Prosperity Bancshares, Inc.

Good day and welcome to the Prosperity Bank Shares first quarter 2022 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' first quarter 2022 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 Zalman, Senior Chairman and Chief Executive Officer, H.E. Tim Tamanis, 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 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. 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. 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. And everyone, welcome to the Prosperity Bank Shares first quarter 2022 conference call. Each year, Forbes assesses the 100 largest banks in the United States on growth, credit quality and earnings, as well as other factors for its America's Best Bank list. Prosperity Bank has been ranked in the top 10 since the list inception in 2010. We have twice been ranked number one. We were ranked number two in 2021 and are ranked number six for 2022. It is a testament to Prosperity's performance, culture, vision, and consistency and distinguishes us among most banks. I want to congratulate and thank all our customers, associates, and directors for helping us achieve this great honor. Let's go on to the financials. On a linked quarter basis, our net income was $122.3 million for the three months ended March 31st, 2022. And that's compared with $126.8 million for the three months ended December 31st, 2021. The change was primarily due to a decrease in loan interest income. Average warehouse purchase program loans decreased $504 million in the first quarter of 2022 compared with the prior quarter, and PPPBs were lower as the loans were repaid. This was partially offset by an increase in securities interest income. Our net income for diluted common share was $1.33 for the three months ending March 31st, 2022, compared with $1.38 for the three months ending December 31st, 2021. Our annualized return on average assets for the three months ended March 31st, 2022 was 1.29%. And our annualized return on average tangible common equity for the three months ended March 31st, 2022 was 15.3% respectively. Prosperity's efficiency ratio was 43.6% for the three months ended March 31st, 2022. Going on to the loans, when you compare year-over-year loan totals, excluding the warehouse purchase program and TPP loans at March 31st, 2022, for 16.6 billion compared to 16.2 billion at March 31st, 2021, an increase of 409 million or 2.5%. On a linked quarter basis, linked quarter loans decreased 548 million or 2.9% from 18.6 billion at December 31st, 2021 primarily due to a decrease in Warehouse Purchase Program loans. The linked quarter loans, excluding the Warehouse Purchase Program and the PPP loans, decreased $33 million from $16.7 billion at December 31st, 2021. We continue to see and approve a record volume of loans. However, we had a significant pay down during the quarter. Tim will provide specific information on loan production. With regard to deposits, deposits at March 31st, 2022 were $31 billion, an increase of $2.3 billion, or 8%, compared with $28.8 billion at March 31st, 2021. The linked quarter deposits increased $296 million, or 1%, 3.9% annualized, from 30.8 billion at December 31st, 2021. Deposits seem to be normalizing. Historically, excluding the last two years, our organic deposit growth rate ran about 4% with most of the growth in the first quarter, decreasing in the second quarter and increasing in the fourth quarter. If rates continue to rise, we expect that our time deposits will increase. as they are currently at only 8% of total deposits right now. Consumer deposits increased over the last several years during the pandemic, but we are now seeing people spend more of their savings. We expect that business deposits will increase over time if the economy stays strong, replacing the excess consumer deposits that are being spent. On asset quality, our asset quality remains sound. Year-over-year non-performing assets decreased 38%. Our non-performing assets totaled $27 million at March 31, 2022, compared with $44 million at March 31, 2021, and $28 million at December 31, 2021. On the economy, companies and individuals continue to move to Texas and Oklahoma, primarily because of lower tax rates and a favorable pro-business political environment. The overall economy remains strong, despite concerns around higher interest rates, inflation, supply chain issues, and the war between Russia and Ukraine. Our bank has sound credit quality, solid core capital, and strong earnings. We expect that our earnings will benefit from the higher interest rates. However, as I have previously mentioned, because of large bond portfolio with an effective duration of 3.6 years, it would generally take us longer to see the full effect of the increase. Our securities portfolio is 97% held to maturity, which will protect the bank from having an unrealized loss in the portfolio that adversely affects our tangible capital in a rising rate environment. With regard to acquisitions, as we've indicated in prior quarters, we continue to have active conversations with other bankers regarding potential acquisitions, opportunities, although the conversations have slowed somewhat given the war and the decline in the stock prices. Overall, I want to thank our associates for helping create the success we have had We have a strong team and a deep bench at Prosperity and will continue to work hard to help our customers and associates succeed and to increase 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. Osobek?