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Letter of Correspondence

 CONFIDENTIAL TREATMENT REQUEST BY

 PROSPERITY BANCSHARES, INC. PURSUANT TO 17 C.F.R. § 200.83

 September 21, 2005

 Securities and Exchange Commission

 Division of Corporation Finance

 100 F Street, N.E.

 Mail Stop 4561

 Washington, D.C. 20549

 Attention: Don Walker

Re:
Prosperity Bancshares, Inc.

 Form 10-K for Fiscal Year
Ended December 31, 2004

 File No. 000-25051

 Ladies and Gentlemen:

 The purpose of this letter is to respond to your letter dated September 7, 2005 to David Zalman, President and Chief Executive Officer of Prosperity Bancshares, Inc. (the “Company”), setting forth the
staff’s comments regarding the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. For reference purposes, the text of each comment is included below. The Company is requesting confidential treatment of
portions of this letter pursuant to the provisions of 17 C.F.R. § 200.83. This letter omits confidential information included in the unredacted version of the letter that was delivered to the Division of Corporation Finance and asterisks denote
such omissions. Any correspondence, questions, notices and orders concerning this request may be addressed to David Hollaway, Prosperity Bancshares, Inc., 1301 N. Mechanic, El Campo, Texas 77437, (979) 543-2200 (telephone), (979) 543-1906
(facsimile) (the “Confidential Treatment Contact Person”).

 Mr. Don Walker

 September
21, 2005

 Page 2

 Form 10-K

 Notes to Consolidated
Financial Statements

 Note 5. Securities, page 69 and 70

 1. Please refer to prior comment #1. Please provide
the terms for the preferred security series you hold including but not limited to:

•

Whether the series are callable or not, cumulative or not, perpetual or not and the related terms,

•

The interest rate indices they are tied to for reset,

•

The reset schedule and terms of pricing and price at each reset date.

 The staff is advised that the terms for the preferred security series held by the Company are as follows:

 Description

Amount

Purchase Date

Coupon

Tax
Equivalent
Yield

 Next

 Coupon
Reset Date

 Index

 FHLMC PFD STK

$
5,000,000.00

10/06/2000

3.58

4.93

12/31/2009

5 YR CMT

 FHLMC PFD STK

2,000,000.00

11/05/1999

3.58

4.93

12/31/2009

5 YR CMT

 FHLMC PFD STK

2,000,000.00

11/09/1999

3.58

4.93

12/31/2009

5 YR CMT

9,000,000.00

 FNMA PFD STK

5,000,000.00

03/20/2000

1.37

1.89

03/31/2006

2 YR CMT Less 16 basis points

 FNMA PFD STK

5,000,000.00

09/26/2000

1.37

1.89

03/31/2006

2 YR CMT Less 16 basis points

 FNMA PFD STK

5,000,000.00

02/08/2001

1.37

1.89

03/31/2006

2 YR CMT Less 16 basis points

15,000,000.00

 Total

$
24,000,000.00

 FNMA (Fannie Mae) securities are
variable rate, non-cumulative, non-convertible, perpetual and callable on coupon reset date. The rates reset every 2 years (on March 31, beginning on March 31, 2002) to the 2 year CMT rate less 16 basis points.

 FHLMC (Freddie Mac) securities are variable rate, non-cumulative, non-convertible, perpetual
and callable on coupon reset date. The rates reset every 5 years (on December 31, beginning on December 31, 2004) to the 5 year CMT rate.

 Mr. Don Walker

 September
21, 2005

 Page 3

 2. In your response letter dated August 24, 2005 you cited two preferred security series as examples for supporting your recovery projections for
your preferred security series that are currently in unrealized loss positions. Your recovery assumptions rely on the preferred securities re-pricing models to behave similarly to bond models; however these securities have similar risks to those
associated with equity securities as well. Please tell us how you considered the following in your analysis:

•

The change in the credit rating of the issuing companies from the time the series were issued to present day;

•

Any additional impact credit rating change would have on re-pricing;

•

The availability and applicability of preferred stock valuation models;

•

The impact and basis of the reset options, reset intervals, and length of the reset schedule;

•

The very low levels of interest rates at previous reset dates, and the higher current levels of interest rates, and the expected changes in interest rates;

•

The degree of comparability between the terms of the example securities and the preferred security series you hold; and

•

Any additional information that supports your belief that your securities will behave in the same manner as the example securities.

 With respect to the specific questions noted above, the Company would respectfully request
that the staff please consider the following:

•

The change in the credit rating of the issuing companies from the time there series were issued to present day

 As noted below, the ratings of these securities are basically unchanged
since the purchase date. The securities are still considered high quality investment grade, which supports the conclusion that it is not a credit impairment issue that is negatively impacting these securities.

 FNMA (Fannie Mae)

a. At purchase:

Moody’s Aa3; S&P AA-; Fitch A+

b. Today:

Moody’s Aa3; S&P AA-; Fitch A+

 FHLMC (Freddie
Mac)

a. At purchase:

Moody’s Aa3; S&P AA-; Fitch AA

b. Today:

Moody’s Aa3; S&P AA-; Fitch AA-

 Mr. Don Walker

 September
21, 2005

 Page 4

•

Any additional impact the credit rating change would have on re-pricing

 As with any security, if the rating agencies were to downgrade the securities to junk status, there is the potential for a
substantially negative impact on the prices of the securities. However, the Company’s analysis has concluded that it is not the credit status of the FHLMC and FNMA securities that is affecting their price (see above credit ratings). The
accounting problems that each entity experienced, and in FNMA’s case the delay in filing restatements to its financial statements, may have contributed to the adverse pricing of these securities. Management believes that if these entities
return to regular reporting of financial results, it should help alleviate some of the uncertainty surrounding these organizations and in return ease the negative drag on the security prices.

•

The availability and applicability of preferred stock valuation models

 Although agency preferred stocks are technically equity securities in name, they are, in substance, debt-like instruments
and should be treated accordingly because:

 1. They do not
offer any conversion option or participation in the profitability of the issuers;

 2. They have par amounts, dividends that replace interest payments, track Treasury indices, and are callable at par; and

 3. Although they do not have a maturity date, they act very much like long-term (30 year) subordinated debt.

 The primary difference between these securities and long-term subordinated
debt is the tax treatment.

 The valuation model the Company
uses gives consideration to the perpetual nature of these securities. The model is run two ways (1) assuming a call is exercised in the distant future (20 years) similar to a debt security and (2) assuming a call is never exercised, replicating an
equity security that has no maturity date. In fact, aside from the tax treatment, the agencies could have issued true debt securities with long maturity dates and nearly identical features as contained in these preferred stocks.

 Mr. Don Walker

 September
21, 2005

 Page 5

•

The impact and basis of the reset options, reset intervals, and length of the reset schedule

 FNMA (Fannie Mae)

 As previously noted, the FNMA issues reset every 2 years based on the 2 year
CMT rate less 16 basis points and this reset option allows the security to re-price at current market rates. This reset can have an impact on the pricing of the securities both positive and negative, depending on where rates are at the time the
coupon resets and where rates are headed until the next reset date. The past two coupon reset dates (March 2002 and March 2004) saw the prices of these securities decrease because the resets occurred as the 2 year CMT rate was declining to historic
lows. With rates now increasing, and projected to continue to increase for the near future, the value of these securities is expected to regain value as they approach their reset date. This is exactly what has happened in the two examples the
Company provided (see detail below) and is also reflected in the FNMA issues the Company owns. The Company’s FNMA securities have increased 6% in value since December 31, 2004 because of rising interest rates and the approaching coupon reset
date (March 31, 2006). Had this FNMA issue reset using current rates, with the 2 year CMT at 3.87%, the current coupon of 1.37% would increase to 3.71% (2 year CMT less 16 basis points), or 5.11% on a tax equivalent basis.

 FHLMC (Freddie Mac)

 The FHLMC securities reset every 5 years based on the 5 year CMT Rate. The
first coupon reset was in December 2004, at a time when the 5 year CMT had declined approximately 60% from the date that this security was issued. Going forward, the 5 year CMT is projected to increase back to the rate levels in existence when this
security was first issued (see the Bloomberg survey submitted as Schedule E and the rate projections submitted as Schedule D included with the Company’s letter dated August 24, 2005 (“First Letter”)). These rising rates in conjunction
with the next reset date are expected to lead to a rise in the pricing of these securities, causing them to regain their carrying value. This is supported by the two examples provided below and the recent price increase in the Company’s
preferred stock noted above. It should also be noted that projected rate increases simply put rates back to their historical averages, up from the very low rates of recent times.

 The reset schedules are important because price changes in these securities are highly correlated to changes in interest
rates at the reset dates. The reset date then has to be considered in conjunction with the absolute level of interest rates and the direction rates are moving at reset. If over time the value of the securities do not significantly move in value
despite changes in interest rates and the passage of

 Mr. Don Walker

 September
21, 2005

 Page 6

 reset dates, then additional analysis needs to be done to determine what else is impacting the value of these securities and if there is an
other-than-temporary impairment.

•

The very low levels of interest rates at previous reset dates, and the higher current levels of interest rates, and the expected changes in interest rates

 The very low level of interest rates has been a
significant factor affecting the pricing of these securities. With interest rates at their lowest levels in over 40 years and the coupon rates resetting during this time frame, the impact on prices were negative and substantial because of the
leveraged impact of the tax treatment of these securities. However, with interest rates currently at higher levels and projected to further increase, the impact is expected be positive to the value of these securities. The Bloomberg survey (Schedule
E submitted with the First Letter) projects rates to move back to average levels, which would return these securities to their original carrying value or greater. The time frame for the projections covers the next four years (including coupon reset
dates). In fact, during past periods when interest rates were at the levels projected for the coming years, these securities did trade at carrying value or better. It should be noted that the Board of Governors of the Federal Reserve System
(“Federal Reserve”) has publicly stated that rates are too low, and they intend to bring them back to more historical levels. Since mid 2004, the Federal Reserve has raised rates 10 times, and they have expressed the necessity to continue
this trend.

•

The degree of comparability between the terms of the example securities and the preferred security series you hold

 The first example cited in the Company’s First Letter was a FHLMC
preferred stock security (variable rate, non-cumulative, non-convertible, perpetual and callable every coupon reset date) that resets every 2 years based on the 2 year CMT rate. These securities reset in March of 2005 at 3.93% or 5.41% on a tax
equivalent basis up from 1.82% or 2.51% on a tax equivalent basis, reflecting a higher rate environment compared with the previous reset which happened at a time when rates were at historic lows. As these securities approached their coupon reset
date, the price increased in value approximately 10%.

 The
second example cited was a FHLMC preferred stock security (variable rate, non-cumulative, non-convertible, perpetual and callable every coupon reset date) that resets every year based on the 1 year Libor rate. These securities reset in March 2005 at
3.64% or 5.01% on a tax equivalent basis up from 1.14% or 1.57% on a tax equivalent basis, once again reflecting a higher rate environment compared to the previous reset which happened at a time when rates were at historic lows. As these securities
approached their coupon reset date, the price

 Mr. Don Walker

 September
21, 2005

 Page 7

 increased in value approximately 3%. Because this security re-prices annually, and it is rapidly approaching another reset date in a rising rate
environment, it has increased in value an additional 5%.

 By
comparison, the terms of the Company’s two securities are very similar:

 Rule 83 confidential treatment request made by Company; request numbers 1-4.

 FNMA preferred stock security owned by the bank (variable rate, non-cumulative, non-convertible, perpetual and callable every coupon reset date) resets
every 2 years based on the 2 year CMT rate less 16 basis points. The last reset of 1.37% (1.89% on a tax equivalent basis) in March 2004 came during a time of historically low interest rates. Rates have significantly increased since then and they
are projected to be much higher at next reset date in March 2006. For example, the 2 year CMT is projected to be ***1 (see the First Letter including rate projections submitted as Schedule D), which would put the new coupon rate at ***2 (2 year CMT less 16 basis points) or ***3 on a tax equivalent basis. This increase in rate
is similar to the above examples. The FNMA issues the Company owns have many of the same features as the securities in the example above; specifically, variable rate, non-cumulative, non-convertible, perpetual and callable at every coupon reset
date. Because of the comparability of these securities, the Company’s FNMA issues are expected to increase in price as historically evidenced by the comparable examples provided. It should be noted that the amount of the rate increase at reset
date for the Company’s FNMA securities, based on the projections included in the First Letter, is expected to be ***4 compared with the 110 and 150 basis points, respectively for the two examples above. In fact, as of August, Bloomberg pricing shows that the Company’s FNMA securities have improved 6% in value since December 31, 2004,
reflecting rising rates and the approaching coupon reset date.

1
The Company requests that the information contained in request number 1 be treated as confidential information and that the Commission provide timely notice to the
Confidential Treatment Contact Person identified on Page 1 before it permits any disclosure of the marked information.

2
The Company requests that the information contained in request number 2 be treated as confidential information and that the Commission provide timely notice to the
Confidential Treatment Contact Person identified on Page 1 before it permits any disclosure of the marked information.

3
The Company requests that the information contained in request number 3 be treated as confidential information and that the Commission provide timely notice to the
Confidential