Prosperity Bancshares (PB)

Regional banking company Prosperity Bancshares (NYSE:PB) fell short of the markets revenue expectations in Q3 CY2025 as sales rose 3.9% year on year to $314.7 million. Its GAAP profit of $1.45 per share was in line with analysts’ consensus estimates.

Company Overview

With a network of banking centers spanning the Lone Star State and beyond, Prosperity Bancshares (NYSE:PB) operates full-service banking locations throughout Texas and Oklahoma, offering a wide range of financial products and services to businesses and consumers.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Prosperity Bancshares competes with other regional banks operating in Texas and Oklahoma such as Cullen/Frost Bankers (NYSE:CFR), Texas Capital Bancshares (NASDAQ:TCBI), BOK Financial (NASDAQ:BOKF), as well as larger national banks with significant presence in the region including JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Regrettably, Prosperity Bancshares’s revenue grew at a tepid 1.8% compounded annual growth rate over the last five years. This was below our standards and is a poor baseline for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Prosperity Bancshares’s annualized revenue growth of 4.7% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Prosperity Bancshares’s revenue grew by 3.9% year on year to $314.7 million, falling short of Wall Street’s estimates.

Net interest income made up 86.8% of the company’s total revenue during the last five years, meaning Prosperity Bancshares barely relies on non-interest income to drive its overall growth.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Prosperity Bancshares’s efficiency ratio has increased by 1.6 percentage points, going from 41.5% to 44.9%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Prosperity Bancshares’s efficiency ratio came in at 44.1% this quarter, beating analysts’ expectations by 28.5 basis points (100 basis points = 1 percentage point). This result was 2.8 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Prosperity Bancshares to maintain its trailing one-year ratio with a projection of 45.1%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Prosperity Bancshares’s unimpressive 1.5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Prosperity Bancshares, its two-year annual EPS growth of 5.7% was higher than its five-year trend. This acceleration made it one of the faster-growing banking companies in recent history.

In Q3, Prosperity Bancshares reported EPS of $1.45, up from $1.34 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Prosperity Bancshares’s full-year EPS of $5.61 to grow 7.7%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

Prosperity Bancshares’s TBVPS grew at an impressive 8% annual clip over the last five years. However, TBVPS growth has recently decelerated a bit to 6.5% annual growth over the last two years (from $38.08 to $43.23 per share).

Over the next 12 months, Consensus estimates call for Prosperity Bancshares’s TBVPS to grow by 6.2% to $45.92, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Prosperity Bancshares has averaged a Tier 1 capital ratio of 16.3%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Prosperity Bancshares has averaged an ROE of 7.3%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

We struggled to find many positives in these results. Its net interest income slightly missed and its EPS was in line with Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2% to $62.01 immediately following the results.

Updated: December 3, 2025 at 11:35 PM EST

When considering an investment in Prosperity Bancshares, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Prosperity Bancshares doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years. And while its expanding net interest margin shows its loan book is becoming more profitable, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its net interest income growth was weak over the last five years.

Prosperity Bancshares’s P/B ratio based on the next 12 months is 0.9x. This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $78.13 on the company (compared to the current share price of $69.30).