Prosperity Bancshares (PB) Rides on Buyouts Amid Strain on NIM

Core Viewpoint - Prosperity Bancshares, Inc. (PB) is positioned for growth through strategic acquisitions, strong loan and deposit performance, and efforts to enhance fee income, although challenges such as pressure on net interest margin (NIM) and weak mortgage income persist [1][5]. Group 1: Growth Strategy - PB's organic growth strategy shows promise, with a 7.9% compound annual growth rate (CAGR) in net revenues over the last four years ending in 2023, despite a dip in 2021, 2023, and Q1 2024 [2]. - The company aims to improve its deposit mix, with non-interest-bearing deposits comprising 35.1% of total deposits as of March 31, 2024 [2]. - Total revenues are projected to grow at a CAGR of 10.1% by 2026, with total loans expected to increase by 3.5% in 2024 [2]. Group 2: Acquisitions - Acquisitions are crucial for PB's expansion, having completed over 30 deals since 1998, including the recent acquisition of Lone Star State Bancshares in April 2024 and First Bancshares of Texas in the previous year [3]. - These acquisitions are anticipated to be accretive to earnings, and management is actively pursuing further opportunities for inorganic growth due to a strong balance sheet [3]. Group 3: Financial Position - As of March 31, 2024, PB's other borrowings stood at $3.9 billion, with cash and due from banks at $1.1 billion, indicating a focus on debt repayment initiatives [4]. - The company is expected to manage its debt obligations effectively, even in the face of potential economic downturns, supported by decent earnings strength [4]. Group 4: Margin and Mortgage Income Concerns - PB's NIM decreased to 2.78% in 2023 from 3% in 2022, with continued pressure expected in Q1 2024 due to a liability-sensitive balance sheet [5]. - The company faces uncertainty in its mortgage banking business, with high mortgage rates negatively impacting origination volumes and refinancing activities, leading to a decline in mortgage income in 2021 and 2022 [6]. - Although mortgage income is projected to rise to $3.1 million in 2024 (a 34.2% increase), it is unlikely to return to 2020 and 2021 levels in the near term [6].