Sign in

You're signed outSign in or to get full access.

PB

PROSPERITY BANCSHARES INC (PB)·Q4 2024 Earnings Summary

Executive Summary

  • EPS rose to $1.37 as NIM expanded to 3.05%; net income increased 36% YoY, driven by higher net interest income and the absence of last year’s FDIC special assessment .
  • Asset quality improved sequentially: NPAs fell to $81.5m (0.23% of avg interest-earning assets) vs $89.9m in Q3; net charge-offs declined to $2.6m .
  • Funding mix remains strong: noninterest-bearing deposits were $9.8b (34.5% of total); borrowings were reduced by $700m in the quarter, lowering funding costs and supporting NIM expansion .
  • 2025 setup: Management guided to an average 2025 NIM of ~3.25%–3.30% (higher exit), flat Q1’25 noninterest expense of $141–$143m, and continued borrowings paydown toward ~$2b by year-end 2025, aided by CD and securities repricing tailwinds .
  • Capital return and optionality: Authorized buybacks up to 5% of shares and declared a $0.58 Q1’25 dividend; management prioritizes M&A if opportunities arise but may repurchase if valuation dislocates .

What Went Well and What Went Wrong

What Went Well

  • NIM expanded 10 bps QoQ to 3.05% and 30 bps YoY as assets repriced and borrowings declined; management expects average 2025 NIM of ~3.25%–3.30% and higher at exit: “We believe that our net interest margin should continue to expand…as our assets continue to reprice” .
  • Funding/capital actions: Borrowings were cut by $700m in Q4, total noninterest-bearing deposits held at $9.8b (34.5% of deposits), and a 5% buyback was authorized, enhancing flexibility and supporting spread metrics .
  • Credit quality trends improved: NPAs decreased sequentially to $81.5m (0.23% of avg interest-earning assets) and net charge-offs fell to $2.6m; no provision was recorded in Q4 .

What Went Wrong

  • Loans contracted QoQ: total loans declined to $22.15b from $22.38b in Q3 as management continued to work through acquired credits; ex-merger, 2024 organic loan growth was essentially flat .
  • Noninterest income dipped QoQ to $39.8m vs $41.1m in Q3 on lower miscellaneous items; management expects fee run-rates roughly consistent with recent levels, with focus on trust income .
  • Mortgage warehouse expected to be seasonally weak in Q1’25: Q4 average was $1.14b; Q1’25 is guided to ~$825–$850m as January activity softened, though new clients may help later in the year .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Diluted EPS ($)$1.02 $1.34 $1.37
Net Income ($m)$95.5 $127.3 $130.1
Net Interest Income ($m)$237.0 $261.7 $267.8
Noninterest Income ($m)$36.6 $41.1 $39.8
NIM (tax-eq.)2.75% 2.95% 3.05%
Efficiency Ratio (ex. gains/losses)55.61% 46.87% 46.10%

Balance sheet and credit KPIs (period-end unless noted):

KPIQ4 2023Q3 2024Q4 2024
Total Loans ($m)$21,180.5 $22,380.9 $22,149.2
Total Deposits ($m)$27,179.8 $28,087.6 $28,381.3
Noninterest-Bearing Deposits ($m, % of total)$9,776.6 (36.0%) $9,811.4 (34.9%) $9,798.4 (34.5%)
Loan/Deposit Ratio (%)77.9% 79.7% 78.0%
NPAs ($m)$72.7 $89.9 $81.5
NPAs / Avg Int.-Earning Assets (%)0.21% 0.25% 0.23%
Net Charge-offs ($m)$19.1 $5.5 $2.6
ACL / Loans (%)1.57% 1.58% 1.59%

Operational details (selected Q4’24 metrics):

  • Net interest income drivers: improved average rates on loans; lower borrowings; partially offset by higher rates on interest-bearing deposits and lower average securities balances .
  • Cost of funds: total interest-bearing liability cost 2.60% in Q4 (down from 2.78% in Q3); total cost of funds including NIBD was 1.80% in Q4 (vs 1.94% in Q3) .
  • Deposits grew $294m QoQ; borrowings reduced by $700m; noninterest-bearing deposit mix remained resilient at 34.5% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
NIM (tax-eq.)FY 2025 average~3.27% (model) from Q3’24 call ~3.25%–3.30% avg; higher at exit Maintained/narrowed range
NIM (tax-eq.)Q4 2024 exit~3.00% exit (Q3 guide) Achieved 3.05% in Q4 Raised/Beat
Noninterest Expense ($m)Q1 2025—$141–$143 expected New
BorrowingsFY 2025 YE—Target ~$2b by YE 2025 (model) New
Mortgage Warehouse Avg Bal.Q1 2025—~$825–$850m expected New
Dividend ($/share)Q1 2025Q4’24 dividend $0.58 run-rate Declared $0.58 payable Apr 1, 2025 Maintained
Share RepurchaseThrough Jan 21, 20262024: ~1.2m shares repurchased for $60.35 avg New 5% authorization (~4.8m shares) New

Earnings Call Themes & Trends

TopicQ2 2024 (Jul)Q3 2024 (Oct)Q4 2024 (Jan)Trend
NIM trajectoryNIM up to 2.94%; exit 2024 ~3%; model shows ~3.2% in 12 months; longer-term normalization ~3.4% Exit 2024 ~3.0%; 2025 avg ~3.27% (static model) Q4 NIM 3.05%; 2025 avg ~3.25%–3.30%; higher at exit Improving, more confident
Loan growthWorking through acquired credits; cautious on resi; mid-single-digit possible post-election Low-single digit near term; mid-single digit after elections/rate cuts; runoff near end Organic 2024 essentially flat; expect 2025 pickup as sentiment improves Gradual recovery
Deposit costs/CDsStable; expect decline with cuts; high CD repricing within 6–12 months Betas manageable; CDs maturing quickly; expect cost down Q4 spot deposit cost ~1.40% vs 1.44% avg; 77% of CDs mature in 6 months; 92% in 12 months Tailwinds building
Securities & funding$1.9b annual cash flows; invest in 15-year MBS; fund paydown of borrowings Focus on paying down borrowings; NIM-positive Use ~$900m securities cash to reduce borrowings; reinvest ~$1b at ~4%–5% selectively Delevering supports NIM
Warehouse lendingSeasonal strength into mid-year Q4 avg ~$1.2b trend; seasonal moderation expected Q1’25 guide ~$825–$850m; adding clients; typical seasonality Seasonally weak Q1
Credit/provisionAcq.-related provision only; strong reserves No provision; reserves ample No Q4 provision; reserves $389m incl. off-B/S; expectation of minimal provision barring “black swan” Benign

Management Commentary

  • “We believe that our net interest margin should continue to expand to a more normal ratio as our assets continue to reprice, thereby increasing our earnings per share.” – Senior Chairman & CEO David Zalman .
  • “On the model, we kept our balance essentially static…we have about $5 billion of loans [with] pickup…200+ bps on repricing…about $1.9 billion cash flow from securities…either paying down borrowing ~4.5% or reinvesting ~5%…positive NII and margin.” – CFO Asylbek Osmonov .
  • “Our nonperforming assets…totaled $81.5 million…a 9% reduction [QoQ]…Net charge-offs…$2.6 million…no addition to the allowance…in the quarter.” – Chairman H.E. Tim Timanus Jr. .
  • “I would like to save the money for the M&A right now…If our stock price went the other way, we would definitely jump in and do something.” – David Zalman on buybacks vs. M&A .

Q&A Highlights

  • NIM outlook: Management reiterated an average 2025 NIM of ~3.25%–3.30% with a higher exit rate; drivers include fixed loan repricing (+200 bps on ~$5b flows), securities cash flows redeployed to loans/5% securities or debt reduction, and CD repricing .
  • Loan growth: Expect improvement in 2025 as client sentiment strengthens; 2024 organic growth was essentially flat after pruning acquired credits; near-term mix skewed to C&I and revolvers, with cautious stance on single-family .
  • Deposit costs: Spot deposit cost at ~1.40% vs 1.44% Q4 average; heavy CD maturities (77% within six months) support lower funding costs even without additional Fed cuts .
  • Mortgage warehouse: Seasonally weaker Q1’25 expected ($825–$850m avg) after Q4 average of $1.137b; potential client additions could help longer term .
  • Capital deployment: New buyback (5% of shares) in place, but preference is to conserve capital for M&A unless shares dislocate; dividend at $0.58 continues .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved at the time of this analysis due to a rate limit, so we cannot provide beat/miss comparisons for EPS or revenue.* We default to S&P Global consensus for estimate comparisons when available.
  • Given management’s disclosures and the reported results, street models may need to reflect: higher 2025 NIM path (3.25%–3.30% avg), lower funding costs from CD repricing, and reduced borrowings, offset by seasonally weaker Q1’25 mortgage warehouse volumes .
    *Values would have been retrieved from S&P Global.

Key Takeaways for Investors

  • NIM expansion remains the core earnings catalyst; Q4 print at 3.05% and 2025 guide to ~3.25%–3.30% (higher exit) are underpinned by visible repricing on loans and securities and by borrowings reduction .
  • Funding tailwinds should persist: spot deposit costs are already below Q4 averages with 77% of CDs repricing within six months; stable 34.5% NIBD mix provides structural support .
  • Asset quality is solid and improving QoQ with low NPAs and net charge-offs, limiting near-term provision risk barring macro shocks .
  • Loan balances dipped QoQ as PB continues to upgrade acquired loan portfolios; management expects 2025 organic growth to improve, but remains disciplined on pricing and mix .
  • Capital flexibility: a 5% buyback authorization and stable dividend ($0.58) coexist with an M&A bias if high-quality core-deposit franchises become available; opportunistic repurchases remain a backstop .
  • Near-term noise: Q1’25 mortgage warehouse balances likely softer (~$825–$850m), and noninterest income can vary; noninterest expense guided flat in Q1’25 ($141–$143m) .
  • Trading implication: Continued NIM progression and evidence of deposit cost declines/borrowings paydown are likely to be the primary stock catalysts; M&A optionality adds upside if valuation and regulatory conditions align .