Prosperity Bancshares(US:PB)2024-04-24 10:30markdown [Press Release and Earnings Summary](index=1&type=section&id=Press%20Release) [First Quarter 2024 Highlights](index=1&type=section&id=First%20Quarter%202024%20Highlights) Prosperity Bancshares reported a net income of **$110.4 million**, or **$1.18 per diluted common share**, for the first quarter of 2024, a decrease from **$124.7 million**, or **$1.37 per share**, in Q1 2023, with key activities including loan and deposit growth, a net interest margin increase to **2.79%**, low nonperforming assets, share repurchases, and the completion of the Lone Star State Bancshares merger Metric | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $110.4 million | $124.7 million | | Diluted EPS | $1.18 | $1.37 | - Loans, excluding Warehouse Purchase Program and certain acquired loans, grew by **$115.8 million**, or **2.4% annualized**, during Q1 2024[5](index=5&type=chunk) - Deposits, excluding public funds, increased by **$109.8 million** in Q1 2024, with no brokered deposits purchased, and noninterest-bearing deposits constituted **35.1% of total deposits**[5](index=5&type=chunk) - The company repurchased **567,692 shares** of its common stock during the first quarter[5](index=5&type=chunk) - The merger with Lone Star State Bancshares, Inc. was completed on April 1, 2024[5](index=5&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management expressed excitement about the completed merger with Lone Star State Bancshares, highlighting its strategic importance, and emphasized the strength of the Texas economy and its positive outlook for job growth, reiterating focus on long-term customer relationships, strong asset quality, and delivering shareholder returns through dividends and share repurchases, noting a total capital return of **$278 million** in 2023 - The merger with Lone Star State Bancshares was completed on April 1, 2024, with operational integration scheduled for late October 2024[3](index=3&type=chunk) - Management highlighted the strength of the Texas economy, noting it is the world's eighth-largest and the top state for Fortune 500 headquarters[4](index=4&type=chunk) - The company maintains a strong tangible equity to tangible assets ratio of **10.33%** for Q1 2024 while actively returning capital to shareholders[7](index=7&type=chunk) - In 2023, total capital returned to shareholders through dividends and share repurchases amounted to **$278 million**[7](index=7&type=chunk) [Financial Performance](index=3&type=section&id=Financial%20Performance) [Results of Operations](index=3&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024) For Q1 2024, net income was **$110.4 million**, an increase from Q4 2023 due to higher interest income and lower FDIC assessments, but a decrease from Q1 2023 primarily due to lower net interest income and higher noninterest expenses related to the FB Merger, with net interest income before provision for credit losses at **$238.2 million**, a net interest margin improvement by **4 basis points** sequentially to **2.79%**, increased noninterest income to **$38.9 million**, and noninterest expense decreasing from the prior quarter to **$135.8 million** Metric | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income | $110.4 million | $95.5 million | $124.7 million | | Diluted EPS | $1.18 | $1.02 | $1.37 | - Net interest income before provision for credit losses was **$238.2 million**, a **0.5% increase** from Q4 2023 and a **2.1% decrease** from Q1 2023[9](index=9&type=chunk) - The tax-equivalent net interest margin was **2.79%** in Q1 2024, up from **2.75%** in Q4 2023 but down from **2.93%** in Q1 2023[10](index=10&type=chunk) - Noninterest expense decreased **10.7%** from Q4 2023 to **$135.8 million**, mainly due to lower FDIC assessments, and increased **10.4%** from Q1 2023, driven by higher salaries and merger-related operating costs[12](index=12&type=chunk) [Balance Sheet Information](index=3&type=section&id=Balance%20Sheet%20Information) As of March 31, 2024, total assets stood at **$38.757 billion**, a **2.5% increase** year-over-year, total loans reached **$21.265 billion**, up **10.0%** from the prior year with organic growth of **3.0%** excluding warehouse and acquired loans, and total deposits were stable at **$27.176 billion**, with the report providing a detailed breakdown of loans and deposits showing the impact of the First Bancshares of Texas (FB Merger) acquisition Balance Sheet Item | Balance Sheet Item | March 31, 2024 | March 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Assets | $38.757 billion | $37.829 billion | +2.5% | | Total Loans | $21.265 billion | $19.334 billion | +10.0% | | Total Deposits | $27.176 billion | $27.004 billion | +0.6% | - Excluding Warehouse Purchase Program loans and loans from the FB Merger, core loans grew **$115.8 million** or **2.4% annualized** compared to December 31, 2023[18](index=18&type=chunk) - Deposits from the FirstCapital Bank acquisition (FB Merger) totaled **$1.449 billion** as of March 31, 2024[18](index=18&type=chunk) [Asset Quality](index=4&type=section&id=Asset%20Quality) Asset quality remains strong with nonperforming assets at a low **0.24% of quarterly average interest-earning assets** as of March 31, 2024, a slight increase from the previous quarter but up from **0.07%** a year ago, with the allowance for credit losses on loans at **$330.2 million**, or **1.55% of total loans**, and net charge-offs of **$2.1 million** for the quarter, a significant decrease from the **$19.1 million** in Q4 2023 - Nonperforming assets totaled **$83.8 million**, or **0.24% of quarterly average interest-earning assets**, at March 31, 2024, compared to **$72.7 million (0.21%)** at December 31, 2023 and **$24.5 million (0.07%)** at March 31, 2023[20](index=20&type=chunk) Allowance for Credit Losses | Allowance for Credit Losses | March 31, 2024 | Dec 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | On Loans & Off-Balance Sheet | $366.7 million | $368.9 million | $312.1 million | | On Loans to Total Loans | 1.55% | 1.57% | 1.46% | | On Loans to Total Loans (Ex-Warehouse) | 1.62% | 1.63% | 1.52% | - Net charge-offs for Q1 2024 were **$2.1 million**, compared to **$19.1 million** in Q4 2023 and net recoveries of **$615 thousand** in Q1 2023[23](index=23&type=chunk) [Capital Management and Corporate Actions](index=6&type=section&id=Capital%20Management%20and%20Corporate%20Actions) [Dividend](index=6&type=section&id=Dividend) The company announced a cash dividend for the second quarter of 2024, maintaining its commitment to providing returns to shareholders - Prosperity Bancshares declared a second quarter 2024 cash dividend of **$0.56 per share**, payable on July 1, 2024, to shareholders of record as of June 14, 2024[25](index=25&type=chunk) [Stock Repurchase Program](index=6&type=section&id=Stock%20Repurchase%20Program) Prosperity continued to execute its stock repurchase program in the first quarter of 2024, buying back a portion of its outstanding common stock - Under its 2024 stock repurchase program, the company repurchased **567,692 shares** of common stock at an average price of **$62.12 per share** during Q1 2024[26](index=26&type=chunk) [Merger Activity](index=6&type=section&id=Merger%20Activity) The company completed its merger with Lone Star State Bancshares, Inc. on April 1, 2024, expanding its presence in West Texas, following the successful merger and integration of First Bancshares of Texas, Inc. in 2023 - On April 1, 2024, Prosperity completed the merger of Lone Star State Bancshares, Inc., which as of March 31, 2024, had total assets of **$1.384 billion**, loans of **$1.075 billion**, and deposits of **$1.241 billion**[27](index=27&type=chunk) - The Lone Star transaction involved issuing **2,376,182 shares** of Prosperity common stock and approximately **$64.1 million in cash**[28](index=28&type=chunk) - The merger with First Bancshares of Texas, Inc. was completed on May 1, 2023, adding **16 banking offices** and resulting in goodwill of **$164.8 million**[29](index=29&type=chunk)[30](index=30&type=chunk) [Financial Highlights (Tables)](index=13&type=section&id=Financial%20Highlights%20%28Tables%29) [Consolidated Financial Statements](index=13&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements provide a detailed five-quarter view of the company's balance sheet and income statement, with total assets at **$38.76 billion**, total loans at **$21.27 billion**, total deposits at **$27.18 billion**, total interest income at **$381.9 million**, and net income at **$110.4 million** for Q1 2024 Selected Balance Sheet Data (at period end, in thousands) | | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | :--- | | Total loans | $21,265,247 | $21,180,538 | $19,334,359 | | Total assets | $38,756,520 | $38,547,877 | $37,829,232 | | Total deposits | $27,175,518 | $27,179,809 | $27,004,236 | | Shareholders' equity | $7,104,544 | $7,079,330 | $6,739,117 | Selected Income Statement Data (for three months ended, in thousands) | | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | :--- | | Net interest income | $238,244 | $236,983 | $243,467 | | Total noninterest income | $38,870 | $36,568 | $38,266 | | Total noninterest expense | $135,848 | $152,171 | $123,000 | | Net income | $110,426 | $95,476 | $124,694 | [Key Performance and Capital Ratios](index=16&type=section&id=Key%20Performance%20and%20Capital%20Ratios) This section outlines key profitability, liquidity, and capital adequacy metrics, with Q1 2024 annualized return on average assets at **1.13%**, return on average tangible common equity at **12.06%**, efficiency ratio at **49.07%**, and strong capital levels including a Common Equity Tier 1 capital ratio of **15.78%** and a tangible equity to tangible assets ratio of **10.33%** Profitability Ratios (Q1 2024) | Metric | Value | | :--- | :--- | | Diluted earnings per share | $1.18 | | Return on average assets (annualized) | 1.13% | | Return on average tangible common equity (annualized) | 12.06% | | Tax equivalent net interest margin | 2.79% | | Efficiency ratio | 49.07% | Capital Ratios (at March 31, 2024) | Ratio | Value | | :--- | :--- | | Common equity tier 1 capital | 15.78% | | Tier 1 risk-based capital | 15.78% | | Total risk-based capital | 17.08% | | Tier 1 leverage capital | 10.37% | | Tangible equity to tangible assets | 10.33% | [Yield Analysis and Trends](index=17&type=section&id=Yield%20Analysis%20and%20Trends) The yield analysis shows a rising trend in asset yields and liability costs, with Q1 2024 yield on total interest-earning assets at **4.45%**, up from **4.35%** in the prior quarter and **3.92%** in the prior year, and the cost of total interest-bearing liabilities at **2.62%**, up from **2.58%** sequentially and **1.63%** year-over-year, resulting in a tax-equivalent net interest margin of **2.79%** for the quarter Yield/Rate Comparison (Annualized) | | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Yield on Total Loans | 5.83% | 5.75% | 5.29% | | Yield on Total Interest-Earning Assets | 4.45% | 4.35% | 3.92% | | Cost of Total Interest-Bearing Liabilities | 2.62% | 2.58% | 1.63% | | Net Interest Margin (Tax Equivalent) | 2.79% | 2.75% | 2.93% | [Loan and Deposit Composition](index=20&type=section&id=Loan%20and%20Deposit%20Composition) As of March 31, 2024, the loan portfolio of **$21.3 billion** was well-diversified, with significant concentrations in 1-4 family residential (**34.5%**) and commercial real estate (**26.5%**), and the deposit base of **$27.2 billion** was led by noninterest-bearing demand deposits, which comprised **35.1% of the total**, with a loan-to-deposit ratio of **78.3%** Loan Portfolio Composition (March 31, 2024) | Loan Type | Percentage | | :--- | :--- | | 1-4 family residential | 34.5% | | Commercial real estate | 26.5% | | Construction, land development | 13.5% | | Commercial and industrial | 9.1% | | Other | 16.4% | Deposit Composition (March 31, 2024) | Deposit Type | Percentage | | :--- | :--- | | Noninterest-bearing DDA | 35.1% | | Money market | 22.6% | | Interest-bearing DDA | 17.9% | | Certificates and other time deposits | 14.0% | | Savings | 10.4% | [Detailed Asset Quality and Loan Analysis](index=21&type=section&id=Detailed%20Asset%20Quality%20and%20Loan%20Analysis) This section provides a granular breakdown of specific loan portfolios and asset quality metrics, with total nonperforming assets at **$83.8 million**, largest portions in 1-4 family residential and commercial real estate, construction loans totaling **$2.88 billion**, and non-owner occupied commercial real estate exposure highest in the Houston and Dallas MSAs, along with details on acquired loan portfolios from past mergers Nonperforming Assets by Category (March 31, 2024) | Category | Amount (in thousands) | | :--- | :--- | | 1-4 family residential (includes home equity) | $30,206 | | Commercial real estate | $23,720 | | Construction, land development | $15,826 | | Commercial and industrial | $10,199 | | Other | $3,860 | - Non-owner occupied commercial real estate loans totaled **$3.65 billion**, with the largest concentrations in Houston (**$1.10 billion**) and Dallas (**$0.91 billion**)[69](index=69&type=chunk) - The total balance of acquired loan portfolios from various past mergers stood at **$2.17 billion** as of March 31, 2024[70](index=70&type=chunk) [Notes to Selected Financial Data](index=23&type=section&id=Notes%20to%20Selected%20Financial%20Data) [Reconciliation of Non-GAAP Financial Measures](index=23&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides reconciliations of non-GAAP financial measures to their nearest GAAP equivalents, which management uses for internal planning and to provide investors with a clearer view of core operating performance by excluding items such as merger-related expenses and the one-time FDIC special assessment, with key reconciled metrics including tangible book value per share, adjusted earnings per share, adjusted returns on assets and equity, and an adjusted efficiency ratio - Management uses non-GAAP measures to evaluate performance, excluding items like merger-related expenses, merger-related provision for credit losses, and the FDIC special assessment to better reflect core operating earnings[76](index=76&type=chunk) Tangible Book Value Per Share Reconciliation (Mar 31, 2024) | | Amount (in thousands) | | :--- | :--- | | Shareholders' equity (GAAP) | $7,104,544 | | Less: Goodwill and other intangible assets | ($3,457,159) | | Tangible shareholders' equity (Non-GAAP) | $3,647,385 | | **Tangible book value per share (Non-GAAP)** | **$39.00** | Adjusted Efficiency Ratio Reconciliation (Q1 2024 vs Q4 2023) | | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Efficiency Ratio (GAAP) | 49.07% | 55.61% | | Adjusted Efficiency Ratio (Non-GAAP) | 49.07% | 48.23% | [Company Information and Forward-Looking Statements](index=8&type=section&id=Company%20Information%20and%20Forward-Looking%20Statements) [About Prosperity Bancshares, Inc.](index=8&type=section&id=About%20Prosperity%20Bancshares%2C%20Inc.) Prosperity Bancshares, Inc. is a **$38.757 billion** Houston-based regional financial holding company with a strong presence throughout Texas and Oklahoma, operating **288 full-service banking locations** as of March 31, 2024, and following a community banking philosophy since its founding in 1983, offering a wide range of personal and business banking services - As of March 31, 2024, Prosperity Bancshares is a **$38.757 billion** Houston-based regional financial holding company[35](index=35&type=chunk) - The company operates **288 full-service banking locations** across Texas and Oklahoma, serving consumers and businesses with a community banking approach[35](index=35&type=chunk)[36](index=36&type=chunk) [Cautionary Notes on Forward-Looking Statements](index=8&type=section&id=Cautionary%20Notes%20on%20Forward-Looking%20Statements) This report includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, which are not historical facts but are based on current expectations and subject to various risks and uncertainties, with the company cautioning that these statements are not guarantees of future performance and disclaiming any obligation to update them - The report contains forward-looking statements that involve inherent uncertainties and risks, including the ability to integrate acquisitions, sustain growth, and navigate economic conditions[37](index=37&type=chunk) - The company disclaims any obligation to update forward-looking statements to reflect future events or developments, with further details on risks available in the company's SEC filings[37](index=37&type=chunk)[38](index=38&type=chunk)