PROSPERITY BANCSHARES INC Q3 FY2024 earnings call

• Dividend increase: Board approved increasing fourth quarter 2024 dividend to $0.58 per share from $0.56. Compound annual growth rate of dividends from 2003 to 2024 is 11%.
• Financial metrics: Net income per diluted common share was $1.34, up 11.7% from Q3 2023. Net interest margin improved to 2.95%.
• Loans and deposits: Loans increased $948 million; deposits increased $774 million. Core deposits stabilizing after 2023 bank failures, and no broker deposits purchased.
• Non-performing assets: Non-performing assets at $89.9 million, with significant portion from acquired loans. Net charge-offs for nine months ended September 30, 2024 were $12 million, down from $18.9 million in 2023.
• M&A: Continuing to have conversations with other bankers considering strategic opportunities, expecting consolidation due to factors like technology costs, funding costs, etc.

For the third quarter ended September 30, 2024, Prosperity Bancshares reported net income of $127 million, up from $112 million in the same period of 2023. The net interest margin on a tax equivalent basis was 2.95%, an improvement from 2.72% in Q3 2023. Loans were $22.3 billion at September 30, 2024, an increase of $948 million from Q3 2023. Deposits were $28 billion, up $774 million from Q3 2023. Non-performing assets totaled $89.9 million, and the allowance for credit losses on loans and off-balance sheet credit exposure was $392 million. The return on tangible equity was 13.5% and return on assets was 1.28% for the quarter.

• NIM outlook: Expect to exit 2024 with NIM at 3%; for 12 months ending 2025, model shows average 3.27%; 2026 model projects 3.65%.
• Non-interest expense: For fourth quarter 2024, expected to be in range of $141 million to $143 million.

• Interest rate impact: Rapid or slow rate changes could affect NIM projections.
• Deposit cost: Repricing of CDs and deposits could impact deposit costs and net interest margin.
• M&A execution: Risks associated with integrating acquired banks, including potential issues with acquired loans not meeting standards.

Q: How do you feel about the NIM guidepost previously given?

A: Sticking with the view to exit 2024 with NIM at 3%; if rates stay, will exit at 3%; if rates go down, may need to adjust, but still plan to exit 2024 at 3% NIM, and 2025 model shows average 3.27% with positive outlook.

Q: Commentary on deposit cost and NIM lift?

A: Gut feeling on deposit cost repricing; focus on net interest margin; for every 100 basis points down, beta is 22 basis points; CDs with 75% maturing in six months and 91% in a year, expecting deposit costs to go down next quarter.

Q: Outlook on M&A and loan growth?

A: Focus on net interest margin currently; M&A considered if it's a good deal for growth and accretion; loan growth affected by First Capital runoff, expecting low single-digit growth in next two quarters and mid-single digits thereafter depending on economic and regulatory environment.