Prosperity Bancshares Beats Q3 Earnings, Hikes Dividend - Analyst Blog
October 23 2013 - 10:00AM
Zacks
Prosperity Bancshares Inc.’s (PB) third-quarter
2013 earnings of 91 cents per share beat the Zacks Consensus
Estimate by a penny. This also compared favorably with 82 cents
earned in the year-ago quarter.
Better-than-expected results benefited from rise in net interest
income, partially offset by decreased non-interest income, higher
operating expenses and rise in provision for credit losses.
Further, capital and profitability ratios as well as loan and
deposit balances improved while credit quality was a mixed bag.
Net income came in at $55.3 million, up 19.7% year over year.
Performance Details
Prosperity Bancshares’ total revenue in the reported quarter came
in at $157.8 million, growing 11.5% from the prior-year quarter.
Moreover, it surpassed the Zacks Consensus Estimate of $146.0
million.
Net interest income rose 18.4% year over year to $126.5 million.
The increase was primarily due to a rise in average
interest-earning assets. Also, net interest margin grew 7 basis
points (bps) from the prior-year quarter to 3.59%.
Non-interest income declined 9.5% year over year to $21.6 million.
The fall was primarily due to a decrease in debit card income
following the Durbin Amendment, which became effective on Jul 1,
2013.
Non-interest expense came in at $61.5 million, up 2.1% from $60.2
million in the prior-year quarter. The rise was mainly due to
additional non-interest expenses related to the acquisition of
Coppermark Bancshares, Inc in April.
Efficiency ratio improved to 41.59% from 46.07% in the prior-year
quarter. A fall in efficiency ratio indicates rise in
profitability.
As of Sep 30, 2013, total loans were $6.2 billion, rising 21.7%
from $5.1 billion as of Sep 30, 2012. Total deposits increased
13.7% year over year to $12.5 billion.
Asset Quality
Asset quality was a mixed bag in the quarter. The ratio of
allowance for credit losses to total loans declined 3 bps year over
year to 0.97%. Further, net charge-offs were $0.3 million, down
76.1% from $1.3 million in the year-ago quarter.
Also, total nonperforming assets were $12.7 million, down 9.7% from
the year-ago period. However, provision for credit losses increased
significantly to $4.0 million from $1.8 million in the prior-year
quarter.
Profitability and Capital Ratios
Prosperity Bancshares’ capital and profitability ratios improved
during the quarter. As of Sep 30, 2013, Tier-1 risk-based capital
ratio was 14.74%, up 14.43% as of Sep 30, 2012. Moreover, total
risk-based capital ratio came in at 15.55%, improving from 15.26%
at the end of the year-ago quarter.
The annualized return on average assets was 1.37% as of Sep 30,
2013, compared with 1.32% as of Sep 30, 2012. Similarly, annualized
return on common equity came in at 9.31%, up from 9.10% as of Sep
30, 2012.
Dividend Update
Along with the earnings release, Prosperity Bancshares announced a
quarterly cash dividend of 24 cents per share, marking an 11.6%
rise from the prior-quarter payout. The dividend will be paid on
Jan 2, 2014 to shareholders of record as of Dec 16, 2013.
Acquisitions
In Aug 2013, Prosperity Bancshares entered into a definitive
agreement with F&M Bancorporation Inc. (FMBC) to acquire the
latter’s F&M Bank & Trust Company. As per the agreement,
the company will issue nearly 3.3 million shares of its common
stock and $47.0 million in cash for all outstanding shares of FMBC.
The deal is expected to close by first-quarter 2014.
In Jul 2013, Prosperity Bancshares signed a definitive merger deal
with Victoria, Texas-based FVNB Corp. and its fully owned
subsidiary, First Victoria National Bank. As per the agreement, the
company will issue nearly 5.6 million shares of its common stock,
along with $91.3 million cash for FVNB Corp’s outstanding shares.
The deal is expected close by the end of this year.
Performance of Other Regional Banks
First Financial Bankshares Inc.’s (FFIN)
third-quarter 2013 earnings missed the Zacks Consensus Estimate.
The results were affected by rise in operating expenses,
deteriorating profitability ratios and higher provision for credit
losses. However, top-line growth and an improved asset quality were
the positives for the quarter.
Among other regional banks, Cullen/Frost Bankers,
Inc. (CFR) is scheduled to announce third-quarter results
on Oct 30, while BofI Holding, Inc. (BOFI) will
report fiscal first-quarter results on Nov 5.
Cullen/Frost Bankers with Zacks Earnings ESP of +1.04% and Zacks
Rank #2 (Buy) makes us confident of an earnings beat this quarter.
However, BofI Holding has earnings ESP of 0.00% and a Zacks Rank #3
(Hold), both of which reduce its chances of an earnings
surprise.
Our Viewpoint
Prosperity Bancshares’ strategic acquisitions and organic growth
are quite impressive. Moreover, the company’s strong balance sheet
is expected to bode well for its overall expansion going forward.
However, the prevailing low interest-rate environment, significant
exposure to the real estate loan portfolio and a stringent
regulatory landscape will likely weigh on the company’s financials
in the coming quarters.
Prosperity Bancshares currently carries a Zacks Rank #2 (Buy).
BOFI HLDG INC (BOFI): Free Stock Analysis Report
CULLEN FROST BK (CFR): Free Stock Analysis Report
FIRST FIN BK-TX (FFIN): Free Stock Analysis Report
PROSPERITY BCSH (PB): Free Stock Analysis Report
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