It has been about a month since the last earnings report for Prosperity Bancshares (
PB Quick Quote PB - Free Report) . Shares have lost about 8.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Prosperity Bancshares Q2 Earnings Beat Estimates
Prosperity Bancshares’ second-quarter 2023 adjusted earnings per share of $1.21 beat the Zacks Consensus Estimate of $1.19. The bottom line decreased 13.6% from the prior-year quarter.
Results benefited from higher fee income and increased loan balances. However, an increase in expenses and a fall in net interest income (NII) were the undermining factors. The company also reported rise in provisions for credit losses. After considering certain charges related to merger, 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.
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.
The company expects loan growth to be 5-6% in the second half of 2023.
The company expects non-interest expenses in the third quarter of 2023 to be $134-$136 million. The projection excludes the impact from one-time merger-related costs (which is estimated to be $10-$12 million) and additional non-interest expense from the pending Lone Star acquisition.
For the fourth quarter, non-interest expenses are expected to be within $134-$136 million range excluding the Lone Star deal, which is anticipated to add $7-$10 million.
Third-quarter 2023 results are expected to be impacted by accounting provision expense related to the expected Lone Star acquisition. The estimated range of the acquisition-related provision expense is $10-$13 million. How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
Currently, Prosperity Bancshares has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Prosperity Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.