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Prosperity Bancshares (PB) Up 1.3% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Prosperity Bancshares, Inc. (PB - Free Report) . Shares have added about 1.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is PB due for a pullback? 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 drivers.

Prosperity Bancshares Misses on Q1 Earnings, Expenses Rise

Prosperity Bancshares’ first-quarter 2018 earnings of $1.07 per share lagged the Zacks Consensus Estimate of $1.14. However, the figure improved 8.1% on a year-over-year basis.

Results were hurt by an increase in expenses and lower non-interest income along with continued margin pressure. Also, a significant increase in provision for credit losses was a negative factor. However, higher net interest income and stable loan balances were on the positive side.

Net income available to common shareholders for the reported quarter was $74.4 million, up from $68.6 million registered in the prior-year quarter.

Net Interest Income Improves, Expenses Rise

Net revenues of $181.2 million for the reported quarter lagged the Zacks Consensus Estimate of $184.8 million. Also, the figure decreased 1.1% from the prior-year quarter.

Net interest income was $153.2 million, increasing nearly 1% year over year. The rise was primarily due to an increase in income on loans, partially offset by an increase in the average rate on interest bearing deposits and a decrease in loan discount accretion.

However, net interest margin, on a tax-equivalent basis, decreased 4 basis points (bps) to 3.16%.

Non-interest income declined 9.4% year over year to $27.9 million. This fall was primarily due to lower mortgage income, nonsufficient fund fees, service charges on deposit accounts and other noninterest income.

Non-interest expenses increased 2.6% year over year to $80.1 million. The rise was due to an increase in salaries and benefits costs, net occupancy and equipment costs along with credit and debit card, data processing and software amortization costs. Also, the company witnessed net loss on sale or write-down of other real assets in the reported quarter.

Solid Balance Sheet

As of Mar 31, 2018, total loans were $10 billion, almost in line with the prior-quarter end. Total deposits decreased 2.7% from the previous quarter to $17.3 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2018, total nonperforming assets were $33.2 million, decreasing 19.4% year over year. Also, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.84%.

However, net charge-offs totaled $9.4 million, significantly up from the year-ago quarter figure of $3.9 million. Also, provision for credit losses increased significantly from the prior-year quarter to $9 million.

Capital & Profitability Ratios Improve

As of Mar 31, 2018, Tier-1 risk-based capital ratio was 15.31%, up from 14.45% as of Mar 31, 2017. Moreover, total risk-based capital ratio was 15.97%, up from 15.14% at the end of the year-ago quarter.

Also, common equity tier 1 capital ratio was 15.31%, up from 14.45% in the prior-year quarter.

The annualized return on average assets was 1.32% at the end of the reported quarter, up from 1.23% in the prior-year quarter. Similarly, annualized return on common equity was 7.69% compared with 7.45% in the prior-year quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been nine revisions lower for the current quarter.

VGM Scores

At this time, PB has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was also 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, PB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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