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TheStreet Open House

10 Buy Rated Regional Bank Stocks (Update 3)

5. Prosperity Bancshares

Prosperity Bancshares (PB) of Houston closed Monday at $42.40, rising 5% year-to-date, with a five-year total return of 43%. With a quarterly payout of 17.5 cents, the shares have a dividend yield of 1.65%.

The stock is rated an "A" by TheStreet Ratings.

Earlier this month, the company was featured among TheStreet's 10 Well-Run, Profitable Banks, based on third-quarter efficiency ratios.

The company has been expanding with small deals, including an agreement announced on Jan, 19 to buy The Bank Arlington, which has one office in Arlington, Texas, with assets of $37 million, which follows the completed purchase earlier this month of Texas Bankers of Austin, which included three branches and roughly $71 million in assets, and a deal announced on Dec. 9, to acquire East Texas Financial Services (EFBT) of Tyler, for about $20 million.

Prosperity reported fourth-quarter net income of $36.4 million, or 77 cents a share, which was flat from the third quarter, but up from $32.8 million, or 70 cents a share, a year earlier.

The company bucked the industry trend, with income from debit card and ATM fees increasing to $4.2 million in the fourth quarter from $3.9 million the previous quarter and $3.3 million a year earlier, despite the Federal Reserve's implementation of the Durbin Rule's limits on debit card interchange fees, on Oct. 1.

Total loans increased slightly during the fourth quarter and 8% year-over-year, to $3.8 billion as of Dec. 31.

Noninterest-bearing deposit balances grew 6% sequentially and 18% year-over-year, to $1.98 billion as of Dec. 31.

The fourth-quarter net interest margin was 3.82%, narrowing from 4.02% the previous quarter and 3.99% a year earlier, with the fourth-quarter margin "impacted by increased amortization expense from the securities portfolio."

Sterne Agee analyst Brett Rabatin on Monday reiterated his neutral rating for Prosperity Bancshares, saying that while his "longer-term thesis on PB remains positive, in the near-term, we remain conservative on the name following results that included modest loan growth due to prepays, greater than expected NIM pressure, and limited visibility on levers to meaningfully increase earning power (apart from a larger acquisition with favorable pricing)."

The shares trade for 3.1 times tangible book value, according to SNL Financial, and for 14 times the consensus 2012 EPS estimate of $3.03, among analysts polled by FactSet.

Interested in more on Prosperity Bancshares? See TheStreet Ratings' report card for this stock.

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