Filed by Prosperity Bancshares, Inc.

Pursuant to Rule 425 under the Securities Act of 1933

 

Subject Company: First Capital Bankers, Inc.

Commission File No. 000-25051

 

 

PRESS RELEASE
Prosperity Bancshares, Inc.®		FirstCapital Bankers, Inc.
Prosperity Bank Plaza		500 North Water Street
4295 San Felipe		Suite 1010
Houston, Texas 77027		Corpus Christi, Texas 78471
For more information contact:		For more information contact:
Dan Rollins		Dan Conroy
Senior Vice President		Executive Vice President
713.693.9300		512.888.8826
dan.rollins@prosperitybanktx.com		dconroy@firstcapitalbank.net

 

FOR IMMEDIATE RELEASE

 

 

PROSPERITY BANCSHARES, INC.

TO ACQUIRE

FIRSTCAPITAL BANKERS, INC.

 

 

Prosperity Bank^® to enter Corpus Christi Market

 

Expands presence in Victoria MSA

 

HOUSTON, October 26, 2004. Prosperity Bancshares, Inc.^® (NASDAQ: PRSP) announced today the signing of a definitive agreement to acquire FirstCapital Bankers, Inc., and its subsidiary, Corpus Christi, Texas based FirstCapital Bank (collectively referred to as FirstCapital).

 

FirstCapital operates a total of thirty-two (32) banking offices in and around Corpus Christi, Houston and Victoria, Texas, which will continue to operate with the same management when the acquisition is completed. As of September 30, 2004, FirstCapital had total assets of $773.6 million, loans of $518.2 million, deposits of $638.9 million and shareholders’ equity of $60.0 million.

 

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“We have continued to look for opportunities to expand our presence across the state and believe that this merger will provide significant value to our shareholders, our customers, our associates, and the communities we serve,” commented David Zalman, Chief Executive Officer and President of Prosperity.

 

“This merger allows our bank to continue on the path that we began in 1988 with our first acquisition. We have been looking for opportunities to expand our footprint along the NAFTA highway and in the Corpus Christi market for many years, and this merger is very exciting for our company. This merger represents a giant leap toward our goal of becoming a true Texas bank,” continued Zalman.

 

Under terms of the agreement, Prosperity will issue approximately 5.0 million shares of its common stock, subject to adjustment, for all outstanding shares of FirstCapital. The transaction values FirstCapital at $135.7 million. (Based upon the closing price of PRSP on Monday, October 25, 2004 of $27.03 per share.)

 

The merger has been approved by the Boards of Directors of both companies and is expected to close during the first quarter of 2005. The transaction is subject to certain conditions, approval by Prosperity and FirstCapital shareholders and customary regulatory approvals. Operational integration is anticipated to begin during the first quarter of 2005.

 

Prosperity expects that the merger will be accretive to earnings one year after operational integration. This estimate does not consider any anticipated revenue enhancements that may be realized from the merger.

 

“The combination of our organizations will further our strategic goals of maintaining consistently strong earnings growth by leveraging our product and service capabilities over an expanded customer base,” added Dan Rollins, Vice Chairman of Prosperity Bank^® . “FirstCapital is one of the largest independent banks in South Texas and should provide us additional opportunities in the future. The professional bankers at FirstCapital will become active members of our team.”

 

Ned Holmes, Chairman of the Board of Prosperity, said, “Together, our combined organization will be able to offer our customers a broader and more sophisticated array of products and services, while continuing to provide the highest level of customer and community service.”

 

“I am extremely excited about teaming up with an organization as successful as Prosperity,” said D. Michael Hunter, Chairman, President and Chief Executive Officer of FirstCapital Bankers. “Prosperity shares a common culture with what we have developed at FirstCapital. Our team of seasoned bankers will complement the strong Prosperity organization. Accordingly, I believe that this merger will be highly attractive for our customers, employees and shareholders as the combined bank creates a dynamic presence in Texas.”

 

Hunter, who has over 35 years of banking experience, will become Vice Chairman of the Board of Directors of Prosperity Bancshares, Inc.^® and will serve as a director of Prosperity Bank^® upon consummation of the transaction. He graduated from St. Mary’s University in San Antonio, where he also attended law school. He began his banking career in Houston at a major banking company in 1965. Four years later, he moved to Corpus Christi where he was Executive Vice President

 

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heading Administrative, Trust, Lending and Marketing divisions of Corpus Christi’s second largest bank. He was President and Chief Operating Officer of Victoria Bankshares, Inc. and Victoria Bank & Trust Company, one of the largest state-chartered banks in Texas (now part of Wells Fargo).

 

Steve Hipes, President of FirstCapital Bank will serve as Chairman—South Texas Area for the combined bank. In addition, he will serve on Prosperity’s Executive Committee. Hipes began his banking career over 30 years ago with First National Bank of Amarillo (now part of Bank of America). He managed the Commercial and Real Estate Lending Departments at Corpus Christi Bank and Trust from 1979 to 1982 at which time he was transferred to First City Bank of Alice, Texas, and eventually became Chairman and President. He resigned in 1988 to accept a position at Victoria Bank & Trust as Executive Vice President and Chief Lending Officer. In 1993, he returned to Alice with Alice Bank of Texas (now part of Wells Fargo) as President and Chief Executive Officer. He graduated with a BBA from Texas Tech University and obtained an MBA from West Texas A&M (formerly West Texas State).

 

Donald A. Bolton, Jr., a Prosperity Bank officer since 1993 has been promoted to President—South Texas Area and will assist with the integration of the two banks.

 

Several other FirstCapital senior officers will become senior officer at Prosperity. David Barnhart will become President—Corpus Christi Area; Bob Kuhn will become Executive Vice President; Royce Moran will become President—Victoria Banking Center and Jack Thompson will become President—Westheimer Banking Center.

 

Immediately following the merger, Prosperity will have a total of ninety (90) banking centers: seven (7) in the Austin area, fifteen (15) in the Corpus Christi MSA, eleven (11) in the Dallas area, thirty-four (34) in the Houston CMSA, and twenty-three (23) in fifteen contiguous counties southwest of Houston, generally along the NAFTA highway.

 

Strategic Rationale and Economics

 

Ÿ		Financially & strategically attractive
		Ÿ		Increases pro forma capital and tangible capital
		Ÿ		Market expansion opportunity for Prosperity Bank®
		Ÿ		Attractive core deposit franchise; provides platform for growth
		Ÿ		FirstCapital efficiency ratio of 83.3% makes expense saves reasonable
Ÿ		Transaction Details
		Ÿ		Total consideration:		$135.7 million
		Ÿ		Shares issued:		Approximately 5.0 million
		Ÿ		Accounting Treatment:		Purchase Accounting
		Ÿ		Expected closing:		1Q 2005
		Ÿ		Integration completion:		2Q 2005
		Ÿ		Projected cost saves:		27.0%
Ÿ		Valuation
		Ÿ		Price/book:		2.26x
		Ÿ		Price/tangible book:		3.53x

 

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		Ÿ		Price to 2002 earnings:		49.14x
		Ÿ		Price to 2003 earnings:		42.41x
		Ÿ		Price to 2004 estimated earnings:		45.06x
		Ÿ		Price to 2004 operating earnings:		34.28x
		Ÿ		Price/assets		17.54%
		Ÿ		Deposit premium:		15.23%
Ÿ		Financial and Legal Advisors
		Ÿ		Prosperity Bancshares, Inc.:
				•      Legal:		Bracewell & Patterson, L.L.P.
				•      Financial:		Keefe Bruyette & Woods, Inc.
		Ÿ		FirstCapital Bankers, Inc.:
				•      Legal:		Locke Liddell & Sapp LLP
				•      Financial:		Lehman Brothers

 

Prosperity Bancshares, Inc.

 

Prosperity Bancshares^®, a $2.7 billion Houston, Texas based regional financial holding company, formed in 1983, was recently named to the Keefe Bruyette & Woods, Inc. annual Honor Roll for achieving exceptional earnings per share growth for the past 10 years.

 

Operating under a community banking philosophy, Prosperity seeks to develop broad customer relationships based on service and convenience. Prosperity offers a variety of traditional loan and deposit products to its customers, which consist primarily of consumers and small and medium sized businesses. In addition to established banking products, Prosperity offers a complete line of services including: Internet Banking services at www.prosperitybanktx.com, Retail Brokerage Services, MasterMoney Debit Cards, and 24 hour voice response banking. Prosperity currently operates fifty-eight (58) full service banking locations, twenty-nine (29) in the Houston CMSA, eleven (11) in the Dallas area, seven (7) in the Austin area and eleven (11) in eight contiguous counties south and southwest of Houston.

 

Prosperity Bank^® operates the following full service banking centers: Angleton; Austin—Allandale; Austin—Congress; Austin—Lakeway; Austin—Research Boulevard; Austin—Riverside; Austin—William Cannon; Bay City; Beeville; Blooming Grove; Clear Lake; Cleveland; Corsicana; Cuero; Dallas—Abrams Centre; Dallas—Camp Wisdom; Dallas—Cedar Hill; Dallas—Kiest; Dallas—Red Oak; Dallas—Preston Road; Dallas—Turtle Creek; Dallas—Westmoreland; Dayton; East Bernard; Edna; El Campo; Ennis; Galveston; Goliad; Hitchcock; Houston—Aldine; Houston—Bellaire; Houston—CityWest; Houston—Copperfield; Houston—Cypress; Houston—Downtown; Houston—Fairfield; Houston—Gladebrook; Houston—Highway 6; Houston—Medical Center; Houston—Memorial; Houston—Post Oak; Houston—River Oaks; Houston—Tanglewood; Houston—Waugh Drive; Houston—Woodcreek; Liberty; Magnolia; Mathis; Mont Belvieu; Needville; Oak Hill; Palacios; Sweeny; Victoria; West Columbia; Wharton and Winnie.

 

In connection with the proposed merger of FirstCapital Bankers, Inc. (“FirstCapital”) into Prosperity Bancshares, Inc., Prosperity will file with the Securities and Exchange Commission a registration statement on Form S-4 to register the shares of Prosperity’s common stock to be issued to the shareholders of FirstCapital. The registration statement will include a joint proxy

 

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statement/prospectus which will be sent to the shareholders of FirstCapital and the shareholders of Prosperity seeking their approval of the proposed transaction.

 

WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE PROPOSED TRANSACTION, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PROSPERITY, FIRSTCAPITAL AND THE PROPOSED TRANSACTION.

 

Investors and security holders may obtain free copies of these documents through the website maintained by the Securities and Exchange Commission at http://www.sec.gov. Free copies of the joint proxy statement/prospectus may also be obtained by directing a request by telephone or mail to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027 Attn: Investor Relations. Prosperity’s telephone number is (713) 693-9300.

 

The directors, executive officers, and certain other members of management of Prosperity and FirstCapital may be soliciting proxies in favor of the merger from the companies’ respective shareholders. For information about Prosperity’s directors, executive officers, and members of management, shareholders are asked to refer to the most recent proxy statement issued by Prosperity, which is available on its website and at the address provided in the preceding paragraph.

 

–    –    –

 

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and the remarks by our management on the conference call may contain, forward-looking statements within the meaning of the securities laws that are based on current expectations, assumptions’ estimates and projections about Prosperity Bancshares^®, and its subsidiaries. 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, that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include whether we can: continue to sustain our current internal growth rate or our total growth rate; successfully close and integrate acquisitions; continue to provide products and services that appeal to our customers; continue to have access to the debt and equity capital we need to sustain our growth; and achieve our sales objectives. Other risks include 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); 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 fluctuations and interest rate fluctuations; weather; and the stock price volatility associated with “small-cap” companies. These and various other factors are discussed in our most recent Annual Report on Form 10-K.

 

Copies of Prosperity Bancshares’s^® SEC filings may be downloaded from the Internet at no charge from www.prosperitybanktx.com.

 

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FirstCapital Bankers, Inc.

Balance Sheet Data

(Dollars in thousands)

 

		Sept 30, 2004				June 30, 2004				Mar 31, 2004				Dec 31, 2003
Balance Sheet Data (at period end)		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Total loans		$	518,207			$	515,418			$	519,043			$	526,030
Investment securities (A)			147,735				156,791				134,092				127,580
Federal funds sold and other earning assets			9,013				7,667				342				346
Total earning assets			674,955				679,876				653,477				653,956
Allowance for credit losses			(5,182	)			(5,119	)			(5,325	)			(5,316	)
Cash and due from banks			25,967				28,132				25,389				30,134
Goodwill			21,546				21,546				21,546				21,546
Core deposit intangible			0				0				0				0
Other real estate			247				566				1,156				1,061
Fixed assets, net			22,882				23,357				23,838				24,278
Other assets			33,151				35,167				33,151				33,161
Total assets		$	773,566			$	783,525			$	753,232			$	758,820
Demand deposits		$	81,245			$	79,517			$	79,595			$	76,094
Interest bearing deposits			557,700				565,919				566,153				578,762
Total deposits			638,945				645,436				645,748				654,856
Federal funds purchased and other interest bearing liabilities			42,141				52,399				20,058				15,613
Junior subordinated debentures			28,351				28,351				28,351				28,351
Other liabilities			4,169				2,555				3,951				5,653
Total liabilities			713,606				728,741				698,108				704,473
Shareholders’ equity (B)			59,960				54,784				55,124				54,347
Total liabilities and equity		$	773,566			$	783,525			$	753,232			$	758,820

^(A) Includes ($559), ($2,067), ($18), and ($444) in unrealized (losses)/gains on available for sale securities for the quarterly periods ending September 30, 2004, June 30, 2004, March 31, 2004 and December 31, 2003, respectively.

 

^(B) Includes ($369), ($1,365), ($12), and ($293) in after tax unrealized (losses)/gains on available for sale securities for the quarterly periods ending September 30, 2003, June 30, 2004, March 31, 2004 and December 31, 2003. respectively.

 

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FirstCapital Bankers, Inc.

Selected Income Statement and Other Data

(Dollars in thousands)

 

		Three Months Ended								Nine Months Ended
		Sept 30, 2004				Sept 30, 2003				Sept 30, 2004				Sept 30, 2003
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Total interest income		$	9,169			$	9,017			$	26,495			$	27,590
Total interest expense			2,944				3,044				8,577				9,917
Net interest income (C)			6,225				5,973				17,918				17,673
Provision for credit losses			30				180				240				800
Net interest income after provision for credit losses			6,195				5,793				17,678				16,873
Service charges on deposit accounts			1,900				1,647				5,058				4,854
Total non-interest income			2,601				2,598				7,529				7,664
Total non-interest expenses (D)			8,402				7,198				22,654				21,088
Net earnings available to common shareholders (E)		$	278			$	826			$	1,787			$	2,411
(C) Net interest income on a tax equivalent basis would be $6,225 and $5,973 for the three months ended September 30, 2004 and September 30, 2003, respectively, and $17,918 and $17,673 for the nine months ended September 30, 2004 and September 30, 2003, respectively.   (D) Total non-interest expenses include one-time non-recurring items totaling $1,435 ($947 after tax) related to the exercise of nonqualified stock options in the third quarter 2004. Total non-interest expense would be $6,967 and $21,219 for the three and nine months ended September 30, 2004, respectively, excluding the non-recurring charges.   (E) Net earnings available to common shareholders include one-time non-recurring non-interest expenses. Net earnings would have been $1,225 and $2,734 for the three and nine months ended September 30, 2004, respectively, excluding the non-recurring charges.
Asset Quality Information
Total non-performing assets		$	6,105			$	2,495			$	6,105			$	2,495
Allowance for credit losses at end of period		$	5,182			$	4,622			$	5,182			$	4,622
Net (recoveries) / charge-offs		$	(34	)		$	158			$	373			$	402
Non-performing assets to average earning assets			0.91	%			0.38	%			0.92	%			0.38	%
Non-performing assets to loans and other real estate			1.18	%			0.49	%			1.18	%			0.49	%
Net (recoveries) / charge-offs to average loans			(0.01	%)			0.03	%			0.07	%			0.08	%
Allowance for credit losses to total loans			1.00	%			0.91	%			1.00	%			0.91	%

 

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FirstCapital Bankers, Inc.

Supplemental Financial Data (Unaudited)

(Dollars in thousands)

 

		Three Months Ended Sept 30, 2004
YIELD ANALYSIS		Average Balance				Interest Income/ Interest Expense			Yield/Rate
Interest Earning Assets:
Loans		$	511,431			$	7,922		6.20	%
Investment securities			151,101				1,216		3.22	%
Federal funds sold			8,972				30		1.35	%
Total interest earning assets			671,504			$	9,169		5.46	%
Allowance for credit losses			(5,199	)
Non-interest earning assets			100,855
Total assets		$	767,160
Interest Bearing Liabilities:
Interest bearing demand deposits		$	86,915			$	33		0.15	%
Savings and money market deposits			152,339				229		0.60	%
Certificates and other time deposits			316,894				1,921		2.42	%
Trust preferred securities			28,351				407		5.74	%
Federal funds purchased and other borrowings			44,178				355		3.21	%
Total Interest Bearing Liabilities			628,677			$	2,944		1.87	%
Non-interest Bearing Liabilities:
Non-interest bearing demand deposits			78,870
Other liabilities			4,216
Total liabilities			711,764
Shareholders’ equity			55,396
Total Liabilities and Shareholders’ Equity		$	767,160
Net Interest Income & Margin						$	6,225		3.71	%
Net Interest Income & Margin (tax equivalent)						$	6,225		3.71	%

 

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FirstCapital Bankers, Inc.

Supplemental Financial Data (Unaudited)

(Dollars in thousands)

 

		Nine Months Ended Sept 30, 2004
YIELD ANALYSIS		Average Balance				Interest Income/ Interest Expense			Yield/Rate
Interest Earning Assets:
Loans		$	516,845			$	23,307		6.01	%
Investment securities			132,108				3,101		3.13	%
Federal funds sold			11,196				86		1.03	%
Total interest earning assets			660,149			$	26,495		5.35	%
Allowance for credit losses			(5,253	)
Non-interest earning assets			105,291
Total assets		$	760,187
Interest Bearing Liabilities:
Interest bearing demand deposits		$	88,078			$	96		0.15	%
Savings and money market deposits			153,911				681		0.59	%
Certificates and other time deposits			322,813				5,850		2.42	%
Trust preferred securities			28,351				1,150		5.41	%
Federal funds purchased and other borrowings			32,283				799		3.30	%
Total Interest Bearing Liabilities			625,436			$	8,577		1.83	%
Non-interest Bearing Liabilities:
Non-interest bearing demand deposits			77,360
Other liabilities			2,362
Total liabilities			705,158
Shareholders’ equity			55,029
Total Liabilities and Shareholders’ Equity		$	760,187
Net Interest Income & Margin						$	17,918		3.62	%
Net Interest Income & Margin (tax equivalent)						$	17,918		3.62	%

 

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Prosperity Bankshares – FirstCapital Bankers

Selected Proforma Data

(Dollars in thousands)

 

		FirstCapital Sept 30, 2004			Prosperity Sept 30, 2004			Debit Adjustments		Credit Adjustments		Proforma Sept 30, 2004
Total loans		$	518,207		$	1,007,420						$	1,526,627
Total deposits			638,945			2,327,278							2,966,223
Intangible assets			21,546			163,885		75,759					261,190
Total assets			773,566			2,709,169		75,759					3,558,494
Shareholders’ equity (F)			59,960			269,265		59,960		135,719			404,984
(F) Adjustments to shareholders’ equity are based on the closing price of a share of Prosperity common stock on October 25, 2004 of $27.03 per share.
Deposit Composition
Demand			81,245			527,845							609,090
Interest bearing demand			90,528			504,818							595,346
Money market			110,976			410,129							521,105
Savings			40,814			112,446							153,260
Time less than $100,000			234,174			370,481							604,655
Time greater than $100,000			81,208			401,559							482,767
Total deposits			638,945			2,327,278							2,966,223
Loan Composition
Commercial & Industrial			130,463			146,054							276,517
Real estate construction			86,111			97,173							183,284
1-4 family			74,346			268,349							342,695
Home equity			0			32,470							32,470
Commercial real estate			166,395			334,050							500,445
Farmland			2,491			22,475							24,966
Multi-family real estate			22,069			18,613							40,681
Agriculture			1,127			30,250							31,377
Other			9,143			2,642							11,785
Consumer			26,062			55,344							81,406
Total loans			518,207			1,007,420							1,525,626

 

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Prosperity Bank^®—FirstCapital Bank

Banking Center Locations

(Prosperity Bank represented by red triangles; FirstCapital Bank represented by blue squares)

 

 

–    –    –

 

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