Prosperity Bancshares Q3 Adjusted Profit Rises as Margin Widens

Prosperity Bancshares reported stronger adjusted third-quarter earnings and a wider net interest margin as the Texas-based bank completed its merger with Stellar Bancorp and expanded its balance sheet to $54.1 billion in assets.

For the third quarter of 2026, the company recorded net income of $141.5 million, or $1.18 per diluted share. Excluding merger-related expenses and non-recurring items, net income was $200.8 million, up 45.9% from the third quarter of 2025, while adjusted diluted earnings per share rose 15.2% to $1.67. The adjustments exclude merger-related expenses, a one-time out-of-state tax settlement and the gain on a Visa Class B-2 stock exchange net of investment securities sales.

Net interest margin increased to 3.73%, rising 26 basis points from the second quarter and 49 basis points from a year earlier. The bank reported a 6.08% yield on total loans during the quarter, while the total cost of deposits was 1.39% and the cost of interest-bearing deposits was 2.09%.

Acquisitions expand the franchise

Prosperity completed its merger with Stellar Bancorp on July 1, 2026, and finished the operational integration of American Bank on September 14. At September 30, the company had $32.1 billion of total loans and $41.2 billion of deposits, alongside 352 full-service locations across Texas and Oklahoma.

Loans held for investment excluding the Warehouse Purchase Program totaled $30.9 billion. Houston represented 38.6% of those loans, followed by Dallas-Fort Worth at 20.5% and Central Texas at 10.1%. The portfolio had an estimated average life of approximately 3.2 years, and its core yield excluding purchase accounting adjustments was 6.01% for the quarter.

Commercial real estate totaled $10.7 billion, with 41% of that portfolio owner-occupied. Retail properties accounted for 23% of commercial real estate loans, followed by other property types at 22%, offices at 18% and industrial properties at 16%. Construction loans totaled about $4.25 billion, while commercial and industrial loans excluding energy were approximately $4.16 billion.

Deposits included $13.84 billion of noninterest-bearing demand balances, representing roughly one-third of the total. Money market and savings deposits were $13.50 billion, interest-bearing demand deposits were $8.11 billion, and certificates of deposit and other time deposits totaled $5.78 billion.

Credit quality and capital

Asset-quality measures remained low during the quarter. Annualized net charge-offs were 0.05% of average loans, while nonperforming assets represented 0.41% of average earning assets.

The allowance for credit losses on loans and off-balance-sheet credit exposures reached $629.6 million, compared with $420.5 million in the presentation’s allowance bridge. The increase included $146.1 million associated with purchased credit-deteriorated loans from a recent acquisition and $67.4 million for purchased seasoned loans, both recorded through goodwill. The allowance for credit losses on loans equaled 1.91% of total loans excluding the Warehouse Purchase Program.

Prosperity reported a common equity Tier 1 capital ratio of 13.46% and a leverage ratio of 9.85% at quarter-end. The company repurchased approximately 457,000 common shares during the quarter and 1.5 million shares during the first nine months of 2026.

The board increased the fourth-quarter dividend by 6.7% to $0.64 per share, marking the company’s 23rd consecutive annual dividend increase.

Market position and risks

Management highlighted the bank’s exposure to Texas and Oklahoma, including operations in Houston, Dallas-Fort Worth, Austin and San Antonio. The presentation indicated that population growth in several of these metropolitan areas is projected to exceed the national rate from 2027 through 2032, although those projections remain subject to economic and demographic uncertainty.

The company did not provide detailed earnings guidance in the presentation. Its forward-looking statements identified potential risks including deterioration in credit quality, challenges integrating acquired banks, changes in interest rates and economic conditions, regulatory changes, competition, weakness in securities portfolio credit quality, trade-policy shifts, and weather- or climate-related events. Prosperity also cautioned that anticipated acquisition benefits may not be realized on the expected schedule or at all.