PB - Prosperity Is Conservatively Run But Back On The Hunt For Accretive Bank Deals

• Prosperity posted a relatively good fourth quarter, with the earnings beat relative to the Street balanced between a core pre-provision beat and lower credit costs.
• The bank beat expectations, but core PPOP was still down slightly from the prior quarter, spreads contracted, and loan balances contracted.
• Prosperity is over-capitalized, and management announced both a sizable buyback and its intention to pursue M&A transactions.
• Prosperity has never delivered particularly good organic loan growth, but its credit quality has been top notch and it has proven itself to be a skillful and disciplined acquirer.
• There are inherent risks trying to model future M&A, but if Prosperity can generate mid-to-high single-digit long-term core earnings growth through organic means and M&A, the shares look undervalued.

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