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Prosperity Bancshares (PB) Misses on Q4 Earnings, Stock Up

Prosperity Bancshares Inc. PB released its fourth-quarter and full-year 2017 results. Adjusted earnings of 99 cents per share for the quarter lagged the Zacks Consensus Estimate by a penny. The figure was in line with the prior-year quarter’s earnings.

Results were hurt by an increase in expenses and lower non-interest income along with continued margin pressure. However, higher net interest income and improving loan and deposit balances were on the positive side. It is probably due to these favorable factors that shares of the company gained 1.9% following the release.

After taking into consideration a one-time non-cash charge of 2 cents per share relating to the Tax Act, net income for the quarter came in at $67.1 million or 97 cents per share.

For 2017, net income was $272.2 million or $3.92 per share, down from $274.5 million or $3.94 per share registered in 2016.

Net Interest Income Improve, Expenses Rise

Net revenues of $185.3 million for the reported quarter marginally lagged the Zacks Consensus Estimate of $185.4 million. However, the figure increased 1.1% from the prior-year quarter.

Net revenues for 2017 were $733.5 million, decreasing 2.3% from the prior year. Also, the figure lagged the Zacks Consensus Estimate of $738 million.

Net interest income was $156.1 million for the quarter, increasing 1.4% year over year. The rise was primarily due to an increase in average balance and yield on interest-earning assets, partially offset by an increase in the average rate on interest-bearing liabilities.

However, net interest margin, on a tax equivalent basis, decreased 6 basis points (bps) to 3.20%.

Non-interest income declined nearly 1% year over year to $29.2 million. This fall was primarily due to lower mortgage income, brokerage income and net gain on sale of assets.

Non-interest expenses increased 2.5% year over year to $81.1 million. The company witnessed net loss on sale or write-down of other real assets in the quarter against net gain recognised in the prior-year period, which mainly led to the rise in expenses.

Loans & Deposits Increase

As of Dec 31, 2017, total loans were $10 billion, up 1.1% from the prior quarter. Total deposits increased 5.4% from the previous quarter to $17.8 billion.

Credit Quality: A Mixed Bag

As of Dec 31, 2017, total nonperforming assets were $37.5 million, decreasing 22.5% year over year. Also, the ratio of allowance for credit losses to total loans was down 5 bps year over year to 0.84%.

However, net charge-offs totaled $4.7 million, significantly up from the year-ago quarter figure of $2.3 million. Notably, provision for credit losses remained stable at $2 million compared with the prior-year quarter.

Capital Ratios Strengthen, Profitability Ratios Deteriorate

As of Dec 31, 2017, Tier-1 risk-based capital ratio came in at 15.08% compared with 14.48% as of Dec 31, 2016. Moreover, total risk-based capital ratio was 15.74%, up from 15.20% at the end of the year-ago quarter.

Also, common equity tier 1 capital ratio was 15.08%, up from 14.48% in the prior-year quarter.

The annualized return on average assets was 1.20%, down from 1.26% in the prior-year quarter. Similarly, annualized return on common equity was 7.04% compared with 7.58% in the prior-year quarter.

Our Viewpoint

Prosperity Bancshares remains well positioned for organic growth, supported by a strong balance sheet position. Also, steady improvement in asset quality should support the company’s profitability. However, continued margin pressure (despite interest rate hikes) remains a major concern. Also, the bank’s strategy to grow inorganically may lead to higher merger-related charges, resulting in a rise in operating expenses.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise | Prosperity Bancshares, Inc. Quote

Prosperity Bancshares carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other banks, Commerce Bancshares, Inc’s CBSH fourth-quarter 2017 adjusted earnings per share of 74 cents surpassed the Zacks Consensus Estimate of 71 cents. Results primarily benefited from an improvement in both net interest income as well as non-interest income. Also, the company witnessed modest loan growth, and its capital and profitability ratios improved during the quarter. However, higher expenses and an increase in provision for loan losses acted as headwinds.

First Republic Bank FRC registered a negative earnings surprise of 4.3% in its fourth-quarter 2017 results, reflecting elevated expenses. Earnings per share came in at $1.10, missing the Zacks Consensus Estimate of $1.15. Despite rising rates, net interest margin disappointed on high deposit costs.

First Midwest Bancorp, Inc. FMBI is scheduled to announce results on Jan 29.

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