Prosperity Bancshares Inc.
) second-quarter 2013 earnings of 89 cents per share beat the
Zacks Consensus Estimate by a penny. This also compares favorably
with 78 cents earned in the year-ago quarter.
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Better-than-expected performance came on the back of impressive
top-line growth, partially offset by higher operating expenses
and a rise in provision for credit losses. Further, loan and
deposit balances improved in the quarter. However, capital and
profitability ratios as well as credit quality were a mixed bag.
Net income came in at $53.8 million, up 45.6% year over year.
Prosperity's total revenue in the reported quarter came in at
$154.6 million, surging 45.1% from $106.5 million in the
prior-year quarter. Moreover, this beat the Zacks Consensus
Estimate of $144.0 million.
Net interest income rose 41.9% year over year to $118.7 million.
The increase was primarily due to a rise in average
interest-earning assets. However, net interest margin fell 12
basis points (bps) from the prior-year quarter to 3.43%.
Non-interest income augmented 85.1% year over year to $25.3
million. The increase was primarily due to a rise in NSF fees,
ATM and debit card income and service charges, along with higher
trust and mortgage income following the acquisition of American
State Financial Corporation in July last year.
Non-interest expense came in at $61.3 million, up 50.3% from
$40.8 million in the prior-year quarter. The rise was mainly due
to additional non-interest expenses associated with the
acquisitions of American State Financial and Coppermark
Efficiency ratio increased to 42.51% from 41.94% in the
prior-year quarter. A rise in efficiency ratio indicates
deterioration in profitability.
As of Jun 30, 2013, total loans were $6.2 billion, rising 56.3%
from $4.0 billion as of Jun 30, 2012. Total deposits increased
49.0% year over year to $12.5 billion.
Asset quality was mixed in the quarter. The ratio of allowance
for credit losses to total loans declined 37 bps year over year
to 0.91%. Further, net charge-offs were $1.4 million, down from
$1.9 million in the year-ago quarter.
However, total nonperforming assets were $14.9 million, up 25.2%
from the year-ago period. Likewise, provision for credit losses
increased significantly to $2.5 million from $0.6 million in the
Profitability and Capital Ratios
Prosperity's capital and profitability ratios depicted a mixed
bag. As of Jun 30, 2013, Tier-1 risk-based capital ratio was
14.15%, compared with 16.42% as of Jun 30, 2012. Moreover, total
risk-based capital ratio came in at 14.911% against 17.49% at the
end of the year-ago quarter.
The annualized return on average assets was 1.33% as of Jun 30,
2013, compared with 1.35% as of Jun 30, 2012. Similarly,
annualized return on common equity came in at 9.27%, up from
9.06% as of Jun 30, 2012.
In Jul 2013, Prosperity signed a definitive merger deal with
Victoria, Texas-based FVNB Corp. and its fully owned subsidiary,
First Victoria National Bank. As per the agreement, Prosperity
will issue nearly 5.6 million shares of its common stock, along
with $91.3 million cash for FVNB Corp's outstanding capital
stock. The deal is expected close by the end of this year.
In Apr 2013, Prosperity concluded the acquisition of Coppermark
Bancshares, Inc. and its wholly-owned subsidiary, Coppermark
Bank. Upon acquisition, the company took over total assets worth
$1.2 billion, total loans of $847.6 million and total deposits of
Performance of Other Southwest Banks
First Financial Bankshares Inc.
) second-quarter 2013 earnings were in line with the Zacks
Consensus Estimate. The company's performance resulted from
increased revenues, partly offset by a rise in both expenses and
provision for credit losses.
Among other Southwest banks,
Texas Capital BancShares Inc.
) is scheduled to announce results on Jul 25 and
BOK Financial Corporation
) on Jul 31.
Prosperity's strategic acquisitions and organic growth is quite
impressive. Moreover, the company's strong balance sheet is
expected to bode well for its overall expansion going forward.
However, the prevailing low interest-rate environment,
significant exposure to the real estate loan portfolio and a
stringent regulatory landscape are expected to adversely affect
the company's financials in the subsequent quarters.
Prosperity currently carries a Zacks Rank #2 (Buy).