Back to top

Image: Bigstock

Prosperity Bancshares (PB) Misses Q2 Earnings & Revenues

Read MoreHide Full Article

Shares of Prosperity Bancshares Inc. (PB - Free Report) declined 3.2% following the release of its second-quarter 2016 results before the market opened yesterday. Earnings of 98 cents per share lagged the Zacks Consensus Estimate of 99 cents. Further, the bottom line declined 4.9% from the year-ago quarter. Earnings included purchase accounting adjustments for both periods.

Results were lower-than-expected primarily due to a decline in revenues and escalated provisions. Lower deposits and margins, and increased net charge-offs were the downside. Nonetheless, lower expenses and steady capital deployment activities were the positives.

Prosperity Bancshares’ net income fell 5.3% year over year to $68.1 million.
 

Prosperity Bancshares (PB - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Revenues Fall More than Offset Cost Containment

Net revenue fell 5.7% year over year to $186.9 million. Also, it lagged the Zacks Consensus Estimate of $191.6 million.

Net interest income (excluding provision for credit losses) increased 0.2% year over year to $158.5 million. The rise was mainly due to an increase in average interest-earning assets, partially offset by a decrease in loan discount accretion. However, net interest margin, on a tax equivalent basis, slipped 2 basis points (bps) year over year to 3.37%.

Non-interest income declined 6% year over year to $28.5 million. The fall was primarily led by a decrease in trust income, brokerage income as well as other income.

Non-interest expenses were down 0.6% year over year to $79.2 million. The decrease was largely triggered by a fall inregulatory assessments and FDIC insuranceas well as other expense.

Efficiency ratio was 42.46%, slightly up from 42.35% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Balance Sheet: A Mixed Bag

As of Jun 30, 2016, total loans summed $9.7 billion, up marginally from the prior quarter. Total deposits declined 3.9% from the previous quarter to $17.2 billion.

Asset Quality Deteriorated

The ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.87%.
However, net charge-offs totaled $5.9 million, substantially up from $0.5 million in the year-ago quarter. Also, provision for credit losses rose significantly to $6.0 million. Further, total nonperforming assets surged 48.4% year over year to $52.1 million.

Capital Position Enhanced, Profitability Deteriorated

As of Jun 30, 2016, Tier-1 risk-based capital ratio came in at 13.66% compared with 12.91% as of Jun 30, 2015. Moreover, total risk-based capital ratio was 14.37%, up from 13.63% at the end of the year-ago quarter.

Moreover, common equity tier 1 capital ratio (under Basel III, effective Jan 1, 2015) was 13.66% as of Jun 30, 2016.

The annualized return on average assets fell 9 bps year over year to 1.24% as of Jun 30, 2016. Similarly, annualized return on common equity stood at 7.70%, compared with 8.61% in the prior-year quarter.

Capital Deployment Activities

Prosperity Bancshares repurchased 0.09 million shares at an average weighted price of $45.40 per share. The repurchase was made under the stock repurchase program announced in Jan 2016, under which up to 5% or approximately 3.54 million of the company’s outstanding sharesmay be acquired over the next twelve months at the discretion of management.

Concurrent with the earnings release, the company declared a cash dividend of 30 cents per share. The dividend will be paid on Oct 3 to shareholders of record as of Sep 16.

Our Viewpoint

Prosperity Bancshares’ sturdy balance sheet makes it well positioned for future expansion through acquisitions. Also, the company’s efforts for organic and inorganic growth as well as yearly dividend hikes remain impressive.
However, a concentrated loan portfolio and stringent regulations are expected to weigh onprofitability in the near term.Further, with the company continuously growing inorganically, merger and integration charges are expected to remain on the higher side.

PROSPERITY BCSH Price, Consensus and EPS Surprise

PROSPERITY BCSH Price, Consensus and EPS Surprise | PROSPERITY BCSH Quote

Currently, Prosperity Bancshares carries Zacks Rank #3 (Hold).

Performance of Other Banks

Zions Bancorporation (ZION - Free Report) reported second-quarter 2016 adjusted earnings of 44 cents per share, beating the Zacks Consensus Estimate of 42 cents. The better-than-expected results were driven by higher revenues and lower expenses. However, these were partially offset by an escalated provision for loan losses.

SVB Financial Group reported second-quarter 2016 earnings per share of $1.78, widely surpassing the Zacks Consensus Estimate of $1.69.Better-than-expected results were primarily driven by a rise in net interest income, partly offset by a fall in non-interest income, higher non-interest expense and increased provision for loan losses.

Westamerica Bancorp.’s (WABC - Free Report) second-quarter 2016 earnings of 57 cents per share were in line with the Zacks Consensus Estimate. The results were largely affected by a decline in revenues. However, a fall in operating expense and the absence of provisions were enough to counter the revenue decline.

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 >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Westamerica Bancorporation (WABC) - free report >>

Zions Bancorporation, N.A. (ZION) - free report >>

Prosperity Bancshares, Inc. (PB) - free report >>

Published in