It has been about a month since the last earnings report for Prosperity Bancshares (PB Quick QuotePB - Free Report) . Shares have added about 8.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Prosperity Bancshares due for a pullback? 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 Q1 Earnings Beat, Revenues Up Y/Y

Prosperity Bancshares’ first-quarter 2020 earnings per share of $1.39 surpassed the Zacks Consensus Estimate of $1.20. Also, the bottom line increased 17.8% year over year.

Results were primarily driven by an increase in revenues. Moreover, the balance sheet position remained strong during the quarter. Also, the company did not record any provision for credit losses in the quarter. However, higher expenses were an undermining factor.

Net income available to common shareholders was $130.8 million compared with $82.4 million recorded in the prior-year quarter.

Revenues Improve, Expenses Rise

Net revenues were $290.4 million, up 58.7% from the prior-year quarter. Also, the figure beat the Zacks Consensus Estimate of $281.4 million.

Net interest income was $256 million, surging 65.3% year over year. The increase was primarily driven by the LegacyTexas merger and a rise in loan discount accretion. Net interest margin, on a tax-equivalent basis, jumped 61 basis points (bps) year over year to 3.81%.

Non-interest income increased 22.2% year over year to $34.4 million. Almost all fee income components, except for brokerage income, witnessed a rise.

Non-interest expenses jumped 58.8% year over year to $124.7 million. The increase was largely due to the merger-related expenses that the company incurred during the quarter in connection with LegacyTexas.

As of Mar 31, 2020, total loans were $19.1 billion, up 1.5% from the prior quarter end. Total deposits declined 1.5% sequentially to $23.8 billion.

Credit Quality: A Mixed Bag

The company did not record any provision for credit losses in the first quarter against provisions of $0.7 million recorded in the prior-year quarter. Net charge-offs were $0.8 million, down 23.6% year over year.

As of Mar 31, 2020, total non-performing assets were $67.2 million, increasing 64.3% year over year. The ratio of allowance for credit losses to total loans was 1.71%, up from 0.83% recorded in the prior-year quarter.

Capital Ratios Worsen, Profitability Ratios Improve

As of Mar 31, 2020, Tier-1 risk-based capital ratio was 12.27%, down from 16.76% as of Mar 31, 2019. Moreover, total risk-based capital ratio was 12.81% compared with 17.42% at the end of the year-ago quarter. Further, common equity tier 1 capital ratio was 12.27%, down from 16.76% in the prior-year quarter.

The annualized return on average assets was 1.67%, up from 1.46% at the end of the prior-year quarter. Annualized return on common equity was 8.86% compared with 8.05% in the prior-year quarter.

Share Repurchase Update

During the quarter, the company repurchased 2.092 million shares for $52.59 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Prosperity Bancshares has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise Prosperity Bancshares has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.