A month has gone by since the last earnings report for Prosperity Bancshares (PB Quick QuotePB - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Prosperity Bancshares due for a breakout? 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, Revenues Fall Y/Y

Prosperity Bancshares’ first-quarter 2021 earnings per share of $1.44 surpassed the Zacks Consensus Estimate of $1.38. Moreover, the bottom line increased from adjusted earnings of $1.39 recorded in the prior-year quarter.

Results benefited from decline in expenses, absence of credit costs and growth in deposit balance. Further, improving capital ratios acts as a tailwind. However, lower revenues and fall in loan balance were the undermining factors.

Net income available to common shareholders was $133.3 million, up 1.9% year over year.

Revenues Fall, Expenses Down, Deposits Rise

Net revenues were $288.6 million, down marginally from the prior-year quarter. However, the figure beat the Zacks Consensus Estimate of $282.5 million.

Net interest income was $254.6 million, down marginally year over year.

NIM, on a tax-equivalent basis, shrunk 40 basis points (bps) to 3.41%.

Non-interest income edged down 1.1% to $34 million. This fall largely resulted from the decline in nonsufficient funds (NSF) fees, service charges on deposit accounts and bank-owned life insurance income.

Non-interest expenses dropped 4.5% to $119.1 million. Decrease in net occupancy and equipment costs, credit and debit card, data processing and software amortization costs, core deposit intangibles amortization costs, depreciation, communication, merger related expenses and other noninterest expense were the primary reasons behind this fall.

As of Mar 31, 2021, total average loans were $19.7 billion, down 3.3% from the prior quarter. However, total average deposits rose 3.4% to $27.8 billion.

Credit Quality Improve

Provision for credit losses was nil during the first quarters of both 2021 and 2020. Further, as of Mar 31, 2021, total non-performing assets were $44.2 million, plunging 34.3%. Also, the ratio of allowance for credit losses to total loans was 1.56%, down 15 bps.

However, net charge-offs were $8.9 million, up significantly from the year-ago period’s $0.8 million.

Capital Ratios Improve

As of Mar 31, 2021, Tier-1 risk-based capital ratio was 14.60%, up from 12.27% on Mar 31, 2020. Moreover, total risk-based capital ratio was 15.07% compared with the prior year’s 12.81%.

Profitability Ratios Deteriorates

The annualized return on average assets was 1.54%, down from the 1.67% witnessed at the end of March 2020. Annualized return on common equity was 8.60%, down from the year-earlier period’s 8.86%.

Second Quarter 2021 Outlook

The company expects non-interest expenses to be in the range of $118-$120 million.

Fair value loan income is expected to be nearly $4-$5 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Prosperity Bancshares has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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.