Prosperity Bancshares, Inc.

Good morning and welcome to the Prosperity Bank Shares Incorporated first quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Charlotte Rasche, Senior Executive Vice President and General Counsel. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bank Shares' first quarter 2021 earnings conference call. This call is being broadcast live over the Internet at prosperitybankusa.com. and will be available for replay for the next several weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bank Shares, and here with me today is David Zolman, Senior Chairman and Chief Executive Officer, H.E. Tim Tamanis, Jr., Chairman, Asobek Osmanov, Chief Financial Officer, Eddie Saffity, Vice Chairman, Kevin Hannigan, President and Chief Operating Officer, Randy Hester, Chief Lending Officer, Merle Carnes, Chief Credit Officer, Mays Davenport, Director of Corporate Strategy, and Bob Dowdell, Executive Vice President. David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by Osobek Osmanov, who will review some of our recent financial statistics and Tim Tamanis, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions. During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Gary. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws, and as such may involve known and unknown risks, uncertainties, and other factors which may cause the actual results or performance of Prosperity Bank shares to be materially different from future results or performance expressed or implied by such forward-looking statements. Additional information concerning factors that could cause the actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bankshare's filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now let me turn the call over to David Zalman.

Thank you, Charlotte. With the hard work of our entire team, the combination of Prosperity and Legacy Texas continues to bear fruit as reflected in our positive results for the first quarter. Excuse me. Prosperity Bank has been ranked as the number two best bank in America for 2021 and has been in the top 10 of Forbes America's best banks since 2010. I want to congratulate and thank all of our customers, associates, directors, and shareholders for helping us achieve this great honor. Our net income was $133.3 million for the three months ending March 31, 2021, compared with $130.8 million for the same period in 2020, an increase of $2.5 million or 1.9%. The net income per diluted common share was $1.44, where the three months ended March 31, 2021, compared with $1.39 for the same period in 2020, an increase of 3.6%. Our annualized returns on average assets, average common equity, and average tangible common equity for the three months ended March 31st, 2021 were a 1.54% return on average assets, 8.6% return on average common equity, and 18.43% on average tangible common equity. Our prosperity's efficiency ratio, excluding net gains and losses on the sell or write-down of assets and taxes, was 41.25% for the three months ended March 31st, 2021. We continue to watch expenses, but also expect to make prudent capital expenditures to plan for our future needs and increase shareholder value. Our loans at March 31st, 2021 were $19.6 billion, an increase of $511 million, or 2.7% when compared to $19,127,000,000 at March 31, 2020, primarily due to a $558 million increase in warehouse purchase program loans. Our linked quarter loans decreased $608 million, or 3%, from $20.2 billion at December 31, 2020. And that was primarily due to a $570 million decrease in the warehouse purchase program loans, more of a seasonal issue. At March 31, 2021, the company had $1.1 billion in PPP loans. At March 31, 2021, our oil and gas loans totaled 503 million net of the discount and excluding the PPP loans, totaling 142 million, compared with oil and gas loans of 718 million net of the discount at March 30, 2020. This represented a decrease of $214 million in oil and gas loans year over year, most of which was planned. Our deposits at March 31, 2021 were $28.7 billion, an increase of $4.9 billion, or 20.7%, compared with $23.8 billion at March 31, 2020. Our linked quarter deposits increased $1.4 billion, or 5.1%, 20.5% annualized from $27.3 billion at December 31, 2020. Deposits continue to grow as the government stimulus payments and other assistance continues. Consumers are now spending more, and we hear from restaurant and other business owners regarding the strength of their business. The PPP loans also contributed liquidity to businesses, some of which, such as hotels, hospitality services, restaurants, were in dire need of the funds. Our year-over-year non-performing assets decreased 34.2%. Our non-performing assets totaled 44.2 million or 15 basis points of quarterly average interest earning assets at March 31st, 2021, compared with 67.2 million or 25 basis points of quarterly average interest earning assets at March 31, 2020. The economy is doing well and should continue to improve as more and more people are vaccinated and more businesses reopen. Texas and Oklahoma both have bright futures. According to the Dallas Federal Reserve, Texas now has the fastest growing population in the nation. Further, the Dallas Federal Reserve is projecting over 6% job growth meaning over 700,000 new jobs in Texas for 2021. And Texas is expected to outperform most of the other states for the next three years. Companies continue to move to Texas with HP and Oracle announcing headquarter moves and other companies such as Tesla and Samsung announcing a major expansion into Texas. Oklahoma is also projected to have population growth for 2021 and has seen expansion of many of its large businesses operating in the state, including Boeing, American Airlines, Costco, and Amazon. Consumer spending in Oklahoma is above early 2020 levels, and retail job additions and new housing permits are higher than the average US rate. We are carefully monitoring office building, hospitality, and oil and gas loans, but continue to participate in these areas with experienced borrowers that can withstand the ups and downs of their industries. As bank stock prices have increased, there are more conversations regarding mergers and acquisitions. I believe you will see more transactions throughout the year unless new tax rates are introduced, which may change the market. I expect that net interest margins will continue to decline, regulatory burden will increase under the current administration, and technology will continue to be ever-changing, expensive, and increasingly prevalent, which is a recipe for more consolidations. Overall, I want to thank all our associates for helping create the success we have had. We have a strong team and a deep bench of prosperity and will continue to work hard to improve everyone's quality of life and shareholder value. Thanks again for your support of our company. Let me turn over our discussion to Osobek Osmanov, our Chief Financial Officer, to discuss some of the specific financial results we achieved.