Prosperity Bancshares, Inc.

Good day and welcome to the Prosperity BankShare's second quarter 2024 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 your touchtone phone. And 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 Ms. Charlotte Rasche. Please go ahead, ma'am.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bank Shares' second quarter 2024 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 Tomanis, Jr., Chairman, Osobek Osmanov, Chief Financial Officer, Eddie Saffody, Vice Chairman, Kevin Hannigan, President and Chief Operating Officer, Randy Hester, Chief Lending Officer, Maeve 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 Tomanas, 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 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 Share's 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 Dave Zolman.

Thank you, Charlotte. I would like to welcome and thank everyone listening to our second quarter 2024 conference call. We want to welcome the customers and associates from Lone Star State Bank of West Texas and are excited about our partnership. As previously announced on April 1st, 2024, Prosperity completed the merger of Lone Star State Bank Shares, Inc. and its wholly owned subsidiary, Lone Star Bank, headquartered in Lubbock, Texas. Lone Star Bank operated five banking offices in the West Texas area. For the three months ended June 30, 2024, net income was $111 million or $1.17 per diluted common share compared with $110 million or $1.18 per diluted common share for the three months ended March 31, 2024. Net income and net income per diluted common share for the second quarter of 2024 were impacted by an increase in net interest income and a gain on the Visa Class B1 stock exchange net of investment security sales of 10.7 million and partially offset by a merger related provision for credit losses of 9.1 million and merger related expenses of 4.4 million, an FDIC special assessment of 3.6 million, and an increase in non-interest expenses related to three months of Lone Star Bank operations. Excluding the merger-related provision and expenses, the gain on the Visa Class B1 Stock Exchange net of investment security sales, and the FDIC special assessment, each net of tax, net income, was $116 million, or $1.22 per diluted common share for the three months ending June 30, 2024. And our annualized returns on average assets were 1.17%, and our annualized return on average changeable common equity was 12.34% based on those numbers. We are also pleased that our net interest income before provision for credit losses was 258 million for the three months ended June 30, 24, compared with 238 million for the three months ended March 31, 2024, an increase of 20.5 million or 8.6%. In addition, our net interest margin on a tax equivalent basis was 2.94% for the three months ended June 30, 2024, compared with 2.79% for the three months ended March 31st, 2024, and 2.73% for the same period in 2023. As mentioned on prior calls, these are the results that we expected, and we anticipate these tailwinds should continue to be positive for the near future. Our loans were 22.3 billion at June 30, 2024, an increase of $666 million or 3.1% when compared with $21.6 billion at June 30, 2023. Our linked core loans increased $1.56 billion or 5% from the $21.2 billion at March 31, 2024. Loans increased primarily due to the Lone Star merger. Excluding loans acquired in the Lone Star and first capital acquisitions and new production at the acquired banking centers since the respective acquisition dates, loans at June 30, 2024 decreased 37 million or two basis points when compared to last year, June 30, 2023, and an increased 63 million or three basis points compared with March 31st of 2024. Excluding these acquisition-related loans and warehouse purchase program loans at June 30, 2024, loans decreased 152 million, or eight basis points, compared with March 31, 2024. Our deposits were 27.9 million, I'm sorry, 27.9 billion at June 30, 2024, an increase of 552 million, or 2%, compared with 27.3 billion at June 30, 2023. Our linked core deposits increased 757 million or 2.8% from the 27.1 billion at March 31, 2024. The increases were primarily due to the Lone Star merger, excluding deposits assumed in the Lone Star and First Capital acquisitions and new deposits generated at the acquired banking centers since the respective acquisition days. Deposits at June 30, 2024 decreased by $470 million or 1.8% when compared to last year, June 30, 2023, and decreased by $298 million or 1.2% compared with March 31, 2024. Historically, our deposits are seasonally lower in the second and third quarters and increase again in the fourth quarter. We have not purchased any broker deposits to offset the deposit loss, and we do not currently intend to do so. Our banker's focus is on building core deposits. Our net interest-bearing deposits represented 34.7% of our total deposits at June 30, 2024. Our non-performing assets totaled 89 million or 25 basis points of quarterly average interest earning assets at June 30, 2024, compared with 83 million or 24 basis points of quarterly average interest earning assets at March 31, 2024, and 62 million or 18 basis points of quarterly average interest earning assets at June 30, 2023. with a significant portion of the balance for each period attributable to the acquired loans. At June 30, 2024, the allowance for credit losses on loans was $359 million, and allowance for credit losses on loans and off balance sheet credit exposure was $397 million. The allowance for credit losses on loans was 4.02 times the amount of non-performing assets. With regard to acquisitions, we continue to have conversations with other bankers considering opportunities. We believe that higher technology and staffing costs, funding costs, loan competition, succession planning concerns, and increased regulatory burden all point to continued consolidation. We remain ready to move forward in the event a transaction materializes and will be beneficial to our company's long-term future and increase shareholder value. We are optimistic about the future and confident in our ability to create meaningful long-term value for our shareholders. Over the last 12 months, we have returned $284 million to shareholders, $74 million through share repurchases, and $209 million through cash dividends. With regard to the economy, CNBC recently announced that Texas was voted the third best state for business in 2024. However, we believe we should have been number one. Sorry, that's Texas humor. It's just the right trying to correct the wrong. Texas continues to shine as more people and companies move to the state because of the business friendly political structure and no state income tax. Prosperity continues to focus on building core customer relationships, maintaining sound asset quality, and operating the bank in an efficient manner while investing and ever-changing technology and product distribution channels. We intend 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 the discussion to Osobek Osmanov, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Osobek.