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PB

PROSPERITY BANCSHARES INC (PB)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 EPS of $1.37, up 16.1% y/y; net income $130.2M; net interest margin (NIM) rose to 3.14% (+35 bps y/y); efficiency ratio improved to 45.71% .
  • Versus consensus: EPS beat by ~$0.02 ($1.37 vs $1.354*) while revenue was modestly below ($306.7M vs $307.9M*); management reaffirmed 2025 average NIM of 3.25%–3.30% . Values retrieved from S&P Global.
  • Balance sheet catalysts: borrowings cut by $500M in Q1 to $2.7B; period-end tangible equity/tangible assets strengthened to 11.23%, supporting optionality for M&A and opportunistic buybacks .
  • Asset quality stable: NPAs at 0.24% of average interest-earning assets; allowance for credit losses (ACL) $386.7M with no provision in Q1 .
  • Management tone: constructive on NIM expansion via asset repricing and deposit cost discipline; cautious near term on loan growth, but optimistic across Texas/Oklahoma footprint .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin expanded to 3.14%, with management expecting continued improvement “as our assets reprice higher…over the next several years” .
  • Core funding strength: noninterest-bearing deposits were 34.5% of total; cost of funds at 1.66% aided margin tailwinds .
  • Operating efficiency improved: efficiency ratio of 45.71% (ex gains/losses) vs 49.07% a year ago; ROA of 1.34% and ROATCE of 13.23% .
  • Quote: “Prosperity continues to focus on long term relationships…maintaining strong asset quality, solid earnings and a fair return to shareholders” — David Zalman .

What Went Wrong

  • Loans declined linked-quarter by $171.6M and deposits fell $354.5M, primarily seasonal (municipal outflows) while organic loan demand remains sluggish .
  • Noninterest expense rose 3.3% y/y on salaries/benefits post-merger, even though it fell slightly q/q .
  • Mortgage warehouse balances are rate-sensitive; while Q2 typically seasonal strength, management flagged potential pressure if rates remain elevated .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$277.1*$307.6*$306.7*
Diluted EPS ($)$1.18 $1.37 $1.37
Net Income ($USD Millions)$110.4 $130.1 $130.2
Net Interest Margin % (tax equivalent)2.79% 3.05% 3.14%
Efficiency Ratio % (ex gains/losses)49.07% 46.10% 45.71%
ROA % (annualized)1.13% 1.31% 1.34%

Note: Values marked with * retrieved from S&P Global.

Q1 2025 Actual vs ConsensusEPS ($)Revenue ($USD Millions)
Actual1.37 306.7*
Consensus Mean1.354*307.9*
Surprise+$0.02 (beat)-$1.2M (miss)

Note: Values marked with * retrieved from S&P Global.

Segment and portfolio composition (period-end):

Loan Category ($USD Millions, % of loans)Q1 2024Q4 2024Q1 2025
1–4 Family Residential$7,331.3 (34.5%) $7,581.5 (34.2%) $7,576.4 (34.5%)
Commercial Real Estate (incl. Multi-family)$5,631.5 (26.5%) $5,801.0 (26.2%) $5,783.4 (26.3%)
Construction/Land/Other Land$2,876.6 (13.5%) $2,859.3 (12.9%) $2,845.1 (13.0%)
Commercial & Industrial$1,932.5 (9.1%) $1,962.1 (8.8%) $1,915.1 (8.7%)
Warehouse Purchase Program$864.9 (4.1%) $1,080.9 (4.9%) $1,057.9 (4.8%)
Total Loans$21,265.2 $22,149.2 $21,977.6

Key KPIs:

KPIQ1 2024Q4 2024Q1 2025
Total Deposits ($B)$27.18 $28.38 $28.03
Noninterest-bearing share (%)35.1% 34.5% 34.5%
Loan-to-Deposit Ratio (%)78.3% 78.0% 78.4%
Borrowings ($B)$3.90 $3.20 $2.70
Cost of Funds (%)1.83% 1.80% 1.66%
NPAs / Avg Interest-Earning Assets (%)0.24% 0.23% 0.24%
ACL on Loans ($M)$330.2 $351.8 $349.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (avg)FY 20253.25%–3.30% (Q4’24 call) 3.25%–3.30% (reaffirmed) Maintained
Noninterest ExpenseQ1 2025 → Q2 2025$141–$143M for Q1’25 $141–$144M for Q2’25 Maintained (similar range)
Fair Value Loan IncomeQ1 2025 → Q2 2025$2–$3M for Q1’25 $2–$3M for Q2’25 Maintained
Borrowings2025Plan to reduce; model toward ~$2.0B by year-end (discussion) Additional ~$200M reduction possible; normalize with leverage retained Lowered (extent moderated)
Mortgage Warehouse Avg BalanceQ1 → Q2 2025Q1 guide: ~$0.825–$0.85B Q2 guide: ~$1.05–$1.10B Raised
Deposit Costs2025Downward trajectory via CD repricing Room to cut select products; overall still favorable Maintained (directional)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24, Q4’24)Current Period (Q1’25)Trend
NIM trajectoryGuide to avg 3.27% in 2025; exit higher Reaffirm avg 3.25%–3.30%; expansion via repricing Improving, consistent
Loan growth outlookLow single-digit near term; mid-single-digit later Low single-digit for 2025; pipelines improving, still sluggish Cautiously improving
Mortgage warehouseStrong Q3, seasonal weakness Q4/Q1 Q2 guide higher ($1.05–$1.10B) but rate-sensitive Seasonal uptick; rate-dependent
M&A appetiteSellers more open post-election Active dialogues; optionality via capital; timing sensitive Building
Deposit costsExpected declines via short-duration CDs Further reduction potential if rates cut; discipline maintained Downward bias
Securities reinvestmentPurchased ~$150M at ~5.05% Replacing ~2% MBS with ~5.25%–5.5%, duration ~4–5 Accretive reinvestment

Management Commentary

  • Strategic focus: “Prosperity continues to focus on long term relationships…while maintaining strong asset quality, solid earnings and a fair return to shareholders” — David Zalman .
  • Margin outlook: “Our net interest margin continues to increase as our assets reprice higher. We expect this trend to continue over the next several years” — David Zalman .
  • Capital and buybacks: “If there is another downturn, we will be back in the stock…We do have plans to use [capital] for M&A” — David Zalman .
  • Deposit cost stance: “We didn’t go up as much as everybody else…there’s opportunity to cut some of those rates” — Management Q&A .
  • Asset quality: “We’re already reserved for a recession…unless the economy really gets worse…we don’t think we’ll be putting much of a reserve” — Management Q&A .

Q&A Highlights

  • Loan growth expectations: Management kept low single-digit growth for 2025; runoff from prior acquisitions largely complete; early-quarter loan pipelines modestly up, sentiment across markets optimistic but cautious .
  • Balance sheet and borrowings: Borrowings reduced to ~$2.7B; potential further ~$200M reduction, but bank expects normal leverage of “a couple of billion” given bond cash flows .
  • Buybacks vs M&A: Would have bought during recent stock weakness; currently prioritizing M&A while staying opportunistic on buybacks during downturns .
  • NIM guidance: Reaffirmed 2025 average NIM 3.25%–3.30% driven by repricing of loans and securities; deposit costs can still trend lower via CD repricing .
  • Mortgage warehouse: Q2 guide to ~$1.05–$1.10B; added new clients; rate trajectory remains the key swing factor into late Q2/Q3 .

Estimates Context

  • Q1 2025: EPS $1.37 vs consensus $1.354* (beat); revenue $306.7M vs $307.9M* (slight miss). FY 2025 EPS consensus ~$5.67*; FY 2025 revenue consensus ~$1.253B*.
  • Q4 2024: EPS $1.37 vs consensus $1.335* (beat); revenue $307.6M vs $303.4M* (beat). Values retrieved from S&P Global.

Key Takeaways for Investors

  • Margin expansion remains the core earnings driver: continued loan/security repricing and deposit cost management support NIM trajectory within the 3.25%–3.30% 2025 guide .
  • Near-term trading: EPS beat but slight revenue miss; watch the cadence of deposit cost reductions and the pace of bond cash flows reinvested at ~5.25%–5.5% as quarter progresses .
  • Balance sheet optionality: leverage reduction ($500M cut in Q1) and 11.23% tangible equity/tangible assets give flexibility for M&A and tactical buybacks on weakness .
  • Loan growth likely modest in H1; pipelines improving: management guides low single-digit for 2025, with optimism tempered by macro/tariff uncertainty .
  • Mortgage warehouse can provide incremental NII in Q2: guide to ~$1.05–$1.10B average, but remain vigilant on rate sensitivity into late Q2/Q3 .
  • Asset quality solid and well-reserved: NPAs stable at 0.24%; ACL robust, with no provision needed in Q1; coverage to NPA >4x by management’s framing .
  • Dividend continuity: declared $0.58/share for Q2 2025; supports an income component while NIM expansion plays out .
Estimates note: Values marked with * retrieved from S&P Global.