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Text: I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares.
David Zalman will lead off with a review of the highlights for the recent quarter.
He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics and Tim Timanus, who will discuss our lending activities, including asset quality.
During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Gary.
Before we begin, let me make the usual disclaimers.
With the hard work of our entire team, the combination of Prosperity and LegacyTexas continues to bear fruit as reflected in our positive results for the first quarter.
Prosperity Bank has been ranked as the number 2 best bank in America for 2021 and has been in the top 10 of Forbes' America's Best Banks since 2010.
Our net income was $133.3 million for the three months ending March 31, 2021, compared with $130.8 million for the same period in 2020, an increase of $2.5 million or 1.9%.
The net income per diluted common share was $1.44 for the three months ended March 31, 2021, compared with $1.39 for the same period in 2020, an increase of 3.6%.
Our annualized returns on average assets, average common equity and average tangible common equity for the three months ended March 31, 2021, were a 1.54% return on average assets, 8.6% return on average common equity and 18.43% on average tangible common equity.
Our Prosperity's efficiency ratio, excluding net gains and losses on the sale or writedown of assets and taxes, was 41.25% for the three months ended March 31, 2021.
We continue to watch expenses but also expect to make prudent capital expenditures to plan for our future needs and increase shareholder value.
Our loans at March 31, 2021, were $19.6 billion, an increase of $511 million or 2.7% when compared to $19.127 billion at March 31, 2020, primarily due to a $558 million increase in warehouse purchase program loans.
Our linked quarter loans decreased $608 million or 3% from $20.2 billion at December 31, 2020, and that was primarily due to a $570 million decrease in the Warehouse Purchase Program loans, more of a seasonal issue.
At March 31, 2021, the company had $1.1 billion in PPP loans.
At March 31, 2021, our oil and gas loans totaled $503 million, net of the discount and excluding the PPP loans totaling $142 million compared with oil and gas loans of $718 million net of the discount at March 30, 2020.
This represented a decrease of $214 million in oil and gas loans year-over-year, most of which was planned.
Our deposits at March 31, 2021, were $28.7 billion, an increase of $4.9 billion or 20.7% compared with $23.8 billion at March 31, 2020.
Our linked quarter deposits increased $1.4 billion or 5.1%, 20.5% annualized from $27.3 billion at December 31, 2020.
Deposits continue to grow as the government stimulus payments and other assistance continues.
Consumers are now spending more, and we hear from restaurant and other business owners regarding the strength of their business.
The PPP loans also contributed liquidity to businesses, some of which, such as hotels, hospitality services, restaurants were in dire need of the funds.
Our year-over-year nonperforming assets decreased 34.2%.
Our nonperforming assets totaled $44.2 million or 15 basis points of quarterly average interest-earning assets at March 31, 2021, compared with $67.2 million or 25 basis points of quarterly average interest-earning assets at March 31, 2020.
The economy is doing well and should continue to improve as more and more people are vaccinated and more businesses reopen.
Texas and Oklahoma both have bright futures.
According to the Dallas Federal Reserve, Texas now has the fastest-growing population in the nation.
Further, the Dallas Fed Reserve is projecting over 6% job growth, meaning over 700,000 new jobs in Texas for 2021, and Texas is expected to outperform most of the other states for the next three years.
Companies continue to move to Texas with HP and Oracle announcing headquarter moves and other companies such as Tesla and such as Tesla and Samsung announcing a major expansion into Texas.
Oklahoma is also projected to have population growth for 2021 and has seen expansion of many of its large businesses operating in the state, including Boeing, American Airlines, Costco and Amazon.
Consumer spending in Oklahoma is above early 2020 levels and retail job additions and new housing permits are higher than the average U.S. rate.
We are carefully monitoring office building, hospitality and oil and gas loans but continue to participate in these areas with experienced borrowers that can withstand the ups and downs of their industries.
As bank's stock prices have increased, there are more conversations regarding mergers and acquisitions.
I believe you will see more transactions throughout the year unless new tax rates are introduced, which may change the market.
I expect that net interest margins will continue to decline.
Regulatory burden will increase under the current administration, and technology will continue to be ever-changing, expensive and increasingly prevalent, which is a recipe for more consolidations.
We have a strong team and a deep bench of prosperity, and we'll continue to work hard to improve everyone's quality of life and shareholder value.
Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved.
Net interest income before provision for credit losses for the three months ended March 31, 2021, was $254.6 million compared to $256 million for the same period in 2020, a decrease of $1.4 million or 0.6%.
The current quarter net interest income includes $16.3 million in fair value loan income and $13 million in fee income from PPP loans.
The net interest margin on a tax equivalent basis was 3.41% for the three months ended March 31, 2021, compared to 3.81% for the same period in 2020 and 3.49% for the quarter ended December 31, 2020.
Excluding purchase accounting adjustments, the net interest margin for the quarter ended March 31, 2021, was 3.19% compared to 3.36% for the same period in 2020 and 3.26% for the quarter ended December 31, 2020.
The net interest margin has been impacted by an influx of excess liquidity since the start of the pandemic.
Excess liquidity during the first quarter of 2021 impacted the net interest margin by five basis points compared to the quarter ended December 31, 2020, and by 15 basis points compared to the same period in 2020.
Noninterest income was $34 million for the three months ended March 31, 2021, compared to $34.4 million for the same period in 2020 and $36.5 million for the quarter ended December 31, 2020.
Noninterest expense for the three months ended March 31, 2021, was $119.1 million compared to $124.7 million for the same period in 2020.
On a linked-quarter basis, noninterest expense decreased $1.1 million from $120.2 million for the quarter ended December 31, 2020.
For the second quarter of 2021, we expect noninterest expense of $118 million to $120 million.
The efficiency ratio was 41.3% for the three months ended March 31, 2021, compared to 42.9% for the same period in 2020 and 40.8% for the three months ended December 31, 2020.
During the first quarter of 2021, we recognized $16.3 million in fair value loan income.
This amount includes $6.3 million from anticipated accretion and $10 million from early payoffs.
We estimate fair value loan income for the second quarter of 2021 to be around $4 million to $5 million.
This estimate does not account for any additional fair value loan income that may result from early loan paydowns or payoffs.
Also, during the first quarter 2021, we recognized $13 million in fee income from PPP loans, majority from the forgiveness of the first round PPP loans.
As of March 31, 2021, the first round of PPP loans had a remaining deferred fee balance of $9.4 million, we anticipate more than half of this remaining balance will be recognized in the second quarter 2021 due to loan forgiveness.
Regarding the second round of PPP loans, as of March 31, 2021, we recorded $530.7 million in loans and generated about $24 million in deferred fees, which will be recognized over a five year period or until the PPP loan is forgiven.
The bond portfolio metrics at 3/31/2021 showed a weighted average life of 3.9 years and projected annual cash flows of approximately $2 billion.
Our nonperforming assets at quarter end March 31, 2021, totaled $44.162 million or 22 basis points of loans and other real estate compared to $59.570 million or 29 basis points at December 31, 2020.
This represents approximately a 26% decline in nonperforming assets.
The March 31, 2021 nonperforming asset total was comprised of $43.338 million in loans, $362,000 in repossessed assets and $462,000 in other real estate.
Of the $44.162 million in nonperforming assets, $9.505 million or 22% are energy credits, all of which are service company credits.
Since March 31, 2021, $844,000 in nonperforming assets have been removed.
Net charge-offs for the three months ended March 31, 2021, were $8.858 million compared to $7.567 million for the quarter ended December 31, 2020.
No dollars were added to the allowance for credit losses during the quarter ended March 31, 2021.
The average monthly new loan production for the quarter ended March 31, 2021, was $645 million.
This includes an average of $177 million in PPP loans per month.
Loans outstanding at March 31, 2021, were approximately $19.6 billion, which includes approximately $1.1 billion in PPP loans.
The March 31, 2021 loan total is made up of 39% fixed rate loans, 36% floating rate loans and 25% that reset at specific intervals.
Gary, can you please assist us with questions?

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q1 earnings per share $1.44.

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