Prosperity Completes Stellar Merger, Lifts NIM to 3.73%

The Tip Desk · November 2, 2026 · 3 min read

Net interest income before provision rose 34.0% to $443.0 million as the Houston regional closed its third 2026 deal and booked $69.7 million of merger costs.

Prosperity Bancshares, Inc. (PB), the Houston regional financial holding company, completed the merger of Stellar Bancorp, Inc. on July 1, 2026, and reported net interest income before provision for credit losses of $443.0 million for the three months ended September 30, 2026, up $112.4 million or 34.0% from $330.6 million in the prior quarter. The company said the increase was primarily due to the Mergers.

The net interest margin on a tax equivalent basis was 3.73%, up 26 basis points from 3.47% in the second quarter. The company attributed the margin and income increases primarily to the Mergers.

Net income was $141.5 million, or $1.18 a share, compared with $168.6 million, or $1.67 a share, in the three months ended June 30, 2026. Prosperity incurred merger related expenses of $69.7 million, or $0.46 a share, and an out-of-state tax settlement of $5.0 million, or $0.04 a share, partially offset by a $927 thousand gain, or $0.01 a share, on the exchange of Visa Class B-2 stock. Excluding those items, net income was $200.8 million, or $1.67 a share. Annualized return on average assets was 1.06%.

The Stellar deal added 52 banking offices in Houston, Beaumont, East Texas and Dallas. Prosperity issued 19,371,499 shares and paid about $578.66 million in cash, recording $898.2 million of goodwill and $184.0 million of core deposit intangibles as of September 30. Total assets were $54.101 billion, up $10.229 billion or 23.3% from $43.873 billion at June 30, primarily from Stellar.

Loans were $32.060 billion, up $7.03 billion or 28.1% from $25.028 billion at June 30, primarily due to the Stellar Merger. Loans excluding Warehouse Purchase Program loans were $30.929 billion. Deposits were $41.231 billion, up $8.63 billion or 26.5% from $32.600 billion, also primarily from Stellar. Noninterest-bearing deposits were $13.8 billion, or 33.6% of total deposits.

Noninterest income was $52.7 million, down $8.0 million or 13.2% from $60.7 million in the second quarter, which the company said was primarily due to a lower net gain on sale or write-up of securities and an increase in net loss on sale or write-down of assets. Noninterest expense was $308.6 million, up $132.4 million from $176.2 million, primarily from higher merger related expenses and three months of Stellar operations. The efficiency ratio, excluding net gains and losses on the sale, write-down or write-up of assets and securities, was 62.05%, or 48.03% excluding merger related expenses.

Nonperforming assets were $193.9 million, or 0.41% of quarterly average interest-earning assets, compared with $130.6 million, or 0.34%, at June 30. The company said the September level was impacted by nonperforming assets acquired in the Mergers. The allowance for credit losses on loans and off-balance sheet credit exposures was $629.6 million. The allowance on loans was $592.0 million, or 1.85% of total loans, and 1.91% excluding Warehouse Purchase Program loans, versus 1.61% at June 30. There was no provision for credit losses in the quarter. Net charge-offs were $4.4 million, including $1.7 million related to resolved purchased credit deteriorated loans.

The board raised the fourth quarter 2026 dividend 6.67%, or $0.04, to $0.64 a share from $0.60, the 23rd consecutive annual increase. Prosperity repurchased 457 thousand shares at an average $69.62 for $31.8 million in the quarter. Chief Executive Officer David Zalman said the company remains focused on completing the operational integration of Texas Partners Bank and Stellar Bank.