Shares of Prosperity Bancshares Inc. PB jumped 4% following the release of its second-quarter 2019 results. Earnings of $1.18 per share were in line with the Zacks Consensus Estimate. The figure improved nearly 1% on a year-over-year basis.

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

Net income available to common shareholders was $82.3 million, up marginally from the prior-year quarter.

Revenues & Expenses Fall

Net revenues were $184.8 million, down 3% from the prior-year quarter. Also, the figure lagged the Zacks Consensus Estimate of $186.9 million.

Net interest income was $154.8 million, declining 4% year over year. Net interest margin, on a tax-equivalent basis, decreased 12 basis points (bps) to 3.16%.

Non-interest income increased 6% year over year to $30 million. This rise was mainly driven by higher other non-interest income, credit card, debit card and ATM card income, and trust income.

Non-interest expenses fell 3% year over year to $80.8 million. The decline was due to a decrease in almost all cost components except for credit and debit card, data processing and software amortization expenses, other real estate expenses and depreciation costs.

As of Jun 30, 2019, total loans were $10.6 billion, up 2% from the prior-quarter end. Total deposits decreased 2% sequentially to $16.9 billion.

Credit Quality Improves

Net charge-recoveries were $0.1 million against net charge-offs of $2.6 million in the prior-year quarter. Provision for credit losses decreased 80% to $0.8 million.

Moreover, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.82%. However, as of Jun 30, 2019, total non-performing assets were $41.6 million, up 32%.

Strong Capital & Profitability Ratios

As of Jun 30, 2019, Tier-1 risk-based capital ratio was 16.59%, up from 15.65% as of Jun 30, 2018. Moreover, total risk-based capital ratio was 17.25%, up from 16.32% at the end of the year-ago quarter.

Further, common equity tier 1 capital ratio was 16.59%, up from 15.65% in the prior-year quarter.

The annualized return on average assets was 1.46%, up from 1.44%. Similarly, annualized return on common equity was 7.92% compared with 8.33% in the prior-year quarter.

Share Repurchase Update

During the second quarter, Prosperity Bancshares repurchased nearly 0.8 million shares at an average price of $64.52 per share.

Our Viewpoint

Prosperity Bancshares’ solid loan and deposit balances, and steady improvement in credit quality 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 LTXB is likely to be a major positive for the company.

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

Performance of Other Banks

Hancock Whitney Corporation’s HWC second-quarter 2019 operating earnings per share of $1.01 were in line with the Zacks Consensus Estimate. The bottom line was 5.2% higher than the year-ago quarter figure.

East West Bancorp’s EWBC second-quarter 2019 adjusted earnings per share of $1.24 were in line with the Zacks Consensus Estimate. Also, the figure was up 5.1% from the prior-year quarter.

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