Shares of Prosperity Bancshares Inc. (PB - Free Report) rallied 4% in response to better-than-expected third-quarter 2023 results. 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.
Our Take
Supported by robust loans, higher rates and opportunistic acquisitions, PB is well-positioned for top-line growth. Further, the company remains committed to acquiring Lone Star State Bancshares, Inc., pending regulatory approvals. The deal was announced in October 2022.
Rising expenses and a worsening operating backdrop are major near-term concerns.
Prosperity Bancshares currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Associated Banc-Corp’s (ASB - Free Report) third-quarter 2023 earnings of 53 cents per share met the Zacks Consensus Estimate. The bottom line declined 14.5% from the prior-year quarter.
In the reported quarter, ASB recorded a decline in NII and non-interest income. Also, expenses increased marginally, which, along with higher provisions, was a negative. However, a sequential rise in loan balances aided the results to some extent.
BankUnited, Inc. (BKU - Free Report) third-quarter 2023 earnings per share of 63 cents missed the Zacks Consensus Estimate of 71 cents. The bottom line also declined 43.8% from the prior-year quarter.
BKU’s results were adversely impacted by an increase in non-interest expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income acted as a tailwind.
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Shares of Prosperity Bancshares Inc. (PB - Free Report) rallied 4% in response to better-than-expected third-quarter 2023 results. 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.
Our Take
Supported by robust loans, higher rates and opportunistic acquisitions, PB is well-positioned for top-line growth. Further, the company remains committed to acquiring Lone Star State Bancshares, Inc., pending regulatory approvals. The deal was announced in October 2022.
Rising expenses and a worsening operating backdrop are major near-term concerns.
Prosperity Bancshares currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Associated Banc-Corp’s (ASB - Free Report) third-quarter 2023 earnings of 53 cents per share met the Zacks Consensus Estimate. The bottom line declined 14.5% from the prior-year quarter.
In the reported quarter, ASB recorded a decline in NII and non-interest income. Also, expenses increased marginally, which, along with higher provisions, was a negative. However, a sequential rise in loan balances aided the results to some extent.
BankUnited, Inc. (BKU - Free Report) third-quarter 2023 earnings per share of 63 cents missed the Zacks Consensus Estimate of 71 cents. The bottom line also declined 43.8% from the prior-year quarter.
BKU’s results were adversely impacted by an increase in non-interest expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income acted as a tailwind.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How To Profit From Trillions On Spending For Infrastructure >>
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