Prosperity Bancshares (PB) 23 Oct 242024 Q3 Earnings call transcript

Good morning, and welcome to the Prosperity Bancshares Third Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 Bancshares Third Quarter 2024 Earnings Conference Call. broadcast replay our weeks. for being be and is for available the call live website on will This next few Charlotte President Bancshares. Vice Rasche, Counsel I'm Prosperity of and General Executive Zalman, And me Officer; here and today David H.E. with Chief Senior is Executive Chairman Jr., Lending Chief Financial Chairman; and Director Corporate Officer; Chairman; Mays Safady, Officer; Officer; Operating Bob Osmonov, and Vice Strategy; President Davenport, Hanigan, Chief Asylbek President. Dowdell, Randy Timanus Eddie Vice Tim Kevin Hester, Executive Chief of a review quarter. with the David highlights recent Zalman off will the of for lead financial He asset who will discuss be will review followed including and by quality. Asylbek some Osmonov of Tim our statistics; activities, will who Timanus, our lending recent

questions. we open call Finally, will for the

from presentation let usual of for expressed statements. the Before or unknown to statements be Certain and securities we actual and uncertainties risks, purposes different results of results factors, which the make the me the and involve begin, such known Prosperity constitute may forward-looking Bancshares may as implied federal cause such, by forward-looking future in disclaimers. may this laws or performance of other materially matters or discussed performance

qualified found in cause forward-looking information than have All and XX-Q factors reports different their statements to statements other with by and in those expressly Securities Bancshares' entirety Prosperity forward-looking Additional we be filed. Commission, concerning can materially results actual including Forms filings could that these statements be cautionary the in Exchange the and XX-K statements. are and

the me turn Zalman. let call over David to Now

growth increasing of fourth share the XXXX in has conference annual per the $X.XX markets. prior in to announce pleased confidence for XXXX to XX%. to our quarter and increase The four $X.XX everyone quarter dividends was XXXX was to reflects would XXXX the that The Directors from listening dividend in our to company the compound continued rate like our declared I paid third I'm Charlotte. approved welcome you, the Board from per quarters. and Thank call. thank Board that the share

our dividends shareholders success capital. share to stock We of grow with continue repurchases the payment through opportunistic our to while also our continuing and

higher impacted the basis X.XX% Our September compared million $XX earnings. a by margin. The September interest is dividends compound the the XX, growth XXXX XX, XX, with ended rate stable share same The in million per in retained three net quarter from $XXX last has stock amount compared XX% This net after for September years interest period for $XXX XXXX, in the our the XXXX. common of the $XXX XXXX. was a $XXX reflecting million diluted book of X.XX% for were reported for XX, tangible a earnings increase. common XX.X% an million margin XXXX, was period, Prosperity ended and tangible income Prosperity compared primarily to for capital quarter XXXX paying during Further, Prosperity's for since $X.XX net period or of increased million on for with to per Prosperity's XXXX. ended repurchasing share XXXX, $X.XX XX, net tax value XX September XXXX. Prosperity the same period same equivalent income XX, months September the annual September this

increased an at or compared the returns for exhibit Loans $XXX quarter As X.XX% $XX XX.X% on with increase Linked XX, XX, XXXX. billion $XX.X return of with X.X% mentioned our as million of of were XXXX, in XXXX. previous normal $XX.X September reprice. Prosperity annualized margin to assets of assets calls, at quarter metrics loans third million. to billion September on levels solid our more equity operating tangible net should to continue interest improve continues and

working loans XXXX, XX, acquired the Star loans The new the April XXXX. in compared lending in as XX, acquired the and merger and not loans exit by meet are X, certain by production is asset. terms does $XXX XXXX Prosperity reduction not we acquired any If First September for acquired operations unusual standards, still at loans through September with decreased million from the we of Day. conditions Lone the loans Capital Excluding the since

years, withstand in the this Over that us loans cycles. resulted bank nonperforming process and off stronger has charged lower banking makes a can and various

with XXXX, have to XX, Linked at September September at increase at were June or ] XX, Our XX, X.X% $XX.X this. Deposits million come $XXX increased deposits an quarter $XX XXXX. billion billion XXXX. [ compared shareholders $XX.X million of $XXX from expect billion

in XX, the September with XXXX. the effects increased decreased have core by the XXXX. in compared quarter XX, compared assumed June by We're encouraged of stabilizing with and the failures September previous $XXX deposits deposits the merger Lone million XXXX, that XX, and deposits after XXXX, compared deposits are that at with slightly grown Star Excluding million bank $XXX

turbulent Prosperity broker time. any Importantly, not this has deposits during purchased

of nonperforming June XX million at XX average with interest-earning portion XXXX interest-earning average allowance assets balance quarterly XX, compared period and exposure points nonperforming XX, assets losses credit XX of loans in at XXXX, million million basis as sheet million credit XX, of XX, with quarterly of XX, $XXX $XX.X and September points XXXX, September was XXXX, attributable million or September each interest-earning quarterly a $XX.X loans. The average at to XXXX. totaled significant for of the off-balance $XX.X assets Our September basis points compared the for with at or on acquired assets $XX.X assets basis or

million nine Our million the September with ended the XX, net XXXX. September XX, $XX ended were charge-offs nine for months $XX.X months compared XXXX, for

and to states Texas or from more which economies equates The taxes moving loans technology with people states with opportunities. on XXXX, moved additional every the We to increased we U.S. with per staffing continued This, a beneficial driver future loan shareholder higher people to succession materializes for be based the your to planning company's housing in of Bureau. higher move prosperity. Thanks strategic to will opportunities. be day. competition, will from to our Oklahoma day that transaction X,XXX considering other is Texas for of In We continue per believe requires XX,XXX increase value. An conversations relocating can regulatory concerns our states move continue event increased benefit costs, to our people bankers forward regulation. and and point believe and long-term the to and approximately all to and and Census growth costs, located continued estimated month companies remain infrastructure, combined X,XXX business and support Texas bank company. best and a to again XXX,XXX funding for We ready have in burden, We two the future X,XXX consolidation.

Let Chief to results to discuss Financial over the Asylbek discussion me turn our financial achieved. Osmonov, specific we our Officer,

Asylbek?

Net XXXX, value $X.X quarter million million increase Good morning, an losses the income and second of the quarter $XXX.X June compared interest third for loan three income for $XXX.X before of Zalman. million for period $XX.X of an million quarter for XXXX. ended to Thank compared Fair increase provision ended to million September for months XXXX the of same million, credit in to compared the XXXX. $X.X million was $XXX.X you, Mr. for was $X.X XX, everyone. XX, XXXX, the

to XXXX. The Excluding million September months increased for the fair interest and XXXX, the for the loan ended months quarter core XX, XX, interest net June June three $X.X for basis three was September X.XX% ended XXXX, margin X.XX% to period quarter value equivalent XX, for net the on tax the income, ended XX, in X.XX% a same XXXX. compared compared income the ended XXXX,

XXXX the for for the from interest margin purchase ended XXXX, XXXX. Noninterest offset adjustments, sale XXXX million the September million ended million was X.XX% September accounting ended $XX loss for income in of June Visa XX, the million expense partially $XXX.X quarter on by to $XXX.X ended quarter income compared was of period due was and during to XX, XXXX, XX, during same XXXX. securities. Noninterest for three noninterest for the for months for conversion, quarter investment Higher three X.XX% net was the net for expenses the quarter the $XX.X stock XXXX, the XXXX, a FDA's million the gain to quarter resulting months X.XX% $XX.X and three due million to the gain and for merger-related on the June Excluding second same period ended of XX, XXXX, noninterest XXXX. September compared the second primarily period million to XX, $X.X June months in compared $XXX.X and $XX.X expense million. special assessment million was Higher $X.X same ended XXXX the of XX, in of

June XX, portfolio flows XX, Tim for XXXX, be cash same duration [ XX.X% quality. that, XXXX the was expect to XX.X% XXXX. and Timanus? we have a efficiency months for fourth ended presentation September annual of billion. And for XX.X% some the over noninterest $X in XX, metrics projected in million. for September three the and me with the period turn of quarter on approximately to details For to expense ended bond ratio The million quarter XXXX, the compared The $XXX ] asset $XXX Timanus modified loan to the of XXXX, let and at four range

Thank you, Asylbek.

allowance the ] No charge-offs during XX, XX% in increase [ ended June XX, no repossessed XX, quarter million September turn points XXXX, losses of June the the September XX, rate XXXX. XXXX, of points under rate the net monthly Rasche. $X,XXX,XXX XX, XX% the XX ] to estate dollars the compared million $X.XXX September have for the XX, were at XX XXXX made a ended resulted or to loans. I for ] quarter billion floating XXXX. The XX, were from loan at compared XXXX made quarter XX, up June September Bank a will XX, from State was Loans loans, nonperforming acquisition. taken ended This outstanding quarter XXXX credit months September XXXX. asset XX% ended to assets Since other for $X,XXX,XXX September basis. ended other approximately was ended or Texas sale. new compared compared is to end a fixed basis million of to production for loan removed $XX.XXX assets $XX.XXX put assets to Star June $XX,XXX,XXX [ and were quarter XX, XX, compared ended Lone estate. Net nonperforming nonperforming in $XX,XXX,XXX for XXXX. that $X,XXX,XXX at XXXX, loans average was ] and September loans into XXXX up $XX,XXX,XXX million over real $X,XXX, now to [ linked-quarter XX, totaled during September billion loans, June quarter contract and in during is Charlotte $XXX rate XXXX, $X.X variable quarter [ There XXXX. West charge-offs $XXX Our total at it the in September for addition basis XXX XXXX XX, addition allowance been of the three income or on XX, total of $XXX,XXX real the

this Thank time, you, we are Tim. answer prepared At your to questions.

operator questions. call assist Our us will with

is begin Stanley. now Morgan with first the Our will We session. question from Manan Gosalia [Operator question-and-answer Instructions] today

NIM improve that you've should as previously wondering normal reprice. about that how guidepost assets noted to you NIM You given? continue was I more to the levels feel

NIM. And the X%, in year market exiting year, we'll X.XX% money exit course, plan our Again, should NIM a exit of We of that that, I is for to that's that go at think points go we're Again, lot there's year-end. XX are. X% at a will And still be the the which then at exactly still months I'll basis accounts and Prime if the X.X%, ending model at down, And XXXX, 'XX means beginning sticking end stay have XX again, that strong showing things average lower finish and with [indiscernible] showing lower where it at model at they X.XX%. the but is to then what in will that what into the said. caveat for taken me, to in our of on we in the are is that, and we'll rates X% those by year, our is our X%. a the the in the but a right of projecting Prime the 'XX rates that model little looks X.X%, that's just put now. higher on year. into the Prime at 'XX, year of interest end consideration we is

So that's those. difference into the going that's

X.X% term. the rate medium best rate so you the terms what of What the or achieve in is for in NIM So are of environment to or environment, puts X.X% that the that does and that decline takes medium-term another end if terms NIM? decline where from the if points XXX put short here in rates basis of much, you they as or don't

rates. probably stayed a over the interest accurate. they net Really, of we see right I or but we'd interest rates have tell it's a I'm bit of up period is sheet don't have what whole a a change down, sure I margin, basis lot But pulling points rates If higher just they don't went doesn't XXX a lower, XXX go higher they Interest XX-month now, than down historically, interest trying really little they bit rates out really, change you it where margin. going think up went interest just just making a up, basis and down. or the -- paper, little little bit If lot. interest I to points. where a went

basis up think XXX to that's points. I

it start probably I think they affect went more. than if then more basis points, us to would down XXX

the XX nice to rates sounds still get you here? from expansion it NIM forward if like points, relative guess or I basis curve, were some down up can So

Our throughout and we've models that this for end and been year even is year also forward going everything the showing 'XX. going are that forward of saying for and 'XX the also still

what us. for good So still looks very forward looking we're

is question with next from KBW. The Catherine Mealor

what that Just on just far. so ] you're on deposit seeing costs, follow-up [

You've quarters? Should we actually asset you NIM of this any markets got it is the maybe might on the whole to low can down basis if you've deposit you give quarter. get coming But And of cut more what stable couple see next you on so is costs then others. a points from another seen this do kind such lift in of see my base Or far? relative down and commentary of bring we just XX deposit mentioned kind we more the remix? --

product deposits. pay of if we're If CD, at been get CDs. feeling, gut have to we if and the Again, we that some should in repricing have go and to to could would said, deposit, -- would where lot or about want we again, our have our we only on with shown this our focused. can a we if of it kind million interest but margin, $XXX wanted of We to growth interest came and a $X on rates have real our us for could you wanted up ratio that again, and And easily they're going do up raised easy deposits. wanted X.X% raise focus But you didn't we XX% we raise is on billion to, we're didn't. CD a we But net that wanted to. is that's where

I think this time on But down we is XX points in points. he again, Asylbek that jump wants our XXX bases, beta for basis our basis any can and every deal. --

based For And to on now. color right the and we're XX just deposits ] add interest-bearing total [ the deposits. what saying

and to cut you rate didn't the rates cut So when but we we those. we XX% cut the CDs, as look on in special cut September, we the remember, to provide the and if year. had special initially And introduced CDs we special did, within from total those on mature mature rate, customers. a our we what CD at our you XX basis maturity-wise those of cut general XX% We within months will rates six on And CDs, those going CDs. we

is So short. duration CDs those of

the cost going cost on So expect next funding get reprice, And of we down side. do as a cost benefit deposits should we they of quarter. deposits, of

It should down. go

go. of net of with real of a where it interest billion the want our bonds positive should the margin that to loans, rolls make of that net and the Our we to our margins improved $X all off our repricing repricing be

exit was of overall, QX. was think September cost already than end deposit lower at I on our average And

So trajectory-wise, going we're down. we

to So that's what see continue see -- us reprice. the

coming I to if adjust. basis us one interest kept affects time it at the points say -- would Probably that more shop, rates caveat, they little a XX that bit if down of us, takes

to but down coming points, a if bit come I in bigger longer we're adjust, it takes to think little I us increments, down XX they think. fine, basis

last outlook And the in see half what you any as out business back the we [indiscernible] for year? to of to growth that of guided the quarter, warehouse then should

take that I'll Sure, one.

the note You're on high quarter right. of We ended $X.XXX a up billion.

we think I $X.XXX the quarter. for billion averaged

higher those were a both So forecasting. were little of we than

billion those as again, factor a Just likely December. rates remained last night average whole point, numbers $X.XXX equation. it's quarter strong. maybe [ $X.XXX to had for say, data and last probably a would put would a to ]. this billion $X.X for going at in I down number in average November The through likely, It's And I quarter seasonal come we say so $X.XX to we it's closed pretty night is play for them, weakness on if billion the this I'm billion. and

from today. enjoyed for So a follow-up -- And anticipated. Yes. the we've going to this it's just highs little come that. on I at we're is a off But frankly, longer these have than highs

have added That's we We go. the customer to in letting warehouse. new have time customers first a one the while recently some been

think I some way. let or now customers we of X have other to year. last the This We the the going increases customers. a go and course X back customer, other the of couple over had added we is

new think added million $XXX So net-net, month. far we've of commitments this worth I so

Poonawala with America. The Bank next question Ebrahim is from of

implies for of something full X.X%. I assume XX, [ XXX to just think, next wanted to ] year does basis or year months get you around XX exiting 'XX? cuts X.XX-ish average outlook. the And I year X.X%, assumptions, next follow mentioned David, some points over rate prime X.XX% another rate the you ] that mentioned, NIM up and between X.X%, average on the [ by the to guidance full

with have average we of front you it the in going be I have have For prime have X.XX%. me. and to Asylbek? the Do exit I be, what -- should than X.X% X.XX% don't XXXX, but it ending is rate, the higher at don't that,

I don't have it. [indiscernible]

Your numbers you're saying. what are close pretty probably to

And Slower be view kind rate get cuts, biggest if that I heard we steeper that all the is -- correctly, to model if outcome? of to of risk to cuts. you only neutral positive rapid rate should curve, the that

so. That's right. think I

think may still change I but more elections in that do a Obviously, two regulatory we conceivable Just could separately, But XX M&A elections, see the Like, about backdrop a or to big there as M&A, yes, be to you it's deal out don't coming you next tough. it been implications. you of X needs in have have months? do if mentioned the

Dave, can to I'm deal jumping we're not do we're on it buy and there good I get that. out going we we'll that we're there and mean, we out it saying sense, for again, makes do makes good it some not again, not than if not it. not us we're accretion -- out deals. that banks. and it's go to trying We're us just just do a there -- to But out can stronger and But

to margin. on interest focus right really our focus net now real grow Our and our bank is

I somebody us it But now, our again, right -- net level. I'll our you M&A about do For get biggest kind focus talked of more they margin bit. to know growth normalized I our give little a read interest where a towards we is

about $XXX million employees. million we I'll in went And size were public were -- had just in the about size. I we and then XX we in with $XX bank, So XXXX, when started

X% years. go has a of deposits get so a over to amount don't us M&A loans on together X% we double-digit to up into have said of we the the that, M&A and grown X% usually standpoint, that because that and organic growth grow X% we've sometimes the they when an combination see out bank the those of But years, to over growth make growth. analyst the difference. hard that organically ] an year loans and and we all [ see the From for these organic on a loans. Having year it's And to through given

in grown And to so million almost a went billion 'XX, we've when $XX public bank bank today. $XXX we from a

we don't will that would to be just misnomer. just a It's thought and the do grow grow So grow. continue we

want didn't probably we We our I on loan and been to Again, that's has a now. right something focus think that's are go I to if think growth you just Fed down the cost harder, focus. of they to high. the harder this going the net haven't this raise kind everybody out again, purchase wanted primary now. quarter, the that's slow and that's right that, remember we're legitimate you but growth has money. They to wanted, say to been ] our economy, because deposits and [ of rates has again, raise seen what And growth interest that's margin want bunch at where of But

So I you a give color long wanted sorry, just it. on to answer, some I'm

NIM Just one NIM, the on the focus. given

given variable What's I Do maturing think in what when what's for yield picking billion year. over what's XX% up repricing? are loans? pickup rate. curve things you Asylbek I flows -- mentioned cash these the the $X you're next and XX% of securities current mentioned fixed that rate, equivalent think you the And number

have that to [ that, pickup So you're we -- positive going going on X.XX%. and billion now, that's we're be have net is Once our $X of toward security, to assume let's -- ]. interest reprice That's a [ around ] income. X% right we at on yield going our right, that X.XX%

flow side, loan the I billion we have think On about annually. cash $X

XX% fixed what -- billion was like than $X at I billion, So rate on was fixed the X%. on of one $X.X $X.X the that the around billion about less think

now. right get So loans on at repriced about the still lower going and variable we're XX% putting X.X% our to that's than loans they're up

there. be to is floating floating. there's So a and going pickup

benefit going that. any not get we're to on So

items push-pull income and to the net loans. of increase securities the that that would will we're continue those to that interest are kind loan variable that So combination us fixed quoting of and get

with from is question Olney The Matt next Stephens.

ask last want to of more comment borrowings. I the the along lines guess from about Asylbek. of I the kind

$X.X through bank almost that the end of there's billion term program. at funding borrowings quarter think I

we quarters, the loan expect any what for on looking in more Just color of the there over next especially absence should few growth?

and Yes. that -- we requirement think we're QX But feel getting On some think had. our in kind position cash of QX at we regulatory building and that QX, the we I last there. that position of one, more we're the I

I right but will down paying the we'll borrowings. positive. of more little NII another will down, And be of it's making definitely, NIM cut, we'll it borrowing. them pay think I on some now, So on know down the neutral, even we spread, paying but be And some the a be be if we expect

the cash be about should mentioning So paying I now getting and to [ same the the of down going essentially borrowing flow ]. portfolio from X% was that going spread that bond that, toward X.XX% the cost from -- because

million [ $XXX down, pay did what, ]? or $XXX million We

in down million the [indiscernible]. paid We [ ] $XXX

to that help interest net our X.X%. X.X% Yes, should margin as well.

toward gone It's positive Yes. that.

So our we paying are borrowing a working little. down towards

XXXX, are margin call discussed the exiting of guess, the assuming that. I And on what borrowing we commentary, I XXXX. the within year appreciate the position borrowings, as kind you in late by then the Okay. far as

I in didn't the model. have that

think Yes, the [indiscernible]. on model, the get position once I borrowing the the because paying of we're to down we

guess Is than the down paying it you more Is are million? paying what I it down more? asking? $XXX

down know $X.X $XXX borrowing. the in in pay I built and exactly, more I another than would Yes, million. don't but $X we billion. the start say, then down I paying model, know think paying billion, the down we'll I the it's cash

for we sure, that's a that big make don't sure know number. let's Well,

overnight the come down And see was next that maybe bill as the September most for Do could where just of XX? little position, $X it Or from we that saw expect as maintain over some to overnight clarify, that liquidity billion. a end far at year? Could you quarter bit we the big of liquidity? to at

We've in down. million the used to That's we already bar. the what down pay brought that $XXX

Yes.

I billion, that's we gave to range think to so going $X.X the at billion fluctuate. the $X

So billion, comfortable $X we're we're comfortable $X.X at billion. and

So in range. be based on situationally, somewhere that we'll

D.A. Winter from question The with next Peter is Davidson.

portfolio. about ask loan the wanted I to

you just you Capital where outlook First and If could terms loan on pipelines you update the inning maybe are -- an provide runoff? of are the what think you in and

some but one, might help need Capital. I that First take I'll on

to million. runoff first been has think date $XXX I capital

were assets whereas So range. Again, a extent of we've a dribs end single lower Obviously, and additional mid-single-digit nothing of thereafter, the don't of got, not. million I'd of runoff size. cuts expect for some and Capital into of There'll growth, of rates, the next that too and Lone back say year, election deep we're a not bank [ its but single like already first million election part $XXX drabs, until into right the to the down we we Star then a the going a may the ourselves capital digits the maybe after I runoff it's middle that's for the think that headwind $XXX way And rate Their let's say, acquisitions, and to fairway the and been Peter. near pro-business going quarter low be runoff. be big we've a run That the for low first into the said, First without end to think from is the digits us, year. some trail lot environment is deal. I was of ] move having runoff of off.

growth start And before estate, we're funding. this bit equity get and out positive year the of to next real zone reason year. to QX QX next comes here we the put get need going to the back I'm approved extent think their I some is we a of and delayed of deals So into in those into deals going little into

a up to single-digit than range. low putting I'm something why the that's lag X-month on So better

to think do really in And the I be that all election difference the the world. -- going that is will

this I rates not good again, that been go. could which borrowing of We your are customers a our have things to year come regulatory has environment going down, by and to bump -- think a knowing do loans affected interest lot really direction

think and that rates. interest I about think higher I hesitant they're

help things if [indiscernible], that So will two going forward. those

I if just could And follow up.

digit, are start single you talking to Just, into quarter held [ your grow Like loans mark going to for you thinking say are is low slightly Kevin, when going a fourth ]? investment quarter-to-quarter?

two say back that a XX% while kind haven't That's economy never David, and us next grower. the solid mid-single-digit would numbers, into XX% kind we in Peter, just seen of booming annualized to annualized GDP taking get a double-digit, we was of I of think as like kind plus will growth off to unless levels the XX%, quarters. would of I range, would at GDP be loan

obviously, And had deal I record there a then, deals. David, the M&A contiguous is, The creating at might maybe a into earnings a market move the doing willingness question small Versus with just you've a go and more? that to deals? looking focus, big preference to value a great is picture mean, needle on question larger track fill-in and shareholder M&A. when

on we the buying with people, that -- has that position in Texas us, a more we $X or accretion, I it bank a wouldn't $XX has take the asset that really makes whether can of on will the the billion our bank willing of on deal. assets. I depends And deal, bank somewhere say people of the are billion really issues. quality size this, bank. to it bigger anything stronger the stay is that's decision say bank inspires depends real else is, know risk a can't the do to that a it a don't have with us really decision. the and enhances The I good a that

deal the we're us. don't looking We depends maybe how that looking we mean the to do than it billion, not But have have it depends careful it's bank that down I $X worry the as a I all to where on more think and really on that. that at deals that really we're about people located, at. to that you be helps

And so that different $X down lot billion really. there's goes to bunch a know a deal, really it deal equation. a boils don't of that I things $XX either a into But or the billion

Charlotte to would the Rasche back our concludes conference question-and-answer for any turn This I to session. like remarks. closing over

on and building ladies our shareholder continue and will taking appreciate today. value. in participate of time for work your you, gentlemen, Thank our call company, to support to we the We

concluded. for The has today's you conference now Thank presentation. attending

now disconnect. may You