PROSPERITY BANCSHARES INC Q1 FY2025 earnings call

• Prosperity has been ranked as one of Forbes' best banks since 2010 and Money's best in Texas. - Net income increased, with improved annualized return on average assets (1.34%) and average tangible common equity (13.23%). - Efficiency ratio was 45.7%. - Texas and Oklahoma benefit from strong economies with 58 Fortune 500 companies headquartered there. - Actively looking at potential acquisition opportunities while maintaining a quality loan portfolio.

For the three months ended March 31, 2025, net income was $130 million, an increase of $19.8 million or 17.9% compared to Q1 2024. Net income per diluted common share was $1.37, up 16.1%. Loans were $21.9 billion as of March 31, 2025, an increase of $712 million or 3.3% from Q1 2024, primarily due to the merger with Lonestar State Bancshares. Deposits were $28 billion, an increase of $851 million or 3.1% from Q1 2024. The net interest margin on a tax-equivalent basis was 3.14% for Q1 2025, up from 2.79% in Q1 2024. Nonperforming assets totaled $81.4 million or 24 basis points of quarterly average interest-earning assets at March 31, 2025, relatively flat compared to prior periods.

• For Q2 2025, noninterest expense is expected to be in the range of $141 million to $144 million. - Loan growth guidance remains in the low single digits for 2025. - Warehouse program average for the quarter was looking better, with expectations of a 50 to $1.1 billion range for Q2, and new clients adding to the pipeline. - Anticipation of loan growth picking up as market uncertainties settle.

• Market volatility poses challenges. - Impact of tariffs on loan growth, with potential slowdown in payoffs and project flips. - Uncertain economic environment causing customer hesitation in making loan decisions due to lack of clarity on market direction.

Q: Could you give more color on loan growth?

A: Kevin Hanigan stated loan growth guidance is still low single digits, with runoff from acquisitions mostly completed, and optimism from customer meetings despite sluggishness. H.E. Timanus Jr. mentioned loan committee meetings are active but market uncertainty has caused sluggishness.

Q: Thoughts on buyback and M&A?

A: David Zalman said they would buy back stock on downturns but are focused on M&A opportunities. Kevin Hanigan added they are watching the stock price daily. David Zalman noted M&A activity may resume as market conditions stabilize.

Q: Profile of securities portfolio?

A: Asylbek Osmonov said they are buying mortgage-backed securities yielding around 5.25%-5.50% to replace lower-yielding ones, with duration around 4-5.

Q: Deposit cost and Fed rate cuts?

A: David Zalman said there is room to lower deposit costs if the Fed cuts rates further, with opportunity to adjust rates on special CDs and exception rates.

Q: Mortgage warehouse program and credit?

A: Kevin Hanigan discussed warehouse program performance, new clients, and seasonality affecting NSF and debit card income.