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Prosperity Bancshares Q3 Earnings Beat on Higher NII, Stock Up 1%

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Shares of Prosperity Bancshares Inc. (PB - Free Report) gained 1% on better-than-expected third-quarter 2024 earnings. Its adjusted earnings per share (EPS) of $1.34 beat the Zacks Consensus Estimate of $1.30. Moreover, the bottom line compared favorably with adjusted earnings of $1.21 in the prior-year quarter.

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Results benefited from an increase in net interest income (NII). Further, a rise in deposits and loans was another positive. Nevertheless, a fall in adjusted non-interest income and rising expenses were major headwinds. During the quarter, provisions remained stable.

The reported quarter's results excluded a $0.05 million merger-related expense and a $0.2 million net gain on the sale or write-up of securities, which were negligible to earnings. After considering these, net income available to common shareholders was $127.3 million, up from $112.2 million in the year-ago quarter.

PB’s Revenues Increase, Expenses Rise

Quarterly adjusted total revenues were $299.4 million, which increased 7.6% from the prior-year quarter. However, the top line marginally missed the Zacks Consensus Estimate of $299.8 million.

NII was $261.7 million, up 9.4% year over year. Net interest margin (NIM), on a tax-equivalent basis, expanded 23 basis points to 2.95%. Our estimates for NII and NIM were pegged at $259.5 million and 2.95%, respectively.

Non-interest income was $41.1 million, up 6.1%. The rise was primarily driven by an increase in all the components except other noninterest income. Our estimate for the metric was pegged at $39.1 million. Adjusted non-interest income was $37.7 million, down 2.8% from the prior-year quarter.

Non-interest expenses increased 3.5% to $140.4 million. The increase was mainly attributed to an increase in salaries and benefits, credit and debit card, data processing and software amortization costs, core deposit intangibles amortization, regulatory assessments and FDIC insurance charges, and other noninterest expenses. On an adjusted basis, non-interest expense was up 4.3% year over year. Our estimate for non-interest expenses was $141.8 million.

The adjusted efficiency ratio was 46.87%, which decreased from 48.74% in the prior-year quarter. A decline in the efficiency ratio indicates better profitability.

As of Sept. 30, 2024, total loans were $22.4 billion, which increased marginally sequentially. Total deposits were $28.1 billion, up marginally. Our estimates for total loans and total deposits were $22.1 billion and $27.3 billion, respectively.

PB’s Credit Quality: A Mixed Bag

As of Sept. 30, 2024, total non-performing assets were $89.9 million, which rose from $69.5 million in the prior-year quarter.

Net charge-offs were $5.5 million compared with $3.4 million in the year-ago period. The ratio of allowance for credit losses to total loans was 1.58%, down from 1.64%.

The company did not record any provision for credit losses during the reported quarter, similar to the year-ago quarter.

Prosperity Bancshares’ Capital Ratios Improve, Profitability Ratios Increase

As of Sept. 30, 2024, the common equity tier 1 capital ratio was 15.84%, up from 14.98% in the prior year quarter. The total risk-based capital ratio was 17.10%, up from 16.05%.

At the end of the third quarter, the annualized return on average assets was 1.28%, up from 1.13% at the end of the prior year quarter. Also, the annualized return on average common equity was 6.93%, which increased from 6.39%.

PB’s Share Repurchase Update

During the reported quarter, Prosperity Bancshares did not repurchase any shares.

Our Take on Prosperity Bancshares

Prosperity Bancshares' emphasis on strategic acquisitions is expected to contribute to its long-term financial strength. Robust loans, a solid deposit mix and improving fee income are likely to support the top line. However, a liability-sensitive balance sheet, elevated expenses and subdued mortgage banking prospects remain near-term concerns.

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

PB 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, Inc.’s (EWBC - Free Report) third-quarter 2024 adjusted EPS of $2.09 surpassed the Zacks Consensus Estimate of $2.05. Further, the bottom line increased 3.5% from the prior-year quarter.

EWBC’s results were primarily aided by an increase in NII and non-interest income alongside lower non-interest expenses. Also, deposit and loan balances increased sequentially in the quarter. During the quarter, provisions remained stable.

Zions Bancorporation’s (ZION - Free Report) third-quarter 2024 EPS of $1.37 surpassed the Zacks Consensus Estimate of $1.16. Moreover, the bottom line increased 21.2% from the year-ago quarter.

ZION’s results were primarily aided by lower provisions and higher NII. Also, higher loans and deposits were other positives. However, a decline in non-interest income and a rise in adjusted non-interest expenses were major headwinds.


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