Prosperity Bancshares provides loans, deposit accounts and payment services to businesses and households, mainly in Texas and Oklahoma. In the third quarter of 2026, three acquisitions helped lift the money it earned after paying interest on deposits and borrowings by 62.0%, but net profit rose just 2.8%. Merger expenses and the cost of running the enlarged bank absorbed most of the increase. The next test is whether Prosperity can combine those businesses efficiently while keeping their customers and controlling loan losses.
Research cutoff: November 10, 2026, New York time. Financial results are through September 30; company disclosures reviewed extend through the November 9 filing, with regional banking evidence published November 9.
1. Acquisitions brought in more customers, loans and interest income
Most of the increase in interest income after funding costs came from a larger business. Prosperity acquired American Bank on January 1, Texas Partners Bank through Southwest Bancshares on February 1, and Stellar Bank on July 1. Consequently, the third quarter includes all three businesses, while the comparable 2025 quarter includes none of them.
Management’s purpose is to serve more customers using shared systems for functions such as data processing and loan processing. Acquisitions also extend its branch network. By September, Prosperity operated 352 full-service locations, including 52 operating as Stellar Bank and 11 as Texas Partners Bank. These are parts of one consolidated banking business; the company does not publish separate regional operating profits.
The first test is whether the enlarged bank earns more before the cost of combining its operations. It does. Revenue, defined here as net interest income plus fees and other noninterest income, increased considerably faster than reported profit.
| Consolidated results; USD millions except earnings per share | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Net interest income | 273.435 | 442.980 | 806.539 | 1,094.680 |
| Fees and other noninterest income | 41.238 | 52.720 | 125.521 | 159.899 |
| Revenue, calculated as the two rows above | 314.673 | 495.700 | 932.060 | 1,254.579 |
| Operating expenses, excluding interest | 138.635 | 308.613 | 417.501 | 702.076 |
| Provision for credit losses | 0.000 | 0.000 | 0.000 | 0.000 |
| Profit before income taxes | 176.038 | 187.087 | 514.559 | 552.503 |
| Net profit | 137.556 | 141.462 | 402.936 | 426.312 |
| Diluted earnings per share, USD | 1.45 | 1.18 | 4.23 | 3.99 |
Source: Prosperity’s third-quarter 2026 Form 10-Q, consolidated income statements, p. 4; Note 1, p. 8; acquisitions and business overview, pp. 34–41. Revenue is our calculation, not gross interest receipts.
The company’s analysis attributes $137.1 million of the quarter’s $169.5 million increase in net interest income to changes in balances, and $32.5 million to rates. Thus, about 81% came from the amount and mix of business carried on the balance sheet. This is not a measure of growth from existing customers: the balance changes include the acquisitions. Stellar alone contributed approximately $88.5 million of revenue after its July closing.
Rates helped too. The average yield on securities rose from 2.19% to 2.92%, while the average yield on loans rose from 5.92% to 6.08%. At the same time, the average cost of interest-bearing funding fell from 2.39% to 2.20%, helped by cheaper time deposits and lower borrowing costs. These express each quarter’s interest as a yearly rate so that the rates can be compared on the same basis.
The resulting net interest margin—the annualized interest income left after funding costs for each dollar of average earning assets—rose from 3.23% to 3.72% on the reported basis. The company’s tax-equivalent figures, which put tax-exempt income on a comparable pretax basis, were 3.24% and 3.73%. For the first nine months, the tax-equivalent margin was 3.58%, compared with 3.19% in the same 2025 period.
Sources: 2026 Form 10-Q, Note 13, p. 36; average balances and yields, pp. 43–46. The rate analysis assigns purchase-accounting effects and inseparable rate-and-volume changes to the rate column.
There is a less favorable funding detail inside those averages. The rate paid on interest-bearing checking accounts rose from 0.76% to 1.40%. Prosperity therefore cannot assume every kind of deposit will become cheaper. Its larger customer base improves earning capacity, but retaining that funding at a reasonable cost remains part of the business challenge.
2. Removing merger expenses reveals stronger earnings, but savings are still unfinished
Merger costs explain much of the weak reported profit growth, while ordinary operating costs also increased. Quarterly merger expenses reached $69.7 million, including $67.2 million related to Stellar. They covered employee costs, data processing, professional services and legal work. Separately, the enlarged bank had more staff and operating infrastructure to support.
Even after subtracting the specifically identified merger expenses, quarterly noninterest expenses were $238.9 million, compared with $138.6 million a year earlier. Salaries and benefits, excluding the separately reported merger-expense line, rose to $145.6 million from $87.9 million. Combining systems can eventually remove overlapping work, but acquiring banks immediately adds their running costs.
The tax bill also grew. A roughly $5 million out-of-state settlement and higher nondeductible merger expenses helped push the effective tax rate to 24.4%, from 21.9%. Profit before tax increased 6.3%; the higher tax burden left the smaller 2.8% increase in net profit.
Source: 2026 Form 10-Q, Note 13, p. 36; results of operations, pp. 42 and 47–48. Expense totals excluding merger expenses are calculated from the reported lines.
Management’s supplementary, non-GAAP profit measure removes selected transaction and unusual items from reported earnings. It removes a gain as well as expenses. The nine-month securities gain combines a Visa stock-exchange gain with losses from securities sales.
| Consolidated profit reconciliation; USD millions | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Reported net profit | 137.556 | 141.462 | 402.936 | 426.312 |
| Add merger expenses after assumed tax benefit | 0.049 | 55.098 | 0.049 | 89.282 |
| Remove securities gains after assumed tax | 0.000 | −0.732 | 0.000 | −7.238 |
| Add out-of-state tax settlement | 0.000 | 4.965 | 0.000 | 4.965 |
| Management’s adjusted net profit, non-GAAP | 137.605 | 200.793 | 402.985 | 513.321 |
Source: October 28, 2026 earnings release, “Notes to Selected Financial Data,” earnings reconciliation and footnote AA. Management assumes a 21% federal tax rate for the merger-expense and securities-gain adjustments. The tax settlement is already a tax expense. This bridge does not use the actual overall effective tax rate.
The adjusted comparison supports a stronger operating result beneath the transaction costs. It still includes income from acquisition accounting. When Prosperity buys a loan for less than the amount it expects to collect, part of that difference can become interest income as the loan pays down. This loan-discount income was $11.6 million in the quarter, compared with $2.9 million a year earlier. It is not the same as interest earned on a newly originated loan, and its timing depends on repayments.
Conversely, the adjusted measure retains the expense of gradually writing down the recorded value of acquired deposit relationships. That expense rose to $12.6 million from $3.6 million in the quarter. The filing estimates another $12.6 million for the remainder of 2026 and $46.2 million for 2027. Removing merger bills therefore does not remove every continuing acquisition-related cost or benefit.
Source: 2026 Form 10-Q, acquired-loan discount schedules, p. 16; goodwill and deposit-relationship assets, pp. 28–29.
There is a concrete plan against which to judge future progress. The January Stellar announcement assumed savings equal to 35% of Stellar’s noninterest expenses, with 25% of those savings phased in during 2026 and full realization thereafter. It also estimated approximately $100 million of pretax transaction expenses. Those were deal assumptions, not achieved savings. Stellar-related merger expenses recorded by September were $67.6 million; the original estimate alone cannot establish how much remains to be spent.
American Bank’s operational integration was completed in the third quarter. Management’s October update still identified Texas Partners and Stellar integration as work to finish. Sharing processing systems could lower costs over the coming quarters, provided the conversions preserve service and customer relationships. A larger bank has supplied the revenue; the cost benefit is less fully demonstrated.
Sources: January 28, 2026 Stellar acquisition presentation, p. 11; 2026 Form 10-Q, Note 13, pp. 34–36; October 28 earnings release, management comments.
3. Acquired balances explain the growth better than new lending does
Acquisitions enlarged the balance sheet while loan repayments exceeded new lending and deposit withdrawals exceeded additions. The cash-flow figures separate those customer flows from balances added when the deals closed.
| Consolidated financial position; USD billions | December 31, 2025 | September 30, 2026 |
|---|---|---|
| Cash and cash equivalents | 1.748 | 2.363 |
| Securities at reported carrying value | 10.613 | 13.634 |
| Total loans before loss allowance | 21.805 | 32.060 |
| Goodwill and net deposit-relationship assets | 3.555 | 5.006 |
| Total assets | 38.463 | 54.101 |
| Customer deposits | 28.482 | 41.231 |
| Borrowings, repurchase agreements and subordinated debt | 2.151 | 2.677 |
| Shareholders’ equity | 7.616 | 9.760 |
Source: 2026 Form 10-Q, consolidated balance sheets, p. 3; Note 9, p. 29. Figures are rounded to three decimals in billions. Total loans include loans held for sale and the Warehouse Purchase Program; securities include both accounting classifications.
Loans increased by $10.26 billion from year-end, but the cash-flow statement reports $788.1 million of net cash released as repayments exceeded new lending on loans kept on the bank’s books, excluding warehouse loans. Another $172.9 million came from repayments exceeding purchases in the mortgage warehouse program. Together, those activities returned $961.0 million of cash. These are cash flows outside acquisition-date balances, not a complete calculation of organic loan growth, which would also require accounting and portfolio adjustments.
The warehouse program temporarily funds loans made by mortgage originators until those loans are sold to investors. Individual mortgages stay in Prosperity’s portfolio for less than 30 days on average. Its large annual purchases and repayments therefore measure rapid turnover, not an equally large permanent loan book.
Customer deposit cash flows tell a similar story. Outside acquired balances, noninterest-bearing deposits increased $343.3 million, but interest-bearing deposits fell $686.3 million. The net cash outflow was $343.0 million, despite the $12.75 billion increase in reported deposits. Acquisitions supplied the enlarged funding base; the existing and newly acquired operations still had to retain customers after closing.
Source: 2026 Form 10-Q, cash-flow statement, p. 7; warehouse program, p. 51; liquidity discussion, p. 61.
A regional competitor shows that new customer business remains available. Cullen/Frost reported average third-quarter loans of $23.4 billion, up 9.0% from a year earlier, and average deposits of $43.6 billion, up 3.6%. Management attributed its growth to its organic expansion strategy. These average balances are not directly comparable with Prosperity’s period-end acquisition growth; they show that competing for customers is an alternative source of expansion in the same broad Texas markets.
Source: Cullen/Frost’s October 29, 2026 results, pp. 1–2.
The most recent regional evidence is mixed rather than uniformly weak. In the Dallas Fed survey published November 9, loan demand improved from September, while lenders continued tightening standards and reported slightly weaker loan performance. The survey covered 70 institutions responding October 27–November 4. For Prosperity, this supports the possibility of more lending opportunities, but also the need to choose borrowers carefully. It does not identify the cause of Prosperity’s own loan repayments or deposit withdrawals.
Source: Dallas Fed, November 2026 Banking Conditions Survey, results summary and survey dates; release calendar.
4. Zero credit-loss expense does not mean zero loan losses
Acquisition accounting increased reserves even as the bank absorbed larger loan losses. The provision is the expense charged against current profit for expected credit losses. The allowance is the bank’s running estimate of loan amounts it does not expect to collect, rather than a separate cash account. A charge-off removes a loan amount judged uncollectible and normally uses that allowance.
Prosperity reported no net provision in either the first nine months of 2026 or the comparable 2025 period. Yet net charge-offs—write-offs less amounts recovered—rose from $12.2 million to $47.9 million. Commercial and industrial loans accounted for $42.5 million of the 2026 total. Those are realized credit costs, even though they did not produce a net provision expense during the period.
The reserve reconciliation explains how the allowance could still rise.
| Consolidated loan-loss allowance; USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Opening allowance | 351.805 | 333.742 |
| Add initial reserves for acquired loans with credit deterioration | 0.000 | 199.464 |
| Add initial reserves for other qualifying acquired, seasoned loans | 0.000 | 106.674 |
| Add net provision charged to profit | 0.000 | 0.000 |
| Subtract gross charge-offs | −15.678 | −54.771 |
| Add recoveries of previously charged-off loans | 3.499 | 6.842 |
| Closing allowance | 339.626 | 591.951 |
Source: 2026 Form 10-Q, Note 5, pp. 21–23; originated/acquired allowance reconciliation, p. 55. The separate $37.646 million allowance for unfunded lending commitments is excluded from this table and was unchanged from December 2025.
Prosperity adopted a new purchased-loan accounting rule on January 1. For qualifying seasoned loans bought in a business combination, expected losses are recorded as part of acquisition accounting rather than as an immediate first-day expense. That treatment explains the $106.7 million addition in the table. It also means these acquisitions should not be compared mechanically with older deals that incurred an initial provision under the previous rules.
The zero net provision also combines different movements within the loan book. The bank recorded $14.3 million of provision for loans it originated and an equal negative provision for acquired loans. Separately, it moved $20.1 million of reserves on resolved acquired loans into its general reserve. That transfer was not an additional $20.1 million reduction of the total allowance or a separate cash gain.
Source: 2026 Form 10-Q, new accounting standard, p. 9; Note 5, p. 23; allowance discussion and reconciliation, pp. 54–55.
The strongest favorable evidence is the latest quarter: net charge-offs fell to $4.4 million from $6.5 million a year earlier. Most of the nine-month losses therefore occurred before the third quarter. Problem assets nevertheless increased to $193.9 million from $150.8 million at year-end, partly because the bank acquired troubled assets. Their ratio to loans and foreclosed real estate fell from 0.69% to 0.60%, as the total loan base grew faster. That lower percentage alone does not establish that individual borrowers became healthier.
Property lending remains the largest common exposure. Commercial property, residential mortgages and construction loans represented 79.4% of loans excluding the warehouse program. Commercial real estate loans nearly doubled to $10.70 billion from $5.78 billion, while construction and land loans rose to $4.25 billion from $2.74 billion. Rent collections, property sales and borrowers’ ability to refinance therefore matter to the enlarged bank’s loss experience.
Sources: 2026 Form 10-Q, loan mix and concentrations, p. 13; problem assets, p. 15; credit-loss discussion, pp. 23 and 46–47.
The reserve stock is larger, and third-quarter write-offs were modest. The unresolved business risk is whether losses on the expanded portfolio require fresh expenses after the acquisition estimates settle. A period with no net provision should not be treated as the bank’s permanent cost of credit.
5. Cash increased, but much of the improvement came from payment timing and acquired cash
Prosperity had more cash available, although operating cash growth exceeded profit growth mainly because of timing changes. Operating cash flow rose to $662.8 million from $471.2 million in the first nine months. Net profit increased by only $23.4 million.
The largest difference was in amounts awaiting payment. Accrued interest payable and other operating liabilities supplied $144.8 million of cash in 2026, compared with a $33.3 million cash use in 2025. Expenses can reduce profit before the company pays the corresponding bill; retaining that money temporarily increases operating cash. The statement groups these liabilities together and does not identify how much relates to merger bills, taxes or other payments.
Cash taxes were also lower: federal and state payments totaled $111.6 million, against $194.9 million a year earlier. This is a payment fact, not evidence of a permanent tax saving. The effects of tax payments are already included in the cash-flow reconciliation.
| Consolidated operating cash reconciliation; USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Net profit | 402.936 | 426.312 |
| Net noncash and profit-to-cash adjustments | 33.511 | 27.796 |
| Mortgage loans sold less cash used to originate loans for sale | 0.661 | 9.385 |
| Decrease in interest receivable and other operating assets | 67.405 | 54.562 |
| Increase or decrease in interest payable and other operating liabilities | −33.342 | 144.764 |
| Operating cash flow | 471.171 | 662.819 |
Source: 2026 Form 10-Q, cash-flow statement, p. 7. The second row groups depreciation, amortization, stock compensation and gain and discount adjustments; inputs appear in the calculation notes. Cash-flow changes exclude balances brought in at acquisition, so they need not match changes between the two balance-sheet dates.
The bank then put cash to work in securities. Purchases exceeded proceeds from maturities, sales and principal repayments by $1.399 billion. Loan repayments and acquisitions provided much of the money needed. Making loans and buying securities are central uses of a bank’s cash. They must be considered alongside operating cash and customer funding when assessing how much money remains available.
Stellar illustrates the distinction between transaction cost and acquired cash. Prosperity paid $578.7 million in cash and issued shares valued at approximately $1.415 billion. It also acquired $681.7 million of cash, so that acquisition added $103.0 million to the cash-flow statement after the cash purchase payment. The positive cash-flow entry does not mean the business was acquired without cost: the shares were consideration too, and Prosperity assumed the acquired bank’s obligations.
| Consolidated cash movement; USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Opening cash and cash equivalents | 1,972.467 | 1,747.728 |
| Operating cash flow | 471.171 | 662.819 |
| Investing cash flow | 943.594 | 143.608 |
| Financing cash flow | −1,620.907 | −191.386 |
| Closing cash and cash equivalents | 1,766.325 | 2,362.769 |
Source: 2026 Form 10-Q, cash-flow statement, p. 7; Stellar purchase allocation, p. 35. Cash includes cash due from banks and federal funds sold; the statement does not add a separate restricted-cash balance.
Across all three deals, acquired cash net of acquisition payments contributed $581.0 million. Short-term borrowing added another $450.0 million. Cash dividends and share repurchases used $295.7 million, while premises and equipment purchases used $25.4 million. Operating cash exceeded those distributions, but the bank’s overall cash position also depended on loan collections, securities investment, customer deposits and borrowing. The increase in cash is useful funding flexibility, not a stand-alone measure of recurring earnings.
6. Funding capacity is substantial, but securities would be costly to sell
The bank has borrowing capacity and customer funding to support operations, while its largest securities portfolio carries a substantial market-value shortfall. Noninterest-bearing deposits were $13.84 billion, or 33.6% of deposits, at September 30. They provide funding without a direct interest charge. Total loans were 77.8% of deposits, leaving deposits to support securities and other assets as well.
Prosperity had $2.36 billion of cash, total borrowing capacity of $8.81 billion at the Federal Home Loan Bank, and $2.40 billion already drawn there. Subtracting that borrowing leaves approximately $6.41 billion of unused capacity under the disclosed line. The company separately reported $11.69 billion available at the Federal Reserve discount window, with nothing drawn. Both facilities require collateral; they should not be added to cash as if all amounts were unrestricted and independently available.
Source: 2026 Form 10-Q, balance sheet, p. 3; liquidity, pp. 60–61. Deposit share, loan-to-deposit ratio and unused FHLB capacity are calculated.
The securities portfolio exposes the trade-off. Securities designated to be held until maturity were recorded on the balance sheet at $13.14 billion, but their disclosed market value was $11.86 billion. The $1.286 billion gap was larger than the $841.9 million gap at December 2025. Most of this portfolio consists of mortgage-related securities backed by government agencies or government-sponsored enterprises.
If Prosperity collects the expected payments over time, a lower market price is different from a borrower failing to pay. But selling those securities early at the disclosed values would produce less cash than their carrying amount. This is why deposit retention and collateralized borrowing matter: they can reduce the need to sell long-lived assets to meet immediate withdrawals. Securities with $10.57 billion of amortized cost were already pledged for public deposits and other permitted purposes, further limiting the meaning of gross portfolio size as a liquidity measure.
Source: 2026 Form 10-Q, Note 4, pp. 10–12; securities discussion, pp. 57–58. Market-value gaps are calculated before tax. The held-to-maturity gap is not included in reported accumulated other comprehensive loss.
The funding schedule is concentrated in short maturities rather than a large near-term bond repayment.
| Funding obligation at September 30, 2026; USD millions | Consolidated balance | Timing and contractual interest terms |
|---|---|---|
| FHLB advances | 2,400.000 | Typically short term; weighted average rate 4.01%; no long-term FHLB notes outstanding |
| Customer repurchase agreements | 204.761 | Generally settle the next business day; secured by pledged securities |
| American subordinated notes | 31.000 | Mature December 29, 2031; three-month term SOFR plus 2.50 percentage points |
| Southwest subordinated notes | 30.000 | Mature June 15, 2032; 5.00% until 2027, then three-month term SOFR plus 2.55 percentage points |
| Stellar junior subordinated debentures | 11.341 | Contractual maturities in 2033 and 2035; floating SOFR-based interest |
Source: 2026 Form 10-Q, Note 9, pp. 29–30. SOFR is a market benchmark for short-term borrowing. American and Southwest each have $35 million of gross notes; the consolidated amounts remove $4 million and $5 million held within the group. The $3.6 million Stellar tranche due in 2035 was redeemed on October 7, 2026, a disclosed post-quarter event.
At a constant balance and rate, the September FHLB borrowing would cost about $96.2 million annually. That is an illustration of funding exposure, not a forecast or a fixed contractual bill: both the amount borrowed and rates can change. The main renewal need is the short-term funding, while the smaller subordinated notes mature much later.
Customer credit commitments also create potential cash needs. Unused lending commitments, warehouse capacity and standby letters of credit totaled $8.25 billion; many may expire without being drawn. For its expected-loss estimate, the bank identified $2.55 billion of commitments expected to fund. Office and branch leases were smaller: recorded lease liabilities were approximately $41.9 million, with $54.6 million of undiscounted future payments, including $13.5 million in 2027.
Source: 2026 Form 10-Q, Note 5, p. 23; Note 10 and contractual obligations, pp. 31–32 and 61–62.
Interest rates affect earnings as well as liquidity. The last detailed simulation, based on the December 2025 balance sheet, estimated that a two-percentage-point rate fall would reduce the following twelve months’ net interest income by 7.0%; a rise of the same size would increase it by 3.5%. The quarterly filing refers back to that model. It is historical sensitivity evidence, not a forecast for the much larger September bank. Faster deposit repricing or different borrower repayments could change the result.
A further disclosure limit concerns deposit insurance. The annual report identified $12.45 billion of uninsured deposits at December 2025; the quarterly filing does not provide a comparable updated total after the acquisitions. A current split between insured, collateralized and other uninsured deposits would sharpen the assessment of withdrawal exposure. The funding capacity is meaningful, but the enlarged deposit base still needs to be retained.
Sources: 2025 Form 10-K, deposits, p. 62, and interest-rate sensitivity, pp. 63–64; 2026 Form 10-Q, Item 3, p. 63.
7. Share-funded acquisitions strengthened total capital while spreading profit across more shares
Prosperity has room above disclosed regulatory capital requirements, but acquisitions changed the composition of that capital. Shareholders’ equity rose by $2.143 billion to $9.760 billion. Approximately $2.004 billion of new shares issued as acquisition consideration supplied most of the increase; retained profit supplied a smaller part.
The company issued 27.906 million shares for the three deals and 0.243 million net shares for restricted-stock awards. It repurchased 1.494 million shares, leaving 119.713 million outstanding at September, compared with 93.058 million at year-end. Repurchased shares become authorized but unissued shares rather than accumulating in a separate treasury-stock balance.
That explains the apparent conflict between higher total profit and lower earnings per share. The quarter’s average diluted share count increased 26.1%, while net profit rose 2.8%, so diluted earnings per share fell to $1.18 from $1.45. Stock compensation added a noncash expense of $10.9 million over nine months, but acquisition issuance was by far the larger source of share-count growth.
Source: 2026 Form 10-Q, equity statement, p. 6; earnings per share, p. 8; stock compensation, p. 29; repurchases, p. 61.
Management describes dividends and repurchases as ways to share the company’s earnings while continuing to build capital. Actual nine-month cash payments were $193.1 million in dividends and $102.6 million for buybacks. The repurchases offset only a small part of the shares issued for acquisitions. The fourth-quarter dividend was subsequently raised to $0.64 per share from $0.60; that declaration is separate from the cash dividends already paid through September.
Sources: 2026 Form 10-Q, cash flows, p. 7; October 28 earnings release, dividend announcement and management comments.
Goodwill and deposit-relationship assets rose to $5.006 billion from $3.555 billion. Goodwill is the acquisition price left after valuing identifiable net assets; it is not cash available to absorb withdrawals. The deposit-relationship asset represents the estimated benefit of acquiring customer funding at less than alternative funding costs. No impairment was recorded, and acquisition valuations remained preliminary.
After subtracting these assets, tangible common equity increased to $4.754 billion from $4.061 billion. But tangible assets grew faster, so the calculated tangible-equity-to-tangible-assets ratio fell from 11.63% to 9.68%. This accounting measure is different from regulatory capital. The regulatory common-equity Tier 1 ratio compares core capital with loans and other exposures weighted by risk. It was 13.45% for the company, against the disclosed 7.00% minimum including the required extra buffer; the bank’s ratio was 12.68%. The filing classified the bank as well capitalized.
Sources: 2026 Form 10-Q, balance sheet, p. 3; Note 7, pp. 28–29; regulatory capital, pp. 62–63. Tangible equity and its ratio are calculated non-GAAP measures.
The acquisition premium needs to be supported by lasting customer earnings, even though regulatory capital remains above its stated requirements. A depleted capital buffer would restrict dividends and repurchases. The filing reports no defaults on senior securities.
Management, after consulting counsel, expects ordinary-course litigation to have no material financial-statement effect. The filing provides no quantified reasonably possible loss range, so it does not establish a maximum legal cost. The tax settlement discussed earlier is already reflected in the quarter’s profit.
Source: 2026 Form 10-Q, capital-distribution rules, pp. 62–63; legal proceedings and defaults, p. 64; income taxes, p. 48.
8. The business has greater earning capacity; integration must now make it more efficient
Prosperity’s enlarged banking business is earning more, but the full benefit depends on completing integration and keeping credit costs contained. The increased interest margin and acquired revenue give management a stronger base from which to remove overlapping costs. Cash resources and regulatory capital provide capacity to carry out that work.
The evidence is less supportive of self-generated balance-sheet growth: outside acquisition entries, loan activity released cash and customer deposits declined. Moreover, the larger allowance came mainly from acquired-loan accounting, while nine-month write-offs rose. The company’s next improvement therefore needs to come from serving and retaining the acquired customers efficiently, rather than relying on another acquisition to lift totals.
Successful system conversions, lower running costs relative to revenue and stable borrower performance would turn the enlarged business into stronger reported earnings. Continued deposit outflows, renewed credit-loss expenses or integration costs that persist would absorb that benefit. The current filing establishes greater earning capacity and adequate disclosed capital; the next operating task is to convert that capacity into profit with fewer exceptional costs.
Reporting basis:
This analysis uses Prosperity Bancshares, Inc. and its wholly owned Prosperity Bank on a consolidated U.S. GAAP basis, with intercompany balances eliminated. The selected unaudited Form 10-Q covers the quarter and nine months ended September 30, 2026; it was filed November 9, 2026, under accession 0001193125-26-453359, CIK 0001068851. Quarterly earnings comparisons are July–September 2026 versus July–September 2025. Cumulative earnings and cash comparisons are January–September in each year. Balance-sheet comparisons are September 30, 2026 versus December 31, 2025 unless explicitly stated otherwise.
Acquired results enter from their closing dates; prior-year reported results are not restated. Note 13 also presents an illustrative Stellar combination as though it had closed January 1, 2025. It changes purchase-accounting assumptions, retains merger expenses and excludes expected cost savings. It does not make American and Southwest comparable across years, so this analysis does not label that illustration organic growth.
The research cutoff is November 10, 2026 in New York. The principal company evidence is the November 9 filing and October 28 earnings materials; relevant regional evidence includes the November 9 Dallas Fed survey. This identifies the actual source dates reviewed and is not a claim that every event through the cutoff was independently checked.
Sources: SEC filing history; selected 10-Q, cover, Note 1 and Note 13; SEC company facts. XBRL checks used this accession’s consolidated U.S. GAAP facts, dollar units and matching instant or duration contexts. Dollar facts were converted to millions or billions as labelled. Precise statement values take precedence over rounded narrative-tagged facts.
Calculation notes:
Growth and margins. Growth equals current amount divided by the comparable prior amount, less one. Quarterly net interest income: $442.980 million ÷ $273.435 million − 1 = 62.0%. Quarterly net profit: $141.462 million ÷ $137.556 million − 1 = 2.8%. Nine-month net profit increased 5.8%, from $402.936 million to $426.312 million. Revenue uses net interest income plus noninterest income, so interest expense is already deducted. Reported quarterly revenue growth was 57.5%; noninterest expense growth was 122.6%. Rate changes are expressed in percentage points where appropriate, not as growth percentages.
Balance-sheet and equity checks, USD millions. September assets of $54,101.075 equal liabilities of $44,341.540 plus equity of $9,759.535. December assets of $38,463.425 equal liabilities of $30,847.285 plus equity of $7,616.140. Retained earnings reconcile as opening $3,869.627 + profit $426.312 − declared dividends $193.115 = $4,102.824. Common stock plus capital surplus rose by $1,912.393: acquisition issuance $2,004.138 + stock compensation $10.857 − repurchases $102.602. Net restricted-stock issuance moves amounts between those two paid-in accounts without changing their combined total. Other comprehensive loss increased by $2.195, from $0.296 to $2.491. Together these movements reconcile closing equity. The equity statement records Stellar shares at $1,414.700 million; the purchase-allocation table rounds the same consideration to $1,414.701 million.
Acquired assets and tangible capital, USD millions. Goodwill reconciles as $3,503.127 + American $185.748 + Southwest $141.520 + Stellar $898.202 = $4,728.597. Net deposit-relationship assets reconcile as $51.605 + $31.103 + $33.794 + $183.992 − amortization $23.520 = $276.974. September tangible equity is $9,759.535 − $4,728.597 − $276.974 = $4,753.964; tangible assets are $54,101.075 − the same two intangible balances = $49,095.504. The ratio is 9.68%. The same calculation for December gives $4,061.408 ÷ $34,908.693 = 11.63%. Premises and equipment rose from $383.449 million to $516.175 million; Stellar brought $84.198 million of premises at acquisition, separate from cash capital spending. The filing does not provide a maintenance-versus-expansion split for that spending.
Operating cash adjustments. Some expenses reduce profit without a current cash payment; some gains are counted in investing cash instead. The table names the adjustments grouped in the operating cash table above. Positive figures add back to profit; negative figures subtract from it.
| Adjustment to consolidated net profit; USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Depreciation and deposit-relationship amortization | 25.372 | 41.855 |
| Gradual write-down of premiums paid for investments | 12.830 | 8.552 |
| Securities gains removed from operating cash | 0.000 | −9.162 |
| Losses or gains on foreclosed and repossessed assets | −0.333 | 0.065 |
| Losses or gains on bank premises and equipment | −1.182 | 2.302 |
| Income from acquired-loan discounts | −9.271 | −19.386 |
| Amortization of acquired-deposit premiums | −0.012 | −3.655 |
| Gains on loan sales | −2.905 | −3.632 |
| Stock compensation | 9.012 | 10.857 |
| Total net adjustment | 33.511 | 27.796 |
Source: 2026 Form 10-Q, cash-flow statement, p. 7. “Amortization” spreads an amount recorded on the balance sheet across the periods it benefits. Acquisition discount and premium adjustments change accounting income without a matching current-period cash receipt or payment.
Investment and financing cash, USD millions. Securities cash use equals purchases of $3,584.683 held-to-maturity securities plus $21,997.829 available-for-sale securities, less proceeds of $1,505.636 and $22,677.893, respectively: $1,398.983. Net loan collections of $961.018, net acquired cash of $581.043 and net premises, property-sale and insurance cash of $0.530 then give investing cash of $143.608. Financing cash equals deposit outflows −$343.028 + short-term borrowing $450.000 + customer repurchase funding $3.545 − debt redemption $6.186 − buybacks $102.602 − dividends $193.115 = −$191.386. Opening cash $1,747.728 + operating $662.819 + investing $143.608 − financing cash use $191.386 = closing cash $2,362.769. Dividends and buybacks are paid amounts; total distributions were $295.717 million, leaving $367.102 million of operating cash before investing and other financing flows.
Loan reserves and securities values. The nine-month allowance table uses gross write-offs and recoveries separately. For the third quarter alone, USD millions: opening allowance $382.841 + acquired reserves $213.547 − charge-offs $6.975 + recoveries $2.538 = $591.951, with zero net provision. The September held-to-maturity value gap equals $13,142.360 million carrying amount − $11,856.355 million fair value = $1,286.005 million. December’s comparable gap was $10,275.228 million − $9,433.365 million = $841.863 million. These are pretax valuation differences, not realized loan losses or an automatic subtraction from regulatory capital.
Sources: 2026 Form 10-Q, pp. 3–7, Note 4, Note 5, Note 7, Note 13 and regulatory capital tables; October 28 earnings release, adjusted-profit reconciliation. Minor displayed differences can arise from rounding; calculations above use the filing’s amounts in thousands converted to millions.
This analysis is for information and education and is not investment advice.