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Prosperity Bancshares (PB) Beats on Q1 Earnings, Costs Down

Zacks Equity Research

Prosperity Bancshares Inc.’s PB first-quarter 2019 earnings of $1.18 per share surpassed the Zacks Consensus Estimate of $1.17. The figure improved 10.3% on a year-over-year basis.

Results were primarily driven by improvement in revenues, lower costs and a significant fall in provisions. Moreover, the balance sheet position remained strong. Further, capital and profitability ratios showed improvement, which was another positive for the company during the reported quarter.

Net income available to common shareholders for the quarter was $82.4 million, up from $74.4 million registered in the prior-year quarter.

Revenues Improve, Expenses Fall

Net revenues were $183.1 million, up nearly 1% from the prior-year quarter. However, the figure lagged the Zacks Consensus Estimate of $185.3 million.

Net interest income was $154.9 million, increasing nearly 1.1% year over year.

Net interest margin, on a tax-equivalent basis, increased 4 basis points (bps) year over year to 3.20%.

Non-interest income increased nearly 1% year over year to $28.1 million. This rise was primarily driven by an increase in other non-interest income and brokerage income. Moreover, the company recorded net gain on sale of assets during the reported quarter.

Non-interest expenses decreased 1.9% year over year to $78.6 million. This fall can be attributed to a decrease in almost all cost components except for salaries and benefits costs, credit and debit card, data processing and software amortization expenses, and depreciation expenses.

Solid Balance Sheet

As of Mar 31, 2019, total loans were $10.4 billion, up marginally from the prior quarter end. Total deposits decreased marginally from the previous quarter end to $17.2 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, total non-performing assets were $40.9 million, up 23.1% year over year.

However, net charge-offs totaled $1 million, down from the year-ago quarter figure of $9.4 million. Provision for credit losses decreased 92.2% from the prior-year quarter to $0.7 million. Moreover, the ratio of allowance for credit losses to total loans was down 1 bp year over year to 0.83%.

Capital & Profitability Ratios Improve

As of Mar 31, 2019, Tier-1 risk-based capital ratio was 16.76%, up from 15.31% as of Mar 31, 2018. Moreover, total risk-based capital ratio was 17.42%, up from 15.97% at the end of the year-ago quarter.

Further, common equity tier 1 capital ratio was 16.76%, up from 15.31% in the prior-year quarter.

The annualized return on average assets was 1.46% at the end of the reported quarter, up from 1.32% in the prior-year quarter. Similarly, annualized return on common equity was 8.05% compared with 7.69% in the prior-year quarter.

Our Viewpoint

The company's solid loan and deposit balances, and steady improvement in credit quality are likely to support profitability. However, mounting operating expenses and weakness in mortgage business remain major near-term concerns.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise | Prosperity Bancshares, Inc. Quote

Prosperity Bancshares currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Washington Federal’s WAFD second-quarter fiscal 2019 (ended Mar 31) earnings were 63 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.5%.

Hancock Whitney Corporation’s HWC first-quarter 2019 operating earnings per share of $1 surpassed the Zacks Consensus Estimate of 98 cents. Further, the reported figure was 11.1% higher than the year-ago figure.

Ally Financial Inc.’s ALLY first-quarter 2019 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 68 cents.

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