Prosperity Bancshares (PB) Gains 2.3% On Q3 Earnings Beat
Zacks Investment Research | Oct 25, 2017 09:29PM ET
Shares of Prosperity Bancshares Inc. (NYSE:PB) gained 2.3% following the release of its third-quarter 2017 results. Earnings per share of 98 cents surpassed the Zacks Consensus Estimate by a penny. However, the figure compared unfavorably with the prior-year quarter’s earnings of 99 cents.
Increase in provisions for loan losses and continued margin pressure were the primary reasons for the year-over-year decline. However, lower expenses, increase in revenues and improving loans balances were favorable.
Prosperity Bancshares’ net income dropped marginally on a year-over-year basis to $67.9 million.
Revenues Increase & Expenses Decrease
Net revenues of $184.8 million for the reported quarter lagged the Zacks Consensus Estimate of $185.6 million. However, the figure rose marginally from the prior-year quarter.
Net interest income rose marginally year over year to $156.1 million, primarily due to an increase in average balance and yield on interest-earning assets.
However, net interest margin, on a tax equivalent basis, decreased 7 basis points (bps) to 3.22%.
Non-interest income declined 3% year over year to $28.8 million. This fall was mainly due to a decrease in mortgage income.
Non-interest expenses were down 2.5% year over year to $77.5 million. Decrease in salaries and benefits and core deposit intangibles amortization mainly led to lower expenses.
Loans Increase & Deposits Decrease
As of Sep 30, 2017, total loans were $9.9 billion, marginally up from the prior quarter. Total deposits dropped marginally from the previous quarter to $16.9 billion.
Credit Quality: A Mixed Bag
As of Sep 30, 2017, total nonperforming assets were $45.8 million, down 23.9% year over year. Also, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.88%.
However, net charge-offs totaled $3.9 million, significantly up from the year-ago quarter. Further, provision for credit losses rose significantly from the prior-year quarter to $6.9 million.
Capital Ratio Strengthens, Profitability Ratios Deteriorate
As of Sep 30, 2017, Tier-1 risk-based capital ratio came in at 15.10% compared with 14.41% as of Sep 30, 2016. Moreover, total risk-based capital ratio was 15.81%, up from 15.14% at the end of the year-ago quarter.
Also, common equity tier 1 capital ratio was 15.10%, up from 14.41% in the prior-year quarter.
The annualized return on average assets was 1.22%, down from 1.27% in the prior-year quarter. Similarly, annualized return on common equity was 7.20% compared with 7.66% in the prior-year quarter.
Our Viewpoint
Despite an improving rate scenario, Prosperity Bancshares’ margins remained under pressure owing to its liability sensitive balance sheet. Also, the bank’s strategy to grow inorganically may lead to higher merger-related charges, resulting in a rise in operating expenses. Further, exposure to a risky loan portfolio will likely weigh on the financials. Nevertheless, growth in loan balances along with steady improvement in asset quality should support profitability.
Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
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