Exhibit 99.1
UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL INFORMATION OF PROSPERITY
The following unaudited pro forma consolidated combined statement of income of Prosperity for the year ended December 31, 2012, is presented to show the impact on Prosperity’s historical financial position and results of operations of the completion by Prosperity of the American State Financial Corporation (“American State”) acquisition, which was completed on July 1, 2012. The unaudited pro forma consolidated combined statement of income does not reflect the pro forma effect of any other acquisition by Prosperity completed during the year ended December 31, 2012.
As a result of the American State merger, shareholders of American State received 3.4110 shares of Prosperity common stock, with cash paid for fractional share interests, and $71.42 in cash, for each share of American State common stock they owned.
The unaudited pro forma consolidated combined statement of income assumes that the acquisition was completed on January 1, 2012. The adjustments are based on information available and certain assumptions that Prosperity believes are reasonable. Management has not identified, quantified or evaluated any material restructuring costs at this time and no such costs or any cost savings are reflected in the pro forma consolidated combined financial statements.
The following information should be read in conjunction with and is qualified in its entirety by Prosperity’s consolidated financial statements and accompanying notes.
The unaudited pro forma consolidated combined financial information is intended for informational purposes and is not necessarily indicative of the future financial position or future operating results of the combined company or of the financial position or operating results of the combined company that would have actually occurred had the acquisition been in effect as of the date or for the period presented.
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Unaudited Pro Forma Consolidated Combined Statement of Income
For the Year Ended December 31, 2012(a)
| Prosperity Historical | American State Financial Corporation Historical | Adjusted Prosperity Proforma Subtotal | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
Interest income: | ||||||||||||||||||||
Loans, including fees | $ | 271,324 | $ | 32,159 | $ | 303,483 | $ | 23,607 | (b) | $ | 327,090 | |||||||||
Securities | 148,374 | 22,440 | 170,814 | (6,852 | )(c) | 163,962 | ||||||||||||||
Federal funds sold and other temporary investments | 144 | 104 | 248 | — | 248 | |||||||||||||||
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Total interest income | 419,842 | 54,703 | 474,545 | 16,756 | 491,301 | |||||||||||||||
Interest expense: | ||||||||||||||||||||
Deposits | 34,486 | 4,295 | 38,781 | — | 38,781 | |||||||||||||||
Federal funds purchased, other borrowings and securities sold under repurchase agreements | 2,057 | 622 | 2,679 | — | 2,679 | |||||||||||||||
Junior subordinated debentures | 2,593 | — | 2,593 | — | 2,593 | |||||||||||||||
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Total interest expense | 39,136 | 4,917 | 44,053 | — | 44,053 | |||||||||||||||
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Net interest income | 380,706 | 49,786 | 430,492 | 16,756 | 447,248 | |||||||||||||||
Provision for credit losses | 6,100 | 1,576 | 7,676 | 7,676 | ||||||||||||||||
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Net interest income after provision for credit losses | 374,606 | 48,210 | 422,816 | 16,756 | 439,572 | |||||||||||||||
Noninterest income: | ||||||||||||||||||||
Customer service fees | 61,282 | 9,406 | 70,688 | — | 70,688 | |||||||||||||||
Other | 14,253 | 9,264 | 23,517 | — | 23,517 | |||||||||||||||
Gain on sale of loans | — | 2,099 | 2,099 | — | 2,099 | |||||||||||||||
Gain on sale of securities | — | 45,889 | 45,889 | — | 45,889 | |||||||||||||||
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Total noninterest income | 75,535 | 66,658 | 142,193 | — | 142,193 | |||||||||||||||
Noninterest expense: | ||||||||||||||||||||
Salaries and employee benefits | 115,505 | 32,134 | 147,639 | (3,511 | )(d) | 144,128 | ||||||||||||||
Net occupancy expense and depreciation | 25,398 | 3,133 | 28,531 | — | 28,531 | |||||||||||||||
Data processing | 9,445 | 1,136 | 10,581 | (682 | )(d) | 9,899 | ||||||||||||||
Core deposit intangible amortization | 7,229 | 25 | 7,254 | 883 | (e) | 8,137 | ||||||||||||||
Other | 40,880 | 30,702 | 71,582 | (2,530 | )(d) | 69,502 | ||||||||||||||
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Total noninterest expense | 198,457 | 67,130 | 265,587 | (5,840 | ) | 259,747 | ||||||||||||||
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Income before federal income taxes | 251,684 | 47,738 | 299,422 | 22,596 | 322,018 | |||||||||||||||
Provision for federal income taxes | 83,783 | 16,115 | 99,898 | 7,909 | (f) | 107,807 | ||||||||||||||
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Net income | $ | 167,901 | $ | 31,623 | $ | 199,524 | $ | 14,687 | $ | 214,211 | ||||||||||
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Basic earnings per share: | ||||||||||||||||||||
Earnings per share | $ | 3.24 | $ | 12.65 | $ | 3.93 | $ | 3.77 | ||||||||||||
Weighted average shares outstanding | 51,794 | 2,499 | 50,770 | 56,881 | ||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||
Earnings per share | $ | 3.23 | $ | 12.65 | $ | 3.92 | $ | 3.76 | ||||||||||||
Weighted average shares outstanding | 51,941 | 2,499 | 50,924 | 57,035 | ||||||||||||||||
See accompanying notes to unaudited pro forma consolidated combined financial information.
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Notes to Unaudited Pro Forma Consolidated Combined Financial Information
(dollars in thousands)
Note 1. Estimated Operational Cost Savings
Prosperity anticipates operational cost savings in connection with the acquisition of American State. 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 2. 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. Such amounts are not presented as part of the pro forma adjustments.
Note 3. Pro forma Adjustments and Assumptions:
The following pro forma adjustments have been reflected in the unaudited pro forma consolidated combined income statement. All adjustments are based on current assumptions and valuations, which are subject to change.
| (a) | The closing date of the ASB transaction is as of July 1, 2012 and as such the historical data is reported through the closing date or December 31, 2012, whichever is earliest. |
| (b) | Loans are evaluated for fair value adjustment in accordance with the acquisition method of accounting under accounting principles generally accepted in the United States of America. This adjustment represents the full year effect of estimated accretion related to the write-down of loans acquired in the American State acquisition not already included in Prosperity’s historical information. |
| (c) | This adjustment represents the estimated full twelve month effect of amortization of $6.6 million related to the write-up of American State’s securities to market value as part of the purchase accounting transactions and the estimated full year effect of loss of investment income related to the cash portion of the merger consideration in the American State acquisition not already included in Prosperity’s historical information, using an assumed reinvestment rate of 0.25% and calculated as follows: |
Cash portion of American State merger consideration | $ | 178,500 | ||
Assumed annual federal funds reinvestment rate | 0.25 | % | ||
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Total annual adjustment to interest income | $ | 446 | ||
Full year effect to Prosperity (six months) | $ | 223 | ||
Total loss of investment income for the year ended December 31, 2012 | $ | 223 | ||
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| (d) | This adjustment represents the reversal of one-time merger related expenses which are included in Prosperity’s historical numbers. |
| (e) | This adjustment represents the full twelve month effect of amortization not already included in Prosperity’s historical information on core deposit intangibles of $12.4 million that were acquired in the acquisition of American State and amortized on an accelerated basis over ten years. |
| (f) | This adjustment represents the net federal income tax effect of the pro forma adjustments using Prosperity’s statutory tax rate of 35.0%. |
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