Share price of
Prosperity Bancshares Inc.
) fell nearly 1.0% following its first-quarter 2014 earnings
release on Wednesday before the opening bell. Earnings per share
came in at $1.01, which surpassed the Zacks Consensus Estimate of
98 cents and compared favorably with 86 cents earned in the
Though credit quality was mixed during the quarter, nonperforming
assets continued to increase mainly due to further mergers and
acquisitions (M&As) by the company. This could have possibly
generated the negative market sentiment following the earnings
Better-than-expected revenues were driven by increase in interest
income and non-interest income, as well as lower provision for
credit losses. Moreover, healthy growth in loans and
deposits, and improved profitability ratios were tailwinds.
Nevertheless, higher expenses and deterioration in capital ratios
were the headwinds.
Prosperity Bancshares' net income came in at $67.1 million, up
36.2% from $49.3 million in the prior-year quarter.
Prosperity Bancshares' total revenue in the quarter was $182.9
million, up 29.2% year over year. Moreover, it surpassed the
Zacks Consensus Estimate of $172.0 million.
Net interest income rose 32.9% year over year to $143.7 million.
The increase was primarily due to a 25.1% rise in average
interest-earning assets. Moreover, net interest margin was up 21
basis points (bps) from the prior-year quarter to 3.57%.
Non-interest income increased 22.0% year over year to $28.6
million. The rise was primarily driven by higher fee and services
charges led by the recent M&As and gains from sale of certain
assets during the quarter. These positives were partially offset
by a fall in mortgage income, credit card, debit card and ATM
Non-interest expenses were $71.0 million, up 27.4% from the
prior-year quarter. The rise was mainly due to additional
expenses related to the acquisition of Coppermark Bancshares,
Inc. and FVNB Corp.
Efficiency ratio improved to 42.04% from 42.40% in the prior-year
quarter. A fall in efficiency ratio indicates rise in
As of Mar 31, 2014, total loans were $7.8 billion, rising 47.3%
from Mar 31, 2013. Total deposits increased 32.0% year over year
to $15.5 billion.
Prosperity Bancshares' asset quality was a mixed bag in the
quarter. The ratio of allowance for credit losses to total loans
declined 18 bps year over year to 0.87%. Moreover, provision for
credit losses decreased 78.6% to $0.6 million from the prior-year
However, net charge-offs were $0.8 million, up significantly from
$0.3 million in the year-ago quarter. Total nonperforming assets
were $18.7 million, up 3.1% from the year-ago period.
Profitability and Capital Ratios
While Prosperity Bancshares' capital ratios deteriorated, its
profitability ratios improved during the quarter. As of Mar 31,
2014, Tier-1 risk-based capital ratio was 13.85%, compared with
14.77% as of Mar 31, 2013. Moreover, total risk-based capital
ratio came in at 14.59%, down from 15.61% at the end of the
The annualized return on average assets was 1.43% as of Mar 31,
2014, up from 1.33% as of Mar 31, 2013. Similarly, annualized
return on common equity came in at 9.52%, up from 9.23% as of Mar
Synergies from the recent M&As will continue to boost
Prosperity Bancshares' top line in the forthcoming quarters.
Moreover, the company's strong balance sheet is expected to bode
well for its overall expansion going forward.
However, deterioration in credit quality and rising expenses keep
us skeptical. Further, the low interest rate scenario and
stringent regulatory requirements will likely weigh on the
company's financials in the quarters ahead.
Currently, Prosperity Bancshares has a Zacks Rank #2 (Buy).
Performance of Other Banks
) surpassed the Zacks Consensus Estimate driven by growth net
interest income, fall in provision for credit losses and lower
) beat the Zacks Consensus Estimate on the back of rise in
interest income and prudent cost control.
On the other hand,
Umpqua Holdings Corporation
) earnings lagged the Zacks Consensus Estimate due to increased
non-interest expenses and lower non-interest income.
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