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Prosperity Bancshares (PB) Q1 Earnings & Revenues Beat

Prosperity Bancshares Inc. PB reported first-quarter 2016 earnings per share of 98 cents, which beat the Zacks Consensus Estimate of 95 cents. However, the bottom line was 7% below the year-ago quarter tally. Earnings included purchase accounting adjustments for both periods.


Shares of Prosperity Bancshares gained marginally on the earnings beat, which came on the back of higher revenues and growth in loans and deposits. Further, consistent capital deployment activities also boosted investors’ confidence in the stock. However, a rise in expenses and provisions were the major headwinds.

Prosperity Bancshares’ net income fell 6% year over year to $69.0 million.

Performance Details

Net revenue rose 3% year over year to $197.1 million. Also, it surpassed the Zacks Consensus Estimate of $184.7 million.

Net interest income (excluding provision for credit losses) increased 2% year over year to $166.3 million. The rise was mainly due to an increase in average interest-earning assets, partially offset by a decrease in loan discount accretion. However, net interest margin, on a tax equivalent basis, slipped 9 basis points (bps) year over year to 3.48%.

Non-interest income climbed 8% year over year to $30.8 million. The rise was primarily led by an increase in service charges on deposit accounts, mortgage income as well as other income.

Non-interest expenses were up 1% year over year to $80.5 million. The increase was largely triggered by a rise in other expense.

Efficiency ratio was 41.08%, down from 41.83% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

As of Mar 31, 2016, total loans summed $9.7 billion, up 5% from Mar 31, 2015. Total deposits increased 2% year over year to $17.9 billion.

Asset Quality

Prosperity Bancshares’ asset quality deteriorated during the quarter. The ratio of allowance for credit losses to total loans inched down 1 bps year over year to 0.87%.

However, net charge-offs totaled $11.7 million, substantially up from $1.0 million in the year-ago quarter. Also, provision for credit losses rose significantly year over year to $14.0 million. Further, total nonperforming assets surged 61% year over year to $57.0 million.

Capital and Profitability Ratios

As of Mar 31, 2016, Tier-1 risk-based capital ratio came in at 13.20% compared with 12.40% as of Mar 31, 2015. Moreover, total risk-based capital ratio stood at 13.90%, up from 13.14% at the end of the year-ago quarter.

Moreover, common equity tier 1 capital ratio (under Basel III, effective Jan 1, 2015) was 13.20% as of Mar 31, 2016.

The annualized return on average assets fell 13 bps year over year to 1.24% as of Mar 31, 2016. Similarly, annualized return on common equity stood at 7.85%, compared with 8.98% in the prior-year quarter.

Capital Deployment Activities

Prosperity Bancshares repurchased 1.16 million shares at an average weighted price of $40.66 per share. The repurchase was under the stock repurchase program announced in Jan 2016, under which up to 5% or approximately 3.54 million shares of the company’s outstanding stock may be acquired over the next twelve months at the discretion of management.

Concurrent with the earnings release, the company declared a cash dividend of 30 cents per share. The dividend will be paid on Jul 1 to shareholders of record as of Jun 17.

Our Viewpoint

Prosperity Bancshares’ sturdy balance sheet makes it well positioned for future expansion through acquisitions. Also, the company’s efforts for organic and inorganic growth as well as yearly dividend hikes remain impressive. However, a concentrated loan portfolio and stringent regulations are expected to weigh on profitability in the near term.

Currently, Prosperity Bancshares has a Zacks Rank #4 (Sell).

Performance of Other Banks

Zions Bancorporation ZION reported first-quarter 2016 earnings of 38 cents, which lagged the Zacks Consensus Estimate by a penny. The lower-than-expected results were mainly due to higher provision for loan losses, a rise in operating expenses and a slight fall in non-interest income, partially offset by improved net interest income.

SVB Financial Group SIVB reported first-quarter 2016 earnings per share of $1.52, widely missing the Zacks Consensus Estimate of $1.69. Results exhibited a fall in non-interest income and a rise in expenses as well as provisions, partly offset by higher net interest income.

Westamerica Bancorp.’s WABC first-quarter 2016 earnings of 56 cents per share lagged the Zacks Consensus Estimate by a penny. Lower-than-expected quarterly results were largely due to a decline in revenues and decreasing loan balance, partly mitigated by a fall in operating expense and absence of provisions.

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WESTAMER BANCP (WABC): Free Stock Analysis Report
 
ZIONS BANCORP (ZION): Free Stock Analysis Report
 
SVB FINL GP (SIVB): Free Stock Analysis Report
 
PROSPERITY BCSH (PB): Free Stock Analysis Report
 
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