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Prosperity Bancshares (PB) Stock Rises Despite Q2 Earnings Miss
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Shares of Prosperity Bancshares Inc. (PB - Free Report) gained 2.3% following the release of lower-than-expected second-quarter 2023 results. Earnings per share of 94 cents missed the Zacks Consensus Estimate of $1.19. The bottom line decreased 32.9% from the prior-year quarter.
Results were hurt by an increase in expenses and a fall in net revenues. The company also reported rise in provisions for credit losses, which was an offsetting factor. However, higher fee income and increased loan balances were the major tailwinds.
Net income available to common shareholders was $86.9 million, down 32.3% year over year.
Revenues Fall & Expenses Increase
Net revenues were $276.1 million, down 3.5% from the prior-year quarter. The top line lagged the Zacks Consensus Estimate of $281.98 million.
Net interest income (NII) was $236.5 million, down 4.8% year over year. Net interest margin (NIM), on a tax-equivalent basis, shrunk 24 basis points to 2.73%. Our estimates for NII and NIM were $235.2 million and 2.78%, respectively.
Non-interest income totaled $39.7 million, up 5.6% year over year. The rise was mainly driven by an increase in almost all the components of non-interest income, except service charges on deposit accounts. Our estimate for non-interest income was $34.6 million.
Non-interest expenses increased 18.7% to $145.9 million year over year. The rise was largely due to an increase in almost all cost components except for a decrease in other real estate expenses and net gain on sale or write-down of other real estate. The reported quarter also included merger-related charges of $12.9 million. Our estimate for non-interest expenses was $123.2 million.
The efficiency ratio was 53.21%, up from 43.12% in the prior-year quarter. A rise in the efficiency ratio indicates lower profitability.
As of Jun 30, 2023, total loans were $21.7 billion, up 12% from the end of the previous quarter. Deposits totaled $27.4 billion, up 1.4%. Our estimate for total deposits was $26.9 billion.
Credit Quality Weakens
The company recorded a provision for credit losses of $18.5 million compared to nil provisions in the year-ago quarter. Our estimate for provision for credit losses was $25.6 million. As of Jun 30, 2023, total non-performing assets were $62.7 million, up drastically from the prior-year quarter end.
Net charge-offs were $16.1 million compared to net charge-offs of $1.2 million in the year-ago period. The ratio of allowance for credit losses to total loans was 1.59%, up from 1.56%.
Capital & Profitability Ratios Deteriorate
As of Jun 30, 2023, the Tier-1 risk-based capital ratio was 14.48%, down from 15.26% recorded in the prior-year quarter. The total risk-based capital ratio was 15.51%, down from 15.91% as of Jun 30, 2022.
At the end of the second quarter, the annualized return on average assets was 0.89%, down from 1.36% at the end of the prior-year quarter. Annualized return on average common equity was 5.01%, down from the year-earlier period’s 7.84%.
Share Repurchase Update
During the reported quarter, Prosperity Bancshares repurchased approximately 595,000 shares at an average weighted price of $57.49 share.
Our Take
Supported by robust loans, higher rates and opportunistic acquisitions, PB is well-positioned for top-line growth. Yet, rising expenses and a worsening operating backdrop are major near-term concerns.
Last October, PB entered two separate agreements to acquire Lone Star State Bancshares, Inc. for $228.7 million and First Bancshares of Texas, Inc. for $341.6 million. On May 1, the company completed its acquisition of First Bancshares of Texas. While the Lone Star State deal is yet to get regulatory approvals, subject to customary closing conditions.
Prosperity Bancshares anticipates the deals to result in pro-forma earnings accretion of 5.9% in 2023 and 8.9% in 2024. The transactions are expected to result in cost savings of 25% of non-interest expenses. Of this, this year, 75% will likely be phased-in.
Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
Bank of Hawaii Corporation (BOH - Free Report) reported second-quarter 2023 earnings per share of $1.12, beating the Zacks Consensus Estimate of $1.11 by a penny. The bottom line declined 18.8% from the year-ago quarter’s number.
Results were aided by higher fee income and decent loan demand. However, a fall in NII and a rise in operating expenses and provisions was a significant drag for BOH.
BankUnited, Inc. (BKU - Free Report) second-quarter 2023 earnings per share of 78 cents missed the Zacks Consensus Estimate of 79 cents by a penny. The bottom line also declined 4.9% from the prior-year quarter.
BKU's results were adversely impacted by an increase in operating expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income and lower provisions for credit losses acted as tailwinds.
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Prosperity Bancshares (PB) Stock Rises Despite Q2 Earnings Miss
Shares of Prosperity Bancshares Inc. (PB - Free Report) gained 2.3% following the release of lower-than-expected second-quarter 2023 results. Earnings per share of 94 cents missed the Zacks Consensus Estimate of $1.19. The bottom line decreased 32.9% from the prior-year quarter.
Results were hurt by an increase in expenses and a fall in net revenues. The company also reported rise in provisions for credit losses, which was an offsetting factor. However, higher fee income and increased loan balances were the major tailwinds.
Net income available to common shareholders was $86.9 million, down 32.3% year over year.
Revenues Fall & Expenses Increase
Net revenues were $276.1 million, down 3.5% from the prior-year quarter. The top line lagged the Zacks Consensus Estimate of $281.98 million.
Net interest income (NII) was $236.5 million, down 4.8% year over year. Net interest margin (NIM), on a tax-equivalent basis, shrunk 24 basis points to 2.73%. Our estimates for NII and NIM were $235.2 million and 2.78%, respectively.
Non-interest income totaled $39.7 million, up 5.6% year over year. The rise was mainly driven by an increase in almost all the components of non-interest income, except service charges on deposit accounts. Our estimate for non-interest income was $34.6 million.
Non-interest expenses increased 18.7% to $145.9 million year over year. The rise was largely due to an increase in almost all cost components except for a decrease in other real estate expenses and net gain on sale or write-down of other real estate. The reported quarter also included merger-related charges of $12.9 million. Our estimate for non-interest expenses was $123.2 million.
The efficiency ratio was 53.21%, up from 43.12% in the prior-year quarter. A rise in the efficiency ratio indicates lower profitability.
As of Jun 30, 2023, total loans were $21.7 billion, up 12% from the end of the previous quarter. Deposits totaled $27.4 billion, up 1.4%. Our estimate for total deposits was $26.9 billion.
Credit Quality Weakens
The company recorded a provision for credit losses of $18.5 million compared to nil provisions in the year-ago quarter. Our estimate for provision for credit losses was $25.6 million. As of Jun 30, 2023, total non-performing assets were $62.7 million, up drastically from the prior-year quarter end.
Net charge-offs were $16.1 million compared to net charge-offs of $1.2 million in the year-ago period. The ratio of allowance for credit losses to total loans was 1.59%, up from 1.56%.
Capital & Profitability Ratios Deteriorate
As of Jun 30, 2023, the Tier-1 risk-based capital ratio was 14.48%, down from 15.26% recorded in the prior-year quarter. The total risk-based capital ratio was 15.51%, down from 15.91% as of Jun 30, 2022.
At the end of the second quarter, the annualized return on average assets was 0.89%, down from 1.36% at the end of the prior-year quarter. Annualized return on average common equity was 5.01%, down from the year-earlier period’s 7.84%.
Share Repurchase Update
During the reported quarter, Prosperity Bancshares repurchased approximately 595,000 shares at an average weighted price of $57.49 share.
Our Take
Supported by robust loans, higher rates and opportunistic acquisitions, PB is well-positioned for top-line growth. Yet, rising expenses and a worsening operating backdrop are major near-term concerns.
Last October, PB entered two separate agreements to acquire Lone Star State Bancshares, Inc. for $228.7 million and First Bancshares of Texas, Inc. for $341.6 million. On May 1, the company completed its acquisition of First Bancshares of Texas. While the Lone Star State deal is yet to get regulatory approvals, subject to customary closing conditions.
Prosperity Bancshares anticipates the deals to result in pro-forma earnings accretion of 5.9% in 2023 and 8.9% in 2024. The transactions are expected to result in cost savings of 25% of non-interest expenses. Of this, this year, 75% will likely be phased-in.
Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
Prosperity Bancshares, Inc. price-consensus-eps-surprise-chart | Prosperity Bancshares, Inc. Quote
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
Bank of Hawaii Corporation (BOH - Free Report) reported second-quarter 2023 earnings per share of $1.12, beating the Zacks Consensus Estimate of $1.11 by a penny. The bottom line declined 18.8% from the year-ago quarter’s number.
Results were aided by higher fee income and decent loan demand. However, a fall in NII and a rise in operating expenses and provisions was a significant drag for BOH.
BankUnited, Inc. (BKU - Free Report) second-quarter 2023 earnings per share of 78 cents missed the Zacks Consensus Estimate of 79 cents by a penny. The bottom line also declined 4.9% from the prior-year quarter.
BKU's results were adversely impacted by an increase in operating expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income and lower provisions for credit losses acted as tailwinds.