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Prosperity Bancshares (PB) Stock Up 12.8% on Q1 Earnings Beat

Shares of Prosperity Bancshares Inc. PB gained 12.8%, following the release of first-quarter 2020 results. 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.

Our Take

The acquisition of LegacyTexas Financial is expected to aid Prosperity Bancshares’ growth. Moreover, solid loans and deposit balances will likely support the company’s profitability. However, due to lower rates, its margins might be under pressure in the near term. Also, elevated expenses will likely hurt the bottom line.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise
 

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise

Prosperity Bancshares, Inc. price-consensus-eps-surprise-chart | Prosperity Bancshares, Inc. Quote

Prosperity Bancshares currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Associated Banc-Corp’s ASB first-quarter 2020 adjusted earnings of 28 cents per share comfortably outpaced the Zacks Consensus Estimate of a breakeven. However, the figure declined 46% from the prior-year reported number. Earnings in the reported quarter excluded certain acquisition-related costs.

Zions Bancorporation’s ZION first-quarter 2020 net earnings per share of 4 cents missed the Zacks Consensus Estimate of 48 cents. Results included certain notable non-recurring items.

SVB Financial Group’s SIVB first-quarter 2020 earnings of $2.55 per share lagged the Zacks Consensus Estimate of $3.07. Also, the bottom line was 53.1% lower than the year-ago quarter’s reported figure.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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