Prosperity (PB) Q2 2025 Earnings Call Transcript

It's worth noting that Image source: The Motley Fool

Conversely, EDTCALL PARTICIPANTSSenior Chairman and CEO — David ZalmanPresident and Chief Operating Officer — Kevin HaniganSenior Executive Vice President and Chief Financial Officer — Asylbek OsmonovSenior Chairman of the Board — Tim TimanusExecutive Vice President and General Counsel — Charlotte RascheNeed a quote from one of our analysts. [ tected]RISKSNonperforming assets increased by $29. 1 million to $110, amid market uncertainty. 5 million in Q2 2025, primarily due to three identified portfolios, including $51 million in single-family loans where management noted, "we continue to tick up just a little bit on the single family mortgage portfolio

Moreover, Nevertheless, "Deposit balances declined sequentially by $553 million, or 2%, from $28 billion at March 31, 2025, to $27

Conversely, 4 billion at June 30, 2025, with management citing "seasonality" but noting underlying pressure from disciplined deposit pricing (noteworthy indeed)

However, No addition was made to the allowance for credit losses, despite the rise in nonperforming assets, reflecting management's monitoring of reserve coverage

TAKEAWAYSPending Merger: sperity Bancs (PB -4. 61%) announced a definitive agreement to acquire American Bank Holding Co. , which is expected to enhance its foot in South Texas and Central Texas, including four additional branches in San Antonio and the potential for No. 1 market in Corpus Christi (remarkable data)

Return Metrics: Return on average assets rose to 1

On the other hand, Merger NII Impact: Osmonov stated the American Bank deal is expected to yield $85 million–$90 million in additional annual net interest income on a run rate basis, plus $15 million–$16 million per year from the AOCI adjustment, resulting in mid-single-digit margin accretion annually

NIM Guidance: Management's model jects net interest margin expanding to 3

Meanwhile, SUMMARYThe announced merger with American Bank Holding Company is positioned to expand sperity Bancs' geographic reach and is jected to vide immediate net interest income and margin accretion, in today's market environment

At the same time, The company reported sequential and annual imvements in fitability metrics and cost efficiency, while also noting a sequential decline in deposits driven by seasonal and pricing factors

Nonperforming assets increased -- primarily in single-family mortgages and legacy loan portfolios -- while reserves remained unchanged, reflecting management's assessment of limited loss exposure but highlighting portfolio monitoring needs

The management reiterated confidence in loan growth, disciplined deposit pricing, and further M&A activity, including consideration of expansion beyond Texas and Oklahoma if strategically beneficial

Zalman stated, "Our models still continue to show great expansion in the net interest margin," and reconfirmed the target range of 3. 3% for the full year 2025 on a standalone basis (something worth watching)

Hanigan said, "Loan demand's okay," and described recent stabilization in both core loans and core deposit growth, with $40 million and $90 million increases, respectively, so far, as discussed on the Q2 2025 earnings call

Timanus explained that the rise in nonperforming assets was concentrated in a $13 million real estate secured loan, $119 million in used vehicle notes from the LegacyTexas portfolio, and $51 million in single-family s, most of which were either fully reserved or collateralized, and said, "we think we're dealing with all those effectively

At the same time, "Management confirmed that no material run-off in loans or deposits is expected as a result of the American Bank merger, based on the similarity of customer bases and funding costs

INDUSTRY GLOSSARYAOCI (Accumulated Other Comprehensive Income): An equity account reflecting unrealized gains and losses on certain assets not included in net income, significant here due to its adjustment impact in the American Bank merger, given current economic conditions

Nevertheless, OREO (Other Real Estate Owned): Foreclosed real estate held on the balance sheet, relevant due to nonperforming asset disclosures, given current economic conditions

Full Conference Call TranscriptDavid Zalman will lead off with a review of the highlights for the recent quarter, He will be ed by Asylbek Osmanov, who will review some of our recent financial statistics, and Tim Timanus, who will discuss our lending activities, given current economic conditions

Including asset quality (an important development)

However, Finally, we will open the call for questions

In contrast, Before we begin, let me make the usual disclaimers

Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws

On the other hand, And as such may involve known and unknown risks uncertainties and other factors which may cause the actual results or performance of sperity Bancs to be materially different from future results or performance expressed or implied by such forward-looking statements

Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in our filings with the Securities and Exchange Commission (this bears monitoring)

Including Forms 10-Q and 10-Ks and other reports and statements we have filed (something worth watching)

All forward-looking statements are expressly qualified in their entirety by these cautionary statements, amid market uncertainty

Now let me turn the call over to David Zalman

Conversely, David Zalman: Thank you, Charlotte, in today's market environment

I'm ud to announce that we entered into a definitive agreement with American Bank Holding Company and Corpus Christi to merge

Furthermore, We have ed American Bank closely for more than two decades and have tremendous respect for the bank and for the people that have contributed to its success

Additionally, Our banks have a complementary foot and we are familiar with and remain committed to the communities that American Bank serves including with both financial ducts and community support

This combination will strengthen our presence and operations in South Texas and surrounding areas and enhance our presence in Central Texas

Including in San Antonio, a highly desirable high growth area (an important development)

Meanwhile, The net interest margin on a tax equivalent basis was 3

As mentioned on prior calls, these are the results we expected (quite telling)

And we anticipate these tailwinds should continue to be positive for the near future (something worth watching), considering recent developments

Additionally, With most of the growth attributable to the seasonal strength of the mortgage warehouse

At the same time, Primarily due to decreases in public fund deposits higher cost deposits acquired in the recent acquisitions, and deposits and our dis our disciplined deposit pricing

Sperity generally experiences seasonality its public fund deposits as public funds customers use the top tax dollars that they receive in December and January throughout the year

Resulting in lower deposit balances in the second and third quarters of the year

Furthermore, On the other hand, Our bankers' focus is on building core deposits (this bears monitoring)

With a significant portion of the balance for each period attributable to the acquired loans

The allowance for credit losses on loan was 3 (noteworthy indeed). 47 times the amount of non performing assets

We're very excited our pending merger with American Bank Holding Company and American Banking Corpus Christi We also continue to have conversations with other bankers considering strategic opportunities, in today's financial world

At the same time, We believe that higher no nology and staffing costs funding cost, staffing cost and funding cost, loan competition, succession planning concerns, and increased regulatory burden all point to continued consolidation

We remain ready to move forward in the event a transaction materializes and will be beneficial to our companies long term future and increase holder value, amid market uncertainty

However, we believe we should have been number one That's just a little humor, guys

Texas continues to shine as more people and companies move to the state

Because of the -friendly political structure and those state income tax

Sperity continues to focus on building core customer relationships, maintaining sound asset quality, and operating the bank in an efficient manner, while in ever-changing nology and duct distribution channels

Nevertheless, We intend to continue to grow the company both organically and through mergers and acquisitions I want to thank everyone involved in our company helping to make it the success it has become (this bears monitoring), considering recent developments

Nevertheless, Thanks again for your support of our company (which is quite significant)

Let me turn over our discussion to Asylbek Osmanov, our chief financial officer, to discuss some of the specific financial results we achieved

Asselbeck, Operator: you, mister Zalman (an important development)

However, Good morning, everyone

The net interest margin on a tax equivalen.