Prosperity Bancshares Inc. (NasdaqGS: PRSP) signed a definitive agreement to acquire East Texas Financial Services Inc. (OTCBB: FFBT) from East Texas Financial Corp. and others for $20.4 million in stock on December 8, 2011. Under the terms of the definitive agreement, all outstanding stock of East Texas will be converted into the right to receive an aggregate of 531,000 shares of Prosperity common stock, plus cash in lieu of any fractional share, subject to certain conditions and potential adjustments. East Texas Financial Services Inc will pay a termination fee of $1 million in case of the termination of the transaction.

The transaction is subject to certain conditions, including the approval by East Texas Financial Services' shareholders, registration statement effectiveness, listing of Prosperity to be issued in the transaction, termination of employment agreement between East Texas and officers of East Texas, execution of employment agreement, execution of non-competition agreement, third party approvals, dissenters rights limited, financial audit of East Texas, the termination of the Retirement Plan for employees of First Federal Bank Texas and customary regulatory approvals. The merger has been unanimously approved by the Boards of Directors of Prosperity and East Texas. The transaction is expected to close during the first half of 2012, although delays may occur. Operational integration is anticipated to begin during the second quarter of 2012.

As on April 18, 2012, East Texas Financial Services stockholders approved the transaction. On May 4, 2012, East Texas Financial Services and each of its directors were named defendants in a suit brought by East Texas Financial Corporation, a shareholder of East Texas Financial Services, to block the proposed merger.

As of May 16, 2012, closing date of the merger of East Texas Financial and Prosperity Bancshares has been delayed due to a lawsuit filed by East Texas Financial stockholder challenging the results of the stockholder vote at the special meeting of stockholders.

The suit was dismissed on July 18, 2012. The closing date of the transaction is uncertain at this time.

As of October 24, 2012, pending the satisfaction of closing conditions, the closing is expected to occur in early 2013. Derrell Chapman, Chief Executive Officer of East Texas Financial will serve as President for the Tyler Banking Centers and Micheal Lavender and Joe Hobson will each serve as a Senior Vice President of Prosperity Bank.

Commerce Street Capital, LLC acted as financial advisor while Martin L. Meyrowitz of Silver, Freedman & Taff, LLP acted as legal advisor for East Texas. Charlotte M. Rasche of Bracewell & Guiliani LLP acted as legal advisor for Prosperity. McAuliffe Financial, LLC acted as financial advisor for East Texas Financial Services Inc. Computershare Investor Services Inc. acted as transfer agent for Prosperity Bancshares Inc. Regan & Associates, Inc. acted as information agent for East Texas Financial Services Inc. and received a fee of $8,000 for its services. Computershare Investor Services Inc. acted as transfer agent for Prosperity Bancshares Inc. Commerce Street Capital, LLC will receive a fee based on the following formula: 5% of the first $1 million in consideration, 4% of the second $1 million in consideration, 3% of the third $1 million in consideration, 2% of the fourth $1 million in consideration and 1% thereafter.

Prosperity Bancshares Inc. (NasdaqGS: PRSP) completed the acquisition of East Texas Financial Services Inc. (OTCBB: FFBT) from East Texas Financial Corp. and others on January 1, 2013.