A month has gone by since the last earnings report for Prosperity Bancshares (PB). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Prosperity Bancshares due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Prosperity Bancshares Beats on Q1 Earnings, Costs Down
Prosperity Bancshares’ 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 in 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.
Loan growth is projected to be 5% for 2019.
Operating expenses are expected to be $80-$82 million on a quarterly basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Prosperity Bancshares has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Prosperity Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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