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    PB
    Earnings call· Jun 2026(Q2 FY26)

    PROSPERITY BANCSHARES Q2 FY26 earnings call PB

    Jul 29, 2026 Source

    Executive summary

    Prosperity Bancshares Q2 FY26 — Stellar Merger Completed, Strong NIM Expansion, and Robust Capital Position

    Prosperity Bancshares completed its merger with Stellar Bancorp, positioning for future growth and efficiency gains. The quarter saw strong core earnings and significant net interest margin expansion, driven by repricing assets. While loan growth was muted due to paydowns and competitive pricing, the company maintains a robust capital position and is focused on integrating recent acquisitions and optimizing profitability over volume.

    Highlights

    5

    • Net income, excluding non-recurring items, increased 20.4% year-over-year to $162 million.

    • Diluted EPS, excluding non-recurring items, increased 14.1% year-over-year to $1.62.

    • Net interest margin (tax equivalent) expanded 29 basis points year-over-year to 3.47%.

    • Noninterest-bearing deposits increased $159 million quarter-over-quarter, representing 32.9% of total deposits.

    • The merger with Stellar Bancorp was completed on July 1, 2026, with Stellar's Q2 adjusted pretax pre-provision core income at $42.1 million.

    Concerns

    4

    • Loans, excluding warehouse purchase program loans, decreased $117 million quarter-over-quarter.

    • Nonperforming assets increased slightly to $130.576 million or 52 basis points of loans and other real estate, from $122.107 million or 48 basis points quarter-over-quarter.

    • The linked quarter net interest margin decreased 4 basis points to 3.47%, though primarily due to a one-time loan interest income in Q1.

    • Aggressive competition in the lending market is leading to

    Guidance & targets

    8
    CategoryTargetConfidence
    Net Interest Margin (NIM)
    3.70% to 3.75%
    high materiality
    High
    Net Interest Margin (NIM)
    3.80% to 3.85%
    high materiality
    High
    Noninterest Expense
    $244 million to $250 million
    medium materiality
    High
    Fair Value Loan Income
    $6 million to $8 million
    low materiality
    Medium
    Additional Cost Savings (American & Texas Partners)
    $20 million to $25 million
    medium materiality
    High
    Additional Cost Savings (Stellar)
    $80 million to $85 million
    high materiality
    High
    Annual Run Rate Net Income (Post-Integration)
    $850 million to $880 million
    high materiality
    Medium
    Return on Tangible Common Equity (ROTCE)
    17% to 18%
    high materiality
    Medium

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Stellar Bank
    Stellar's Q2 FY26 net interest income before provision for credit losses increased slightly QoQ. Adjusted pretax pre-provision net income increased $2.9 million QoQ. The bank also saw significant loan activity with new bookings and renewals at an average rate of 6.5%.
    Net interest income before provision for credit losses (Q2 FY26): $106.4 millionNet interest income before provision for credit losses (Q1 FY26): $105.9 millionNew loans booked: $525 millionRenewed loans: $600 million to $700 millionTotal loan activity: $1.1 billion to $1.2 billionAverage rate on new loan production: 6.5%
    		———Adjusted pretax pre-provision net income: $42.1 million

    Operational metrics

    23
    Net Income (Adjusted)
    $162 millionup 20.4% YoY
    Q2 FY26

    Compared to $135 million in Q2 FY25.

    Diluted EPS (Adjusted)
    $1.62up 14.1% YoY
    Q2 FY26

    Compared to $1.42 in Q2 FY25.

    Net interest income growth (YoY)
    $62.8 millionincrease
    Q2 FY26

    Increase compared to Q2 FY25.

    Net interest income growth (QoQ)
    $9.4 millionincrease
    Q2 FY26

    Increase compared to Q1 FY26.

    Net gain from Visa stock conversion
    $8.2 million
    Q2 FY26

    Included in noninterest income, partially offset by loss on sale of investment securities.

    Merger-related expenses
    $42.5 million
    Q1 FY26

    Included in noninterest expense for the first quarter.

    Bond portfolio modified duration
    3.7
    June 30, 2026

    Metric for the bond portfolio.

    Bond portfolio projected annual cash flows
    $2.2 billion
    Annual

    Projected cash flows from the bond portfolio.

    Nonperforming assets (QoQ change)
    $8.469 millionincrease
    Q2 FY26

    Increase in nonperforming assets from Q1 FY26 to Q2 FY26.

    Repossessed assets
    $9,000
    June 30, 2026

    Component of nonperforming assets.

    Other real estate owned
    $11.296 million
    June 30, 2026

    Component of nonperforming assets.

    Allowance for credit losses on loans coverage
    2.9x
    June 30, 2026

    Allowance for credit losses on loans was 2.9 times the amount of nonperforming assets.

    Average monthly new loan production
    $454 millionup from $312 million QoQ
    Q2 FY26

    Average monthly new loan production for the quarter.

    Loan portfolio mix (fixed rate)
    34%
    June 30, 2026

    Percentage of fixed rate loans in the portfolio.

    Loan portfolio mix (floating rate)
    33%
    June 30, 2026

    Percentage of floating rate loans in the portfolio.

    Loan portfolio mix (variable rate)
    33%
    June 30, 2026

    Percentage of variable rate loans in the portfolio.

    Construction deals in pipeline
    $400 million
    Current

    Approved construction deals that will not provide funding this year as equity needs to be funded first.

    Mortgage warehouse average outstandings
    $1.2 billion to $1.225 billiondown from $1.316 billion in Q2 FY26
    Q3 FY26 forecast

    Expected average outstandings for the third quarter, reflecting a decrease from Q2.

    Organic deposit growth (legacy deposits)
    3.2%
    Current

    Organic growth rate for legacy deposits, stripping out acquired banks.

    Average rate on new loan production
    6.5%
    Q2 FY26

    Blended average rate on new loan production for the quarter.

    Current Return on Tangible Common Equity
    15.5%
    Current

    Current ROTCE, with a target of 17-18% post-integration.

    Stellar acquisition cost savings
    $80 million to $85 million
    Annual

    Expected additional cost savings from the Stellar acquisition, with full impact after the March 2027 system conversion.

    American and Texas Partners acquisition cost savings
    $20 million to $25 million
    Annual

    Expected additional cost savings from the American and Texas Partners acquisitions, with full impact in 2027.

    Industry KPIs

    12
    MetricValueDetails
    Loans$25.028 billionUSD
    Deposits$32.6 billionUSD
    Rotce ROE15.5%%
    Capital returns—
    Fee income lines—
    Allowance reserves$420 millionUSD
    Net interest income$330.6 millionUSD
    Net interest margin3.47%%
    Net charge offs npls$2.183 millionUSD
    Total operating expenses$176.2 millionUSD
    Provision for credit losses$0USD
    Efficiency ratio operating leverage46%%

    Deals & partnerships

    1
    Stellar BancorpMerger of Stellar Bancorp and its wholly owned subsidiary, Stellar Bank, headquartered in Houston, Texas. Stellar Bank operated 52 banking offices, including its main office in Houston and banking offices in the Houston, Beaumont and East Texas areas and in Dallas, Texas.

    Completed on July 1, 2026. Robert Franklin and Joe Swinbank joined Prosperity Bancshares' Board of Directors. Ray Vitulli and Pat Parsons joined Prosperity Bank Board of Directors.

    Risks & headwinds

    3
    Aggressive competition in lending marketCurrent

    Credit spreads at 25-30 year lows (e.g., SOFR +125 bps); 7-year fixed rates at 5.5% with 25-year amortization for larger loans.

    Mitigation: Focus on profitability over volume; selective lending; prioritizing relationships with deposits; utilizing bond market for excess liquidity.

    Loan paydownsQ2 FY26

    1-to-4 family residential portfolio decreased $100 million+ QoQ.

    Mitigation: Focus on integrating new partners; pipeline of construction deals expected to fund in Q1/Q2 FY27.

    Preliminary loan marks from Stellar acquisitionNot finalized yet

    Preliminary loan marks are coming in "a little bit higher than what we projected."

    Mitigation: Still working on finalizing the marks.

    What to watch in Q3 FY26

    5

    Net Interest Margin (NIM)

    End of FY26
    Current3.47% (Q2 FY26)
    Target3.70% to 3.75%

    Why it matters

    NIM expansion is a key driver of profitability and a core thesis for the bank, especially post-acquisition.

    our models are still showing is hitting, I think, again, Asylbek may want to jump in on this, but we're still saying that we'll end up with 3.75 at the end of the year, but our models are still showing 3.70 to 3.80.

    Q&A highlights

    6

    Confirming previous NIM targets of 3.70% by end of 2026 and 3.80% in 2027, and if deposit rate increases are factored in.

    Management confirmed the NIM targets, raising the 2026 exit guidance to 3.70-3.75% and 2027 full-year to 3.80-3.85%, noting that some deposit rate increases are already incorporated, but further increases might temper NIM slightly to foster organic growth.

    “our models are still showing is hitting, I think, again, Asylbek may want to jump in on this, but we're still saying that we'll end up with 3.75 at the end of the year, but our models are still showing 3.70 to 3.80.”

    asked by Janet Lee · answered by David Zalman

    1 min read5 chapters

    Detailed Narrative

    01

    Stellar Bancorp Merger and Integration Focus

    Prosperity Bancshares completed its merger with Stellar Bancorp on July 1, 2026, adding 52 banking offices and key executives to its board. The integration of Stellar, American Bank, and Texas Partners Bank is the top priority, with operational integrations expected in September (American), November (Texas Partners), and March 2027 (Stellar). Management emphasized the importance of successful integration before pursuing further acquisitions.

    02

    Loan Portfolio Dynamics and Production

    Loans, excluding warehouse purchase program loans, decreased $117 million quarter-over-quarter, primarily due to paydowns in the 1-to-4 family residential portfolio and other large paydowns. However, average monthly new loan production for Q2 FY26 was $454 million, up from $312 million in Q1 FY26, with an average rate of 6.5%. The company has approximately $400 million in approved construction deals in its pipeline, expected to start funding in Q1 and Q2 of next year.

    03

    Deposit Trends and Organic Growth

    Total deposits decreased $33 million quarter-over-quarter, but noninterest-bearing deposits increased $159 million during Q2 FY26, now representing 32.9% of total deposits. Excluding the seasonality of public funds, core deposits showed organic growth of approximately 3.2%. Management noted that despite the overall decrease, the quarter was seasonally tough for deposits, and they were pleased with the noninterest-bearing deposit growth.

    04

    Competitive Lending Environment and Profitability Focus

    Management observed aggressive competition in the lending market, particularly from larger regional banks entering Texas, leading to

    05

    Strategic Positioning and Technology Investment

    The company's prior investment in technology, including a conversion to the DNA product, has enabled the current wave of acquisitions. This strategic move positioned Prosperity to handle increased scale and complexity. The company intends to continue growing both organically and through M&A, leveraging its technology infrastructure and focusing on building core relationships and maintaining sound asset quality.

    AI-generated summary of the company’s earnings call. Not investment advice.