Prosperity Bancshares, Inc. (PB) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate a positive outlook for Prosperity. Strong financial metrics, strategic acquisitions, and a solid capital deployment plan are highlighted, along with positive loan and margin growth expectations. The market strategy and shareholder return plans are well-received, despite some unclear responses. Overall, the sentiment is positive, suggesting a stock price increase.
Key Financial Performance
Net Income (Annual) $543 million for the year ended December 31, 2025, compared with $480 million for the same period in 2024, an increase of $63 million or 13.2%. The increase was attributed to overall improved financial performance.
Net Income Per Diluted Common Share (Annual) $5.72 for the year ending December 31, 2025, compared with $5.05 for the same period in 2024, an increase of 13.3%. This reflects the growth in net income.
Net Income (Quarterly) $139.9 million for the 3 months ending December 31, 2025, compared with $130 million for the same period in 2024, an increase of $9.8 million or 7.6%. The increase was due to improved operational efficiency and financial performance.
Net Interest Margin (Quarterly) 3.3% for the 3 months ending December 31, 2025, compared with 3.05% for the same period in 2024, an increase of 25 basis points. The increase was due to favorable interest rate conditions.
Deposits $28.4 billion at December 31, 2025, an increase of $700 million from $27.7 billion at September 30, 2025. The increase exceeded expectations due to seasonality.
Nonperforming Assets $150 million or 46 basis points of quarterly average interest-earning assets at December 31, 2025, compared with $119 million or 36 basis points at September 30, 2025. The increase was primarily due to two loans in the middle market lending group and a well-collateralized real estate loan acquired in a recent acquisition.
Allowance for Credit Losses on Loans $333 million as of December 31, 2025. This represents 2.21x of nonperforming assets, indicating strong credit loss coverage.
Net Interest Income (Quarterly) $275 million for the 3 months ended December 31, 2025, an increase of $7.2 million compared to $267.8 million for the same period in 2024. The increase was driven by higher interest margins.
Noninterest Income (Quarterly) $42.8 million for the 3 months ended December 31, 2025, compared to $39.8 million for the same period in 2024, an increase of $3 million. The increase was due to higher fee-based income.
Noninterest Expense (Quarterly) $138.7 million for the 3 months ended December 31, 2025, compared to $141.5 million for the same period in 2024, a decrease of $2.8 million. The decrease was due to cost-saving measures.
Efficiency Ratio (Quarterly) 43.7% for the 3 months ended December 31, 2025, compared to 46.1% for the same period in 2024. The improvement reflects better operational efficiency.
Net Charge-Offs (Quarterly) $5.884 million for the 3 months ended December 31, 2025, compared to $6.458 million for the quarter ended June 30, 2025, a decrease of $574,000. This indicates improved credit quality.
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Operating Highlights
Merger with American Bank: Prosperity Bancshares completed the merger with American Bank on January 1, 2026, expanding its presence in Corpus Christi, Texas.
Merger with Southwest Bancshares: The merger with Southwest Bancshares, parent company of Texas Partners Bank, is expected to be effective on February 1, 2026, further enhancing Prosperity's Texas footprint.
Acquisition of Stellar Bancorp: Prosperity Bancshares announced the acquisition of Stellar Bancorp, which will elevate its Houston Bank deposit rank from #9 to #5, making it the largest Texas-based bank in the market and second largest by deposits in the state.
Net Income Growth: Net income for 2025 was $543 million, a 13.2% increase from $480 million in 2024. Quarterly net income for Q4 2025 was $139.9 million, a 7.6% increase from $130 million in Q4 2024.
Net Interest Margin: Net interest margin increased to 3.3% in Q4 2025, up from 3.05% in Q4 2024.
Stock Repurchase Program: Repurchased $157 million worth of common stock under the 2025 stock repurchase program.
Deposit Growth: Deposits increased to $28.4 billion as of December 31, 2025, up $700 million from the previous quarter.
Focus on Low-Risk M&A: Continued strategy of growth through disciplined, low-risk mergers and acquisitions, as demonstrated by recent transactions with American Bank, Southwest Bancshares, and Stellar Bancorp.
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Risk or Challenges
Loan Portfolio Challenges: The company's overall loans decreased by $249 million from September 30, 2025, to December 31, 2025. This decline is attributed to the company's unwillingness to compete with out-of-state competitors offering more favorable terms and conditions on larger deals, as well as efforts to outsource less desired loans acquired in previous transactions.
Nonperforming Assets Increase: Nonperforming assets increased significantly from $119 million at September 30, 2025, to $150 million at December 31, 2025. This increase was primarily due to two loans in the middle market lending group and a well-collateralized real estate loan acquired in a recent acquisition.
Merger-Related Costs: The company expects to incur $30 million to $33 million in one-time merger-related charges for the acquisitions of American Bank and Texas Partners Bank in the first quarter of 2026. Additionally, the integration of these acquisitions will involve significant operational adjustments and system conversions later in the year.
Net Charge-Offs: Net charge-offs for the quarter ended December 31, 2025, were $5.884 million, indicating ongoing challenges in maintaining asset quality.
Loan Production Decline: The average monthly new loan production decreased from $356 million in the third quarter of 2025 to $314 million in the fourth quarter of 2025, reflecting reduced lending activity.
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Guidance & Outlook
Fair value loan income: The fair value loan income for the first quarter of 2026 is expected to be in the range of $3 million to $4 million.
Noninterest expense: For the first quarter of 2026, noninterest expense is expected to be in the range of $172 million to $176 million. This projection includes 3 months of American Bank expenses and 2 months of Texas Partners Bank expenses. Additionally, there will be about $30 million to $33 million in onetime merger-related charges for these two acquisitions.
Cost savings from acquisitions: Most of the previously announced cost savings related to American Bank and Texas Partners Bank are expected to be realized after the system conversions, which are scheduled later in 2026.
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Shareholder Return Plan
2025 stock repurchase program: Prosperity Bancshares repurchased approximately $157 million or 2.34 million shares of its common stock at an average weighted price of $67.04.
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Key Q&A
Q:What is driving the difference in earnings estimates for Stellar compared to consensus?
A:The difference is influenced by Stellar's fourth-quarter earnings and growing momentum in the back half of 2025, which portends well for 2026. Stellar has grown its earning assets meaningfully while maintaining and growing its core NIM. The $2.20 EPS estimate is based on annualizing the fourth-quarter EPS run rate of $0.55 per share and considering $100 million more in interest-earning assets entering 2026. Additionally, Stellar assumes a more normalized consensus level of net charge-offs, which could lead to lower credit costs and potential beats to the numbers.
Q:Why is the Stellar acquisition different from past deals, and what growth forecast should be expected for Prosperity in 2026?
A:The Stellar acquisition is different because of the long-standing relationship between the two banks and their similar operational styles. Management plans to focus on integrating the three banks acquired, including Stellar, and does not foresee the need to shrink assets as in past deals. Growth in 2026 will primarily focus on integration rather than new acquisitions.
Q:Why does the acquisition price of 18x forward earnings seem high, and what are the synergies and growth prospects?
A:Management justifies the high price by emphasizing Stellar's premium quality as a bank. They project combined earnings of $7.34 per share by 2027, with a potential stock value of $95.42 at 13x earnings or $110 at 15x earnings. The acquisition enhances franchise value, making Prosperity one of the largest banks in the Houston market. The return on average tangible capital is expected to increase from 13% to 17% by 2027.
Q:What is the capital deployment strategy post-acquisition?
A:Management plans to focus on integrating the three deals and has no immediate plans for further acquisitions. They have strong capital generation, with $600 million in excess cash flow projected annually by 2027. This allows for potential stock buybacks, dividend increases, or future acquisitions. Buybacks will be opportunistic, with $300 million approved for 2023.
Q:How will Prosperity manage multiple bank integrations simultaneously?
A:Prosperity has designated teams focusing on integration, separate from those handling organic growth. They have experience with 40 prior transactions and feel confident in their ability to manage the process. The integration of American Bank and Partners Bank is scheduled for later in the year, and the process is on track.
Q:What is the cultural fit between Prosperity and Stellar, and why was the timing right for the deal?
A:The cultural fit is strong due to a long-standing relationship between the two banks, similar operational styles, and conservative credit cultures. The timing was right due to favorable regulatory conditions and mutual readiness for the merger.
Q:What are the plans for buybacks given the current stock price and blackout periods?
A:Management will consider opportunistic buybacks when allowed, despite current blackout periods for earnings and merger-related activities. They spent $157 million on buybacks in 2022 and have another 5% authorization for 2023.
Q:What is the trajectory for NII and margin through 2026?
A:Prosperity expects margin improvement due to higher-yielding assets from acquisitions and repricing of its bond portfolio. The standalone margin is projected at 3.5% for 2026, with Stellar's higher margin of 4.2% being accretive. Combined, the outlook is positive with strong tailwinds.
Q:How will Prosperity handle potential customer retention issues due to Stellar's name change?
A:Management has implemented retention agreements and non-compete clauses to retain key personnel. They believe the strong cultural fit and familiarity with Prosperity in the market will minimize customer attrition.
Q:What is the outlook for credit quality and nonperforming assets?
A:The portfolio is generally clean, with one $35 million shared national credit downgraded to nonperforming. Management is monitoring the situation but does not see a need for additional provisions. Another large credit is well-secured with real estate and is not expected to result in losses.
Q:What are the cost save estimates and branch closure plans for the Stellar deal?
A:Management is confident in achieving 35% cost savings through branch consolidations and system conversions. They have thoroughly analyzed the potential savings and feel comfortable with the estimates.
Q:Does the Stellar acquisition change Prosperity's appetite for future M&A?
A:The acquisition does not significantly change Prosperity's appetite for M&A. They expect to rebuild capital levels within a couple of years and will have $600 million in annual excess cash flow, allowing for future opportunities.
Q:What is the expected loan growth trajectory for 2026?
A:Loan growth is expected to be in the low to mid-single digits, with Stellar and American Bank portfolios growing faster than Prosperity's standalone growth rate. The acquired portfolios are of high quality and are expected to contribute positively.
Q:What is the purchase accounting accretion for the Stellar deal?
A:The loan mark for Stellar is approximately $31 million pretax, with $73 million net of tax in AOCI. The combined purchase accounting accretion is estimated at $30-31 million for 2027.
Q:Why merge with Prosperity now given Stellar's robust NII forecasts?
A:Stellar sees the merger as an opportunity to partner with a like-minded institution, expand its balance sheet, and continue its growth momentum. The cultural and operational similarities make the merger a natural fit.
Q:What are the assumptions on customer retention and potential risks?
A:Management believes customer retention will be strong due to retention agreements, cultural alignment, and familiarity with Prosperity in the market. They do not anticipate significant runoff of loans or deposits.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the timing of buybacks during blackout periods, providing only general statements about opportunistic buybacks. Additionally, they used vague language when discussing the rationale for not restructuring the bond portfolio, labeling it as 'financial engineering' without providing detailed reasoning.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Amato bank
American Bank
American subsidiary
Antonio Branch
Antonio Spurs
Antonio presence
Asylbek Osmano
Asylbek Osmonov
Bancorp Chief
Bancorp President
Bancorp review
Bancorp transaction
Bancshares Chairman
Bancshares parent
Bancshares share
Chief Executive
Deposits
Executive Officer
General Counsel
Officer Stellar
Partners Bank
President Chief
San Antonio
Southwest Bancshares
Stellar Bancorp
Texas Partners
asset equity
bank Directors
connection
increase asset
increase income
loan income
month increase
program
state
system
value loan
write
PB Transcript
Prosperity Bancshares, Inc. (PB) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call summary and Q&A indicate a positive outlook for Prosperity. Strong financial metrics, strategic acquisitions, and a solid capital deployment plan are highlighted, along with positive loan and margin growth expectations. The market strategy and shareholder return plans are well-received, despite some unclear responses. Overall, the sentiment is positive, suggesting a stock price increase.
Prosperity Bancshares, Inc. (PB) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call presents a mixed picture. While there are positive signs such as improved efficiency ratios and active buyback plans, concerns about slow loan growth and increased net charge-offs are notable. The Q&A session reveals cautious optimism about the future, but the lack of specific guidance and some unclear responses from management temper enthusiasm. Overall, the sentiment seems balanced, resulting in a neutral prediction for the stock price movement over the next two weeks.
Prosperity Bancshares, Inc. (PB) Q4 2023 Earnings Call Transcript
Unknown9-22
The earnings call highlighted several challenges: decreased deposits, increased non-performing assets, and regulatory delays in acquisitions. While there was a new share repurchase program, the lack of dividend updates and declining net income due to special assessments and merger expenses overshadowed positive aspects. The Q&A section did not provide additional clarity. Given the competitive pressures and economic uncertainties, the overall sentiment is negative, likely resulting in a stock price decrease of 2% to 8%.
Prosperity Bancshares, Inc. (PB) Q2 2025 Earnings Call Transcript
Unknown7-23
The earnings call reveals mixed signals: improved efficiency ratio and stable nonperforming assets are positive, but there's a notable decrease in revenue. The Q&A highlights stable loan growth and potential M&A activities, which are positive, but concerns about nonperforming assets and unclear strategic expansion plans balance this out. The absence of market cap data limits the impact assessment, leading to a neutral sentiment rating.
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