for the three months ended September 30, 2020.

Includes purchase accounting adjustments of $76.5 million, net of tax,(5) primarily comprised of loan discount accretion of $91.3 million, and merger related expenses of $8.0 million and a tax benefit for NOL of $20.1 million for the year ended December 31, 2020.

Includes purchase accounting adjustments of $22.9 million, net of tax,(6) primarily comprised of loan discount accretion of $28.0 million, and merger related expenses of $46.4 million for the year ended December 31, 2019.

Bryan/College Station Area Frisco-West Kerens Hempstead 98^th Street

Bryan Garland Longview Hitchcock Avenue Q

Bryan-29^th Street Grapevine Mount Vernon Liberty North University

Bryan-East Grapevine Main Palestine Magnolia Texas Tech Student Union

Bryan-North Kiest Rusk Magnolia Parkway

Caldwell Lake Highlands Seven Points Mont Belvieu Midland

College Station McKinney Teague Nederland Wadley

Crescent Point McKinney Eldorado Tyler-Beckham Needville Wall Street

Hearne McKinney Redbud Tyler-South Broadway Rosenberg

Huntsville North Carrolton Tyler-University Shadow Creek Odessa

Madisonville Oak Cliff Winnsboro Spring Grandview

Navasota Park Cities Tomball Grant

New Waverly Plano Houston Area Waller Kermit Highway

Rock Prairie Plano-West Houston West Columbia Parkway

Southwest Parkway Preston Forest Aldine Wharton

Tower Point Preston Parker Alief Winnie Other West Texas Area

Wellborn Road Preston Royal Bellaire Wirt Locations

Red Oak Beltway Big Spring

Central Texas Area Richardson Clear Lake South Texas Area - Brownfield

Austin Richardson-West Copperfield Corpus Christi Brownwood

Allandale Rosewood Court Cypress Calallen Cisco

Cedar Park The Colony Downtown Carmel Comanche

Congress Tollroad Eastex Northwest Early

Lakeway Trinity Mills Fairfield Saratoga Floydada

Liberty Hill Turtle Creek First Colony Timbergate Gorman

Northland West 15th Plano Fry Road Water Street Levelland

Oak Hill West Allen Gessner Littlefield

Research Blvd Westmoreland Gladebrook Victoria Merkel

Westlake Wylie Grand Parkway Victoria Main Plainview

Heights Victoria-Navarro San Angelo

Other Central Texas Area Fort Worth Highway 6 West Victoria-North Slaton

Locations Haltom City Little York Victoria Salem Snyder

Bastrop Hulen Medical Center

Canyon Lake Keller Memorial Drive Other South Texas Area Oklahoma

Dime Box Museum Place Northside Locations Central Oklahoma Area

Dripping Springs Renaissance Square Pasadena Alice Oklahoma City

Elgin Roanoke Pecan Grove Aransas Pass 23^rd Street

Flatonia Stockyards Pin Oak Beeville Expressway

Georgetown River Oaks Colony Creek I-240

Gruene Other Dallas/Fort Worth Area Sugar Land Cuero Memorial

Kingsland Locations SW Medical Center Edna

La Grange Arlington Tanglewood Goliad Other Central Oklahoma Area

Lexington Azle The Plaza Gonzales Locations

New Braunfels Ennis Uptown Hallettsville Edmond

Pleasanton Flower Mound Waugh Drive Kingsville Norman

Round Rock Gainesville Westheimer Mathis

San Antonio Glen Rose West University Padre Island Tulsa Area

Schulenburg Granbury Woodcreek Palacios Tulsa

Seguin Grand Prairie Port Lavaca Garnett

Smithville Jacksboro Katy Portland Harvard

Thorndale Mesquite Cinco Ranch Rockport Memorial

Weimar Muenster Katy-Spring Green Sinton Sheridan

Runaway Bay Taft S. Harvard

Dallas/Fort Worth Area Sanger The Woodlands Yoakum Utica Tower

Dallas Waxahachie The Woodlands-College Park Yorktown Yale

14th Street Plano Weatherford The Woodlands-I-45

Abrams Centre The Woodlands-Research Forest West Texas Area Other Tulsa Area Locations

Addison East Texas Area Abilene Owasso

Allen Athens Other Houston Area Antilley Road

Balch Springs Blooming Grove Locations Barrow Street

Camp Wisdom Canton Angleton Cypress Street

Carrollton Carthage Bay City Judge Ely

Cedar Hill Corsicana Beaumont Mockingbird

Coppell Crockett Cleveland

East Plano Eustace East Bernard Lubbock

Euless Gilmer El Campo 4th Street

Frisco Grapeland Dayton 66th Street

Frisco Gaylord Gun Barrel City Galveston 82nd Street

Frisco Warren Jacksonville Groves 86th Street

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(In thousands)

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

Balance Sheet Data (at period end)

Loans held for sale $ 46,777 $ 51,694 $ 39,516 $ 65,035 $ 80,959

Loans held for investment 17,357,788 18,013,333 18,428,474 17,348,398 17,211,625

Loans held for investment - Warehouse Purchase 2,842,379 2,730,614 2,557,183 1,713,762 1,552,762Program

Total loans 20,246,944 20,795,641 21,025,173 19,127,195 18,845,346

Investment securities^(A) 8,542,820 7,431,495 7,717,586 8,295,495 8,570,056

Federal funds sold 553 56,469 568 676 519

Allowance for credit losses^(B) (316,068) (323,635) (324,205) (327,206) (87,469)

Cash and due from banks 1,342,996 1,031,193 332,873 381,458 573,589

Goodwill 3,231,636 3,231,692 3,231,964 3,223,144 3,223,671

Core deposit intangibles, net 73,235 76,478 79,748 83,041 86,404

Other real estate owned 10,593 11,548 6,160 5,452 6,936

Fixed assets, net 323,572 325,994 324,975 327,293 326,832

Other assets 602,994 560,724 571,807 626,951 639,824

Total assets $ 34,059,275 $ 33,197,599 $ 32,966,649 $ 31,743,499 $ 32,185,708

Noninterest-bearing deposits $ 9,151,233 $ 8,998,328 $ 9,040,257 $ 7,461,323 $ 7,763,894

Interest-bearing deposits 18,209,259 17,460,878 17,112,431 16,365,034 16,435,838

Total deposits 27,360,492 26,459,206 26,152,688 23,826,357 24,199,732

Other borrowings - 2,570 103,131 1,338,429 1,303,730

Securities sold under repurchase agreements 389,583 380,274 365,335 344,695 377,294

Subordinated notes - 125,146 125,365 125,585 125,804

Allowance for credit losses on off-balance 29,947 29,947 29,947 29,947 5,599sheet credit exposures^(B)

Other liabilities 148,584 165,579 242,061 222,912 202,714

Total liabilities 27,928,606 27,162,722 27,018,527 25,887,925 26,214,873

Shareholders' equity^(C) 6,130,669 6,034,877 5,948,122 5,855,574 5,970,835

Total liabilities and equity $ 34,059,275 $ 33,197,599 $ 32,966,649 $ 31,743,499 $ 32,185,708

Includes $974, $(442), $(1,767), $(3,421) and$763 in unrealized gains(A) (losses) on available for sale securities for the quarterly periods ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively.

(B) ASU 2016-13 became effective for Prosperity on January 1, 2020.

Includes $770, $(349), $(1,396), $(2,703) and$602 in after-tax unrealized(C) gains (losses) on available for sale securities for the quarterly periods ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(In thousands)

Three Months Ended Year-to-Date

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019

Income Statement Data

Interest income:

Loans $ 241,625 $ 244,255 $ 242,772 $ 247,243 $ 222,910 $ 975,895 $ 621,443

Securities^(D) 36,721 38,033 43,776 48,282 49,348 166,812 209,812

Federal funds sold and other earning assets 301 144 45 713 600 1,203 1,683

Total interest income 278,647 282,432 286,593 296,238 272,858 1,143,910 832,938

Interest expense:

Deposits 19,757 22,458 25,269 35,018 32,759 102,502 111,388

Other borrowings 33 52 533 2,932 6,115 3,550 21,323

Securities sold under repurchase agreements 224 309 337 757 879 1,627 3,383

Subordinated notes and trust preferred 999 1,500 1,499 1,500 1,075 5,498 1,075

Total interest expense 21,013 24,319 27,638 40,207 40,828 113,177 137,169

Net interest income 257,634 258,113 258,955 256,031 232,030 1,030,733 695,769

Provision for credit losses - 10,000 10,000 - 1,700 20,000 4,300

Net interest income after provision for credit losses 257,634 248,113 248,955 256,031 230,330 1,010,733 691,469

Noninterest income:

Nonsufficient funds (NSF) fees 8,051 7,156 5,645 9,443 9,990 30,295 34,614

Credit card, debit card and ATM card income 8,193 8,315 7,263 7,474 7,728 31,245 26,867

Service charges on deposit accounts 6,046 5,920 5,790 6,104 5,597 23,860 20,604

Trust income 2,192 2,502 2,242 2,662 2,582 9,598 10,227

Mortgage income 3,989 2,958 1,820 2,010 2,455 10,777 5,006

Brokerage income 642 628 584 650 625 2,504 2,361

Bank owned life insurance income 1,252 1,449 1,508 1,545 1,502 5,754 5,426

Net (loss) gain on sale or write-down of assets (675) (528) (3,945) (385) (1,870) (5,533) (1,813)

Other noninterest income 6,857 6,524 4,768 4,885 6,897 23,034 20,989

Total noninterest income 36,547 34,924 25,675 34,388 35,506 131,534 124,281

Noninterest expense:

Salaries and benefits 77,809 75,068 79,109 77,282 69,356 309,268 226,348

Net occupancy and equipment 8,223 8,644 9,190 8,980 7,420 35,037 23,985

Credit and debit card, data processing and software 8,442 8,776 11,690 11,421 9,158 40,329 23,624amortization

Regulatory assessments and FDIC insurance 2,670 2,512 2,601 2,078 2,095 9,861 8,608

Core deposit intangibles amortization 3,243 3,270 3,293 3,363 2,705 13,169 6,537

Depreciation 4,261 4,605 4,598 4,768 4,212 18,232 13,713

Communications 2,931 3,027 3,324 3,195 3,012 12,477 9,679

Other real estate expense 279 258 40 46 57 623 328

Net (gain) loss on sale or write-down of other real (195) (137) 4 (130) (49) (458) (395)estate

Merger related expenses - - 7,474 544 46,402 8,018 46,402

Other noninterest expense 12,542 11,896 13,045 13,194 12,083 50,677 37,713

Total noninterest expense 120,205 117,919 134,368 124,741 156,451 497,233 396,542

Income before income taxes 173,976 165,118 140,262 165,678 109,385 645,034 419,208

Provision for income taxes 36,885 35,054 9,361 34,830 23,251 116,130 86,656

Net income available to common shareholders $ 137,091 $ 130,064 $ 130,901 $ 130,848 $ 86,134 $ 528,904 $ 332,552

Interest income on securities was reduced by net premium amortization of $11,509, $10,089, $9,224, $8,005 and $8,556 for the three-month periods(D) ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively, and $38,827 and $30,779 for the years ended December 31, 2020 and December 31, 2019, respectively.

Prosperity Bancshares, Inc.^ (r)

Financial Highlights (Unaudited)

(Dollars and share amounts in thousands, except per share data and marketprices)

Three Months Ended Year-to-Date

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019

Profitability

Net income ^(E) (F) $ 137,091 $ 130,064 $ 130,901 $ 130,848 $ 86,134 $ 528,904 $ 332,552

Basic earnings per share $ 1.48 $ 1.40 $ 1.41 $ 1.39 $ 1.01 $ 5.68 $ 4.52

Diluted earnings per share $ 1.48 $ 1.40 $ 1.41 $ 1.39 $ 1.01 $ 5.68 $ 4.52

Return on average assets ^(G) 1.63 % 1.58 % 1.61 % ^(K) 1.67 % ^(K) 1.19 % ^(K) 1.62 % ^(K) 1.38 % ^(K)

Return on average common equity ^(G) 8.98 % 8.64 % 8.84 % ^(K) 8.86 % ^(K) 6.33 % ^(K) 8.85 % ^(K) 7.46 % ^(K)

Return on average tangible common equity ^(G)^ ^(H) 19.57 % 19.19 % 19.98 % ^(K) 20.16 % ^(K) 12.50 % ^(K) 19.83 % ^(K) 14.23 % ^(K)

Tax equivalent net interest margin ^(E) (F)^ ^(I) 3.49 % 3.57 % 3.69 % 3.81 % 3.66 % 3.64 % 3.32 %

Efficiency ratio ^(H) (J) 40.77 % 40.17 % 46.56 % ^(L) 42.90 % ^(L) 58.07 % ^(L) 42.58 % ^(L) 48.25 % ^(L)

Liquidity and Capital Ratios

Equity to assets 18.00 % 18.18 % 18.04 % 18.45 % 18.55 % 18.00 % 18.55 %

Common equity tier 1 capital 13.74 % 13.17 % 12.29 % 12.27 % 12.30 % 13.74 % 12.30 %

Tier 1 risk-based capital 13.74 % 13.17 % 12.29 % 12.27 % 12.30 % 13.74 % 12.30 %

Total risk-based capital 14.23 % 14.28 % 13.36 % 12.81 % 12.70 % 14.23 % 12.70 %

Tier 1 leverage capital 9.67 % 9.57 % 9.41 % 9.49 % 10.42 % 9.67 % 10.37 %

Period end tangible equity to period end tangible 9.19 % 9.12 % 8.89 % 8.96 % 9.21 % 9.19 % 9.21 %assets ^(H)

Other Data

Weighted-average shares used in computing earnings percommon share

Basic 92,559 92,656 92,658 94,371 85,573 93,058 73,524

Diluted 92,559 92,656 92,658 94,371 85,573 93,058 73,524

Period end shares outstanding 92,571 92,562 92,660 92,652 94,746 92,571 94,746

Cash dividends paid per common share $ 0.49 $ 0.46 $ 0.46 $ 0.46 $ 0.46 $ 1.87 $ 1.69

Book value per common share $ 66.23 $ 65.20 $ 64.19 $ 63.20 $ 63.02 $ 66.23 $ 63.02

Tangible book value per common share ^(H) $ 30.53 $ 29.46 $ 28.45 $ 27.52 $ 28.08 $ 30.53 $ 28.08

Common Stock Market Price

High $ 70.38 $ 60.63 $ 72.95 $ 75.22 $ 74.35 $ 75.22 $ 75.36

Low $ 50.43 $ 48.80 $ 43.68 $ 42.02 $ 66.60 $ 42.02 $ 61.65

Period end closing price $ 69.36 $ 51.83 $ 59.38 $ 48.25 $ 71.89 $ 69.36 $ 71.89

Employees - FTE (excluding overtime) 3,756 3,716 3,793 3,801 3,867 3,756 3,867

Number of banking centers 275 275 275 285 285 275 285

(E) Includes purchase accounting adjustments for the periods presented asfollows:

Three Months Ended Year-to-Date

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019

Loan discount accretion

ASC 310-20 $13,514 $16,729 $17,999 $22,463 $17,834 $70,705 $21,194

ASC 310-30 $2,545 $5,805 $6,267 $6,019 $5,908 $20,636 $6,851

Securities net amortization $66 $116 $203 $194 $201 $579 $847

Time deposits amortization $790 $1,240 $1,793 $2,270 $1,709 $6,093 $1,709

Using effective tax rate of 21.2%, 21.2%, 6.7%, 21.0% and 21.3% for the three-month periods ended December 31, 2020, September 30, 2020, June 30,(F) 2020, March 31, 2020 and December 31, 2019, respectively, and 18.0% and 20.7% for the years ended December 31, 2020 and December 31, 2019, respectively. Net income for the second quarter of 2020 includes a tax benefit for NOLs due to the CARES Act.

(G) Interim periods annualized.

Refer to the "Notes to Selected Financial Data" at the end of this Earnings(H) Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

(I) Net interest margin for all periods presented is based on average balances on an actual 365 day or 366 day basis.

Calculated by dividing total noninterest expense, excluding credit loss(J) provisions, by net interest income plus noninterest income, excluding net gains and losses on the sale or write down of assets and securities. Additionally, taxes are not part of this calculation.

For calculations of the annualized returns on average assets, average common equity and average tangible common equity excluding merger related(K) expenses, net of tax, and NOL tax benefit, refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

For calculations of the efficiency ratio excluding merger related expenses,(L) net of tax, refer to the "Notes to Selected Financial Data" at the end of this Earnings Release for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

YIELD ANALYSIS Three Months Ended

Dec 31, 2020 Sep 30, 2020 Dec 31, 2019

Interest Interest Interest Average Average Average Average Earned/ Average Earned/ Average Earned/ Yield/ ^(M) Yield/ ^(M) Yield/ ^(M) Balance Interest Balance Interest Balance Interest Rate Rate Rate Paid Paid Paid

Interest-earning assets:

Loans held for sale $ 42,856 $ 348 3.23% $ 50,606 $ 420 3.30% $ 57,171 $ 570 3.96%

Loans held for investment 17,700,756 220,357 4.95% 18,267,559 225,596 4.91% 15,261,163 212,466 5.52%

Loans held for investment - Warehouse Purchase Program 2,603,455 20,920 3.20% 2,279,461 18,239 3.18% 996,903 9,874 3.93%

Total Loans 20,347,067 241,625 4.72% 20,597,626 244,255 4.72% 16,315,237 222,910 5.42%

Investment securities 8,001,679 36,721 1.83% ^(N) 7,603,762 38,033 1.99% ^(N) 8,598,736 49,348 2.28% ^(N)

Federal funds sold and other earning assets 1,094,487 301 0.11% 618,228 144 0.09% 305,596 600 0.78%

Total interest-earning assets 29,443,233 278,647 3.76% 28,819,616 282,432 3.90% 25,219,569 272,858 4.29%

Allowance for credit losses^(B) (322,138) (321,424) (86,795)

Noninterest-earning assets 4,569,811 4,482,646 3,930,651

Total assets $ 33,690,906 $ 32,980,838 $ 29,063,425

Interest-bearing liabilities:

Interest-bearing demand deposits $ 5,545,298 $ 5,301 0.38% $ 5,221,722 $ 5,028 0.38% $ 4,233,880 $ 5,755 0.54%

Savings and money market deposits 9,170,179 6,985 0.30% 8,937,751 7,833 0.35% 7,109,754 14,187 0.79%

Certificates and other time deposits 3,047,475 7,471 0.98% 3,103,290 9,597 1.23% 3,044,843 12,817 1.67%

Other borrowings 2,435 33 5.39% 13,898 52 1.49% 1,403,686 6,115 1.73%

Securities sold under repurchase agreements 376,779 224 0.24% 378,888 309 0.32% 351,580 879 0.99%

Subordinated notes and trust preferred 81,570 999 4.87% 125,256 1,500 4.76% 87,963 1,075 4.85%

Total interest-bearing liabilities 18,223,736 21,013 0.46% ^(O) 17,780,805 24,319 0.54% ^(O) 16,231,706 40,828 1.00% ^(O)

Noninterest-bearing liabilities:

Noninterest-bearing demand deposits 9,103,742 8,980,814 7,066,878

Allowance for credit losses on off-balance sheet credit exposures^(B) 29,947 29,947 -

Other liabilities 224,907 167,532 320,855

Total liabilities 27,582,332 26,959,098 23,619,439

Shareholders' equity 6,108,574 6,021,740 5,443,986

Total liabilities and shareholders' equity $ 33,690,906 $ 32,980,838 $ 29,063,425

Net interest income and margin $ 257,634 3.48% $ 258,113 3.56% $ 232,030 3.65%

Non-GAAP to GAAP reconciliation:

Tax equivalent adjustment 664 658 668

Net interest income and margin (tax equivalent basis) $ 258,298 3.49% $ 258,771 3.57% $ 232,698 3.66%

(M) Annualized and based on an actual 365 day or 366 day basis.

Yield on securities was impacted by net premium amortization of $11,509,(N) $10,089 and $8,556 for the three-month periods ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Total cost of funds, including noninterest bearing deposits, was 0.31%,(O) 0.36% and 0.70% for the three-month periods ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

YIELD ANALYSIS Year-to-Date

Dec 31, 2020 Dec 31, 2019

Interest Interest Average Average Average Earned/ Average Earned/ Yield/ ^(P) Yield/ ^(P) Balance Interest Balance Interest Rate Rate Paid Paid

Interest-earning assets:

Loans held for sale $ 55,883 $ 1,923 3.44% $ 32,065 $ 1,457 4.54%

Loans held for investment 17,842,438 910,532 5.10% 11,688,754 610,112 5.22%

Loans held for investment - Warehouse Purchase Program 1,964,206 63,440 3.23% 251,274 9,874 3.93%

Total loans 19,862,527 975,895 4.91% 11,972,093 621,443 5.19%

Investment securities 8,022,205 166,812 2.08% ^(Q) 8,958,182 209,812 2.34% ^(Q)

Federal funds sold and other earning assets 529,075 1,203 0.23% 129,622 1,683 1.30%

Total interest-earning assets 28,413,807 1,143,910 4.03% 21,059,897 832,938 3.96%

Allowance for credit losses^(B) (324,308) (86,616)

Noninterest-earning assets 4,555,851 3,114,426

Total assets $ 32,645,350 $ 24,087,707

Interest-bearing liabilities:

Interest-bearing demand deposits $ 5,177,736 $ 22,046 0.43% $ 3,917,413 $ 23,982 0.61%

Savings and money market deposits 8,654,874 37,685 0.44% 5,941,929 50,681 0.85%

Certificates and other time deposits 3,194,274 42,771 1.34% 2,314,174 36,725 1.59%

Other borrowings 329,276 3,550 1.08% 971,409 21,323 2.20%

Securities sold under repurchase agreements 371,872 1,627 0.44% 307,277 3,383 1.10%

Subordinated notes and trust preferred 114,499 5,498 4.80% 21,991 1,075 4.89%

Total interest-bearing liabilities 17,842,531 113,177 0.63% ^(R) 13,474,193 137,169 1.02% ^(R)

Noninterest-bearing liabilities:

Noninterest-bearing demand deposits 8,558,385 6,006,914

Allowance for credit losses on off-balance sheet credit 25,735 -exposures^(B)

Other liabilities 244,047 148,079

Total liabilities 26,670,698 19,629,186

Shareholders' equity 5,974,652 4,458,521

Total liabilities and shareholders' equity 32,645,350 $ 24,087,707

Net interest income and margin $ 1,030,733 3.63% $ 695,769 3.30%

Non-GAAP to GAAP reconciliation:

Tax equivalent adjustment 2,735 3,149

Net interest income and margin (tax equivalent basis) $ 1,033,468 3.64% $ 698,918 3.32%

(P) Annualized and based on an actual 365 day or 366 day basis.

(Q) Yield on securities was impacted by net premium amortization of $38,827 and $30,779 for the years ended December 31, 2020 and 2019, respectively.

(R) Total cost of funds, including noninterest bearing deposits, was 0.43% and 0.70% for the years ended December 31, 2020 and 2019, respectively.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

Three Months Ended

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

YIELD TREND ^(S)

Interest-Earning Assets:

Loans held for sale 3.23 % 3.30 % 3.32 % 3.80 % 3.96 %

Loans held for investment 4.95 % 4.91 % 5.06 % 5.51 % 5.52 %

Loans held for investment - Warehouse Purchase 3.20 % 3.18 % 3.10 % 3.62 % 3.93 %Program

Total loans 4.72 % 4.72 % 4.87 % 5.39 % 5.42 %

Investment securities ^(T) 1.83 % 1.99 % 2.19 % 2.30 % 2.28 %

Federal funds sold and other earning assets 0.11 % 0.09 % 0.10 % 1.28 % 0.78 %

Total interest-earning assets 3.76 % 3.90 % 4.08 % 4.40 % 4.29 %

Interest-Bearing Liabilities:

Interest-bearing demand deposits 0.38 % 0.38 % 0.38 % 0.57 % 0.54 %

Savings and money market deposits 0.30 % 0.35 % 0.41 % 0.71 % 0.79 %

Certificates and other time deposits 0.98 % 1.23 % 1.48 % 1.63 % 1.67 %

Other borrowings 5.39 % 1.49 % 0.45 % 1.42 % 1.73 %

Securities sold under repurchase agreements 0.24 % 0.32 % 0.37 % 0.83 % 0.99 %

Subordinated notes and trust preferred 4.87 % 4.76 % 4.80 % 4.80 % 4.85 %

Total interest-bearing liabilities 0.46 % 0.54 % 0.63 % 0.91 % 1.00 %

Net Interest Margin 3.48 % 3.56 % 3.68 % 3.80 % 3.65 %

Net Interest Margin (tax equivalent) 3.49 % 3.57 % 3.69 % 3.81 % 3.66 %

(S) Annualized and based on average balances on an actual 365 day or 366 day basis.

Yield on securities was impacted by net premium amortization of $11,509,(T) $10,089, $9,224, $8,005 and $8,556 for the three-month periods ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

Three Months Ended

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

Balance Sheet Averages

Loans held for sale $ 42,856 $ 50,606 $ 63,338 $ 66,917 $ 57,171

Loans held for investment 17,700,756 18,267,559 18,135,226 17,263,098 15,261,163

Loans held for investment - Warehouse Purchase 2,603,455 2,279,461 1,843,097 1,120,324 996,903Program

Total Loans 20,347,067 20,597,626 20,041,661 18,450,339 16,315,237

Investment securities 8,001,679 7,603,762 8,054,008 8,434,196 8,598,736

Federal funds sold and other earning assets 1,094,487 618,228 172,761 223,631 305,596

Total interest-earning assets 29,443,233 28,819,616 28,268,430 27,108,166 25,219,569

Allowance for credit losses^(B) (322,138) (321,424) (325,720) (328,005) (86,795)

Cash and due from banks 289,579 267,887 247,426 321,832 275,072

Goodwill 3,231,850 3,231,976 3,223,469 3,223,633 2,658,133

Core deposit intangibles, net 74,919 78,269 81,539 84,865 28,912

Other real estate 14,573 8,061 5,666 5,837 4,864

Fixed assets, net 325,485 325,958 327,811 325,337 308,692

Other assets 633,405 570,495 676,105 615,747 654,978

Total assets $ 33,690,906 $ 32,980,838 $ 32,504,726 $ 31,357,412 $ 29,063,425

Noninterest-bearing deposits $ 9,103,742 $ 8,980,814 $ 8,583,734 $ 7,491,798 $ 7,066,878

Interest-bearing demand deposits 5,545,298 5,221,722 4,949,023 4,990,376 4,233,880

Savings and money market deposits 9,170,179 8,937,751 8,537,352 7,965,440 7,109,754

Certificates and other time deposits 3,047,475 3,103,290 3,224,196 3,404,748 3,044,843

Total deposits 26,866,694 26,243,577 25,294,305 23,852,362 21,455,355

Other borrowings 2,435 13,898 474,867 832,961 1,403,686

Securities sold under repurchase agreements 376,779 378,888 365,077 366,615 351,580

Subordinated notes and trust preferred 81,570 125,256 125,475 125,694 87,963

Allowance for credit losses on off-balance 29,947 29,947 29,947 13,009 5,673sheet credit exposures^(B)

Other liabilities 224,907 167,532 289,899 262,523 320,855

Shareholders' equity 6,108,574 6,021,740 5,925,156 5,904,248 5,443,986

Total liabilities and equity $ 33,690,906 $ 32,980,838 $ 32,504,726 $ 31,357,412 $ 29,063,425

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

Period End Balances

Loan Portfolio

Commercial and industrial $ 2,210,003 10.9 % $ 2,171,302 10.5 % $ 2,214,742 10.5 % $ 2,500,110 13.1 % $ 2,507,318 13.3 %

Warehouse purchase program 2,842,379 14.0 % 2,730,614 13.1 % 2,557,183 12.2 % 1,713,762 9.0 % 1,552,762 8.2 %

Construction, land development and other land loans 1,956,960 9.7 % 2,081,762 10.0 % 2,033,037 9.7 % 2,051,021 10.7 % 2,064,167 11.0 %

1-4 family residential 4,253,331 21.0 % 4,189,852 20.1 % 4,184,972 19.9 % 3,993,138 20.9 % 3,880,382 20.6 %

Home equity 504,207 2.5 % 477,552 2.3 % 437,098 2.1 % 516,003 2.6 % 507,029 2.6 %

Commercial real estate (includes multi-family residential) 6,078,764 30.0 % 6,179,901 29.7 % 6,550,086 31.2 % 6,576,213 34.4 % 6,556,285 34.9 %

Agriculture (includes farmland) 581,352 2.9 % 598,972 2.9 % 612,694 2.9 % 635,295 3.3 % 680,855 3.6 %

Consumer and other 344,028 1.7 % 367,231 1.8 % 403,462 1.9 % 423,000 2.2 % 398,271 2.1 %

Energy 512,735 2.5 % 604,698 2.9 % 639,402 3.0 % 718,653 3.8 % 698,277 3.7 %

Paycheck Protection Program 963,185 4.8 % 1,393,757 6.7 % 1,392,497 6.6 % - - - -

Total loans $ 20,246,944 $ 20,795,641 $ 21,025,173 $ 19,127,195 $ 18,845,346

Deposit Types

Noninterest-bearing DDA $ 9,151,233 33.4 % $ 8,998,328 34.0 % $ 9,040,257 34.6 % $ 7,461,323 31.3 % $ 7,763,894 32.1 %

Interest-bearing DDA 5,899,051 21.6 % 5,297,802 20.0 % 5,130,495 19.6 % 4,980,090 20.9 % 5,100,938 21.1 %

Money market 6,381,014 23.3 % 6,324,127 23.9 % 6,148,206 23.5 % 5,341,525 22.4 % 5,099,024 21.1 %

Savings 2,863,086 10.5 % 2,772,492 10.5 % 2,722,718 10.4 % 2,716,247 11.4 % 2,756,297 11.3 %

Certificates and other time deposits 3,066,108 11.2 % 3,066,457 11.6 % 3,111,012 11.9 % 3,327,172 14.0 % 3,479,579 14.4 %

Total deposits $ 27,360,492 $ 26,459,206 $ 26,152,688 $ 23,826,357 $ 24,199,732

Loan to Deposit Ratio 74.0 % 78.6 % 80.4 % 80.3 % 77.9 %

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

Construction Loans

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019

Single family residential construction $ 579,761 29.6 % $ 654,933 31.5 % $ 710,401 34.9 % $ 655,191 31.9 % $ 614,647 29.7 %

Land development 103,307 5.3 % 114,937 5.5 % 114,748 5.6 % 110,853 5.4 % 88,529 4.3 %

Raw land 247,628 12.7 % 240,154 11.5 % 274,159 13.5 % 265,943 12.9 % 233,559 11.3 %

Residential lots 158,441 8.1 % 137,615 6.6 % 144,765 7.1 % 136,861 6.7 % 138,961 6.7 %

Commercial lots 114,427 5.8 % 109,569 5.3 % 103,267 5.1 % 106,036 5.2 % 101,960 4.9 %

Commercial construction and other 753,587 38.5 % 825,053 39.6 % 687,618 33.8 % 778,731 37.9 % 890,597 43.1 %

Net unaccreted discount (191) (499) (1,921) (2,594) (4,086)

Total construction loans $ 1,956,960 $ 2,081,762 $ 2,033,037 $ 2,051,021 $ 2,064,167

Non-Owner Occupied Commercial Real Estate Loans by Metropolitan StatisticalArea (MSA) as of December 31, 2020

Houston Dallas Austin OK City Tulsa Other ^(U) Total

Collateral Type

Shopping center/retail $ 385,110 $ 297,801 $ 51,537 $ 20,041 $ 34,050 $ 282,655 $ 1,071,194

Commercial and industrial buildings 160,522 96,304 18,897 14,146 18,613 165,228 473,710

Office buildings 186,978 518,496 34,392 72,623 5,109 80,726 898,324

Medical buildings 36,975 38,031 3,512 24,195 24,583 58,597 185,893

Apartment buildings 388,780 503,734 26,505 15,439 8,942 194,904 1,138,304

Hotel 70,153 76,272 43,389 28,996 - 139,546 358,356

Other 59,870 29,318 27,869 8,667 2,738 57,518 185,980

Total $ 1,288,388 $ 1,559,956 $ 206,101 $ 184,107 $ 94,035 $ 979,174 $ 4,311,761 ^(V)

Acquired Loans

Non-PCD Loans PCD Loans Total Acquired Loans

Balance at Balance at Balance at Balance at Balance at Balance at Balance at Balance at Balance at Acquisition Acquisition Acquisition Sep 30, 2020 Dec 31, 2020 Sep 30, 2020 Dec 31, 2020 Sep 30, 2020 Dec 31, 2020 Date Date Date

Loan marks:

Acquired banks ^(W) $ 229,080 $ 6,622 $ 5,973 $ 142,128 $ - $ - $ 371,208 $ 6,622 $ 5,973

LegacyTexas merger^(X) 116,519 46,493 33,614 177,924 16,760 14,216 294,443 63,253 47,830

Total 345,599 53,115 39,587 320,052 16,760 ^(Z) 14,216 665,651 69,875 53,803

Acquired portfolio loan balances:

Acquired banks ^(W) 5,690,998 281,766 266,036 275,221 4,061 3,523 5,966,219 285,827 269,559

LegacyTexas merger^(X) 6,595,161 4,187,077 3,603,169 414,352 222,019 192,108 7,009,513 4,409,096 3,795,277

Total 12,286,159 4,468,843 3,869,205 689,573 226,080 195,631 12,975,732 ^(Y) 4,694,923 4,064,836

Acquired portfolio loan balances $ 11,940,560 $ 4,415,728 $ 3,829,618 $ 369,521 $ 209,320 $ 181,415 $ 12,310,081 $ 4,625,048 $ 4,011,033less loan marks

(U) Includes other MSA and non-MSA regions.

(V) Represents a portion of total commercial real estate loans of $6.079 billion as of December 31, 2020.

Includes Bank of Texas, Bank Arlington, American State Bank, Community(W) National Bank, First Federal Bank Texas, Coppermark Bank, First Victoria National Bank, The F&M Bank & Trust Company and Tradition Bank.

The LegacyTexas merger was completed on November 1, 2019. During the(X) fourth quarter of 2019, LegacyTexas added $7.010 billion in loans with related purchase accounting adjustments of $294.4 million at acquisition date.

(Y) Actual principal balances acquired.

(Z) ASU 2016-13 became effective for Prosperity on January 1, 2020.

Prosperity Bancshares, Inc.^(r)

Financial Highlights (Unaudited)

(Dollars in thousands)

Three Months Ended Year-to-Date

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019

Asset Quality

Nonaccrual loans $ 47,185 $ 57,412 $ 62,904 $ 58,194 $ 55,243 $ 47,185 $ 55,243

Accruing loans 90 or more days past due 1,699 462 8,691 3,255 441 1,699 441

Total nonperforming loans 48,884 57,874 71,595 61,449 55,684 48,884 55,684

Repossessed assets 93 120 187 278 324 93 324

Other real estate 10,593 11,548 6,160 5,452 6,935 10,593 6,935

Total nonperforming assets $ 59,570 $ 69,542 $ 77,942 $ 67,179 $ 62,943 $ 59,570 $ 62,943

Nonperforming assets:

Commercial and industrial (includes energy) $ 16,176 $ 17,273 $ 15,238 $ 15,987 $ 17,086 $ 16,176 $ 17,086

Construction, land development and other land loans 1,566 2,633 10,530 1,125 1,177 1,566 1,177

1-4 family residential (includes home equity) 25,830 29,953 29,812 28,996 26,453 25,830 26,453

Commercial real estate (includes multi-family residential) 12,315 16,069 20,748 20,155 18,031 12,315 18,031

Agriculture (includes farmland) 2,075 1,931 1,501 896 101 2,075 101

Consumer and other 1,608 1,683 113 20 95 1,608 95

Total $ 59,570 $ 69,542 $ 77,942 $ 67,179 $ 62,943 $ 59,570 $ 62,943

Number of loans/properties 208 198 213 198 236 208 236

Allowance for credit losses at end of period $ 316,068 $ 323,635 $ 324,205 $ 327,206 $ 87,469 $ 316,068 $ 87,469

Net charge-offs (recoveries):

Commercial and industrial (includes energy) $ 4,085 $ 8,344 $ 12,206 $ (28) $ 76 $ 24,607 $ 884

Construction, land development and other land loans (110) 478 (6) (12) (6) 350 (5)

1-4 family residential (includes home equity) 1,982 252 51 5 20 2,290 19

Commercial real estate (includes multi-family residential) 626 676 - (81) 254 1,221 251

Agriculture (includes farmland) (4) (17) (3) (1) (18) (25) (972)

Consumer and other 988 837 753 918 965 3,496 3,094

Total $ 7,567 $ 10,570 $ 13,001 $ 801 $ 1,291 $ 31,939 $ 3,271

Asset Quality Ratios

Nonperforming assets to average interest-earning assets 0.20 % 0.24 % 0.28 % 0.25 % 0.25 % 0.21 % 0.30 %

Nonperforming assets to loans and other real estate 0.29 % 0.33 % 0.37 % 0.35 % 0.33 % 0.29 % 0.33 %

Net charge-offs to average loans (annualized) 0.15 % 0.21 % 0.26 % 0.02 % 0.03 % 0.16 % 0.03 %

Allowance for credit losses to total loans^(AA) 1.56 % 1.56 % 1.54 % 1.71 % 0.46 % 1.56 % 0.46 %

Allowance for credit losses to total loans, excludingWarehouse Purchase Program loans and Paycheck Protection 1.92 % 1.94 % 1.90 % 1.88 % 0.51 % 1.92 % 0.51 %Program loans ^(H)(AA)

(AA) ASU 2016-13 became effective for Prosperity on January 1, 2020.

Prosperity Bancshares, Inc.^(r)

Notes to Selected Financial Data (Unaudited)

(Dollars and share amounts in thousands, except per share data)

NOTES TO SELECTED FINANCIAL DATA

Prosperity's management uses certain non-GAAP (generally accepted accountingprinciples) financial measures to evaluate its performance. Specifically,Prosperity reviews diluted earnings per share excluding merger relatedexpenses, net of tax, and NOL tax benefit; return on average assets excludingmerger related expenses, net of tax, and NOL tax benefit; return on averagecommon equity excluding merger related expenses, net of tax, and NOL taxbenefit; return on average tangible common equity; return on average tangiblecommon equity excluding merger related expenses, net of tax, and NOL taxbenefit; tangible book value per share; the tangible equity to tangible assetsratio; allowance for credit losses to total loans excluding Warehouse PurchaseProgram and PPP loans; the efficiency ratio, excluding net gains and losses onthe sale or write down of assets and securities; and the efficiency ratio,excluding net gains and losses on the sale or write down of assets andsecurities and merger related expenses, for internal planning and forecastingpurposes. In addition, due to the application of purchase accounting,Prosperity uses certain non-GAAP financial measures and ratios that exclude theimpact of these items to evaluate its allowance for credit losses to totalloans (excluding Warehouse Purchase Program loans and PPP loans). Prosperityhas included information below relating to these non-GAAP financial measuresfor the applicable periods presented.

Three Months Ended Year-to-Date

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019

Reconciliation of diluted earnings per share to dilutedearnings per share, excluding merger related expenses, netof tax, and NOL tax benefit:

Net income $ 137,091 $ 130,064 $ 130,901 $ 130,848 $ 86,134 $ 528,904 $ 332,552

Add: merger related expenses, net of tax^(AB) - - 5,904 430 36,658 6,334 36,658

Less: NOL tax benefit ^(AC) - - (20,145) - - (20,145) -

Net income, excluding merger related expenses, net of tax, $ 137,091 $ 130,064 $ 116,660 $ 131,278 $ 122,792 $ 515,093 $ 369,210and NOL tax benefit ^(AB) (AC)

Weighted average diluted shares outstanding 92,559 92,656 92,658 94,371 85,573 93,058 73,524

Merger related expenses per diluted share, net of tax^(AB) $ - $ - $ 0.06 $ - $ 0.43 $ 0.07 $ 0.50

NOL tax benefit per diluted share (AB) $ - $ - $ (0.22) $ - $ - $ (0.22) $ -

Diluted earnings per share, excluding merger related $ 1.48 $ 1.40 $ 1.25 $ 1.39 $ 1.44 $ 5.54 $ 5.02expenses, net of tax, and NOL tax benefit ^(AB) (AC)

Reconciliation of return on average assets to return onaverage assets excluding merger related expenses, net oftax, and NOL tax benefit:

Net income, excluding merger related expenses, net of tax, $ 137,091 $ 130,064 $ 116,660 $ 131,278 $ 122,792 $ 515,093 $ 369,210and NOL tax benefit ^(AB) (AC)

Average total assets $ 33,690,906 $ 32,980,838 $ 32,504,726 $ 31,357,412 $ 29,063,425 $ 32,645,350 $ 24,087,707

Return on average assets excluding merger related 1.63 % 1.58 % 1.44 % 1.67 % 1.69 % 1.58 % 1.53 %expenses, net of tax, and NOL tax benefit^ (G) (AB) (AC)

Reconciliation of return on average common equity toreturn on average common equity excluding merger relatedexpenses, net of tax, and NOL tax benefit:

Net income, excluding merger related expenses, net of tax, $ 137,091 $ 130,064 $ 116,660 $ 131,278 $ 122,792 $ 515,093 $ 369,210and NOL tax benefit ^(AB) (AC)

Average shareholders' equity $ 6,108,574 $ 6,021,740 $ 5,925,156 $ 5,904,248 $ 5,443,986 $ 5,974,652 $ 4,458,521

Return on average common equity excluding merger related 8.98 % 8.64 % 7.88 % 8.89 % 9.02 % 8.62 % 8.28 %expenses, net of tax, and NOL tax benefit (G) (AB) (AC)

Reconciliation of return on average common equity toreturn on average tangible common equity:

Net income $ 137,091 $ 130,064 $ 130,901 $ 130,848 $ 86,134 $ 528,904 $ 332,552

Average shareholders' equity $ 6,108,574 $ 6,021,740 $ 5,925,156 $ 5,904,248 $ 5,443,986 $ 5,974,652 $ 4,458,521

Less: Average goodwill and other intangible assets (3,306,769) (3,310,245) (3,305,008) (3,308,498) (2,687,045) (3,307,639) (2,122,154)

Average tangible shareholders' equity $ 2,801,805 $ 2,711,495 $ 2,620,148 $ 2,595,750 $ 2,756,941 $ 2,667,013 $ 2,336,367

Return on average tangible common equity ^(G) 19.57 % 19.19 % 19.98 % 20.16 % 12.50 % 19.83 % 14.23 %

(AB) Calculated assuming a federal tax rate of 21.0%.

(AC) Net income for the second quarter of 2020 includes a tax benefit forNOLs due to the CARES Act.

Three Months Ended Year-to-Date

Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31,

2020 2020 2020 2020 2019 2020 2019

Reconciliation of return on average common equity to return onaverage tangible common equity excluding merger related expenses,net of tax, and NOL tax benefit:

Net income, excluding merger related expenses, net of tax, and $ 137,091 $ 130,064 $ 116,660 $ 131,278 $ 122,792 $ 515,093 $ 369,210NOL tax benefit (AB) (AC)

Average shareholders' equity $ 6,108,574 $ 6,021,740 $ 5,925,156 $ 5,904,248 $ 5,443,986 $ 5,974,652 $ 4,458,521

Less: Average goodwill and other intangible assets (3,306,769) (3,310,245) (3,305,008) (3,308,498) (2,687,045) (3,307,639) (2,122,154)

Average tangible shareholders' equity $ 2,801,805 $ 2,711,495 $ 2,620,148 $ 2,595,750 $ 2,756,941 $ 2,667,013 $ 2,336,367

Return on average tangible common equity excluding merger related 19.57 % 19.19 % 17.81 % 20.23 % 17.82 % 19.31 % 15.80 %expenses, net of tax, and NOL tax benefit (G) (AB) (AC)

Reconciliation of book value per share to tangible book value pershare:

Shareholders' equity $ 6,130,669 $ 6,034,877 $ 5,948,122 $ 5,855,574 $ 5,970,835 $ 6,130,669 $ 5,970,835

Less: Goodwill and other intangible assets (3,304,871) (3,308,170) (3,311,712) (3,306,185) (3,310,075) (3,304,871) (3,310,075)

Tangible shareholders' equity $ 2,825,798 $ 2,726,707 $ 2,636,410 $ 2,549,389 $ 2,660,760 $ 2,825,798 $ 2,660,760

Period end shares outstanding 92,571 92,562 92,660 92,652 94,746 92,571 94,746

Tangible book value per share $ 30.53 $ 29.46 $ 28.45 $ 27.52 $ 28.08 $ 30.53 28.08

Reconciliation of equity to assets ratio to period end tangibleequity to period end tangible assets ratio:

Tangible shareholders' equity $ 2,825,798 $ 2,726,707 $ 2,636,410 $ 2,549,389 $ 2,660,760 $ 2,825,798 $ 2,660,760

Total assets $ 34,059,275 $ 33,197,599 $ 32,966,649 $ 31,743,499 $ 32,185,708 $ 34,059,275 $ 32,185,708

Less: Goodwill and other intangible assets (3,304,871) (3,308,170) (3,311,712) (3,306,185) (3,310,075) (3,304,871) (3,310,075)

Tangible assets $ 30,754,404 $ 29,889,429 $ 29,654,937 $ 28,437,314 $ 28,875,633 $ 30,754,404 $ 28,875,633

Period end tangible equity to period end tangible assets ratio 9.19 % 9.12 % 8.89 % 8.96 % 9.21 % 9.19 % 9.21 %

Reconciliation of allowance for credit losses to total loans toallowance for credit losses to total loans, excluding WarehousePurchase Program and Paycheck Protection Program loans:

Allowance for credit losses ^(AA) $ 316,068 $ 323,635 $ 324,205 $ 327,206 $ 87,469 $ 316,068 $ 87,469

Total loans $ 20,246,944 $ 20,795,641 $ 21,025,173 $ 19,127,195 $ 18,845,346 $ 20,246,944 $ 18,845,346

Less: Warehouse Purchase Program loans (2,842,379) (2,730,614) (2,557,183) (1,713,762) (1,552,762) (2,842,379) 1,552,762

Less: Paycheck Protection Program loans (963,185) (1,393,757) (1,392,497) - - (963,185) -

Total loans less Warehouse Purchase Program and Paycheck $ 16,441,380 $ 16,671,270 $ 17,075,493 $ 17,413,433 $ 17,292,584 $ 16,441,380 $ 10,588,437Protection Program loans

Allowance for credit losses to total loans, excluding Warehouse 1.92 % 1.94 % 1.90 % 1.88 % 0.51 % 1.92 % 0.83 %Purchase Program and Paycheck Protection Program loans

Reconciliation of efficiency ratio to efficiency ratio, excludingnet gains and losses on the sale of assets and taxes:

Noninterest expense $ 120,205 $ 117,919 $ 134,368 $ 124,741 $ 156,451 $ 497,233 $ 396,542

Net interest income $ 257,634 $ 258,113 $ 258,955 $ 256,031 $ 232,030 $ 1,030,733 $ 695,769

Noninterest income 36,547 34,924 25,675 34,388 35,506 131,534 124,281

Less: net (loss) gain on sale or write down of assets (675) (528) (3,945) (385) (1,870) (5,533) (1,813)

Noninterest income excluding net gains and losses on the sale or 37,222 35,452 29,620 34,773 37,376 137,067 126,094write down of assets and securities

Total income excluding net gains and losses on the sale or write $ 294,856 $ 293,565 $ 288,575 $ 290,804 $ 269,406 $ 1,167,800 $ 821,863down of assets and taxes

Efficiency ratio, excluding net gains and losses on the sale or 40.77 % 40.17 % 46.56 % 42.90 % 58.07 % 42.58 % 48.25 %write down of assets and taxes

Three Months Ended Year-to-Date

Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, 2020 2020 2020 2020 2019 2020 2019

Reconciliation of efficiency ratio to efficiencyratio, excluding net gains and losses on the sale ofassets, taxes and merger related expenses:

Noninterest expense $ 120,205 $ 117,919 $ 134,368 $ 124,741 $ 156,451 $ 497,233 $ 396,542

Less: merger related expenses - - 7,474 544 46,402 8,018 46,402

Noninterest expense excluding merger related expenses $ 120,205 $ 117,919 $ 126,894 $ 124,197 $ 110,049 $ 489,215 $ 350,140

Net interest income $ 257,634 $ 258,113 $ 258,955 $ 256,031 $ 232,030 $ 1,030,733 $ 695,769

Noninterest income 36,547 34,924 25,675 34,388 35,506 131,534 124,281

Less: net (loss) gain on sale or write down of assets (675) (528) (3,945) (385) (1,870) (5,533) (1,813)

Noninterest income excluding net gains and losses on 37,222 35,452 29,620 34,773 37,376 137,067 126,094the sale or write down of assets and taxes

Total income excluding net gains and losses on the $ 294,856 $ 293,565 $ 288,575 $ 290,804 $ 269,406 $ 1,167,800 $ 821,863sale or write down of assets and taxes

Efficiency ratio, excluding net gains and losses onthe sale or write down of assets, taxes and merger 40.77 % 40.17 % 43.97 % 42.71 % 40.85 % 41.89 % 42.60 %related expenses

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SOURCE Prosperity Bancshares, Inc.