11-K 1 d11k.txt FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________________ to ___________________. Commission File Number: 000-25051 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: PROSPERITY BANCSHARES, INC. 401(k) PROFIT SHARING PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: PROSPERITY BANCSHARES, INC. 4295 SAN FELIPE HOUSTON, TEXAS 77027 PROSPERITY BANCSHARES, INC. 401K PROFIT SHARING PLAN FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001 AND 2000 CONTENTS Report of Independent Auditor.......................................... 2 FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits........................ 3 Statement of Changes in Net Assets Available for Benefits.............. 4 Notes to Financial Statements.......................................... 5 JOHN S. LUBY CERTIFIED PUBLIC ACCOUNTANT ------------------------------------------------------------------------------- 101 N. Shoreline Blvd., Suite 580, Corpus Christi, Texas 78401 Ph. (361)883-0292 email - jluby@sbcglogal.net Fax (361) 883-0151 To the Audit Committee of the Prosperity Bancshares, Inc. 401K Profit Sharing Plan I have audited the accompanying statements of net assets available for benefits of Prosperity Bancshares, Inc. 401K Profit Sharing Plan as of December 31, 2001 and 2000 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States. These standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Prosperity Bancshares, Inc. 401K Profit Sharing Plan as of December 31, 2001 and 2000 and the changes in its net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States. Corpus Christi, Texas /s/ John S. Luby, CPA June 26, 2002 2 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Statement of Net Assets Available For Benefits December 31, 2001 2000 ---- ---- ASSETS Cash $ 19,059 $ 9,503 Prosperity Bank - Certificate of Deposit 2,742,946 1,426,187 Prosperity Bancshares, Inc. Equities 3,362,196 2,088,188 Loans 229,175 175,696 U. S. Government Securities Fund 149,709 157,481 Fundamental Investors 109,044 57,716 New Economy Fund 38,172 10,163 New Perspective Fund 638,718 449,644 Washington Mutual Investment Fund 321,648 131,691 Capital Income Builder 49,351 15,543 Cash Management Trust of America 464,529 113,154 Capital World Growth and Income 83,318 13,726 American Balance Fund 182,804 130,175 Bond Fund America 326,870 164,354 Euro Pacific Growth Fund 160,693 88,148 Growth Fund of America 600,202 224,079 American High Income Trust 23,833 16,231 Intermediate Bond Fund of America 13,311 1,972 Investment Company of America 630,389 444,505 AMCAP Fund 162,839 37,131 Income Fund of America 27,936 10,472 American Mutual Fund 24,108 10,077 Capital World Bond Fund 4,252 183 U. S. Treasury Money Fund 17,994 - Small Cap World Fund 129,059 28,059 ----------- ---------- NET ASSETS AVAILABLE FOR PLAN BENEFITS $10,512,155 $5,804,078 =========== ========== See accompanying notes. 3 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Statement of Changes In Net Assets Available For Benefits Year Ended December 31, 2001 2000 ---- ---- ADDITIONS ADDITIONS TO NET ASSETS ATTRIBUTED TO: Net appreciation (depreciation) in fair value of investments $ (626,813) $ 60,388 Interest and dividends 1,511,972 491,177 ----------- ---------- 885,159 551,565 CONTRIBUTIONS: Participants' Rollovers 288,768 44,500 Participants' Elective Deferrals 693,316 398,371 Employer's 344,429 207,245 ----------- ---------- 1,326,513 650,116 ----------- ---------- TOTAL ADDITIONS 2,211,672 1,201,681 DEDUCTIONS Deductions from net assets attributable to rollovers or withdrawals paid to participants 128,490 395,710 Administrative expenses - - ----------- ---------- 128,490 395,710 ----------- ---------- 2,083,182 805,971 OTHER TRANSFERS Transfer of assets related to merger 2,624,895 - ----------- ---------- Net increase in assets available for benefits 4,708,077 805,971 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of Year 5,804,078 4,998,107 ----------- ---------- End of Year $10,512,155 $5,804,078 =========== ========== See accompanying notes. 4 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Notes To Financial Statements December 31, 2001 and 2000 1. Description of Plan The following description of the Prosperity Bancshares, Inc. 401K Profit Sharing Plan (the "Plan") provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan's provisions. GENERAL The Plan is a defined contribution plan covering all full-time employees of Prosperity Bank (the "Bank") who have completed at least three months of service and are twenty-one or older. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). CONTRIBUTIONS Each year, participants may contribute up to 15% of pretax annual compensation, as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. The Bank, at its discretion, may contribute to the Plan, on a participant's behalf, a matching contribution which is determined annually. In 2001 and 2000, the Bank matched 50% of the employees' contributions. Upon enrollment, a participant may direct contributions in any increment to any of the Plan's fund options. Participants may change their investment options quarterly. Employer contributions are matched to the funds designated by the participant. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contributions and allocations of (a) the bank's contributions and (b) plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. Forfeited balances of terminated participants' nonvested accounts are used to reduce future company contributions. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. 5 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Notes To Financial Statements (continued) December 31, 2001 and 2000 1. Description of Plan (continued) VESTING Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Bank contribution portion of their accounts plus actual earnings thereon is based on years of continuous service. A participant is vested ratable (20% at the end of the second year as a participant in the plan) over a six-year period. PARTICIPANT LOANS Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan terms generally range from 1-5 years, but can be longer if the loan is used to purchase a principal residence. The loans are secured by the balance in the participant's account and bear interest at a rate commensurate with the local prevailing rates. Principal and interest is paid ratable through monthly payroll deductions. PAYMENT OF BENEFITS On termination of service, a participant may receive a lump-sum amount, equal to the vested value of his or her account, or upon death, disability or retirement, elect to receive payment from the following options: (1) qualified joint and survivor annuities, (2) single payment of the employee's entire benefit, (3) equal installments over a fixed period not to exceed the employee's life expectancy or the joint and last survivor's life expectancy, or (4) payments in the form of a joint and survivor annuity. The Plan does permit hardship distributions. In order to qualify for such hardship withdrawal, the participant must demonstrate that an immediate and necessary financial hardship has been incurred. FORFEITURES Any forfeiture subject to allocation during each Plan Year shall be allocated among all participants in accordance with the provisions of the Plan. On the basis of the information furnished by the administrator, the Trustee shall keep separate books and records concerning the affairs of each participant hereunder as to the accounts and credits of each participating employee. 6 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Notes To Financial Statements (continued) December 31, 2001 and 2000 1. Description of Plan (continued) PLAN TERMINATION Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. 2. Summary of Significant Accounting Policies BASIS OF ACCOUNTING The financial statements of the Plan are prepared using the accrual method of accounting. INVESTMENT VALUATION AND INCOME RECOGNITION The Plan's investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices, which represent the net asset value of the shares held by the Plan at year-end. The Bank's stock is valued at its quoted market price. The participant loans are valued at their outstanding balances, which approximate fair value. Certificates of deposit are valued based on amortized cost or original cost plus accrued interest. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 7 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Notes To Financial Statements (continued) December 31, 2001 and 2000 3. Investments The Plan's investments are held in separate mutual funds, certificates of deposit, and equity stock of Prosperity Bancshares, Inc. The following table presents investments at December 31, 2001 and 2000. December 31, 2001 2000 ---- ---- Investments at fair value: Cash $ 19,059 $ 9,503 Prosperity Bank - Certificate of Deposit 2,742,946 1,426,187 Prosperity Bancshares, Inc. Equities 3,362,196 2,088,188 Loans 229,175 175,696 U. S. Government Securities Fund 149,709 157,481 Fundamental Investors 109,044 57,716 New Economy Fund 38,172 10,163 New Perspective Fund 638,718 449,644 Washington Mutual Investment Fund 321,648 131,691 Capital Income Builder 49,351 15,543 Cash Management Trust of America 464,529 113,154 Capital World Growth and Income 83,318 13,726 American Balance Fund 182,804 130,175 Bond Fund America 326,870 164,354 Euro Pacific Growth Fund 160,693 88,148 Growth Fund of America 600,202 224,079 American High Income Trust 23,833 16,231 Intermediate Bond Fund of America 13,311 1,972 Investment Company of America 630,389 444,505 AMCAP Fund 162,839 37,131 Income Fund of America 27,936 10,472 American Mutual Fund 24,108 10,077 Capital World Bond Fund 4,252 183 U. S. Treasury Money Fund 17,994 - Small Cap World Fund 129,059 28,059 ----------- ---------- NET ASSETS AVAILABLE FOR PLAN BENEFITS $10,512,155 $5,804,078 =========== ========== 8 Prosperity Bancshares, Inc. 401K Profit Sharing Plan Notes To Financial Statements (continued) December 31, 2001 and 2000 3. Investments (continued) Upon enrollment in the Plan, a participant may direct their contributions in various increments totaling 100% in any of the twenty-one investment options. 4. Tax Status The Plan has received a determination letter from the Internal Revenue Service stating that the Plan is qualified under Section 401(a) of the Internal Revenue Service Code (the "Code") and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is exempt. 5. Related Party Transactions Investment transactions in Prosperity Bank Certificates of Deposit and Prosperity Bancshares, Inc. Equities are administered by the Trustee. These transactions qualify as party-in-interest transactions. 6. Merger with Commercial Bancshares, Inc. On February 23, 2001, Prosperity Bancshares completed a merger with Commercial Bancshares, Inc. ("Commercial"), whereby Commercial was merged with and into Prosperity Bancshares. In August 2001, in connection with the Commercial merger, The Commercial Bancshares Employee Savings Plan ("Commercial Plan") was merged with the Plan. Transfers of $2,624,895 from the Commercial Plan have been included on the statement of changes in net assets available for plan benefits as other transfers. 9 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustee has duly caused this annual report to be signed in its behalf by the undersigned hereunto duly authorized. July 1, 2002 Prosperity Bancshares, Inc. 401(k) Profit Sharing Plan /s/ Michael Harris ---------------------------------------- Michael Harris Trustee Index to Exhibits Exhibit No. Description ----------- ----------- 23.1 Consent of John S. Luby, CPA