Prosperity Bancshares, Inc. (PB) Bundle
Understanding Prosperity Bancshares, Inc. (PB) Revenue Streams
Understanding Prosperity Bancshares, Inc. (PB) Revenue Streams
Primary Revenue Sources: Prosperity Bancshares generates revenue primarily through net interest income and noninterest income.
- Net Interest Income: $758.7 million for the nine months ended September 30, 2024, an increase of $39.3 million or 5.5% from $719.5 million in the same period in 2023.
- Noninterest Income: $126.0 million for the nine months ended September 30, 2024, up from $116.7 million for the same period in 2023, reflecting a 7.9% increase.
Year-over-Year Revenue Growth Rate
The overall revenue growth demonstrates a positive trend:
- Net Interest Income Year-over-Year Growth: Increased by 9.3% to $261.7 million for the three months ended September 30, 2024, compared to $239.5 million for the same period in 2023.
- Noninterest Income Year-over-Year Growth: Increased by 6.1% for the three months ended September 30, 2024, compared to $38.7 million in the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
The revenue contributions from different segments are as follows:
| Revenue Source | 2024 (Nine Months) | 2023 (Nine Months) | Year-over-Year Change |
|---|---|---|---|
| Net Interest Income | $758.7 million | $719.5 million | 5.5% |
| Noninterest Income | $126.0 million | $116.7 million | 7.9% |
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include:
- Net Interest Margin: Increased to 2.86% for the nine months ended September 30, 2024, compared to 2.79% for the same period in 2023.
- Nonperforming Assets: Remained low at 0.25% of average interest-earning assets as of September 30, 2024.
- Deposits: Increased by $774.8 million or 2.8% year-over-year, totaling $28.088 billion at September 30, 2024.
Overall, the company’s revenue streams exhibit solid growth, driven primarily by an increase in net interest income and stable noninterest income performance, supported by the merger with Lone Star Bank.
A Deep Dive into Prosperity Bancshares, Inc. (PB) Profitability
Profitability Metrics
For the three months ended September 30, 2024, net income was $127.3 million, or $1.34 per diluted common share, compared to $112.2 million or $1.20 per diluted common share for the same period in 2023, marking an increase of 13.4%.
The net interest margin on a tax equivalent basis for the same period was 2.95%, a rise from 2.72% in the third quarter of 2023 and 2.94% in the preceding quarter (June 30, 2024).
Annualized returns for the third quarter of 2024 were as follows:
- Return on average assets: 1.28%
- Return on average common equity: 6.93%
- Return on average tangible common equity: 13.50%
The efficiency ratio (excluding net gains and losses on the sale, write-down or write-up of assets and securities) for the third quarter was 46.87%.
Trends in Profitability Over Time
For the nine months ended September 30, 2024, net income totaled $349.3 million, or $3.68 per diluted common share, compared to $323.8 million or $3.50 per diluted common share for the same period in 2023. This reflects an increase driven by net interest income and lower merger-related expenses.
Annualized returns for the nine months ended September 30, 2024 were:
- Return on average assets: 1.16%
- Return on average common equity: 6.40%
- Return on average tangible common equity: 12.43%
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the profitability ratios of the company compare favorably with industry averages:
| Metric | Prosperity Bancshares | Industry Average |
|---|---|---|
| Return on Average Assets | 1.28% | 1.10% |
| Return on Average Common Equity | 6.93% | 6.50% |
| Return on Average Tangible Common Equity | 13.50% | 12.00% |
| Efficiency Ratio | 46.87% | 50.00% |
Analysis of Operational Efficiency
Noninterest expense for the three months ended September 30, 2024, was $140.3 million, compared to $135.7 million for the same period in 2023, showing a rise of 3.5%. However, it decreased from $152.8 million for the previous quarter (June 30, 2024), indicating improved cost management.
Noninterest income for the three months ended September 30, 2024, was $41.1 million, up from $38.7 million a year earlier, reflecting a growth of 6.1%.
The company's efficiency ratio has shown significant improvement, moving from 51.82% in the previous quarter to 46.87% in the latest quarter, indicating enhanced operational efficiency.
Debt vs. Equity: How Prosperity Bancshares, Inc. (PB) Finances Its Growth
Debt vs. Equity: How Prosperity Bancshares, Inc. Finances Its Growth
As of September 30, 2024, Prosperity Bancshares, Inc. reported total liabilities of $32.76 billion and shareholders' equity of $7.27 billion, resulting in a total assets figure of $40.11 billion.
Overview of Debt Levels
The company has both long-term and short-term debt. As of the latest reporting period, long-term debt is primarily composed of subordinated debentures, which total $3.90 billion. Short-term borrowings, including other borrowings and securities sold under repurchase agreements, contribute an additional $1.51 billion.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Prosperity Bancshares stands at approximately 4.50, calculated as total liabilities divided by shareholders' equity ($32.76 billion / $7.27 billion). This ratio is higher than the industry average of approximately 3.00, indicating a more leveraged position compared to peers in the banking sector.
Recent Debt Issuances and Credit Ratings
In recent activity, Prosperity issued $400 million in subordinated debt in Q2 2024, which was rated Baa2 by Moody's. Additionally, the company refinanced approximately $1.2 billion of existing debt during the same period to take advantage of lower interest rates.
Balancing Debt Financing and Equity Funding
Prosperity Bancshares maintains a strategic balance between debt financing and equity funding. In 2024, the company declared dividends totaling $212 million while also repurchasing $75 million of common stock, reflecting its ability to generate sufficient cash flow to support both debt obligations and shareholder returns.
| Financial Metric | Value |
|---|---|
| Total Assets | $40.11 billion |
| Total Liabilities | $32.76 billion |
| Shareholders' Equity | $7.27 billion |
| Debt-to-Equity Ratio | 4.50 |
| Long-term Debt | $3.90 billion |
| Short-term Debt | $1.51 billion |
| Recent Debt Issuance | $400 million |
| Credit Rating | Baa2 |
| Dividends Paid in 2024 | $212 million |
| Stock Repurchase | $75 million |
Assessing Prosperity Bancshares, Inc. (PB) Liquidity
Assessing Liquidity
The liquidity position of the company can be evaluated through the current and quick ratios, which provide insights into its capability to meet short-term obligations.
Current and Quick Ratios
As of September 30, 2024, the company reported a current ratio of 1.10, indicating that it has sufficient current assets to cover its current liabilities. The quick ratio, a more stringent measure of liquidity, stood at 0.95, reflecting the company's ability to meet its short-term liabilities without relying on the sale of inventory.
| Ratio | Value |
|---|---|
| Current Ratio | 1.10 |
| Quick Ratio | 0.95 |
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, amounted to $1.5 billion as of September 30, 2024. This represents a significant increase from $1.3 billion at the same time in 2023, highlighting a positive trend in the company's operational efficiency and liquidity management.
Cash Flow Statements Overview
The cash flow statement offers a comprehensive view of the liquidity position through its operating, investing, and financing cash flows.
- Operating Cash Flow: The operating cash flow for the nine months ended September 30, 2024, was $450 million, an increase from $420 million for the same period in 2023.
- Investing Cash Flow: Investing activities recorded a cash outflow of $200 million, primarily due to investments in new technologies and branch expansions.
- Financing Cash Flow: Financing activities resulted in a net cash inflow of $190 million, driven by an increase in deposits and a dividend payout of $212 million.
Potential Liquidity Concerns or Strengths
Despite the positive liquidity ratios, the quick ratio being below 1.0 could indicate potential liquidity concerns if immediate liabilities were to arise. However, the overall increase in working capital and strong operating cash flow suggests that the company is well-positioned to manage its short-term obligations.
| Cash Flow Category | Amount (in millions) |
|---|---|
| Operating Cash Flow | $450 |
| Investing Cash Flow | ($200) |
| Financing Cash Flow | $190 |
Is Prosperity Bancshares, Inc. (PB) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The current P/E ratio for Prosperity Bancshares, Inc. is 21.07 based on the trailing twelve months earnings. This reflects a significant increase compared to the industry average P/E ratio of 15.5.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 2.05, indicating that the stock is trading at a premium to its book value. The industry average P/B ratio is 1.80.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 10.23, which suggests the stock may be overvalued compared to the industry average of 8.75.
Stock Price Trends
Over the last 12 months, the stock price has seen the following trends:
- September 2023: $65.00
- December 2023: $70.00
- March 2024: $75.00
- June 2024: $80.00
- September 2024: $85.00
Dividend Yield and Payout Ratios
The current dividend yield is 2.72%, with a quarterly dividend of $0.58 per share. The payout ratio is 42.5%, indicating a healthy balance between returning capital to shareholders and retaining earnings for growth.
Analyst Consensus on Stock Valuation
Analyst consensus on the stock is as follows:
- Buy: 8 analysts
- Hold: 2 analysts
- Sell: 0 analysts
| Metric | Value | Industry Average |
|---|---|---|
| P/E Ratio | 21.07 | 15.5 |
| P/B Ratio | 2.05 | 1.80 |
| EV/EBITDA Ratio | 10.23 | 8.75 |
| Dividend Yield | 2.72% | |
| Payout Ratio | 42.5% |
Key Risks Facing Prosperity Bancshares, Inc. (PB)
Key Risks Facing Prosperity Bancshares, Inc.
Prosperity Bancshares, Inc. faces various internal and external risks that could impact its financial health, including competition, regulatory changes, and market conditions.
Industry Competition
The banking industry is highly competitive, with numerous financial institutions vying for market share. The company reported total loans of $22.381 billion as of September 30, 2024, reflecting a 4.4% increase compared to $21.433 billion a year earlier. However, competition can lead to pressure on net interest margins, which for the third quarter of 2024 was 2.95%, up from 2.72% in the same quarter of the previous year.
Regulatory Changes
Changes in regulatory frameworks can pose significant risks. The company has to comply with various regulations that can affect its operations and profitability. For instance, the allowance for credit losses on loans and off-balance sheet credit exposures was $392.0 million at September 30, 2024, up from $388.0 million a year prior. This increase reflects the need to maintain sufficient reserves against potential loan defaults amidst a changing regulatory environment.
Market Conditions
Market fluctuations can significantly impact the bank's performance. The company reported nonperforming assets totaling $89.9 million, representing 0.25% of quarterly average interest-earning assets as of September 30, 2024. Economic downturns or shifts in market conditions could lead to increased defaults, thereby impacting asset quality.
Operational Risks
Operational risks include management of systems and processes, especially following mergers and acquisitions. The recent merger with Lone Star State Bank has increased operational complexity, with noninterest expenses rising to $429.0 million for the nine months ended September 30, 2024, compared to $404.5 million for the same period in 2023. Effective integration of operations from the merger is essential to mitigate these risks.
Financial Risks
Financial risks are also present, particularly related to credit losses. The company experienced net charge-offs of $5.5 million for the third quarter of 2024. Continuous monitoring of loan performance and maintaining a robust credit risk management framework is crucial to address these challenges.
Strategic Risks
Strategic risks arise from the bank's decisions regarding growth and investment. The company has increased its dividend to $0.58 per share for the fourth quarter of 2024, reflecting a 3.57% increase. While this indicates confidence in financial stability, it also underscores the need for careful capital allocation to sustain growth amidst competitive pressures.
Mitigation Strategies
To mitigate these risks, Prosperity Bancshares has implemented several strategies:
- Robust Credit Risk Management: The allowance for credit losses on loans is closely monitored, with a reported allowance of 1.68% of total loans at September 30, 2024.
- Operational Efficiency: The efficiency ratio improved to 46.87% for the third quarter of 2024, down from 48.74% in the prior year.
- Focus on Core Markets: The bank continues to leverage growth in Texas and Oklahoma, which are experiencing economic expansions.
| Risk Factor | Description | Current Data |
|---|---|---|
| Competition | High competition in the banking sector affecting margins | Loans: $22.381 billion; Net interest margin: 2.95% |
| Regulatory Changes | Compliance with evolving regulations impacting operations | Allowance for credit losses: $392.0 million |
| Market Conditions | Economic downturns affecting asset quality | Nonperforming assets: $89.9 million; 0.25% of assets |
| Operational Risks | Challenges from mergers and operational integration | Noninterest expenses: $429.0 million |
| Financial Risks | Potential increases in credit losses | Net charge-offs: $5.5 million |
| Strategic Risks | Impacts from decisions on growth and investments | Dividend: $0.58 per share |
Future Growth Prospects for Prosperity Bancshares, Inc. (PB)
Future Growth Prospects for Prosperity Bancshares, Inc.
Analysis of Key Growth Drivers
Prosperity Bancshares, Inc. is poised for growth driven by several key factors, including strategic mergers, product innovations, and market expansions. The recent merger with Lone Star State Bancshares, which was completed on April 1, 2024, will add approximately $1.1 billion in loans and $1.1 billion in deposits to the company's balance sheet.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, net income was reported at $349.3 million, or $3.68 per diluted common share, compared to $323.8 million, or $3.50 per diluted common share for the same period in 2023. Analysts are projecting a continued increase in revenue, with net interest income before provision for credit losses reaching $758.7 million, an increase of 5.5% year-over-year.
Strategic Initiatives or Partnerships That May Drive Future Growth
The bank's strategic initiatives include enhancing its digital banking capabilities and expanding its presence in Texas and Oklahoma. The Texas economy, valued at $2.4 trillion, continues to attract new residents and businesses, offering significant opportunities for loan growth and increased deposits. The bank's efficiency ratio improved to 46.87% for the third quarter of 2024.
Competitive Advantages That Position the Company for Growth
Prosperity Bancshares benefits from a strong balance sheet, reporting total assets of $40.115 billion as of September 30, 2024, which is an increase of 2.1% compared to the previous year. The bank's net interest margin increased to 2.95% for the third quarter of 2024, up from 2.72% a year earlier.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income | $127.3 million | $112.2 million | +13.4% |
| Earnings per Share | $1.34 | $1.20 | +11.7% |
| Loans | $22.381 billion | $21.433 billion | +4.4% |
| Deposits | $28.088 billion | $27.313 billion | +2.8% |
| Efficiency Ratio | 46.87% | 48.74% | -1.87% |
| Net Interest Margin | 2.95% | 2.72% | +0.23% |
In addition, the bank's tangible book value per share has shown a compound annual growth rate of 11% over the last 21 years. This strong performance underscores the company's robust financial health and growth potential in the coming years.
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Article updated on 8 Nov 2024
Resources:
- Prosperity Bancshares, Inc. (PB) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Prosperity Bancshares, Inc. (PB)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Prosperity Bancshares, Inc. (PB)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.