Prosperity Bancshares, Inc.

Good day and welcome to the Prosperity Bank Shares third 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' third 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 few weeks. I'm Charlotte Rasche, 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, Osobek 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, Maze Davenport, Director of Corporate Strategy, and Bob Dowdell, Executive Vice President. 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 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. 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 10Q 10K, 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'd like to welcome and thank everyone listening to our third quarter 2022 conference call. This is an exciting time for prosperity. On October 11th, we announced the signing of a definitive merger agreement with First Bank Shares of Texas, Inc., headquartered in Midland, Texas, and Lone Star State Bank Shares, Inc., headquartered in Lubbock, Texas. On a pro forma basis, we will have over $6 billion in assets located in our West Texas market. And the number one market share in the combined Midland and Odessa markets and the number three market share in Lubbock. We also recently announced that the board of directors voted to increase the fourth quarter 2022 dividend to 55 cents a share. This represents a 6% increase in dividends declared in 2022 compared with 2021. The increase reflects the confidence the board has in the continuing success of our company and in the communities we serve. Our earnings reported net income of 135.8 million for the quarter ended September 30, 2022, compared with 128.6 million for the same period in 21. On a lean quarter basis, third quarter net income increased 7.3 million or 5.7% compared with the second quarter of 2022. Our net income for diluted common share was $1.49 for the quarter ended September 30, 2022, compared with $1.39 for the same period in 2021, a 7.2% increase. Prosperity continues to exhibit solid operating metrics and return on tangible equity of 16.4% and return on assets of 1.45% for the third quarter of 2022. The net interest margin on a tax equivalent basis was 3.11% for the three months ending September 30, 2022, compared with 3.1% for the same period in 2021, and 2.97% for the three months ending June 30, 2022. Excluding warehouse purchase program and PPP loans, loans on September 30, 2022 were 17.6 billion compared to 16.6 billion on the September 30, 2021, an increase of 981 million or 5.9%. Our linked quarter loans, excluding warehouse purchase program and PPP loans increased 531 million or 3.1%, 12.5% annualized from 17 billion on June 30, 2022. We did not have a lot of loan growth. We did not have the loan growth we expected in the first quarter of 2022. However, the loan growth in the second and third quarters has been much stronger. Deposits on September 30, 2022 were $29.3 billion, a decrease of $151 million or one-half of 1% compared with $29.5 billion on September 30, 2021. Our linked quarter deposits decreased $565 million or 1.9% from $29.9 billion on June 30, 2022. Our linked quarter non-interest bearing deposits increased by 122 million. On a year-over-year and linked quarter basis, our core deposits are higher, but total deposits decreased slightly, primarily due to public fund seasonality. Prosperity generally experiences seasonality with its public fund deposits as public fund customers use the tax dollars they receive in December and January throughout the year, resulting in lower deposit balances in the second and third quarters of the year. In addition to their normal use of funds, public fund customers are moving their investment funds to higher yielding investments outside of the bank which are now available as interest rates have increased. With regard to asset quality, our non-performing assets total 19.9 million or six basis points of quarterly average interest earning assets on September 30, 2022, compared with 36 million or 11 basis points of quarterly average earning assets at September 30, 2021, and 22 million or seven basis points of quarterly average interest earning assets on June 30, 2022. The reduction in non-performing assets year-over-year is 45.6%. We are excited about our pending acquisitions of First Bank Shares of Texas and Lone Star State Bank Shares. First Bank Shares operates 16 banking offices in West, North, and Central Texas. including several new markets for prosperity, and Lone Star operates five banking offices in West Texas. We look forward to partnering with the First Bank shares and Lone Star teams. We continue to believe that due to increases in technology and staffing costs, additional government regulation, and succession planning concerns, there will be merger activity. We intend to remain active in M&A and we continue to have conversations with potential partners. The Texas and Oklahoma economies continue to benefit from companies relocating from states with higher taxes and more regulations. This increase, combined with people moving to the state, requires additional housing and infrastructure, a driver for loans and increased business opportunities. Thanks again for your support of our company. Let me turn over our discussion to Asilbek Osmanov, our Chief Financial Officer, to discuss some of the specific financial results we achieved.