Prosperity Bancshares Inc.’s (PB - Free Report) shares gained 5.6%, following the release of second-quarter 2020 results. Adjusted earnings per share of $1.25 surpassed the Zacks Consensus Estimate of $1.09. However, the bottom line decreased 10.1% from the first quarter.
The results were primarily driven by an increase in net interest income. The company’s balance sheet position remained strong during the quarter. However, higher expenses, decline in fee income and a drastic jump in provision for credit losses were the undermining factors.
After considering merger-related charges and income tax benefit, net income available to common shareholders was $130.9 million, which was relatively stable on a sequential basis.
Revenues Down, Expenses Rise
Net revenues were $284.6 million, down 2% from the prior quarter. Nonetheless, the figure beat the Zacks Consensus Estimate of $279 million.
Net interest income was $259 million, up 1.1% from the first quarter. The increase was primarily driven by lower interest expense, partially offset by a decrease in loan discount accretion and interest income on securities.
Net interest margin, on a tax-equivalent basis, declined 12 basis points (bps) sequentially to 3.69%.
Non-interest income plunged 25.3% year over year to $25.7 million. The fall was mainly due to a loss on write-down of assets and decrease in NSF fees.
Non-interest expenses increased 7.7% from the first quarter to $134.4 million. The increase was largely due to merger-related expenses, and salaries and benefits costs.
As of Jun 30, 2020, total loans were $21 billion, up 9.9% from first quarter-end. Total deposits rose 9.8% sequentially to $26.2 billion.
Credit Quality Worsens
Provision for credit losses was $10 million compared with no provisions in first-quarter 2020. Net charge-offs were $13 million, up substantially from $0.8 million in the first quarter.
As of Jun 30, 2020, total non-performing assets were $77.9 million, which increased 15.9% sequentially. However, the ratio of allowance for credit losses to total loans was 1.54%, down 17 bps from the first quarter.
Capital Ratios Improve, Profitability Ratios Worsen
As of Jun 30, 2020, Tier-1 risk-based capital ratio was 12.29%, up from 12.27% on Mar 31, 2020. Moreover, total risk-based capital ratio was 13.36% compared with 12.27% at first quarter-end.
The annualized return on average assets was 1.61%, down from 1.67% at first quarter-end. Annualized return on common equity was 8.84% compared with 8.86% in the first quarter.
Share Repurchase Update
During the quarter, the company did not repurchase any shares.
The acquisition of LegacyTexas Financial will likely aid Prosperity Bancshares’ growth. Moreover, solid loans and deposit balances will likely support profitability. However, due to lower rates, its margins might be under pressure in the near term. Also, elevated expenses will likely hurt the bottom line.
Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
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) second-quarter 2020 adjusted earnings of 26 cents per share were in line with the Zacks Consensus Estimate. The bottom line, however, slumped 49% year over year. The earnings excluded gain on the sale of Associated Benefits and Risk Consulting for the reported quarter.
Bank OZK’s (OZK - Free Report) second-quarter 2020 earnings per share of 39 cents surpassed the Zacks Consensus Estimate of 35 cents. However, the bottom line reflects a decline of 54.7% from the prior-year reported number.
Washington Federal’s (WAFD - Free Report) third-quarter fiscal 2020 (ended Jun 30) earnings were 46 cents per share, which missed the Zacks Consensus Estimate by a penny. The figure also declined 31.3% year over year.
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