Prosperity Bancshares(PB) - 2024 Q1 - Quarterly Report

markdown [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Prosperity Bancshares, Inc.'s unaudited consolidated financial statements for Q1 2024, detailing balance sheets, income, and cash flows, highlighting total assets of **$38.76 billion**, net income of **$110.4 million**, and shareholders' equity of **$7.10 billion** [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets increased to **$38.76 billion** from **$38.55 billion** at year-end 2023, driven by a rise in cash and cash equivalents. Total loans saw a slight increase to **$21.27 billion**, while total deposits remained stable at **$27.18 billion**. Shareholders' equity grew to **$7.10 billion** Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Total Assets** | **$38,756,520** | **$38,547,877** | **+0.5%** | | Total Cash and Cash Equivalents | $1,086,694 | $458,413 | +137.1% | | Loans, net | $20,935,028 | $20,848,176 | +0.4% | | Total Securities | $12,301,138 | $12,803,896 | -3.9% | | Goodwill | $3,396,402 | $3,396,086 | +0.0% | | **Total Liabilities** | **$31,651,976** | **$31,468,547** | **+0.6%** | | Total Deposits | $27,175,518 | $27,179,809 | -0.0% | | Other Borrowings | $3,900,000 | $3,725,000 | +4.7% | | **Total Shareholders' Equity** | **$7,104,544** | **$7,079,330** | **+0.4%** | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) For the first quarter of 2024, net income was **$110.4 million**, a decrease from **$124.7 million** in the first quarter of 2023. The decline was primarily due to a **2.1%** drop in net interest income to **$238.2 million**, driven by higher interest expense on deposits and borrowings. Diluted earnings per share fell to **$1.18** from **$1.37** year-over-year Q1 2024 vs. Q1 2023 Income Statement (Unaudited) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Interest Income | $381,914 | $327,309 | +16.7% | | Total Interest Expense | $143,670 | $83,842 | +71.4% | | **Net Interest Income** | **$238,244** | **$243,467** | **-2.1%** | | Provision for Credit Losses | $0 | $0 | N/A | | Total Noninterest Income | $38,870 | $38,266 | +1.6% | | Total Noninterest Expense | $135,848 | $123,000 | +10.4% | | **Net Income** | **$110,426** | **$124,694** | **-11.4%** | | **Diluted EPS** | **$1.18** | **$1.37** | **-13.9%** | [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased to **$7.10 billion** at March 31, 2024, from **$7.08 billion** at December 31, 2023. The growth was driven by **$110.4 million** in net income, partially offset by **$52.4 million** in cash dividends (**$0.56** per share) and **$35.3 million** in common stock repurchases - Key activities impacting shareholders' equity in Q1 2024 included net income of **$110.4 million**, cash dividends of **$52.4 million**, and common stock repurchases totaling **$35.3 million**[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of 2024, the company experienced a net increase in cash and cash equivalents of **$628.3 million**. This was primarily driven by net cash provided by investing activities of **$405.3 million**, mainly from proceeds from securities, and net cash from operating activities of **$187.4 million**. Financing activities provided a net cash inflow of **$35.5 million** Q1 2024 Cash Flow Summary (Unaudited) | Cash Flow Category | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | | Net Cash Provided by Operating Activities | $187,400 | | Net Cash Provided by Investing Activities | $405,337 | | Net Cash Provided by Financing Activities | $35,544 | | **Net Increase in Cash and Cash Equivalents** | **$628,281** | | Cash and Cash Equivalents, Beginning of Period | $458,413 | | **Cash and Cash Equivalents, End of Period** | **$1,086,694** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies and financial statement line items, covering the securities portfolio with significant unrealized losses, loan portfolio breakdown, credit quality metrics, and details on recent acquisitions - The Held-to-Maturity securities portfolio had an amortized cost of **$12.0 billion** but a fair value of only **$10.5 billion** as of March 31, 2024, reflecting significant unrealized losses of **$1.5 billion** primarily due to changes in market interest rates[31](index=31&type=chunk) - Total nonperforming assets increased to **$83.8 million** (**0.39%** of total loans and other real estate) at March 31, 2024, up from **$72.7 million** (**0.34%**) at December 31, 2023[53](index=53&type=chunk)[55](index=55&type=chunk) - The allowance for credit losses on loans decreased to **$330.2 million** at March 31, 2024, from **$332.4 million** at year-end 2023. No provision for credit losses was recorded in Q1 2024 or Q1 2023[88](index=88&type=chunk) - The company completed the merger with First Bancshares of Texas, Inc. on May 1, 2023, and subsequently completed the merger with Lone Star State Bancshares, Inc. on April 1, 2024[144](index=144&type=chunk)[146](index=146&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2024 financial results, noting a net income decrease to **$110.4 million** due to lower net interest margin and higher noninterest expenses, while maintaining a strong capital position and pursuing strategic growth - The company's growth strategy is based on three main components: internal growth, efficient operations, and strategic acquisitions[156](index=156&type=chunk) - Net income for Q1 2024 was **$110.4 million** (**$1.18** per diluted share), down from **$124.7 million** (**$1.37** per diluted share) in Q1 2023, primarily due to decreased net interest income and increased noninterest expense[167](index=167&type=chunk) - The net interest margin on a tax-equivalent basis decreased by **14 basis points** to **2.79%** in Q1 2024 compared to **2.93%** in Q1 2023[172](index=172&type=chunk) [Results of Operations](index=54&type=section&id=MD%26A%20-%20Results%20of%20Operations) In Q1 2024, net interest income fell **2.1%** year-over-year to **$238.2 million** due to rising interest expenses. No provision for credit losses was recorded. Noninterest income saw a modest increase of **1.6%** to **$38.9 million**, while noninterest expense rose **10.4%** to **$135.8 million**, largely driven by costs associated with the FB Merger. The effective tax rate was **21.8%** Change in Net Interest Income (Q1 2024 vs Q1 2023) | Component | Change due to Volume (in thousands) | Change due to Rate (in thousands) | Total Change (in thousands) | | :--- | :--- | :--- | :--- | | **Increase in Interest Income** | **$21,547** | **$33,058** | **$54,605** | | **Increase in Interest Expense** | **$17,144** | **$42,684** | **$59,828** | | **Decrease in Net Interest Income** | **$4,403** | **$(9,626)** | **$(5,223)** | - There was no provision for credit losses for the three months ended March 31, 2024 and 2023[180](index=180&type=chunk) - Noninterest expense increased by **$12.8 million** (**10.4%**) YoY, primarily due to increases in salaries, benefits, and data processing costs related to the FB Merger[185](index=185&type=chunk) [Financial Condition](index=60&type=section&id=MD%26A%20-%20Financial%20Condition) As of March 31, 2024, the company's financial condition remained strong. Total loans increased slightly to **$21.27 billion**. Nonperforming assets rose to **$83.8 million** from **$72.7 million** at year-end 2023. The allowance for credit losses stood at **$330.2 million**, or **1.55%** of total loans. Deposits were stable at **$27.18 billion**. The company maintained a well-capitalized position with a CET1 ratio of **15.75%** - Total loans increased by **$84.7 million** (**0.4%**) to **$21.27 billion** at March 31, 2024, compared to December 31, 2023[193](index=193&type=chunk) - Nonperforming assets increased by **$11.1 million** to **$83.8 million** at March 31, 2024, with the majority of the balance attributable to acquired loans[207](index=207&type=chunk) - The allowance for credit losses on loans as a percentage of total nonperforming loans was **405.1%** at March 31, 2024[209](index=209&type=chunk) - The company participated in the Federal Reserve's Bank Term Funding Program (BTFP), with an outstanding balance of **$3.90 billion** as of March 31, 2024[242](index=242&type=chunk) - The company and its bank subsidiary remained well-capitalized, with a CET1 capital ratio of **15.75%** and a Tier 1 leverage ratio of **10.37%** for the holding company as of March 31, 2024[263](index=263&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=82&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages market risk, primarily interest rate risk, with no material changes reported from the 2023 Annual Report on Form 10-K - There have been no material changes in the Company's market risk exposures from those disclosed in the 2023 Form 10-K[266](index=266&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[267](index=267&type=chunk) - There were no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[268](index=268&type=chunk) [PART II—OTHER INFORMATION](index=83&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal actions, with management expecting no material adverse effect on financial statements from ultimate liabilities - The company states that any potential liability from ongoing legal actions is not expected to have a material adverse effect on its financial statements[270](index=270&type=chunk) [Risk Factors](index=83&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported compared to the company's 2023 Annual Report on Form 10-K - No material changes in risk factors were reported compared to the 2023 Annual Report on Form 10-K[271](index=271&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2024, the company repurchased **567,692** common shares at a weighted average price of **$62.12**, as part of a plan to repurchase up to **4.7 million** shares expiring in January 2025 Q1 2024 Share Repurchases | Period | Total Shares Purchased | Weighted Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | — | $ — | | February 2024 | 567,692 | $62.12 | | March 2024 | — | $ — | | **Total Q1 2024** | **567,692** | **$62.12** | - As of March 31, 2024, **4,137,070** shares remained available for repurchase under the current plan[272](index=272&type=chunk) [Other Information](index=83&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement for the company's common stock during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2024[275](index=275&type=chunk) [Exhibits](index=84&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL documents