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Why Is Prosperity Bancshares (PB) Down 6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Prosperity Bancshares (PB - Free Report) . Shares have lost about 6% 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 Q2 Earnings Match, Revenues Down Y/Y

Prosperity Bancshares’ second-quarter 2019 earnings of $1.18 per share were in line with the Zacks Consensus Estimate. The figure improved nearly 1% on a year-over-year basis.

Results were primarily driven by rise in non-interest income, lower operating expenses and a considerable fall in provisions. Further, loan growth supported the financials. However, decline in net interest income was an undermining factor.

Net income available to common shareholders was $82.3 million, up marginally from the prior-year quarter.

Revenues & Expenses Fall

Net revenues were $184.8 million, down 3% from the prior-year quarter. Also, the figure lagged the Zacks Consensus Estimate of $186.9 million.

Net interest income was $154.8 million, declining 4% year over year. Net interest margin, on a tax-equivalent basis, decreased 12 basis points (bps) to 3.16%.

Non-interest income increased 6% year over year to $30 million. This rise was mainly driven by higher other non-interest income, credit card, debit card and ATM card income, and trust income.

Non-interest expenses fell 3% year over year to $80.8 million. The decline was due to a decrease in almost all cost components except for credit and debit card, data processing and software amortization expenses, other real estate expenses and depreciation costs.

As of Jun 30, 2019, total loans were $10.6 billion, up 2% from the prior-quarter end. Total deposits decreased 2% sequentially to $16.9 billion.

Credit Quality Improves

Net charge-recoveries were $0.1 million against net charge-offs of $2.6 million in the prior-year quarter. Provision for credit losses decreased 80% to $0.8 million.

Moreover, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.82%. However, as of Jun 30, 2019, total non-performing assets were $41.6 million, up 32%.

Strong Capital & Profitability Ratios

As of Jun 30, 2019, Tier-1 risk-based capital ratio was 16.59%, up from 15.65% as of Jun 30, 2018. Moreover, total risk-based capital ratio was 17.25%, up from 16.32% at the end of the year-ago quarter.

Further, common equity tier 1 capital ratio was 16.59%, up from 15.65% in the prior-year quarter.

The annualized return on average assets was 1.46%, up from 1.44%. Similarly, annualized return on common equity was 7.92% compared with 8.33% in the prior-year quarter.

Share Repurchase Update

During the reported quarter, Prosperity Bancshares repurchased nearly 0.8 million shares at an average price of $64.52 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Prosperity Bancshares has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Prosperity Bancshares has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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