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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

 

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.        )

 

 

Filed by the Registrant  ☒                             Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

LegacyTexas Financial Group, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO   LOGO
Proxy Statement and Prospectus of
Prosperity Bancshares, Inc.
  Proxy Statement of
LegacyTexas Financial Group, Inc.

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

Dear Shareholder:

On June 16, 2019, LegacyTexas Financial Group, Inc., or “Legacy,” and Prosperity Bancshares, Inc., or “Prosperity,” entered into an Agreement and Plan of Reorganization (which, as it may be amended, supplemented or modified from time to time, we refer to as the “reorganization agreement”), pursuant to which Legacy will merge with and into Prosperity. Immediately following the completion of the merger, LegacyTexas Bank, a wholly owned bank subsidiary of Legacy, will merge with and into Prosperity Bank, Prosperity’s wholly owned bank subsidiary, with Prosperity Bank continuing as the surviving bank (which we refer to as the “bank merger”).

In the merger, each share of Legacy common stock will be converted into the right to receive (i) 0.5280 (which we refer to as the “exchange ratio”) shares of Prosperity common stock (which we refer to as the “per share stock consideration”) and (ii) $6.28 in cash (which we refer to as the “per share cash consideration” and, together with the per share stock consideration, the “merger consideration”). Based on Prosperity’s closing price of $67.24 per share on June 14, 2019, the last trading day before the announcement of the reorganization agreement, and the number of shares of Legacy common stock outstanding as of June 14, 2019, the merger consideration represented approximately $41.78 for each share of Legacy common stock and aggregate consideration of approximately $2.1 billion. Based on Prosperity’s closing price of $71.04 per share on September 13, 2019, the last practicable trading day before the date of the enclosed joint proxy statement/prospectus, and the number of shares of Legacy common stock outstanding as of such date, the merger consideration represented approximately $43.79 for each share of Legacy common stock and aggregate consideration of approximately $2.2 billion. We encourage you to obtain current market quotations for the common stock of Prosperity and Legacy before you vote. Prosperity common stock is currently quoted on the New York Stock Exchange (which we refer to as the “NYSE”) under the symbol “PB.” Legacy common stock is currently quoted on the NASDAQ Global Select Market (which we refer to as the “NASDAQ”) under the symbol “LTXB.”

The number of shares of Prosperity common stock to be delivered to holders of shares of Legacy common stock upon completion of the merger is approximately 26,253,406 shares, based on the number of shares of Legacy common stock, including shares expected to be issued in connection with outstanding options and performance share awards, outstanding as of September 16, 2019.

Prosperity and Legacy will each hold a special meeting of their respective shareholders in connection with the merger. Prosperity shareholders will be asked to vote to approve the reorganization agreement and related matters, as well as to approve the other matters to be considered at the special meeting, as described in the attached joint proxy statement/prospectus. Legacy stockholders will be asked to vote to approve the reorganization agreement and approve related matters, as described in the attached joint proxy statement/prospectus.

The special meeting of Prosperity shareholders will be held on October 29, 2019, at 10:30 a.m. Central Time, at 80 Sugar Creek Center Blvd., Sugar Land, Texas 77478. The special meeting of Legacy stockholders will be held on October 28, at 11:00 a.m. Central Time, at LegacyTexas Business Center, 5400 Independence Parkway, Suite 200, Plano, Texas 75023.

Your vote is important. We cannot complete the merger unless Prosperity’s shareholders and Legacy’s stockholders approve the reorganization agreement. Approval of the reorganization agreement requires (1) the affirmative vote of the holders of a majority of the outstanding shares of Prosperity common stock entitled to vote on the proposal and (2) the affirmative vote of the holders of a majority of the outstanding shares of Legacy common stock entitled to vote on the proposal. Regardless of whether or not you plan to attend your special meeting, please take the time to vote your shares in accordance with the instructions contained in the enclosed joint proxy statement/prospectus.

The Prosperity board of directors recommends that Prosperity shareholders vote “FOR” the approval of the reorganization agreement and “FOR” the other matters to be considered at the Prosperity special meeting.

The Legacy board of directors recommends that Legacy stockholders vote “FOR” the approval of the reorganization agreement and “FOR” the other matters to be considered at the Legacy special meeting.

The enclosed joint proxy statement/prospectus describes the special meetings, the merger, the documents related to the merger and other related matters. Please carefully read the entire joint proxy statement/prospectus, including the “Risk Factors” section, beginning on page 42, for a discussion of the risks relating to the proposed merger. You also can obtain information about Prosperity and Legacy from documents that each has filed with the Securities and Exchange Commission.

If Prosperity shareholders have any questions or require assistance in voting their shares of Prosperity, they should call Alliance Advisors, Prosperity’s proxy solicitor for its special meeting, toll-free at (833) 786-6483.

If Legacy stockholders have any questions or require assistance in voting their shares of Legacy stock, they should call Alliance Advisors, Legacy’s proxy solicitor for its special meeting, toll-free at (833) 786-6483.

If you have any questions concerning the merger, Prosperity shareholders should write to Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027, Attn: Investor Relations or call (281) 269-7199, and Legacy stockholders should contact Legacy at LegacyTexas Financial Group, Inc., 5851 Legacy Circle, Suite 1200, Plano, Texas 75024 Attn: Investor Relations or call (972) 578-5000. We look forward to seeing you at your respective meeting.

 

LOGO

 

   

LOGO

 

David Zalman

Chairman of the Board

Prosperity Bancshares, Inc.

   

Anthony J. LeVecchio

Chairman of the Board

LegacyTexas Financial Group, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. The securities that Prosperity is offering through this document are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This joint proxy statement/prospectus is dated September 17, 2019, and is first being mailed or otherwise delivered to Prosperity shareholders and Legacy stockholders on or about September 20, 2019.


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LegacyTexas Financial Group, Inc.

5851 Legacy Circle, Suite 1200

Plano, Texas 75024

(972) 578-5000

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the stockholders of Legacy:

A special meeting of the stockholders of LegacyTexas Financial Group, Inc. (“Legacy”) will be held on October 28, 2019, at 11:00 a.m. Central Time, at LegacyTexas Business Center, 5400 Independence Parkway, Suite 200, Plano, Texas 75023, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan of Reorganization, dated as of June 16, 2019, by and between Legacy and Prosperity Bancshares, Inc. (“Prosperity”), as it may be amended, supplemented or modified from time to time, pursuant to which Legacy will merge with and into Prosperity (the “merger”), as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “Legacy merger proposal”);

2. To consider and vote upon a proposal to approve, on an advisory (non-binding) basis, the compensation that certain executive officers of Legacy may receive in connection with the merger pursuant to existing agreements or arrangements with Legacy (which we refer to as the “Legacy compensation proposal”); and

3. To consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if the board of directors of Legacy determines such an adjournment is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Legacy merger proposal (which we refer to as the “Legacy adjournment proposal”).

Legacy will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

The above proposals are described in more detail in the joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the reorganization agreement is attached as Appendix A to the joint proxy statement/prospectus.

The Legacy board of directors has set September 16, 2019 as the record date for the Legacy special meeting. Only holders of record of Legacy common stock at the close of business on September 16, 2019 will be entitled to notice of and to vote at the Legacy special meeting and any adjournments or postponements thereof. Any stockholder entitled to attend and vote at the Legacy special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of Legacy common stock.

Approval of the Legacy merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of Legacy common stock entitled to vote at the Legacy special meeting. Approval of the Legacy compensation proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting. The Legacy adjournment proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting.

The board of directors of Legacy has approved the reorganization agreement and recommends that you vote “FOR” the Legacy merger proposal, “FOR” the Legacy compensation proposal and “FOR” the Legacy adjournment proposal.

Your vote is very important. We cannot complete the merger unless Legacy’s stockholders approve the Legacy merger proposal.

A proxy card is enclosed. Whether or not you plan to attend the Legacy special meeting, please vote by completing, signing and dating the proxy card and promptly mailing it in the enclosed envelope or via the Internet or by telephone pursuant to the instructions provided on the enclosed proxy card. You may revoke your proxy in the manner described in the joint proxy statement/prospectus at any time before it is exercised. If you attend the Legacy special meeting, you may vote in person if you desire, even if you have previously returned your proxy card or submitted your vote via the Internet or by telephone.

If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares of Legacy common stock, please contact Legacy at 5851 Legacy Circle, Plano, Texas 75024, Attn: Investor Relations or call (972) 578-5000 and ask for Kimberly Whitaker.

By Order of the Board of Directors,

 

 

LOGO

Anthony J. LeVecchio

Chairman of the Board

Plano, Texas

September 17, 2019


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Prosperity Bancshares, Inc.

Prosperity Bank Plaza

4295 San Felipe

Houston, Texas 77027

(281) 269-7199

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the shareholders of Prosperity:

A special meeting of shareholders of Prosperity Bancshares, Inc. (“Prosperity”) will be held on October 29, 2019, at 10:30 a.m. Central Time, at 80 Sugar Creek Center Blvd., Sugar Land, Texas 77478, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan of Reorganization, dated as of June 16, 2019 (the “reorganization agreement”), by and between Prosperity and LegacyTexas Financial Group, Inc. (“Legacy”), as it may be amended, supplemented or modified from time to time, pursuant to which Legacy will merge with and into Prosperity (the “merger”), the transactions contemplated by the reorganization agreement, and the issuance of Prosperity common stock in connection with the merger, each as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “Prosperity merger proposal”); and

2. To consider and vote upon any proposal to adjourn the special meeting to a later date or dates, if the board of directors of Prosperity determines such an adjournment is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Prosperity merger proposal (which we refer to as the “Prosperity adjournment proposal”).

Prosperity will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

The above proposals are described in more detail in the joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the reorganization agreement is attached as Appendix A to the joint proxy statement/prospectus.

The Prosperity board of directors has set September 16, 2019 as the record date for the Prosperity special meeting. Only holders of record of Prosperity common stock at the close of business on September 16, 2019 will be entitled to notice of and to vote at the Prosperity special meeting and any adjournments or postponements thereof. Any shareholder entitled to attend and vote at the Prosperity special meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf. Such proxy need not be a holder of Prosperity common stock.

Approval of the Prosperity merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of Prosperity common stock entitled to vote at the Prosperity special meeting. The Prosperity adjournment proposal requires the affirmative vote of a majority of votes cast by the Prosperity shareholders entitled to vote on such proposal at the Prosperity special meeting.

The board of directors of Prosperity has approved the reorganization agreement and recommends that you vote “FOR” the Prosperity merger proposal and “FOR” the Prosperity adjournment proposal.

Your vote is very important. We cannot complete the merger unless Prosperity’s shareholders approve the Prosperity merger proposal.

A proxy card is enclosed. Whether or not you plan to attend the Prosperity special meeting, please vote by completing, signing and dating the proxy card and promptly mailing it in the enclosed envelope or via the Internet or by telephone pursuant to the instructions provided on the enclosed proxy card. You may revoke your proxy in the manner described in the joint proxy statement/prospectus at any time before it is exercised. If you attend the Prosperity special meeting, you may vote in person if you desire, even if you have previously returned your proxy card or submitted your vote via the Internet or by telephone.

If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares of Prosperity common stock, please contact Prosperity at Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027, Attn: Investor Relations or call (281) 269-7199.

By Order of the Board of Directors,

 

 

LOGO

David Zalman

Chairman of the Board

Houston, Texas

September 17, 2019


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HOW TO OBTAIN ADDITIONAL INFORMATION

Certain important business and financial information about Prosperity and Legacy included in documents filed with the Securities and Exchange Commission (which we refer to as the “SEC”) has not been included in or incorporated by reference in this document. This information is described under “Where You Can Find More Information.”

With respect to Prosperity, you can obtain free copies of this information by writing or calling:

Prosperity Bancshares, Inc.

Attention: Investor Relations

Prosperity Bank Plaza

4295 San Felipe

Houston, Texas 77027

(281) 269-7199

With respect to Legacy, you can obtain free copies of this information by writing or calling:

LegacyTexas Financial Group, Inc.

Attention: Investor Relations

5851 Legacy Circle

Plano, Texas 75024

(972) 578-5000

In addition, if Prosperity shareholders have specific questions about the merger or the Prosperity special meeting, need additional copies of this joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation for the Prosperity special meeting, they may contact Alliance Advisors, the proxy solicitor for Prosperity, at the following address or by calling the following telephone number:

Alliance Advisors

200 Broadacres Drive, 3rd Fl.

Bloomfield, NJ 07003

(833) 786-6483

If Legacy stockholders have specific questions about the merger or the Legacy special meeting, need additional copies of this joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation for the Legacy special meeting, they may contact Alliance Advisors, the proxy solicitor for Legacy, at the following address or by calling the following telephone number:

Alliance Advisors

200 Broadacres Drive, 3rd Fl.

Bloomfield, NJ 07003

(833) 786-6483

To obtain timely delivery of any of the documents before the special meeting of shareholders of Prosperity or Legacy, you must request the information by no later than five business days prior to the Prosperity special meeting, or October 22, 2019, or five business days prior to the Legacy special meeting, or October 21, 2019.

PLEASE NOTE

We have not authorized anyone to provide you with any information other than the information included in this document and the documents to which we refer you. If someone provides you with other information, please do not rely on it as being authorized by us.

This joint proxy statement/prospectus has been prepared as of September 17, 2019. There may be changes in the affairs of Legacy or Prosperity after that date that are not reflected in this document.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

     1  

SUMMARY

     11  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PROSPERITY

     23  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LEGACY

     25  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     27  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE FINANCIAL DATA

     38  

RISK FACTORS

     42  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     47  

GENERAL INFORMATION

     50  

THE LEGACY SPECIAL MEETING

     51  

THE PROSPERITY SPECIAL MEETING

     56  

PROSPERITY AND LEGACY MERGER PROPOSALS

     61  

THE MERGER

     61  

THE REORGANIZATION AGREEMENT

     101  

ACCOUNTING TREATMENT

     124  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     125  

LEGACY COMPENSATION PROPOSAL

     128  

LEGACY ADJOURNMENT PROPOSAL

     129  

PROSPERITY ADJOURNMENT PROPOSAL

     130  

BUSINESS OF PROSPERITY

     131  

SUPPLEMENTAL MANAGEMENT, EXECUTIVE COMPENSATION AND OTHER INFORMATION

     132  

BUSINESS OF LEGACY

     133  

MARKET PRICE AND DIVIDEND INFORMATION

     134  

DESCRIPTION OF PROSPERITY CAPITAL STOCK

     135  

COMPARISON OF RIGHTS OF STOCKHOLDERS OF LEGACY AND SHAREHOLDERS OF PROSPERITY

     137  

EXPERTS

     147  

LEGAL MATTERS

     147  

SHAREHOLDER PROPOSALS FOR ANNUAL MEETING OF SHAREHOLDERS IN 2020

     148  

OTHER MATTERS

     150  

HOUSEHOLDING OF PROXY MATERIALS

     151  

WHERE YOU CAN FIND MORE INFORMATION

     152  

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     154  

APPENDIX A: AGREEMENT AND PLAN OF REORGANIZATION

  

APPENDIX B: OPINION OF J.P. MORGAN SECURITIES LLC

  

APPENDIX C: OPINION OF KEEFE, BRUYETTE & WOODS, INC.

  


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

The following are some questions that you may have regarding the Agreement and Plan of Reorganization, or the “reorganization agreement,” dated as of June 16, 2019, by and between Prosperity Bancshares, Inc., or “Prosperity,” and LegacyTexas Financial Group, Inc., or “Legacy,” pursuant to which Legacy will merge with and into Prosperity, with Prosperity being the surviving entity following the merger, which transaction is referred to herein as the “merger,” and the special meetings, and brief answers to those questions. Prosperity and Legacy advise you to read carefully the remainder of this joint proxy statement/prospectus because the information contained in this section does not provide all of the information that might be important to you with respect to the merger and the special meetings. Additional important information is also referred to under the caption “Where You Can Find More Information” beginning on page 152.

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

In order to approve the reorganization agreement and related matters, Prosperity has called a special meeting of its shareholders. This document serves as a proxy statement for the Prosperity special meeting and describes the proposals to be presented at the Prosperity special meeting.

Legacy has also called a special meeting of its stockholders to approve the reorganization agreement and approve related matters. This document serves as a proxy statement for the Legacy special meeting and describes the proposals to be presented at the Legacy special meeting. Finally, this document is also a prospectus that is being delivered to Legacy stockholders because, in connection with the merger, Prosperity is offering shares of Prosperity common stock to Legacy stockholders.

This joint proxy statement/prospectus contains important information about the merger, the reorganization agreement and the other proposals being voted on at the Prosperity and Legacy special meetings and important information to consider in connection with an investment in Prosperity common stock. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending your special meeting. Your vote is important and we encourage you to submit your proxy as soon as possible.

 

Q:

What are Legacy stockholders being asked to vote upon?

 

A:

Legacy is proposing to be acquired by Prosperity. As part of the overall transaction, the holders of Legacy common stock are being asked to consider and vote on the following proposals:

 

   

to approve the reorganization agreement, pursuant to which Legacy will merge with and into Prosperity (which we refer to as the “Legacy merger proposal”), as is further described in the section entitled “The Merger” beginning on page 61 and “The Reorganization Agreement” beginning on page 101;

 

   

to approve, on an advisory (non-binding) basis, the compensation that certain executive officers of Legacy may receive in connection with the merger pursuant to existing agreements or arrangements with Legacy (which we refer to as the “Legacy compensation proposal”), which is further described in the section entitled “Legacy Compensation Proposal” beginning on page 128; and

 

   

to approve the adjournment of the Legacy special meeting to a later date or dates if the board of directors of Legacy determines it is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Legacy merger proposal (which we refer to as the “Legacy adjournment proposal”), which is further described in the section entitled “Legacy Adjournment Proposal” beginning on page 129.

No other business may be conducted at the Legacy special meeting.

 

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Q:

What are Prosperity shareholders being asked to vote upon?

 

A:

Prosperity is proposing to acquire Legacy through the merger. As part of the overall transaction, the shareholders of Prosperity are being asked to consider and vote on the following proposals:

 

   

to approve the reorganization agreement, pursuant to which Legacy will merge with and into Prosperity, the transactions contemplated thereby and the issuance of Prosperity common stock in connection with the merger (which we refer to as the “Prosperity merger proposal”), as is further described in the section entitled “The Merger” beginning on page 61 and “The Reorganization Agreement” beginning on page 101; and

 

   

to approve the adjournment of the Prosperity special meeting to a later date or dates, if the board of directors of Prosperity determines it is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Prosperity merger proposal (which we refer to as the “Prosperity adjournment proposal”), as is further described in the section entitled “Prosperity Adjournment Proposal” beginning on page 130.

No other business may be conducted at the Prosperity special meeting.

 

Q:

What will happen in the merger?

 

A:

In the merger, Legacy will be merged with and into Prosperity, with Prosperity being the surviving entity. At the effective time of the merger, Legacy will cease to exist. Upon the merger of Legacy with and into Prosperity, the then-outstanding shares of Legacy common stock will be converted into the right to receive the merger consideration described below. Immediately following the merger, LegacyTexas Bank (which we refer to as “Legacy Bank”) will be merged with and into Prosperity Bank, with Prosperity Bank being the surviving bank. The merger of Legacy Bank with and into Prosperity Bank is referred to in this joint proxy statement/prospectus as the “bank merger.” Legacy Bank will cease to exist after the bank merger occurs. Legacy Bank is a Texas banking association with its home office in Plano, Texas, and is a wholly owned subsidiary of Legacy. Prosperity Bank is a Texas banking association headquartered in El Campo, Texas, and is a wholly owned subsidiary of Prosperity.

 

Q:

What will Legacy stockholders receive in the merger?

 

A:

If the merger is completed, Legacy stockholders will receive 0.5280 (which we refer to as the “exchange ratio”) shares of Prosperity common stock (which we refer to as the “per share stock consideration”) and $6.28 in cash (which we refer to as the “per share cash consideration” and, together with the per share stock consideration, the “merger consideration”) for each share of Legacy common stock held immediately prior to the merger. No fractional shares of Prosperity common stock will be issued in the merger. In lieu of the issuance of any such fractional shares, Prosperity will pay to each former holder of Legacy shares otherwise entitled to receive such fractional shares an amount of cash (rounded to the nearest whole cent) determined by multiplying (i) the average of the closing-sale price per Prosperity share on the NYSE for the five full trading days ending on the trading day preceding the closing date, as reported by The Wall Street Journal, by (ii) the fraction of a Prosperity share such holder would otherwise be entitled to receive pursuant to the reorganization agreement.

 

Q:

What consideration will holders of outstanding Legacy options receive in the merger?

 

A:

If the merger is completed, each outstanding and unexercised option granted by Legacy to purchase shares of Legacy common stock under the Legacy equity compensation plans will fully vest and be cancelled and converted into the right to receive the merger consideration with respect to a number of shares of Legacy common stock (rounded down to the nearest whole share) equal to the quotient of (x) the product of (A) the number of shares of Legacy common stock subject to such option multiplied by (B) the excess, if any, of (i) the sum of the per share stock consideration and the per share cash consideration over (ii) the exercise

 

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  price per share of Legacy common stock under the option, divided by (y) the sum of the per share stock consideration and the per share cash consideration. See “The Reorganization Agreement—Treatment of Legacy Options” beginning on page 103 for additional information.

 

Q:

What consideration will holders of outstanding Legacy restricted stock awards and performance share awards receive in the merger?

 

A:

If the merger is completed, each outstanding and unvested Legacy restricted stock award and performance share award will vest and will be converted into the right to receive the merger consideration with respect to the number of shares of Legacy common stock subject to such restricted stock award or performance share award (which for any such awards subject to the satisfaction of performance criteria shall be calculated assuming satisfaction of such criteria at target performance levels). See “The Reorganization Agreement—Treatment of Legacy Restricted Stock Awards and Performance Share Awards” beginning on page 103 for additional information.

 

Q:

Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the effective time?

 

A:

Yes. Although the exchange ratio is fixed (except for customary anti-dilution adjustments in limited circumstances pursuant to the reorganization agreement), the value of the merger consideration will fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger based upon the market value of shares of Prosperity common stock. Any fluctuation in the market price of Prosperity shares after the date of this joint proxy statement/prospectus will change the value of the shares of Prosperity common stock that Legacy stockholders will receive.

 

Q:

What are the U.S. federal income tax consequences of the merger to Legacy stockholders?

 

A:

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), and it is a condition to the respective obligations of Prosperity and Legacy to complete the merger that each of Prosperity and Legacy receives a legal opinion to that effect. Consistent with such treatment, a U.S. holder (as defined in the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 125) of Legacy common stock will recognize gain, but will not be permitted to recognize loss, for U.S. federal income tax purposes on the exchange of shares of Legacy common stock for shares of Prosperity common stock in the merger in an amount equal to the lesser of (a) the cash consideration received (excluding cash received in lieu of a fractional share) and (b) gain realized. The amount of gain realized will be equal to the amount by which the cash plus the fair market value, at the effective time of the merger, of the Prosperity common stock received exceeds the U.S. holder’s adjusted tax basis in the Legacy common stock to be surrendered in exchange therefor.

 

    

For further information, please refer to “Material U.S. Federal Income Tax Consequences of the Merger.” The U.S. federal income tax consequences described above may not apply to all holders of Legacy common stock. The tax consequences to a holder of Legacy common stock will depend on his, her or its individual situation. Accordingly, we strongly urge holders of Legacy common stock to consult their tax advisors for a full understanding of the particular tax consequences of the merger to them.

 

Q:

Will Prosperity shareholders receive any consideration as a result of the merger?

 

A:

No. Whether or not the merger is completed, Prosperity shareholders will retain the shares of Prosperity common stock that they currently own. They will not receive any merger consideration, whether cash or any additional shares of Prosperity common stock in the merger. If the merger is consummated, the issuance of the shares of Prosperity common stock to the Legacy stockholders in the merger will result in the existing Prosperity shareholders’ ownership interest in and voting power with respect to Prosperity being diluted.

 

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Q:

When do you expect the merger to be completed?

 

A:

We are working to complete the merger in the fourth quarter of 2019. However, neither Prosperity nor Legacy can assure you of when or if the merger will be completed. Prosperity must obtain the approval of Prosperity shareholders to approve the Prosperity merger proposal at its special meeting, and Legacy must obtain the approval of Legacy stockholders to approve the Legacy merger proposal at its special meeting. Prosperity and Legacy must also obtain required regulatory approvals in addition to satisfying certain other closing conditions under the terms of the reorganization agreement.

 

Q:

Are there any risks I should consider in deciding whether I will vote for the reorganization agreement and the other proposals to be considered at the Prosperity special meeting?

 

A:

Yes. Set forth under the heading of “Risk Factors,” beginning on page 42, are a number of risk factors that you should consider carefully.

 

Q:

When and where will the special shareholders’ meetings be held?

 

A:

Legacy stockholders: The Legacy special stockholders’ meeting is scheduled to take place at 11:00 a.m. Central Time, on October 28, 2019, at LegacyTexas Business Center, 5400 Independence Parkway, Suite 200, Plano, Texas 75023.

 

    

Prosperity shareholders: The Prosperity special shareholders’ meeting is scheduled to take place at 10:30 a.m. Central Time, on October 29, 2019, at 80 Sugar Creek Center Blvd., Sugar Land, Texas 77478.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Legacy stockholders: The holders of record of Legacy common stock at the close of business on September 16, 2019, which is the date that Legacy’s board of directors has fixed as the record date for the Legacy special meeting, are entitled to vote at the Legacy special meeting.

 

    

Prosperity shareholders: The holders of record of Prosperity common stock at the close of business on September 16, 2019, which is the date that Prosperity’s board of directors has fixed as the record date for the Prosperity special meeting, are entitled to vote at the Prosperity special meeting.

 

Q:

What are my choices when voting?

 

A:

With respect to each of the proposals, holders of common stock entitled to vote may vote for, against or abstain from voting on the proposals in question presented at either the Legacy special meeting or the Prosperity special meeting, as the case may be.

 

Q:

What constitutes a quorum at the Legacy special meeting and the Prosperity special meeting?

 

A:

Legacy stockholders: The presence at the Legacy special meeting, in person or by proxy, of holders of one-third of the outstanding shares of Legacy common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business. Abstentions and broker nonvotes, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum.

If a quorum is not present, Legacy may adjourn the Legacy special meeting.

Prosperity shareholders: The presence at the Prosperity special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Prosperity common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business. Abstentions and broker nonvotes, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum.

 

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If a quorum is not present, Prosperity may adjourn the Prosperity special meeting.

 

Q:

What votes are required for approval of the reorganization agreement?

 

A:

Legacy stockholders: Approval of the Legacy merger proposal by Legacy stockholders requires the affirmative vote of the holders of a majority of the outstanding shares of Legacy common stock entitled to vote on such proposal at the Legacy special meeting (which we refer to as the “requisite Legacy stockholder approval”).

Prosperity shareholders: Approval of the Prosperity merger proposal by Prosperity shareholders requires the affirmative vote of the holders of a majority of the outstanding shares of Prosperity common stock entitled to vote on such proposal at the Prosperity special meeting (which we refer to as the “requisite Prosperity shareholder approval”).

 

Q:

What vote is required to approve, on an advisory (non-binding) basis, the Legacy compensation proposal?

 

A:

Approval of the Legacy compensation proposal by Legacy stockholders requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting.

 

Q:

What votes are required to approve the adjournment proposals?

 

A:

Legacy stockholders: Approval of the Legacy adjournment proposal by Legacy stockholders requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting.

 

    

Prosperity shareholders: Approval of the Prosperity adjournment proposal by Prosperity shareholders requires the affirmative vote of a majority of votes cast by the Prosperity shareholders entitled to vote on such proposal at the Prosperity special meeting.

 

Q:

How does the board of directors of Legacy recommend that Legacy stockholders vote at the special meeting?

 

A:

The board of directors of Legacy recommends that Legacy stockholders vote their shares “FOR” the Legacy merger proposal, “FOR” the Legacy compensation proposal and “FOR” the Legacy adjournment proposal.

 

Q:

How does the board of directors of Prosperity recommend that Prosperity shareholders vote at the Prosperity special meeting?

 

A:

The board of directors of Prosperity recommends that Prosperity shareholders vote their shares “FOR” the Prosperity merger proposal and “FOR” the Prosperity adjournment proposal.

 

Q:

Am I entitled to dissenters’ or appraisal rights?

 

A:

Legacy stockholders: No. Under the Maryland General Corporation Law (which we refer to as the “MGCL”), holders of Legacy common stock are not entitled to dissenters’ or appraisal rights in connection with the merger.

 

    

Prosperity shareholders: No. Under the Texas Business Organizations Code (which we refer to as the “TBOC”), holders of shares of Prosperity common stock are not entitled to dissenters’ or appraisal rights in connection with the merger or the share issuance in connection with the merger.

 

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Q:

What happens if I transfer my shares after the record date for the special meetings?

 

A:

Legacy stockholders: The record date for the Legacy special meeting is earlier than the expected date of completion of the merger. Therefore, if you transfer your shares of Legacy common stock after the record date, but prior to the effective time of the merger, you will retain the right to vote at the Legacy special meeting, but the right to receive the merger consideration will transfer with the shares of Legacy common stock.

 

    

Prosperity shareholders: The record date for the Prosperity special meeting is earlier than the expected date of completion of the merger. Therefore, if you transfer your shares of Prosperity common stock after the record date, but prior to the completion of the merger, you will retain the right to vote at the Prosperity special meeting but will no longer own such shares of the combined company upon completion of the merger.

 

Q:

What do I need to do now?

 

A:

Legacy stockholders: After you have thoroughly read and considered the information contained in this joint proxy statement/prospectus and have decided how you wish to vote your shares of Legacy common stock, please vote your shares promptly so that your shares are represented and voted at the Legacy special meeting. The process for voting your shares depends on how your shares are held. Generally, you may hold shares as a “record holder” (that is, in your own name) or in “street name” (that is, through a broker, bank, trustee or other nominee). If you hold shares in “street name,” you are considered the beneficial owner of those shares.

 

    

If you are a record holder on the record date for the Legacy special meeting, you may vote by proxy or you may attend the Legacy special meeting and vote in person. If you are a record holder on the record date for the Legacy special meeting and want to vote your shares by proxy, you have three ways to vote:

 

   

simply indicate on the proxy card(s) applicable to your Legacy common stock how you want to vote and sign, date and mail your proxy card(s) in the enclosed pre-addressed, postage-paid envelope as soon as possible, but in any event no later than the time necessary for your proxy card to be actually received by Legacy immediately prior to the vote at the Legacy special meeting;

 

   

call 1-866-804-9616 using a touch-tone telephone and follow the instructions for telephone voting provided on the call; or

 

   

go to the website www.AALvote.com/LTXBSM and follow the instructions at that website.

Your proxy card must be received by Legacy no later than the time the polls close for voting at the Legacy special meeting for your vote to be counted at the meeting. Please note that telephone and Internet voting will close at 11:59 p.m. Central Time, on October 27, 2019. All references in this joint proxy statement/prospectus to a particular time of day refer to Central Time, to the extent such references relate to the Prosperity special meeting or the Legacy special meeting.

Voting your shares by proxy will enable your shares of Legacy common stock to be represented and voted at the Legacy special meeting if you do not attend the Legacy special meeting and vote your shares in person.

If you hold shares through the LegacyTexas 401(k) Employee Stock Ownership Plan, you will receive information and separate instructions from the plan’s trustee about how to direct the trustee to vote such shares. See “The Legacy Special Meeting—Participants in the LegacyTexas 401(k) Employee Stock Ownership Plan” beginning on page 54 for additional information.

Prosperity shareholders: After you have thoroughly read and considered the information contained in this joint proxy statement/prospectus and have decided how you wish to vote your shares of Prosperity common stock, please vote your shares promptly so that your shares are represented and voted at the Prosperity special meeting. The process for voting your shares depends on how your shares are held. Generally you

 

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may hold shares as a “record holder” (that is, in your own name) or in “street name” (that is, through a broker, bank, trustee or other nominee). If you hold shares in “street name,” you are considered the beneficial owner of those shares.

If you are a record holder on the record date for the Prosperity special meeting, you may vote by proxy or you may attend the Prosperity special meeting and vote in person. If you are a record holder on the record date for the Prosperity special meeting and want to vote your shares by proxy, you have three ways to vote:

 

   

simply indicate on the proxy card(s) applicable to your Prosperity common stock how you want to vote and sign, date and mail your proxy card(s) in the enclosed pre-addressed, postage-paid envelope as soon as possible, but in any event no later than the time necessary for your proxy card(s) to be actually received by Prosperity prior to the vote at the Prosperity special meeting;

 

   

call 1-800-652-VOTE (8683) using a touch-tone telephone and follow the instructions for telephone voting provided on the call; or

 

   

go to the website www.investorvote.com/PB and follow the instructions at that website.

Your proxy card must be received by Prosperity no later than the time the polls close for voting at the Prosperity special meeting for your vote to be counted at the meeting. Please note that telephone and Internet voting will close at 11:59 p.m. Central Time, on October 28, 2019.

Voting your shares by proxy will enable your shares of Prosperity common stock to be represented and voted at the Prosperity special meeting if you do not attend the Prosperity special meeting and vote your shares in person.

If you hold shares through the Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan, you will receive information and separate instructions about how to direct the voting of such shares. See “The Prosperity Special Meeting—Participants in the Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan” beginning on page 59 for additional information.

 

Q:

If my shares of common stock are held in “street name” by my broker, bank, trustee or other nominee, will my broker, bank, trustee or other nominee vote my shares for me?

 

A:

No. Your broker, bank, trustee or other nominee cannot vote your shares without instructions from you.

If you hold your shares in “street name,” you should have received access to these proxy materials from your broker, bank, trustee or other nominee with instructions on how to instruct your broker, bank, trustee or other nominee to vote your shares on the proposals. Please follow the voting instructions provided by the broker, bank, trustee or other nominee. You may not vote shares held in “street name” by returning a proxy card directly to Legacy or Prosperity, or by voting in person at the Legacy special meeting or the Prosperity special meeting, unless you provide a legal proxy, which you must obtain from your broker, bank, trustee or other nominee. Further, brokers, banks, trustees or nominees who hold shares of Legacy common stock or Prosperity common stock on behalf of their customers may not give a proxy to Legacy or Prosperity to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks, trustees or nominees do not have discretionary voting power on these matters.

If you do not provide instructions to your broker, bank, trustee or other nominee, your shares will not be voted, which will have the same effect as a vote against the proposal to approve the reorganization agreement.

 

Q:

How will my shares be voted if I return a signed and dated proxy card but do not specify how my shares will be voted?

 

A:

Legacy stockholders: The shares to which such proxy card relates will be voted FOR the Legacy merger proposal, FOR the Legacy compensation proposal and FOR the Legacy adjournment proposal.

 

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Prosperity shareholders: The shares to which such proxy card relates will be voted FOR the Prosperity merger proposal and FOR the Prosperity adjournment proposal.

 

Q:

Can I attend the special meeting and vote in person?

 

A:

Legacy stockholders: Yes. All Legacy stockholders are invited to attend the Legacy special meeting. Stockholders of record of Legacy common stock on the record date for the Legacy special meeting can vote in person at the Legacy special meeting.

If your shares of Legacy are held in “street name,” then you are not the stockholder of record. In order for you to vote the shares that you beneficially own and that are held in “street name” in person at the special meeting, you must bring a legal proxy, executed in your favor, from the broker, bank, trustee or other nominee that was the record holder of your shares held in “street name” as of the record date: (i) confirming that you were the beneficial owner of those shares as of the record date, (ii) stating the number of shares of which you were the beneficial owner that were held for your benefit at that time by that broker, bank, trustee or other nominee, and (iii) appointing you as the record holder’s proxy to vote the shares covered by that proxy at the special meeting.

Whether or not you intend to be present at the Legacy special meeting, you are urged to sign, date, and return your proxy card, or to vote via the Internet or by telephone, promptly. If you are then present and wish to vote your shares in person, your original proxy may be revoked by voting by ballot at the Legacy special meeting.

Prosperity shareholders: Yes. All Prosperity shareholders are invited to attend the Prosperity special meeting. Shareholders of record of Prosperity common stock on the record date for the Prosperity special meeting can vote in person at the Prosperity special meeting.

If your shares of Prosperity are held in “street name,” then you are not the shareholder of record. In order for you to vote the shares that you beneficially own and that are held in “street name” in person at the special meeting, you must bring a legal proxy, executed in your favor, from the broker, bank, trustee or other nominee that was the record holder of your shares held in “street name” as of the record date: (i) confirming that you were the beneficial owner of those shares as of the record date, (ii) stating the number of shares of which you were the beneficial owner that were held for your benefit at that time by that broker, bank, trustee or other nominee, and (iii) appointing you as the record holder’s proxy to vote the shares covered by that proxy at the special meeting.

Whether or not you intend to be present at the Prosperity special meeting, you are urged to sign, date, and return your proxy card, or to vote via the Internet or by telephone, promptly. If you are then present and wish to vote your shares in person, your original proxy may be revoked by voting by ballot at the Prosperity special meeting.

 

Q:

May I change my vote after I have submitted my proxy card?

 

A:

Legacy stockholders: Yes. If you are a holder of record of shares of Legacy common stock, regardless of the method used to cast your vote, you may change your vote prior to the time the polls close for voting at the Legacy special meeting by:

 

   

delivering to Legacy prior to the Legacy special meeting a written notice of revocation addressed to: LegacyTexas Financial Group, Inc., Attention: Corporate Secretary, 5851 Legacy Circle, Plano, Texas 75024;

 

   

completing, signing and returning a new proxy card with a later date than the date on your original proxy card prior to the time the polls close for voting at the Legacy special meeting, in which case any earlier proxy will be revoked automatically;

 

   

logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case

 

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if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 27, 2019; or

 

   

attending the Legacy special meeting and voting in person, in which case any earlier proxy will be revoked. However, simply attending the Legacy special meeting without voting on a proposal will not revoke your proxy previously provided as to that proposal.

If your shares are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted.

Prosperity shareholders: Yes. If you are a holder of record of shares of Prosperity common stock, regardless of the method used to cast a vote, you may change your vote by:

 

   

delivering to Prosperity prior to the Prosperity special meeting a written notice of revocation addressed to: Prosperity Bancshares, Inc., Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027, Attention: Secretary;

 

   

completing, signing and returning a new proxy card with a later date than the date on your original proxy card prior to the time the polls close for voting at the Prosperity special meeting, in which case any earlier proxy will be revoked automatically;

 

   

logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 28, 2019; or

 

   

attending the Prosperity special meeting and voting in person, in which case any earlier proxy will be revoked. However, simply attending the Prosperity special meeting without voting on a proposal will not revoke your proxy previously provided as to that proposal.

If your shares are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted.

 

Q:

What happens if I mark “ABSTAIN” on my proxy card, instruct my broker to vote “ABSTAIN,” or fail to instruct my broker to vote?

 

A:

Legacy stockholders: If you are a record holder of Legacy common stock and you mark “ABSTAIN” on your proxy card or if you hold your shares of Legacy common stock in “street name” and you instruct your broker, bank, trustee or other nominee to mark “ABSTAIN” or you fail to instruct your broker, bank, trustee or other nominee to vote your shares and the broker, bank, trustee or other nominee submits a proxy, referred to as a broker nonvote, then the abstention or broker nonvote of shares of Legacy common stock will be counted towards a quorum at the Legacy special meeting, and such shares will have the same effect as a vote “AGAINST” the Legacy merger proposal.

Abstentions and broker nonvotes will have no effect on the Legacy compensation proposal or the Legacy adjournment proposal.

Prosperity shareholders: If you are a record holder of Prosperity common stock and you mark “ABSTAIN” on your proxy card or if you hold your shares of Prosperity common stock in “street name” and you instruct your broker, bank, trustee or other nominee to mark “ABSTAIN” or you fail to instruct your broker, bank, trustee or other nominee to vote your shares and the broker, bank, trustee or other nominee submits a proxy, referred to as a broker nonvote, then the abstention or broker nonvote of shares of

 

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Prosperity common stock will be counted towards a quorum at the Prosperity special meeting, and such shares will have the same effect as a vote “AGAINST” the Prosperity merger proposal.

Abstentions and broker nonvotes will have no effect on the Prosperity adjournment proposal.

 

Q:

What happens if I fail to submit a proxy card or vote in person at the special meeting?

 

A:

Legacy stockholders: If you fail to submit a proxy card or vote in person at the Legacy special meeting, then it will have the same effect as a vote “AGAINST” the Legacy merger proposal and it will have no effect on the Legacy compensation proposal or the Legacy adjournment proposal.

Prosperity shareholders: If you fail to submit a proxy card or vote in person at the Prosperity special meeting, then it will have the same effect as a vote “AGAINST” the Prosperity merger proposal, and it will have no effect on the Prosperity adjournment proposal.

 

Q:

Should Legacy stockholders send in their stock certificates now?

 

A:

No. As soon as practical after the effective time, and no later than 10 business days after the effective time, Prosperity will use commercially reasonable efforts to cause its exchange agent, Computershare Investor Services, Inc., to send the Legacy stockholders written instructions for exchanging their stock certificates. Legacy stockholders should not send any Legacy stock certificates with their proxy cards.

 

Q:

Who can help answer my questions?

 

A:

Legacy stockholders: If you have additional questions about the merger, you should contact Legacy Investor Relations at 5851 Legacy Circle, Plano, Texas 75024, telephone (303) 675-1194, or Alliance Advisors, Legacy’s proxy solicitor for its special meeting, at 200 Broadacres Drive, 3rd Fl., Bloomfield, New Jersey 07003 or toll-free at (833) 786-6483.

Prosperity shareholders: If you have additional questions about the merger, you should Prosperity Investor Relations at Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027, telephone (281) 269-7199, or Alliance Advisors, Prosperity’s proxy solicitor for its special meeting, at 200 Broadacres Drive, 3rd Fl., Bloomfield, New Jersey 07003 or toll-free at (833) 786-6483.

 

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus and may not contain all of the information that is important to you regarding the merger and related matters. Prosperity and Legacy urge you to carefully read this entire document and the other information that is referred to in this joint proxy statement/prospectus or contained in the reports and documents incorporated by reference in this joint proxy statement/prospectus. These documents will give you a more complete description of the items for consideration at the special meeting. For more information about Prosperity and Legacy, see “Where You Can Find More Information” on page 152. Prosperity and Legacy have included page references in this summary to direct you to other places in this joint proxy statement/prospectus where you can find a more complete description of the topics that Prosperity and Legacy have summarized.

The Companies (page 131)

Prosperity Bancshares, Inc.

4295 San Felipe

Houston, Texas 77027

(281) 269-7199

www.prosperitybankusa.com

Prosperity Bancshares, Inc.® (“Prosperity”) was formed in 1983 as a vehicle to acquire the former Allied Bank in Edna, Texas, which was chartered in 1949 as The First National Bank of Edna and is now known as Prosperity Bank. Prosperity is a Texas corporation and registered financial holding company that derives substantially all of its revenues and income from the operation of its bank subsidiary, Prosperity Bank® (“Prosperity Bank”). Prosperity Bank provides a wide array of financial products and services to small and medium-sized businesses and consumers. As of June 30, 2019, Prosperity Bank operated 243 full service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area, including Corpus Christi and Victoria; 33 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; and 8 in the Tulsa, Oklahoma area. Prosperity’s common stock is traded on the NYSE under the symbol “PB.”

LegacyTexas Financial Group, Inc.

5851 Legacy Circle

Plano, Texas 75024

(972) 578-5000

www.legacytexas.com

LegacyTexas Financial Group, Inc. (“Legacy”) is a Maryland corporation and registered bank holding company. LegacyTexas Bank (“Legacy Bank”), a Texas banking association, is Legacy’s wholly owned principal operating subsidiary. The principal business of Legacy consists of attracting retail deposits from the general public and the business community and investing those funds, along with borrowed funds, in commercial real estate loans, secured and unsecured commercial and industrial loans, as well as permanent loans secured by first and second mortgages on one- to four-family residences and consumer loans. Additionally, Legacy Bank’s Warehouse Purchase Program allows mortgage banking company customers to close one- to four-family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors. Legacy’s operating revenues are derived principally from interest earned on interest-earning assets, including loans and investment securities, and service charges and fees on deposits and other account services. Legacy’s primary sources of funds are deposits, FHLB advances and other borrowings, and payments received on loans and securities. Legacy offers a variety of deposit accounts that provide a wide range of interest rates and terms,



 

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generally including savings, money market, certificate of deposit and demand accounts. At December 31, 2018, in addition to its executive offices, Legacy had three administrative offices, 42 full-service branches, one commercial loan production office located in Houston, Texas and a Warehouse Purchase Program office located in Littleton, Colorado. Legacy’s common stock is traded on the NASDAQ under the symbol “LTXB.”

Proposed Merger (page 101)

The reorganization agreement is attached to this joint proxy statement/prospectus as Appendix A. Please read the entire reorganization agreement. It is the legal document that governs the merger.

Terms of the Merger (page 61)

The reorganization agreement provides for the merger of Legacy with and into Prosperity, with Prosperity being the surviving corporation following the merger. Prosperity is the sole shareholder of Prosperity Bank, a Texas banking association, and Legacy is the sole shareholder of Legacy Bank, a Texas banking association. Pursuant to the reorganization agreement, immediately following the effectiveness of the merger, Legacy Bank will merge with and into Prosperity Bank, with Prosperity Bank being the surviving bank following the bank merger.

Merger Consideration (page 102)

At the effective time, each share of Legacy common stock (except for certain specified shares of Legacy common stock owned directly by Prosperity or Legacy, including shares of Legacy common stock held in the treasury of Legacy (other than shares of Legacy common stock held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties or that are held directly or indirectly by Prosperity or Legacy in respect of a debt previously contracted)) will be converted into the right to receive 0.5280 shares of Prosperity common stock and $6.28 in cash, without interest and with cash paid in lieu of fractional shares.

As a result of the foregoing, based on the number of shares of Prosperity common stock and the number of shares of Legacy common stock (including shares of Legacy common stock expected to be issued in connection with outstanding Legacy options and performance share awards) outstanding as of September 16, 2019, we expect that Legacy stockholders as of immediately prior to the closing of the merger will hold, in the aggregate, approximately 27.7% of the issued and outstanding shares of Prosperity common stock immediately following the closing of the merger (without giving effect to any shares of Prosperity common stock that may have been held by any Legacy stockholders prior to the merger).

No fractional shares of Prosperity common stock will be issued in the merger. In lieu of the issuance of any such fractional shares, Prosperity will pay to each former holder of Legacy shares otherwise entitled to receive such fractional shares an amount of cash (rounded to the nearest whole cent) determined by multiplying (i) the average of the closing-sale price per Prosperity share on the NYSE for the five full trading days ending on the trading day preceding the closing date, as reported by The Wall Street Journal, by (ii) the fraction of a Prosperity share such holder would otherwise be entitled to receive pursuant to the reorganization agreement.

The implied value of the merger consideration will fluctuate as the market price of Prosperity common stock fluctuates before the completion of the merger. This price will not be known at the time of the Legacy special meeting and may be more or less than the current price of Prosperity common stock or the price of Prosperity common stock at the time of the Legacy special meeting.



 

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Set forth below is a table showing the hypothetical implied value of the merger consideration based on a range of market prices for Prosperity common stock. The hypothetical implied value of the merger consideration set forth in the table below includes both the per share stock consideration and the per share cash consideration. Unlike the value of the per share stock consideration, the value of the per share cash consideration is fixed (at $6.28 per share of Legacy common stock) and will not fluctuate based on the market price of Prosperity common stock. The table does not reflect the fact that cash will be paid instead of fractional shares.

 

Hypothetical Prosperity
Common Stock Closing
Prices
    Fraction of Prosperity
Share to be Exchanged
for each Legacy Share
     Hypothetical Implied
Value(3)
 
  $50.00       0.5280        $32.68  
  55.00       0.5280        35.32  
  60.00       0.5280        37.96  
  65.00       0.5280        40.60  
  67.24 (1)      0.5280        41.78  
  70.00       0.5280        43.24  
  75.00       0.5280        45.88  
  80.00       0.5280        48.52  
  71.04 (2)      0.5280        43.79  

 

(1)

Based on the closing price for Prosperity common stock on June 14, 2019, the trading day immediately preceding the first public announcement of the reorganization agreement.

(2)

Based on the closing price for Prosperity common stock on September 13, 2019, the last practicable date before the date of this joint proxy statement/prospectus.

(3)

Includes the per share cash consideration of $6.28 per share of Legacy common stock.

The examples above are illustrative only. The value of the merger consideration that a Legacy stockholder actually receives will be based on the actual closing price on NYSE of Prosperity common stock upon completion of the merger, which may be outside the range of the amounts set forth above, and as a result, the actual value of the merger consideration per share of Legacy common stock at closing may not be shown in the above table.

Treatment of Legacy Options (page 103)

At the effective time, subject to the terms and conditions of the reorganization agreement, each option granted by Legacy to purchase shares of Legacy common stock under the Legacy equity compensation plans will fully vest and be cancelled and converted into the right to receive the merger consideration with respect to a number of shares of Legacy common stock (rounded down to the nearest whole share) equal to the quotient of (x) the product of (A) the number of shares of Legacy common stock subject to such option multiplied by (B) the excess, if any, of (i) the sum of the per share stock consideration and the per share cash consideration over (ii) the exercise price per share of Legacy common stock under the option, divided by (y) the sum of the per share stock consideration and the per share cash consideration.

Treatment of Legacy Restricted Stock Awards and Performance Share Awards (page 103)

At the effective time, subject to the terms and conditions of the reorganization agreement, each unvested Legacy restricted stock award and performance share award will vest and be converted into the right to receive the merger consideration (with any performance-based vesting conditions applicable to such awards immediately prior to the effective time deemed satisfied at target performance levels) with respect to the number of shares of Legacy common stock subject to such restricted stock award or performance share award.



 

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Recommendation of the Legacy Board and Its Reasons for the Merger (page 67)

Based on the reasons discussed elsewhere in this joint proxy statement/prospectus, the board of directors of Legacy believes that the merger is in the best interests of Legacy and the stockholders of Legacy and recommends that Legacy stockholders vote FOR the Legacy merger proposal, FOR the Legacy compensation proposal and FOR the Legacy adjournment proposal. For a discussion of the circumstances surrounding the merger and the factors considered by Legacy’s board of directors in approving the reorganization agreement, see the discussion beginning on page 61.

Recommendation of the Prosperity Board and Its Reasons for the Merger (page 69)

Based on the reasons discussed elsewhere in this joint proxy statement/prospectus, the board of directors of Prosperity believes that the merger is in the best interests of Prosperity and the shareholders of Prosperity and recommends that Prosperity shareholders vote FOR the Prosperity merger proposal and FOR the Prosperity adjournment proposal. For a discussion of the circumstances surrounding the merger and the factors considered by Prosperity’s board of directors in approving the reorganization agreement, see the discussion beginning on page 61.

Opinion of Legacy’s Financial Advisor (page 71; Appendix B)

At the meeting of the Legacy board of directors on June 14, 2019, Legacy’s financial advisor, J.P. Morgan Securities LLC (“J.P. Morgan”), rendered its oral opinion to the Legacy board of directors, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the merger consideration to be paid to the holders of Legacy common stock in the merger was fair, from a financial point of view, to such holders.

The full text of the J.P. Morgan opinion, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Appendix B to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the J.P. Morgan opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Legacy’s stockholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Legacy board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the merger, was directed only to the merger consideration to be paid to the holders of Legacy common stock in the merger and did not address any other aspect of the merger. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of Legacy or as to the underlying decision by Legacy to engage in the merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any stockholder of Legacy as to how such stockholder should vote with respect to the merger or any other matter.

For more information, see the section entitled “The Merger—Opinion of Legacy’s Financial Advisor” beginning on page 71 of this joint proxy statement/prospectus and the copy of the J.P. Morgan opinion included in this joint proxy statement/prospectus as Appendix B.

Opinion of Prosperity’s Financial Advisor (page 78; Appendix C)

In connection with the merger, Prosperity’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), delivered a written opinion, dated June 14, 2019, to the Prosperity board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to Prosperity of the aggregate merger consideration in the proposed merger. The full text of KBW’s opinion, which describes the procedures followed, assumptions



 

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made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached as Appendix C to this joint proxy statement/prospectus. The opinion was for the information of, and was directed to, the Prosperity board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Prosperity to engage in the merger or enter into the reorganization agreement or constitute a recommendation to the Prosperity board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Prosperity common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter.

For more information, see the section entitled “The Merger—Opinion of Prosperity’s Financial Advisor” beginning on page 78 of this joint proxy statement/prospectus and the copy of the KBW opinion included in this joint proxy statement/prospectus as Appendix C.

Financial Interests of Directors and Officers of Legacy in the Merger (page 93)

Legacy’s executive officers and directors may have interests in the merger that are different from, or in addition to, the interests of Legacy’s stockholders generally. Such interests include payments in connection with existing employment agreements and change in control severance plans with certain executive officers, Prosperity Bank and Legacy Bank entering into new employment agreements with Legacy Bank’s executive officers, and the right to indemnification and insurance coverage following the consummation of the merger. The members of the Legacy board of directors were aware of and considered these interests, among other matters, when they approved the reorganization agreement and recommended that Legacy stockholders approve the Legacy merger proposal. These interests are described in more detail under the section entitled “The Merger—Financial Interests of Directors and Officers of Legacy in the Merger” beginning on page 93.

The Prosperity Board of Directors After the Merger (page 98)

Effective immediately after the effective time, Prosperity will appoint Kevin Hanigan, Legacy’s current President and Chief Executive Officer, George Fisk, Legacy’s current vice chairman and Bruce Hunt, a current Legacy board member, to the Prosperity board of directors, each for a term expiring at the next annual meeting of the shareholders of Prosperity following the effective time and, in the case of each Mr. Fisk and Mr. Hunt, subject to his qualifying as an independent director. Prosperity will also nominate, and recommend that the Prosperity shareholders elect Messrs. Hanigan, Fisk and Hunt to the Prosperity board of directors at the first annual meeting of the shareholders of Prosperity following the effective time. Also effective immediately after the effective time, Prosperity Bank will appoint J. Mays Davenport, Legacy’s current Executive Vice President and Chief Financial Officer, to the board of directors of Prosperity Bank.

Prosperity Plans to Continue Payment of Quarterly Dividends (page 98)

As approved by Prosperity’s board of directors, Prosperity declared and paid a $0.34 per share dividend to holders of Prosperity common stock for the first three fiscal quarters of 2017 and a $0.36 per share dividend for the fourth fiscal quarter of 2017 and the first three fiscal quarters of 2018. Prosperity declared and paid a $0.41 per share dividend for the last fiscal quarter of 2018 and the first two fiscal quarters of 2019. On July 16, 2019, Prosperity declared a $0.41 per share dividend for the third fiscal quarter of 2019 with a record date of September 16, 2019.

Prosperity intends to continue to pay regular quarterly cash dividends on its common stock in the fourth fiscal quarter of 2019 and following the merger, when, as and if declared by Prosperity’s board of directors out of funds legally available for that purpose and subject to regulatory restrictions.



 

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Issued Prosperity Shares Will Be Eligible for Trading (page 99)

Prosperity shares are listed for trading on the NYSE under the symbol “PB” and Legacy common stock is listed for trading on the NASDAQ under the symbol “LTXB.” Upon completion of the merger, Legacy common stock will no longer be listed for trading.

Under the reorganization agreement, Prosperity has agreed to file all documents required to be filed to have the shares of Prosperity common stock to be issued approved for listing on the NYSE prior to closing and to use its commercially reasonable efforts to effect such listing. The obligations of the parties to complete the merger are subject to such shares having been approved for listing on the NYSE and such approval having not been withdrawn or revoked.

Market Prices of Prosperity and Legacy Common Stock (page 134)

On June 14, 2019, the last trading day before the reorganization agreement was announced, Prosperity common stock closed at $67.24 per share. On September 13, 2019, the last practicable date before the date of this joint proxy statement/prospectus, Prosperity common stock closed at $71.04 per share.

On June 14, 2019, the last trading day before the merger was announced, Legacy common stock closed at $38.22 per share. On September 13, 2019, the last practicable date before the date of this joint proxy statement/prospectus, Legacy common stock closed at $43.61 per share.

The market price of Prosperity common stock and Legacy common stock will fluctuate prior to the merger. You should obtain the most recent closing price for Prosperity common stock and Legacy common stock on the NYSE and the NASDAQ, respectively, prior to deciding how to vote.

Dissenters’ Rights (page 99)

Under the MGCL, holders of Legacy common stock are not entitled to dissenters’ or appraisal rights in connection with the merger. Under the TBOC, holders of shares of Prosperity common stock are not entitled to dissenters’ or appraisal rights in connection with the merger or the share issuance.

Regulatory Approvals Required for the Merger (page 99)

The acquisition of Legacy and Legacy Bank by Prosperity requires the approval of the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve”), unless the requirement for such approval is waived by the Federal Reserve. On July 26, 2019, Prosperity filed the required documentation with the Federal Reserve Bank of Dallas to request a waiver of its approval, which was granted on August 13, 2019.

The merger of Legacy Bank with and into Prosperity Bank requires the approval of the Federal Deposit Insurance Corporation (which we refer to as the “FDIC”) and the Texas Department of Banking (which we refer to as the “TDB”). On July 15, 2019, Prosperity Bank and Legacy Bank filed the required applications with the FDIC and TDB.

Exchange Procedures (page 103)

After the effective time of the merger, the Legacy stockholders will receive a letter of transmittal and instructions from Computershare Investor Services, Inc., acting as Prosperity’s exchange and transfer agent, or the “exchange agent,” describing the procedures for surrendering their certificate or certificates representing shares of Legacy common stock (which we refer to as a “Legacy certificate,” which is deemed to include reference to book-entry accounts relating to the ownership of shares of Legacy common stock).



 

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When you properly surrender your Legacy certificates or provide other satisfactory evidence of ownership, and return the letter of transmittal duly executed and completed in accordance with its instructions, the exchange agent will promptly cancel the surrendered stock certificates and deliver to you a notice specifying, among other things, the number of shares of Prosperity common stock, which will be solely in uncertificated book-entry form credited to the account of the holder of record as established in the Direct Registration System, and cash for fractional shares, if any, to which you are entitled under the reorganization agreement. No Prosperity stock certificates will be issued with respect to the Prosperity common stock to be issued under the reorganization agreement.

Please do not send Legacy or Prosperity any of your Legacy stock certificates until you receive these instructions, which will be as soon as practicable after the effective time.

Effective Time of the Merger (page 104)

The merger will become effective at the date and time specified in the certificate of merger to be filed with the Secretary of State of Texas and the certificate of merger to be filed with the Secretary of State of Maryland, which, unless otherwise agreed by Prosperity and Legacy, is expected to be 12:01 a.m. on the first day of the calendar month immediately following the calendar month in which all conditions are satisfied or (subject to applicable law) waived (other than conditions that by their nature can only be satisfied at the closing, but subject to the satisfaction or waiver thereof) or, if the foregoing occurs during the month of December 2019, 11:59 p.m. on December 31, 2019. It is anticipated that the bank merger will be effective immediately thereafter. If the stockholders of Legacy and shareholders of Prosperity approve the reorganization agreement at their respective special meetings, it is currently anticipated that the completion of the merger will occur in the fourth quarter of 2019, but completion of the merger could be delayed if there is a delay in obtaining the required regulatory approvals or in satisfying any other conditions to the merger.

Prosperity and Legacy cannot assure you that the necessary stockholder and shareholder and regulatory approvals will be obtained or that the other conditions to completion of the merger can or will be satisfied. See “Risk Factors—Risks Related to the Merger—The merger of Prosperity and Legacy may not be completed, may take longer than expected or may be subject to conditions imposed by government entities that are not presently anticipated or cannot be met.”

Conditions to Completion of the Merger (page 104)

The reorganization agreement contains a number of customary conditions to the obligations of Prosperity and Legacy to complete the merger that must be satisfied as of the closing date, including the approval of the reorganization agreement by the requisite Prosperity shareholder vote and the requisite Legacy stockholder vote, as well as the receipt of all required regulatory approvals.

Any condition to the completion of the merger may, to the extent permitted by law, be waived in writing by the party or parties to the reorganization agreement entitled to the benefit of such condition.

No Negotiation with Others (page 111)

Legacy agreed that it will not, and that it will cause each Legacy subsidiary and the respective employees, directors, officers, financial advisors, agents and other representatives of Legacy and each Legacy subsidiary (which we collectively refer to as the “Legacy representatives”) not to: (i) solicit, knowingly encourage or facilitate, initiate or participate in any negotiations or discussions with any third party (except for the limited purpose of notifying such person of the existence of the non-solicitation provisions of the reorganization agreement) regarding an acquisition proposal, whether by acquisition, business combination, purchase of



 

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securities or assets or otherwise; (ii) disclose to any third party any information concerning the business, properties, books or records of Legacy or any Legacy subsidiary in connection with any acquisition proposal; or (iii) cooperate with any third party to make any acquisition proposal. Promptly upon receipt of any unsolicited offer, Legacy will communicate to Prosperity the terms of any proposal or request for information and the identity of the parties involved.

Provided that it has complied with the foregoing provisions, if at any time after the date of the reorganization agreement and before the receipt of the requisite Legacy stockholder approval, Legacy and the Legacy representatives receive a bona fide, unsolicited written acquisition proposal, Legacy and the Legacy representatives may engage in negotiations and discussions with, and furnish any information and other access (so long as all such information and access has previously been made available to Prosperity or is made available to Prosperity before or concurrently with the time such information or access is made available to such person) to, any person making such acquisition proposal if, and only if, the Legacy board of directors determines in good faith, after consultation with outside legal and financial advisors, that (i) such acquisition proposal constitutes or is reasonably likely to become a superior proposal and (ii) the failure of the Legacy board of directors to furnish such information or access or enter into such discussions or negotiations would be inconsistent with its fiduciary duties under applicable law; but before furnishing any such information, Legacy has received from the person making such acquisition proposal an executed confidentiality agreement with terms at least as restrictive in all material respects on such person as the confidentiality agreement entered into with Prosperity, which confidentiality agreement may not prohibit Legacy from complying with the terms of the reorganization agreement.

Termination of the Reorganization Agreement (page 121)

Prosperity and Legacy can mutually agree at any time to terminate the reorganization agreement without completing the merger. In addition, either Prosperity or Legacy may terminate the reorganization agreement as follows:

 

   

if the closing has not occurred on or before June 16, 2020 (which we refer to as the “closing date deadline”) (except that this right to terminate will not be available to any party whose action or failure to act has been the cause of or resulted in the failure of the closing to occur on or before such date and such action or failure to act constitutes a material breach of the reorganization agreement);

 

   

if (i) any regulatory approval required to be obtained has been denied by the relevant governmental authority and such denial has become final and nonappealable or if any such regulatory approval includes, or will not be issued without, the imposition of a burdensome condition or (ii) any governmental authority of competent jurisdiction has issued an order, injunction, decree or ruling or taken any other action permanently restraining, enjoining, invalidating or otherwise prohibiting the reorganization agreement or any other agreement contemplated thereby, or the transactions contemplated thereby and such order, injunction, decree, ruling or other action is final and nonappealable;

 

   

if (i) the requisite Legacy stockholder approval has not been obtained at the Legacy special meeting, or any adjournment or postponement thereof, called for such purpose at which a vote on the reorganization agreement is taken, or (ii) the requisite Prosperity shareholder approval has not been obtained at the Prosperity special meeting, or any adjournment or postponement thereof, called for such purpose at which a vote on the reorganization agreement is taken (except that this right to terminate will not be available to any party whose action or failure to act has been the cause of or resulted in the failure of the requisite Legacy stockholder approval or the requisite Prosperity shareholder approval, as applicable, to be obtained and such action or failure to act constitutes a material breach of the reorganization agreement); or



 

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if the other party has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the reorganization agreement, which breach or failure, if continuing on the closing date, would, individually or together with all other such uncured breaches or failures by such party, constitute grounds for the conditions relating to accuracy of the representations and warranties and performance of the obligations of such party not to be satisfied on the closing date, and such breach or failure has not been cured within a period of 30 calendar days after written notice from the non-breaching party (or such fewer days as remain prior to the closing date deadline).

In addition, Legacy may terminate the reorganization agreement if Prosperity or the Prosperity board of directors has failed to comply in any material respect with its obligations described under “—Prosperity Shareholder Meeting and Recommendation of the Prosperity Board of Directors.”

In addition, Prosperity may terminate the reorganization agreement if Legacy or the Legacy board of directors has made a change in recommendation or failed to comply in any material respect with its obligations described under “—Legacy Stockholder Meeting and Recommendation of Legacy Board of Directors” or “—No Negotiation with Others.”

Termination Fee (page 122)

Legacy will pay Prosperity an $82 million termination fee if the reorganization agreement is terminated in the following circumstances:

 

   

if (i) after the date of the reorganization agreement and prior to the termination of the reorganization agreement, a bona fide acquisition proposal has been made known to senior management or the board of directors of Legacy or has been made directly to its stockholders generally, or any person has publicly announced an acquisition proposal, (ii) thereafter the reorganization agreement is terminated (A) by Legacy or Prosperity because the closing has not occurred on or prior to the closing date deadline (if the requisite Legacy stockholder approval has not theretofore been obtained), (B) by Prosperity as a result of a material and continuing breach of or failure to perform under the reorganization agreement by Legacy, or (C) by Legacy or Prosperity if the requisite Legacy stockholder approval is not obtained and (iii) prior to the date that is 12 months after the date of such termination, Legacy consummates a transaction included within the definition of “acquisition proposal” or enters into a definitive agreement with respect to an acquisition proposal, in each case, whether or not relating to the same acquisition proposal as that referenced in clause (i); provided that, for purposes of this provision, all references in the definition of acquisition proposal to “20%” will instead refer to “50%”; or

 

   

if the reorganization agreement is terminated by Prosperity because Legacy or the Legacy board of directors made a change in recommendation or failed to comply in any material respect with its obligations described under “The Reorganization Agreement—Legacy Stockholder Meeting and Recommendation of Legacy Board of Directors” or “—No Negotiation with Others.”

Amendment or Waiver of the Reorganization Agreement (page 123)

Prosperity and Legacy may amend the reorganization agreement and each party may waive its right to require the other party to adhere to any term or satisfy any condition of the reorganization agreement in accordance with the terms of the reorganization agreement. However, after approval of the reorganization agreement by the Legacy stockholders or the Prosperity shareholders, there may not be any amendment that requires further approval of such stockholders or shareholders under applicable law without obtaining such approval.



 

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Material U.S. Federal Income Tax Consequences of the Merger (page 125)

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the respective obligations of Prosperity and Legacy to complete the merger that each of Prosperity and Legacy receives a legal opinion to that effect. Consistent with such treatment, a U.S. holder (as defined in the section titled “—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 125) of Legacy common stock will recognize any gain, but will not be permitted to recognize loss, for U.S. federal income tax purposes on the exchange of shares of Legacy common stock for shares of Prosperity common stock in the merger, in an amount equal to the lesser of (a) the cash consideration received (excluding cash received in lieu of a fractional share) and (b) the gain realized. The amount of gain realized by a U.S. holder will be equal to the amount by which the cash plus the fair market value, at the effective time of the merger, of the Prosperity common stock received exceeds the holder’s adjusted tax basis in the Legacy common stock to be surrendered in exchange therefor. The tax consequences to a U.S. holder of Legacy common stock will depend on his, her or its individual situation. Accordingly, we strongly urge holders of Legacy common stock to consult their tax advisors for a full understanding of the particular tax consequences of the merger to them.

Accounting Treatment (page 124)

The merger will be accounted for as an acquisition of Legacy and Legacy Bank by Prosperity and Prosperity Bank under the acquisition method of accounting in accordance with the Financial Accounting Standard Board’s Accounting Standard Codification Topic 805, Business Combinations.

The Legacy Special Meeting (page 51)

The special meeting of stockholders of Legacy will be held on October 28, 2019, at 11:00 a.m. Central Time, at 5851 Legacy Circle, Plano, Texas 75024. At the Legacy special meeting, Legacy’s stockholders will be asked to consider and vote on the following:

 

   

Legacy merger proposal: to approve the reorganization agreement and the transactions contemplated thereby, including the merger;

 

   

Legacy compensation proposal: a proposal to approve, on an advisory (non-binding) basis, the compensation that certain executive officers of Legacy may receive in connection with the merger pursuant to existing agreements or arrangements with Legacy; and

 

   

Legacy adjournment proposal: to approve the adjournment of the Legacy special meeting to a later date or dates if the board of directors of Legacy determines it is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Legacy merger proposal.

You may vote on the proposals to come before the special meeting of Legacy stockholders if you owned shares of Legacy common stock of record as of the record date. You can cast one vote for each share of Legacy common stock that you owned of record at that time; provided, however, that Legacy’s articles of incorporation generally prohibit any stockholder who beneficially owns more than 10% of the outstanding shares of Legacy common stock from voting shares in excess of that amount. As of the record date, there were 49,156,231 shares of Legacy common stock outstanding.

At the close of business on the record date for the Legacy special meeting, Legacy directors and executive officers and their respective affiliates were entitled to vote approximately 973,397 shares of Legacy common stock, or approximately 2.0% of the shares of Legacy common stock outstanding on that date.

Legacy Proposals: Required Vote and Treatment of Abstentions and Failure to Vote (page 52)

The Legacy merger proposal requires the affirmative vote of the holders of a majority of the votes entitled to be cast at the Legacy special meeting. Failures to vote, broker nonvotes and abstentions will have the same effect as a vote against this proposal.



 

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The Legacy compensation proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting. Failures to vote, abstentions and broker nonvotes will have no effect on the proposal.

The Legacy adjournment proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting. Failures to vote, abstentions and broker nonvotes will have no effect on the proposal.

A holder of Legacy common stock may vote his or her shares of Legacy common stock by attending the special meeting and voting in person, by completing and mailing the enclosed proxy card, or by following the instructions to vote via the Internet or by telephone as indicated on the proxy card and elsewhere in this joint proxy statement/prospectus. If you are the record holder of such shares, you can revoke your proxy at any time before the vote is taken at the Legacy special meeting by sending a written notice revoking the proxy or submitting a later-dated proxy to the Corporate Secretary of Legacy; completing, signing and returning a new proxy card with a later date than the date on your original proxy card, in which case any earlier proxy will be revoked automatically; or by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 27, 2019. You may also revoke your proxy by voting in person at the Legacy special meeting. If your shares are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted. See “The Legacy Special Meeting—Voting of Proxies by Holders of Record,” “—Attending the Meeting; Voting in Person” and “—Revocation of Proxies.”

The Prosperity Special Meeting (page 56)

The special meeting of shareholders of Prosperity will be held on October 29, 2019, at 10:30 a.m. Central Time, at 80 Sugar Creek Center Blvd., Sugar Land, Texas 77478. At the Prosperity special meeting, Prosperity’s shareholders will be asked to consider and vote on the following:

 

   

Prosperity merger proposal: a proposal to approve the reorganization agreement, the transactions contemplated thereby and the issuance of Prosperity common stock in connection with the merger; and

 

   

Prosperity adjournment: a proposal to adjourn the Prosperity special meeting to a later date or dates if the board of directors of Prosperity determines such adjournment is necessary or appropriate, including adjournment to permit solicitation of additional proxies in favor of the Prosperity merger proposal.

You may vote at the special meeting of Prosperity shareholders if you owned Prosperity common stock of record as of the record date. You can cast one vote for each share of Prosperity common stock you owned of record at that time. As of the record date, there were 68,396,778 shares of Prosperity common stock outstanding.

At the close of business on the record date for the Prosperity special meeting, Prosperity directors and executive officers and their respective affiliates were entitled to vote approximately 3,662,278 shares of Prosperity common stock, or approximately 5.4% of the shares of Prosperity common stock outstanding on that date.



 

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Prosperity Proposals: Required Vote and Treatment of Abstentions and Failure to Vote (page 57)

The required votes to approve the Prosperity proposals are as follows:

The Prosperity merger proposal requires the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Prosperity common stock entitled to vote at the Prosperity special meeting. Failures to vote, broker nonvotes and abstentions will have the same effect as a vote against this proposal.

The Prosperity adjournment proposal requires the affirmative vote of a majority of votes cast by the Prosperity shareholders entitled to vote on such proposal at the Prosperity special meeting. Failures to vote, broker nonvotes and abstentions will have no effect on the vote for the proposal.

You may vote your shares of Prosperity common stock by attending the special meeting and voting in person, by completing and mailing the enclosed proxy card or by following the instructions to vote via the Internet or by telephone as indicated on the proxy card and elsewhere in this joint proxy statement/prospectus. If you are the record holder of your shares, you can revoke your proxy at any time before the vote is taken at the Prosperity special meeting by sending a written notice revoking the proxy or submitting a later dated proxy to the Corporate Secretary of Prosperity, which must be received no later than immediately prior to the vote at the Prosperity special meeting, or by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 28, 2019. You may also revoke your proxy by voting in person at the Prosperity special meeting. If your shares of Prosperity common stock are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted. See “The Prosperity Special Meeting—Voting of Proxies by Holders of Record,” “—Attending the Meeting; Voting in Person” and “—Revocation of Proxies.”

Comparison of Rights of Stockholders of Legacy and Shareholders of Prosperity (page 137)

Legacy is a Maryland corporation that is a registered bank holding company, and the rights of stockholders of Legacy are governed by Maryland law and Legacy’s articles of incorporation and bylaws. Prosperity is a Texas corporation that is a registered financial holding company, and the rights of Prosperity’s shareholders are governed by Texas law and Prosperity’s articles of incorporation and bylaws. Upon completion of the merger, Legacy stockholders will become shareholders of Prosperity and their rights as shareholders of Prosperity will be governed by Prosperity’s articles of incorporation and bylaws, in addition to Texas law. Prosperity’s articles of incorporation and bylaws will not be amended in the merger, but could be later restated, amended or, with respect to the bylaws, repealed.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PROSPERITY

The following selected historical consolidated financial information of Prosperity as of and for the six months ended June 30, 2019 and 2018 has been derived from Prosperity’s unaudited consolidated financial statements incorporated by reference in this joint proxy statement/prospectus and, in the opinion of Prosperity’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for those interim periods. The following selected consolidated financial information of Prosperity as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 has been derived from Prosperity’s audited consolidated financial statements incorporated by reference in this joint proxy statement/prospectus, and the selected consolidated financial information as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2015 and 2014, has been derived from Prosperity’s audited consolidated financial statements not appearing or incorporated by reference in this joint proxy statement/prospectus.

You should read the following financial information relating to Prosperity in conjunction with other information contained in this joint proxy statement/prospectus, including consolidated financial statements of Prosperity and related accompanying notes appearing in Prosperity’s Annual Report on Form 10-K most recently filed with the SEC and in the Quarterly Reports on Form 10-Q of Prosperity filed with the SEC after that Annual Report on Form 10-K was filed, and in any Current Report on Form 8-K of Prosperity containing consolidated financial statements of Prosperity that was filed with the SEC after such Annual Report on Form 10-K, each of which reports is incorporated by reference in this joint proxy statement/prospectus. Prosperity’s historical results for any prior period are not necessarily indicative of results to be expected in any future period, and Prosperity’s historical results for the six months ended June 30, 2019 are not necessarily indicative of its results to be expected for all of 2019. Prosperity has consummated several acquisitions during certain of the fiscal periods below. The results and other financial information of those acquired operations are not included in the table below for the periods or dates prior to their respective acquisition dates and, therefore, the results for such prior periods are not comparable in all respects. In addition, the selected financial information in the table immediately below does not include, on any basis, the results or financial condition of Legacy for any period or as of any date.

 

    As of and for the
Six Months Ended
June 30,
    As of and for the Years Ended December 31,  
  2019     2018     2018     2017     2016(1)     2015     2014(1)  
    (dollars in thousands except per share data)  

Income Statement Data

             

Interest income

  $ 373,902     $ 355,339     $ 727,209     $ 677,355     $ 675,779     $ 669,701     $ 714,795  

Interest expense

    64,153       40,313       97,616       60,492       43,159       39,191       43,641  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    309,749       315,026       629,593       616,863       632,620       630,510       671,154  

Provision for credit losses

    1,500       13,000       16,350       14,325       24,000       7,560       18,275  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

    308,249       302,026       613,243       602,538       608,620       622,950       652,879  

Noninterest income

    58,102       56,309       116,012       116,633       118,425       120,781       120,832  

Noninterest expense

    159,392       163,656       326,220       313,101       318,387       313,536       327,962  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    206,959       194,679       403,035       406,070       408,658       430,195       445,749  

Provision for income taxes

    42,299       38,721       81,223       133,905       134,192       143,549       148,308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 164,660     $ 155,958     $ 321,812     $ 272,165     $ 274,466     $ 286,646     $ 297,441  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per Share Data

             

Basic earnings per share

  $ 2.36     $ 2.23     $ 4.61     $ 3.92     $ 3.94     $ 4.09     $ 4.32  

Diluted earnings per share

    2.36       2.23       4.61       3.92       3.94       4.09       4.32  

Cash dividends

    0.82       0.72       1.4900       1.3800       1.2400       1.1175       0.9925  

Book value

    59.60       56.35       58.02       55.03       52.41       49.45       46.50  

Dividend payout ratio

    34.79     32.24     32.33     35.23     31.42     27.30     22.99

Weighted average shares outstanding (basic)

    69,832       69,803       69,821       69,484       69,674       70,033       68,855  

Weighted average shares outstanding (diluted)

    69,832       69,803       69,821       69,484       69,680       70,049       68,911  

Shares outstanding at end of period

    69,261       69,838       69,847       69,491       69,491       70,022       69,780  


 

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Table of Contents
    As of and for the
Six Months Ended
June 30,
    As of and for the Years Ended December 31,  
  2019     2018     2018     2017     2016(1)     2015     2014(1)  
    (dollars in thousands except per share data)  

Period End Balance Sheet Data

             

Total assets

  $ 22,375,221     $ 22,570,740     $ 22,693,402     $ 22,587,292     $ 22,331,072     $ 22,037,216     $ 21,507,733  

Securities

    8,951,940       9,620,614       9,408,966       9,672,116       9,726,086       9,502,427       9,045,776  

Loans

    10,587,375       10,146,565       10,370,313       10,020,773       9,622,060       9,438,589       9,244,183  

Allowance for credit losses

    87,006       84,964       86,440       84,041       85,326       81,384       80,762  

Total goodwill and intangibles

    1,931,144       1,936,618       1,933,728       1,939,687       1,946,629       1,918,244       1,933,138  

Other real estate owned

    2,005       10,316       1,805       11,152       15,463       2,963       3,237  

Total deposits

    16,887,629       16,978,604       17,256,558       17,821,460       17,307,302       17,681,119       17,693,158  

Federal funds purchased and other borrowings

    940,874       1,254,849       1,031,126       505,223       990,781       491,399       8,724  

Junior subordinated debentures

    —         —         —         —         —         —         167,531  

Total shareholders’ equity

    4,127,895       3,935,452       4,052,824       3,824,154       3,642,311       3,462,910       3,244,826  

Average Balance Sheet Data

             

Total assets

  $ 22,534,224     $ 22,588,368     $ 22,632,745     $ 22,340,201     $ 21,880,762     $ 21,618,604     $ 20,596,929  

Securities

    9,242,605       9,756,861       9,664,404       9,681,763       9,401,669       9,541,443       8,723,011  

Loans

    10,456,684       10,017,340       10,141,625       9,822,225       9,629,714       9,200,765       8,988,069  

Allowance for credit losses

    86,332       83,140       84,511       84,410       84,189       80,894       72,714  

Total goodwill and intangibles

    1,932,429       1,938,148       1,936,639       1,942,999       1,947,979       1,934,099       1,853,350  

Total deposits

    17,167,518       17,300,515       17,106,500       17,015,372       17,348,387       17,157,864       16,690,344  

Junior subordinated debentures

    —         —         —         —         2,081       29,443       154,902  

Total shareholders’ equity

    4,124,082       3,892,594       3,947,833       3,750,727       3,566,931       3,368,788       3,080,324  

Selected Performance Ratios

             

Return on average assets

    1.46     1.38     1.42     1.22     1.25     1.33     1.44

Return on average common equity

    7.99       8.01       8.15       7.26       7.69       8.51       9.66  

Net interest margin (tax equivalent)

    3.18       3.22       3.18       3.19       3.35       3.38       3.80  

Efficiency ratio(2)

    43.34       44.07       43.71       42.76       42.50       41.87       41.81  

Asset Quality Ratios(3)

             

Nonperforming assets to total loans and other real estate

    0.39     0.31     0.18     0.37     0.50     0.46     0.40

Allowance for credit losses to nonperforming loans(4)

    223.8       399.5       504.0       319.9       261.8       201.8       240.3  

Allowance for credit losses to total loans

    0.82       0.84       0.83       0.84       0.89       0.86       0.87  

Net charge-offs to average loans

    0.02       0.24       0.14       0.16       0.21       0.08       0.05  

Capital Ratios(3)

             

Leverage Ratio

    10.67     9.68 %(6)      10.23 %(6)      9.31 %(6)      8.68 %(6)      7.97 %(6)      7.69

Average shareholders’ equity to average total assets

    18.30       17.23       17.44       16.79       16.30       15.58       14.96  

CET1 capital ratio(5)

    16.59       15.65 (6)      16.32 (6)      15.08 (6)      14.48 (6)      13.55 (6)      N/A  

Tier 1 risk-based capital ratio

    16.59       15.65 (6)      16.32 (6)      15.08 (6)      14.48 (6)      13.55 (6)      13.80  

Total risk-based capital ratio

    17.25       16.32       16.99       15.74       15.20       14.25       14.56  

 

(1)

Prosperity completed one acquisition during each of the twelve-month periods ended December 31, 2016 and 2014.

(2)

Represents a non-GAAP financial measure. Calculated by dividing total noninterest expense, excluding credit loss provision, by net interest income plus noninterest income, excluding net gains and losses on the sale of securities and assets. Additionally, taxes are not part of this calculation. See “Management’s Discussion and Analysis of Financial Consolidation and Results of Operations—Results of Operations—Efficiency Ratio” on page 36 of Prosperity’s Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference in this joint proxy statement/prospectus, for calculation methodology and details.

(3)

At period end, except for net charge-offs to average loans and average shareholders’ equity to average total assets, which are for periods ended at such dates.

(4)

Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and any other loan management deems to be nonperforming.

(5)

CET1 capital ratio is required under the Basel III Capital Rules effective January 1, 2015.

(6)

Calculated pursuant to the phase-in provisions of the Basel III Capital Rules.



 

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Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LEGACY

The following selected historical consolidated financial information of Legacy as of and for the six months ended June 30, 2019 and 2018 has been derived from Legacy’s unaudited consolidated financial statements as of and for the six months ended June 30, 2019 and 2018 incorporated by reference in this joint proxy statement/prospectus and, in the opinion of Legacy’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for those interim periods. The following selected consolidated financial information of Legacy as of and for the years ended December 31, 2018, 2017 and 2016 has been derived from Legacy’s audited consolidated financial statements incorporated by reference in this joint proxy statement/prospectus, and the selected consolidated financial information as of and for the years ended December 31, 2015 and 2014 has been derived from Legacy’s audited consolidated financial statements not appearing or incorporated by reference in this joint proxy statement/prospectus.

You should read the following financial information relating to Legacy in conjunction with other information contained in this joint proxy statement/prospectus or incorporated by reference, including the consolidated financial statements of Legacy and related accompanying notes appearing in Legacy’s Annual Report on Form 10-K most recently filed with the SEC and in the Quarterly Reports on Form 10-Q of Legacy filed with the SEC after that Annual Report on Form 10-K was filed, and in any Current Report on Form 8-K of Legacy containing consolidated financial statements of Legacy that was filed with the SEC after such Annual Report on Form 10-K, each of which reports is incorporated by reference in this joint proxy statement/prospectus. Legacy’s historical results for any prior period are not necessarily indicative of results to be expected in any future period, and Legacy’s historical results for the six months ended June 30, 2019 are not necessarily indicative of its results to be expected for all of 2019. The results and other financial information of any acquired operations are not included in the table below for the periods or dates prior to their respective acquisition dates and, therefore, the results for these prior periods are not comparable in all respects.

Please see the section entitled “Where You Can Find More Information” for instructions on how to obtain the information that has been incorporated by reference. You should not assume the results of operations for past years indicate results for any future period.

 

    As of and for the
Six Months Ended
June 30,
    As of and for the Years Ended December 31,  
  2019     2018     2018     2017     2016     2015     2014  
    (dollars in thousands except per share data)  

Selected Financial Condition Data

             

Total assets

  $ 9,935,934     $ 9,249,086     $ 9,051,142     $ 9,086,196     $ 8,362,255     $ 7,691,940     $ 4,164,114  

Warehouse Purchase Program loans

    1,542,684       1,291,129       960,404       1,320,846       1,151,145       1,043,719       786,416  

Loans receivable, excluding Warehouse Purchase Program loans, net

    6,999,607       6,615,818       6,733,692       6,418,271       5,902,792       5,017,554       2,605,204  

Loans held for sale

    46,571       33,548       23,193       16,707       21,279       22,535       —    

Securities available for sale, at fair value

    459,749       445,613       471,746       419,717       354,515       311,708       199,699  

Securities held to maturity, at amortized cost

    127,836       155,252       146,046       173,509       210,387       240,433       241,920  

FHLB stock and other restricted securities, at cost

    79,195       66,061       56,226       64,790       43,266       63,075       44,084  

Bank-owned life insurance

    59,724       58,345       59,036       57,684       56,477       55,231       36,193  

Deposits

    7,055,790       6,881,348       6,841,715       6,767,683       6,365,476       5,226,711       2,657,809  

Borrowings

    1,572,436       1,242,038       1,010,761       1,262,361       1,054,405       1,608,165       887,907  

Shareholders’ equity

    1,142,645       1,001,450       1,094,367       959,874       885,365       804,076       568,223  

Selected Operations Data

             

Total interest income

  $ 220,181     $ 199,657     $ 414,982     $ 366,857     $ 317,352     $ 262,692     $ 149,647  

Total interest expense

    53,463       37,115       82,474       55,426       35,083       21,615       16,640  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    166,718       162,542       332,508       311,431       282,269       241,077       133,007  

Provision for credit losses

    25,900       33,141       35,797       39,456       26,900       25,465       6,721  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

    140,818       129,401       296,711       271,975       255,369       215,612       126,286  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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Table of Contents
    As of and for the
Six Months Ended
June 30,
    As of and for the Years Ended December 31,  
  2019     2018     2018     2017     2016     2015     2014  
    (dollars in thousands except per share data)  

Service charges and other fees

    17,137       16,771       35,320       35,742       36,690       30,936       19,382  

Net gain on sale of mortgage loans held for sale

    4,404       3,477       6,573       7,322       8,225       8,036       —    

Net gain (loss) on securities transactions

    6       (128     (138     (39     56       203       —    

Other noninterest income

    (396     644       7,486       557       6,960       5,640       1,361  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

    22,126       23,750       49,241       43,582       51,931       44,815       20,743  

Total noninterest expense

    91,833       86,070       171,130       160,344       156,377       151,555       98,092  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

    71,111       67,081       174,822       155,213       150,923       108,872       48,937  

Income tax expense

    15,048       13,482       20,633       65,719       53,102       37,956       17,659  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 56,063     $ 53,599     $ 154,189     $ 89,494     $ 97,821     $ 70,916     $ 31,278  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per Share Data

             

Basic earnings per share

  $ 1.18     $ 1.14     $ 3.27     $ 1.91     $ 2.11     $ 1.54     $ 0.82  

Diluted earnings per share

    1.17       1.12       3.23       1.89       2.09       1.53       0.81  

Cash dividends

    0.50       0.32       0.70       0.61       0.58       0.54       0.48  

Selected Financial Ratios and Other Data

             

Performance Ratios

             

Return on assets (ratio of net income to average total assets)

    1.22     1.21     1.73     1.04     1.24     1.10     0.85

Return on equity (ratio of net income to average equity)

    10.00       10.89       15.22       9.62       11.52       9.12       5.60  

Interest rate spread:

             

Average during period

    3.32       3.55       3.53       3.58       3.65       3.88       3.63  

End of period

    3.07       3.37       3.47       3.38       3.43       3.24       3.21  

Net interest margin

    3.83       3.89       3.91       3.81       3.79       4.00       3.78  

Noninterest income to operating revenue

    9.13       10.63       10.61       10.62       14.06       14.57       12.17  

Operating expense to average total
assets

    1.99       1.95       1.92       1.86       1.98       2.35       2.65  

Average interest-earning assets to average interest-bearing liabilities

    141.65       137.73       139.64       133.65       130.42       133.36       133.50  

Dividend payout ratio

    43.38       28.79       21.95       32.71       28.29       36.31       61.34  

Asset Quality Ratios

             

Nonperforming assets to total assets at end of period

    0.63     0.29     0.26     1.13     1.46     0.58     0.58

Non-performing loans to total loans held for investment, excluding Warehouse Purchase Program loans

    0.88       0.29       0.33       1.46       1.87       0.75       0.89  

Non-performing loans to total loans held for investment

    0.72       0.25       0.29       1.21       1.56       0.63       0.69  

Allowance for loan losses to non-performing loans

    148.61       328.63       300.74       75.53       57.97       123.23       108.69  

Allowance for loan losses to total loans held for investment, excluding Warehouse Purchase Program loans

    1.30       0.97       0.99       1.10       1.08       0.93       0.97  

Allowance for loan losses to total loans held for investment

    1.07       0.81       0.87       0.91       0.91       0.77       0.75  

Capital Ratios

             

Equity to total assets at end of period

    11.50     10.83     12.09     10.56     10.59     10.45     13.65

Average equity to average assets

    12.16       11.13       11.35       10.80       10.77       12.07       15.10  

Other Data

             

Number of branches

    42       43       42       44       45       47       31  

Number of loan production offices

    1       1       1       1       1       1       1  


 

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Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Prosperity has prepared the unaudited pro forma condensed combined statements of income appearing below to present on a pro forma basis the consolidated statements of income of Prosperity assuming that the merger with Legacy was consummated on January 1, 2018, and to provide information with respect to the pro forma consolidated results of operations that Prosperity would have had for the year ended December 31, 2018, and the six months ended June 30, 2019. Prosperity has prepared the unaudited pro forma condensed combined balance sheet appearing below to present on a pro forma basis the consolidated financial position of Prosperity assuming that the merger with Legacy was consummated on June 30, 2019. The merger of Prosperity and Legacy will be accounted for as an acquisition of Legacy and Legacy Bank by Prosperity and Prosperity Bank under the acquisition method of accounting in accordance with the Financial Accounting Standard Board’s Accounting Standard Codification Topic 805, Business Combinations (“ASC 805”). The unaudited pro forma condensed combined financial statements of Prosperity and the other pro forma combined financial information appearing below have been prepared using the acquisition method of accounting.

Prosperity has not had sufficient time to completely evaluate the significant identifiable long-lived tangible and identifiable intangible assets of Legacy. Accordingly, the unaudited pro forma adjustments, including the allocations of the purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Certain reclassifications have been made to the historical financial statements of Legacy to conform to the presentation in Prosperity’s financial statements. Accordingly, the unaudited pro forma condensed combined financial statements and other unaudited pro forma condensed combined financial information are presented for illustrative purposes only and are not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2018, for statement of income purposes, and on June 30, 2019, for balance sheet purposes. Historical results for any prior period are not necessarily indicative of results to be expected in any future period, and historical results for the six months ended June 30, 2019, are not necessarily indicative of results to be expected for all of 2019. A final determination of the merger consideration and fair values of Legacy’s assets and liabilities, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of Legacy that exist as of the date of completion of the merger. Consequently, amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma condensed combined financial statements presented below and could result in a material change in amortization of acquired intangible assets.

In connection with the plan to integrate the operations of Prosperity and Legacy following the completion of the merger, Prosperity anticipates that nonrecurring charges, such as costs associated with systems implementation, severance, and other costs related to exit or disposal activities, could be incurred. Prosperity is not able to determine the timing, nature and amount of these charges as of the date of this joint proxy statement/prospectus. However, these charges could affect the results of operations of Prosperity and Legacy, as well as those of the combined company following the completion of the merger, in the period in which they are recorded. The unaudited pro forma condensed combined financial statements do not include the effects of the costs associated with any restructuring or integration activities resulting from the transaction, as they are nonrecurring in nature and not factually supportable at the time that the unaudited pro forma condensed combined financial statements were prepared. Additionally, the unaudited pro forma adjustments do not give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the integration of the two companies or any anticipated disposition of assets that may result from such integration. Direct merger-related expenses estimated at $40.4 million are not included in the unaudited pro forma condensed combined statements of income.

In addition, future results may differ materially from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 42 and appearing under the caption “Risk Factors” in Prosperity’s and Legacy’s most recently filed Annual Reports on Form 10-K and in any subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, which are incorporated by

 

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reference in this joint proxy statement/prospectus, and the factors discussed under the caption “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere in this joint proxy statement/prospectus. Among other factors, the actual amounts recorded as of the completion of the merger may differ materially from the information presented in these unaudited pro forma condensed combined financial statements as a result of:

 

   

changes in the trading price for Prosperity’s common stock;

 

   

net cash used or generated in Legacy’s operations between the signing of the reorganization agreement and the completion of the merger;

 

   

the timing of the completion of the merger, changes in total merger-related expenses, and integration costs, including costs associated with systems implementation, severance, and other costs related to exit or disposal activities;

 

   

other changes in Legacy’s net assets that occur prior to the completion of the merger, which could cause material differences in the information presented below; and

 

   

changes in the financial results of the combined company.

The unaudited pro forma condensed combined financial statements are provided for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma condensed combined financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma condensed combined financial statements should be read together with:

 

   

the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

   

Prosperity’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018, included in Prosperity’s Annual Report on Form 10-K for the year ended December 31, 2018;

 

   

Prosperity’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2019, included in Prosperity’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019;

 

   

Legacy’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018, included in Legacy’s Annual Report on Form 10-K for the year ended December 31, 2018;

 

   

Legacy’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2019, included in Legacy’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019; and

 

   

other information pertaining to Prosperity and Legacy contained in or incorporated by reference into this joint proxy statement/prospectus. See “—Selected Historical Consolidated Financial Information of Prosperity” and “—Selected Historical Consolidated Financial Information of Legacy” included in this joint proxy statement/prospectus.

The unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 and for the six months ended June 30, 2019 present the consolidated results of operations giving pro forma effect to the following as if they had occurred as of January 1, 2018:

 

   

the full-year impact of Legacy’s statements of income, including pro forma amortization and accretion of purchase accounting adjustments on securities, loans and intangible assets; and

 

   

the issuance of Prosperity common stock, applying the 0.5280 exchange ratio to the shares outstanding of Legacy in determining earnings per share, and the payment of the per share cash consideration of $6.28.

 

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The unaudited pro forma condensed combined balance sheet as of June 30, 2019 presents the consolidated financial position giving pro forma effect to the following as if they had occurred as of June 30, 2019:

 

   

the completion of the merger, including the issuance of 26,114,000 shares of Prosperity common stock, and the payment of the per share cash consideration of $6.28 (based on the number of shares outstanding of Legacy common stock and other Legacy equity interests as of June 30, 2019 and the exchange ratio of 0.5280); and

 

   

$40.4 million in estimated direct transaction costs related to the merger.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2019

(in thousands)

 

     Prosperity
(as reported)
    Legacy
(as reported)
    Adjustments          Pro Forma
Combined
 

Assets

           

Cash and due from banks

   $ 302,069     $ 56,949     $ (351,012   (a)    $ 8,006  

Federal funds sold & other interest earning assets

     555       206,894            207,449  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total cash and cash equivalents

     302,624       263,843       (351,012        215,455  

Available for sale securities, at fair value

     306,777       459,749            766,526  

Held to maturity securities, at cost

     8,645,163       127,836       239     (b)      8,773,238  

Total loans

     10,587,375       8,681,081       (175,000   (c)      19,093,456  

Less allowance for credit losses

     (87,006     (92,219     92,219     (d)      (87,006
  

 

 

   

 

 

   

 

 

      

 

 

 

Loans, net

     10,500,369       8,588,862       (82,781        19,006,450  

Bank premises and equipment, net

     262,479       106,313       (34,441   (e)      334,351  

Accrued interest receivable

     57,382       32,525            89,907  

Goodwill

     1,900,845       178,559       844,189     (f)      2,923,593  

Core deposit intangibles

     30,299       193       102,407     (g)      132,899  

Other real estate owned

     2,005       584            2,589  

Bank Owned Life Insurance (BOLI), net

     261,372       59,724            321,096  

Other assets

     105,906       117,746       34,441     (e)      258,093  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 22,375,221     $ 9,935,934     $ 513,042        $ 32,824,197  
  

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities and Shareholders’ Equity

           

Deposits

           

Noninterest-bearing

   $ 5,691,236     $ 1,847,229          $ 7,538,465  

Interest-bearing

     11,196,393       5,208,561            16,404,954  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total deposits

     16,887,629       7,055,790            23,943,419  

Other borrowings

     940,874       1,384,765            2,325,639  

Securities sold under repurchase agreements

     313,825       52,414            366,239  

Other liabilities

     104,998       165,063            270,061  

Subordinated debentures

     —         135,257            135,257  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     18,247,326       8,793,289            27,040,615  

Shareholders’ equity:

           

Total Prosperity equity

     4,127,895         1,655,687     (h)      5,783,582  

Total Legacy equity

       1,142,645       (1,142,645   (h)      —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     4,127,895       1,142,645       513,042     (h)      5,783,582  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 22,375,221     $ 9,935,934     $ 513,042        $ 32,824,197  
  

 

 

   

 

 

   

 

 

      

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. Amounts may not add due to rounding.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in thousands, except per share data)

 

    Prosperity
(as reported)
    Legacy
(as reported)
    Adjustments         Pro Forma
Combined
 

Interest income:

         

Loans, including fees

  $ 263,590     $ 208,455     $ (491   (i)   $ 471,554  

Securities

    109,592       7,815           117,407  

Federal funds sold and other temporary investments

    720       3,911           4,631  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest income

    373,902       220,181       (491       593,592  

Interest expense:

         

Deposits

    51,690       38,659       (21   (j)     90,328  

Federal funds purchased, other borrowings and securities sold under repurchase agreements

    12,463       10,782       —           23,245  

Subordinated debentures

    —         4,022       —           4,022  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest expense

    64,153       53,463       (21       117,595  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

    309,749       166,718       (470       475,997  

Provision for credit losses

    1,500       25,900           27,400  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income after provision for credit losses

    308,249       140,818       (470       448,597  

Noninterest income:

            —    

Customer service fees

    38,227       17,137       (280   (k)     55,084  

Trust income

    5,153       —             5,153  

Mortgage income

    1,712       4,404           6,116  

Brokerage income

    1,214       —             1,214  

Net gain on sale of assets

    60       4       (40   (l)     24  

Gain on sale of securities

    —         6       —           6  

Other

    11,736       575       280     (k)     12,591  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total noninterest income

    58,102       22,126       (40       80,188  

Noninterest expense:

         

Salaries and employee benefits

    104,014       53,457       —           157,471  

Net occupancy and equipment

    17,173       7,849       1,145     (m)     26,167  

Core deposit intangibles amortization

    2,584       52       5,078     (n)     7,714  

Other

    35,621       30,475       (1,185   (l)(m)     64,911  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total noninterest expense

    159,392       91,833       5,038         256,263  
 

 

 

   

 

 

   

 

 

     

 

 

 

Income before federal income taxes

    206,959       71,111       (5,548       272,522  

Provision for federal income taxes

    42,299       15,048       (1,165   (o)     56,182  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  $ 164,660     $ 56,063     $ (4,383     $ 216,340  
 

 

 

   

 

 

   

 

 

     

 

 

 

Basic earnings per share:

         

Earnings per share

  $ 2.36     $ 1.18         $ 2.25  

Weighted average shares outstanding

    69,832       47,315           95,946  

Diluted earnings per share:

         

Earnings per share

  $ 2.36     $ 1.17         $ 2.25  

Weighted average shares outstanding

    69,832       47,877           95,946  

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. Amounts may not add due to rounding.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2018

(in thousands, except per share data)

 

    Prosperity
(as reported)
    Legacy
(as reported)
    Adjustments         Pro Forma
Combined
 

Interest income:

         

Loans, including fees

  $ 503,963     $ 392,499     $ (1,836   (i)   $ 894,626  

Securities

    221,909       15,285           237,194  

Federal funds sold and other temporary investments

    1,337       7,198           8,535  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest income

    727,209       414,982       (1,836       1,140,355  

Interest expense:

         

Deposits

    71,384       57,475       (118   (j)     128,741  

Federal funds purchased, other borrowings and securities sold under repurchase agreements

    26,232       17,031       —           43,263  

Subordinated debentures

    —         7,968       —           7,968  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest expense

    97,616       82,474       (118       179,972  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

    629,593       332,508       (1,718       960,383  

Provision for credit losses

    16,350       35,797           52,147  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income after provision for credit losses

    613,243       296,711       (1,718       908,236  

Noninterest income:

         

Customer service fees

    78,861       35,320       (566   (k)     113,615  

Trust income

    10,178       —             10,178  

Mortgage income

    3,355       6,573           9,928  

Brokerage income

    2,617             2,617  

Net (loss) gain on sale of assets

    (755     2,981       (1,232   (l)     994  

Net loss on sale of securities

    (13     (138         (151

Other

    21,769       4,505       566     (k)     26,840  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total noninterest income

    116,012       49,241       (1,232       164,021  

Noninterest expense:

         

Salaries and employee benefits

    207,517       100,170           307,687  

Net occupancy and equipment

    35,125       15,643       2,233     (m)     53,001  

Core deposit intangibles amortization

    5,959       157       10,103     (n)     16,219  

Other

    77,619       55,160       (3,465   (l)(m)     129,314  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total noninterest expense

    326,220       171,130       8,871         506,221  
 

 

 

   

 

 

   

 

 

     

 

 

 

Income before federal income taxes

    403,035       174,822       (11,821       566,036  

Provision for federal income taxes

    81,223       20,633       (2,482   (o)     99,374  
 

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  $ 321,812     $ 154,189     $ (9,339     $ 466,662  
 

 

 

   

 

 

   

 

 

     

 

 

 

Basic earnings per share:

         

Earnings per share

  $ 4.61     $ 3.27         $ 4.86  

Weighted average shares outstanding

    69,821       47,035           95,935  

Diluted earnings per share:

         

Earnings per share

  $ 4.61     $ 3.23         $ 4.86  

Weighted average shares outstanding

    69,821       47,654           95,935  

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. Amounts may not add due to rounding.

 

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Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1. Basis of Pro Forma Presentation

The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined statement of income for the six months ended June 30, 2019 and for the year ended December 31, 2018 combine the historical consolidated statements of income of Prosperity and Legacy giving effect to the merger as if it had been completed on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of June 30, 2019 combines the historical consolidated balance sheets of Prosperity and Legacy giving effect to the merger as if it had been completed on June 30, 2019.

Prosperity’s and Legacy’s historical financial statements were prepared in accordance with U.S. GAAP and presented in U.S. dollars. As discussed in Note 4 and Note 5, certain reclassifications were made to align Prosperity’s and Legacy’s financial statement presentation. Prosperity has not identified all adjustments necessary to conform Legacy’s accounting policies to Prosperity’s accounting policies. Upon completion of the merger, or as more information becomes available, Prosperity will perform a more detailed review of Legacy’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined company’s financial information.

The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared using the acquisition method of accounting under the provisions of ASC 805, with Prosperity considered the acquirer of Legacy. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the merger consideration has been allocated to the assets acquired and liabilities assumed of Legacy based upon management’s preliminary estimate of their fair values as of June 30, 2019. Prosperity has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the Legacy’s assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and held-to-maturity securities. Accordingly, apart from the aforementioned, certain Legacy assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values. Any differences between the fair value of the merger consideration and the fair value of the assets acquired and liabilities assumed will be recorded as goodwill. Accordingly, the purchase price allocation and related adjustments reflected in these unaudited pro forma condensed combined financial statements are preliminary and subject to revision based on a final determination of fair value.

All dollar amounts presented within these Notes to Unaudited Pro Forma Condensed Combined Financial Statements are in thousands, except per share data. Share amounts are in thousands.

Note 2. Estimated Operational Cost Savings

Prosperity anticipates operational cost savings in connection with the acquisition of Legacy. Prosperity anticipates that these savings will occur through the combination of back office operations and elimination of duplicate general operations, administrative and salary and benefits expense. Estimated cost savings are not presented as part of the pro forma adjustments and there can be no assurance they will be achieved in the amount or manner currently contemplated.

Note 3. Anticipated Reduction in Fee Income

Prosperity anticipates loss of income related to reduced NSF fee income and debit and ATM card income. The combined company will be subject to the Durbin Act which imposes limits on debit and ATM card income. Previously, Legacy was not subject to the Durbin Amendment. Such amounts are not presented as part of the pro forma adjustments.

 

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Note 4. Preliminary Purchase Price Allocation

The following table summarizes the preliminary purchase price allocation to the estimated fair value of assets and liabilities assumed in the merger:

 

Prosperity shares issued (at exchange ratio of 0.5280)(a)

  

Prosperity shares issued in exchange for outstanding Legacy common stock (48,833 shares as of June 30, 2019)

     25,784  

Prosperity shares issued in exchange for Legacy options

     294  

Prosperity shares issued in exchange for Legacy performance share awards

     36  
  

 

 

 

Total Prosperity shares issued

     26,114  
  

 

 

 

Pro forma purchase price—Stock(b)

   $ 1,696,104  

Cash paid ($6.28 per Legacy share)(a)

  

Cash paid in exchange for Legacy common stock

   $ 306,673  

Cash paid in exchange for Legacy options

     3,499  

Cash paid in exchange for Legacy performance share awards

     423  
  

 

 

 

Pro forma purchase price—Cash

   $ 310,595  
  

 

 

 

Total pro forma purchase price

   $ 2,006,699  
  

 

 

 

 

(a)

Under the terms of the reorganization agreement, holders of Legacy common stock, options and performance share awards will receive 0.5280 shares of Prosperity common stock and $6.28 cash for each share of Legacy common stock (or its equivalent), subject to certain conditions.

(b)

Based upon Prosperity closing price of $64.95 on August 16, 2019.

The preliminary estimated merger consideration as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed of Legacy based on their preliminary estimated fair values. As mentioned above in Note 1, Prosperity has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the Legacy assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and held-to-maturity securities. Accordingly, apart from the aforementioned, certain assets acquired and liabilities assumed are presented at their respective carrying amounts and should be treated as preliminary values. The fair value assessments are preliminary and are based upon available information and certain assumptions, which Prosperity believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the unaudited pro forma condensed combined financial statements.

 

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The following table sets forth a preliminary allocation of the estimated merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Legacy using Legacy’s unaudited consolidated balance sheet as of June 30, 2019:

 

     June 30, 2019  

Preliminary fair value of estimated total merger consideration

      $ 2,006,699  

Assets Acquired:

     

Total cash and cash equivalents

   $ 263,843     

Available for sale securities, at fair value

     459,749     

Held to maturity securities, at fair value

     128,075     

Loans held for sale

     46,571     

Loans held for investment

     8,459,510     

Bank premises and equipment, net

     106,313     

Accrued interest receivable

     32,525     

Core deposit intangibles

     102,600     

Other real estate owned

     584     

Bank Owned Life Insurance (BOLI), net

     59,724     

Other assets

     117,746     
  

 

 

    

Total Assets Acquired

   $ 9,777,240     

Liabilities Assumed:

     

Deposits

   $ 7,055,790     

Other borrowings

     1,384,765     

Securities sold under repurchase agreements

     52,414     

Other liabilities

     165,063     

Subordinated debentures

     135,257     
  

 

 

    

Total Liabilities Assumed

   $ 8,793,289     
     

 

 

 

Net Assets Acquired

      $ 983,951  
     

 

 

 

Preliminary pro forma goodwill

      $ 1,022,748  
     

 

 

 

Purchase Price Sensitivity

The total pro forma purchase price as shown in the first table of this Note 4 is a preliminary estimate based upon the Prosperity closing price on August 16, 2019 and the number of shares of Legacy common stock (or the equivalent) outstanding as of June 30, 2019. While the per share stock consideration has a fixed exchange ratio of 0.5280 and the per share cash consideration is fixed at $6.28, the aggregate merger consideration will increase or decrease depending on whether the number of shares of Legacy common stock issuable to holders of Legacy options increases or decreases, respectively, relative to the amounts shown in the first table of this Note 4 due to fluctuations in the market value of Prosperity common stock. Additionally, the market value of the stock consideration will fluctuate based on fluctuations in the market price of Prosperity common stock. Assuming a 10% change in the market value per share of Prosperity common stock compared to the Prosperity closing price on August 16, 2019 as shown in the first table of this Note 4, the estimated fair value of the merger consideration transferred would change as shown below.

 

In thousands    10% increase in
Prosperity share price
     10% decrease in
Prosperity share price
 

Cash portion of estimated purchase price

   $ 311,136      $ 309,955  

Stock portion of estimated purchase price

     1,868,943        1,523,330  
  

 

 

    

 

 

 

Total estimated purchase price

   $ 2,180,079      $ 1,833,285  
  

 

 

    

 

 

 

 

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Note 5. Pro forma Adjustments and Assumptions

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current assumptions and valuations, which are subject to change.

(a) This adjustment represents the estimated cash consideration for Legacy and estimated direct transaction costs calculated as follows:

 

Cash paid in exchange for Legacy common stock

   $ 306,673  

Cash paid in exchange for Legacy options

     3,499  

Cash paid in exchange for Legacy performance share awards

     423  
  

 

 

 

Total cash consideration ($6.28/share)

   $ 310,595  
  

 

 

 

Estimated cash paid for direct transaction costs

   $ 40,417  
  

 

 

 

Pro forma net adjustment to cash and due from bank

   $ 351,012  
  

 

 

 

(b) Estimated fair market value adjustment on securities held to maturity.

(c) Adjustment to total loans to reflect preliminary estimated fair value adjustments on Legacy’s acquired loans for credit quality.

(d) Adjustment to eliminate Legacy allowance for loan losses.

(e) Adjustment to reflect the reclassification of Legacy right-of-use asset from bank premises to other assets to conform with Prosperity’s financial statement presentation.

(f) Adjustment to goodwill based on the preliminary purchase price allocation as follows:

 

Fair value of merger consideration in excess of the preliminary fair value of net assets acquired (from Note 4 above)

   $ 1,022,748  

Removal of Legacy historical goodwill

     (178,559
  

 

 

 

Pro forma net adjustment to goodwill

   $ 844,189  
  

 

 

 

(g) Adjustment to core deposit intangible (“CDI”) based on the preliminary purchase price allocation as follows:

 

Estimated CDI (2% of non-time deposits)

   $ 102,600  

Removal of Legacy historical CDI

     (193
  

 

 

 

Pro forma net adjustment to CDI

   $ 102,407  
  

 

 

 

(h) Adjustment to Prosperity and Legacy shareholders’ equity based upon the following:

 

Fair value of equity consideration issued to Legacy stockholders (from Note 4 above)

   $ 1,696,104  

Removal of Legacy historical shareholders’ equity

     (1,142,645

Estimated cash paid for direct transaction costs

     (40,417
  

 

 

 

Pro forma net adjustment to shareholders’ equity

   $ 513,042  
  

 

 

 

(i) Adjustment to interest income for accretion on Legacy previously acquired loans.

(j) Adjustment to interest expense for amortization on Legacy previously acquired time deposits.

(k) Adjustment to reflect the reclassification of safe deposit box income from customer service fees to other noninterest income to conform with Prosperity financial statement presentation.

 

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(l) Adjustment to reflect the reclassification of Legacy’s gain/loss on sale of ORE from noninterest income to noninterest expense to conform with Prosperity financial statement presentation.

(m) Adjustment to reflect the reclassification of Legacy equipment and depreciation expense (on FF&E and data processing equipment) from other noninterest expense to net occupancy and equipment expense to conform with Prosperity financial statement presentation.

(n) Estimated core deposit intangible at 2.0% of the acquired non-time deposits based upon 10 year life using straight line amortization method, net of Legacy historical CDI.

(o) Adjustment to reflect the net federal income tax effect of the pro forma statement of income adjustments using Prosperity statutory tax rate of 21.0%.

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE FINANCIAL DATA

The following table presents: (1) historical per share information for Prosperity; (2) historical per share information for Legacy; (3) pro forma per share information of the combined company after giving effect to the merger; and (4) equivalent pro forma per share information for Legacy.

The combined company pro forma per share information was derived by combining information from the historical financial information presented above under “—Selected Historical Consolidated Financial Information of Prosperity,” “—Selected Historical Consolidated Financial Information of Legacy” and “—Unaudited Pro Forma Condensed Combined Financial Information.” You should read this table together with the financial information discussed under those headings and the consolidated financial statements of Prosperity and the consolidated financial statements of Legacy incorporated by reference in this joint proxy statement/prospectus. You should not rely on the pro forma per share information as being necessarily indicative of actual results had the merger been effective on January 1, 2018, for purposes of net income per share data, or June 30, 2019, for purposes of book value per share data.

The information appearing in the column captioned “Combined Pro Forma” in the table below was prepared assuming that 26,114,000 shares of Prosperity common stock were issued and that the merger was completed as of January 1, 2018, for purposes of net income per share data, and June 30, 2019, for purposes of book value per share data. The information appearing in the column captioned “Per Equivalent Legacy Share” was obtained by multiplying the pro forma amounts by 0.5280, the exchange ratio in the merger.

 

(unaudited)    Prosperity
(historical)
     Legacy
(historical)
     Combined
Pro Forma
    Per
Equivalent
Legacy
Share
 

Book value per share

          

As of December 31, 2018

   $ 58.02      $ 22.56      $ N/A     $ N/A  

As of June 30, 2019

   $ 59.60      $ 23.40      $ 60.64     $ 32.02  

Cash dividends

          

For the year ended December 31, 2018

   $ 1.49      $ 0.70      $ N/A (1)    $ N/A (1) 

For the six months ended June 30, 2019

   $ 0.82      $ 0.50      $ N/A (1)    $ N/A (1) 

Earnings per share from continuing operations—basic

          

For the year ended December 31, 2018

   $ 4.61      $ 3.27      $ 4.86     $ 2.57  

For the six months ended June 30, 2019

   $ 2.36      $ 1.18      $ 2.25     $ 1.19  

Earnings per share from continuing operations—diluted

          

For the year ended December 31, 2018

   $ 4.61      $ 3.23      $ 4.86     $ 2.57  

For the six months ended June 30, 2019

   $ 2.36      $ 1.17      $ 2.25     $ 1.19  

 

(1)

Pro forma combined dividends per share data is not provided due to the fact that the dividend policy for the combined company will be determined by the Prosperity board of directors following completion of the merger.

 

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Historical Consolidated Financial Statements of Prosperity and Legacy

Prosperity’s consolidated financial statements as of and for each of the years in the period ended December 31, 2018, the related accompanying notes thereto, the report of Deloitte & Touche LLP, Prosperity’s registered public accounting firm, with respect to their audit of those consolidated financial statements, and its management’s discussion and analysis of financial condition and results of operations relating to such consolidated financial statements appear in Prosperity’s Annual Report on Form 10-K for the year ended December 31, 2018. Prosperity’s consolidated financial statements as of and for the six months ended June 30, 2019 and 2018, the related accompanying notes thereto and its management’s discussion and analysis of financial condition and results of operations relating to such consolidated financial statements are included in Prosperity’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019. You may review those reports, which are incorporated by reference in this joint proxy statement/prospectus as described under “Incorporation of Certain Documents by Reference,” and obtain copies of those reports as described below in “Where You Can Find More Information.”

Legacy’s consolidated financial statements as of and for each of the years in the period ended December 31, 2018, the related accompanying notes thereto, the report of Ernst & Young LLP, Legacy’s registered public accounting firm, with respect to their audit of those consolidated financial statements, and its management’s discussion and analysis of financial condition and results of operations relating to such consolidated financial statements appear in Legacy’s Annual Report on Form 10-K for the year ended December 31, 2018. Legacy’s consolidated financial statements as of and for the six months ended June 30, 2019 and 2018, the related accompanying notes thereto and its management’s discussion and analysis of financial condition and results of operations relating to such consolidated financial statements are included in Legacy’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019. You may review those reports, which are incorporated by reference in this joint proxy statement/prospectus as described under “Incorporation of Certain Documents by Reference,” and obtain copies of those reports as described below in “Where You Can Find More Information.”

We urge you to review the historical financial statements, the related accompanying notes thereto and the related management’s discussions and analyses of financial condition and results of operations described above and incorporated by reference into this joint proxy statement/prospectus, as well as the selected financial information and unaudited pro forma condensed combined financial statements appearing above, when considering how to vote on each proposal on which you are asked to vote as a shareholder of Legacy or Prosperity.

 

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Comparative Stock Prices

The following table shows (1) the market values of Prosperity common stock and Legacy common stock at the close of business on June 14, 2019, the last trading day prior to the announcement of the proposed merger, and as of the most recent practicable date preceding the date of this joint proxy statement/prospectus and (2) the equivalent pro forma value of a share of Legacy common stock at such dates based on the value of the consideration to be received in the merger with respect to each share. The equivalent price per Legacy share is a hypothetical implied value of the merger consideration, which includes both the per share stock consideration and the per share cash consideration. Unlike the value of the per share stock consideration, the value of the per share cash consideration is fixed (at $6.28 per share of Legacy common stock, without interest) and will not fluctuate based on the market price of Prosperity common stock. The table below does not reflect the fact that cash will be paid instead of fractional shares.

 

     Prosperity
Common
Stock(1)
     Legacy
Common
Stock(2)
     Equivalent
Price per
Legacy
Share(3)
 

June 14, 2019

   $ 67.24      $ 38.22      $ 41.78  

September 13, 2019

   $ 71.04      $ 43.61      $ 43.79  

 

(1)

Represents the closing price of Prosperity common stock on the NYSE on the date indicated.

(2)

Represents the closing price of Legacy common stock on the NASDAQ on the date indicated.

(3)

Equivalent price per share of Legacy common stock represents the closing price of Prosperity common stock on the NYSE on the date indicated, multiplied by the exchange ratio of 0.5280 shares of Prosperity common stock for each share of Legacy common stock, plus $6.28, without interest, per share of Legacy common stock.

Dividends

Dividend Payments

As approved by Prosperity’s board of directors, Prosperity declared and paid a $0.34 per share dividend to holders of Prosperity common stock for the first three fiscal quarters of 2017 and a $0.36 per share dividend for the fourth fiscal quarter of 2017 and the first three fiscal quarters of 2018. Prosperity declared and paid a $0.41 per share dividend for the last fiscal quarter of 2018 and the first two fiscal quarters of 2019. On July 16, 2019, Prosperity declared a $0.41 per share dividend for the third fiscal quarter of 2019 with a record date of September 16, 2019.

Prosperity intends to continue to pay regular quarterly cash dividends on its common stock in the fourth fiscal quarter of 2019 and following the merger, when, as and if declared by Prosperity’s board of directors out of funds legally available for that purpose and subject to regulatory restrictions. Except as described herein, no dividends payable in the future have been declared by Prosperity’s board of directors.

Prosperity’s dividend policy may change with respect to the payment of dividends as a return on investment, and Prosperity’s board of directors may change or eliminate the payment of future dividends at its discretion, without notice to Prosperity’s shareholders. There can be no assurance that Prosperity will continue to pay dividends in the future. Future dividends on Prosperity’s common stock will depend upon its earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, its ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant by the board of directors of Prosperity.

Dividend Restrictions; Source of Strength

Prosperity is regarded as a legal entity separate and distinct from Prosperity Bank. The principal source of Prosperity’s revenues is dividends received from Prosperity Bank. Federal and state law places limitations on the

 

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amount that banks may pay in dividends, which Prosperity Bank must adhere to when paying dividends to Prosperity. It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s expected capital needs and financial condition. The Federal Reserve’s policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. The Federal Reserve is authorized to limit or prohibit the payment of dividends if, in the Federal Reserve’s opinion, the payment of dividends would constitute an unsafe or unsound practice in light of a bank holding company’s financial condition. In addition, the Federal Reserve has indicated that each bank holding company should carefully review its dividend policy, and has discouraged payment ratios that are at maximum allowable levels, which is the maximum dividend amount that may be issued and allow the company to still maintain its target Tier 1 capital ratio, unless both asset quality and capital are very strong.

Accordingly, Prosperity should not pay cash dividends that exceed its net income in any year or that can only be funded in ways that weaken its financial strength, including by borrowing money to pay dividends. Regulatory authorities could impose administratively stricter limitations on the ability of Prosperity Bank to pay dividends to Prosperity if such limits were deemed appropriate to preserve certain capital adequacy requirements.

Under Federal Reserve policy, a bank holding company has historically been required to act as a source of financial strength to each of its banking subsidiaries, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act,” codified this policy as a statutory requirement. Under this requirement, Prosperity is expected to commit resources to support Prosperity Bank, including support at times when Prosperity may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. A bank holding company, in certain circumstances, could be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary. Dividends paid by Prosperity Bank have provided a substantial part of Prosperity’s operating funds, and for the foreseeable future, it is anticipated that dividends paid by Prosperity Bank to Prosperity will continue to be Prosperity’s principal source of operating funds. However, capital adequacy requirements serve to limit the amount of dividends that may be paid by Prosperity Bank. Under federal law, Prosperity Bank cannot pay a dividend if, after paying the dividend, it would be undercapitalized. The FDIC may declare a dividend payment to be unsafe and unsound even though Prosperity Bank would continue to meet its capital requirements after payment of the dividend.

 

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RISK FACTORS

An investment by Legacy’s stockholders in Prosperity common stock as a result of the exchange of shares of Legacy common stock for shares of Prosperity common stock as part of the consideration in the merger involves certain risks. Similarly, a decision on the part of Prosperity shareholders to approve the reorganization agreement and the transactions contemplated thereby also involves risks for the shareholders of Prosperity, who will continue to hold their shares of Prosperity common stock after the merger. Certain material risks and uncertainties connected with the merger and ownership of Prosperity common stock are discussed below. In addition, each of Prosperity and Legacy discuss certain other material risks connected with the ownership of Prosperity common stock and with Prosperity’s business, and with the ownership of Legacy common stock and with Legacy’s business, respectively, under the caption “Risk Factors” appearing in its respective Annual Report on Form 10-K most recently filed with the SEC and may include additional or updated disclosures of such material risks in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that each has filed since January 1, 2019 or will file with the SEC after the date of this joint proxy statement/prospectus, each of which reports is or will be incorporated by reference in this joint proxy statement/prospectus.

Holders of Legacy common stock and holders of Prosperity common stock should carefully read and consider all of these risks and all other information contained in this joint proxy statement/prospectus, including the discussions of risk factors included in the documents incorporated by reference in this joint proxy statement/prospectus, in deciding whether to vote for approval of the various proposals for which they may vote at the special meeting of the Legacy stockholders or the special meeting of the Prosperity shareholders described herein. If any of the risks described in this joint proxy statement/prospectus or those documents incorporated by reference herein result in effects on Prosperity or Prosperity Bank, the value of Prosperity common stock that you, as an existing Prosperity shareholder, currently hold or that you, as an existing Legacy stockholder, would hold upon consummation of the merger could decline significantly, and the current holders of Prosperity common stock and/or the holders of Legacy common stock could lose all or part of their respective investments in the Prosperity common stock.

The value of the shares of Prosperity common stock to be received by the Legacy stockholders in the merger is dependent upon the market price of Prosperity’s common stock, which is subject to fluctuation and may decline over time and reduce the economic benefits to be received by holders of Legacy common stock upon completion of the merger.

In instances in this joint proxy statement/prospectus, Prosperity has valued the Prosperity common stock to be issued in the merger to the holders of Legacy common stock based on the closing price of Prosperity’s common stock on June 14, 2019, the last trading day before the merger was announced, of $67.24 per share, or on September 13, 2019, the last practicable date before the date of this joint proxy statement/prospectus, of $71.04 per share. However, the value of each share of Prosperity common stock is subject to fluctuations in the marketplace, resulting in the possibility that its value could decrease between the date of this joint proxy statement/prospectus and the date of the Legacy special meeting when holders of Legacy common stock will be asked to approve the reorganization agreement, as well as between the date of that special meeting and the date of the closing of the merger. If the reorganization agreement is approved at the Legacy special meeting, there is the possibility that the value of the Prosperity common stock could decline materially prior to the issuance of the Prosperity common stock to the holders of Legacy common stock upon the completion of the merger and thereafter.

The merger of Prosperity and Legacy may not be completed, may take longer than expected or may be subject to conditions imposed by government entities that are not presently anticipated or cannot be met.

Completion of the merger of Prosperity and Legacy is subject to regulatory approval or waiver of the applications and notices filed with the Federal Reserve, the FDIC and the TDB. On July 26, 2019, Prosperity filed the required documentation with the Federal Reserve Bank of Dallas to request a waiver of its approval, which was granted on August 13, 2019. On July 15, 2019, Prosperity Bank and Legacy Bank filed the required

 

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applications with the FDIC and TDB. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under “The Merger—Regulatory Approvals Required for the Merger” on page 99. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. If Prosperity is not successful in obtaining the required regulatory approval, the merger will not be completed. Even if such regulatory approval is received, the timing of that regulatory approval could result in certain closing conditions of the merger not being satisfied or in a delay in the consummation of the merger. Furthermore, these regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger. See “The Merger—Regulatory Approvals Required for the Merger” on page 99.

The consummation of the merger is also subject to other conditions precedent as set forth in the reorganization agreement. Those conditions precedent include, among others, the approval of the merger by Prosperity’s shareholders and Legacy’s stockholders, there being no material adverse change with respect to Legacy, on the one hand, or Prosperity, on the other hand, and various other closing conditions. If a condition to either party’s obligation to consummate the merger is not satisfied or waived, the transaction would not be consummated or its consummation could be delayed. See “The Reorganization Agreement—Conditions to Completion of the Merger” on page 104 for a discussion of the conditions to the completion of the merger.

Legacy and Legacy Bank will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Legacy and Legacy Bank and, consequently, on Prosperity and Prosperity Bank. Uncertainties surrounding the merger may impair the ability of one or more of Prosperity, Prosperity Bank, Legacy and Legacy Bank to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with either of the banks to seek to change their existing business relationships with such bank. In addition, the reorganization agreement restricts Legacy and Legacy Bank from taking specified actions until the merger occurs without Prosperity’s consent. These restrictions may prevent Legacy or Legacy Bank from pursuing attractive business opportunities that may arise prior to the merger’s completion.

Integrating Legacy Bank into Prosperity Bank’s operations may be more difficult, costly or time-consuming than Prosperity expects.

Prosperity Bank and Legacy Bank have operated and, until the merger is completed, will continue to operate, independently. Accordingly, the process of integrating Legacy Bank’s operations into Prosperity Bank’s operations could result in the disruption of operations, the loss of Legacy Bank customers and employees and make it more difficult to achieve the intended benefits of the merger. Inconsistencies between the standards, controls, procedures and policies of Prosperity Bank and those of Legacy Bank could adversely affect Prosperity Bank’s ability to maintain relationships with current customers and employees of Legacy Bank if and when the merger is completed.

As with any merger of banking institutions, business disruptions may occur that may cause Prosperity Bank to lose customers or may cause Legacy Bank’s customers to withdraw their deposits from Legacy Bank prior to the merger’s consummation and from Prosperity Bank thereafter. The realization of the anticipated benefits of the merger may depend in large part on Prosperity’s ability to integrate Legacy Bank’s operations into Prosperity Bank’s operations, and to address differences in business models and cultures. If Prosperity is unable to integrate the operations of Legacy and Legacy Bank into Prosperity’s and Prosperity Bank’s operations successfully and on a timely basis, some or all of the expected benefits of the merger may not be realized. Difficulties encountered

 

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with respect to such matters could result in an adverse effect on the financial condition, results of operations, capital, liquidity or cash flows of Prosperity Bank and Prosperity.

Prosperity may fail to realize the cost savings anticipated from the merger.

Although Prosperity anticipates that it would realize certain cost savings as to the operations of Legacy and Legacy Bank and otherwise from the merger if and when the operations of Legacy and Legacy Bank are fully integrated into Prosperity’s and Prosperity Bank’s operations, it is possible that Prosperity may not realize all of the cost savings that Prosperity has estimated it can realize from the merger. For example, for a variety of reasons, Prosperity may be required to continue to operate or maintain some facilities or support functions that are currently expected to be combined or reduced as a result of the merger. Prosperity’s realization of the estimated cost savings also will depend on Prosperity’s ability to combine the operations of Prosperity and Prosperity Bank with the operations of Legacy and Legacy Bank in a manner that permits those cost savings to be realized. If Prosperity is not able to integrate the operations of Legacy and Legacy Bank into Prosperity’s and Prosperity Bank’s operations successfully and to reduce the combined costs of conducting the integration operations of the two banks, the anticipated cost savings may not be fully realized, if at all, or may take longer to realize than expected. Prosperity’s failure to realize those cost savings could materially adversely affect Prosperity’s financial condition, results of operations, capital, liquidity or cash flows.

The unaudited pro forma condensed combined financial statements included in this joint proxy statement/prospectus are presented for illustrative purposes only, include assumptions and preliminary estimates that may not be accurate, and the actual financial condition and results of operations after the merger may differ materially.

The unaudited pro forma condensed combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what Prosperity’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma condensed combined financial statements reflect adjustments to illustrate the effect of the merger had it been completed on the dates indicated, which are based upon preliminary estimates, to record the Legacy identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation for the merger reflected in this joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Legacy as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see “Unaudited Pro Forma Condensed Combined Financial Information” on page 27.

The completion of Prosperity’s merger with Legacy would result in the immediate dilution of Prosperity’s existing shareholders’ ownership percentages in Prosperity’s common stock and their voting power, which could adversely affect the market for Prosperity’s common stock.

The merger of Legacy with and into Prosperity would result in the issuance of a substantial number of additional shares of Prosperity’s common stock. That issuance would result in the immediate dilution of the percentage ownership and voting power of the existing holders of Prosperity’s common stock. As a result, Prosperity shareholders will have less influence on the management and policies of Prosperity than they now have. Factors associated with the consummation of the merger of Legacy with and into Prosperity, such as those discussed above, could adversely affect the market for Prosperity’s common stock.

 

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The fairness opinion of J.P. Morgan, Legacy’s financial advisor, delivered to the Legacy board of directors and the fairness opinion of KBW, Prosperity’s financial advisor, delivered to the Prosperity board of directors prior to the parties’ entry into the reorganization agreement will not reflect any changes in circumstances subsequent to the date of the fairness opinions.

J.P. Morgan, Legacy’s financial advisor in connection with the proposed merger, and KBW, Prosperity’s financial advisor in connection with the proposed merger, delivered to the boards of directors of Legacy and Prosperity, respectively, their opinions on, and dated, June 14, 2019. Events occurring after the date of the opinions such as changes in the operations and prospects of Prosperity and Legacy, economic, market, regulatory and other conditions and other factors beyond the control of Prosperity or Legacy may materially alter or affect the relative values of Prosperity and Legacy or the prices of shares of Prosperity common stock or Legacy common stock by the time the merger is completed. The opinions of J.P. Morgan and KBW do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. See “The Merger–Opinion of Prosperity’s Financial Advisor” beginning on page 78 and “The Merger–Opinion of Legacy’s Financial Advisor” beginning on page 71.

Termination of the reorganization agreement could negatively impact Legacy or Prosperity.

There may be various negative consequences if the reorganization agreement is terminated. For example, Legacy’s or Prosperity’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the reorganization agreement is terminated, the market price of Legacy’s and/or Prosperity’s common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the reorganization agreement is terminated under certain circumstances, Legacy would be required to pay to Prosperity a termination fee of $82 million.

Some of the directors and officers of Legacy have interests and arrangements that may have influenced their decisions to support or recommend that you approve the reorganization agreement.

The interests of some of the directors and officers of Legacy are different from those of Legacy stockholders. Certain of the directors and certain officers of Legacy are or will be participants in arrangements relating to, or that are affected by the merger that are different from, or in addition to, those of Legacy stockholders. These interests are described in more detail in the section of this joint proxy statement/prospectus entitled “The Merger—Financial Interests of Directors and Officers of Legacy in the Merger” beginning on page 93.

If the merger is not completed, Prosperity and Legacy will have incurred substantial expenses without realizing the expected benefits of the merger.

Each of Prosperity and Legacy has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the reorganization agreement, as well as the costs and expenses of filing, printing and mailing this joint proxy statement/prospectus and all filing and other fees paid to the SEC and fees to other regulators in connection with the merger. If the merger is not completed, Prosperity and Legacy would have to recognize these and other expenses without realizing the expected benefits of the merger.

The reorganization agreement limits Legacy’s ability to pursue alternative acquisition proposals and requires it to pay a termination fee of $82 million under certain circumstances.

The reorganization agreement prohibits Legacy from soliciting, knowingly encouraging or facilitating, initiating or participating in negotiations or discussions with respect to certain alternative acquisition proposals with any third party, subject to exceptions set forth in the reorganization agreement. See “The Reorganization

 

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Agreement—No Negotiation with Others” on page 111. The reorganization agreement also provides that Legacy must pay to Prosperity a termination fee in the amount of $82 million in the event that the reorganization agreement is terminated for certain reasons, including circumstances involving a change in recommendation by the Legacy board of directors. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Legacy from considering or proposing such an acquisition. See “The Reorganization Agreement—Termination Fee and Effect of Termination” on page 122.

The market price of Prosperity common stock after the merger may be affected by factors different from those affecting the shares of Legacy or Prosperity currently.

Upon completion of the merger, holders of Legacy common stock will become holders of Prosperity common stock. Prosperity’s business differs in important respects from that of Legacy, and, accordingly, the results of operations of the combined company and the market price of Prosperity common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Legacy and Prosperity.

Legacy stockholders will have a reduced ownership and voting interest in Prosperity after the merger than they now have in Legacy and will exercise less influence over Prosperity’s management than they now exercise over Legacy’s management.

Legacy’s stockholders currently have the right to vote in the election of the board of directors of Legacy and on other matters affecting Legacy. The merger will transfer control of the operations of Legacy to Prosperity and to the shareholders of Prosperity. When the merger occurs, each Legacy stockholder will become a shareholder of Prosperity with a percentage ownership of Prosperity smaller than such shareholder’s percentage ownership of Legacy immediately prior to the merger. As a result, Legacy stockholders will have less influence on the management and policies of Prosperity than they now have on the management and policies of Legacy.

The shares of Prosperity common stock to be received by Legacy stockholders as a result of the merger will have different rights than the shares of Legacy common stock and in some cases may be less favorable.

The rights associated with Legacy common stock are different from the rights associated with Prosperity common stock. In some cases, the rights associated with the Prosperity common stock may be less favorable to shareholders than those associated with the Legacy common stock. For example, holders of Legacy common stock currently elect each member of their board of directors at each annual meeting of the Legacy stockholders. Upon consummation of the merger, the holders of Legacy common stock will hold Prosperity common stock that provides that the members of only one of three classes of directors are elected at each annual meeting of Prosperity shareholders, which could have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change in control of Prosperity. See “Comparison of Rights of Stockholders of Legacy and Shareholders of Prosperity” on page 137 for a more detailed description of the shareholder rights of each of Prosperity and Legacy.

Legacy stockholders will not be entitled to dissenters’ or appraisal rights in the merger.

Dissenters’ or appraisal rights are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Under the MGCL, dissenters’ rights are not available for shares that are listed on a national securities exchange. Because Legacy common stock is traded on the NASDAQ, a national securities exchange, Legacy stockholders will not be entitled to dissenters’ or appraisal rights in the merger under the MGCL.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this joint proxy statement/prospectus that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (as amended, the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”). These forward-looking statements include information about possible or assumed future results of operations of Prosperity or Legacy before or after the merger is completed as well as information about the merger, including Prosperity’s or Legacy’s future revenues, income, expenses, provision for taxes, effective tax rate, earnings per share and cash flows, Prosperity’s or Legacy’s future capital expenditures and dividends, Prosperity’s or Legacy’s future financial condition and changes therein, including changes in Prosperity’s or Legacy’s loan portfolio and allowance for loan losses, Prosperity’s or Legacy’s future capital structure or changes therein, the plan and objectives of management for future operations, Prosperity’s future or proposed acquisitions, the future or expected effect of acquisitions on Prosperity’s operations, results of operations and financial condition, Prosperity’s or Legacy’s future economic performance, statements about the benefits of the proposed transaction, and the statements of the assumptions underlying any such statement. Such 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 estimated,” “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. The forward-looking statements that Prosperity and Legacy make are based on Prosperity’s and Legacy’s current expectations and assumptions regarding Prosperity’s and Legacy’s businesses, the economy and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Many possible events or factors could affect the future financial results and performance of each of Prosperity and Legacy before the merger or Prosperity after the merger, and could cause those results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:

 

   

Prosperity’s or Legacy’s ability to sustain its current internal growth rate and total growth rate;

 

   

changes in geopolitical, business and economic events, occurrences and conditions, including changes in rates of inflation or deflation, nationally, regionally and in Prosperity’s or Legacy’s target markets, particularly in Texas;

 

   

worsening business and economic conditions nationally, regionally and in Prosperity’s or Legacy’s target markets, particularly in Texas, and the geographic areas in Texas in which Prosperity or Legacy operates;

 

   

the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the reorganization agreement;

 

   

the outcome of any legal proceedings that may be instituted against Prosperity or Legacy;

 

   

delays in completing the merger;

 

   

the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and stockholder or shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all;

 

   

the possibility that the anticipated benefits of the merger are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Prosperity and Legacy do business;

 

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the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger, and Prosperity’s ability to complete the acquisition and integration of Legacy successfully;

 

   

the dilution caused by Prosperity’s issuance of additional shares of its common stock in connection with the transaction;

 

   

Prosperity’s revenues after the Legacy acquisition may be less than expected;

 

   

Prosperity’s or Legacy’s dependence on its management team and its ability to attract, motivate and retain qualified personnel;

 

   

the concentration of Prosperity’s or Legacy’s business within its geographic areas of operation in Texas;

 

   

changes in asset quality, including increases in default rates and loans and higher levels of nonperforming loans and loan charge-offs;

 

   

concentration of the loan portfolio of Prosperity Bank or Legacy Bank in commercial and residential real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;

 

   

the ability of Prosperity Bank or Legacy Bank to make loans with acceptable interest rates and levels of risk of repayment and to otherwise invest in assets at acceptable yields and presenting acceptable investment risks;

 

   

inaccuracy of the assumptions and estimates that the managements of Prosperity or Legacy make in establishing reserves for probable loan losses and other estimates;

 

   

lack of liquidity, including as a result of a reduction in the amount of sources of liquidity, that Prosperity or Legacy currently has;

 

   

material increases or decreases in the amount of deposits held by Prosperity Bank or Legacy Bank and the cost of those deposits;

 

   

access to the debt and equity markets and the overall cost of funding operations;

 

   

regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support Prosperity’s anticipated growth;

 

   

changes in market interest rates that affect the pricing of the loans and deposits of each of Prosperity Bank and Legacy Bank, and the net interest income of each of Prosperity Bank and Legacy Bank;

 

   

fluctuations in the market value and liquidity of the securities Prosperity or Legacy holds for sale, including as a result of changes in market interest rates;

 

   

effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

 

   

changes in economic and market conditions that affect the amount and value of the assets of Prosperity Bank and Legacy Bank;

 

   

the institution and outcome of, and costs associated with, litigation and other legal proceedings against one or more of Prosperity, Prosperity Bank, Legacy and Legacy Bank, or to which any of such entities is subject;

 

   

the occurrence of market conditions adversely affecting the financial industry generally;

 

   

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by Prosperity’s regulators, such as the

 

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Dodd-Frank Act, including the Dodd-Frank Act stress testing and other requirements, and changes in federal government policies;

 

   

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, as the case may be;

 

   

governmental monetary and fiscal policies, including the policies of the Federal Reserve;

 

   

changes in the scope and cost of FDIC insurance and other coverage;

 

   

the effects of war or other conflicts, acts of terrorism (including cyber attacks) or other catastrophic events, including storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions;

 

   

the impact of investments that Prosperity or Prosperity Bank may have made or may make and the changes in the value of those investments;

 

   

Prosperity’s ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain its growth, to expand its presence in its markets and to enter new markets;

 

   

general business and economic conditions in Prosperity’s or Legacy’s markets may change or may be less favorable than expected;

 

   

changes may occur in business conditions and inflation;

 

   

an increase in the rate of personal or commercial customers’ bankruptcies;

 

   

technology-related changes may be harder to make or may be more expensive than expected;

 

   

attacks on the security of, and breaches of, Prosperity’s, Prosperity Bank’s, Legacy’s, or Legacy Bank’s digital information systems, the costs Prosperity, Prosperity Bank, Legacy, or Legacy Bank incur to provide security against such attacks and any costs and liability Prosperity, Prosperity Bank, Legacy or Legacy Bank may incur in connection with any breach of those systems; and

 

   

the potential impact of technology and “FinTech” entities on the banking industry generally.

For other factors, risks and uncertainties that could cause actual results to differ materially from estimates contained in forward-looking statements, please read the “Risk Factors” section of this joint proxy statement/prospectus, and the “Risk Factors” sections of Prosperity’s and Legacy’s respective Annual Reports on Form 10-K for the year ended December 31, 2018 and subsequent Quarterly Reports on Form 10-Q, each of which is incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information.”

Prosperity and Legacy urge you to consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made in this joint proxy statement/prospectus. As a result of these and other matters, including changes in facts, assumptions not being realized or other factors, the actual results relating to the subject matter of any forward-looking statement may differ materially from the anticipated results expressed or implied in that forward-looking statement. Any forward-looking statement made in this joint proxy statement/prospectus or made by Prosperity or Legacy in any report, filing, document or information incorporated by reference in this joint proxy statement/prospectus, speaks only as of the date on which it is made. Neither Prosperity nor Legacy undertakes any obligation to update any such forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that these assumptions or bases have been chosen in good faith and that they are reasonable. However, we caution you that assumptions as to future occurrences or results almost always vary from actual future occurrences or results, and the differences between assumptions and actual occurrences and results can be material. Therefore, we caution you not to place undue reliance on the forward-looking statements contained in this joint proxy statement/prospectus or incorporated by reference herein.

 

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GENERAL INFORMATION

This document constitutes a joint proxy statement/prospectus of Legacy and Prosperity and is being furnished to all record holders of Legacy common stock on the record date for the Legacy special meeting and all record holders of Prosperity common stock on the record date for the Prosperity special meeting in connection with the solicitation of proxies by the boards of directors of Legacy and Prosperity to be used at the special meetings of stockholders of Legacy and shareholders of Prosperity to be held on October 28, 2019 and October 29, 2019, respectively.

The purpose of the special meetings is to consider and vote to approve the reorganization agreement, which provides for, among other things, the merger of Legacy with and into Prosperity, with Prosperity being the surviving entity, followed by the merger of Legacy Bank with and into Prosperity Bank, with Prosperity Bank being the surviving bank. This document also constitutes a prospectus relating to the offer and sale of Prosperity common stock to be issued in connection with the merger to holders of Legacy common stock.

Prosperity has supplied all of the information contained herein relating to Prosperity and Prosperity Bank, and Legacy has supplied all of the information contained herein relating to Legacy and Legacy Bank.

 

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THE LEGACY SPECIAL MEETING

This joint proxy statement/prospectus is being provided to the holders of Legacy common stock as part of a solicitation of proxies by the Legacy board of directors for use at the Legacy special meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides the holders of Legacy common stock with information they need to know to be able to vote or instruct their vote to be cast at the Legacy special meeting.

Date, Time and Place

The special meeting of holders of Legacy common stock will be held on October 28, 2019 at 11:00 a.m. Central Time, at 5851 Legacy Circle, Plano, Texas 75024.

Purpose of the Legacy Special Meeting

At the Legacy special meeting, the holders of shares of Legacy common stock will be asked to consider and vote on the following:

Legacy merger proposal: to approve the reorganization agreement and the transactions contemplated thereby, including the merger;

Legacy compensation proposal: to approve, on an advisory (non-binding) basis, the compensation that certain executive officers of Legacy may receive in connection with the merger pursuant to existing agreements or arrangements with Legacy; and

Legacy adjournment proposal: to approve the adjournment of the Legacy special meeting to a later date or dates if the board of directors of Legacy determines it is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Legacy merger proposal.

Completion of the merger is conditioned on, among other things, the approval of the reorganization agreement by the requisite Legacy stockholder vote, as well as the receipt of all required regulatory approvals.

Recommendation of the Legacy Board of Directors

On June 14, 2019, the Legacy board of directors determined that the merger and the other transactions contemplated by the reorganization agreement are in the best interests of Legacy and its stockholders.

Accordingly, the Legacy board of directors recommends that Legacy stockholders vote as follows:

FOR” the Legacy merger proposal;

FOR” the Legacy compensation proposal; and

FOR” the Legacy adjournment proposal.

Holders of Legacy common stock should carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Appendices in their entirety for more detailed information concerning the merger and the transactions contemplated by the reorganization agreement.

Legacy Record Date; Stockholders Entitled to Vote

The record date for the Legacy special meeting is September 16, 2019, or the “Legacy record date.” Only record holders of shares of Legacy common stock at the close of business on the Legacy record date are entitled

 

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to notice of, and to vote at, the Legacy special meeting or any adjournment or postponement thereof. At the close of business on the Legacy record date, the only outstanding voting securities of Legacy were shares of common stock, and 49,156,231 shares of Legacy common stock were issued and outstanding.

Each share of Legacy common stock outstanding on the Legacy record date is entitled to one vote on each proposal.

Voting by Legacy’s Directors and Executive Officers

At the close of business on the record date for the Legacy special meeting, Legacy directors and executive officers and their affiliates were entitled to vote approximately 973,397 shares of Legacy common stock, or approximately 2.0% of the shares of Legacy common stock outstanding on that date.

We currently expect that Legacy directors and executive officers and their affiliates will vote their shares in favor of all of the Legacy proposals, although they are under no obligation to do so.

Quorum and Adjournment

No business may be transacted at the Legacy special meeting unless a quorum is present. Stockholders who hold shares representing at least one-third of the shares of Legacy capital stock outstanding and entitled to vote at the Legacy special meeting must be present in person or represented by proxy to constitute a quorum.

If a quorum is not present, then the Legacy special meeting may be adjourned to allow for the solicitation of additional proxies. The Legacy special meeting may be adjourned by the holders of a majority in number of the shares of stock present in person or represented by proxy and entitled to vote, or by the chairman of the meeting without a vote of the stockholders.

No notice of an adjourned Legacy special meeting need be given unless the adjournment is for more than 120 days or, after the adjournment, a new record date is fixed for the adjourned Legacy special meeting, in which case a notice of the adjourned Legacy special meeting shall be given to each Legacy stockholder of record entitled to vote at the Legacy special meeting. At any adjourned Legacy special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the Legacy special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned Legacy special meeting.

All shares of Legacy common stock represented at the Legacy special meeting, including shares of Legacy common stock that are represented but that vote to abstain and broker nonvotes, will be treated as present for purposes of determining the presence or absence of a quorum.

Required Vote

The required votes to approve the Legacy proposals are as follows:

The Legacy merger proposal requires the affirmative vote of the holders of a majority of the votes entitled to be cast at the Legacy special meeting. Failures to vote, broker nonvotes and abstentions will have the same effect as a vote against this proposal.

The Legacy compensation proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting. Failure to vote, abstentions and broker nonvotes will have no effect on the proposal.

The Legacy adjournment proposal requires the affirmative vote of a majority of votes cast by the Legacy stockholders entitled to vote on such proposal at the Legacy special meeting. Failure to vote, abstentions and broker nonvotes will have no effect on the proposal.

 

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Voting of Proxies by Holders of Record

If you were a record holder of Legacy common stock at the close of business on the Legacy record date, a proxy card is enclosed for your use. Legacy requests that you vote your shares as promptly as possible by doing one of the following:

 

   

simply indicate on the proxy card(s) applicable to your Legacy common stock how you want to vote and sign, date and mail your proxy card(s) in the enclosed pre-addressed, postage-paid envelope as soon as possible, but in any event no later than the time necessary for your proxy card to be actually received by Legacy immediately prior to the vote at the Legacy special meeting;

 

   

call 1-866-804-9616 using a touch-tone telephone and follow the instructions for telephone voting provided on the call; or

 

   

go to the website www.AALvote.com/LTXBSM and follow the instructions at that website.

Your proxy card must be received by Legacy by no later than the time the polls close for voting at the Legacy special meeting for your vote to be counted at the meeting. Please note that telephone and Internet voting will close at 11:59 p.m. Central Time, on October 27, 2019.

When the accompanying proxy card is properly executed, dated and returned, the shares of Legacy common stock represented by it will be voted at the Legacy special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy card. Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card.

If a proxy card is returned without an indication as to how the shares of Legacy common stock represented by it are to be voted with regard to a particular proposal, the shares of Legacy common stock represented by the proxy will be voted in accordance with the recommendation of the Legacy board of directors and, therefore, such shares will be voted:

FOR” the Legacy merger proposal;

FOR” the Legacy compensation proposal; and

FOR” the Legacy adjournment proposal.

As of the date hereof, the Legacy board of directors has no knowledge of any business that will be presented for consideration at the Legacy special meeting and that would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in the Legacy Notice of Special Meeting of Stockholders.

No other matter can be brought up or voted upon at the Legacy special meeting.

Your vote is important. Accordingly, if you were a record holder of Legacy common stock at the close of business on the record date of the Legacy special meeting, please sign and return the enclosed proxy card or vote via the Internet or telephone whether or not you plan to attend the Legacy special meeting in person. Proxies submitted through the specified Internet website or by phone must be received by 11:59 p.m. Central Time, on October 27, 2019.

Attending the Meeting; Voting in Person

Only record holders of Legacy common stock as of the record date, or their duly appointed proxies, may attend the Legacy special meeting.

 

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If your shares of Legacy are held in “street name,” then you are not the stockholder of record. In order for you to vote the shares that you beneficially own and that are held in “street name” in person at the special meeting, you must bring a legal proxy, executed in your favor, from the broker, bank, trustee or other nominee that was the record holder of your shares held in “street name” as of the record date, (i) confirming that you were the beneficial owner of those shares as of the record date, (ii) stating the number of shares of which you were the beneficial owner that were held for your benefit at that time by that broker, bank, trustee or other nominee, and (iii) appointing you as the record holder’s proxy to vote the shares covered by that proxy at the special meeting.

A person who holds a validly executed proxy entitling such person to vote on behalf of a record owner of shares of Legacy common stock who desires to attend the Legacy special meeting in person must bring the validly executed proxy naming such person as the proxy holder, signed by the Legacy stockholder of record, and proof of the signing stockholder’s record ownership of shares of Legacy common stock as of the record date.

Whether or not you intend to be present at the Legacy special meeting, you are urged to sign, date, and return your proxy card, or to vote via the Internet or by telephone, promptly. If you are then present and wish to vote your shares in person, your original proxy may be revoked by voting by ballot at the Legacy special meeting.

No cameras, recording equipment or other electronic devices will be allowed in the meeting room.

Revocation of Proxies

Regardless of the method used to cast a vote, you may revoke a previously provided proxy by:

 

   

delivering to Legacy prior to the Legacy special meeting a written notice of revocation addressed to: LegacyTexas Financial Group, Inc., Attention: Corporate Secretary, 5851 Legacy Circle, Plano, Texas 75024;

 

   

completing, signing and returning a new proxy card with a later date than the date on your original proxy card prior to the time the polls close for voting at the Legacy special meeting, in which case any earlier proxy will be revoked automatically;

 

   

logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 27, 2019; or

 

   

attending the Legacy special meeting and voting in person, in which case any earlier proxy will be revoked. However, simply attending the Legacy special meeting without voting on a proposal will not revoke your proxy previously provided as to that proposal.

If your shares are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted.

Tabulation of Votes

Legacy will appoint one or more employees of Legacy to serve as the Inspector of Election for the Legacy special meeting. Alliance Advisors will independently tabulate affirmative votes, negative votes and abstentions.

Participants in the LegacyTexas 401(k) Employee Stock Ownership Plan

Each participant in the LegacyTexas 401(k) Employee Stock Ownership Plan, or the “ESOP,” is entitled to direct the trustee of the plan on how to vote the shares of Legacy common stock allocated to his or her account

 

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under the ESOP. If a participant properly executes the voting instruction card distributed by the trustee of the ESOP, the trustee will vote the participant’s shares in accordance with the instructions. Where properly executed voting instruction cards are returned to the trustee with no specific instruction as to how to vote at the special meeting, or in the event a participant fails to give timely voting instructions to the trustee with respect to the voting of the common stock that is allocated to his or her ESOP account, the trustee will vote the shares as directed by the administrator of the ESOP. The trustee will vote the shares of Legacy common stock held in the Legacy ESOP but not allocated to any participant’s account in the same proportion as directed by the participants who directed the trustee as to the manner of voting their allocated shares in the ESOP with respect to each proposal.

Solicitation of Proxies

The Legacy board of directors is soliciting proxies for the Legacy special meeting from holders of shares of Legacy common stock entitled to vote at such special meeting. In accordance with the reorganization agreement, Legacy will pay its own cost of soliciting proxies from its stockholders, including the cost of mailing this joint proxy statement/prospectus. In addition to solicitation of proxies by mail, proxies may be solicited by Legacy’s officers, directors and regular employees, without additional remuneration, by personal interview, telephone or other means of communication. Legacy has engaged Alliance Advisors to assist in the solicitation of proxies for the Legacy special meeting and will pay a minimum fee of $7,500.

Legacy will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of Legacy common stock. Legacy may reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

Abstentions and shares of Legacy common stock held of record by a broker or nominee that are voted on any matter are included in determining whether a quorum exists at the Legacy special meeting. Brokers that are members of the NYSE or NASDAQ, as holders of record, are permitted to vote on certain routine matters in their discretion, but not on nonroutine matters. The Legacy merger proposal is a nonroutine matter. Accordingly, if a holder of shares of Legacy common stock holds such shares in “street name” and does not provide voting instructions to his or her bank, broker or nominee that is a member of NYSE or NASDAQ, those shares will not be voted on that proposal at the Legacy special meeting unless you receive a proxy from that broker that will allow you to vote the shares you beneficially own and that are held by that broker. Abstentions and broker nonvotes have the same effect as votes against the Legacy merger proposal, but will have no effect on the Legacy compensation proposal or the Legacy adjournment proposal.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Legacy special meeting, please contact:

Alliance Advisors

200 Broadacres Drive, 3rd Fl.

Bloomfield, NJ 07003

(833) 786-6483

or

LegacyTexas Financial Group, Inc.

Attention: Investor Relations

5851 Legacy Circle

Plano, Texas 75024

Telephone: (972) 578-5000

 

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THE PROSPERITY SPECIAL MEETING

This joint proxy statement/prospectus is being provided to the Prosperity shareholders as part of a solicitation of proxies by the Prosperity board of directors for use at the Prosperity special meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides Prosperity shareholders with information they need to know to be able to vote or instruct their vote to be cast at the Prosperity special meeting.

Date, Time and Place

The special meeting of Prosperity shareholders will be held on October 29, 2019, at 10:30 a.m. Central Time, at 80 Sugar Creek Center Blvd., Sugar Land, Texas 77478.

Purpose of the Prosperity Special Meeting

At the Prosperity special meeting, Prosperity shareholders will be asked to consider and vote on the following:

Prosperity merger proposal: to approve the reorganization agreement, the transactions contemplated thereby, and the issuance of Prosperity common stock in connection with the merger; and

Prosperity adjournment proposal: to approve the adjournment of the Prosperity special meeting to a later date or dates, if the board of directors of Prosperity determines it is necessary or appropriate, including adjournments to permit solicitation of additional proxies in favor of the Prosperity merger proposal.

Completion of the merger is conditioned on, among other things, the approval of the reorganization agreement and the issuance of Prosperity common stock in connection with the merger by the requisite Prosperity shareholder vote, as well as the receipt of all required regulatory approvals.

Recommendation of the Prosperity Board of Directors

At a special meeting held on June 14, 2019, the Prosperity board of directors determined that the merger and the other transactions contemplated by the reorganization agreement, including the issuance of shares of Prosperity common stock to Legacy stockholders in connection with the merger, are in the best interests of Prosperity and its shareholders.

Accordingly, the Prosperity board of directors recommends that Prosperity shareholders vote as follows:

FOR” the Prosperity merger proposal; and

FOR” the Prosperity adjournment proposal.

Prosperity shareholders should carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Appendices in their entirety, for more detailed information concerning the merger and the transactions contemplated by the reorganization agreement.

Prosperity Record Date; Shareholders Entitled to Vote

The record date for the Prosperity special meeting is September 16, 2019, or the “Prosperity record date.” Only record holders of shares of Prosperity common stock at the close of business on the Prosperity record date are entitled to notice of, and to vote at, the Prosperity special meeting or any adjournment or postponement thereof. At the close of business on the Prosperity record date, the only outstanding voting securities of Prosperity were shares of common stock, and 68,396,778 shares of Prosperity common stock were issued and outstanding.

 

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Each share of Prosperity common stock outstanding on the Prosperity record date is entitled to one vote on each proposal.

Voting by Prosperity’s Directors and Executive Officers

At the close of business on the record date for the Prosperity special meeting, Prosperity directors and executive officers and their respective affiliates were entitled to vote approximately 3,662,278 shares of Prosperity common stock, or approximately 5.4% of the shares of Prosperity common stock outstanding on that date.

We currently expect that Prosperity executive officers and their affiliates will vote their shares in favor of all of the Prosperity proposals, although they are under no obligation to do so.

Quorum and Adjournment

No business may be transacted at the Prosperity special meeting unless a quorum is present. Shareholders who hold shares representing at least a majority of the shares outstanding and entitled to vote at the Prosperity special meeting must be present in person or represented by proxy to constitute a quorum.

If a quorum is not present, then the Prosperity special meeting may be adjourned to allow for the solicitation of additional proxies. The Prosperity special meeting may be adjourned by the holders of a majority of the votes entitled to be cast by the shareholders present in person or represented by proxy.

Other than announcement at the meeting of the time and place to which the meeting is adjourned, no notice of an adjourned Prosperity special meeting need be given unless the adjournment is for more than 30 days or, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each Prosperity shareholder of record entitled to vote at the meeting. At any adjourned meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned Prosperity special meeting.

All shares of Prosperity common stock represented at the Prosperity special meeting, including shares that are represented but that vote to abstain and broker nonvotes, will be treated as present for purposes of determining the presence or absence of a quorum.

Required Vote

The required votes to approve the Prosperity proposals are as follows:

The Prosperity merger proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Prosperity common stock entitled to vote at the Prosperity special meeting. Failures to vote, broker nonvotes and abstentions will have the same effect as a vote against this proposal.

The Prosperity adjournment proposal requires the affirmative vote of a majority of votes cast by the Prosperity shareholders entitled to vote on such proposal at the Prosperity special meeting. Failures to vote, broker nonvotes and abstentions will have no effect on the vote for this proposal.

Voting of Proxies by Holders of Record

If you were a record holder of Prosperity common stock at the close of business on the record date of the Prosperity special meeting, a proxy card is enclosed for your use. Prosperity requests that you vote your shares as promptly as possible by doing one of the following:

 

   

simply indicate on the proxy card(s) applicable to your Prosperity common stock how you want to vote and sign, date and mail your proxy card(s) in the enclosed pre-addressed, postage-paid envelope as

 

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soon as possible, but in any event no later than the time necessary for your proxy card to be actually received by Prosperity immediately prior to the vote at the Prosperity special meeting;

 

   

call 1-800-652-VOTE (8683) using a touch-tone telephone and follow the instructions for telephone voting provided on the call; or

 

   

go to the website www.investorvote.com/PB and follow the instructions at that website.

Your proxy card must be received by Prosperity by no later than the time the polls close for voting at the Prosperity special meeting for your vote to be counted at the meeting. Please note that telephone and Internet voting will close at 11:59 p.m. Central Time, on October 28, 2019.

When the accompanying proxy card is properly executed, dated and returned, the shares of Prosperity common stock represented by it will be voted at the Prosperity special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy card. Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card.

If a proxy card is returned without an indication as to how the shares of Prosperity common stock represented by it are to be voted with regard to a particular proposal, the shares of Prosperity common stock represented by the proxy will be voted in accordance with the recommendation of the Prosperity board of directors and, therefore, such shares will be voted:

FOR” the Prosperity merger proposal; and

FOR” the Prosperity adjournment proposal.

As of the date hereof, the Prosperity board of directors has no knowledge of any business that will be presented for consideration at the Prosperity special meeting and that would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in Prosperity’s Notice of Special Meeting of Shareholders.

No other matters can be brought up or voted on at the Prosperity special meeting.

Your vote is important. Accordingly, if you were a record holder of Prosperity common stock at the close of business on the record date of the Prosperity special meeting, please sign and return the enclosed proxy card or vote via the Internet or telephone whether or not you plan to attend the Prosperity special meeting in person. Proxies submitted through the specified Internet website or by phone must be received by 11:59 p.m. Central Time, on October 28, 2019.

Attending the Meeting; Voting in Person

Only record holders of Prosperity common stock on the record date, their duly appointed proxies and invited guests may attend the Prosperity special meeting.

If your shares of Prosperity are held in “street name,” then you are not the shareholder of record. In order for you to vote the shares that you beneficially own and that are held in “street name” in person at the special meeting, you must bring a legal proxy, executed in your favor, from the broker, bank, trustee or other nominee that was the record holder of your shares held in “street name” as of the record date, (i) confirming that you were the beneficial owner of those shares as of the record date, (ii) stating the number of shares of which you were the beneficial owner that were held for your benefit at that time by that broker, bank, trustee or other nominee, and (iii) appointing you as the record holder’s proxy to vote the shares covered by that proxy at the special meeting.

 

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A person who holds a validly executed proxy entitling such person to vote on behalf of a record owner of shares of Prosperity common stock who desires to attend the Prosperity special meeting in person must bring the validly executed proxy naming such person as the proxy holder, signed by the Prosperity shareholder of record, and proof of the signing shareholder’s record ownership of shares of Prosperity common stock as of the record date.

Whether or not you intend to be present at the Prosperity special meeting, you are urged to sign, date, and return your proxy card, or to vote via the Internet or by telephone, promptly. If you are then present and wish to vote your shares in person, your original proxy may be revoked by voting by ballot at the Prosperity special meeting.

No cameras, recording equipment or other electronic devices will be allowed in the meeting room.

Revocation of Proxies

Regardless of the method used to cast a vote, you may revoke a previously provided proxy by:

 

   

delivering to Prosperity prior to the Prosperity special meeting a written notice of revocation addressed to: Secretary, Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas 77027;

 

   

completing, signing and returning a new proxy card with a later date than the date on your original proxy card prior to the time the polls close for voting at the Prosperity special meeting, in which case any earlier proxy will be revoked automatically;

 

   

logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions indicated on the proxy card prior to 11:59 p.m. Central Time, on October 28, 2019; or

 

   

attending the Prosperity special meeting and voting in person, in which case any earlier proxy will be revoked. However, simply attending the Prosperity special meeting without voting on a proposal will not revoke your proxy previously provided as to that proposal.

If your shares are held in “street name” and you desire to change any voting instructions you have previously given to the record holder of the shares of which you are the beneficial owner, you should contact the broker, bank, trustee or other nominee holding your shares in “street name” in order to direct a change in the manner your shares will be voted.

Participants in the Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan

If you hold Prosperity common stock through the Amended and Restated Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan, you will receive information and separate instructions about how to direct the voting of such shares. Under the terms of the Amended and Restated Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan, all shares held by the plans are voted by the trustee, but each participant may direct the trustee on how to vote the shares of Prosperity common stock allocated to his or her account. Shares for which no timely voting instructions are received, or which are not allocated to any participant’s account, will be voted by the trustee on each proposal in the same proportion as shares for which it has received timely voting instructions.

Tabulation of Votes

Prosperity will appoint one or more employees of Prosperity to serve as the Inspector of Election for the Prosperity special meeting. Computershare Investor Services, Inc. will independently tabulate affirmative votes, negative votes and abstentions.

 

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Solicitation of Proxies

Prosperity’s board of directors is soliciting proxies for the Prosperity special meeting from the Prosperity shareholders. Prosperity will pay the costs it incurs in soliciting proxies from its shareholders, including the cost of mailing this joint proxy statement/prospectus. In addition to solicitation of proxies by mail, proxies may be solicited by Prosperity’s officers, directors and regular employees, without additional remuneration, by personal interview, telephone or other means of communication. Prosperity has engaged Alliance Advisors to assist in the solicitation of proxies for the Prosperity special meeting and will pay a minimum fee of $7,500.

Prosperity will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of Prosperity common stock. Prosperity may reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

Abstentions and shares of Prosperity common stock held of record by a broker or nominee that are voted on any matter are included in determining whether a quorum exists at the special meeting. Brokers that are members of the NYSE or NASDAQ, as holders of record, are permitted to vote on certain routine matters in their discretion, but not on nonroutine matters. The Prosperity merger proposal is a nonroutine matter. Accordingly, if a shareholder holds shares in “street name” and does not provide voting instructions to his or her bank, broker or nominee that is a member of the NYSE or NASDAQ, those shares will not be voted on that proposal at the Prosperity special meeting unless you receive a proxy from that broker that will allow you to vote the shares you beneficially own and that are held by that broker. Abstentions and broker nonvotes have the same effect as votes against the Prosperity merger proposal, but will have no effect on the Prosperity adjournment proposal.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Prosperity special meeting, please contact:

Alliance Advisors

200 Broadacres Drive, 3rd Fl.

Bloomfield, NJ 07003

(833) 786-6483

or

Prosperity Bancshares, Inc.

Attention: Investor Relations

Prosperity Bank Plaza

4295 San Felipe

Houston, Texas 77027

(281) 269-7199

 

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PROSPERITY AND LEGACY MERGER PROPOSALS

The shareholders of Prosperity and stockholders of Legacy will each be voting upon a proposal to approve the reorganization agreement. Information about the merger and the reorganization agreement is presented below under “The Merger,” “The Reorganization Agreement” and elsewhere in this joint proxy statement/prospectus.

THE MERGER

The following information describes the material aspects of the merger. A copy of the reorganization agreement is included as Appendix A to this joint proxy statement/prospectus and is incorporated herein by reference. The description of the material aspects of the merger appearing below is qualified in its entirety by the terms of the reorganization agreement. You are urged to read each of the Appendices to this joint proxy statement/prospectus in its entirety.

Terms of the Merger

The reorganization agreement provides for the merger of Legacy with and into Prosperity, with Prosperity being the surviving corporation following the merger. Prosperity is the sole shareholder of Prosperity Bank and Legacy is the sole shareholder of Legacy Bank. Following the effectiveness of the merger, Legacy Bank will merge with and into Prosperity Bank, with Prosperity Bank being the surviving bank following the bank merger.

Background of the Merger

Each of Legacy’s and Prosperity’s respective board of directors and management regularly reviews its business strategies, opportunities and challenges as part of its consideration and evaluation of its long-term prospects, with the goal of enhancing value for its stockholders and shareholders, respectively. The strategic considerations have focused on, among other things, the business and regulatory environment facing financial institutions generally and Legacy and Prosperity in particular, as well as competitive conditions and ongoing consolidation in the financial services industry. Each of Legacy’s and Prosperity’s respective board of directors regularly evaluates business combination opportunities generally in furtherance of its strategic objectives.

On August 10, 2017, Legacy’s board of directors and management discussed Legacy’s potential corporate development and strategic options, taking into account Legacy’s current and projected credit quality, the deposit gathering climate in banking, and other factors. J.P. Morgan participated in that discussion and provided its perspective, reflecting discussions with management, on potential acquisition targets, potential merger candidates and potential acquirers (which we refer to individually as “Basket 1,” “Basket 2” and “Basket 3,” respectively, and collectively as the “Corporate Development Baskets”). Legacy’s board of directors authorized Kevin Hanigan, Legacy’s President and Chief Executive Officer, to explore preliminary discussions with banks in each category selected based on their likely level of interest in, and ability to, successfully execute a transaction. That month, Mr. Hanigan engaged in informal discussions with two large Basket 3 banks about potential transactions (which we refer to as “Party A” and “Party B”), and with a smaller Basket 1 bank (which we refer to “Party C”). Neither Party A nor Party B determined to move beyond exploratory discussions. On August 25, 2017, Mr. Hanigan met with a representative of a Basket 2 bank (which we refer to as “Party D”) to discuss the possibility of a merger of equals with Legacy. On October 2, 2017, Mr. Hanigan and David Zalman, Prosperity’s Chairman of the Board and Chief Executive Officer, engaged in exploratory conversations, which culminated in determinations on October 6, 2017 by both Messrs. Hanigan and Zalman not to recommend to their respective boards of directors a potential transaction. Following several preliminary discussions with Party D, on October 24, 2017, Party D informed Legacy that it was not in a position to move forward with discussions regarding a transaction.

On October 20, 2017, as a result of preliminary conversations, Legacy and Party C entered into a non-disclosure agreement in order to permit the sharing of confidential information between the parties. The non-

 

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disclosure agreement did not obligate either party to engage in a transaction. Likewise, the non-disclosure agreement did not prohibit either party from engaging in discussions with other parties or from considering alternative transactions. Legacy and Party C also entered into a term sheet providing for a non-binding indication of interest for Legacy to acquire Party C, subject to Legacy’s completion of due diligence. Legacy and Party C commenced cross-diligence on that date, which continued until December 21, 2017. On that date, Legacy and Party C mutually determined not to proceed with a transaction.

On February 27, 2018, within the scope of authority previously granted to him, Mr. Hanigan met with Mr. Zalman in Dallas to resume discussions concerning a potential merger between Prosperity and Legacy, with Messrs. Hanigan and Zalman believing that a proposed combination would yield benefits to Prosperity’s shareholders and to Legacy’s stockholders while addressing Prosperity’s desire to grow through acquisition and Legacy’s desire to strengthen its source of deposits. Discussion subjects included potential terms of a transaction and governance matters relating to executive responsibilities and representation on the combined company’s board of directors.

On March 2, 2018, Mr. Hanigan had a follow-up phone call with Mr. Zalman during which they further discussed potential terms of a transaction. Mr. Zalman also discussed Mr. Hanigan’s potential role in a combined company, which would be a senior executive role. Messrs. Zalman and Hanigan determined to continue exploratory discussions. On March 8, 2018, Mr. Hanigan provided a summary of his discussions with Mr. Zalman to the executive committee of Legacy’s board of directors. On March 26, 2018, Mr. Hanigan reviewed the status of his discussions with Mr. Zalman with the Legacy board, following which the board determined to end communications due to the lack of clarity on the transaction, the premium that Prosperity would pay for Legacy’s stock and post-transaction matters relating to executive leadership and strategy. Over the following months Legacy continued internal discussions regarding a potential merger with Prosperity and continued to execute its business plan.

On August 9, 2018, Legacy’s board and management discussed Legacy’s potential corporate development and strategic options with J.P. Morgan again participating and providing its perspectives, reflecting discussions with management, on potential acquisition targets, potential merger candidates and potential acquirers. Legacy’s board of directors again directed Mr. Hanigan, with the assistance of J.P. Morgan, to explore preliminary discussions with banks in each of the Corporate Development Baskets, as appropriate. Over the following months Legacy continued internal discussions regarding a potential merger with Prosperity and continued to execute its business plan.

On February 7, 2019, in light of merger and acquisition developments in the financial services industry, Mr. Hanigan contacted Mr. Zalman and Messrs. Zalman and Hanigan discussed the prospect of re-starting discussions concerning a merger of Prosperity and Legacy. This resulted in Mr. Zalman agreeing to conduct further analysis on a potential transaction. Within the scope of authority granted by the Legacy board, on February 21, 2019, at the direction of Mr. Hanigan, representatives of J.P. Morgan met with Mr. Zalman to discuss the aforementioned analysis and the possible merits of a merger of Prosperity and Legacy.

On February 25, 2019, Legacy’s board of directors met to consider the status of the discussions with Prosperity. Mr. Hanigan led a discussion on corporate development, reflecting upon various industry trends including a recently announced large bank combination and market perception of the combination. He summarized management’s view of the current state of the national economy and operating risks associated with trends as seen by both management and industry observers, particularly in relation to increased competition for deposits. The board of directors considered information concerning Prosperity and its business. Mr. Hanigan reflected upon Legacy’s standalone operations and financial performance and initiatives already employed by management to combat Legacy’s liquidity and funding risks and the initiatives’ impact on net interest margin. Management advocated continued consideration of a transaction with Prosperity, in view of Legacy’s continuing deposit gathering challenges and credit quality concerns. The board of directors felt that it was important to the success of the potential combined company that Mr. Hanigan and other members of Legacy’s management team

 

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have key roles at the combined company. J.P. Morgan provided its preliminary financial perspectives on a potential transaction with Prosperity. Following that discussion, the board of directors authorized Mr. Hanigan to further evaluate a proposed transaction with Prosperity, noting that discussions with Parties A, B, C and D had yielded no probable transaction opportunity. The board of directors further directed that its executive committee be authorized to hear interim reports on any transaction, and appointed Tony LeVecchio, George Fisk and Bruce Hunt to serve as members of a merger and acquisition committee to evaluate potential transactions.

On March 18, 2019, Prosperity’s executive committee met and discussed several transaction opportunities, including a potential transaction with Legacy. Prosperity’s executive committee determined that it would obtain more information about Legacy and a potential transaction.

On March 19, 2019, Mr. Hanigan provided Legacy’s board of directors with an update on his discussions with Prosperity’s management. Mr. Hanigan noted that Legacy continued to operate from a position of relative financial and operational strength but that Legacy’s liquidity and credit risks were increasing and were expected to continue to increase during the second quarter. He expressed the view that available information confirmed that potentially significant operational and financial synergies would result from a combination of Legacy with Prosperity, and that he expected that Legacy’s stockholders would likely own a significant percentage of the combined entity following any such transaction. The Legacy board of directors affirmed, through inquiry of Mr. Hanigan, that there existed no other likely alternative transaction at that time.

On March 20, 2019, within the scope of authority granted to him, Mr. Hanigan met with Mr. Zalman in Houston, during which meeting Mr. Zalman offered proposed terms for a merger of Legacy and Prosperity that included a fixed exchange ratio premium of 10% along with two seats on the combined company’s board of directors, the position of President and Chief Operating Officer of the combined company for Mr. Hanigan and consideration of J. Mays Davenport, Legacy’s Executive Vice President and Chief Financial Officer, for an executive position in the combined company.

On March 21, 2019, Mr. Hanigan updated Legacy’s board of directors on the status of his conversations with Mr. Zalman, following which the board directed Mr. Hanigan to work with J.P. Morgan in an attempt to improve the premium payable to Legacy’s stockholders, to increase the number of seats that Legacy representatives would have on Prosperity’s board of directors and to ensure that a sufficient complement of Legacy’s executive management team was offered positions at the combined company in order to facilitate the transition and combination of the companies.

On March 25, 2019, at the invitation of Legacy’s board of directors, J.P. Morgan discussed with the Legacy directors certain financial aspects of a potential business combination of Legacy and Prosperity and certain other financial metrics relating to a potential transaction with Prosperity. Mr. Hanigan and the representatives of J.P. Morgan discussed other potential strategic alternatives available to Legacy and the general mergers and acquisitions landscape and reflected upon the previous efforts of Mr. Hanigan to initiate meaningful conversations with prospective counterparties in all three Corporate Development Baskets. Following discussion, the board determined that the Prosperity transaction opportunity was likely the only transaction alternative presently available to Legacy and that the Prosperity transaction provided a greater opportunity to deliver value to shareholders than continuing as a standalone entity. The board directed Legacy’s executive team to work with J.P. Morgan to further explore the parameters of a potential transaction with Prosperity.

On March 25, 2019, Prosperity and Legacy entered into a non-disclosure agreement in order to permit the sharing of confidential information between the parties. The non-disclosure agreement did not obligate either party to engage in a transaction. Likewise, the non-disclosure agreement did not prohibit either party from engaging in discussions with other parties or from considering alternative transactions. Legacy and Prosperity commenced cross-diligence on that date.

 

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On March 29, 2019, members of Prosperity’s and Legacy’s senior management teams met in Houston during which time they provided information to each other concerning the potential merits of a combination of the two companies and explored approaches for the post-merger integration.

On April 1, 2019, Mr. Hanigan provided Legacy’s board of directors with a report on the status of negotiations with Prosperity. Discussion included a review of filing and approval timelines, should the parties proceed with a transaction, and updated credit quality and liquidity reports from management. He noted that the proposed transaction presented some of the same opportunities, and more, that were successfully realized in connection with Legacy’s previous acquisitions, including the Highlands Bank / ViewPoint Bank merger and the ViewPoint Bank / LegacyTexas Bank merger. The board also considered the potential risks of a Prosperity transaction, including required regulatory approvals.

On April 3, 2019, Mr. Hanigan and Edward Safady, President of Prosperity, met to discuss various aspects of each company, including organizational strategies, operating principles, credit and culture.

On April 8, 2019, Legacy’s management updated Legacy’s board of directors on the status of management’s due diligence review of Prosperity, which covered legal, operational, compliance, financial, regulatory and internal control considerations and which had confirmed management’s expectations regarding the viability of integrating the businesses of Legacy and Prosperity, as well as operational and financial synergies that could be achieved by the merger of the two companies. The board of directors confirmed its view that it was important that Mr. Hanigan and other members of Legacy’s management team have key roles at the combined company.

On April 15, 2019, Mr. Hanigan provided Legacy’s board of directors with an update on management’s due diligence review of Prosperity and on Prosperity’s due diligence review of Legacy, as well as on the status of key transaction documents that were to be drafted by Prosperity. At the meeting the board of directors also discussed possible pricing models and valuation approaches with respect to the proposed transaction and the increasingly competitive market and uncertain economic conditions. The board of directors requested that Mr. Hanigan obtain from Mr. Zalman additional information relative to pricing considerations and that he include either the board of directors or the merger and acquisition committee in those discussions as appropriate.

On April 16, 2019, Mr. Zalman updated Prosperity’s board of directors on the discussions with Legacy, the status of management’s due diligence review of Legacy and the potential terms of a transaction, after which the board directed Mr. Zalman to continue discussions with Legacy. Subsequent to this meeting and prior to the special meeting of the Prosperity board of directors on June 14, 2019, Mr. Zalman provided members of the board of directors with interim updates with respect to discussions with Legacy representatives, management’s due diligence review of Legacy and the timing and terms of a transaction.    

On April 22, 2019, Legacy’s board of directors again met and discussed industry trends, including recently announced large bank combinations and the market’s reception of those combinations. Mr. Hanigan updated the board of directors on the status of management’s due diligence review of Prosperity and how a merger with Prosperity would address risks facing Legacy’s business, including Legacy’s need for deposits.

On May 1, 2019, members of Prosperity’s and Legacy’s senior management teams met in Dallas to review the results of Prosperity’s initial due diligence review and discuss certain aspects of Legacy’s business.

Legacy’s board of directors next met on May 6, 2019. At the meeting Mr. Hanigan summarized conversations that had occurred between Legacy’s and Prosperity’s respective management teams which addressed, among other matters, the business practices of the respective banks. He also reviewed conversations regarding certain valuation-related matters that he had with J.P. Morgan and the deal terms that management wanted to receive from Prosperity. The board of directors noted the risks associated with remaining an independent company, including increasing liquidity and credit risk, and Mr. Hanigan emphasized the need for Legacy to add liquidity. Following discussion, the board of directors directed J.P. Morgan to engage in discussions regarding valuation matters with Prosperity.

 

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Over the following weeks in May, representatives of J.P. Morgan, on several occasions, discussed certain valuation-related matters with representatives of Prosperity, and J.P. Morgan kept Mr. Hanigan and other members of Legacy management informed of its discussions with Prosperity’s representatives.

On May 13, 2019, Legacy’s board of directors met and Mr. Hanigan updated the board on management’s due diligence review of Prosperity and matters that could affect the timing and likelihood of a transaction with Prosperity. Mr. Hanigan confirmed that the proposed transaction would be beneficial to Legacy and to its stockholders, particularly in regard to addressing the increasing liquidity and credit risk faced by Legacy. He also discussed the likely material terms of a potential merger of Legacy and Prosperity that he had summarized with the assistance of J.P. Morgan. The board of directors discussed risks relating to continuing to operate Legacy as an independent entity.

Legacy’s board of directors next met on May 20, 2019 and discussed, among other matters, the continued flattening of the yield curve, Legacy Bank’s loan-to-deposit ratio and other risks that might be mitigated by the operational and financial synergies that could be achieved by the combined company. As a result of these risks, the board of directors believed it important that Legacy pursue a transaction with Prosperity or, alternatively, another third party and directed Mr. Hanigan to continue discussions with Prosperity and to develop contingency operating plans designed to address credit and liquidity risks should negotiations with Prosperity not be successful.

On May 28, 2019, Prosperity submitted a revised proposal to Legacy, which included a consideration mix of 80% stock and 20% cash, a 12.5% premium to Legacy’s then current stock price, and proposed senior management positions at Prosperity or Prosperity Bank for the members of Legacy’s executive management team.

On May 29, 2019, at the direction of Legacy’s board of directors, a representative of J.P. Morgan spoke with Mr. Zalman and informed him that the consideration mix for a transaction between Prosperity and Legacy should be 90% stock and 10% cash. Mr. Zalman expressed concern that Prosperity’s board of directors would not agree to the proposed consideration mix because the board wanted to use a sizeable portion of Prosperity’s excess capital in a merger transaction and the 10% cash proposal was much lower than the percentage of cash the board had previously reviewed and discussed.

On May 30, 2019, Legacy’s board of directors, along with representatives of J.P. Morgan and Shapiro Bieging Barber Otteson LLP, Legacy’s outside counsel, met and Mr. Hanigan and the representatives of J.P. Morgan informed the board that, following discussions among representatives of Legacy management, J.P. Morgan and Prosperity, Prosperity provided Legacy with an update of its May 28, 2019 proposal. Mr. Hannigan summarized the material terms of the updated proposal, which included a consideration mix of 80% stock and 20% cash, yielding an implied valuation of Legacy’s stock of $41.84 and representing a 12.5% premium to Legacy’s then-current stock price based on the Prosperity and Legacy stock prices as of May 28, 2019. In addition, Legacy would receive three seats on Prosperity’s board of directors and certain members of Legacy management would serve in key positions at Prosperity or Prosperity Bank. The proposal assumed that additional definitive terms would be addressed during negotiation of a definitive agreement with respect to the proposed transaction. The board of directors discussed certain preliminary financial information that had been previously provided to the board and included, among other information, an analysis of the financial terms of the proposed transaction prepared by J.P. Morgan. The board also considered the benefits of a merger with Prosperity, including the ability of Legacy’s stockholders to own a significant percentage of the combined company and the other reasons set forth under “—Recommendation of the Legacy Board and Its Reasons for the Merger.” At the conclusion of the meeting the board of directors directed Mr. Hanigan, with the assistance of J.P. Morgan, to continue negotiations with Prosperity with the objective of further improving the terms of Prosperity’s offer.

On May 31, 2019, Mr. Zalman and Cullen Zalman, Prosperity Bank’s Vice President of Corporate and Banking Activities, met with Messrs. Hanigan and Davenport in Dallas to review and discuss updated transaction

 

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terms of other transactions and terms of a potential transaction between Legacy and Prosperity and certain social aspects of the transaction, including executive and management positions in the combined company. Following that meeting, and on the same day, Mr. Hanigan presented the aforementioned information to Legacy’s merger and acquisition committee, which confirmed general aspects of the terms summarized during the earlier meeting.

Legacy’s board of directors next met on May 31, 2019. Mr. Hanigan updated the board with respect to the ongoing negotiations with Prosperity. After discussing the terms of the proposed transaction, the board of directors directed J.P. Morgan to request that any consideration to be paid by Prosperity be 85% stock and 15% cash and that key executives from Legacy have key roles at Prosperity on a going-forward basis. After further discussions between J.P. Morgan and Prosperity’s representatives, Legacy and Prosperity proposed a final consideration mix of 0.5280 shares of Prosperity common stock and $6.28 in cash for each share of Legacy common stock.

On June 5, 2019, representatives of Bracewell LLP, outside counsel to Prosperity, provided representatives of Shapiro Bieging Barber Otteson LLP with a first draft of the reorganization agreement. Between June 5, 2019 and June 14, 2019, representatives of Legacy and Prosperity, together with representatives of Shapiro Bieging Barber Otteson LLP and Bracewell LLP, negotiated the specific terms of the reorganization agreement and the related ancillary documents. Also on June 5, 2019, members of Legacy management traveled to Houston to continue their due diligence review of Prosperity.

On June 10, 2019, Prosperity management met with federal and state banking regulatory agencies to review the general terms of the proposed transaction.

Legacy’s board of directors met on June 14, 2019 to review the proposed definitive reorganization agreement and related ancillary documents. Representatives of Shapiro Bieging Barber Otteson LLP also attended the meeting and reviewed with the board its fiduciary duties and reviewed in detail the terms of the proposed definitive reorganization agreement and ancillary documents, copies of which had been delivered to the directors in advance of the meeting. At this meeting, J.P. Morgan reviewed and discussed with the Legacy board of directors, among other matters, certain financial aspects of the proposed transaction based on, and its financial analyses regarding, the 0.5280 exchange ratio plus the $6.28 per share cash consideration. Following discussion, the representatives of J.P. Morgan rendered its oral opinion to Legacy’s board of directors, subsequently confirmed in writing, that, as of June 14, 2019 and based upon and subject to the factors and assumptions set forth in J.P. Morgan’s opinion, the merger consideration to be paid to the holders of Legacy common stock in the merger was fair, from a financial point of view, to such holders. See “—Opinion of Legacy’s Financial Advisor” beginning on page 71. After considering the proposed terms of the reorganization agreement and the various presentations of its advisors, and taking into consideration the matters discussed during the meeting, including those set forth under “—Recommendation of the Legacy Board and Its Reasons for the Merger,” the members of Legacy’s board of directors other than Mr. Hanigan, who recused himself, then unanimously determined that the reorganization agreement and the merger were in the best interests of Legacy and its stockholders, authorized and approved the reorganization agreement and the merger, and resolved to recommend to Legacy’s stockholders that they approve the reorganization agreement.

Also on June 14, 2019, the Prosperity board of directors held a special meeting to review the proposed definitive reorganization agreement and related ancillary documents. Representatives of Bracewell LLP, together with Charlotte Rasche, Prosperity’s general counsel, reviewed with the board its fiduciary duties and reviewed in detail the terms of the proposed definitive reorganization agreement and ancillary documents, copies of which had been delivered to the directors in advance of the meeting. Mr. Zalman and other senior members of management of Prosperity summarized the results of management’s due diligence review of Legacy. Prosperity’s financial advisor, KBW, reviewed the financial aspects of the proposed transaction and rendered to the Prosperity board of directors an opinion (initially rendered verbally and confirmed by a written opinion, dated June 14, 2019) to the effect that, as of June 14, 2019, based upon and subject to certain matters stated in the opinion, the aggregate merger consideration in the merger was fair, from a financial point of view, to Prosperity. See

 

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“—Opinion of Prosperity’s Financial Advisor” beginning on page 78. After further deliberation, and taking into consideration the matters discussed during the meeting, including factors described under “—Recommendation of the Prosperity Board and Its Reasons for the Merger,” the Prosperity board of directors unanimously determined that the reorganization agreement and the merger were in the best interests of Prosperity and its shareholders, authorized and approved the reorganization agreement and the merger unanimously, and resolved to recommend to Prosperity’s shareholders that they approve the reorganization agreement.

On June 16, 2019, the parties executed the reorganization agreement and the related ancillary agreements, including the support agreements entered into between Prosperity and the non-employee directors of Legacy and Legacy Bank, and the employment agreements entered into among Prosperity Bank, Legacy Bank and certain officers and employees of Legacy, and the transaction was announced on June 17, 2019 in a joint press release issued by Prosperity and Legacy.

Recommendation of the Legacy Board and Its Reasons for the Merger

After careful consideration, at a meeting held on June 14, 2019, the non-recused members of Legacy’s board of directors unanimously determined that the reorganization agreement and the merger were advisable and in the best interests of Legacy and its stockholders. Accordingly, the Legacy board of directors approved the reorganization agreement and resolved to recommend that Legacy stockholders vote “FOR” the approval of the reorganization agreement. In reaching its decision to approve the reorganization agreement, the merger and the other transactions contemplated by the reorganization agreement, and to recommend that its stockholders approve the reorganization agreement, the Legacy board of directors evaluated the reorganization agreement, the merger and the other transactions contemplated by the reorganization agreement in consultation with Legacy management, as well as Legacy’s financial and legal advisors, and considered many factors, including but not limited to the following:

 

   

the ability of Legacy’s stockholders to own a significant percentage of the combined company on a going-forward basis;

 

   

the expectation that Legacy stockholders would have the opportunity to participate in future growth of the combined company;

 

   

the potential for Legacy stockholders for stock appreciation in the combined company;

 

   

the increased liquidity of Prosperity’s common stock as compared to the public market for Legacy common stock;

 

   

Prosperity’s low loan-to-deposit ratio and the expectation that Prosperity’s strong source of deposits would provide enhanced funding capability during a period of increasingly high competition for deposits;

 

   

the ability to become part of a larger institution with a higher legal lending limit, helping to further service Legacy’s customer base;

 

   

the geographic fit of the combined company, providing a broad geographic footprint in the state of Texas for the combined entity;

 

   

each of Legacy’s, Prosperity’s and the combined company’s business, operations, management, financial condition, asset quality, earnings and prospects. In reviewing these factors, the Legacy board of directors considered its view that Prosperity’s business and operations complement those of Legacy;

 

   

the reputation of Prosperity’s executive management;

 

   

the potential for members of Legacy’s executive management team to have key roles at the combined company;

 

   

the ability to retain Legacy’s culture in the combined company;

 

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Prosperity’s historical cash dividend payments;

 

   

the board’s understanding of the current and prospective environment in which Legacy and Prosperity operate, including national and local economic conditions, the interest rate environment, increasing operating costs resulting from regulatory initiatives and compliance mandates, continued consolidation in the industry, the competitive environment for financial institutions generally, and the likely effect of these factors on Legacy and its ability to continue to operate independently;

 

   

the financial and other terms of the reorganization agreement, including the price to be paid for the shares of Legacy common stock, the exchange ratio of Prosperity’s stock to Legacy’s stock and the form of consideration to be received by Legacy stockholders;

 

   

the expected earnings per share accretion and tangible book value per share earnback by Prosperity;

 

   

the compensation payable with respect to transactions similar to the merger, including as a multiple of tangible book value and earnings;

 

   

the strategic benefits of the transaction and the synergies and cost savings expected to be achieved by the combined company upon completion of the merger, and potential for Legacy’s stockholders, as future Prosperity shareholders, to benefit to the extent of their interest in the combined company from the synergies of the merger and the anticipated pro forma impact of the merger;

 

   

the expected tax treatment of the merger as a “reorganization” for U.S. federal income tax purposes;

 

   

the oral opinion of J.P. Morgan to the Legacy board of directors, which was subsequently confirmed in writing, that, as of June 14, 2019 and based upon and subject to the factors and assumptions set forth in its opinion, the merger consideration to be paid to the holders of Legacy common stock in the merger was fair, from a financial point of view, to such holders, as more fully described below under “—Opinion of Legacy’s Financial Advisor”;

 

   

the execution risk relating to the merger, including the regulatory and other approvals required in connection with the merger and the expectation that those regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions;

 

   

the diversion of management attention and resources from the operation of Legacy’s business and toward completion of the merger;

 

   

the restrictions in the reorganization agreement regarding the operation of Legacy’s business through completion of the merger that may prevent or delay Legacy from undertaking business opportunities that may arise prior to completion of the merger;

 

   

the fact that, because the merger consideration is a fixed exchange ratio of 0.5280 shares of Prosperity common stock for each share of Legacy common stock, Legacy stockholders could be adversely affected by a decrease in the trading price of Prosperity common stock prior to the completion of the merger;

 

   

the possibility that Prosperity may encounter difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;

 

   

the fact that the reorganization agreement prohibits Legacy from soliciting alternative proposals; and

 

   

that Prosperity has a right to an $82 million termination fee if the reorganization agreement is terminated under certain circumstances.

While the Legacy board of directors considered the foregoing potentially positive and potentially negative factors, the Legacy board of directors concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the non-recused members of Legacy’s board of directors then unanimously determined the reorganization agreement to be fair, advisable and in the best interests of Legacy and its stockholders, as well as Legacy’s other constituencies.

 

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The foregoing discussion of the information and factors considered by the Legacy board of directors is not intended to be exhaustive, but includes the material factors considered by the Legacy board of directors. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the Legacy board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the Legacy board of directors may have given different weight to different factors. The Legacy board of directors considered all these factors as a whole and considered the factors overall to be favorable to, and to support, its determination.

Certain of Legacy’s directors and executive officers may have financial interests in the merger that are different from, or in addition to, those of Legacy’s stockholders generally. The Legacy board of directors was aware of and considered these potential interests, among other matters, in evaluating the merger and in making its recommendation to Legacy stockholders. For a discussion of these interests, see “—Financial Interests of Directors and Officers of Legacy in the Merger.”

The foregoing explanation of the Legacy board of directors’ reasoning and all other information presented in this section contains information that is forward-looking in nature, and therefore should be read in light of the factors discussed in “Cautionary Note Regarding Forward-Looking Statements.”

LEGACY’S BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF LEGACY COMMON STOCK VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT.

Recommendation of the Prosperity Board and Its Reasons for the Merger

After careful consideration, at a meeting held on June 14, 2019, the members of Prosperity’s board of directors unanimously determined that the reorganization agreement and the merger were advisable and in the best interests of Prosperity and its shareholders. Accordingly, the Prosperity board of directors approved the reorganization agreement and resolved to recommend that Prosperity shareholders vote “FOR” the approval of the reorganization agreement. In reaching its decision to approve the reorganization agreement, the merger and the other transactions contemplated by the reorganization agreement, and to recommend that its shareholders approve the reorganization agreement, the Prosperity board of directors evaluated the reorganization agreement, the merger and the other transactions contemplated by the reorganization agreement in consultation with Prosperity management, as well as Prosperity’s financial and legal advisors, and considered many factors, including but not limited to the following:

 

   

information regarding the financial condition, operations, competitive position and future prospects of Legacy;

 

   

information regarding Legacy’s markets, including local economic conditions and prospects, as well as the competitive environment and the position of Legacy in those markets;

 

   

the results of management’s due diligence review of Legacy and Legacy Bank;

 

   

the anticipated impact of the proposed acquisition on Prosperity’s financial condition, capital, results of operations, cash flows and liquidity and that the proposed acquisition is anticipated to be accretive to Prosperity’s earnings per share;

 

   

the terms of the proposed acquisition, including the amount and form of the merger consideration;

 

   

its review with its outside legal advisor, Bracewell LLP, of the terms of the reorganization agreement, including the tax treatment, deal protection and termination provisions;

 

   

the benefit to the Prosperity board of directors of the inclusion of the three named Legacy directors to be appointed to the Prosperity board of directors upon completion of the merger;

 

   

the ability to retain key members of the Legacy Bank management team through the execution of employment agreements;

 

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the compatibility of Legacy Bank’s management with Prosperity Bank’s management;

 

   

the opportunities for future growth in the north Texas market;

 

   

the potential to realize cost savings through the integration of the operations of Legacy;

 

   

Prosperity’s track record of assimilating the operations of acquired banks and the strength of Prosperity’s management and infrastructure to successfully complete the integration process;

 

   

the anticipated financial and other effects that the merger would have on Prosperity’s shareholders;

 

   

the financial presentation, dated June 14, 2019, of KBW to the Prosperity board of directors and the opinion, dated June 14, 2019, of KBW to the Prosperity board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to Prosperity of the aggregate merger consideration in the proposed merger, as more fully described below under “—Opinion of Prosperity’s Financial Advisor”;

 

   

the possibility of encountering difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;

 

   

the possibility of encountering difficulties in successfully integrating Legacy’s business, operations and workforce with those of Prosperity;

 

   

certain anticipated merger-related costs;

 

   

the diversion of management attention and resources from the operation of Prosperity’s business and toward the completion of the merger; and

 

   

the regulatory and other approvals required in connection with the merger and the bank merger and the risk that such regulatory approvals will not be received in a timely manner or may impose unacceptable conditions.

While the Prosperity board of directors considered the foregoing potentially positive and potentially negative factors, the Prosperity board of directors concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the members of Prosperity board of directors then unanimously determined the reorganization agreement to be fair, advisable and in the best interests of Prosperity and its shareholders, as well as Prosperity’s other constituencies.

The foregoing discussion of the information and factors considered by the Prosperity board of directors is not intended to be exhaustive, but includes the material factors considered by the Prosperity board of directors. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the Prosperity board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the Prosperity board of directors may have given different weight to different factors. The Prosperity board of directors considered all these factors as a whole and considered the factors overall to be favorable to, and to support, its determination.

The foregoing explanation of the Prosperity board of directors’ reasoning and all other information presented in this section contains information that is forward-looking in nature, and therefore should be read in light of the factors discussed in “Cautionary Note Regarding Forward-Looking Statements.”

PROSPERITY’S BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF PROSPERITY COMMON STOCK VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT.

 

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Opinion of Legacy’s Financial Advisor

Pursuant to an engagement letter dated June 11, 2019, Legacy retained J.P. Morgan as its financial advisor in connection with the merger.

At the meeting of the Legacy board of directors on June 14, 2019, J.P. Morgan rendered its oral opinion to the Legacy board of directors, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the merger consideration to be paid to the holders of Legacy common stock in the merger was fair, from a financial point of view, to such holders.

The full text of the J.P. Morgan opinion, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Appendix B to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the J.P. Morgan opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Legacy’s stockholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Legacy board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the merger, was directed only to the merger consideration to be paid to the holders of Legacy common stock in the merger and did not address any other aspect of the merger. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of Legacy or as to the underlying decision by Legacy to engage in the merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any shareholder of Legacy as to how such shareholder should vote with respect to the merger or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed a draft dated June 11, 2019 of the reorganization agreement;

 

   

reviewed certain publicly available business and financial information concerning Legacy and Prosperity and the industries in which they operate;

 

   

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

   

compared the financial and operating performance of Legacy and Prosperity with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Legacy common stock and Prosperity common stock and certain publicly traded securities of such other companies;

 

   

reviewed certain internal financial analyses and forecasts prepared by the management of Legacy relating to the businesses of each of Legacy and Prosperity, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger (which we refer to as the “synergies”); and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

In addition, J.P. Morgan held discussions with certain members of the management of Legacy and Prosperity with respect to certain aspects of the merger, and the past and current business operations of Legacy and Prosperity, the financial condition and future prospects and operations of Legacy and Prosperity, the effects of the merger on the financial condition and future prospects of Legacy and Prosperity, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Legacy and Prosperity or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (and did

 

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not assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Legacy or Prosperity under any state or federal laws relating to bankruptcy, insolvency or similar matters. J.P. Morgan is not an expert in evaluating the adequacy of allowances for loan and lease losses of Legacy and Prosperity with respect to their loan and lease portfolios and, accordingly, J.P. Morgan did not make an independent evaluation of the adequacy of the allowance for loan and lease losses of Legacy and Prosperity and J.P. Morgan assumed, with Legacy’s consent, that the respective allowances for loan and lease losses for both Legacy and Prosperity, respectively, are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom (including the synergies), J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management of Legacy as to the expected future results of operations and financial condition of Legacy and Prosperity to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the reorganization will qualify as a tax-free reorganization for United States federal income tax purposes, and will be consummated as described in the reorganization agreement, and that the definitive reorganization agreement would not differ in any material respects from the draft thereof furnished to J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by Legacy and Prosperity in the reorganization agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Legacy with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Legacy or Prosperity or on the contemplated benefits of the merger.

The J.P. Morgan opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. The J.P. Morgan opinion noted that subsequent developments may affect the J.P. Morgan opinion and that J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of Legacy common stock in the merger and J.P. Morgan has expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by Legacy to engage in the merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the merger consideration to be paid to the holders of Legacy common stock in the merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which Legacy common stock or Prosperity common stock will trade at any future time.

The terms of the reorganization, including the merger consideration, were determined through arm’s length negotiations between Legacy and Prosperity, and the decision to enter into the reorganization agreement was solely that of Legacy’s board of directors and Prosperity’s board of directors. J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by Legacy’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of Legacy’s board of directors or management with respect to the merger or the merger consideration.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodology in rendering its opinion to Legacy’s board of directors on June 14, 2019 and contained in the presentation delivered to Legacy’s board of directors on such date in connection with the rendering of such opinion and the presentation does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth

 

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below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

Legacy Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial and market data of Legacy with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to Legacy’s business, including the following selected companies (which we refer to as the “Legacy selected regional banks”):

 

   

Enterprise Financial Services Corp

 

   

Independent Bank Group, Inc.

 

   

Texas Capital Bancshares, Inc.

 

   

Veritex Holdings, Inc.

Multiples were based on closing stock prices on June 12, 2019, which was the last practicable day prior to the delivery of the J.P. Morgan opinion. For each of the following analyses performed by J.P. Morgan, financial and market data for the Legacy selected regional banks were based on the Legacy selected regional banks’ public filings and information J.P. Morgan obtained from SNL Financial and FactSet Research Systems. The multiples and ratios for each of the Legacy selected regional banks were based on the most recent publicly available information as of June 12, 2019.

None of the Legacy selected regional banks reviewed is identical to Legacy. Certain of these companies may have characteristics that are materially different from those of Legacy. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect Legacy. However, the companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analyses, may be considered similar to those of Legacy.

For Legacy and each Legacy selected regional bank, publicly available financial performance for the most recent publicly reported fiscal quarter was measured. With respect to Legacy and the Legacy selected regional banks, the information J.P. Morgan presented included:

 

   

multiple of price to estimated 2020 earnings per share (which we refer to as “P / CY 2020E EPS”); and

 

   

a regression analysis to review the relationship between (i) the multiple of price to tangible book value (which we refer to as “P / TBV”) and (ii) the estimated 2020 return on average tangible common equity (which we refer to as “CY 2020E ROATCE”) based on available estimates obtained from public filings and FactSet Research Systems.

Based on the results of this analysis and other factors which J.P. Morgan considered appropriate based on its experience and judgment, J.P. Morgan selected multiple reference ranges for Legacy as follows:

 

     Range  

P / CY 2020E EPS

     9.0x – 10.8x  

P / TBV

     1.7x – 1.8x  

Based on the above analysis, J.P. Morgan then applied a multiple reference range of 9.0x to 10.8x for P / CY 2020E EPS to Legacy management’s estimate of Legacy’s earnings per share for the fiscal year 2020 of $3.48. J.P. Morgan also applied a multiple reference range of 1.7x to 1.8x for P / TBV, which it derived from Legacy’s management estimate of Legacy’s 2020 ROATCE of 15.3%, to Legacy’s tangible book value per share of $19.35 as of March 31, 2019.

 

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After applying these ranges to Legacy’s estimated 2020 earnings per share and Legacy’s tangible book value per share as of March 31, 2019, J.P. Morgan’s analysis indicated the following implied equity value per share ranges for the shares of Legacy common stock, rounded to the nearest $0.01 per share of Legacy common stock, as compared to the implied value of the merger consideration of $42.02 per share of Legacy common stock (which we refer to as the “assumed consideration”), which was calculated based on the sum of (x) the cash portion of the merger consideration of $6.28 per share and (y) the product of the fixed exchange ratio provided in the reorganization agreement of 0.5280 and the closing stock price of Prosperity’s common stock on June 12, 2019 of $67.70:

 

     Implied Equity
Value Per Share
 
     Low      High  

P / CY 2020E EPS

   $ 31.32      $ 37.58  

P / TBV

   $ 32.33      $ 34.63  

Legacy Dividend Discount Analysis

J.P. Morgan calculated a range of implied values for Legacy common stock by discounting to present value estimates of Legacy’s future dividend stream and terminal value. In performing its analysis, J.P. Morgan utilized, among others, the following assumptions, which were reviewed and approved by Legacy management:

 

   

earnings and asset assumptions for Legacy based on Legacy management’s forecast for the period of 2019 through 2024 (which we refer to as the “Legacy internal forecast”);

 

   

a March 31, 2019 valuation date;

 

   

a terminal value based on estimated 2024 net income (which was based on the Legacy internal forecast), multiplied by a next twelve months price to earnings ratio (which we refer to as “NTM P/E”) multiple range of 9.5x to 11.5x, which range was selected by J.P. Morgan based on factors which J.P. Morgan considered appropriate based on its experience and judgment;

 

   

discount rates from 9.0% to 11.0% representing Legacy’s cost of equity, which range was chosen by J.P. Morgan taking into account macroeconomic assumptions, estimates of risk, Legacy’s capital structure and other appropriate factors based on its experience and judgment;

 

   

a target tangible common equity to tangible assets ratio of 9.5% (and with capital in excess of this target paid as dividends), as provided by Legacy management;

 

   

a cost of excess capital of 2.50% (pre-tax), as provided by Legacy management; and

 

   

a marginal tax rate of 21.0%, as provided by Legacy management.

Based on the Legacy internal forecast and using a range of discount rates from 9.0% to 11.0%, reflecting estimates of Legacy’s cost of equity as described above, J.P. Morgan discounted the estimated dividend streams from Legacy for the period of 2019 through 2024 and the range of terminal values to derive present values, as of March 31, 2019, of Legacy.

This analysis implied an equity value per share of $34.28 to $41.98 per share of Legacy common stock as of March 31, 2019, as compared to the assumed consideration of $42.02 per share of Legacy common stock.

Prosperity Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial and market data of Prosperity with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to Prosperity’s business, including the following selected companies (which we refer to as the “Prosperity selected regional banks”):

 

   

BancFirst Corporation

 

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Cullen/Frost Bankers, Inc.

 

   

Southside Bancshares, Inc.

 

   

UMB Financial Corporation

Multiples were based on closing stock prices on June 12, 2019, which was the last practicable day prior to the delivery of the J.P. Morgan opinion. For each of the following analyses performed by J.P. Morgan, financial and market data for the Prosperity selected regional banks were based on the Prosperity selected regional banks’ public filings and information J.P. Morgan obtained from SNL Financial and FactSet Research Systems. The multiples and ratios for each of the Prosperity selected regional banks were based on the most recent publicly available information as of June 12, 2019.

None of the Prosperity selected regional banks reviewed is identical to Prosperity. Certain of these companies may have characteristics that are materially different from those of Prosperity. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect Prosperity. However, the companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analyses, may be considered similar to those of Prosperity.

For Prosperity and each Prosperity selected regional bank, publicly available financial performance for the most recent publicly reported fiscal quarter was measured. With respect to Prosperity and the Prosperity selected regional banks, the information J.P. Morgan presented included:

 

   

P / CY 2020E EPS; and

 

   

a regression analysis to review the relationship between (i) P / TBV and (ii) CY 2020E ROATCE based on available estimates obtained from public filings and FactSet Research Systems.

Based on the results of this analysis and other factors which J.P. Morgan considered appropriate based on its experience and judgment, J.P. Morgan selected multiple reference ranges for Prosperity as follows:

 

     Range  

P / CY 2020E EPS

     13.0x – 14.3x  

P / TBV

     2.1x – 2.2x  

Based on the above analysis, J.P. Morgan then applied a multiple reference range of 13.0x to 14.3x for P / CY 2020E EPS to Legacy management’s estimate of Prosperity’s earnings per share for the fiscal year 2020 of $5.05. J.P. Morgan also applied a multiple reference range of 2.1x to 2.2x for P / TBV, which it derived from Legacy’s management estimate of Prosperity’s 2020 ROATCE of 14.5%, to Prosperity’s tangible book value per share of $31.17 as of March 31, 2019.

After applying these ranges to Prosperity’s estimated 2020 earnings per share and Prosperity’s tangible book value per share as of March 31, 2019, J.P. Morgan’s analysis indicated the following implied equity value per share ranges for the shares of Prosperity common stock, rounded to the nearest $0.01 per share of Prosperity common stock, as compared to the closing stock price of Prosperity’s common stock on June 12, 2019 of $67.70:

 

     Implied Equity
Value Per Share
 
     Low      High  

P / CY 2020E EPS

   $ 65.65      $ 72.22  

P / TBV

   $ 64.95      $ 69.97  

 

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Prosperity Dividend Discount Analysis

J.P. Morgan calculated a range of implied values for Prosperity common stock by discounting to present value estimates of Prosperity’s future dividend stream and terminal value. In performing its analysis, J.P. Morgan utilized, among others, the following assumptions, which were reviewed and approved by Legacy management:

 

   

earnings and asset assumptions for Prosperity based on Legacy management’s forecast for the period of 2019 through 2024 (which we refer to as the “Prosperity internal forecast”);

 

   

a March 31, 2019 valuation date;

 

   

a terminal value based on estimated 2024 net income (which was based on the Prosperity internal forecast), multiplied by a NTM P/E multiple range of 12.5x to 14.5x, which range was selected by J.P. Morgan based on factors which J.P. Morgan considered appropriate based on its experience and judgment;

 

   

discount rates from 8.0% to 10.0% representing Prosperity’s cost of equity, which range was chosen by J.P. Morgan taking into account macroeconomic assumptions, estimates of risk, Prosperity’s capital structure and other appropriate factors based on its experience and judgment;

 

   

a target tangible common equity to tangible assets ratio of 9.5% (and with capital in excess of this target paid as dividends), as provided by Legacy management;

 

   

a cost of excess capital of 2.50% (pre-tax), as provided by Legacy management; and

 

   

a marginal tax rate of 21.0%, as provided by Legacy management.

Based on the Prosperity internal forecast and using a range of discount rates from 8.0% to 10.0%, reflecting estimates of Prosperity’s cost of equity as described above, J.P. Morgan discounted the estimated dividend streams from Prosperity for the period of 2019 through 2024 and the range of terminal values to derive present values, as of March 31, 2019, of Prosperity.

This analysis implied an equity value per share of $63.87 to $76.24 per share of Prosperity common stock as of March 31, 2019, as compared to the closing stock price of Prosperity’s common stock on June 12, 2019 of $67.70.

Relative Value Analysis

Based upon the implied valuations for each of Legacy and Prosperity calculated pursuant to the trading multiples analyses and standalone dividend discount analyses described above, J.P. Morgan calculated a range of implied exchange ratios of a share of Prosperity common stock to a share of Legacy common stock, adjusted for the cash portion of the merger consideration of $6.28 per share, and then compared that range of implied exchange ratios to the exchange ratio in the merger of 0.5280 shares of Prosperity common stock per share of Legacy common stock.

For each of the analyses referred to above, J.P. Morgan calculated the ratio implied by dividing the low end of each implied equity value of Legacy, adjusted for the cash portion of the merger consideration of $6.28 per share, by the high end of each implied equity value of Prosperity. J.P. Morgan also calculated the ratio implied by dividing the high end of each implied equity value of Legacy, adjusted for the cash portion of the merger consideration of $6.28 per share, by the low end of each implied equity value of Prosperity.

 

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This analysis indicated the following implied exchange ratios, compared in each case to the exchange ratio in the merger of 0.5280 shares of Prosperity common stock per share of Legacy common stock:

 

Comparison

   Range of Implied
Exchange Ratios
 

Public Trading Multiples Analysis

  

2020E P/E

     0.3468 – 0.4769  

P / TBV

     0.3724 – 0.4366  

Dividend Discount Analysis

     0.3673 – 0.5590  

Value Creation Analysis

J.P. Morgan prepared a value creation analysis that compared the equity value of Legacy (implied by the dividend discount analysis) to the equity value of holders of Legacy common stock in the pro forma combined company. J.P. Morgan determined the pro forma combined company equity value by calculating the sum of (i) the implied equity value of Legacy using the midpoint value determined in J.P. Morgan’s dividend discount analysis described above in “—Legacy Dividend Discount Analysis”, (ii) the implied equity value of Prosperity using the midpoint value determined in J.P. Morgan’s dividend discount analysis described above in “—Prosperity Dividend Discount Analysis” and (iii) the estimated present value of expected cost synergies, net of restructuring charges, and then subtracting the aggregate cash portion of the merger consideration. The value creation analysis at the exchange ratio of 0.5280x provided for in the merger and taking into account the aggregate cash portion of the merger consideration of $6.28 per share yielded value creation to the holders of Legacy common stock of 15.6%. There can be no assurance that the synergies and transaction-related expenses will not be substantially greater or less than the Legacy estimate described above.

Certain Other Information

J.P. Morgan also reviewed, solely for reference purposes, the implied historical exchange ratios during the period beginning on November 8, 2016 (the date of the most recent U.S. presidential election) and ending on June 12, 2019, which were calculated by dividing the daily closing price per share of Legacy common stock, adjusted for the cash portion of the merger consideration of $6.28 per share, by that of Prosperity common stock, noting that the range of exchange ratios during such period was 0.5146x to 0.6484x, as compared to the exchange ratio in the merger of 0.5280x.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of Legacy or Prosperity. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or

 

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made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the Legacy selected regional banks or Prosperity selected regional banks reviewed as described in the above summary is identical to Legacy or Prosperity. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Legacy and Prosperity. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Legacy and Prosperity.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. J.P. Morgan was selected to advise Legacy with respect to the merger on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with Legacy and Prosperity and the industries in which they operate.

For financial advisory services rendered in connection with the merger, Legacy has agreed to pay J.P. Morgan an estimated fee of approximately $20 million, of which $2 million became payable at the time Legacy and Prosperity entered into the reorganization agreement and J.P. Morgan delivered its opinion. In addition, Legacy has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement. During the two years preceding the date of the J.P. Morgan opinion, neither J.P. Morgan nor any of its affiliates have had any other material commercial or investment banking relationships with Legacy or Prosperity.

During the two year period preceding the date of the J.P. Morgan opinion, the aggregate fees recognized by J.P. Morgan from each of Legacy and Prosperity were less than $50,000. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of each of Legacy and Prosperity. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or other financial instruments (including derivatives, bank loans or other obligations) of Legacy or Prosperity for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities or other financial instruments.

Opinion of Prosperity’s Financial Advisor

Prosperity engaged Keefe, Bruyette & Woods, Inc. (“KBW”) to render financial advisory and investment banking services to Prosperity, including an opinion to the Prosperity board of directors (the “Prosperity board”) as to the fairness, from a financial point of view, to Prosperity of the aggregate merger consideration in the proposed merger. Prosperity selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.

As part of its engagement, representatives of KBW attended the meeting of the Prosperity board held on June 14, 2019 at which the Prosperity board evaluated the proposed merger. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the aggregate merger consideration in the proposed merger was fair, from a financial point of view, to Prosperity. The Prosperity board approved the reorganization agreement at this meeting.

 

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The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Appendix C to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Prosperity board (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, to Prosperity of the aggregate merger consideration in the merger. It did not address the underlying business decision of Prosperity to engage in the merger or enter into the reorganization agreement or constitute a recommendation to the Prosperity board in connection with the merger, and it does not constitute a recommendation to any holder of Prosperity common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a recommendation as to whether or not any such shareholder should enter into a voting, shareholders’, affiliates’ or other agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Prosperity and Legacy and bearing upon the merger, including, among other things:

 

   

a draft of the reorganization agreement, dated June 11, 2019 (the most recent draft then made available to KBW);

 

   

the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2018 of Prosperity;

 

   

the unaudited quarterly financial statements and Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 of Prosperity;

 

   

the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2018 of Legacy;

 

   

the unaudited quarterly financial statements and Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 of Legacy;

 

   

certain regulatory filings of Prosperity and Legacy and their respective subsidiaries, including the quarterly reports on Form FR Y-9C and call reports filed with respect to each quarter during the three-year period ended December 31, 2018 as well as the quarter ended March 31, 2019;

 

   

certain other interim reports and other communications of Prosperity and Legacy to their respective shareholders and stockholders; and

 

   

other financial information concerning the respective businesses and operations of Prosperity and Legacy that were furnished to KBW by Prosperity and Legacy or that KBW was otherwise directed to use for purposes of its analysis.

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

 

   

the historical and current financial position and results of operations of Prosperity and Legacy;

 

   

the assets and liabilities of Prosperity and Legacy;

 

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the nature and terms of certain other merger transactions and business combinations in the banking industry;

 

   

a comparison of certain financial and stock market information of Prosperity and Legacy with similar information for certain other companies, the securities of which were publicly traded;

 

   

publicly-available consensus Wall Street research estimates, or “street estimates,” of Legacy (giving effect to certain adjustments thereto provided to and discussed with KBW by Legacy management), as well as assumed Legacy long-term growth rates provided to KBW by Prosperity management, all of which information was discussed with KBW by Prosperity management and used and relied upon by KBW at the direction of such management and with the consent of the Prosperity board;

 

   

publicly available consensus “street estimates” of Prosperity, as well as assumed Prosperity long-term growth rates provided to KBW by Prosperity management, all of which information was discussed with KBW by such management and used and relied upon by KBW at the direction of such management and with the consent of the Prosperity board; and

 

   

estimates regarding certain pro forma financial effects of the merger on Prosperity (including without limitation the cost savings and related expenses expected to result or be derived from the merger) that were prepared by Prosperity management, provided to and discussed with KBW by such management, and used and relied upon by KBW at the direction of such management and with the consent of the Prosperity board.

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also participated in discussions that were held with the respective managements of Prosperity and Legacy regarding the past and current business operations, regulatory relations, financial condition and future prospects of Prosperity and Legacy and such other matters as KBW deemed relevant to its inquiry.

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to it or that was publicly available and KBW did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of Prosperity as to the reasonableness and achievability of the publicly available consensus “street estimates” of Legacy and Prosperity (in the case of Legacy as adjusted as referred to above), the assumed Legacy and Prosperity long-term growth rates, and the estimates regarding certain pro forma financial effects of the merger on Prosperity (including, without limitation, the cost savings and related expenses expected to result or be derived from the merger), all as referred to above, and the assumptions and bases for all such information, and KBW assumed, at the direction of Prosperity, that all of the foregoing information was reasonably prepared and represented, or in the case of the publicly available consensus “street estimates” referred to above that such estimates were consistent with, the best currently available estimates and judgments of Prosperity management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

It is understood that the portion of the foregoing financial information of Prosperity and Legacy that was provided to KBW was not prepared with the expectation of public disclosure and that all of the foregoing financial information, including the publicly available consensus “street estimates” of Legacy and Prosperity referred to above, was based on numerous variables and assumptions that are inherently uncertain (including, without limitation, factors related to general economic and competitive conditions) and, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the management of Prosperity and with the consent of the Prosperity board, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent

 

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verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Prosperity or Legacy since the date of the last financial statements of each such entity that were made available to KBW and that KBW was directed to use. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Prosperity’s consent, that the aggregate allowances for loan and lease losses for each of Prosperity and Legacy are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Prosperity or Legacy, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Prosperity or Legacy under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

KBW assumed, in all respects material to its analyses:

 

   

the merger and any related transactions (including the subsidiary bank merger) would be completed substantially in accordance with the terms set forth in the reorganization agreement (the final terms of which KBW assumed would not differ, in any respect material to its analyses, from the draft version of the reorganization agreement reviewed by KBW), with no adjustments to the aggregate merger consideration (including the stock or cash components thereof) and with no additional consideration or payments in respect of Legacy common stock;

 

   

the representations and warranties of each party in the reorganization agreement and in all related documents and instruments referred to in the reorganization agreement were true and correct;

 

   

that each party to the reorganization agreement or any of the related documents would perform all of the covenants and agreements required to be performed by such party under such documents;

 

   

that there were no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the merger or any related transaction and that all conditions to the completion of the merger and any related transaction would be satisfied without any waivers or modifications to the reorganization agreement or any of the related documents; and

 

   

that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger and any related transactions, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of Prosperity, Legacy or the pro forma entity, or the contemplated benefits and effects of the merger, including without limitation the cost savings and related expenses expected to result or be derived from the merger.

KBW assumed that the merger would be consummated in a manner that complied with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of Prosperity that Prosperity relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Prosperity, Legacy, the merger and any related transaction and the reorganization agreement. KBW did not provide advice with respect to any such matters.

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, to Prosperity of the aggregate merger consideration in the merger. KBW expressed no view or opinion as to any other terms or aspects of the merger or any term or aspect of any related transaction, including without limitation,

 

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the form or structure of the merger (including the form of aggregate merger consideration or the allocation thereof between stock and cash) or any such related transaction, any consequences of the merger or any such related transaction to Prosperity, its shareholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, non-compete, consulting, voting, support, cooperation, shareholder, escrow or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, any such related transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

 

   

the underlying business decision of Prosperity to engage in the merger or enter into the reorganization agreement;

 

   

the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Prosperity or the Prosperity board;

 

   

any business, operational or other plans with respect to Legacy or the pro forma entity that might be then contemplated by Prosperity or the Prosperity board or that might be implemented by Prosperity or the Prosperity board subsequent to the closing of the merger;

 

   

the fairness of the amount or nature of any compensation to any of Prosperity’s officers, directors or employees, or any class of such persons, relative to any compensation to the holders of Prosperity common stock or relative to the aggregate merger consideration;

 

   

the effect of the merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Prosperity, Legacy or any other party to any transaction contemplated by the reorganization agreement;

 

   

whether Prosperity has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate cash consideration at the closing of the merger;

 

   

the actual value of Prosperity common stock to be issued in connection with the merger;

 

   

the prices, trading range or volume at which Prosperity common stock or Legacy common stock would trade following the public announcement of the merger or the prices, trading range or volume at which Prosperity common stock would trade following the consummation of the merger;

 

   

any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the reorganization agreement; or

 

   

any legal, regulatory, accounting, tax or similar matters relating to Prosperity, Legacy, any of their respective shareholders or stockholders, or relating to or arising out of or as a consequence of the merger or any other related transaction, including whether or not the merger would qualify as a tax-free reorganization for United States federal income tax purposes.

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Prosperity and Legacy. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Prosperity board in making its determination to approve the reorganization agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Prosperity board with respect to the fairness of the aggregate merger consideration. The type and amount of consideration payable in the merger were determined through negotiation between Prosperity and Legacy and the decision of Prosperity to enter into the reorganization agreement was solely that of the Prosperity board.

 

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The following is a summary of the material financial analyses presented by KBW to the Prosperity board in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Prosperity board, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

For purposes of the financial analyses described below, KBW utilized an implied transaction value for the merger of $2,074.9 million in the aggregate (inclusive of the implied value of in-the-money Legacy stock options), or $42.03 per share of Legacy common stock, consisting of the sum of (i) the implied value of the stock consideration of 0.5280 of a share of Prosperity common stock, based on the closing price of Prosperity common stock on June 12, 2019, and (ii) the cash consideration of $6.28. In addition to the financial analyses described below, KBW reviewed with the Prosperity board for informational purposes, among other things, the implied transaction multiple for the proposed merger (based on the implied transaction value for the merger of $42.03 per share of Legacy common stock) of 14.1x Legacy’s estimated 2019 earnings per share (“EPS”) using the publicly available 2019 EPS consensus “street estimate” for Legacy (giving effect to certain adjustments thereto provided to and discussed with KBW by Legacy management).

Prosperity Selected Companies Analysis. Using publicly available information, KBW compared the financial performance, financial condition and market performance of Prosperity to six selected major exchange-traded banks that are headquartered in Texas, Oklahoma, Kansas or Missouri with total assets between $5 billion and $40 billion and a loan to deposit ratio of 80% or less. Companies for which “consensus street estimates” were not publicly available were excluded from the selected companies.

The selected companies were as follows:

Cullen/Frost Bankers, Inc.

Commerce Bancshares, Inc.

UMB Financial Corporation

First Financial Bankshares, Inc.

BancFirst Corporation

Southside Bancshares, Inc.

To perform this analysis, KBW used profitability and other financial information for the latest 12 months (“LTM”) or most recent completed fiscal quarter (“MRQ”) available (which in the case of Prosperity was the period ended March 31, 2019) or as of the end of such period and market price information as of June 12, 2019. KBW also used 2019 and 2020 EPS estimates taken from publicly available consensus “street estimates” for Prosperity and the selected companies. Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Prosperity’s historical financial statements, or the data used by J.P. Morgan and presented under the section “The Merger—Opinion of Legacy’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

 

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KBW’s analysis showed the following concerning the financial performance of Prosperity and the selected companies:

 

           Selected Companies  
     Prosperity     25th
Percentile
    Median     Average     75th
Percentile
 

MRQ Core Return on Average Assets(1)

     1.48     1.30     1.53     1.51     1.67

MRQ Core Return on Average Tangible Common Equity(1)

     15.44     14.66     15.43     15.29     17.03

MRQ Net Interest Margin

     3.20     3.28     3.66     3.57     3.84

MRQ Fee Income / Revenue(2)

     15.4     26.5     30.3     30.3     36.1

MRQ Efficiency Ratio

     42.1     57.8     55.6     56.7     54.2

 

(1)

Core earnings excluded realized gain on sale of securities, nonrecurring revenue and expenses, goodwill impairment and amortization of intangibles, and extraordinary items. Assumed 21% tax rate on adjustments.

(2)

Excluded gains/losses on sale of securities.

KBW’s analysis also showed the following concerning the financial condition of Prosperity and the selected companies:

 

           Selected Companies  
     Prosperity     25th
Percentile
    Median     Average     75th
Percentile
 

Tangible Common Equity / Tangible Assets

     10.66     9.06     10.08     10.21     11.03

Total Capital Ratio

     17.42     15.01     16.16     16.80     18.38

Loans / Deposits

     60.4     71.9     67.7     66.8     63.3

Loan Loss Reserves / Loans

     0.83     0.86     1.00     1.00     1.11

Nonperforming Assets / Loans + OREO

     0.39     0.78     0.71     0.71     0.62

Net Charge-offs / Average Loans

     0.04     0.31     0.21     0.21     0.09

In addition, KBW’s analysis showed the following concerning the market performance of Prosperity and the selected companies:

 

           Selected Companies  
     Prosperity     25th
Percentile
    Median     Average     75th
Percentile
 

One-Year Stock Price Change

     (7.7 )%      (15.0 )%      (5.8 )%      (7.2 )%      (4.9 )% 

One-Year Total Return