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, 2005

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, 2005 and 2004

Table of Contents

 

Report of Independent Registered Public Accounting Firm

   2

Statements of Net Assets Available for Benefits as of December 31, 2005 and 2004

   3

Statements of Changes in Net Assets Available for Benefits for the Years Ended
December 31, 2005, 2004 and 2003

   4

Notes to Financial Statements

   5

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

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Table of Contents

Killman, Murrell & Company, P.C.

Certified Public Accountants

 

3300 N. A Street, Bldg. 4, Suite 200   1931 E. 37th Street, Suite 7   2626 Royal Circle
Midland, Texas 79705   Odessa, Texas 79762   Kingwood, Texas 77339
(432) 686-9381   (432) 363-0067   (281)359-7224
Fax (432) 684-6722   Fax (432) 363-0376   Fax (281) 359-7112

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, 2005 and 2004 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, 2005. 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, 2005 and 2004 and the changes in its net assets available for benefits for each of the years in the three year period ended December 31, 2005 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, 2005 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 19, 2006

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Statements of Net Assets Available For Benefits

 

     December 31,
     2005    2004

ASSETS

     

First Trust Money Market Account

   $ 12,554    $ 4,510

Prosperity Bank – Interest Bearing Account

     5,197,947      3,793,120

Prosperity Bancshares, Inc. Common Stock

     11,905,947      10,754,392

Loans to Participants

     681,240      547,129

Fundamental Investors

     476,331      181,369

New Perspective Fund

     736,748      555,440

Washington Mutual Investors Fund

     552,976      541,237

Capital Income Builder

     644,221      309,737

Capital World Growth and Income Fund

     707,277      350,899

American Balance Fund

     600,327      448,774

Euro Pacific Growth Fund

     595,521      331,419

The Growth Fund of America

     1,869,436      1,312,580

Intermediate Bond Fund of America

     263,850      249,840

The Investment Company of America

     918,974      706,898

AMCAP Fund

     630,752      429,426

The Income Fund of America

     396,939      161,889

American Mutual Fund

     494,818      205,437

AIM Mid Cap Core Equity

     375,417      115,744

Metlife Stable Value

     1,073,036      846,331

Allianz NFJ Small Cap Value

     672,062      102,878

PIMCO Total Return

     915,045      441,559

Sentinel Small Company

     853,161      349,716

Calvert Social Inv Equity

     20,675      3,151

Employee Receivable

     —        79,610

Employer Receivable

     —        34,237
             

Total Assets

     30,595,254      22,857,322

LIABILITIES

     

Accrued Expenses

     10,615      —  
             

Total Liabilities

     10,615      —  
             

NET ASSETS AVAILABLE FOR PLAN BENEFITS

   $  30,584,639    $  22,857,322
             

See accompanying notes.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Statements of Changes in Net Assets Available For Benefits

 

     Years Ended December 31,
     2005    2004    2003

ADDITIONS

        

ADDITIONS TO NET ASSETS ATTRIBUTED TO:

        

Net appreciation in fair value of investments

   $ 801,023    $ 3,071,954    $ 2,233,222

Interest and dividends

     331,158      241,564      238,512
                    
     1,132,181      3,313,518      2,471,734

CONTRIBUTIONS:

        

Participants’ rollovers and other

     136,832      41,444      28,401

Participants’ elective deferrals

     1,962,990      1,516,981      1,229,544

Employer’s

     857,289      715,551      588,924
                    
     2,957,111      2,273,976      1,846,869
                    

TOTAL ADDITIONS

     4,089,292      5,587,494      4,318,603

DEDUCTIONS

        

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

     1,802,603      1,808,824      1,448,208

Corrective distributions

     4,371      25,920      —  

Administrative expenses

     30,820      45,593      11,650
                    

TOTAL DEDUCTIONS

     1,837,794      1,880,337      1,459,858
                    
     2,251,498      3,707,157      2,858,745

OTHER TRANSFERS

        

Transfer of assets related to mergers

     5,475,819      779,398      1,883,623
                    

Net increase in assets available for benefits

     7,727,317      4,486,555      4,742,368

NET ASSETS AVAILABLE FOR BENEFITS:

        

Beginning of Year

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

End of Year

   $ 30,584,639    $ 22,857,322    $ 18,370,767
                    

See accompanying notes.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements

December 31, 2005 and 2004

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 and part-time employees of Prosperity Bank (the “Bank”), plan sponsor, who have completed at least three months of service and are twenty-one 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 2005, 2004, and 2003, 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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

VESTING

Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Bank contribution portion of participant accounts plus actual earnings thereon is based on years of continuous service. To qualify for a year of service, the participant must complete 1,000 hours of service in that calendar year. 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.

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

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.

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

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.

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

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.

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

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.

Calvert Social Inv Equity

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

AIM Mid Cap Core Equity

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

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

1. Description of Plan (continued)

Sentinel Small Company

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

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 the 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 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 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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

2. Summary of Significant Accounting Policies (continued)

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.

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.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

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 Account 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, 2005, 2004, and 2003 was $18,754, $14,522, and $9,103, respectively.

6. Mergers

In June 2005, the FirstCapital Bank SSB, 401(k) Retirement Plan (“FirstCapital Plan”) was merged into the Plan. Transfers of $4,764,598 from the FirstCapital 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, 2005.

In March 2005, the Village Bank & Trust, SSB Profit Sharing Plan 401K Plan (“Village Plan”) was merged into the Plan. Transfers of $300,250 from the Village 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, 2005.

In February 2005, the Liberty Bank Employees 401K Profit Sharing Plan (“Liberty Plan”) was merged into the Plan. Transfers of $311,995 from the Liberty 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, 2005.

Loans totaling $98,976 were transferred to the Plan during 2005 and have been included on the statements of changes in net assets available for benefits as other transfers for the year ended December 31, 2005.

 

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Prosperity Bancshares, Inc.

401K Profit Sharing Plan

Notes to Financial Statements (continued)

December 31, 2005 and 2004

6. Mergers (continued)

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 statements of changes in net assets available for benefits as other transfers for the year ended December 31, 2003.

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 2006, assets from another plan amounting to approximately $5,164,000 were merged into the Plan.

 

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Supplemental Schedule

Prosperity Bancshares, Inc.

401K Profit Sharing Plan

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

December 31, 2005

 

(a)   

(b) Identity of Issue

   (c) Description    (d) Cost    (e) Current
Value
*    First Trust Money Market Account    Non-Int-Bearing       $ 12,554
**    Prosperity Bank – Interest Bearing Account    Interest-Bearing         5,197,947
**    Prosperity Bancshares, Inc. Common Stock    Common Stock         11,905,947
***    Participant Loans    N/A         681,240
   Fundamental Investors    Mutual Fund         476,331
   New Perspective Fund    Mutual Fund         736,748
   Washington Mutual Investors Fund    Mutual Fund         552,976
   Capital Income Builder    Mutual Fund         644,221
   Capital World Growth and Income Fund    Mutual Fund         707,277
   American Balance Fund    Mutual Fund         600,327
   Euro Pacific Growth Fund    Mutual Fund         595,521
   The Growth Fund of America    Mutual Fund         1,869,436
   Intermediate Bond Fund of America    Mutual Fund         263,850
   The Investment Company of America    Mutual Fund         918,974
   AMCAP Fund    Mutual Fund         630,752
   The Income Fund of America    Mutual Fund         396,939
   American Mutual Fund    Mutual Fund         494,818
   Metlife Stable Value    Mutual Fund         1,073,036
   AIM Mid Cap Core Equity    Mutual Fund         375,417
   Allianz NFJ Small Cap Value    Mutual Fund         672,062
   PIMCO Total Return    Mutual Fund         918,045
   Sentinel Small Company    Mutual Fund         853,161
   Calvert Social Inv Equity    Mutual Fund         20,675

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%.

 

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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 29, 2006   Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan
 

/s/ Michael Harris

  Michael Harris
  Cashier, Prosperity Bank

 

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INDEX TO EXHIBITS

 

Exhibit No.  

Description

23.1   Consent of Independent Registered Public Accounting Firm