Prosperity Bancshares(US:PB)2024-02-28 21:36Banking Operations - As of December 31, 2023, Prosperity Bank operated 285 full-service banking locations across Texas and Oklahoma[13]. - The Company reported total assets of $2.14 billion, total loans of $1.65 billion, and total deposits of $1.71 billion from First Bancshares as of March 31, 2023[17]. - The Company completed the merger with First Bancshares on May 1, 2023, issuing 3,583,370 shares and approximately $91.5 million in cash[18]. - The pending acquisition of Lone Star State Bancshares involves a total consideration valued at approximately $228.7 million, with Lone Star reporting total assets of $1.37 billion[20]. - As of December 31, 2023, the Bank maintained approximately 813,000 separate deposit accounts and 72,500 separate loan accounts[32]. - The Company had 3,850 full-time equivalent associates as of December 31, 2023, with a focus on diversity and inclusion in its workforce[23][25]. - The Company operates 285 full-service banking centers as of December 31, 2023, with total deposits amounting to $27,179,809,000[209]. - The Houston area has the highest number of banking centers at 65, contributing $6,891,540,000 in deposits[210]. Financial Performance - Total loans increased to $21.18 billion as of December 31, 2023, up by $2.34 billion or 12.4% from $18.84 billion in 2022[38]. - Commercial and industrial loans reached $2.31 billion, representing 10.9% of the total loan portfolio[38]. - One-to-four-family residential loans were $7.20 billion, making up 34.0% of the total loan portfolio[38]. - The Company's average cost of funds was 1.54% and the average cost of deposits was 1.00% for the year ended December 31, 2023[32]. - The Company's trust department maintained total assets of $2.67 billion, including managed assets of $2.26 billion as of December 31, 2023[35]. - Nonperforming assets were 0.34% of total loans and other real estate as of December 31, 2023, indicating sound asset quality[39]. - The Company accrued a special assessment of $19.9 million, or $0.17 per diluted common share net of tax, in Q4 2023 due to a special assessment to recover losses associated with bank failures[102]. Capital and Regulatory Compliance - The Company maintains a capital conservation buffer of Common Equity Tier 1 (CET1) of 2.5%, with a CET1 ratio of 15.54% as of December 31, 2023[61]. - The Company is subject to Basel III Capital Adequacy Requirements, with total capital to risk-weighted assets at 16.56%[61]. - The Bank has total assets exceeding $10 billion, making it subject to supervision by the Consumer Financial Protection Bureau (CFPB)[75]. - The Company and the Bank are not subject to the revised capital requirements proposed by federal banking regulators as they each have less than $100 billion in total consolidated assets[65]. - The Bank's capital adequacy is regulated by the FDIC, which may impose higher minimum requirements based on the institution's risk profile[89]. - The Company must obtain prior approval from the Federal Reserve Board for acquisitions that would result in owning 5% or more of a bank's voting shares[71]. - The Bank is required to maintain strong capital positions above minimum supervisory levels when experiencing internal growth or making acquisitions[67]. - The Bank's CET1 ratio to risk-weighted assets was 15.48%, significantly above the required minimum of 4.5%[90]. - The Bank's Tier 1 capital to total risk-weighted assets ratio was also 15.48%, exceeding the minimum requirement of 6.0%[90]. - The total capital to total risk-weighted assets ratio stood at 16.50%, well above the minimum threshold of 8.0%[90]. - The Bank's leverage ratio was 10.35%, surpassing the required minimum of 4.0% of average total assets[91]. - As of December 31, 2023, the Bank was classified as "well-capitalized" under FDIC regulations[92]. Risk Management - The Company is exposed to significant interest rate risk, with net interest income being highly sensitive to fluctuations in interest rates, which could adversely affect financial condition and results of operations[125]. - The Company is subject to credit risk, with potential increases in loan delinquencies and nonperforming assets due to economic disruptions and rising interest rates[129]. - The Company's risk management practices may not adequately reduce credit risk, particularly in a challenging economic environment, leading to potential loan defaults and increased provisions for credit losses[130]. - Cybersecurity risks are expected to elevate due to the increasing sophistication of threats and the expanding use of technology-based products and services by the Company and its customers[119]. - The Company must comply with evolving state-level privacy and cybersecurity standards, which are expected to continue to develop and could impact operations[118]. - The Company’s risk management framework may not effectively identify or mitigate risks, which could lead to significant losses[175]. - The Company relies on external vendors for critical operations, and any disruptions or failures from these vendors could adversely impact service delivery and financial performance[172]. Market and Economic Conditions - The Company’s profitability is significantly influenced by local economic conditions in Texas and Oklahoma, where slower population or income growth could adversely affect income levels and profitability[134]. - Legislative and regulatory initiatives may change the operating environment of the Company in unpredictable ways, potentially increasing costs or limiting permissible activities[120]. - Recent developments in the banking industry have eroded customer confidence, potentially leading to a shift of deposits to larger institutions or higher-yielding securities[152]. - The transition to a less carbon-dependent economy poses risks to the Company and its customers, potentially impacting financial performance[187]. - Environmental risks, including severe weather and climate change, could adversely affect the Company's business and financial condition[185]. Strategic Initiatives - The Company aims to expand market share through internal growth and a disciplined acquisition strategy, with all past acquisitions being accretive to earnings within 12 months[37]. - The Company emphasizes cross-selling efforts to enhance customer relationships and increase product offerings[41]. - The Company plans to centralize operations to enhance efficiency and minimize operational costs through economies of scale[40]. - The Company faces challenges in maintaining historical growth rates, which may impact earnings trends and the ability to fund additional growth or find suitable acquisition candidates[157]. - Regulatory approvals for acquisitions have become more difficult, potentially delaying or prohibiting strategic opportunities, which could materially affect the Company's business[164]. Compliance and Regulatory Changes - The CFPB proposed a new rule in October 2023 requiring banks to make consumer data available upon request, with compliance expected for banks with $50 billion to $500 billion in assets approximately one year after the final rule adoption[86]. - The Volcker Rule does not currently affect the operations of the Company or the Bank as they do not engage in proprietary trading or certain hedge fund investments[74]. - The Dodd-Frank Act has instituted major changes to the regulatory framework, affecting the Company's powers and operations in unpredictable ways[179]. - Increased regulatory scrutiny is expected, particularly regarding deposit composition and liquidity, which may raise operational costs and reduce profitability[180]. - The Company may incur additional expenses to comply with evolving data privacy regulations, which could impact financial condition and operational costs[170]. Cybersecurity - The Company’s cybersecurity risk management program is designed to mitigate risks across various areas, including financial and operational[199]. - The Chief Information Security Officer is responsible for managing the cybersecurity program and reports directly to the Chief Risk Officer[204]. - The Company employs a layered defensive strategy for cybersecurity, including regular assessments and employee training[201]. - The Enterprise Risk Management Committee meets quarterly to oversee the information security program and review the cybersecurity risk profile[207]. - The Company has experienced cybersecurity incidents in the past, but these have not materially affected its operations to date[203].