Prosperity Bancshares (PB) Q3 Earnings Beat, Stock Up 3.3%

Shares of Prosperity Bancshares Inc. (NYSE:PB) jumped 3.3% following the release of third-quarter 2019 results. Earnings of $1.19 per share surpassed the Zacks Consensus Estimate by a penny. The figure inched up nearly 1% on a year-over-year basis.

Results were primarily driven by lower operating expenses, slight rise in non-interest income and a considerable fall in provisions. Further, loan and deposit growth supported the financials. However, decline in net interest income amid lower interest rates was an undermining factor.

Net income available to common shareholders was $81.8 million, down nearly 1% from the prior-year quarter.

Revenues & Expenses Fall

Net revenues were $184.7 million, down 1.7% from the prior-year quarter. Also, the figure lagged the Zacks Consensus Estimate of $186.2 million.

Net interest income was $154 million, declining 2.1% year over year. The decline was mainly due to higher rates on interest-bearing liabilities and fall in investment securities balances. These were partly offset by an increase in loan balances and loan yield.

Net interest margin, on a tax-equivalent basis, inched up 1 basis point to 3.16%.

Non-interest income increased marginally to $30.7 million. This rise was mainly driven by increase in nonsufficient funds fees.

Non-interest expenses fell 1.3% year over year to $80.7 million. The decline was largely due to fall in regulatory assessments and FDIC insurance costs, and other noninterest expenses.

As of Sep 30, 2019, total loans were $10.7 billion, up nearly 1% from the prior-quarter end. Total deposits grew marginally to $16.9 billion on a sequential basis.

Credit Quality: Mixed Bag

Provision for credit losses decreased 53.2% to $0.1 million. Moreover, the ratio of allowance for credit losses to total loans was down 2 basis points year over year to 0.82%.

Also, net charge-offs were $1 million, down 20.6%. However, as of Sep 30, 2019, total non-performing assets were $51.2 million, increasing significantly from $16.8 million in the prior-year quarter.

Strong Capital & Profitability Ratios

As of Sep 30, 2019, Tier-1 risk-based capital ratio was 16.68%, up from 15.94% as of Sep 30, 2018. Moreover, total risk-based capital ratio was 17.34%, up from 16.60% at the end of the year-ago quarter.

Further, common equity tier 1 capital ratio was 16.68%, up from 15.94% in the prior-year quarter.

The annualized return on average assets was 1.47%, up from 1.46%. Similarly, annualized return on common equity was 7.89% compared with 8.30% in the prior-year quarter.

Share Repurchase Update

During the second quarter, Prosperity Bancshares repurchased nearly 0.7 million shares at an average price of $63.59 per share.

Dividend Hike

Concurrently, Prosperity Bancshares announced a quarterly cash dividend of 46 cents per share, representing a hike of 12.2% from the prior payout. The dividend will be paid out on Jan 2, 2020 to shareholders of record as on Dec 16.

Our Viewpoint

Prosperity Bancshares’ solid loan and deposit balances, and steady fall in credit costs are likely to support profitability. While elevated expense levels and weakness in mortgage business are major near-term concerns, the deal to acquire LegacyTexas Financial Group, Inc (NASDAQ:LTXB) is likely to be a key positive for the company.

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

East West Bancorp (NASDAQ:EWBC) third-quarter earnings per share of $1.17 lagged the Zacks Consensus Estimate of $1.20. Nonetheless, the figure was on par with the prior-year quarter level.

Bank OZK’s (NASDAQ:OZK) third-quarter 2019 earnings per share of 81 cents lagged the Zacks Consensus Estimate of 83 cents. The bottom line was higher than the prior-year quarter figure of 58 cents.

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