A month has gone by since the last earnings report for Prosperity Bancshares (PB Quick QuotePB - Free Report) . Shares have added about 6.7% in that time frame, outperforming 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 Q1 Earnings Beat, Costs Up

Prosperity Bancshares’ first-quarter 2022 earnings per share of $1.33 surpassed the Zacks Consensus Estimate of $1.29. However, the bottom line declined 7.6% from the prior-year quarter’s figure.

The company did not record any provisions in the reported quarter, which was a major positive. A rise in non-interest income was another tailwind. However, lower net interest income (NII) and a marginal rise in expenses hurt results to some extent.

Net income available to common shareholders was $122.3 million, down 8.2% year over year.

Revenues Decline, Expenses Rise Marginally

Net revenues were $275.1 million, down 4.7% from the prior-year quarter. The top line, however, beat the Zacks Consensus Estimate of $271.1 million.

NII was $239.9 million, down 5.7% year over year. Net interest margin (NIM), on a tax-equivalent basis, contracted 53 basis points (bps) to 2.88%.

Non-interest income was $35.1 million, up 3.3% year over year. The rise was driven by an increase in almost all fee income components, except for trust income, mortgage income and bank-owned life insurance income.

Non-interest expenses increased marginally from $119.1 million in the prior-year quarter to $119.9 million. The rise was due to an increase in almost all cost components, except for core deposit intangibles amortization, salaries and benefits costs, and other real estate expenses.

As of Mar 31, 2022, total loans were $18.1 billion, down 2.9% from the end of the previous quarter. Deposits totaled $31.1 billion, up marginally on a sequential basis.

Credit Quality Improves

Similar to the year-ago quarter, the company did not record any provision for credit losses in the reported quarter. As of Mar 31, 2022, total non-performing assets were $27.2 million, down 38.4% from the prior-year quarter end.

Net charge-offs were $1.2 million, plunging 86.3% from the year-ago period. However, the ratio of allowance for credit losses to total loans was 1.58%, up 2 bps year over year.

Capital Ratios Improve

As of Mar 31, 2022, the Tier-1 risk-based capital ratio was 15.32%, up from 14.60% as of Mar 31, 2021. The total risk-based capital ratio was 15.99% compared with the prior year’s 15.07%.

Profitability Ratios Deteriorate

At the end of the first quarter, the annualized return on average assets was 1.29%, down from 1.54% at the end of the prior-year quarter. Annualized return on common equity was 7.54%, down from the year-earlier period’s 8.60%.

Second-Quarter 2022 Outlook

The company expects non-interest expenses of $120-$122 million. The expected sequential increase “is based on the annual merit increases” in the quarter.

Fair value loan income accretion is expected to be $1-$2 million.

Given that the forgiveness process is slowing down, the company expects Paycheck Protection Program fee income to be $1-$2 million.

Deposits are expected to be down on seasonality. Mortgage warehouse loan portfolio is likely to be in the range of $1.35-$1.4 billion on average.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 5.08% due to these changes.

VGM Scores

Currently, Prosperity Bancshares has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Prosperity Bancshares has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Prosperity Bancshares is part of the Zacks Banks - Southwest industry. Over the past month, First Horizon National (FHN Quick QuoteFHN - Free Report) , a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended March 2022 more than a month ago.

First Horizon reported revenues of $707 million in the last reported quarter, representing a year-over-year change of -12.3%. EPS of $0.38 for the same period compares with $0.51 a year ago.

For the current quarter, First Horizon is expected to post earnings of $0.38 per share, indicating a change of -34.5% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.8% over the last 30 days.

First Horizon has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.