Prosperity Bancshares, Inc.

Good day and welcome to the Prosperity Bank Shares fourth quarter 2023 earnings conference call. All participants will be in a 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 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' fourth quarter 2023 earnings conference call. This call is being broadcast live on our website 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, H.E. Tim Tamanis, Jr., Chairman, Osobek Osmanov, Chief Financial Officer, Eddie Staffady, Vice Chairman, Kevin Hannigan, President and Chief Operating Officer, Randy Hester, Chief Lending Officer, Merle Carnes, Chief Credit Officer, and Bob Dowdell, Executive Vice President. Maze Davenport, our Director of Corporate Strategy, is ill and unable to join us today. 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. 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 our filings with the Securities and Exchange Commission. including forms 10Q and 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 would like to welcome and thank everyone listening to our fourth quarter 2023 conference call. For the three months ending December 31st, 2023, our net income was $95 million, or $1.02 per diluted common share, compared with $112 million, or $1.20 per diluted common share for the three months ending September 30, 2023, and was impacted by a one-time FDIC special assessment of $19.9 million and merger-related expenses. Excluding the FDIC special assessment net of tax and merger related expenses, net of tax, net income was $111 million or $1.19 per diluted common share for the three months ending December 31st, 2023. Our annualized return on average assets, average common equity, and average tangible common equity, excluding the FDIC special assessment net of tax, and merger-related expenses net of tax for the three months into December 31st, 2023, where 1.15% return on average assets, 6.29% return on average common equity, and 12.3% return on average tangible common equity. Although our earnings excluding the one-time FDIC assessment and merger-related expenses were strong, they are still lower than last year. primarily because a majority of our earning assets have not yet repriced and our interest bearing liabilities have. This will correct over time and we expect that our operating ratios will be more reflective of our historical returns. Loans were 21.2 billion on December 31st, 2023. A decrease of 252 million or 1.2% from the 21.4 billion on September 30, 2023. Loans increased $2.3 billion or 12.4% compared with 18.8 billion on December 31, 2022. When loans excluding the warehouse purchase program loans and loans acquired in the merger of First Bank Shares of Texas increased $882 million our 4.9% during 2023. We did see a slight decrease in loans in the fourth quarter. However, we grew loans organically for the year as projected. Our deposits were 27.2 billion on December 31st, 2023, a decrease of 133 million or one half of 1% compared with 27.3 billion on September 30, 2023. Deposits decreased 1.4, I'm sorry, deposits decreased 1.4 billion, or 4.7%, compared with 28.5 billion on December 31, 2022. Our deposit outflows have mitigated since last March. However, we still have customers moving money into higher paying instruments, such as high yielding government bonds, or high rate products offered by competitors. When we saw the increase in deposits during the previous two years, we knew that some portion of them would leave the bank, and that's what's happening now. As the Federal Reserve reduces the money it has put into the economy by reducing its debt, depositors are replacing it by the higher rate securities it had purchased. Prosperity has one of the best core deposit bases in the business, we have non-interest bearing deposits of 9.8 billion representing a strong 36% of total deposits. And certificates of deposits representing only 13% of total deposits. Further, we have not purchased any broker deposits. Our non-performing assets totaled 72.7 million or 21 basis points of quarterly average interest earning assets on December 31st, 2023, compared with 69.5 million or 20 basis points of quarterly average interest earning assets on September 30, 2023, and 27.5 million or eight basis points of quarterly average interest earning assets on December 31st, 2022. The increase during 2023 was primarily due to the first bank shares merger. Despite a relatively low non-performing asset ratio, it is higher than our historical levels due to the recent merger. This is not unusual for us, and we expect to reduce our non-performing asset ratio to a more normal level within a reasonable period of time. The acquired loans charged off during the fourth quarter were fully reserved for. Our allowance for credit losses on loans and off-balance sheet credit exposure was $369 million on December 31st, 2023, compared with $72.7 million in non-performing assets. We look forward to our acquisition of Lone Star State Bank shares, which is pending the receipt of regulatory approvals. We are hopeful that we will receive them soon. We remain interested in M&A and believe our company is in a strong position to participate, especially given our capital. merger and acquisition experience, and the relationships we have built over the years. Prosperity operates in two of the best economies in the U.S. Even with the recent interest rate increases, economic activity and job growth in Texas and Oklahoma remain solid. We are excited about our growth and future of our company. Prosperity has a strong capital position that provides us with flexibility in pursuing strategic opportunities such as mergers and acquisitions, and the repurchase of our stock when appropriate. We expect that our net interest margin will continue to expand to our historically normal levels as our assets reprice over the next several years, increasing our earnings per share. Further, we have a strong core deposit base with 36% of our deposits in non-interest bearing accounts. I would like to thank all our customers, associates, directors, and shareholders for helping build such a successful bank. 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.