Form 11-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 11-K

 


 

ANNUAL REPORT OF EMPLOYEE STOCK PURCHASE,

SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number: 000-25051

 


 

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

 

PROSPERITY BANCSHARES, INC.

401(K) PROFIT SHARING PLAN

 

B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 

PROSPERITY BANCSHARES, INC.

PROSPERITY BANK PLAZA

4295 SAN FELIPE

HOUSTON, TEXAS 77027

 



Table of Contents

Prosperity Bancshares, Inc.

401(k) Profit Sharing Plan

 

Audited Financial Statements and Supplemental Schedule

For the Years Ended December 31, 2004, 2003 and 2002

 

Table of Contents

 

Report of Independent Registered Public Accounting Firm

   2

Statement of Net Assets Available for Benefits as of December 31, 2004 and 2003

   3

Statement of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2004, 2003 and 2002

   4

Notes to Financial Statements

   5

Schedule H, Item 4i – Schedule of Assets (Held at End of Year)

   12


Table of Contents

Report of Independent Registered Public Accounting Firm

 

To the Audit Committee of

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

We have audited the accompanying statements of net assets available for benefits of Prosperity Bancshares, Inc. 401K Profit Sharing Plan as of December 31, 2004 and 2003 and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 2004. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Prosperity Bancshares, Inc. 401K Profit Sharing Plan as of December 31, 2004 and 2003 and the changes in its net assets available for benefits for each of the years in the three-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States.

 

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2004 is presented for purposes of complying with the Department of Labor Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 and is not a required part of the basic financial statements. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

 

/s/ Killman, Murrell & Company, P.C.

Killman, Murrell & Company, P.C.

Houston, Texas

June 29, 2005

 

 

2


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Statements of Net Assets Available For Benefits

 

     December 31,

     2004

   2003

ASSETS

             

First Trust Money Market Account

   $ 4,510    $ 27,157

Prosperity Bank – Interest Bearing Account

     3,793,120      4,390,087

Prosperity Bancshares, Inc. Common Stock

     10,754,392      7,814,439

Loans to Participants

     547,129      384,578

Fundamental Investors

     181,369      147,498

New Perspective Fund

     555,440      580,594

Washington Mutual Investors Fund

     541,237      292,689

Capital Income Builder

     309,737      320,013

The Cash Management Trust of America

     —        287,169

Capital World Growth and Income Fund

     350,899      187,692

American Balance Fund

     448,774      354,397

Euro Pacific Growth Fund

     331,419      203,441

The Growth Fund of America

     1,312,580      1,011,074

Intermediate Bond Fund of America

     249,840      191,193

The Investment Company of America

     706,898      816,892

AMCAP Fund

     429,426      320,071

The Income Fund of America

     161,889      97,026

American Mutual Fund

     205,437      134,768

The U. S. Treasury Money Fund of America

     —        7,892

AIM Mid Cap Core Equity

     115,744      8,748

Metlife Stable Value

     846,331      —  

Allianz NFJ Small Cap Value

     102,878      —  

PIMCO Small Cap

     —        27,444

PIMCO Total Return

     441,559      452,146

Sentinel Small Company

     349,716      213,954

Calvert Social Inv Equity

     3,151      50

Employee Receivable

     79,610      68,234

Employer Receivable

     34,237      31,521
    

  

NET ASSETS AVAILABLE FOR PLAN BENEFITS

   $ 22,857,322    $ 18,370,767
    

  

 

See accompanying notes.

 

3


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Statements of Changes in Net Assets Available For Benefits

 

     Years Ended December 31,

     2004

   2003

   2002

ADDITIONS

                    

ADDITIONS TO NET ASSETS ATTRIBUTED TO:

                    

Net appreciation (depreciation) in fair value of investments

   $ 3,071,954    $ 2,233,222    $ 959,065

Interest and dividends

     241,564      238,512      248,359
    

  

  

       3,313,518      2,471,734      1,207,424

CONTRIBUTIONS:

                    

Participants’ rollovers and other

     41,444      28,401      142,384

Participants’ elective deferrals

     1,516,981      1,229,544      924,696

Employer’s

     715,551      588,924      428,491
    

  

  

       2,273,976      1,846,869      1,495,571
    

  

  

TOTAL ADDITIONS

     5,587,494      4,318,603      2,702,995

DEDUCTIONS

                    

Deductions from net assets attributable to rollovers or withdrawals paid to participants

     1,808,824      1,448,208      188,260

Corrective distributions

     25,920      —        —  

Administrative expenses

     45,593      11,650      5,062
    

  

  

TOTAL DEDUCTIONS

     1,880,337      1,459,858      193,322
    

  

  

       3,707,157      2,858,745      2,509,673

OTHER TRANSFERS

                    

Transfer of assets related to merger

     779,398      1,883,623      606,571
    

  

  

Net increase in assets available for benefits

     4,486,555      4,742,368      3,116,244

NET ASSETS AVAILABLE FOR BENEFITS:

                    

Beginning of Year

     18,370,767      13,628,399      10,512,155
    

  

  

End of Year

   $ 22,857,322    $ 18,370,767    $ 13,628,399
    

  

  

 

See accompanying notes.

 

 

4


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements

 

December 31, 2004 and 2003

 

1. Description of Plan

 

The following description of the Prosperity Bancshares, Inc. 401K Profit Sharing Plan (the “Plan”) provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan’s provisions.

 

GENERAL

 

The Plan is a defined contribution plan covering all full-time employees of Prosperity Bank (the “Bank”), plan sponsor, who have completed at least three months of service and are 21 years of age or older. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

 

CONTRIBUTIONS

 

Each year, participants may contribute up to the maximum amount of pretax annual compensation allowed by law. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. The Bank, at its discretion, may contribute to the Plan, on a participant’s behalf, a matching contribution which is determined annually. In 2004, 2003 and 2002, the Bank matched 50% of the employees’ contributions up to 15% of their annual compensation.

 

Upon enrollment, a participant may direct contributions in any increment to any of the Plan’s fund options. Participants may change their investment options quarterly. Employer contributions are matched to the funds designated by the participant.

 

PARTICIPANT ACCOUNTS

 

Each participant’s account is credited with the participant’s contributions and allocations of (a) the Bank’s contributions and (b) plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. Forfeited balances of terminated participants’ nonvested accounts are used to offset Plan expenses and reduce future company contributions. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.

 

VESTING

 

Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Bank contribution portion of their accounts plus actual earnings thereon is based on years of continuous service. A participant is vested ratable (20% at the end of the second year as a participant in the Plan) over a six-year period.

 

PARTICIPANT LOANS

 

Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan terms generally range from 1-5 years, but can be longer if the loan is used to purchase a principal residence. The loans are secured by the balance in the participant’s account and bear interest at a rate commensurate with the local prevailing rates. Principal and interest is paid ratable through monthly payroll deductions. Interest rates range from 5.00% to 11.5% on outstanding loans.

 

5


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

 

1. Description of Plan (continued)

 

PAYMENT OF BENEFITS

 

On termination of service, a participant may receive a lump-sum amount, equal to the vested value of his or her account, or upon death, disability or retirement, elect to receive payment from the following options: (1) qualified joint and survivor annuities, (2) single payment of the employee’s entire benefit, (3) equal installments over a fixed period not to exceed the employee’s life expectancy or the joint and last survivor’s life expectancy, or (4) payments in the form of a joint and survivor annuity. The Plan does permit hardship distributions. In order to qualify for such hardship withdrawal, the participant must demonstrate that an immediate and necessary financial hardship has been incurred.

 

FORFEITURES

 

Forfeited balances of terminated participants’ nonvested accounts are used to offset Plan expenses and reduce future company contributions.

 

PLAN TERMINATION

 

Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.

 

INVESTMENT OPTIONS

 

Upon enrollment in the Plan, a participant may direct their contributions in various increments totaling 100% in the Prosperity Bank – Interest Bearing Account, or in any of the following investment options:

 

Prosperity Bancshares, Inc. Common Stock

 

Funds are invested in common stock of Prosperity Bancshares, Inc.

 

Fundamental Investors

 

Funds are invested primarily in common stocks or securities convertible into common stocks to provide long-term growth of capital and income. The funds may also be invested in bonds and debt securities of issuers outside of the U.S.

 

6


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

 

1. Description of Plan (continued)

 

New Perspective Fund

 

Funds are invested in common stocks, preferred stocks, securities convertible into common stocks, and bonds to provide long-term growth of capital through investments in blue-chip companies based in the U.S. and abroad with an emphasis on global or multinational companies and a focus on opportunities created by changes in global trade patterns and economic and political relationships.

 

Washington Mutual Investors Fund

 

Funds are primarily invested in common stocks of U.S. companies that meet strict standards based on requirements originally established by the U.S. District Court for the District of Columbia for the investment of trust funds. It may also invest up to 5% of its assets in non-U.S. companies that meet certain investment standards. Funds are invested to provide current income and an opportunity for growth.

 

Capital Income Builder

 

Funds are invested in common stocks or bonds to provide above-average current income, a growing stream of income, and growth of capital. Generally, at least 50% of investments will be in common stocks of large, established companies with a history of increasing dividends. Up to 40% of investments might be in securities of non-U.S. issuers.

 

The Cash Management Trust of America

 

Funds are invested in high-quality money market instruments such as commercial paper and commercial bank obligations to provide income on cash reserves, while preserving capital and maintaining liquidity.

 

Capital World Growth and Income Fund

 

Funds are primarily invested in blue chip common stocks of established companies in the world’s largest stock markets to provide long-term capital growth with current income.

 

American Balance Fund

 

Funds are invested in blue chip common stocks, quality bonds, securities convertible to common stocks and money market instruments to provide conservation of capital, current income, and long-term growth of capital and income.

 

Euro Pacific Growth Fund

 

Funds are invested in common stocks, preferred stocks, securities convertible to common stocks, American depository receipts, European depository receipts, bonds, and cash to provide long-term growth of capital primarily of issuers located in Europe and the Pacific Basin.

 

7


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

 

1. Description of Plan (continued)

 

The Growth Fund of America

 

Funds are invested in common stocks, preferred stock, and securities convertible to common stocks of companies that appear to offer opportunities for long-term growth of capital, such as cyclical companies, those in depressed industries, and turnaround or value situations.

 

Intermediate Bond Fund of America

 

Funds are invested in a portfolio of corporate bonds, U.S. government bonds or notes, GNMA certificates and other mortgage-related securities to provide current income and preservation of capital through a bond portfolio with an average effective maturity of no greater than five years.

 

The Investment Company of America

 

Funds are primarily invested in common stocks of well-established blue chip companies, representing a wide cross section of the U.S. economy to provide long-term growth of capital and income, placing greater emphasis on future dividends than on current income.

 

AMCAP Fund

 

Funds are primarily invested in undervalued common stocks of growing, profitable companies located in the U.S. that represent opportunities to provide long-term growth of capital.

 

The Income Fund of America

 

Funds are primarily invested in common stocks and bonds of U.S. companies to provide current income and, secondarily, growth of capital.

 

American Mutual Fund

 

Funds are primarily invested in common stocks, securities convertible into common stocks, non-convertible preferred stocks, U.S. government securities, bonds rated A or better, and cash to provide the balanced accomplishment of current income, capital growth, and conservation of principal through investments in companies that participate in the growth of the American economy.

 

 

8


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

 

1. Description of Plan (continued)

 

The U. S. Treasury Money Fund of America

 

Funds are invested in U.S. Treasury securities maturing in one year or less to provide income on cash reserves, while preserving capital and maintaining liquidity.

 

AIM Mid Cap Core Equity

 

Funds are invested primarily in attractively priced stocks of mid-sized companies with good growth prospects.

 

PIMCO Small Cap

 

Funds are invested primarily in smaller-cap stocks the manager believes are undervalued.

 

PIMCO Total Return

 

Funds are invested primarily in intermediate-term mortgage-related securities to provide maximum total return, consistent with preservation of capital and prudent investment management.

 

Sentinel Small Company

 

Funds are invested primarily in a diversified portfolio of common stocks and convertible securities issued by small and mid-sized companied seeking long-term capital appreciation.

 

Calvert Social Inv Equity

 

Funds are invested primarily in common stocks of large-cap companies having market capitalization of at least $1 Billion.

 

Metlife Stable Value

 

The fund’s objective is to protect principal and offer fixed returns that compare favorably with the yields on intermediate-term fixed income securities.

 

Allianz NFJ Small Cap Value Fund

 

Funds are primarily invested in common stocks of companies with small market capitalizations that have a below average price earnings ratio relative to their industry.

 

2. Summary of Significant Accounting Policies

 

BASIS OF ACCOUNTING

 

The financial statements of the Plan are prepared using U.S. generally accepted accounting principles.

 

INVESTMENT VALUATION AND INCOME RECOGNITION

 

The Plan’s investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices, which represent the net asset value of the shares held by the Plan at year-end. The Prosperity

 

9


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

 

Bancshares, Inc. common stock is valued at its quoted market price. The participant loans are valued at their outstanding balances, which approximate fair value. Money market accounts and certificates of deposit are valued based on amortized cost or original cost plus accrued interest.

 

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

 

PAYMENT OF BENEFITS

 

Benefits are recorded when paid.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

NET APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS

 

The Plan presents in the statement of changes in net assets available for benefits the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains or losses on sale of investments and unrealized appreciation (depreciation) on those investments.

 

RECLASSIFICATIONS

 

Certain amounts in the 2003 financial statements have been reclassified to conform with the 2004 presentation. Such reclassifications had no effect on reported net increase in assets available for benefits.

 

3. Credit Risk

 

The Plan provides for various investment options in any combination of stocks, bonds, fixed income securities, mutual funds and other investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the statements of net assets available for plan benefits and the amounts reported in participant accounts.

 

4. Tax Status

 

The Plan has received a determination letter from the Internal Revenue Service stating that the Plan is qualified under Section 401(a) of the Internal Revenue Service Code (the “Code”) and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is exempt.

 

5. Party-in-Interest Transactions

 

Investment transactions in Prosperity Bank Interest Bearing Accounts and Prosperity Bancshares, Inc. Common Stock qualify as party-in-interest transactions.

 

During July 2002, the Plan entered into an agreement with First Trust Corporation (“FTC”) whereby FTC became the Trustee of the Plan. Compensation to FTC is based on .07% of assets, billed quarterly. Compensation paid to FTC for the years ended December 31, 2004 and 2003 was $14,522 and $9,103, respectively. No compensation was paid to FTC for the year ended December 31, 2002.

 

10


Table of Contents

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Notes to Financial Statements (continued)

 

December 31, 2004 and 2003

6. Mergers

 

In January, 2004 the Mainbank 401(k) Profit Sharing Plan (“Mainbank Plan”) was merged into the Plan. Transfers of $549,169 from the Mainbank Plan have been included on the statements of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2004.

 

In August, 2004 the FSBNT 401(k) Plan (“FSBNT Plan”) was merged into the Plan. Transfers of $230,229 from the FSBNT Plan have been included on the statements of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2004.

 

In January, 2003 the Paradigm Bancorporation, Inc. 401K Savings Plan (“Paradigm Plan”) was merged into the Plan. Transfers of $1,486,542 from the Paradigm Plan have been included on the statements of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2003.

 

In July, 2003 the MB Financial 401(k) Plan (“Abrams Plan”) was merged into the Plan. Transfers of $284,331 from the Abrams Plan have been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2003.

 

Other transfers to the Plan from mergers during 2003 amounted to $72,333. This amount has also been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2003.

 

Loans totaling $40,417 were transferred to the Plan during 2003 and have been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2003.

 

In December, 2002 the Bank of the Southwest 401K Profit Sharing Plan (“Southwest Plan”) was merged into the Plan. Transfers of $361,793 from the Southwest Plan have been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2002.

 

Also during 2002, certain assets of another plan were transferred into the Plan under a trust to trust transfer. Transfers of $229,691 from this transaction have been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2002.

 

Loans totaling $15,087 were transferred to the Plan during 2002 and have been included on the statement of changes in net assets available for plan benefits as other transfers for the year ended December 31, 2002.

 

The transferred net assets have been recognized in the accounts of the Plan at their balances as previously carried in the accounts of their predecessor plans.

 

7. Subsequent Events

 

Through June 2005, the Plan merged assets from three other plans amounting to approximately $5,360,000.

 

 

11


Table of Contents

Supplemental Schedule

 

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

 

Schedule H, Item 4I – Schedule of Assets (Held at End of Year)

 

December 31, 2004

 

(a)


 

(b) Identity of Issue


  

    (c) Description    


  

(d) Cost


   (e) Current
Value


*

  First Trust Money Market Account    Non-Int-Bearing         $ 4,510

**

  Prosperity Bank – Interest Bearing Account    Interest-Bearing           3,793,120

**

  Prosperity Bancshares, Inc. Common Stock    Common Stock           10,754,392

***

  Participant Loans    N/A           547,129
    Fundamental Investors    Mutual Fund           181,369
    New Perspective Fund    Mutual Fund           555,440
    Washington Mutual Investors Fund    Mutual Fund           541,237
    Capital Income Builder    Mutual Fund           309,737
    Capital World Growth and Income Fund    Mutual Fund           350,899
    American Balance Fund    Mutual Fund           448,774
    Euro Pacific Growth Fund    Mutual Fund           331,419
    The Growth Fund of America    Mutual Fund           1,312,580
    Intermediate Bond Fund of America    Mutual Fund           249,840
    The Investment Company of America    Mutual Fund           706,898
    AMCAP Fund    Mutual Fund           429,426
    The Income Fund of America    Mutual Fund           161,889
    American Mutual Fund    Mutual Fund           205,437
    Metlife Stable Value    Mutual Fund           846,331
    AIM Mid Cap Core Equity    Mutual Fund           115,744
    Allianz NFJ Small Cap Value    Mutual Fund           102,878
    PIMCO Total Return    Mutual Fund           441,559
    Sentinel Small Company    Mutual Fund           349,716
    Calvert Social Inv Equity    Mutual Fund           3,151

Note: Cost information is not presented because all investments are participant directed.

 

* Represents a party-in-interest
** Represents a party-in-interest and investments comprising at least 5% of net assets available for benefits.
*** Loans to participants bearing interest at rates ranging from 5% to 11.5%.

 

12


Table of Contents

SIGNATURES

 

The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

June 30, 2005   Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan
   

/s/ Michael Harris


    Michael Harris
    Cashier, Prosperity Bank

 

 

13


Table of Contents

INDEX TO EXHIBITS

 

Exhibit No.

  

Description


23.1    Consent of Independent Registered Public Accounting Firm