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PB

PROSPERITY BANCSHARES INC (PB)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered steady core performance: diluted EPS $1.45 (+8.2% YoY; +2% QoQ) and revenue (total income ex-gains) $314.7M (+2% QoQ), with net interest margin rising to 3.24% (+6 bps QoQ; +29 bps YoY) .
  • Versus Street: EPS was essentially in line/slightly above (consensus $1.444*) while revenue modestly missed (consensus $317.4M* vs actual $314.7M), implying a small negative top-line surprise despite stronger margin tailwinds [GetEstimates] .
  • Balance sheet mix improved: deposits +$308.7M QoQ, borrowings −$500M, noninterest-bearing deposits at 34.3% of total; credit metrics remain solid though NPAs ticked up to 0.36% of average interest-earning assets .
  • Capital return and catalysts: dividend raised to $0.60 (+3.45%), and management indicated near‑term buyback activity post blackout; pending acquisitions (American Bank closing Jan 1, 2026; Southwest Bancshares expected Q1 2026) support footprint expansion and deposit-rich mix .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion continued: TE NIM reached 3.24% (3.21% ex-purchase accounting), with management reiterating multi‑year repricing tailwinds from fixed loans and a ~$10B securities book yielding just over 2% today .
  • Core deposit growth and funding mix: deposits +$308.7M QoQ to $27.78B; noninterest-bearing deposits remained strong at 34.3% of total, with management emphasizing no brokered deposits and seasonally stronger Q4 deposits .
  • Capital return increased: Board approved Q4 dividend to $0.60 (+3.45%), marking the 22nd consecutive annual increase; management signaled buybacks to resume imminently (“next week we should be out there buying”) .

What Went Wrong

  • Top-line vs estimates: revenue (total income ex-gains) of $314.7M modestly missed consensus ($317.4M*), despite net interest income strength; noninterest income slipped QoQ ($41.2M vs $43.0M) largely on lower asset sale gains [GetEstimates] .
  • Loan balances softened: total loans declined $169.6M QoQ (to $22.03B), with 1‑4 family residential showing the largest category pressure; management cited competitive pricing/structures and borrower paydowns as headwinds .
  • Credit optics: NPAs rose to 0.36% of average interest-earning assets ($119.6M), driven in part by regulatory‑pressured fair‑lending residential programs; management has discontinued aggressive programs and is working through foreclosures/sales .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue (Total income excl. gains) ($USD Millions)$306.918 $309.290 $314.670
Diluted EPS ($)$1.37 $1.42 $1.45
Net Income ($USD Millions)$130.225 $135.155 $137.556
Net Interest Income ($USD Millions)$265.382 $267.722 $273.435
Noninterest Income ($USD Millions)$41.301 $42.982 $41.238
Noninterest Expense ($USD Millions)$140.301 $138.565 $138.635
Net Interest Margin (TE) (%)3.14% 3.18% 3.24%
Efficiency Ratio excl. gains (%)45.71% 44.80% 44.06%

Versus estimates (Q3 2025):

  • EPS: Consensus $1.444* vs actual $1.45 → +$0.006 (in line/slightly above).
  • Revenue: Consensus $317.4M* vs actual $314.7M → −$2.7M (slight miss).
    Values retrieved from S&P Global.*

Segment breakdown (Period-end balances, Q3 2025):

Loan Category$USD MillionsMix
1-4 Family Residential$7,461.9 33.9%
Commercial Real Estate (incl. Multi-family)$5,796.9 26.3%
Construction/Land/Other Land$2,865.3 13.0%
Commercial & Industrial$1,879.3 8.5%
Agriculture (incl. Farmland)$1,019.6 4.6%
Home Equity$848.7 3.9%
Energy$511.8 2.3%
Consumer & Other$366.0 1.7%
Warehouse Purchase Program$1,278.2 5.8%
Total Loans$22,027.8 100%

Deposits (Period-end, Q3 2025):

Deposit Type$USD MillionsMix
Noninterest-bearing DDA$9,522.0 34.3%
Interest-bearing DDA$4,766.1 17.2%
Money Market$6,402.6 23.0%
Savings$2,616.2 9.4%
Certificates & Other Time$4,475.1 16.1%
Total Deposits$27,782.1 100%

KPIs and credit:

  • TE ROA/ROE/ROTCE: ROA 1.44%; ROE 7.18%; ROTCE 13.43% .
  • NPAs: $119.6M; 0.36% of average interest-earning assets .
  • ACL on loans: $339.6M; 1.54% of total loans; 1.64% ex‑Warehouse .
  • Borrowings: $2.4B (−$500M QoQ) .
  • Loan-to-deposit ratio: 79.3% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Noninterest ExpenseQ4 2025N/A$141–$143M run rateIntroduced range
Fair Value Loan IncomeQ4 2025N/A$2–$3MMaintained low range
Net Interest Margin (TE)Next 12 monthsStatic scenario ~3.48% (no rate cuts)~3.38% with 100 bps rate cutsConditional outlook; modestly lower vs static
Warehouse Purchase Program Avg BalancesQ4 2025N/A~$1.1B avg; weaker Nov/Dec seasonallySeasonally lower guide
DepositsQ4 2025N/A+$200–$300M expected (seasonality/public funds)Positive seasonal inflow
DividendQ4 2025$0.58$0.60Raised (+3.45%)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Margin expansion/repricingNIM: 3.14% (Q1), 3.18% (Q2); multi-year tailwinds noted in 8-Ks NIM: 3.24%; management reiterates 12–36 month uplift; 3.38% with 100 bps lower rates Improving; resilient under lower-rate scenarios
Loan growth outlookQ1 loans down QoQ; Q2 up $219.8M QoQ; cautious stance Q3 loans down $169.6M; expect flat Q4; low‑single‑digit growth in 2026 ex‑acq Near-term flat; medium-term modest growth
Deposit competitionCore deposits stable; public funds seasonality No brokered deposits; Q4 +$200–$300M expected; 13 bp beta on non-maturity deposits Favorable funding mix; benign deposit beta
Buybacks/capitalProgram authorized; ongoing repo capacity “Next week we should be out there buying”; valuation seen as “ridiculous” vs comps Acceleration of buybacks near term
Credit quality & fair lendingNPAs ~0.24–0.33%; stable ACL coverage NPAs 0.36%; residential fair‑lending loans pressured; programs discontinued Temporary NPA uptick; remediation underway
M&A pipelineAnnounced American (Q2); Lone Star integration American closing Jan 1, 2026; Southwest expected Q1 2026; muted runoff expected Strategic expansion; deposit-rich footprints

Management Commentary

  • “Our net interest margin should continue to improve over the next 24 to 36 months… Prosperity continues to exhibit solid operating metrics” — David Zalman (Senior Chairman & CEO) .
  • “We don’t have any brokered deposits… the core deposits have grown” — David Zalman .
  • “Time is on our side… you’ve got a $10 billion portfolio of bonds at a little over 2%. As those are maturing, it’ll be a home run for us” — David Zalman .
  • “At the low prices that we’re at right now, we’re going to back up the truck… next week, we should be out there buying” — David Zalman .
  • “Out of the $119 million in non-performing assets, about $57 million is single‑family homes… regulatory pressure to address underserved markets. We have discontinued some of those aggressive programs.” — Tim Timanus (Chairman) .
  • “For Q4 2025, we expect non‑interest expense to be in the range of $141–$143 million” — Asylbek Osmonov (CFO) .

Q&A Highlights

  • Loan growth: Q4 loans likely flat; 2026 low single‑digit organic growth anticipated, with some acquisition-related runoff but “muted” vs prior deals .
  • Buybacks: Management intends to be active post blackout; sees shares materially undervalued vs recent bank sale multiples .
  • Margin path: With 100 bps rate cuts, 12‑month NIM modeled ~3.38%; ~3.48% under static rates; repricing of fixed loans and bonds remains tailwind .
  • Deposit costs: Non‑maturity deposit beta modeled at 13 bps; Q4 deposits expected +$200–$300M (seasonality/public funds) .
  • Credit: NPA uptick driven by residential fair‑lending programs; programs discontinued, asset sales ongoing, expect normalization over ~12 months .

Estimates Context

  • Q3 2025 EPS: $1.45 vs consensus $1.444* (slight beat); Revenue: $314.7M vs consensus $317.4M* (modest miss). The pattern in 2025 shows small EPS beats and slight revenue misses (Q1–Q3) driven by lower noninterest income volatility and disciplined loan pricing [GetEstimates] .
  • With NIM trajectory intact and opex guided, Street models may lift margin and ROTCE assumptions while trimming noninterest line variability and near-term loan growth; deposit beta assumptions can be reduced given management’s 13 bp beta outlook .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin expansion is the core driver: TE NIM 3.24% with multi‑year repricing upside; even under lower-rate scenarios, management models continued improvement (12–36 months) .
  • Funding mix is a differentiator: strong noninterest-bearing deposits (34.3%) and absence of brokered funding support stable cost of funds and lower beta sensitivities .
  • Near-term loan growth will be disciplined: pricing/structure competition and borrower paydowns imply flat Q4; expect organic acceleration post 2026 with acquisitions integrated .
  • Credit optics manageable: NPA uptick linked to fair‑lending residential programs now discontinued; sales/foreclosures underway; ACL coverage remains solid (1.64% ex‑Warehouse) .
  • Capital return set to step up: dividend raised to $0.60 and buybacks resuming; management views valuation as compelling relative to peer transactions .
  • Strategic M&A expands core Texas footprint: American Bank (closing Jan 1, 2026) and Southwest Bancshares (Q1 2026) increase deposit share and C&I capability in key markets (San Antonio/Hill Country/Gulf Coast) .
  • Trading implications: near-term stock performance likely keyed to buyback execution and NIM prints; medium-term thesis anchored on margin carry, deposit strength, and accretive M&A integration .
Notes:
Revenue defined as “Total income excluding net gains and losses on the sale/write-down/write-up of assets and securities” per company disclosures.
All Street estimate figures marked with * are Values retrieved from S&P Global.