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Prosperity Bancshares' (PB) Margin Pressure Poses a Concern

Zacks Equity Research

Prosperity Bancshares Inc.’s PB growth prospects look dismal due to continuous margin pressure and elevated expenses. Also, as a major part of the company's portfolio consists of real estate loans, any deterioration in the housing sector prices will weigh on its financials.

Prosperity Bancshares has been facing pressure on its net interest margin, with the same witnessing a decline over the past few years. The same trend persisted in the first six months of 2017 as well. Despite the rise in interest rates and improving loan demand, the company is facing margin pressure mainly due to its liability-sensitive balance sheet.

Additionally, mounting operating expenses have been hurting Prosperity Bancshares’ bottom-line growth to some extent. Non-interest expenses have been showing a persistent rise with a four-year (2013–2016) CAGR of 8.8%, largely attributable to acquisitions completed during the period.

Given the company’s increasing investment in its franchise, expenses are likely to remain on the higher side. Also, with the increased focus on inorganic growth prospects, merger-related charges are anticipated to further add to the overall expenses.

While growth in loan and deposit balances, improving asset quality and potential lesser regulations are expected to support profitability, analysts seem to be bearish on the stock mainly owing to the concerns. The Zacks Consensus Estimate for the current year declined 1.5% over the past 30 days. Further, the earnings estimates for 2018 have fallen 3.3% over the same time frame.

Stocks to Consider

Some stocks worth a look in the finance space are BancFirst Corporation BANF, First Financial Bankshares, Inc. FFIN and People's Utah Bancorp PUB.

The Zacks Consensus Estimate for BancFirst Corporation has jumped 12.5% over the past 30 days, for 2017. Further, share price of the company has increased more than 4% over the past three months.

First Financial Bankshares’s Zacks Consensus Estimate has improved 1.2% over the past 30 days. In addition, over the past three months, shares of the company have gained nearly 2%.

People's Utah Bancorp’s earnings estimates for 2017 has risen 2.9% over the past 30 days. Further, over the past three months, shares of the company have gained 8.2%.

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BancFirst Corporation (BANF) : Free Stock Analysis Report
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