Prosperity Bancshares, Inc.

Good day, and welcome to the Prosperity Bank Shares second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then 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 touchtone phone. 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. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bank Shares' second 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 few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bank Shares, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer, 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. Tim Tamanis, our Chairman, is unable to join us today. David Zolman 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 Randy Hester, 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, Sean. 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 actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bank Shares 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. I would like to welcome and thank everyone listening to our second quarter 2021 conference call. For the second quarter of 2021, prosperity had strong earnings, core loan growth, deposit growth, continued sound asset quality, impressive cost controls, a return on average tangible common equity of 17.49%, and remains well-reserved. 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 honor. The unemployment rates continue to decrease and GDP growth continues at a high level, as forecasted last year with the reopening of the economy. We are seeing increased oil and gas prices as well as increased farm commodity prices, both of which are positive for Texas and Oklahoma economies. Further, businesses and individuals continue to move to Texas for lower tax rates and a better quality of life. Our earnings were $130.6 million in the second quarter for 2021, compared with $130.9 million for the same period in 2020. The second quarter of 2020 included a tax benefit for net operating losses of $20.1 million, or 22 cents per diluted common share, as a result of the enactment of the CARES Act. Diluted earnings per share were $1.41 for the second quarter of 2021 and for the same period in 2020. Earnings per share for the second quarter of 2020 included the 22 cent tax benefit, partially offset by a six cent charge merger related expense, and a three cent charge for the write down of fixed assets related to the merger and some CRA investment funds. The net effect was a positive 13 cents in earnings per share for the second quarter of 2021, a 10.2% increase after considering the adjustments in the second quarter of 2020. Loans on June 30, 2021, were $19.2 billion, a decrease of $1.7 billion or 8.4%, compared with $21 billion on June 30, 2020. Our linked quarter loans decreased $387 million, or 2%, from $19.6 billion on March 31, 2021, primarily due to $359 million decrease in the PPP loans. On June 30, 2021, the company had $780 million of PPP loans compared with $1.4 billion of the PPP loans on June 30, 2020, and $1.1 billion of PPP loans on March 31, 2021. The link quarter loans, excluding the warehouse purchase program, and PPP loans increased $148 million, or nine basis points, 3.7% annualized from the $16.2 billion on March 31st, 2021. Our deposits on June 30, 2021, were $29.1 billion, an increase of $2.9 billion or 11.3% compared with 26.1 billion on June 30, 2020. Our linked quarter deposits increased 347 million or 1.2%, 4.8% annualized from the 28.7 billion on March 31st, 2021. We believe that the deposit inflows are starting to normalize as people are spending money again and stimulus payments have been reduced. However, the child tax credit payments should again add deposits to the banks. Our asset quality has always been one of the primary focuses of our bank. Our non-performing assets totaled $33.7 million, or 11 basis points, of quarterly average interest earning assets as of June 30, 2021, compared with 77.9 million or 28 basis points of quarterly average interest earning assets as of June 30, 2020, a 56.8% decrease from last year. Non-performing assets were 44.2 million or 15 basis points of quarterly average interest earning assets as of March 31, 2021, M&A seems to be regaining momentum. We've had more conversation with bankers considering opportunities this quarter. The continued net interest margin pressure, the higher technology costs, the salary increases, loan competition, succession planning concerns, and increased regulatory burden all point to a continued consolidation. As mentioned in my opening comments, we believe the U.S. economy is starting to normalize, which has helped to reduce unemployment and cause above normal growth rates in GDP. We are seeing higher prices for gas and groceries, labor shortages, inventory shortages, and more. We believe that prosperity is well positioned to grow along with the Texas and Oklahoma economies. We have a deep bench of associates with a passion to help prosperity and our customers succeed. Prosperity continues to focus on building core customer relationships, maintaining sound asset quality, and operating the bank in an efficient manner while investing in ever-changing technology and product distribution channels. We intend to continue to grow the company both organically and through mergers and acquisitions. I want to thank everyone involved in our company for helping to make it the success it has become. 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. Osobek?