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Prosperity Bancshares' (PB) Q3 Earnings In Line, Costs Rise

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Prosperity Bancshares Inc.’s (PB - Free Report) third-quarter 2018 earnings of $1.18 per share were in line with the Zacks Consensus Estimate. The figure improved 20.4% on a year-over-year basis.

Results were primarily driven by improvement in revenues and lower provisions. Moreover, increasing loan balances supported results to some extent. However, an increase in expenses was the undermining factor. Probably because of this rise in expenses shares of the company lost 2.6% following the release.

Net income available to common shareholders for the reported quarter was $82.5 million, up from $67.9 million registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Net revenues of $187.9 million increased 1.6% from the prior-year quarter. However, the figure lagged the Zacks Consensus Estimate of $189.1 million.

Net interest income was $157.3 million, increasing nearly 1% year over year. The rise was primarily due to an increase in loan and investment yields, and higher loan balances, partially offset by an increase in deposit rates.

Net interest margin, on a tax-equivalent basis, decreased 7 basis points (bps) year over year to 3.15%.

Non-interest income increased 6.3% year over year to $30.6 million. This rise was driven by an increase in almost all components except for bank owned life insurance income, service charges on deposit accounts and net gain on sale of assets.

Non-interest expenses increased 5.5% year over year to $81.8 million. The rise was due to an increase in almost all cost components except for regulatory assessments and FDIC insurance costs, core deposit intangible amortization costs, and communication expenses.

Solid Balance Sheet

As of Sep 30, 2018, total loans were $10.3 billion, up 1.4% from the prior-quarter end. Total deposits decreased 1.4% from the previous quarter end to $16.7 billion.

Credit Quality Improves

As of Sep 30, 2018, total non-performing assets were $16.8 million, decreasing 63.4% year over year. Moreover, the ratio of allowance for credit losses to total loans was down 4 bps year over year to 0.84%.

Further, net charge-offs totaled $1.3 million, down from the year-ago quarter figure of $3.9 million. Provision for credit losses decreased 65.9% from the prior-year quarter to $2.4 million.

Capital & Profitability Ratios Improve

As of Sep 30, 2018, Tier-1 risk-based capital ratio was 15.94%, up from 15.10% as of Sep 30, 2017. Moreover, total risk-based capital ratio was 16.60%, up from 15.81% at the end of the year-ago quarter.

Moreover, common equity tier 1 capital ratio was 15.94%, up from 15.10% in the prior-year quarter.

The annualized return on average assets was 1.46% at the end of the reported quarter, up from 1.22% in the prior-year quarter. Similarly, annualized return on common equity was 8.30% compared with 7.20% in the prior-year quarter.

Dividend Update

Concurrent with the earnings release, the company declared a dividend of 41 cents for the fourth quarter, marking a hike of 13.9% from the previous payout. The dividend will be paid on Jan 2, 2019, to shareholders of record as of Dec 15, 2018.

Our Viewpoint

Dismal performance of Prosperity Bancshares’ mortgage banking business (owing to higher interest rates) will impede revenue growth to some extent. While the company's continued expansion via acquisitions, solid loan and deposit balances, and steady improvement in asset quality will likely support profitability, mounting operating expenses and significant exposure to real estate loan portfolio remain major near-term concerns.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
 

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise | Prosperity Bancshares, Inc. Quote

Prosperity Bancshares currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Major Regional Banks

Comerica’s (CMA - Free Report) third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Higher revenues and improved credit metrics were recorded. However, lower deposits and loans remained an undermining factor. Furthermore, higher expenses were a headwind.

The PNC Financial Services Group (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth.

Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

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