Inquiry about loan growth trends for Stellar and legacy Prosperity, given overall flat QoQ.

Kevin Hanigan stated that company-wide loan growth is expected to be relatively flat for the remainder of the year, despite Stellar having a robust pipeline and expecting to grow loans by $200 million in H2. He also noted significant construction deals approved that will start funding in Q1/Q2 next year. “I'd say for the remainder of the year, company-wide, still relatively flat for the remainder of the year. That does include Stellar has got a pretty robust pipeline [ billion to us ], right? And so they feel as though they'll grow their loans, they're grow them about $200 million in the first half of the year, they'll probably grow them another $200 million in the back half of the year.”

Clarification on the sustainability of the increase in other income, excluding one-time gains.

Asylbek Osmonov clarified that excluding the Visa stock gain and a $2.5 million annual income item, the core noninterest income run rate for Prosperity (before Stellar) is around $50 million, and Stellar adds $5 million to $6 million, leading to a combined run rate of $54 million to $56 million. “I would say our range around [ $50 million ] prosperity before Stellar and Stellar has $5 million to $6 million. So I would say between $54 million to $56 million, that would be a good run rate on the noninterest income.”

Asking if the aggressive pricing and structure in lending is widespread across all loan segments or specific to large deals/clients.

Management clarified that aggressive pricing (e.g., SOFR +125 bps) is primarily seen in larger loans, often from regional banks newly entering the Texas market. They noted that the average rate on new loan production for Q2 was around 6.5%, indicating that not all lending is subject to such aggressive pricing. “it is not across the board. It is primarily the larger loans. And what we're seeing more often than not is the large banks or relatively large banks that have recently entered the Texas market are trying to enter the Texas market.”

Prosperity Bancshares (PB) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 29, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Net Interest Margin (NIM)	3.70% to 3.75% high materiality	FY26 exit	High
Net Interest Margin (NIM)	3.80% to 3.85% high materiality	Full-year 2027 · FY27	High
Noninterest Expense	$244 million to $250 million medium materiality	Q3 · FY26	High
Fair Value Loan Income	$6 million to $8 million low materiality	Q3 · FY26	Medium
Additional Cost Savings (American & Texas Partners)	$20 million to $25 million medium materiality	Post-system conversion (2027) · FY27	High
Additional Cost Savings (Stellar)	$80 million to $85 million high materiality	Post-system conversion (2027) · FY27	High
Annual Run Rate Net Income (Post-Integration)	$850 million to $880 million high materiality	Post-integration	Medium
Return on Tangible Common Equity (ROTCE)	17% to 18% high materiality	Post-conversions and full cost savings	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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

Deals & partnerships

Stellar Bancorp Merger 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

Aggressive competition in lending market Current

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 paydowns Q2 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 acquisition Not 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

Net Interest Margin (NIM)

End of FY26

Current 3.47% (Q2 FY26)

Target 3.70% 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.

Find out whether PB delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

Competitive Lending Environment and Profitability Focus

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

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.