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Prosperity Bancshares(PB) - 2024 Q4 - Earnings Call Transcript
PBProsperity Bancshares(PB)2024-01-24 21:41
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Financial Data and Key Metrics - Net income for Q4 2023 was 95million,or95 million, or 1.02 per diluted share, compared to 112million,or112 million, or 1.20 per diluted share, in Q3 2023, impacted by a one-time FDIC special assessment of 19.9millionandmerger−relatedexpenses[192]−ExcludingtheFDICspecialassessmentandmerger−relatedexpenses,netincomewas19.9 million and merger-related expenses [192] - Excluding the FDIC special assessment and merger-related expenses, net income was 111 million, or 1.19perdilutedshare[192]−Annualizedreturnonaverageassets,averagecommonequity,andaveragetangiblecommonequity(excludingone−timeitems)were1.151.19 per diluted share [192] - Annualized return on average assets, average common equity, and average tangible common equity (excluding one-time items) were 1.15%, 6.29%, and 12.3%, respectively [195] - Net interest margin (NIM) was 2.75% in Q4 2023, up from 2.72% in Q3 2023, but down from 3.05% in Q4 2022 [55] - Unrealized losses on the held-to-maturity bond book decreased from 1.6 billion to 1.1billionnetoftaxinQ42023[19]BusinessLineDataandKeyMetrics−Loansdecreasedby1.1 billion net of tax in Q4 2023 [19] Business Line Data and Key Metrics - Loans decreased by 252 million (1.2%) to 21.2billioninQ42023comparedtoQ32023,butincreasedby21.2 billion in Q4 2023 compared to Q3 2023, but increased by 2.3 billion (12.4%) year-over-year [181] - Non-performing assets (NPAs) increased to 72.7millioninQ42023,upfrom72.7 million in Q4 2023, up from 69.5 million in Q3 2023, primarily due to the First Bancshares merger [50] - Net charge-offs increased to 19.1millioninQ42023,upfrom19.1 million in Q4 2023, up from 3.4 million in Q3 2023, largely due to the FirstCapital Bank merger [61] - The allowance for credit losses was 369million,covering5.1xnon−performingloans[43]MarketDataandKeyMetrics−Depositsdecreasedby369 million, covering 5.1x non-performing loans [43] Market Data and Key Metrics - Deposits decreased by 133 million (0.5%) to 27.2billioninQ42023comparedtoQ32023,andby27.2 billion in Q4 2023 compared to Q3 2023, and by 1.4 billion (4.7%) year-over-year [45] - Non-interest-bearing deposits accounted for 36% of total deposits, with certificates of deposit representing only 13% [193] - The loan-to-deposit ratio was 62%-65%, well below the policy limit of 85% [10] Company Strategy and Industry Competition - The company is focused on maintaining liquidity and core deposits, avoiding broker deposits, and growing loans and deposits in tandem [12] - The company expects loan growth to be back-end loaded in 2024, with a target of 3%-5% growth, driven by repricing of fixed-rate loans and new loan production [135] - The company is optimistic about M&A opportunities, particularly in Texas and Oklahoma, and is awaiting regulatory approval for the Lone Star State Bancshares acquisition [51][93] - The company is positioned to benefit from asset repricing, with 2.1billioninbondcashflowsexpectedtobereinvestedathigherrates,enhancingNIMandnetinterestincome(NII)[13][167]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−ManagementexpectsNIMtoexpandtohistoricallynormallevelsoverthenext24months,withatargetof3.302.1 billion in bond cash flows expected to be reinvested at higher rates, enhancing NIM and net interest income (NII) [13][167] Management Commentary on Operating Environment and Future Outlook - Management expects NIM to expand to historically normal levels over the next 24 months, with a target of 3.30%-3.40%, driven by loan repricing and reduced borrowing costs [68][69] - The company anticipates deposit growth of 2% in 2024, with potential for higher growth if rates decline and customers return funds to non-interest-bearing accounts [73][177] - Management is cautious about the pace of rate cuts, expecting fewer cuts than the market anticipates, but believes the company is well-positioned to benefit from either rate increases or decreases [111][125] Other Important Information - The company has a strong capital position, with a CET1 ratio of 10%, and is focused on increasing dividends and pursuing M&A opportunities rather than aggressive share buybacks [28][173] - The company is monitoring regulatory proposals on interchange and overdraft fees, which could impact service charge income if implemented [101][105] Q&A Session Summary Question: Outlook for NIM and NII in 2024 - The company expects NIM to expand to 2.96% in 6 months and 3.14% in 12 months, driven by loan repricing and reduced borrowing costs [69][70] - The company is not assuming significant rate cuts in its model but believes NIM will still expand even if rates decline [70][125] Question: Deposit Growth and Repricing - The company expects deposit growth of 2% in 2024, with potential for higher growth if rates decline [73][177] - The company has 3.5 billion in CDs maturing within 12 months, which can be repriced quickly if rates decline [88] Question: Loan Growth and Prepayment Activity - The company expects 3%-5% loan growth in 2024, with potential for higher growth if the economy rebounds [135] - Prepayment activity has slowed, with fewer payoffs in Q4 2023 compared to Q3 2023 [111] Question: M&A Strategy and Lone Star Deal - The company is awaiting regulatory approval for the Lone Star State Bancshares acquisition and remains interested in M&A opportunities, particularly in Texas and Oklahoma [51][93] - The company is focused on acquiring banks with strong core deposits and good management teams [170] Question: Impact of Rate Cuts on NIM - The company believes its balance sheet is neutrally positioned, with NIM expected to expand even if rates decline [123][125] - The company expects to benefit from reduced borrowing costs if rates decline, offsetting any impact on loan yields [122][124]