Shares of Prosperity Bancshares Inc. PB gained 3.8% following the release of better-than-expected first-quarter 2024 results. Earnings per share of $1.18 beat the Zacks Consensus Estimate of $1.15. However, the bottom line compared unfavorably with adjusted earnings of $1.38 in the prior-year quarter.
PB completed the acquisition of Lone Star on Apr 1, 2024. As of Mar 31, 2024, Lone Star reported total assets of $1.384 billion, total loans of $1.075 billion and total deposits of $1.241 billion.
Results benefited from nil provisions and an increase in non-interest income. Nevertheless, a fall in net interest income (NII), along with rising expenses, was a major headwind.
Net income available to common shareholders was $110.4 million, down 11.4% year over year.
Revenues Fall, Expenses Increase
Quarterly total revenues were $277.1 million, which declined 1.6% from the prior-year quarter. The top line, however, surpassed the Zacks Consensus Estimate of $274.9 million.
NII was $238.2 million, down 2.1% year over year. Net interest margin (NIM), on a tax-equivalent basis, decreased 14 basis points to 2.79%. Our estimates for NII and NIM were pegged at $242.4 million and 2.77%, respectively.
Non-interest income was $38.9 million, up 1.6%. Our estimate for the metric was pegged at $32.5 million.
Non-interest expenses increased 10.4% to $135.8 million. The increase was mainly attributed to an increase in salaries and benefits. On an adjusted basis, non-interest expense was up 11.2% year over year. Our estimate for non-interest expenses was $135.3 million.
The adjusted efficiency ratio was 49.07%, which increased from 43.37% in the prior year quarter. A rise in the efficiency ratio indicates lower profitability.
As of Mar 31, 2024, total loans were $21.3 billion, which increased marginally from the previous quarter. Total deposits were $27.2 billion, down marginally. Our estimates for total loans and total deposits were $21.1 billion and $27.6 billion, respectively.
Credit Quality Deteriorates
As of Mar 31, 2024, total non-performing assets were $83.8 million, which rose from $24.5 million in the prior-year quarter.
Net charge-offs were $2.1 million against $0.6 million recoveries in the year-ago period. The ratio of allowance for credit losses to total loans was 1.55%, up from 1.46%.
The company recorded nil provision for credit losses during the reported quarter, reflecting no change from the year-ago quarter.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of Mar 31, 2024, the common equity tier 1 capital ratio was 15.78%, up from 15.59% in the prior year quarter. The total risk-based capital ratio was 17.08%, up from 16.41%.
At the end of the first quarter, the annualized return on average assets was 1.13%, down from 1.31% at the end of the prior year quarter. Also, the annualized return on average common equity was 6.20%, which fell from 7.38%.
Share Repurchase Update
During the reported quarter, Prosperity Bancshares repurchased approximately 0.6 million shares at an average weighted price of $62.12 per share.
Our Take
Prosperity Bancshares’ emphasis on strategic acquisitions is expected to contribute to its long-term financial strength. Robust loan and deposit balances are likely to support the top line. However, lower NII, elevated expenses and weak mortgage income remain near-term concerns.
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. EWBC first-quarter 2024 adjusted earnings per share of $2.08 surpassed the Zacks Consensus Estimate of $2.00. However, the bottom line declined 10.3% from the prior-year quarter.
EWBC’s results were primarily aided by an increase in non-interest income. Also, deposit balances increased sequentially in the quarter. However, lower NII and higher expenses and provisions were the undermining factors.
Webster Financials’ WBS first-quarter 2024 adjusted quarterly earnings per share of $1.35 missed Zacks Consensus Estimate of $1.37 and compared unfavorably with earnings of $1.49 per share reported a year ago.
WBS’ results were affected by a fall in both NII and deposit balances, along with elevated expenses. However, lower provisions and a rise in loan balances acted as tailwinds.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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