Prosperity Bancshares, Inc. (NYSE: PB) reported fourth-quarter 2025 net income of $139.9 million, a 7.6% increase from $130.1 million in the same period last year. The results, released Wednesday, coincided with the announcement of a definitive merger agreement to acquire Houston-based Stellar Bancorp, Inc. in a deal valued at approximately $2.0 billion. Despite an earnings beat on a per-share basis, the company’s stock saw a downward adjustment in early trading as investors weighed the scale of the new acquisition against a marginal revenue miss.
Strategic Expansion and Merger Activity
The headline of the quarter was Prosperity’s aggressive expansion in its core Texas markets. The proposed $2.0 billion acquisition of Stellar Bancorp is expected to create the second-largest bank by deposits headquartered in Texas, with more than 330 banking centers. Under the terms of the agreement, Stellar shareholders will receive 0.3803 shares of Prosperity common stock and $11.36 in cash for each share held.
This announcement follows a period of high M&A activity for the bank. Prosperity confirmed the completion of its merger with American Bank Holding Corporation effective January 1, 2026, and noted it has received all necessary regulatory approvals for its pending acquisition of Southwest Bancshares, Inc.
Financial Performance and Margin Expansion
For the quarter ended December 31, 2025, Prosperity delivered diluted earnings per share (EPS) of $1.49, up from $1.37 in the fourth quarter of 2024. This exceeded the consensus analyst estimate of $1.42. Total revenue for the quarter reached $317.7 million, a 3.2% year-over-year increase, though it fell slightly short of the $317.9 million anticipated by Wall Street.
A primary driver of profitability was the expansion of the net interest margin (NIM). On a tax-equivalent basis, NIM rose to 3.30%, a 25-basis-point increase from the 3.05% reported a year ago. Management attributed this improvement to the repricing of interest-earning assets and disciplined management of deposit costs.
Full-Year 2025 Key Metrics
- Net Income: $542.8 million, up 13.2% from $479.4 million in 2024.
- Diluted EPS: $5.72, a 13.3% increase year-over-year.
- Efficiency Ratio: 43.6%, reflecting sustained operational discipline compared to regional peers.
Balance Sheet and Asset Quality
Prosperity’s balance sheet showed significant seasonal deposit growth, with total deposits reaching $28.5 billion at year-end. This represented an increase of $700.4 million during the fourth quarter alone, a 10.1% annualized growth rate.
The loan portfolio, excluding the warehouse purchase program, stood at $20.5 billion at December 31, 2025, a decrease from $20.7 billion at the end of the third quarter. This contraction suggests a cautious lending approach amid shifting economic conditions. Asset quality remained relatively stable, though nonperforming assets rose to 0.46% of average interest-earning assets, compared to 0.23% in the prior-year period. Net charge-offs remained low at 0.11% of average loans.
Outlook and Macro Context
The bank is positioning itself to capitalize on the high-growth Metropolitan Statistical Areas (MSAs) of Texas, including Houston, Dallas-Fort Worth, and Austin. These regions continue to benefit from corporate relocations and a robust labor market. However, the “higher-for-longer” interest rate environment presents a dual-edged sword: while it aids margin expansion through asset repricing, it also increases the risk of credit stress and deposit migration to higher-yield products. Prosperity’s strategy relies heavily on its ability to integrate three major acquisitions—American Bank, Southwest Bancshares, and Stellar Bancorp—within a compressed timeframe. Analysts expect the Stellar merger to close in the second quarter of 2026, pending shareholder and regulatory approvals. To support shareholder value during this period of transition, the board approved a 2026 stock repurchase program for up to 5% of outstanding common stock and declared a first-quarter dividend of $0.60 per share.