Prosperity Bancshares NYSE: PB reported higher full-year and fourth-quarter earnings for 2025, pointing to an improving net interest margin, stable expenses, and continued capital return through share repurchases. Management also used the call to highlight a series of bank transactions, including the completed merger with American Bank, an expected February closing for Texas Partners Bank, and an agreement to acquire Stellar Bancorp that executives described as strategically significant for the company’s presence in Houston and across Texas.
2025 earnings rise; margin expands
Senior Chairman and CEO David Zalman said Prosperity posted net income of $543 million for the year ended Dec. 31, 2025, up from $480 million in 2024. Diluted earnings per share rose to $5.72 from $5.05. For the fourth quarter, net income was $139.9 million, compared with $130 million in the prior-year quarter.
Zalman highlighted profitability and expense control metrics, including an annualized return on average assets of 1.49% and return on average tangible common equity of 13.61% for the fourth quarter. He also said the efficiency ratio, excluding certain asset and securities marks and sales impacts, was 43.6% for the quarter.
Chief Financial Officer Asylbek Osmonov reported net interest income before provision for credit losses of $275.0 million for the fourth quarter, up from $267.8 million a year earlier and slightly higher than the $273.4 million reported in the third quarter.
Prosperity’s tax-equivalent net interest margin (NIM) increased to 3.30% in the fourth quarter from 3.05% a year earlier and 3.24% in the prior quarter. Excluding purchase accounting adjustments, Osmonov said NIM was 3.26%, compared with 3.00% in the year-ago quarter and 3.21% in the third quarter.
Balance sheet trends: deposits up, loans down modestly
Zalman said loans excluding warehouse purchase program loans were $20.5 billion at Dec. 31, 2025, down $249 million from Sept. 30, 2025. He said the company continued to see “good demand for loans” but was not willing “to compete with the terms and conditions being offered sometimes by out-of-state competitors on some of the larger deals.” He also cited efforts to “outsource some less desired loans acquired in previous transactions” as a factor impacting overall loan levels.
On funding, Zalman said deposits increased more than expected due to seasonality. Deposits were $28.4 billion at Dec. 31, up $700 million from $27.7 billion at Sept. 30.
Osmonov added that non-interest income was $42.8 million in the fourth quarter, compared with $41.2 million in the third quarter and $39.8 million a year earlier. Non-interest expense was $138.7 million, essentially flat with the third quarter and lower than $141.5 million in the year-ago quarter. The efficiency ratio was 43.7% for the fourth quarter, down from 44.1% in the third quarter and 46.1% in the prior-year period.
Credit metrics: non-performing assets increase; charge-offs decline
Asset quality measures worsened modestly quarter over quarter. Zalman said non-performing assets totaled $150 million, or 46 basis points of quarterly average interest-earning assets at Dec. 31, 2025, compared with $119 million, or 36 basis points, at Sept. 30. He attributed the increase primarily to “two loans made in our middle market lending group and one well-collateralized real estate loan acquired in one of our recent acquisitions.”
Chairman H.E. Tim Timanus, Jr. provided additional detail, saying non-performing assets were $150.842 million at quarter-end, representing 69 basis points of loans and other real estate, compared with $119.563 million, or 54 basis points, at Sept. 30—an increase of $31.279 million. He said that since Dec. 31, $6.631 million of non-performing assets had been removed or put under contract for sale.
Timanus said net charge-offs were $5.884 million for the fourth quarter, down $574,000 versus the quarter ended June 30, 2025. He also said there was “no addition to the allowance for credit losses during the quarter” and no amounts taken into income from the allowance.
During Q&A, President and COO Kevin Hanigan discussed credits contributing to the increase in non-performing assets, including a $35 million Shared National Credit (SNC) participation that had been downgraded to non-accrual status. Hanigan said the company is “not the agent on” that credit and described resolution discussions as “challenging.” He added that the borrower is backed by “a well-known very large private equity firm” with a history of supporting its deals, though he cautioned that does not necessarily mean support in this case.
Zalman and Hanigan also referenced another larger credit tied to a participation acquired through a prior transaction, which management said is secured by real estate and should not result in a loss.
On reserves, Zalman said the allowance for credit losses on loans was $333 million and the allowance for credit losses on loans and off-balance-sheet exposure was $371 million at Dec. 31, 2025. He said the allowance for credit losses on loans equaled 2.21 times non-performing assets.
M&A activity accelerates; Stellar deal framed as strategic
Prosperity outlined multiple transactions. Zalman said the company completed its merger with American Bank and its parent, American, on Jan. 1, 2026, and added American Bank CEO Steve Retzloff and Pat Wallace to the board. He also said the company had received regulatory and shareholder approvals for its merger with Southwest Bancshares, parent of Texas Partners Bank, and expects that transaction to be effective Feb. 1, 2026.
Zalman said the planned acquisition of Stellar Bancorp would move the combined organization’s Houston deposit rank “from number nine to number five,” making Prosperity “the largest Texas-based bank in the market and second-largest bank by deposits in the state.” He described Stellar as “a well-run bank with similar credit discipline and an envious non-interest-bearing deposit mix,” calling the transaction “a low-risk combination that significantly enhances our Texas footprint.”
Stellar CFO Paul Egge addressed questions about Prosperity’s earnings assumptions for Stellar, saying Stellar had “growing momentum in the back half of 2025” and that annualizing a normalized fourth-quarter run-rate could equate to “$0.55 per share EPS run rate, which would annualize to $2.20.” Egge said Stellar entered 2026 with about $100 million more in interest-earning assets than the average level in the fourth quarter of 2025 and expected benefits from Fed rate cuts that occurred in the fourth quarter.
On integration, management emphasized experience and dedicated resources. In response to a question about handling multiple integrations, Prosperity executives said the company has “designated teams” focused on conversion work, while field personnel remain focused on organic growth. Osmonov said system conversions for American Bank and Texas Partners Bank are scheduled later in 2026, and management expects to realize most previously announced cost savings after those conversions.
2026 outlook: higher expenses near-term; margin expected to improve
Osmonov provided expense guidance for the first quarter of 2026, projecting non-interest expense of $172 million to $176 million, reflecting three months of American Bank expenses and two months of Texas Partners Bank expenses. He also said Prosperity expects approximately $30 million to $33 million in one-time merger-related charges tied to those two acquisitions.
On purchase accounting, Osmonov said fourth-quarter fair value loan income was $3.1 million, up from $2.9 million in the third quarter, and guided to $3 million to $4 million for the first quarter of 2026. He later clarified that this guidance was for American Bank and Texas Partners Bank. For Stellar, he referenced disclosed marks, including about $31 million in pre-tax loan marks and an AOCI mark “about $33 million net of tax,” adding that for modeling purposes the company uses a sum-of-years-digits approach and that “for 2027… the mark accretion is about $31 million combined.”
Management also discussed NIM expectations. In response to a question about the margin trajectory through 2026, Osmonov said Prosperity expects margin improvement “for 2026 and beyond,” noting that the acquired smaller banks have higher margins than Prosperity on a standalone basis. He pointed to repricing opportunities in the securities portfolio, citing projected annual cash flows of approximately $1.9 billion and stating that the bond portfolio yield of about 2.50% could be reinvested near 4.50%, “so 200 basis points there.” He said Prosperity’s standalone projection shows “around 3.50% margin for 2026,” and added that Stellar’s margin “about more 4.2%” would be “very accretive.” Zalman emphasized, “A minimum of 3.5%” for Prosperity without Stellar.
On balance sheet growth expectations, Hanigan told analysts that “low single digits is good” for 2026 loan growth, adding that Stellar and American Bank have been growing faster and the company did not see reasons for that to change. Timanus reported average monthly new loan production of $314 million in the fourth quarter, down from $356 million in the third quarter, and said total loans outstanding were approximately $21.805 billion at Dec. 31 versus $22.028 billion at Sept. 30, with the portfolio mix at 35% fixed, 35% floating, and 30% variable rate loans.
Capital return remained part of the discussion. Zalman said Prosperity repurchased approximately $157 million of common stock during 2025, or 2.34 million shares, at an average weighted price of $67.04. In Q&A, management said the company does not have a 10b5-1 plan and that buybacks are pursued “when it’s opportunistic,” while noting blackout restrictions around earnings and merger-related events.
About Prosperity Bancshares NYSE: PB
Prosperity Bancshares, Inc is a holding company for Prosperity Bank, offering a broad range of commercial and consumer banking services across Texas, Oklahoma, Arkansas and Louisiana. Through its network of branches and digital platforms, the company provides deposit products, business and real estate lending, treasury management, mortgage origination and servicing, as well as wealth management and trust services.
Originally chartered in 1911 as First National Bank in McKinney, Texas, the organization rebranded to Prosperity Bank in 2009 following a series of strategic acquisitions aimed at deepening its regional presence.
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