Prosperity CEO Rules Out Securities Repositioning: Buyback Likelier Than Deals Below 10 Times Earnings
David Zalman said the answer on repositioning is "simply no" and that a buyback beats buying another bank at current prices.
Prosperity Bancshares Senior Chairman and CEO David Zalman told analysts on the bank's third-quarter earnings call Wednesday that he has no interest in repositioning the securities portfolio, and that in the near term a stock buyback is "way more likely" than an acquisition. Prosperity, a Texas and Oklahoma bank holding company, has $54.1 billion in assets after three recent mergers.
No to financial engineering
A Morgan Stanley analyst asked whether capital might go toward repositioning securities, given the move in the belly of the yield curve and mortgage-backed rates above 6%. Zalman said the banks that use financial engineering to make their numbers look better never turn out well. "The answer to the question is simply no," he said.
He said Prosperity never extends the portfolio to something it cannot live with, and that several banks it bought were ones that kept buying, selling and re-engineering their balance sheets. "For us, that just doesn't work," he said, in substance; the bank tries not to call the market.
Buyback over bank deals
A TD Cowen analyst asked about buybacks. Zalman said that at 60-something dollars the company has a huge appetite and the money to do it. He put next year's earnings at $850 million to $880 million, by his loose reference to what analysts have, against about $310 million in dividends at 64 cents a quarter.
Pressed by a Raymond James analyst on acquisitions, Zalman said the focus is combining Stellar Bank and Texas Partners Bank. With the stock below 10 times earnings, he said, the company probably makes more money buying back its own shares than buying another bank. He also said management still talks with other bankers and would act only on something that makes a whole lot of sense, such as expanding its Texas franchise.
Prosperity shares traded at $70.60, up about 1.4% from the prior close, in Wednesday trading.
Integration and the 2027 outlook
Prosperity said total assets rose 41% from a year earlier to $54.1 billion at September 30, mostly from the mergers. It finished the American Bank integration in September, with Texas Partners due in November and Stellar in March 2027. Adjusted for one-time expenses, net income was $200 million, or $1.67 per diluted share.
President and COO Kevin Hanigan said cost savings of another $70 million pre-tax and margin expansion should deliver double-digit earnings-per-share growth in 2027 even with flat loans. Zalman said the bank's rebuilt data-processing system could handle a bank of about $500 billion in size.
The Texas Partners conversion lands in November and Stellar's in March 2027.
Sources
- Prosperity Bancshares (PB) Reports Q3 Earnings: What Key Metrics Have to Say — Yahoo Finance
- Prosperity Bancshares (PB) Q3 Earnings Beat Estimates — Yahoo Finance
- PROSPERITY BANCSHARES, INC.® REPORTS THIRD QUARTER 2026 EARNINGS – Company Announcement - FT.com — Financial Times
- Prosperity Bancshares GAAP EPS of $1.67 beats by $0.30, revenue of $475.7M misses by — seekingalpha.com
