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Prosperity Bancshares (PB) Down 5.6% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Prosperity Bancshares, Inc. (PB - Free Report) . Shares have lost about 5.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Prosperity Bancshares Lags Q2 Earnings & Revenues

Prosperity Bancshares’ second-quarter 2017 earnings per share of $0.99 lagged the Zacks Consensus Estimate by a penny. However, the figure compared favorably with the prior-year quarter’s earnings of $0.98. Results included purchase accounting adjustments for both periods.

Lower revenues and continued margin pressure were the primary reasons for the dismal performance. However, lower expenses, a decline in provisions for loan losses and improving loans and deposits supported the results to some extent.

Prosperity Bancshares’ net income rose marginally year over year to $68.6 million.

Revenues & Expenses Decrease

Net revenue of $180 million for the reported quarter lagged the Zacks Consensus Estimate of $187.1 million. Moreover, the figure declined 3.7% from the prior-year quarter.  

Net interest income fell 3.9% year over year to $152.2 million, primarily due to a decrease in loan discount accretion.

Also, net interest margin, on a tax equivalent basis, decreased 23 basis points (bps) to 3.14%.

Non-interest income declined 2.4% year over year to $27.8 million. This fall was mainly due to the net loss on sale of assets, partly offset by the gain on sale of securities.

Non-interest expenses were down 3.5% year over year to $76.4 million. Decrease in salaries and benefits and core deposit intangibles amortization were the main reasons for the lower expenses.

Loans & Deposits Increase

As of Jun 30, 2017, total loans were $9.9 billion, up 1.3% from the prior quarter. Total deposits rose marginally from the previous quarter to $17.1 billion.

Credit Quality Improves

As of Jun 30, 2017, total nonperforming assets were $47.6 million, down 8.7% year over year. Also, the ratio of allowance for credit losses to total loans was down 2 bps year over year to 0.85%.

Further, net charge-offs totaled $3.1 million, down 48% from the year-ago quarter. Also, provision for credit losses declined more than 54.2% from the prior-year quarter to $2.8 million.

Capital Ratio Strengthens, Profitability Ratios Deteriorate

As of Jun 30, 2017, Tier-1 risk-based capital ratio came in at 14.80% compared with 13.66% as of Jun 30, 2016. Moreover, total risk-based capital ratio was 15.49%, up from 14.37% at the end of the year-ago quarter.

Also, common equity tier 1 capital ratio was 14.80%, up from 13.66% in the prior-year quarter.

The annualized return on average assets was 1.22%, down from 1.24% in the prior-year quarter. Similarly, annualized return on common equity was 7.36% compared with 7.70% in the prior-year quarter.

Outlook

Prosperity Bancshares anticipates fair value accretion to come within $4.5–$5 million in the subsequent quarters.

Management remains optimistic, and expects organic loan growth to be in about 5-6% in 2017. Also it expects deposits to grow around 4% in 2017.

Management expects core margin to remain relatively stable in the coming quarters.

Management expects non-interest expenses to be around $78–$80 million on a quarterly basis, going forward.

The company expects effective tax to be around 33.5% going forward.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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