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Prosperity Bancshares expects NIM to be flat even with 50-basis-point rate cut

Houston-based Prosperity Bancshares Inc. would not likely see a drop in net interest margin, even if the Federal Reserve cuts rates by 50 basis points, management said on the bank's third-quarter earnings call.

The bank reported a flat quarter-over-quarter NIM of 3.16% for the third quarter of 2019. Management said that the bank's NIM has not fallen because it also did not go up alongside its peers as rates increased.

"Our net interest margin never went up like the other [banks'] did because we had a certain amount of fixed rates on our bond portfolio and in our loan portfolio," said CEO David Zalman on the call.

It would take a drop of more than 50 basis points in Fed rates for the bank to start to see a decline in NIM, management said. If rates were to stabilize, the bank would see an increase in NIM over the next one to three years; if rates were to fall 50 basis points, the bank would expect NIM to remain flat.

The bank also provided an estimate for the adoption of the current expected credit loss accounting standard, saying it will add $20 million to $30 million in provisioning. CFO Asylbek Osmonov said the bank has not consolidated its model with that of its merger target, Plano, Texas-based LegacyTexas Financial Group Inc.