Shares of Prosperity Bancshares Inc. PB gained 1.4%, following the release of its second-quarter 2021 results. Earnings per share of $1.41 surpassed the Zacks Consensus Estimate of $1.40. The bottom line compared favorably with the prior-year quarter’s adjusted earnings of $1.25 per share. The year-earlier quarter’s figure excludes merger-related charges and a net operating loss tax benefit.

Results were primarily aided by growth in non-interest income, a decline in expenses and nil provisions. The company witnessed sequential growth in average deposit balances in the quarter. However, a decline in net interest income (NII) and lower loan balances were the undermining factors.

Net income available to common shareholders (GAAP basis) was $130.6 million, down marginally year over year.

Revenues & Expenses Decline

Net revenues were $281 million, down 1.3% from the prior-year quarter. The figure lagged the Zacks Consensus Estimate of $283.4 million.

NII was $245.4 million, down 5.2% year over year. Net interest margin, on a tax-equivalent basis, contracted 58 basis points (bps) to 3.11%.

Non-interest income totaled $35.6 million, up 38.5% year over year. The rise was driven by an improvement in almost all fee income components, except for bank-owned life insurance income.

Non-interest expenses declined 14.3% from the prior-year quarter to $115.2 million. A decrease in almost all cost components, except for regulatory assessments and FDIC insurance costs, and other real estate expenses, resulted in the fall.

As of Jun 30, 2021, total average loans were $19.3 billion, down from $19.7 billion recorded at the end of the previous quarter. However, average deposits totaled $29.2 billion, up from $27.8 billion as of Mar 31, 2021.

Credit Quality Improves

In the reported quarter, the company did not record any provision for credit losses against provisions of $10 million in the year-ago quarter. Net charge-offs were $4.3 million, down from $13 million recorded in the year-ago period. As of Jun 30, 2021, total non-performing assets were $33.7 million, plunging 56.8% from the prior-year quarter end.

However, the ratio of allowance for credit losses to total loans was 1.57%, up 3 bps year over year.

Capital Ratios Improve

As of Jun 30, 2021, Tier-1 risk-based capital ratio was 15.26%, up from 12.29% as of Jun 30, 2020. Total risk-based capital ratio was 15.71% compared with the prior year’s 13.36%.

Profitability Ratios Deteriorate

At the end of the second quarter, the annualized return on average assets was 1.45%, down from 1.61% witnessed at the end of the prior-year quarter. Annualized return on common equity was 8.31%, down from the year-earlier period’s 8.84%.

Our Take

The company’s solid balance sheet position is expected to keep supporting its financials in the quarters ahead. Nonetheless, margin pressure due to low rates along with relatively weak loan demand remains concerning.

Prosperity Bancshares, Inc. Price, Consensus and EPS Surprise

Prosperity Bancshares, Inc. price-consensus-eps-surprise-chart | Prosperity Bancshares, Inc. Quote

Prosperity Bancshares currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp FITB reported second-quarter 2021 adjusted earnings of 94 cents per share, beating the Zacks Consensus Estimate of 83 cents. Results compared favorably with the prior-year quarter’s earnings of 23 cents per share.

Comerica CMA delivered a second-quarter 2021 earnings surprise of 43.2%. Earnings per share of $2.32 easily surpassed the Zacks Consensus Estimate of $1.62. The bottom line compared favorably with 84 cents reported in the prior-year quarter.

M&T Bank Corporation MTB reported a second-quarter 2021 negative earnings surprise of 6.76%. Net operating earnings per share of $3.45 lagged the Zacks Consensus Estimate of $3.70. The bottom line, however, compared favorably with $1.76 per share reported in the year-ago quarter.

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