Prosperity Bancshares, Inc. (NYSE:PB) Q1 2024 Earnings Call Transcript

Dave Rochester: All right. Great, thanks guys.

Operator: The next question comes from Catherine Mealor with KBW. Please go ahead.

Catherine Mealor : Thanks, good morning. Just a follow-up on the dynamics between building the excess cash and borrowings. Do you see — do you — maybe a follow-up on just the margin outlook? Do you still believe that even with having to hold a little bit more liquidity, you still see a path in your margin towards the end of this year to still get back near that 3% range? Or is that margin might a little bit lower, but the balance sheet maybe a little bit bigger. So — it ends up the same, but it’s a balance between those two?

David Zalman: I’ll start off and say yes, but Asylbek may want to correct me.

Asylbek Osmonov: No, I think the guidance stays as pretty because of two dynamics. First of all, we’re still repricing our securities from 2% to $540 million we’re getting on the cash with the excess cash we’re having. That’s dynamic still working out. And also with the addition of Lone Star, as I mentioned, that helps us. So I think with those things, I think 3% should be still reasonable assuming, but a wild card is a deposit, right? So how we manage deposits. But so far, we are able to manage deposits. So if it continues as we go, I think 3% should be still the guidance we stick by end of the year.

David Zalman: Yes. I mean, I think that’s true. I mean the deposits do seem to have stabilized and again or something like that change or there was some other black swan out there that happened that, that can always change the dynamics. So just keep that in mind. So…

Tim Timanus: Yes. I think finalization of the cash build up has been taken into consideration in the margin aspect. So that’s in there, that’s built in there.

Catherine Mealor: Yes, that’s great. And that 3% too is also without any rate cuts. And it might be easier to get there if we see some rate cuts. Is that a way to think about that?

Asylbek Osmonov: Yes. So this is — the model is on the static balance sheet with no rate changes.

David Zalman: But again, even if it changes our model shows it would be just a few basis points, a couple of basis points. I mean even if it went down even 200 basis points, which I don’t think it is, it still would only be 3 or 4 basis points is a difference than what we’re modeling.

Asylbek Osmonov: That’s correct because we are very neutrally positioned.

David Zalman: And if interest rates went up 100 basis points, actually our — it would improve by 5 basis points, 4 basis points.

Asylbek Osmonov: That’s correct.

Catherine Mealor: Great. Thank you for that. And then on growth, I think you had said before about a 3% to 5% growth rate for the year. I know this quarter was supposed to be has been slow for everybody. How are you thinking about growth for the back half of the year?

David Zalman: Kevin, do you want to?

Kevin Hanigan: We said 3% to 5%. First quarter was a bit challenging, we squeaked out a little bit of growth, April has been equally challenging. So we haven’t seen any spurt in growth rate. So if we said 3% to 5% for the year, I’d say we’re probably on the lower end of the 3% to 5%. I don’t know if you agree, David.

David Zalman: Yes, I do. I mean it’s — when you turn on CNBC, and you see unemployment so low and inflation, just the economy is so good. But when you really squeeze down you talk to some of your customers, you see that your commercial customers are pulling back, waiting to see what interest rates are going to do. I think the — we can talk to some of our customers are in wholesale, they see — they see slowdowns and trying to get the supply chains are full. And so they’re not able to sell as much so they’re concerned. And even when you talk to a lot of our customers who works and sometimes on the plants on the Gulf Coast, where you can talk to them. And they’re like where they send crews into do turnarounds on these big plants.

They’re not doing as many this year and they’re still laying people off. So I think there is a delay in the economy. I think it will slow down and most business people are watching. I don’t think that we’re any chance of a recession, but the economy, I don’t think it’s as good as everybody says it is either.

Catherine Mealor: Very helpful.

Kevin Hanigan: I’d just add, 1 of the things we’ve got that maybe is a little wind at our back potential is our unfunded commitments on unfunded portions of construction loans are still running at somewhere in the $1 billion range, I think, $1.6 billion to $1.650 billion. So we still have a lot of fundings. As you know, we require all the equity to go in before we start funding up. So that’s been a relatively stable number, but I do think there’s some opportunity for growth through just unfunded commitments, finally funding up.

Catherine Mealor: Perfect. Thank you for the color.

Operator: The next question comes from Brandon King with Truist. Please go ahead.

Brandon King: Hey, good morning. So, saw that we had some non-interest-bearing outflows in the first quarter. So could you just characterize what you’re still saying within your deposit mix? And when do you think those DDA balances will stabilize?

David Zalman: Let me get my crystal ball here on the table, and I’ll ask it. But the — from what we can tell, Brandon, it’s — it does seem to be stabilizing. But again, to give exact dates and how much it will go down, we just — it would be unrealistic for me to come up with that number. All I can tell you is from what we see it does seem to be stabilizing. But there’s still — you’re still seeing in the bank where some of your non-interest bearing deposits and your lower interest-bearing deposits are moving sometimes more to money market accounts into CDs. So you’re still seeing that transition. I think that will continue. But for the most part, we think it is stabilizing, bearing that there’s no bank that get announced some bank failure or something like that, we do think that we’re on the road to stabilization.