Why Is Prosperity Bancshares (PB) Up 7.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Prosperity Bancshares (PB). Shares have added about 7.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Prosperity Bancshares due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Prosperity Bancshares Q3 Earnings Beat on Higher Fee Income
Prosperity Bancshares’ ‘third-quarter 2023 earnings per share of $1.20 beat the Zacks Consensus Estimate by a penny. The bottom line, however, decreased 19.5% from the prior-year quarter. The reported quarter figure includes merger-related provisions and expenses.
Results benefited from higher non-interest income and no provisions. Further, a solid loan and deposit balance offered some support. However, lower net interest income (NII) and higher expenses were the headwinds.
Net income available to common shareholders was $112.2 million, down 17.4% year over year.
Revenues Fall & Expenses Increase
Net revenues were $278.3 million, down 5.8% from the prior-year quarter. The top line marginally surpassed the Zacks Consensus Estimate of $278.2 million.
Net interest income (NII) was $239.5 million, down 8.1% year over year. Net interest margin (NIM), on a tax-equivalent basis, shrunk 39 basis points (bps) to 2.72%. Our estimates for NII and NIM were $241.2 million and 2.85%, respectively.
Non-interest income totaled $38.7 million, up 11.7%. The rise was mainly driven by an increase in almost all the components of non-interest income, except non-sufficient funds (NSF) fees and net loss on sale or write-down of assets. Our estimate for non-interest income was $36.5 million.
Non-interest expenses increased 11% to $135.7 million. The rise was largely due to an increase in almost all cost components except other real estate expenses. The reported quarter also included merger-related charges of $1.1 million. Our estimate for non-interest expenses was $135.4 million.
The efficiency ratio was 48.74%, up from 41.38% in the prior-year quarter. A rise in the efficiency ratio indicates lower profitability.
As of Sep 30, 2023, total loans were $21.4 billion, down 1% from the previous quarter. Deposits totaled $27.4 billion, down marginally.
Credit Quality Weakens
The company recorded nil provision for credit losses during the reported quarter. As of Sep 30, 2023, total non-performing assets were $69.5 million, up drastically from $19.9 million at the prior-year quarter end.
Net charge-offs were $3.4 million, up 91.5% from the year-ago period. The ratio of allowance for credit losses to total loans was 1.64%, up 12 bps.
Capital & Profitability Ratios Deteriorate
As of Sep 30, 2023, Tier-1 risk-based capital ratio was 14.98%, down from 15.44% recorded in the prior-year quarter. The total risk-based capital ratio was 16.05%, down from 15.09% as of Sep 30, 2022.
At the end of the third quarter, the annualized return on average assets was 1.13%, down from 1.45% at the end of the prior-year quarter. Annualized return on average common equity was 6.39%, down from the year-earlier period’s 8.24%.
Share Repurchase Update
During the reported quarter, Prosperity Bancshares did not repurchase any shares.
Outlook
The company expects loan growth to moderate going forward.
NIM is expected to increase moderately in the fourth quarter of 2023.
The company doesn’t expect to add huge reserves in the near term.
For the fourth quarter of 2023, non-interest expenses are expected to be in the range of $134-$136 million. For 2024, expenses are expected to rise 2-3%, excluding the FDIC special assessment charges, which will be reflected in the first quarter of 2024. Also, this rise excludes Lone Star Bank acquisition-related charges.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, Prosperity Bancshares has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Prosperity Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Prosperity Bancshares belongs to the Zacks Banks - Southwest industry. Another stock from the same industry, First Horizon National (FHN), has gained 13.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
First Horizon reported revenues of $778 million in the last reported quarter, representing a year-over-year change of -11.1%. EPS of $0.27 for the same period compares with $0.44 a year ago.
For the current quarter, First Horizon is expected to post earnings of $0.31 per share, indicating a change of -39.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
First Horizon has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Prosperity Bancshares, Inc. (PB) : Free Stock Analysis Report
First Horizon Corporation (FHN) : Free Stock Analysis Report
