Prosperity Bancshares, Inc.

Good day and welcome to the Prosperity Bank Shares third 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 a touch-tone 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' third 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, General Counsel of Prosperity Bank Shares. And here with me today is David Zolman, Senior Chairman and Chief Executive Officer, H.E. Tim Tomanich, Jr., Chairman, Alsobek Osmanov, Chief Financial Officer, Eddie Saffody, 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 Tomanis, 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, Matt. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for 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 10Q and 10 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 third quarter 2021 conference call. I'm pleased to report that because of the confidence in our company, our strong capital position and our continued success, our board of directors voted to increase the fourth quarter dividend to 52 cents, a 6.1% increase from the third quarter. Prosperity continues to do well, and we want to share that success with our shareholders. Additionally, as our stock price experienced declines in the third quarter, Prosperity repurchased 767,134 shares of its common stock at a weighted price of $67.87. Prosperity Bank was ranked by Forbes as the second best bank in America for 2021 and has been in the top 10 of the Forbes list since 2010. Prosperity reported net income of $128.6 million for the quarter ended September 30, 2021, compared to $130 million for the same period in 2020. The net income per diluted common share was $1.39 for the quarter ended September 30, 2021, and compared with $1.40 for the same period in 2020. Prosperity continues to exhibit solid operating metrics and return on tangible equity of 16.72%, and return on assets of 1.42% for the third quarter of 2021. Net interest margins have been stressed throughout the low rate environment. However, we believe this should improve if interest rates rise as projected, as the bank is positioned for increased earnings in a higher rate environment. Our loans on September 30, 2021 were just shy of 19 billion, a decrease of 1.8 billion or 8.8% compared with 20.8 billion on September 30, 2020. Our linked quarter loans excluding warehouse purchase program and PPP loans increased 217 million or 1.3%, 5.3% annualized from 16.4 billion on June 30, 2021. We saw loan growth throughout the company with the exception of the Dallas-Fort Worth area, as we continue to reduce loans that were categorized as PCD loans at the time of the merger, as well as loans in the non-recourse structure commercial real estate category. Excluding these categories, Dallas-Fort Worth continues to show solid growth and win some marquee deals in their area. Deposits on September 30, 2021 were $29.5 billion. an increase of 3 billion, or 11.3%, compared with 26.5 billion on September 30, 2020. Our linked quarter deposits increased 341 million, or 1.2%, 4.7% annualized from 29.1 billion on June 30, 2021. Deposits continue to increase, which we believe is due in part to the government benefits and programs implemented during the pandemic and more people saving to have a safety net after the recent events. Our non-performing assets totaled 36.5 million or 11 basis points of quarterly average interest earning assets on September 30, 2021, compared with 69 million or 24 basis points of quarterly average earning assets on September 30, 2020, and 33 million or 11 basis points of quarterly average interest earning assets on June 30, 2021. The reduction in non-performing assets year-over-year is 47.4%. The allowance for credit losses on loans was 287 million or 1.73 of total loans when excluding warehouse purchase program and PPP loans on September 30, 2021. The allowance for unfunded commitments was $29.9 million on September 30, 2021, unchanged from prior periods. This is a total reserve of $317 million. Our net charge-offs were $15.7 million for three months ending September 30, 2021. Net charge-offs included $4.6 million related to resolved PCD loans and $10.8 million related to a partial charge-off of one commercial structured real estate loan that was not a PCD loan and obtained through the acquisition. The PCD loans had specific reserves of $3.1 million, of which $2.2 million was allocated to the charge-offs and $944,000 was moved to the General Reserve. Further, an additional $14.3 million of specific reserves on resolved PCD loans without any related charge-offs was released to the General Reserve. Overall, in the third quarter of 2021, we resolved $54.9 million in acquired loans, had $15.7 million in net charge-off, and released $15.2 million to the General Reserve. With regard to acquisitions, we've seen more merger and acquisition transactions recently and believe that due to increases in technology and staffing costs, additional government regulations, and succession planning concerns, there will be continued activity, especially if current market valuations continue. We remain ready to enter conversations and negotiations when it's right for all parties and is appropriately accretive to our existing shareholders. The Texas and Oklahoma economies continue to benefit from companies reloading from states with higher taxes and more regulation. Texas is projected to increase jobs by 493,000 in 2021. This increase, combined with people moving to the state, requires additional housing and infrastructure. a driver for loans and increased business opportunities. We are seeing higher prices for most crops and higher oil prices, which should help the local economies. Inflation continues to be higher than we would like, but we hope that it will moderate next year as the Federal Reserve begins tapering its asset purchases as expected. We believe there are also signs that inventories are starting to increase and supply chains are improving. although it will take some time to stabilize and return to normal. Thanks again for your support of our company. Let me turn over the discussion to Osobek Osmonov, our Chief Financial Officer, to discuss some specific financial results we achieve. Osobek.