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Why Is Prosperity Bancshares (PB) Down 4.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Prosperity Bancshares (PB - Free Report) . Shares have lost about 4.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Prosperity Bancshares 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 Q4 Earnings Beat on LegacyTexas Deal
Prosperity Bancshares’ fourth-quarter 2019 adjusted earnings of $1.44 per share surpassed the Zacks Consensus Estimate of $1.23. Results were primarily driven by the closure of merger with LegacyTexas Financial Group, Inc. on Nov 1, 2019. The deal supported the company’s top-line growth and also resulted in rise in loan and deposit balances. However, increase in operating expenses and a rise in provisions acted as headwinds.
Results in the reported quarter excluded LegacyTexas Financial merger-related charges. Including this, net income available to common shareholders was $86.1 million or $1.01 per share compared with $83.3 million or $1.19 per share in the prior-year quarter.
Adjusted earnings of $5.02 per share in 2019 outpaced the consensus estimate of $4.79. Including merger-related charges, net income available to common shareholders was $332.6 million or $4.52 per share compared with $321.8 million or $4.61 per share in 2018.
Revenues & Expenses Rise
Net revenues in the quarter were $267.5 million, up 43.6% from the prior-year quarter. Also, the figure beat the Zacks Consensus Estimate of $248.7 million.
In 2019, net revenues grew almost 10% to $820.1 million. Further, it surpassed the Zacks Consensus Estimate of $801.7 million.
Net interest income was $232 million, surging 47.6% year over year. The rise was mainly due to merger and higher loan discount accretion. Net interest margin, on a tax-equivalent basis, jumped 50 basis points (bps) to 3.66%.
Non-interest income increased 22.1% to $35.5 million.
Non-interest expenses jumped 93.6% year over year to $156.5 million. The increase was largely due to the merger-related expenses, additional expenses related to two months of operations pertaining to the LegacyTexas and lending function.
As of Dec 31, 2019, total loans were $18.8 billion, up 76.6% from the prior-quarter end. Total deposits grew 42.9% to $24.2 billion on a sequential basis.
Credit Quality Worsens
Provision for credit losses increased 54.5% to $1.7 million. Also, net charge-offs were $1.2 million, rising substantially year over year. As of Dec 31, 2019, total non-performing assets were $62.9 million, increasing significantly from $19 million.
However, the ratio of allowance for credit losses to total loans was down 36 bps year over year to 0.46%.
Strong Capital & Profitability Ratios
As of Dec 31, 2019, Tier-1 risk-based capital ratio was 12.30%, compared with 16.32% as of Dec 31, 2018. Moreover, total risk-based capital ratio was 12.70% compared with 16.99% at the end of the year-ago quarter.
Further, common equity tier 1 capital ratio was 12.30%, up from 16.32% in the prior-year quarter.
The annualized return on average assets was 1.19%, down from 1.47%. Annualized return on common equity was 6.33% compared with 8.25% in the prior-year quarter.
Share Repurchase Update
Concurrent with the earnings release, Prosperity Bancshares announced share repurchase authorization of 4.7 million shares. The buyback plan will expire on Jan 28, 2021.
Outlook
The company expects pre-tax loan discount accretion to be $13-$14 million in the first quarter of 2020. Additionally, NIM on GAAP basis is expected to be the 3.45-3.55% range and core NIM to be mid-3.30% over the next few quarters.
Loan growth is projected to be 2.5% in 2020.
Management believes that till the system integration and conversion related to LegacyTexas Financial deal are completed, non-interest expenses will be in the range of $120-$125 million per quarter. Also, the company expects to realize part of targeted 25% cost savings related to the deal beginning third-quarter 2020.
The company anticipates the CECL reserve to be between $340 million and $360 million. This includes the LegacyTexas Financial deal.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.87% due to these changes.
VGM Scores
At this time, Prosperity Bancshares has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Prosperity Bancshares has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Why Is Prosperity Bancshares (PB) Down 4.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Prosperity Bancshares (PB - Free Report) . Shares have lost about 4.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Prosperity Bancshares 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 Q4 Earnings Beat on LegacyTexas Deal
Prosperity Bancshares’ fourth-quarter 2019 adjusted earnings of $1.44 per share surpassed the Zacks Consensus Estimate of $1.23. Results were primarily driven by the closure of merger with LegacyTexas Financial Group, Inc. on Nov 1, 2019. The deal supported the company’s top-line growth and also resulted in rise in loan and deposit balances. However, increase in operating expenses and a rise in provisions acted as headwinds.
Results in the reported quarter excluded LegacyTexas Financial merger-related charges. Including this, net income available to common shareholders was $86.1 million or $1.01 per share compared with $83.3 million or $1.19 per share in the prior-year quarter.
Adjusted earnings of $5.02 per share in 2019 outpaced the consensus estimate of $4.79. Including merger-related charges, net income available to common shareholders was $332.6 million or $4.52 per share compared with $321.8 million or $4.61 per share in 2018.
Revenues & Expenses Rise
Net revenues in the quarter were $267.5 million, up 43.6% from the prior-year quarter. Also, the figure beat the Zacks Consensus Estimate of $248.7 million.
In 2019, net revenues grew almost 10% to $820.1 million. Further, it surpassed the Zacks Consensus Estimate of $801.7 million.
Net interest income was $232 million, surging 47.6% year over year. The rise was mainly due to merger and higher loan discount accretion. Net interest margin, on a tax-equivalent basis, jumped 50 basis points (bps) to 3.66%.
Non-interest income increased 22.1% to $35.5 million.
Non-interest expenses jumped 93.6% year over year to $156.5 million. The increase was largely due to the merger-related expenses, additional expenses related to two months of
operations pertaining to the LegacyTexas and lending function.
As of Dec 31, 2019, total loans were $18.8 billion, up 76.6% from the prior-quarter end. Total deposits grew 42.9% to $24.2 billion on a sequential basis.
Credit Quality Worsens
Provision for credit losses increased 54.5% to $1.7 million. Also, net charge-offs were $1.2 million, rising substantially year over year. As of Dec 31, 2019, total non-performing assets were $62.9 million, increasing significantly from $19 million.
However, the ratio of allowance for credit losses to total loans was down 36 bps year over year to 0.46%.
Strong Capital & Profitability Ratios
As of Dec 31, 2019, Tier-1 risk-based capital ratio was 12.30%, compared with 16.32% as of Dec 31, 2018. Moreover, total risk-based capital ratio was 12.70% compared with 16.99% at the end of the year-ago quarter.
Further, common equity tier 1 capital ratio was 12.30%, up from 16.32% in the prior-year quarter.
The annualized return on average assets was 1.19%, down from 1.47%. Annualized return on common equity was 6.33% compared with 8.25% in the prior-year quarter.
Share Repurchase Update
Concurrent with the earnings release, Prosperity Bancshares announced share repurchase authorization of 4.7 million shares. The buyback plan will expire on Jan 28, 2021.
Outlook
The company expects pre-tax loan discount accretion to be $13-$14 million in the first quarter of 2020. Additionally, NIM on GAAP basis is expected to be the 3.45-3.55% range and core NIM to be mid-3.30% over the next few quarters.
Loan growth is projected to be 2.5% in 2020.
Management believes that till the system integration and conversion related to LegacyTexas Financial deal are completed, non-interest expenses will be in the range of $120-$125 million per quarter. Also, the company expects to realize part of targeted 25% cost savings related to the deal beginning third-quarter 2020.
The company anticipates the CECL reserve to be between $340 million and $360 million. This includes the LegacyTexas Financial deal.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.87% due to these changes.
VGM Scores
At this time, Prosperity Bancshares has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Prosperity Bancshares has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.