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Prosperity Bancshares (PB) Gains 2.3% on Q3 Earnings Beat

Zacks Equity Research

Shares of Prosperity Bancshares Inc. PB gained 2.3% following the release of its third-quarter 2017 results. Earnings per share of 98 cents surpassed the Zacks Consensus Estimate by a penny. However, the figure compared unfavorably with the prior-year quarter’s earnings of 99 cents.

Increase in provisions for loan losses and continued margin pressure were the primary reasons for the year-over-year decline. However, lower expenses, increase in revenues and improving loans balances were favorable.

Prosperity Bancshares’ net income dropped marginally on a year-over-year basis to $67.9 million.

Revenues Increase & Expenses Decrease

Net revenues of $184.8 million for the reported quarter lagged the Zacks Consensus Estimate of $185.6 million. However, the figure rose marginally from the prior-year quarter.  

Net interest income rose marginally year over year to $156.1 million, primarily due to an increase in average balance and yield on interest-earning assets.

However, net interest margin, on a tax equivalent basis, decreased 7 basis points (bps) to 3.22%.

Non-interest income declined 3% year over year to $28.8 million. This fall was mainly due to a decrease in mortgage income.

Non-interest expenses were down 2.5% year over year to $77.5 million. Decrease in salaries and benefits and core deposit intangibles amortization mainly led to lower expenses.

Loans Increase & Deposits Decrease

As of Sep 30, 2017, total loans were $9.9 billion, marginally up from the prior quarter. Total deposits dropped marginally from the previous quarter to $16.9 billion.

Credit Quality: A Mixed Bag

As of Sep 30, 2017, total nonperforming assets were $45.8 million, down 23.9% year over year. Also, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.88%.

However, net charge-offs totaled $3.9 million, significantly up from the year-ago quarter. Further, provision for credit losses rose significantly from the prior-year quarter to $6.9 million.

Capital Ratio Strengthens, Profitability Ratios Deteriorate

As of Sep 30, 2017, Tier-1 risk-based capital ratio came in at 15.10% compared with 14.41% as of Sep 30, 2016. Moreover, total risk-based capital ratio was 15.81%, up from 15.14% at the end of the year-ago quarter.

Also, common equity tier 1 capital ratio was 15.10%, up from 14.41% in the prior-year quarter.

The annualized return on average assets was 1.22%, down from 1.27% in the prior-year quarter. Similarly, annualized return on common equity was 7.20% compared with 7.66% in the prior-year quarter.

Our Viewpoint

Despite an improving rate scenario, Prosperity Bancshares’ margins remained under pressure owing to its liability sensitive balance sheet. Also, the bank’s strategy to grow inorganically may lead to higher merger-related charges, resulting in a rise in operating expenses. Further, exposure to a risky loan portfolio will likely weigh on the financials. Nevertheless, growth in loan balances along with steady improvement in asset quality should support profitability.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise

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

Currently, Prosperity Bancshares carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Associated Banc-Corp ASB reported third-quarter 2017 earnings per share of 41 cents, outpacing the Zacks Consensus Estimate of 36 cents. The figure represents an increase of 21% from the prior-year quarter.

Shares of Commerce Bancshares, Inc CBSH has slipped more than 2.4% following the release of its third-quarter 2017 results. Earnings of 71 cents per share missed the Zacks Consensus Estimate of 75 cents. The figure reflects a 9.2% rise from the year-ago quarter.

Shares of First Republic Bank FRC are down 7.1%, following the third-quarter 2017 results. The company delivered a negative earnings surprise of 1.7%, reflecting elevated expenses. Earnings per share came in at $1.14, missing the Zacks Consensus Estimate of $1.16. However, the figure improved 14% from the year-ago tally.

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