UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2026
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-35388
PROSPERITY BANCSHARES, INC.®
(Exact name of registrant as specified in its charter)
Texas
74-2331986
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
Prosperity Bank Plaza
4295 San Felipe, Houston, Texas
77027
(Address of principal executive offices)
(Zip Code)
(281) 269-7199
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $1.00 per share
PB
New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
☒
Accelerated Filer
☐
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2026, there were 120,176,771 outstanding shares of the registrant’s Common Stock, par value $1.00 per share.
PROSPERITY BANCSHARES, INC.® AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements
3
Consolidated Balance Sheets as of June 30, 2026 (unaudited) and December 31, 2025
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2026 and 2025 (unaudited)
4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2026 and 2025 (unaudited)
5
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2026 and 2025 (unaudited)
6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025 (unaudited)
7
Notes to Consolidated Financial Statements (unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
34
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
59
Item 4.
Controls and Procedures
PART II—OTHER INFORMATION
Legal Proceedings
60
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
61
Signatures
62
2
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30,
December 31,
2026
2025
(unaudited)
(Dollars in thousands, except par value)
ASSETS
Cash and due from banks
$
1,683,062
1,747,511
Federal funds sold
194
217
Total cash and cash equivalents
1,683,256
1,747,728
Available for sale securities, at fair value
346,023
338,197
Held to maturity securities, at cost (fair value of $11,101,302 and $9,433,365, respectively)
11,993,057
10,275,228
Total securities
12,339,080
10,613,425
Loans held for sale
18,656
14,155
Loans held for investment
23,719,186
20,486,415
Loans held for investment - Warehouse Purchase Program
1,290,156
1,304,798
Total loans
25,027,998
21,805,368
Less: allowance for credit losses on loans
(382,841
)
(333,742
Loans, net
24,645,157
21,471,626
Accrued interest receivable
119,753
99,297
Goodwill
3,823,920
3,503,127
Core deposit intangibles, net
105,582
51,605
Bank premises and equipment, net
428,478
383,449
Other real estate owned
11,296
13,296
Bank owned life insurance (BOLI)
448,853
392,756
Federal Home Loan Bank of Dallas stock
111,430
86,950
Other assets
155,706
100,166
TOTAL ASSETS
43,872,511
38,463,425
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing
10,739,937
9,467,911
Interest-bearing
21,859,750
19,014,573
Total deposits
32,599,687
28,482,484
Other borrowings
2,400,000
1,950,000
Securities sold under repurchase agreements
199,576
201,216
Subordinated notes
70,000
—
Accrued interest payable
27,365
30,913
Allowance for credit losses on off-balance sheet credit exposures
37,646
Other liabilities
232,978
145,026
Total liabilities
35,567,252
30,847,285
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1 par value; 20,000,000 shares authorized; none issued or outstanding
Common stock, $1 par value; 200,000,000 shares authorized; 100,645,772 issued and outstanding at June 30, 2026; 93,058,171 shares issued and outstanding at December 31, 2025
100,646
93,058
Capital surplus
4,171,398
3,653,751
Retained earnings
4,033,466
3,869,627
Accumulated other comprehensive loss —net unrealized loss on available for sale securities, net of tax expense of $(69) and $(79), respectively
(251
(296
Total shareholders’ equity
8,305,259
7,616,140
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
Six Months Ended
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees
369,574
325,490
731,330
644,513
Securities
81,200
57,836
151,731
115,722
Federal funds sold and other earning assets
8,719
9,438
18,207
25,334
Total interest income
459,493
392,764
901,268
785,569
INTEREST EXPENSE:
Deposits
107,084
93,790
211,321
189,387
20,094
30,101
34,877
60,593
1,019
1,151
1,921
2,485
Subordinated notes and junior subordinated debentures
746
1,449
Total interest expense
128,943
125,042
249,568
252,465
NET INTEREST INCOME
330,550
267,722
651,700
533,104
PROVISION FOR CREDIT LOSSES
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
NONINTEREST INCOME:
Nonsufficient funds (NSF) fees
11,349
8,885
22,216
18,032
Credit card, debit card and ATM card income
10,303
9,761
19,786
18,500
Service charges on deposit accounts
9,235
7,645
17,915
15,053
Trust income
4,943
3,859
9,865
7,460
Mortgage income
1,363
965
2,643
1,974
Brokerage income
1,478
1,225
3,046
2,487
Net (loss) gain on sale or write-down of assets
(42
1,414
276
1,179
Net gain on sale or write-up of securities
8,235
Other
13,841
9,228
23,197
19,598
Total noninterest income
60,705
42,982
107,179
84,283
NONINTEREST EXPENSE:
Salaries and employee benefits
110,965
87,296
220,176
176,772
Net occupancy and equipment
10,685
9,168
21,339
18,314
Credit and debit card, data processing and software amortization
16,121
12,056
34,235
23,478
Regulatory assessments and FDIC insurance
5,287
5,508
11,328
11,297
Core deposit intangibles amortization
5,661
3,610
10,920
7,251
Depreciation
5,795
4,779
11,343
9,553
Communications
4,271
3,507
8,105
6,980
Net other real estate expense
309
(18
609
92
Merger related expenses
755
43,271
16,327
12,659
32,137
25,129
Total noninterest expense
176,176
138,565
393,463
278,866
INCOME BEFORE INCOME TAXES
215,079
172,139
365,416
338,521
PROVISION FOR INCOME TAXES
46,496
36,984
80,566
73,141
NET INCOME
168,583
135,155
284,850
265,380
EARNINGS PER SHARE:
Basic
1.67
1.42
2.84
2.79
Diluted
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive (loss) income, before tax:
Securities available for sale:
Change in unrealized (loss) gain during the period
(363
(283
55
399
Total other comprehensive (loss) income
Deferred tax benefit (expense) related to other comprehensive (loss) income
77
(10
(84
Other comprehensive (loss) income, net of tax
(286
(224
45
315
Comprehensive income
168,297
134,931
284,895
265,695
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Accumulated
Total
Common Stock
Capital
Retained
Comprehensive
Shareholders’
Shares
Amount
Surplus
Earnings
Income (Loss)
Equity
(In thousands, except share and per share data)
BALANCE AT MARCH 31, 2026
100,835,022
100,835
4,181,710
3,925,271
35
8,207,851
Other comprehensive loss
Common stock issued in connection with the granting of restricted stock awards, net
10,750
11
(11
Common stock repurchase
(200,000
(200
(13,474
(13,674
Stock based compensation expense
3,173
Cash dividends declared, $0.60 per share
(60,388
BALANCE AT JUNE 30, 2026
100,645,772
BALANCE AT DECEMBER 31, 2025
93,058,171
Other comprehensive income
89,883
90
(90
Common stock issued in connection with the acquisition of American Bank Holding Corporation
4,439,938
4,440
302,404
306,844
Common stock issued in connection with the acquisition of Southwest Bancshares, Inc.
4,094,974
4,095
278,499
282,594
(1,037,194
(1,037
(69,721
(70,758
6,555
Cash dividends declared, $1.20 per share
(121,011
BALANCE AT MARCH 31, 2025
95,258,217
95,259
3,799,692
3,623,195
(1,085
7,517,061
18,583
18
3,006
Cash dividends declared, $0.58 per share
(55,262
BALANCE AT JUNE 30, 2025
95,276,800
95,277
3,802,680
3,703,088
(1,309
7,599,736
BALANCE AT DECEMBER 31, 2024
95,275,279
95,276
3,796,622
3,548,221
(1,624
7,438,495
1,521
1
(1
6,059
Cash dividends declared, $1.16 per share
(110,513
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and core deposit intangibles amortization
22,263
16,804
Provision for credit losses
Net amortization of premium on investments
7,619
9,953
(8,235
Net gain on sale of other real estate and repossessed assets
(82
(252
Net gain on sale or write down of premises and equipment
(276
(1,179
Net accretion of discount on loans
(8,841
(6,416
Net amortization of premium on deposits
(1,056
Net gain on sale of loans
(2,643
(1,976
Proceeds from sale of loans held for sale
118,152
79,067
Originations of loans held for sale
(120,010
(72,929
(Increase) decrease in accrued interest receivable and other assets
(14,446
50,011
Increase (decrease) in accrued interest payable and other liabilities
63,695
(68,162
Net cash provided by operating activities
347,545
276,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, sales and principal paydowns of held to maturity securities
1,001,612
754,742
Purchase of held to maturity securities
(2,481,932
(274,634
Proceeds from maturities, sales and principal paydowns of available for sale securities
12,065,606
10,005,257
Purchase of available for sale securities
(11,998,826
(10,008,602
Originations of Warehouse Purchase Program loans
(8,105,349
(7,611,180
Proceeds from pay-offs of Warehouse Purchase Program loans
8,119,991
7,404,643
Net decrease in loans held for investment
510,979
147,813
Purchase of bank premises and equipment
(11,581
(13,490
Proceeds from sale of bank premises, equipment and other real estate
10,551
6,801
Proceeds from insurance claims
3,556
1,794
Net cash provided by the acquisition of American Bank Holding Corporation
233,906
Net cash provided by the acquisition of Southwest Bancshares, Inc.
244,182
Net cash (used in) provided by investing activities
(407,305
413,144
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits
420,736
(371,781
Net decrease in interest-bearing deposits
(675,853
(536,135
Net proceeds (repayments) from other short-term borrowings
450,000
(300,000
Net decrease in securities sold under repurchase agreements
(1,640
(38,341
Redemption of junior subordinated debentures
(6,186
Repurchase of common stock
Payments of cash dividends
Net cash used in financing activities
(4,712
(1,356,770
NET DECREASE IN CASH AND CASH EQUIVALENTS
(64,472
(667,277
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
1,972,467
CASH AND CASH EQUIVALENTS, END OF PERIOD
1,305,190
NONCASH ACTIVITIES:
Acquisition of real estate through foreclosure of collateral
5,291
6,853
SUPPLEMENTAL INFORMATION:
Cash paid for:
U.S. federal income taxes, net of refunds received
61,000
158,000
State income taxes, net of refunds received
1,585
2,444
Interest paid
256,565
261,538
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Prosperity Bancshares, Inc.® (“Bancshares”) and its wholly-owned subsidiary, Prosperity Bank® (the “Bank,” and together with Bancshares, the “Company”). All intercompany transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis; and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Operating results for the six-month period ended June 30, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026, or any other period.
The Company’s banking operations are considered by management to be aggregated in one reportable operating segment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280. The Chief Executive Officer is designated as the Company’s chief operating decision maker (“CODM”), who evaluates banking operations and decides how to allocate resources based on consolidated net income that is also reported on the Company’s consolidated statement of income. Consolidated net income is used to monitor the Company’s revenue streams, significant expenses and to compare budget to actual results in assessing performance of the Company’s banking operations. Interest expense, provision for credit losses and salaries and employee benefits are considered significant segment expenses and are listed on the accompanying consolidated statements of income. As the Company’s operations consist of one reportable operating segment, the segment assets are reflected on the accompanying consolidated balance sheets as “total assets.”
2. INCOME PER COMMON SHARE
The following table illustrates the computation of basic and diluted earnings per share:
Three Months Ended June 30,
Six Months Ended June 30,
Per ShareAmount
Per Share Amount
(Amounts in thousands, except per share data)
Basic:
Weighted average shares outstanding
100,783
100,306
95,271
Diluted:
There were no stock options outstanding at June 30, 2026, or exercisable during the three and six months ended June 30, 2026, or 2025 that would have had an anti-dilutive effect on the above computation.
3. NEW ACCOUNTING STANDARDS
Accounting Standards Updates (“ASU”)
ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. ASU 2025‑11 clarifies interim disclosure requirements, including providing a comprehensive list of interim disclosure requirements under U.S. GAAP and a disclosure principle that requires entities to disclose events since the last annual reporting period that have a material impact on the entity. The standard is effective for interim periods within annual reporting periods beginning after December 15, 2027. The Company does not expect the adoption of ASU 2025-11 to have a significant impact on its financial statements.
ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. ASU 2025-08 updated the accounting for purchased loans under ASC 326. Under ASU 2025-08, loans acquired without credit deterioration (“Non-PCD” loans) and deemed “seasoned” will now be considered purchased seasoned loans (“PSLs”) and accounted for using the gross-up approach at acquisition, which was formerly applicable only to purchased credit deteriorated (“PCD”) assets. PSLs include all loans acquired in a business combination that do not have “more-than-insignificant” deterioration of credit quality since origination, as well as loans purchased at least 90 days after origination where the purchaser was not involved in the origination of the loans. Under ASU 2025-08, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized costs basis, thereby eliminating the immediate recognition of day-one credit loss expense previously required for Non-PCD loans. The Company early adopted ASU 2025-08 as of January 1, 2026, on a prospective basis. For further discussion, see Note 5 to the consolidated financial statements.
ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. ASU 2025-06 modernizes the accounting for internal-use software costs. Under this ASU, software development costs are capitalized when (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim reporting periods, with early adoption permitted. The Company does not expect the adoption of ASU 2025-06 to have a significant impact on its financial statements.
ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a significant impact on its financial statements.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 focuses on the rate reconciliation and income taxes paid. ASU 2023-09 requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign, and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The Company adopted ASU 2023-09 as of December 31, 2025 on a retrospective basis, and it did not have a significant impact on the Company’s financial statements.
9
4. SECURITIES
The amortized cost and fair value of investment securities were as follows:
June 30, 2026
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Available for Sale
Corporate debt securities
7,935
2,750
Collateralized mortgage obligations
204,881
(2,468
202,475
Mortgage-backed securities
133,526
157
(820
132,863
346,342
2,969
(3,288
Held to Maturity
U.S. Government agencies
4,100
(8
4,092
States and political subdivisions
118,214
109
(1,842
116,481
12,000
(840
11,160
377,315
435
(15,981
361,769
11,481,428
3,705
(877,333
10,607,800
4,249
(896,004
11,101,302
December 31, 2025
2,518
10,453
209,689
(2,250
207,444
120,948
85
(733
120,300
338,572
2,608
(2,983
6,032
78
(70
6,040
69,221
249
(1,347
68,123
(1,020
10,980
223,675
1,010
(12,177
212,508
9,964,300
9,070
(837,656
9,135,714
10,407
(852,270
9,433,365
The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under FASB ASC Topic 326, “Financial Instruments – Credit Losses” (“CECL”).
Available for sale securities. For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairment loss (“credit loss”) and the noncredit portion of the impairment loss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.
10
As of June 30, 2026, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2026, management believes that there is no potential for credit losses on available for sale securities.
Held to maturity securities. The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae-issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae- and Freddie Mac-issued securities are fully guaranteed by those respective United States government-sponsored agencies and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of June 30, 2026, the Company’s municipal securities represent 1.0% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Accordingly, as of June 30, 2026, management believes that there is no potential for material credit losses on held to maturity securities.
Securities with unrealized losses, segregated by length of time, that have been in a continuous loss position were as follows:
Less than 12 Months
12 Months or More
Estimated Fair Value
Unrealized Losses
10,816
(89
157,294
(2,379
168,110
68,925
(531
50,739
(289
119,664
79,741
(620
208,033
(2,668
287,774
43,766
(504
22,905
(1,338
66,671
177,162
(2,162
149,443
(13,819
326,605
2,902,295
(26,526
6,999,577
(850,807
9,901,872
3,127,315
(29,200
7,183,085
(866,804
10,310,400
29,345
(71
159,382
(2,179
188,727
32,483
(91
81,968
(642
114,451
61,828
(162
241,350
(2,821
303,178
4,733
1,108
23,482
(1,346
24,590
548
165,061
(12,169
165,609
390,495
(775
7,813,697
(836,881
8,204,192
396,884
(854
8,013,220
(851,416
8,410,104
At June 30, 2026, and December 31, 2025, there were 647 securities and 712 securities, respectively, in an unrealized loss position for 12 months or more.
The table below summarizes the amortized cost and fair value of investment securities at June 30, 2026, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations at any time with or without call or prepayment penalties.
Due in one year or less
22,670
22,689
Due after one year through five years
42,558
42,205
Due after five years through ten years
66,521
64,293
Due after ten years
2,565
2,546
Subtotal
134,314
131,733
Mortgage-backed securities and collateralized mortgage obligations
11,858,743
10,969,569
338,407
335,338
The Company recorded a $4.0 million net loss on the sale of investment securities for the three and six months ended June 30, 2026 and no gain or loss on the sale of investment securities for the three and six months ended June 30, 2025. As of June 30, 2026, the Company did not own any non-agency collateralized mortgage obligations.
At June 30, 2026, and December 31, 2025, the Company did not own securities of any one issuer (other than the U.S. government and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity at such respective dates.
Securities with an amortized cost of $10.23 billion and $9.24 billion and a fair value of $9.43 billion and $8.43 billion at June 30, 2026, and December 31, 2025, respectively, were pledged to collateralize public deposits and for other purposes required or permitted by law.
Visa Class B-1 Stock Exchange. During the second quarter of 2026, the Company tendered all of its shares of Visa, Inc. (“Visa”) Class B-2 common stock in exchange for a combination of Visa Class B-3 common stock and Visa Class C common stock, pursuant to the terms and subject to the conditions of Visa’s public exchange offer, which expired on May 8, 2026. The Company recorded an unrealized gain of $12.2 million during the second quarter 2026 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. In the exchange, the Company received 24,246 shares of Class B-3 stock, recorded at zero cost basis, and 9,137 shares of Class C common stock and subsequently sold 3,045 shares of Class C stock. Prosperity intends to sell all remaining shares of Class C stock as permitted by the exchange agreement.
12
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The loan portfolio consists of various types of loans and is categorized by major type as follows:
Residential mortgage loans held for sale
Commercial and industrial
3,290,092
2,303,936
Real estate:
Construction, land development and other land loans
3,143,607
2,741,455
1-4 family residential (includes home equity)
8,586,119
8,260,482
Commercial real estate (includes multi-family residential)
7,220,978
5,776,397
Farmland
705,868
662,031
Agriculture
360,254
365,873
Consumer and other
412,268
376,241
Total loans held for investment, excluding Warehouse Purchase Program
Warehouse Purchase Program
Total loans, including Warehouse Purchase Program
Concentrations of Credit. Most of the Company’s lending activity occurs within the states of Texas and Oklahoma. Commercial real estate loans, 1-4 family residential loans and construction, land development and other land loans made up 79.8% and 81.8% of the Company’s total loan portfolio, excluding Warehouse Purchase Program loans, at June 30, 2026, and December 31, 2025, respectively. As of June 30, 2026, and December 31, 2025, excluding Warehouse Purchase Program loans, there were no concentrations of loans related to any single industry in excess of 10% of total loans.
Related Party Loans. As of June 30, 2026, and December 31, 2025, loans outstanding to directors, officers and their affiliates totaled $3.7 million and $272 thousand, respectively. All transactions between the Company and such related parties are conducted in the ordinary course of business and made on the same terms and conditions as similar transactions with unaffiliated persons.
An analysis of activity with respect to these related party loans is as follows:
As of and for thesix months endedJune 30, 2026
As of and for theyear endedDecember 31, 2025
Beginning balance on January 1
272
266
New loans
628
182
Transfers
3,514
Repayments
(754
(176
Ending balance
3,660
Nonperforming Assets and Nonaccrual and Past Due Loans. The Company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers, including requiring appraisals on loans collateralized by real estate. The Company also monitors its delinquency levels for any negative or adverse trends. Nevertheless, the Company’s loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases; unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
13
With respect to potential problem loans, an evaluation of the borrower’s overall financial condition is made, together with an appraisal for loans collateralized by real estate, to determine the need, if any, for possible write-downs or appropriate additions to the allowance for credit losses.
An aging analysis of past due loans, segregated by category of loan, is presented below:
Loans Past Due and Still Accruing
30-89 Days
90 or More Days
Total Past Due Loans
Nonaccrual Loans
Current Loans
Total Loans
6,608
2,447
3,134,552
Warehouse Purchase Program loans
Agriculture and agriculture real estate (includes farmland)
5,392
1,086
6,478
14,504
1,045,140
1,066,122
1-4 family (includes home equity) (1)
40,137
137
40,274
57,253
8,507,248
8,604,775
38,435
472
38,907
16,167
7,165,904
17,267
665
17,932
25,481
3,246,679
537
1,059
410,672
108,376
2,360
110,736
116,911
24,800,351
5,233
297
5,530
177
2,735,748
4,834
15,378
1,007,692
1,027,904
47,057
53,932
8,173,648
8,274,637
13,386
5,326
5,757,685
9,436
61,387
2,233,113
1,159
20
1,017
374,045
81,105
317
81,422
137,217
21,586,729
14
The following table presents information regarding nonperforming assets as of the dates indicated:
Nonaccrual loans (1)
Accruing loans 90 or more days past due
Total nonperforming loans
119,271
137,534
Repossessed assets
Other real estate
Total nonperforming assets
130,576
150,842
Nonperforming assets to total loans and other real estate
0.52
%
0.69
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate
0.55
0.74
Nonaccrual loans to total loans
0.47
0.63
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans
0.49
0.67
The Company had $130.6 million in nonperforming assets at June 30, 2026, compared with $150.8 million at December 31, 2025. Nonperforming assets were 0.52% of total loans and other real estate at June 30, 2026, and 0.69% of total loans and other real estate at December 31, 2025. The Company had $116.9 million in nonaccrual loans at June 30, 2026, compared with $137.2 million at December 31, 2025.
Acquired Loans. Acquired loans were preliminarily recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected default rates, loss given default, and recovery rates. Projected default rates, loss given default, and recovery rates for PCD loans and PSLs primarily impact the related allowance, as opposed to the fair value mark. During the valuation process, the Company identified PCD loans and PSLs in the acquired loan portfolios. Loans acquired with evidence of credit quality deterioration since origination as of the acquisition date were accounted for as PCD. PCD loan identification considers the following factors: payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may indicate deterioration of credit quality as of the acquisition date when compared to the origination date. PSL identification considers the following factors: account types, remaining terms, annual interest rates or coupons, current market rates, interest types, past delinquencies, timing of principal and interest payments, loan to value ratios, loss exposures and remaining balances. Accretion of purchased discounts on PCD loans and PSLs will be recognized based on payment structure and the contractual maturity of individual loans.
15
PCD Loans. The recorded investment in PCD loans included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of June 30, 2026, and December 31, 2025.
PCD loans:
Outstanding balance
382,745
300,010
Discount
(7,444
(5,267
Recorded investment
375,301
294,743
Changes in the accretable yield for acquired PCD loans for the three and six months ended June 30, 2026, and 2025 were as follows:
Balance at beginning of period
8,440
6,713
5,267
7,390
Additions
(95
4,250
Accretion recoveries (charge-offs)
Accretion
(901
(638
(2,087
(1,315
Balance at June 30,
7,444
6,075
Income recognition on PCD loans is subject to the timing and amount of future cash flows. PCD loans for which the Company is accruing interest income are not considered nonperforming or impaired. The PCD discount reflected above as of June 30, 2026, represents the amount of discount available to be recognized as income.
PSLs. The recorded investment in PSLs included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of June 30, 2026, and December 31, 2025.
PSLs:
4,399,194
1,498,731
(65,782
(17,479
4,333,412
1,481,252
Changes in the discount accretion for PSLs for the three and six months ended June 30, 2026, and 2025 were as follows:
68,592
25,250
17,479
27,845
31
53,971
Accretion recoveries
263
(2
22
(3,104
(2,486
(5,666
(5,101
65,782
22,766
16
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used:
Grade 1—Credits in this category have risk potential that is virtually nonexistent. These loans may be secured by insured certificates of deposit, insured savings accounts, U.S. Government securities and highly rated municipal bonds.
Grade 2—Credits in this category are of the highest quality. These borrowers represent top rated companies and individuals with unquestionable financial standing with excellent global cash flow coverage, net worth, liquidity and collateral coverage.
Grade 3—Credits in this category are not immune from risk but are well protected by the collateral and paying capacity of the borrower. These loans may exhibit a minor unfavorable credit factor, but the overall credit is sufficiently strong to minimize the possibility of loss.
Grade 4—Credits in this category are considered to be of acceptable credit quality with moderately greater risk than Grade 3 and receive closer monitoring. Loans in this category have sources of repayment that remain sufficient to preclude a larger than normal probability of default and secondary sources are likewise currently of sufficient quantity, quality, and liquidity to protect the Company against loss of principal and interest. These borrowers have specific risk factors, but the overall strength of the credit is acceptable based on other mitigating credit and/or collateral factors and can repay the debt in the normal course of business.
Grade 5—Credits in this category constitute an undue and unwarranted credit risk; however, the factors do not rise to a level of substandard. These credits have potential weaknesses and/or declining trends that, if not corrected, could expose the Company to risk at a future date. These loans are monitored on the Company’s internally-generated watch list and evaluated on a quarterly basis.
Grade 6—Credits in this category are considered “substandard” but “non-impaired” loans in accordance with regulatory guidelines. Loans in this category have well-defined weaknesses that, if not corrected, could make default of principal and interest possible. Loans in this category are still accruing interest and may be dependent upon secondary sources of repayment and/or collateral liquidation.
Grade 7—Credits in this category are deemed “substandard” and “impaired” pursuant to regulatory guidelines. As such, the Company has determined that it is probable that less than 100% of the contractual principal and interest will be collected. These loans are individually evaluated for a specific reserve and will typically have the accrual of interest stopped.
Grade 8—Credits in this category include “doubtful” loans in accordance with regulatory guidance. Such loans are no longer accruing interest and factors indicate a loss is imminent. These loans are also deemed “impaired.” While a specific reserve may be in place while the loan and collateral are being evaluated, these loans are typically charged down to an amount the Company estimates is collectible.
Grade 9—Credits in this category are deemed a “loss” in accordance with regulatory guidelines and have been charged off or charged down. The Company may continue collection efforts and may have partial recovery in the future.
17
The following tables present loans by risk grade, by category of loan and by year of origination/renewal at June 30, 2026.
Term Loans
Amortized Cost Basis by Origination Year
2024
2023
2022
Prior
Revolving Loans
Revolving Loans Converted to Term Loans
Construction, Land Development and Other Land Loans
Grade 1
Grade 2
2,941
327
461
262
3,991
Grade 3
251,510
847,097
282,398
256,468
188,810
98,414
155,845
353
2,080,895
Grade 4
21,720
149,091
105,118
125,381
291,474
42,315
212,379
947,478
Grade 5
203
1,135
23,690
10,040
5,202
8,159
48,429
Grade 6
1,917
1,115
1,436
4,468
Grade 7
1,456
95
94
1,706
Grade 8
Grade 9
PCD Loans
26,922
4,719
6,378
10,149
4,433
4,039
56,640
273,230
1,029,627
393,697
412,439
500,568
151,835
381,858
Current-period gross write-offs
50
Agriculture and Agriculture Real Estate (includes Farmland)
1,448
2,427
149
89
9,249
13,674
2,270
978
3,310
97,606
109,159
67,034
51,888
143,724
157,509
186,139
81
813,140
21,470
33,082
16,214
13,466
31,002
41,014
36,981
193,229
2,864
5,461
702
621
535
2,570
134
12,887
195
1,130
1,325
389
269
13,068
1,813
3,434
3,684
5,899
28,556
123,777
150,458
97,328
67,939
181,163
206,974
238,402
39
40
23
1-4 Family (includes Home Equity) (1)
67
125
104
296
97
4,226
910
374
415
5,026
11,048
219,217
528,263
580,486
1,409,466
1,947,578
3,303,732
112,127
1,941
8,102,810
12,339
27,467
24,278
32,184
77,526
205,721
11,900
391,415
338
2,663
2,153
451
10,362
6,643
22,610
173
369
1,700
1,797
2,328
3,039
9,406
218
1,571
6,761
18,233
29,814
56,664
44
4,464
900
1,627
3,248
243
10,526
232,164
563,250
615,562
1,452,000
2,058,194
3,557,327
124,337
58
485
713
19
1,284
Commercial Real Estate (includes Multi-Family Residential)
409
4,958
27,996
1,686
4,105
19,080
58,234
390,571
546,592
386,639
411,034
803,900
1,722,534
94,792
150
4,356,212
37,723
206,488
175,434
186,478
629,031
973,005
37,119
392
2,245,670
8,808
31,611
9,292
24,310
174,020
6,800
254,841
6,093
16,565
2,272
16,865
64,549
3,153
109,497
436
1,288
5,094
2,914
793
985
11,510
11,031
22,499
24,459
52,017
75,008
185,014
428,703
784,406
662,032
640,315
1,533,142
3,028,989
142,849
542
221
Commercial and Industrial
18,386
27,837
12,629
2,876
614
4,552
68,469
80
135,443
5,938
270
4,523
1,205
6,790
680
45,774
65,180
262,697
422,126
175,611
149,748
85,870
265,352
989,549
2,351,345
21,805
107,280
48,931
43,077
29,163
56,376
221,324
2,781
530,737
2,582
1,529
2,856
1,367
26,748
2,600
41,533
79,215
826
2,039
2,166
2,347
2,520
330
7,136
17,364
11,199
593
3,072
151
2,412
17,816
22,945
6,425
3,094
2,911
31,637
25,980
92,992
323,433
584,619
256,213
204,103
154,767
363,939
1,399,765
3,253
802
782
295
2,016
2,306
29,832
6,109
42,457
Consumer and Other
14,546
13,879
4,604
1,415
490
1,259
2,473
38,666
404
7,664
83,900
14,049
19,951
1,873
127,841
55,345
20,250
20,400
14,991
19,424
24,952
45,124
701
201,187
199
2,440
1,843
2,596
1,056
18,342
13,101
39,577
565
175
1,370
184
2,299
46
68
21
129
862
1,057
1,573
70,520
44,817
110,767
33,292
40,921
47,633
63,617
3,381
82
25
3,647
34,380
44,143
17,542
4,507
1,232
6,004
80,191
188,079
6,848
20,119
117,656
17,777
33,531
26,026
47,647
269,604
2,567,102
2,473,487
1,512,568
2,293,595
3,189,306
5,572,493
1,583,576
3,618
19,195,745
115,256
525,848
371,818
403,182
1,059,252
1,336,773
532,804
4,348,106
5,789
19,229
38,457
35,596
71,995
192,405
56,810
420,281
999
10,418
20,446
6,462
21,713
69,041
11,725
140,804
11,220
2,722
5,937
12,325
21,588
34,372
1,914
90,078
61,211
51,175
36,644
70,138
119,583
36,161
2,741,983
3,157,177
2,135,599
2,810,088
4,468,755
7,356,697
2,350,828
6,871
4,183
961
400
2,506
3,029
30,015
47,796
Allowance for Credit Losses on Loans. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses that it believes is management’s best estimate of current expected credit losses on the Company’s loan portfolio as of June 30, 2026. The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, (4) provision releases returned to earnings that decrease the allowance, and (5) increases in reserves related to acquired loans. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.
The Company’s allowance for credit losses on loans consists of two components: (1) a specific valuation allowance based on expected losses on specifically identified loans and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, two-year reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company.
In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans, which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan in accordance with CECL. The specific reserves are determined on an individual loan basis. Loans for which specific reserves are provided are excluded from the general valuation allowance described below.
In connection with this review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include:
In addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors.
In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors in accordance with CECL. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics, such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to cover expected losses in other categories.
The following table details activity in the allowance for credit losses on loans by category of loan for the three and six months ended June 30, 2026 and 2025.
1-4 Family (includes Home Equity)
Allowance for credit losses on loans:
Balance March 31, 2026
76,127
23,213
75,134
95,416
104,735
9,215
383,840
Allowance on PCD loans at acquisition
(236
1,420
1,184
Provision for credit losses on loans
(1,949
798
1,901
(2,356
(580
2,186
Charge-offs
(50
(75
(385
(2,781
(2,025
(5,316
Recoveries
47
71
1,064
1,395
556
3,133
Net (charge-offs) recoveries
(28
(314
(1,386
(1,469
(2,183
Balance June 30, 2026
74,128
23,747
76,721
94,124
104,189
9,932
382,841
Balance December 31, 2025
69,817
23,438
76,596
77,251
77,939
8,701
333,742
5,725
691
1,353
12,423
32,229
909
53,330
Allowance on PSLs at acquisition (1)
5,342
142
6,213
11,696
13,308
2,560
39,261
(6,706
(444
(6,265
(8,431
21,324
522
(137
(1,284
(221
(42,457
(3,647
(47,796
57
108
1,406
1,846
887
4,304
(80
(1,176
1,185
(40,611
(2,760
(43,492
Balance March 31, 2025
80,580
26,097
83,895
90,307
60,174
8,048
349,101
(2,765
737
(1,448
(1,131
3,126
1,481
(37
(410
(112
(1,636
(1,945
(4,222
51
592
352
(342
(55
(1,044
(1,593
(3,017
Balance June 30, 2025
77,818
26,848
82,105
89,121
62,256
7,936
346,084
Balance December 31, 2024
77,984
27,693
80,735
92,147
65,500
7,746
351,805
(325
(859
2,763
(2,793
(1,870
3,084
(1,468
(499
(2,577
(3,502
(8,165
241
75
1,203
608
159
(1,393
(233
(1,374
(2,894
(5,721
The allowance for credit losses on loans as of June 30, 2026, totaled $382.8 million or 1.53% of total loans, including acquired loans with discounts, an increase of $49.1 million or 14.7% compared to the allowance for credit losses on loans totaling $333.7 million or 1.53% of total loans, including acquired loans with discounts, as of December 31, 2025.
The Company adopted ASU 2025-08 as of January 1, 2026, which aligned the accounting for PSLs with the treatment of PCD loans’ gross-up approach at acquisition and eliminated the immediate recognition of day-one credit loss expense. Accordingly, the initial estimate of expected credit losses recognized in the allowance for credit losses on loans will include both PCD loans and PSLs. For the merger of American Bank Holding Corporation (“American”) into Bancshares and the subsequent merger of American’s wholly owned subsidiary American Bank, N.A. (“American Bank”) into the Bank (collectively, the “American Merger”), the Company recorded an allowance for credit losses on loans of $47.5 million, which included a $27.5 million allowance on PCD loans and a $20.0 million allowance on PSLs. For the merger of Southwest Bancshares, Inc. (“Southwest”) into Bancshares and the subsequent merger of Southwest’s wholly owned subsidiary Texas Partners Bank (“Texas Partners”) into the Bank (collectively, the “Southwest Merger”), the Company recorded an allowance for credit losses on loans of $45.1 million, which included a $25.8 million allowance on PCD loans and a $19.3 million allowance on PSLs.
There was no provision for credit losses for the three and six months ended June 30, 2026 and 2025.
Net charge-offs were $2.2 million for the three months ended June 30, 2026, compared with net charge-offs of $3.0 million for the three months ended June 30, 2025. For the three months ended June 30, 2026, net charge-offs included $962 thousand related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. For the three months ended June 30, 2026, $10.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Net charge-offs were $43.5 million for the six months ended June 30, 2026, compared with $5.7 million for the six months ended June 30, 2025. For the six months ended June 30, 2026, net charge-offs included a $39.2 million increase in net charge-offs for commercial and industrial loans. Additionally, due to the American Merger and the Southwest Merger, reserves increased by Day One accounting for PCD loans of $53.3 million and Day One accounting for PSLs of $39.3 million. Further, $12.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancellable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of June 30, 2026, and December 31, 2025, the Company had $37.6 million in allowance for credit losses on off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet. As of June 30, 2026, the Company had $1.73 billion in commitments expected to fund.
Loan Modifications Made to Borrowers Experiencing Financial Difficulty. The Company evaluates all restructurings, including restructurings for borrowers experiencing financial difficulty, to determine whether they result in a new loan or a continuation of an existing loan. In accordance with CECL, the Company only establishes a specific reserve for modifications to borrowers experiencing financial difficulty when the loan is identified as impaired. The effect of most modifications of loans made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The Company adjusts the terms of loans for certain borrowers when it believes such changes will help its customers manage their loan obligations and increase the collectability of the loans.
Modifications of loans made to borrowers experiencing financial difficulty may include but are not limited to changes in committed loan amount, interest rate, amortization, note maturity, borrower, guarantor, collateral, forbearance, forgiveness of principal or interest, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The approval of modifications of loans for borrowers experiencing financial difficulty is handled on a case-by-case basis.
The following table displays the amortized cost of loans that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2026, and 2025 presented by category of loan and type of modification.
Term Extension
Interest Rate Reduction
Percent of Total Class of Loans
Three Months Ended June 30, 2026
25,017
0.3
1,196
0.1
0.0
26,235
Six Months Ended June 30, 2026
2,196
0.2
27,235
Three Months Ended June 30, 2025
Six Months Ended June 30, 2025
23,205
23,885
0.4
158
838
24,043
The financial effects of the modifications of loans made to borrowers experiencing financial difficulty were not significant during the three and six months ended June 30, 2026, and 2025. Furthermore, such modifications did not significantly impact the Company’s determination of the allowance for credit losses during those periods.
The Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 2026, that subsequently defaulted and were modified in the twelve months prior to default. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.
24
6. FAIR VALUE
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price.” Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Fair Value Hierarchy
The Company groups financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.
The fair value disclosures below represent the Company’s estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding current economic conditions, risk characteristics of the various instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.
The following tables present fair values for assets and liabilities measured at fair value on a recurring basis:
As of June 30, 2026
Level 1
Level 2
Level 3
Assets:
Available for sale securities:
Derivative financial instruments:
Interest rate lock commitments
250
Forward mortgage-backed securities trades
Loan customer counterparty
216
Financial institution counterparty
208
Liabilities:
43
223
As of December 31, 2025
192
778
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These instruments include other real estate owned, repossessed assets, held to maturity debt securities, loans held for sale and impaired loans, which are included as loans held for investment. For the three and six months ended June 30, 2026, the Company had additions to other real estate owned of $2.7 million and $5.3 million, respectively, of which $2.0 million and $4.4 million, respectively, were outstanding as of June 30, 2026. For the three and six months ended June 30, 2026, the Company had additions to impaired loans of $18.8 million and $34.5 million, respectively, of which $18.8 million and $33.3 million, respectively, were outstanding as of June 30, 2026. The remaining financial assets and liabilities measured at fair value on a non-recurring basis that were recorded in 2026 and remained outstanding at June 30, 2026, were not significant.
26
The following tables present carrying and fair value information of financial instruments as of the dates indicated:
Carrying
Assets
Held to maturity securities
Loans held for investment, net of allowance
23,336,345
22,722,420
Liabilities
21,841,062
20,152,673
19,342,602
19,001,946
The following is a description of the fair value estimates, methods and assumptions that are used by the Company in estimating the fair values of financial instruments.
Loans held for sale— Loans held for sale are carried at the lower of cost or estimated fair value. Fair value for consumer mortgages held for sale is based on commitments on hand from investors or prevailing market prices. As such, the Company classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.
27
Loans held for investment— The Company does not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value disclosures. The Company’s discounted cash flow calculation to determine fair value considers internal and market-based information such as prepayment risk, cost of funds and liquidity. From time to time, the Company records nonrecurring fair value adjustments to impaired loans to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. Where appraisals are not available, estimated cash flows are discounted using a rate commensurate with the credit risk associated with those cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.
The Company classifies the estimated fair value of loans held for investment as Level 3.
Other real estate owned— Other real estate owned is primarily foreclosed properties securing residential loans and commercial real estate loans. Foreclosed assets are adjusted to fair value less estimated costs to sell upon transfer of the loans to other real estate owned. Subsequently, these assets are carried at the lower of carrying value or fair value less estimated costs to sell. Other real estate carried at fair value based on an observable market price or a current appraised value is classified by the Company as Level 2. When management determines that the fair value of other real estate requires additional adjustments, either as a result of a non-current appraisal or when there is no observable market price, the Company classifies the other real estate as Level 3.
The fair value estimates presented herein are based on information available to management at June 30, 2026. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
7. GOODWILL AND CORE DEPOSIT INTANGIBLES
Changes in the carrying amount of the Company’s goodwill and core deposit intangibles for the six months ended June 30, 2026, and the year ended December 31, 2025 were as follows:
Core Deposit Intangibles
Balance as of December 31, 2024
3,503,129
66,047
Less:
Amortization
(14,442
Add:
Measurement period adjustment for the acquisition of Lone Star State Bancshares, Inc.
Balance as of December 31, 2025
(10,920
Acquisition of American Bank Holding Corporation
185,941
31,103
Acquisition of Southwest Bancshares, Inc.
134,852
33,794
Balance as of June 30, 2026
28
Goodwill is recorded as of the acquisition date of each entity. The Company may record subsequent adjustments to goodwill for amounts undeterminable at acquisition date, such as deferred taxes and real estate valuations, and therefore the goodwill amounts may change accordingly. The Company initially records the total premium paid on acquisitions as goodwill. After finalizing the valuation, core deposit intangibles are identified and reclassified from goodwill to core deposit intangibles on the balance sheet. This reclassification has no effect on total assets, liabilities, shareholders’ equity, net income or cash flows. Management performs an evaluation annually, and more frequently if a triggering event occurs, of whether any impairment of the goodwill or core deposit intangibles has occurred. If any such impairment is determined, a write-down is recorded. As of June 30, 2026, there was no impairment recorded on goodwill and core deposit intangibles.
The measurement period for the Company to determine the fair value of acquired identifiable assets and assumed liabilities will be at the end of the earlier of (1) twelve months from the date of acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the date of acquisition.
Core deposit intangibles are being amortized on a non-pro rata basis over their estimated lives, which the Company believes is between 10 and 15 years. Amortization expense related to intangible assets totaled $5.7 million and $3.6 million for the three months ended June 30, 2026, and 2025, respectively, and $10.9 million and $7.3 million for the six months ended June 30, 2026, and 2025, respectively. The estimated aggregate future amortization expense for core deposit intangibles remaining as of June 30, 2026, is as follows (dollars in thousands):
Remaining 2026
11,292
2027
20,254
2028
17,595
2029
14,233
2030
9,307
Thereafter
32,901
8. STOCK–BASED COMPENSATION
At June 30, 2026, Bancshares had one active stock-based incentive compensation plan with awards outstanding.
On March 3, 2020, Bancshares’ Board of Directors established the Prosperity Bancshares, Inc. 2020 Stock Incentive Plan (the “2020 Plan”), which was approved by Bancshares’ shareholders on April 21, 2020. The 2020 Plan authorizes the issuance of up to 2,500,000 shares of common stock upon the exercise of options or pursuant to the grant or exercise, as the case may be, of other awards granted under the 2020 Plan, including incentive stock options, nonqualified stock options, stock appreciation rights, shares of restricted stock and restricted stock units. As of June 30, 2026, 615,288 shares of issued restricted stock have vested and 592,564 shares of issued restricted stock remain unvested.
As of June 30, 2026, the Company had no stock options outstanding.
Stock-based compensation expense related to restricted stock was $3.2 million and $3.0 million during the three months ended June 30, 2026, and 2025, and $6.6 million and $6.1 million during the six months ended June 30, 2026, and 2025, respectively. As of June 30, 2026, there was $16.9 million of total unrecognized compensation expense related to stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.85 years.
9. CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Leases
The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments.
29
Short-term leases and leases with variable lease costs are immaterial and the Company has one sublease arrangement. Sublease income was $840 thousand and $750 thousand for the three months ended June 30, 2026, and 2025, respectively, and $1.7 million and $1.6 million for the six months ended June 30, 2026, and 2025, respectively. As of June 30, 2026, operating lease ROU assets and lease liabilities were approximately $31.4 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.
As of June 30, 2026, the weighted average of remaining lease terms of the Company’s operating leases was 4.8 years. The weighted average discount rate used to determine the lease liabilities as of June 30, 2026, for the Company’s operating leases was 2.7%. Cash paid for the Company’s operating leases was $3.8 million and $2.9 million for the three months ended June 30, 2026, and 2025, respectively, and was $7.4 million and $5.9 million for the six months ended June 30, 2026, and 2025, respectively. During the six months ended June 30, 2026, the Company obtained $8.1 million in ROU assets in exchange for lease liabilities for ten operating leases, of which five were related to the American Merger and the Southwest Merger.
The Company’s future undiscounted cash payments associated with its operating leases as of June 30, 2026, are summarized below (dollars in thousands).
5,941
9,094
6,164
4,750
3,502
2031
2,498
8,103
Total undiscounted lease payments
40,052
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company enters into various transactions that, in accordance with GAAP, are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Company’s commitments associated with outstanding standby letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit expiring by period as of June 30, 2026, are summarized below. Since commitments associated with letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit may expire unused, the amounts shown may not necessarily reflect the actual future cash funding requirements.
1 year or less
More than 1year but lessthan 3 years
3 years ormore but less than5 years
5 years or more
Standby letters of credit
103,776
13,562
2,291
119,655
Unused capacity on Warehouse Purchase Program loans
879,845
Commitments to extend credit
2,143,353
1,467,333
277,750
1,140,844
5,029,280
3,126,974
1,480,895
280,041
1,140,870
6,028,780
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The Company records an allowance for credit losses on off-balance sheet credit exposures that is adjusted through an entry to provision for credit losses on the Company’s consolidated statement of income. At June 30, 2026, and December 31, 2025, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $37.6 million.
30
10. OTHER COMPREHENSIVE (LOSS) INCOME
The tax effects allocated to each component of other comprehensive (loss) income were as follows:
Before Tax Amount
Tax Effect
Net of Tax Amount
Other comprehensive loss:
Change in unrealized loss during period
Total securities available for sale
Total other comprehensive loss
Other comprehensive income:
Change in unrealized gain during period
Total other comprehensive income
Activity in accumulated other comprehensive loss associated with securities available for sale, net of tax, was as follows:
Securities Availablefor Sale
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2025
Balance at June 30, 2026
Balance at December 31, 2024
Balance at June 30, 2025
11. DERIVATIVE FINANCIAL INSTRUMENTS
The following table provides the outstanding notional balances and fair values of outstanding derivative positions at June 30, 2026, and December 31, 2025.
OutstandingNotionalBalance
AssetDerivativeFair Value
Liability DerivativeFair Value
8,516
7,837
25,500
19,250
Commercial loan interest rate swaps and caps:
59,821
40,795
These financial instruments are not designated as hedging instruments and are used for asset and liability management and commercial customers’ financing needs. All derivatives are carried at fair value in either other assets or other liabilities, and all related cash flows are reported in the operating section of the consolidated statements of cash flows.
Interest rate lock commitments (“IRLCs”) — In the normal course of business, the Company enters into interest rate lock commitments with consumers to originate mortgage loans at a specified interest rate. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company.
Forward mortgage-backed securities trades — The Company manages the changes in fair value associated with changes in interest rates related to IRLCs by using forward sold commitments known as forward mortgage-backed securities trades. These instruments are typically entered into at the time the interest rate lock commitment is made.
Interest rate swaps and caps — These derivative positions relate to transactions in which the Company enters into an interest rate swap or cap with a customer, while at the same time entering into an offsetting interest rate swap or cap with another financial institution. An interest rate swap transaction allows the Company’s customer to effectively convert a variable rate loan to a fixed rate. In connection with each swap, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution a similar fixed interest rate on the same notional amount and receive substantially the same variable interest rate on the same notional amount. In connection with each interest rate cap, the Company sells a cap to the customer and agrees to pay interest if the underlying index exceeds the strike price defined in the cap agreement. Simultaneously the Company purchases a cap with matching terms from another financial institution that agrees to pay the Company if the underlying index exceeds the strike price.
The commercial loan customer counterparty weighted average received and paid interest rates for interest rate swaps outstanding at June 30, 2026, and December 31, 2025, are presented in the following table.
Weighted-Average Interest Rate
Received
Paid
4.97
3.85
4.52
4.78
The Company’s credit exposure on interest rate swaps is limited to the net favorable value of all swaps by each counterparty, which was approximately $301 thousand at June 30, 2026, and $778 thousand at December 31, 2025. This credit exposure is partly mitigated as transactions with customers are secured by the collateral, if any, securing the underlying transaction being hedged. The Company’s credit exposure, net of collateral pledged, relating to interest rate swaps with upstream financial institution counterparties was zero at June 30, 2026. A credit support annex is in place and allows the Company to call collateral from upstream financial institution counterparties. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. The Company’s cash collateral pledged for interest rate swaps was $70 thousand and $650 thousand at June 30, 2026, and December 31, 2025, respectively.
The initial and subsequent changes in the fair value of IRLCs and the forward sales of mortgage-backed securities are recorded in mortgage income. These gains and losses were not attributable to instrument-specific credit risk. For interest rate swaps and caps, because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on its results of operations. Income (loss) for the three and six months ended June 30, 2026, and 2025 was as follows:
Derivatives not designated as hedging instruments
63
(3
165
(7
(207
32
12. ACQUISITIONS
Recent Acquisitions
Acquisition of American Bank Holding Corporation — On January 1, 2026, the Company completed the American Merger. American Bank operated 18 banking offices and two loan production offices in South and Central Texas including its main office in Corpus Christi, and banking offices in San Antonio, Austin, Victoria and the greater Corpus Christi area including Port Aransas and Rockport and a loan production office in Houston, Texas. The acquisition was not considered significant to the Company’s financial statements and therefore pro forma financial data and related disclosures are not included.
Pursuant to the terms of the definitive agreement, Bancshares issued 4,439,938 shares of its common stock for all outstanding shares of American common stock. This resulted in goodwill of $185.9 million as of June 30, 2026, which does not include all the subsequent fair value adjustments that have not yet been finalized. Goodwill represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair value of liabilities assumed. Additionally, the Company recognized $31.1 million of core deposit intangibles as of June 30, 2026.
Acquisition of Southwest Bancshares, Inc. — On February 1, 2026, the Company completed the Southwest Merger. Texas Partners operated 11 banking offices in Central Texas including its main office in San Antonio, and banking offices in the San Antonio area, Austin and the Hill Country. The acquisition was not considered significant to the Company’s financial statements and therefore pro forma financial data and related disclosures are not included.
Pursuant to the terms of the definitive agreement, Bancshares issued 4,094,974 shares of its common stock for all outstanding shares of Southwest common stock. This resulted in goodwill of $134.9 million as of June 30, 2026, which does not include all the subsequent fair value adjustments that have not yet been finalized. Additionally, the Company recognized $33.8 million of core deposit intangibles as of June 30, 2026.
13. SUBSEQUENT EVENTS
Acquisition of Stellar Bancorp, Inc. — On July 1, 2026, the Company completed the merger of Stellar Bancorp, Inc. (“Stellar”) into Bancshares and the subsequent merger of Stellar’s wholly owned subsidiary Stellar Bank (“Stellar Bank”) into the Bank (collectively, the “Stellar Merger”). Stellar Bank operated 52 banking offices including its main office in Houston and banking offices in the Houston, Beaumont and East Texas areas and in Dallas, Texas.
Pursuant to the terms of the definitive agreement, Bancshares issued 19,371,499 shares of its common stock and paid approximately $578.66 million in cash for all outstanding shares of Stellar common stock.
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Cautionary Notice Regarding Forward-Looking Statements
Statements and financial discussion and analysis contained in this quarterly report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and involve a number of risks and uncertainties, many of which are beyond the Company’s control. Forward-looking statements can be identified by words such as “believes,” “intends,” “expects,” “plans,” “will” and similar references to future periods. Many possible events or factors could affect the future financial results and performance of the Company and could cause such results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. However, the Company cautions that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. Therefore, the Company cautions against placing undue reliance on its forward-looking statements. The forward-looking statements speak only as of the date the statements are made. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Company’s balance sheets and statements of income. This section should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included in Part I, Item 1 of this report and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
OVERVIEW
Prosperity Bancshares, Inc., a Texas corporation (“Bancshares”), is a registered financial holding company that derives substantially all of its revenues and income from the operation of its bank subsidiary, Prosperity Bank (the “Bank,” and together with Bancshares, the “Company”). The Bank provides a wide array of financial products and services to businesses and consumers throughout Texas and Oklahoma. As of June 30, 2026, the Bank operated 311 full-service banking locations: 62 in the Houston area, including The Woodlands; 36 in the South Texas area including Corpus Christi and Victoria; 61 in the Dallas/Fort Worth area; 21 in the East Texas area; 28 in the Central Texas area including Austin and San Antonio; 45 in the West Texas area including Lubbock, Midland-Odessa, Abilene, Amarillo and Wichita Falls; 15 in the Bryan/College Station area; 6 in the Central Oklahoma area; 8 in the Tulsa, Oklahoma area; 18 in the Central, South Texas and San Antonio areas doing business as American Bank and 11 in the San Antonio area doing business as Texas Partners Bank. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas, and its telephone number is (281) 269-7199. The Company’s website address is www.prosperitybankusa.com. Information contained on the Company’s website is not incorporated by reference into this quarterly report on Form 10-Q and is not part of this or any other report.
The Company generates the majority of its revenues from interest income on loans, service charges and fees on customer accounts and income from investment in securities. The revenues are partially offset by interest expense paid on deposits and other borrowings and noninterest expenses such as administrative and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is the Company’s largest source of revenue. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin.
Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continuous internal growth. The Company maintains separate data with respect to each banking center’s net interest income, efficiency ratio, deposit growth and loan growth for purposes of measuring its overall profitability. The Company also focuses on maintaining efficiency and stringent cost control practices and policies. The Company has centralized many of its critical operations, such as data processing and loan processing. Management believes that this centralized infrastructure can accommodate substantial additional growth and achieve necessary controls while enabling the Company to minimize operational costs through certain economies of scale. The Company also intends to continue to seek expansion opportunities. The Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For more information about the Company’s segment reporting, refer to Note 1 to the consolidated financial statements.
Total assets were $43.87 billion at June 30, 2026, compared with $38.46 billion at December 31, 2025, an increase of $5.41 billion or 14.1%. Total loans were $25.03 billion at June 30, 2026, compared with $21.81 billion at December 31, 2025, an increase of $3.22 billion or 14.8%. Total deposits were $32.60 billion at June 30, 2026, compared with $28.48 billion at December 31, 2025, an increase of $4.12 billion or 14.5%. Total shareholders’ equity was $8.31 billion at June 30, 2026, compared with $7.62 billion at December 31, 2025, an increase of $689.1 million or 9.0%.
RECENT ACQUISITIONS
Acquisition of American Bank Holding Corporation — On January 1, 2026, the Company completed the merger of American Bank Holding Corporation (“American”) into Bancshares and the subsequent merger of American’s wholly owned subsidiary American Bank, N.A. (“American Bank”) into the Bank (collectively, the “American Merger”). American Bank operated 18 banking offices and two loan production offices in South and Central Texas including its main office in Corpus Christi, and banking offices in San Antonio, Austin, Victoria and the greater Corpus Christi area including Port Aransas and Rockport and a loan production office in Houston, Texas.
Acquisition of Southwest Bancshares, Inc. — On February 1, 2026, the Company completed the merger of Southwest Bancshares, Inc. (“Southwest”) into Bancshares and the subsequent merger of Southwest’s wholly owned subsidiary Texas Partners Bank (“Texas Partners”), into the Bank (collectively, the “Southwest Merger”). Texas Partners operated 11 banking offices in Central Texas including its main office in San Antonio, and banking offices in the San Antonio area, Austin and the Hill Country.
36
SUBSEQUENT EVENT
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires the Company to establish accounting policies and make estimates that affect amounts reported in the consolidated financial statements. An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the consolidated financial statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. The Company’s accounting policies are described in detail in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity:
Business Combinations—Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”. A business combination occurs when the Company acquires net assets that constitute a business and obtains control over that business. Business combinations are effected through the transfer of consideration consisting of cash and/or common stock and are accounted for using the acquisition method. Accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values at the acquisition date. Determining the fair value of assets and liabilities, especially the loan portfolio, is a process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values becomes available. The results of operations of an acquired entity are included in the Company’s consolidated results from the acquisition date, and prior periods are not restated.
Allowance for Credit Losses—The allowance for credit losses is accounted for in accordance with FASB ASC Topic 326, “Financial Instruments-Credit Losses” (“CECL”), which uses an expected loss methodology that is referred to as the current expected credit loss methodology. CECL requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is an allowance available for losses on loans and held-to-maturity securities that is deducted from the amortized cost basis to estimate the net amount expected to be collected. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. All losses are charged to the allowance when the loss actually occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery.
The Company’s allowance for credit losses consists of two elements: (1) specific valuation allowances based on expected losses on impaired loans and certain purchased credit deteriorated loans (“PCD”) loans; and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, two-year reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company. Based on an evaluation of the portfolio, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers factors such as historical lifetime loan loss experience, the amount of nonperforming assets and related collateral, the volume, growth and composition of the portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the portfolio through its internal loan review process and other relevant factors. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Charge-offs occur when loans are deemed to be uncollectible. Based on this evaluation, management has established an allowance for credit losses that it believes is management’s best estimate of current expected credit losses in the Company’s loan portfolio.
37
The Company evaluates all restructurings, including restructurings for borrowers experiencing financial difficulty, to determine whether they result in a new loan or a continuation of an existing loan. In accordance with CECL, the Company only establishes a specific reserve for modifications of loans made to borrowers experiencing financial difficulty when the loan is identified as impaired. The effect of most modifications of loans made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The Company adjusts the terms of loans for certain borrowers when it believes such changes will help its customers manage their loan obligations and increase the collectability of the loans. Modifications of loans made to borrowers experiencing financial difficulty may include but are not limited to changes in committed loan amount, interest rate, amortization, note maturity, borrower, guarantor, collateral, forbearance, forgiveness of principal or interest, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The approval of modifications of loans for borrowers experiencing financial difficulty are handled on a case-by-case basis. For further discussion of the methodology used in the determination of the allowance for credit losses on loans, see “Accounting for Acquired Loans and the Allowance for Acquired Credit Losses” below and “Financial Condition—Allowance for Credit Losses on Loans” below.
Accounting for Acquired Loans and the Allowance for Acquired Credit Losses—The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity are recorded at their fair values at the acquisition date. The fair value estimates associated with acquired loans, based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
On January 1, 2026, the Company adopted ASU 2025-08 that updates the accounting for purchased loans under ASC 326. Under ASU 2025-08, loans acquired without credit deterioration (“Non-PCD” loans) and deemed “seasoned” will now be considered purchased seasoned loans (“PSLs”) and accounted for using the gross-up approach at acquisition, which was formerly applicable only to PCD assets. PSLs include all loans acquired in a business combination that do not have “more-than-insignificant” deterioration of credit quality since origination. Under ASU 2025-08, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized costs basis, thereby eliminating the immediate recognition of day-one credit loss expense previously required for Non-PCD loans. For further discussion of the methodology used in the determination of the allowance for credit losses for acquired loans, see “Financial Condition—Allowance for Credit Losses on Loans” below. For further discussion of the Company’s acquisition and loan accounting, see Note 5 to the consolidated financial statements.
RESULTS OF OPERATIONS
For the quarter ended June 30, 2026, net income available to common shareholders was $168.6 million or $1.67 per diluted common share compared with $135.2 million or $1.42 for the same period in 2025. Net income and net income per diluted common share for the second quarter of 2026 was primarily impacted by an increase in net interest income and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million, partially offset by an increase in noninterest expenses related to the American and Southwest operations and an increase in provision for income taxes. The Company posted annualized returns on average common equity of 8.14% and 7.13%, annualized returns on average assets of 1.55% and 1.41% and efficiency ratios of 45.99% and 44.80% for the quarters ended June 30, 2026, and 2025, respectively. The efficiency ratio is calculated by dividing total noninterest expense (excluding net gains and losses on the sale, write-down or write-up of assets and securities) by the sum of net interest income and noninterest income. Because the ratio is a measure of revenues and expenses resulting from the Company’s lending activities and fee-based banking services, net gains and losses on the sale, write-up or write-down of assets and securities are not included. Additionally, taxes are not part of this calculation.
For the six months ended June 30, 2026, net income available to common shareholders was $284.9 million or $2.84 per diluted common share compared with $265.4 million or $2.79 for the six months ended June 30, 2025. Net income and net income per diluted common share for the six months ended June 30, 2026, were impacted by the American Merger and the Southwest Merger, merger related expenses of $43.3 million and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million. The Company posted annualized returns on average common equity of 6.93% and 7.03%, annualized returns on average assets of 1.33% and 1.37% and efficiency ratios of 52.44% and 45.26% for the six months ended June 30, 2026, and 2025, respectively.
Net Interest Income
The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.”
38
For the Three Months Ended June 30, 2026
Net interest income before the provision for credit losses was $330.6 million for the quarter ended June 30, 2026, an increase of $62.8 million or 23.5% compared with $267.7 million for the same period in 2025. The net interest margin on a tax-equivalent basis was 3.47% for the quarter ended June 30, 2026, an increase of 29 basis points compared with 3.18% for the same period in 2025. The changes to both measures were primarily due to the repricing of assets, a decrease in the average balance and average rate on other borrowings and the impact of the American Merger and the Southwest Merger.
Interest income on loans was $369.6 million for the quarter ended June 30, 2026, an increase of $44.1 million or 13.5% compared with $325.5 million for the same period in 2025. Interest income on securities was $81.2 million for the quarter ended June 30, 2026, an increase of $23.4 million or 40.4% compared with $57.8 million for the same period in 2025. The changes for both were primarily due to the repricing of assets and the impact of the American Merger and the Southwest Merger.
Average interest-bearing liabilities were $24.29 billion for the quarter ended June 30, 2026, an increase of $3.26 billion or 15.5% compared with $21.03 billion for the same period in 2025. The increase was primarily due to the American Merger and the Southwest Merger, partially offset by the decrease in other borrowings. The average rate on interest-bearing liabilities was 2.13% for the quarter ended June 30, 2026, a decrease of 25 basis points compared with 2.38% for the same period in 2025.
For the Six Months Ended June 30, 2026
Net interest income before the provision for credit losses was $651.7 million for the six months ended June 30, 2026, an increase of $118.6 million or 22.2% compared with $533.1 million for the same period in 2025. The net interest margin on a tax-equivalent basis was 3.49% for the six months ended June 30, 2026, an increase of 33 basis points compared with 3.16% for the six months ended June 30, 2025. The changes for both measures were primarily due to the repricing of assets, the impact of the American Merger and the Southwest Merger and a decrease in the average balance and average rate on other borrowings.
Interest income on loans was $731.3 million for the six months ended June 30, 2026, an increase of $86.8 million or 13.5% compared with $644.5 million for the same period in 2025. Interest income on securities was $151.7 million for the six months ended June 30, 2026, an increase of $36.0 million or 31.1% compared with $115.7 million for the same period in 2025. The changes for both were primarily due to the repricing of assets and the impact of the American Merger and the Southwest Merger.
Average interest-bearing liabilities were $23.92 billion for the six months ended June 30, 2026, an increase of $2.58 billion or 12.1% compared with $21.34 billion for the same period in 2025. The increase was primarily due to the American Merger and the Southwest Merger, partially offset by a decrease in other borrowings. The average rate on interest-bearing liabilities was 2.10% for the six months ended June 30, 2026, a decrease of 29 basis points compared with 2.39% for the same period in 2025.
The following tables present, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities and the resultant rates. Except as indicated in the footnotes, no tax-equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables as loans carrying a zero yield.
Average Outstanding Balance
Interest Earned/Paid
Average Yield/Rate (1)
Interest-Earning Assets:
17,858
281
6.31
9,813
166
6.79
23,750,036
350,967
5.93
20,907,400
306,671
5.88
1,316,645
18,326
5.58
1,179,307
18,653
6.34
25,084,539
5.91
22,096,520
Investment securities
12,258,188
2.66
10,867,856
2.13
969,502
3.61
841,933
4.50
Total interest-earning assets
38,312,229
4.81
33,806,309
4.66
Allowance for credit losses on loans
(383,281
(348,310
Noninterest-earning assets
5,508,187
4,933,215
Total assets
43,437,135
38,391,214
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits
6,135,720
15,093
0.99
4,807,864
8,859
Savings and money market deposits
10,928,333
53,661
1.97
8,944,897
45,796
2.05
Certificates and other time deposits
4,787,401
38,330
3.21
4,366,510
39,135
3.59
2,174,506
3.71
2,717,583
4.44
194,250
2.10
194,577
2.37
70,408
4.25
Total interest-bearing liabilities
24,290,618
21,031,431
2.38
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits
10,561,142
9,508,845
259,201
227,002
35,148,607
30,804,924
Shareholders' equity
8,288,528
7,586,290
Total liabilities and shareholders' equity
Net interest rate spread
2.68
2.28
Net interest income and margin (2) (3)
3.46
3.18
Net interest income and margin (tax equivalent) (4)
331,130
3.47
268,296
16,834
519
6.22
8,698
293
23,610,945
695,563
5.94
20,933,170
611,739
5.89
1,262,533
35,248
5.63
1,028,534
32,481
6.37
24,890,312
21,970,402
5.92
11,866,153
2.58
10,942,215
996,109
3.69
1,140,915
4.48
37,752,574
34,053,532
4.65
(356,855
(349,506
5,435,129
4,967,987
42,830,848
38,672,013
6,199,301
29,086
0.95
5,015,178
17,878
0.72
10,757,523
104,380
1.96
8,975,919
91,441
4,808,748
77,855
3.26
4,396,350
80,068
3.67
1,899,061
3.70
2,746,961
4.45
186,030
2.08
206,197
2.43
67,059
4.36
23,917,722
21,340,605
2.39
10,412,431
9,506,704
37,857
238,470
240,789
34,606,480
31,125,744
8,224,368
7,546,269
2.71
2.26
3.48
3.16
652,855
3.49
534,265
41
The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes in interest income and interest expense related to purchase accounting adjustments and changes attributable to both rate and volume which cannot be segregated have been allocated to rate.
2026 vs. 2025
Increase
(Decrease)
Due to Change in
Volume
Rate
136
(21
115
274
(48
226
Loans held for investment (1)
41,696
44,296
78,254
5,570
83,824
2,172
(2,499
(327
(4,623
2,767
Investment securities (1)
7,399
15,965
23,364
9,771
26,238
36,009
1,430
(2,149
(719
(3,215
(3,912
(7,127
Total increase in interest income
52,833
13,896
66,729
92,474
23,225
115,699
3,787
6,234
4,221
6,987
11,208
10,155
(2,290
7,865
18,150
(5,211
12,939
Certificates and other time deposits (1)
3,772
(4,577
(805
7,511
(9,724
(2,213
(6,015
(3,992
(10,007
(18,703
(7,013
(25,716
(130
(132
(243
(321
(564
Total increase (decrease) in interest expense
11,103
(7,202
3,901
12,385
(15,282
(2,897
Increase in net interest income
41,730
21,098
62,828
80,089
38,507
118,596
Provision for Credit Losses
Management actively monitors the Company’s asset quality and provides specific loss provisions when necessary. Provisions for credit losses are charged to income to bring the total allowance for credit losses on loans and off-balance sheet credit exposures to a level deemed appropriate by management of the Company based on such factors as historical lifetime credit loss experience, the amount of nonperforming loans and related collateral, the volume growth and composition of the loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the loan portfolio through the internal loan review process and other relevant factors.
Loans are charged off against the allowance for credit losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations.
Net charge-offs were $2.2 million for the quarter ended June 30, 2026, compared with net charge-offs of $3.0 million for the quarter ended June 30, 2025. For the three months ended June 30, 2026, net charge-offs included $962 thousand related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. For the three months ended June 30, 2026, $10.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
42
Noninterest Income
The Company’s primary sources of recurring noninterest income are credit, debit and ATM card income, nonsufficient funds fees and service charges on deposit accounts. Additionally, the Company generates recurring noninterest income from its various additional products and services, including trust services, mortgage lending, brokerage and independent sales organization sponsorship operations. Noninterest income does not include loan origination fees, which are recognized over the life of the related loan as an adjustment to yield using the interest method.
Noninterest income totaled $60.7 million for the three months ended June 30, 2026, compared with $43.0 million for the same period in 2025, an increase of $17.7 million or 41.2%. Noninterest income totaled $107.2 million for the six months ended June 30, 2026, compared with $84.3 million for the six months ended June 30, 2025, an increase of $22.9 million or 27.2%. The change for both periods was primarily due to the American Merger and Southwest Merger and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million.
The following table presents, for the periods indicated, the major categories of noninterest income:
Nonsufficient funds fees
Bank owned life insurance income
2,476
1,985
5,074
11,365
7,243
18,123
15,498
Noninterest Expense
Noninterest expense totaled $176.2 million for the three months ended June 30, 2026, compared with $138.6 million for the same period in 2025, an increase of $37.6 million or 27.1%, which was primarily due to an increase in salaries and benefits and an increase in additional expenses related to three months of American and Southwest operations. Noninterest expense totaled $393.5 million for the six months ended June 30, 2026, compared with $278.9 million for the six months ended June 30, 2025, an increase of $114.6 million or 41.1%, primarily due to an increase in merger related expenses of $43.3 million, an increase in salaries and benefits and an increase in additional expenses related to six months of American operations and five months of Southwest operations.
The following table presents, for the periods indicated, the major categories of noninterest expense:
Salaries and employee benefits (1)
Non-staff expenses:
Communications (2)
Net other real estate expense (3)
Income Taxes
The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of nondeductible expenses. Income tax expense totaled $46.5 million for the three months ended June 30, 2026, compared with $37.0 million for the same period in 2025, an increase of $9.5 million or 25.7%. Income tax expense totaled $80.6 million for the six months ended June 30, 2026, compared with $73.1 million for the same period in 2025, an increase of $7.4 million or 10.2%. The Company’s effective tax rate for the three months ended June 30, 2026, and 2025 was 21.6% and 21.5%, respectively. The Company’s effective tax rate for the six months ended June 30, 2026, and 2025 was 22.0% and 21.6%, respectively.
Enactment of the One Big Beautiful Bill Act — On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB Act”), which included certain modifications to U.S. tax law, was enacted. The Company has completed its initial evaluation of the provisions of the OBBB Act and has concluded that it did not have a material impact on the Company's income tax provision for the six months ended June 30, 2026 and year ended December 31, 2025.
FINANCIAL CONDITION
Loan Portfolio
The Company separates its loan portfolio into two general categories of loans: (1) “originated loans,” which are loans originated by the Company and made pursuant to the Company’s loan policy and procedures in effect at the time the loan was made, and (2) “acquired loans,” which are loans acquired in a business combination and recorded at fair value at acquisition date. Those acquired loans that are renewed or substantially modified after the date of the business combination are referred to as “re-underwritten acquired loans.” If a renewal or substantial modification of an acquired loan is underwritten by the Company with a new credit analysis, the loan may no longer be categorized as an acquired loan. For example, acquired loans to one borrower may be combined into a new loan with a new loan number and categorized as an originated loan. Acquired loans with a fair value discount or premium at the date of the business combination that remained at the reporting date are referred to as “fair-valued acquired loans.” All
fair-valued acquired loans are further categorized into PCD loans and PSLs. Acquired loans with evidence of credit quality deterioration as of the acquisition date when compared to the origination date are classified as PCD loans.
The following tables summarize the Company’s originated and acquired loan portfolios broken out into originated loans, re-underwritten acquired loans, PSLs and PCD loans, as of the dates indicated.
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
PSLs
1,850,475
565,391
781,234
Warehouse purchase program
2,389,000
211,114
486,853
7,355,234
184,249
1,036,110
4,664,831
485,679
1,885,454
582,782
24,364
76,197
22,525
276,302
75,225
2,696
6,031
326,177
19,650
64,868
Total loans held for investment
18,734,957
1,565,672
25,009,342
18,753,613
1,640,519
529,002
101,750
32,665
2,468,830
181,271
46,132
45,222
7,513,090
185,707
555,827
5,858
4,483,549
405,063
705,206
182,579
558,958
19,240
62,081
21,752
273,192
81,208
4,821
6,652
320,003
50,788
5,435
18,562,939
1,452,279
21,791,213
18,577,094
At June 30, 2026, total loans were $25.03 billion, an increase of $3.22 billion or 14.8% compared with $21.81 billion at December 31, 2025. Loans at June 30, 2026, included $18.7 million of loans held for sale and $1.29 billion of Warehouse Purchase Program loans compared with $14.2 million of loans held for sale and $1.30 billion of Warehouse Purchase Program loans at December 31, 2025. At June 30, 2026, loans represented 57.0% of total assets compared with 56.7% of total assets at December 31, 2025.
The loan portfolio consists of various types of loans categorized by major type as follows:
(i) Commercial and Industrial Loans. In nearly all cases, the Company’s commercial loans are made in the Company’s market areas and are underwritten based on the borrower’s ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. As a general practice, term loans are secured by any available real estate, equipment or other assets owned by the borrower. Both working capital and term loans are typically supported by a personal guaranty of a principal. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these loans as well as the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.
Included in commercial and industrial loans are (1) commitments to oil and gas producers largely secured by proven, developed and producing reserves and (2) commitments to service, equipment and midstream companies secured mainly by accounts receivable, inventory and equipment. Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party and verified by the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.
(ii) Commercial Real Estate. The Company makes commercial real estate loans collateralized by owner-occupied and nonowner-occupied real estate to finance the purchase of real estate. The Company’s commercial real estate loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed rates) and amortize over a 15- to 25-year period. Payments on loans secured by nonowner-occupied properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition, in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the financial condition of the borrower and guarantor. Loans to hotels and restaurants are included in commercial real estate loans.
(iii) 1-4 Family Residential Loans. The Company’s lending activities also include the origination of 1-4 family residential mortgage loans (including home equity loans) collateralized by owner-occupied and nonowner-occupied residential properties located in the Company’s market areas. The Company offers a variety of mortgage loan portfolio products which generally are amortized over five to 30 years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value. The Company requires mortgage title insurance, as well as hazard, wind and/or flood insurance as appropriate. The Company prefers to retain residential mortgage loans for its own account rather than selling them into the secondary market. By doing so, the Company incurs interest rate risk as well as the risks associated with non-payments on such loans. The Company’s mortgage department also offers a variety of mortgage loan products which are generally amortized over 30 years, including FHA and VA loans, which are sold to secondary market investors.
(iv) Construction, Land Development and Other Land Loans. The Company makes loans to finance the construction of residential and nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have variable interest rates. The Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Company’s construction lending activities, with heightened analysis of construction and/or development costs. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, the Company may not be able to recover all of the unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Although the Company has underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction lending, these procedures may not prevent losses from the risks described above.
(v) Warehouse Purchase Program. The Warehouse Purchase Program allows unaffiliated mortgage originators (“Clients”) to close 1-4 family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors. The Company’s Clients are strategically targeted for their experienced management teams and analyzed for the expected profitability of each Client’s business model over the long term. The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards as required by United States government-sponsored enterprise agencies, such as the Federal National Mortgage Association (“Fannie Mae”) and private investors to which the mortgage loans are ultimately sold and/or mortgage insurers.
Although not subject to any legally binding commitment, when the Company makes a purchase decision, it acquires a 100% participation interest in the mortgage loans originated by its Clients. Individual mortgage loans are warehoused in the Company’s portfolio only for a short duration, averaging less than 30 days. When instructed by a Client that a warehoused loan has been sold to an investor, the Company delivers the note to the investor that pays the Company, which in turn remits the net sales proceeds to the Client.
(vi) Agriculture Loans. The Company provides agriculture loans for short-term livestock and crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture borrowers primarily based on their historical profitability, level of experience in their particular industry segment, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks.
(vii) Consumer Loans. Consumer loans made by the Company include direct “A”-credit automobile loans, recreational vehicle loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 180 months and vary based upon the nature of collateral and size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, personal bankruptcy or death. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, accruing loans 90 days or more past due, repossessed assets and real estate which has been acquired through foreclosure and is awaiting disposition.
The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
Nonperforming assets decreased $20.3 million to $130.6 million at June 30, 2026, compared with $150.8 million at December 31, 2025.
The following tables present information regarding nonperforming assets differentiated among originated loans, re-underwritten acquired loans, PSLs and PCD loans, as of the dates indicated:
80,728
2,140
7,210
26,833
1,729
494
82,457
2,634
7,347
6,344
936
4,016
88,810
8,283
30,849
0.17
0.19
8.13
0.51
0.43
0.14
7.15
0.46
95,816
19,208
6,016
16,177
96,133
8,845
395
4,056
104,978
6,423
20,233
0.56
1.32
6.77
0.61
0.41
5.49
Nonperforming assets were 0.52% of total loans and other real estate at June 30, 2026, and 0.69% of total loans and other real estate at December 31, 2025. The allowance for credit losses on loans as a percentage of total nonperforming loans was 321.0% at June 30, 2026, and 242.7% at December 31, 2025.
48
Allowance for Credit Losses on Loans
Management has established an allowance for credit losses on loans that it believes is management’s best estimate of current expected losses on the Company’s loan portfolio as of June 30, 2026. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses.
The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, (4) provision releases returned to earnings that decrease the allowance, and (5) increases in reserves related to acquired loans. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.
The Company’s allowance for credit losses on loans consists of two components: (1) a specific valuation allowance based on expected lifetime losses on specifically identified loans and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, two-year reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company.
In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan. The specific reserves are determined on an individual loan basis. Loans for which specific reserves are provided are excluded from the general valuation allowance described below.
In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to cover expected losses in other categories.
A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired and PCD loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans.
Changes in the Company’s asset quality are reflected in the allowance in several ways. Specific reserves that are calculated on a loan-by-loan basis and the qualitative assessment of all other loans reflect current changes in the credit quality of the loan portfolio. Historical lifetime credit losses, on the other hand, are based on an open-pool (“cumulative loss rate”) methodology, which is then applied to estimate lifetime credit losses in the loan portfolio. A deterioration in the credit quality of the loan portfolio in the current period would increase the historical lifetime loss rate to be applied in future periods, just as an improvement in credit quality would decrease the historical lifetime loss rate.
49
The allowance for credit losses is further determined by the size of the loan portfolio subject to the allowance methodology and environmental factors that include Company-specific risk indicators and general economic conditions, both of which are constantly changing. The Company evaluates the economic and portfolio-specific factors on a quarterly basis to determine a qualitative component of the general valuation allowance. The factors include current economic metrics, two-year reasonable and supportable forecasted economic metrics, business conditions, delinquency trends, credit concentrations, nature and volume of the portfolio and other adjustments for items not covered by specific reserves and historical lifetime loss experience. Management’s assessment of qualitative factors is a statistically based approach to determine the loss rate adjustment associated with such factors. Based on the Company’s actual historical lifetime loan loss experience relative to economic and loan portfolio-specific factors at the time the losses occurred, management is able to identify the expected level of lifetime losses as of the date of measurement. The correlation of historical loss experience with current and forecasted economic conditions provides an estimate of lifetime losses that has not been previously factored into the general valuation allowance by the determination of specific reserves and lifetime historical losses. Additionally, the Company considers qualitative factors not easily quantified and the possibility of model imprecision.
Utilizing the aggregation of specific reserves, historical loss experience and a qualitative component, management is able to determine the valuation allowance to reflect the full lifetime loss.
The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity are recorded at their fair values at the acquisition date. These fair value estimates associated with acquired loans, and based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
PSLs that were not deemed impaired subsequent to the acquisition date are considered non-impaired and are evaluated as part of the general valuation allowance.
PSLs that have deteriorated to an impaired status subsequent to acquisition are evaluated for a specific reserve on a quarterly basis which, when identified, is added to the allowance for credit losses. The Company reviews impaired PSLs on a loan-by-loan basis and determines the specific reserve based on the difference between the recorded investment in the loan and one of three factors: expected future cash flows, observable market price or fair value of the collateral. Because essentially all of the Company’s impaired PSLs have been collateral-dependent, the amount of the specific reserve historically has been determined by comparing the fair value of the collateral securing the PSL with the recorded investment in such loan. In the future, the Company will continue to analyze impaired PSLs on a loan-by-loan basis and may use an alternative measurement method to determine the specific reserve, as appropriate and in accordance with applicable accounting standards.
PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans may be required. PCD loans were recorded at their acquisition date fair values based on expected cash flows with a reserve established for the estimate of expected future cash flows. The Company’s estimates of loan fair values at the acquisition date may be adjusted for a period of up to one year as the Company continues to evaluate its estimate of expected future cash flows at the acquisition date. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses.
As described in the section captioned “Critical Accounting Estimates” above, the Company’s determination of the allowance for credit losses involves a high degree of judgment and complexity. The Company’s analysis of qualitative, or environmental, factors on pools of loans with common risk characteristics, in combination with the quantitative historical lifetime loss information and specific reserves, provides the Company with an estimate of lifetime losses. The allowance must reflect changes in the balance of loans subject to the allowance methodology, as well as the estimated lifetime losses associated with those loans.
On January 1, 2026, the Company adopted ASU 2025-08 that updates the accounting for purchased loans under ASC 326. Under ASU 2025-08, Non-PCD loans deemed “seasoned” will now be considered PSLs and accounted for using the gross-up approach at acquisition, which was formerly applicable only to PCD loans. PSLs include all loans acquired in a business combination that do not have “more-than-insignificant” deterioration of credit quality since origination. Under ASU 2025-08, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized costs basis, thereby eliminating the immediate recognition of day-one credit loss expense previously required for Non-PCD loans. Accordingly, the initial estimate of expected credit losses recognized in the allowance for credit losses on loans on the American Merger and the Southwest Merger included both PCD loans and PSLs. For the American Merger, the Company recorded an allowance for credit losses on loans of $47.5 million, which included a $27.5 million allowance on PCD loans and a $20.0 million allowance on PSLs. For the Southwest Merger, the Company recorded an allowance for credit losses on loans of $45.1 million, which included a $25.8 million allowance on PCD loans and a $19.3 million allowance on PSLs.
The following tables present, as of and for the periods indicated, information regarding the allowance for credit losses on loans differentiated between originated loans and acquired loans. Reported net charge-offs may include those from PSLs and PCD loans, but only if the total charge-off required is greater than the remaining discount.
As of and for the Six Months Ended June 30, 2026
Average loans outstanding
19,484,380
5,405,932
Gross loans outstanding at end of period
6,274,385
Allowance for credit losses on loans at beginning of period
231,282
102,460
Initial allowance on loans purchased with credit deterioration
Initial allowance on loans purchased seasoned loans(1)
16,440
(16,440
Charge-offs:
(31,297
(11,160
Real estate and agriculture
(1,351
(341
(1,692
(3,480
(167
Recoveries:
1,202
644
102
1,469
754
133
Net charge-offs (2)
(34,070
(9,422
Allowance for credit losses on loans at end of period
213,652
169,189
Ratio of allowance to end of period loans
1.14
2.70
1.53
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program
1.22
1.61
Ratio of net charge-offs (recoveries) to average loans (annualized)
0.35
Ratio of allowance to end of period nonperforming loans
259.1
459.6
321.0
Ratio of allowance to end of period nonaccrual loans
264.7
467.6
327.5
As of and for the Six Months Ended June 30, 2025
18,064,360
3,906,042
18,628,762
3,568,626
22,197,388
227,238
124,567
13,748
(13,748
(2,411
(166
(1,673
(413
(2,086
(3,286
(216
515
688
267
366
633
551
(6,037
316
234,949
111,135
1.26
3.11
1.56
1.35
1.66
0.07
(0.02
%)
0.05
454.5
218.3
337.3
456.7
219.7
339.2
The Company had gross charge-offs on originated loans of $36.1 million during the six months ended June 30, 2026. Partially offsetting these charge-offs were recoveries on originated loans of $2.1 million. Gross charge-offs on acquired loans were $11.7 million during the six months ended June 30, 2026. Offsetting these charge-offs were recoveries on acquired loans of $2.2 million. Total charge-offs for the six months ended June 30, 2026, were $47.8 million, partially offset by total recoveries of $4.3 million.
The following table shows the allocation of the net charge-offs and net recoveries among various categories of loans as of the dates indicated.
Ratio of Net Charge-offs (Recoveries) to Average Loans (Annualized)
Balance of net (charge-offs) recoveries applicable to:
0.32
0.01
0
0.00
1-4 family residential (including home equity)
Commercial real estate (including multi-family residential)
(0.01
Agriculture (includes farmland)
0.02
0.03
Total net (charge-offs) recoveries
The following tables show the allocation of the allowance for credit losses on loans among various categories of loans disaggregated between originated loans, re-underwritten acquired loans, PSLs and PCD loans at the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to cover expected losses from any loan category, regardless of whether allocated to an originated loan or an acquired loan.
TotalAllowance
Percent of Loans to Total Loans(1)
Balance of allowance for credit losses on loans applicable to:
39,136
16,903
17,478
30,672
13.9
Real estate
156,977
11,065
35,679
41,252
244,973
79.9
Agriculture and agriculture real estate
9,964
1,895
597
11,291
4.5
7,575
361
881
1.7
Total allowance for credit losses on loans
30,224
54,869
84,096
100.0
45,778
24,461
2,267
5,433
11.2
168,799
10,279
12,813
31,773
223,664
81.9
9,724
2,005
543
11,166
5.0
6,981
1,636
1.9
38,381
15,704
48,375
52
The allowance for credit losses on loans totaled $382.8 million at June 30, 2026, compared with $333.7 million at December 31, 2025, an increase of $49.1 million or 14.7%. The allowance for credit losses on loans totaled 1.53% of total loans at both June 30, 2026 and December 31, 2025.
At June 30, 2026, $213.7 million of the allowance for credit losses on loans was attributable to originated loans, a decrease of $17.6 million or 7.6% compared with $231.3 million of the allowance at December 31, 2025. At June 30, 2026, $30.2 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $38.4 million of the allowance at December 31, 2025, a decrease of $8.2 million or 21.3%. At June 30, 2026, $54.9 million of the allowance for credit losses on loans was attributable to PSLs compared with $15.7 million of the allowance at December 31, 2025, an increase of $39.2 million or 249.4%. At June 30, 2026, $84.1 million of the allowance for credit losses on loans was attributable to PCD loans compared with $48.4 million of the allowance at December 31, 2025, an increase of $35.7 million or 73.8%.
At June 30, 2026, the Company had $73.2 million of total outstanding accretable discounts on PSLs and PCD loans. The Company believes that the allowance for credit losses on loans at June 30, 2026, is adequate to cover expected losses that may be realized from the loan portfolio as of such date. Nevertheless, the Company could sustain losses in future periods, which losses could be substantial in relation to the size of the allowance at June 30, 2026.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancelable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of June 30, 2026, and December 31, 2025, the Company had $37.6 million in allowance for credit losses on off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet.
The carrying cost of securities totaled $12.34 billion at June 30, 2026, compared with $10.61 billion at December 31, 2025, an increase of $1.73 billion or 16.3%. At June 30, 2026, securities represented 28.1% of total assets compared with 27.6% of total assets at December 31, 2025.
53
The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under CECL.
Available for sale securities. For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairment loss (“credit loss”) and the noncredit portion of the impairment loss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis, and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.
As of June 30, 2026, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2026, management believes that there is no potential for credit losses on available for sale securities.
Held to maturity securities. The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Fannie Mae or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae-issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae- and Freddie Mac-issued securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of June 30, 2026, the Company’s municipal securities represent 1.0% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Accordingly, as of June 30, 2026, management believes that there is no potential for material credit losses on held to maturity securities.
54
Total deposits were $32.60 billion at June 30, 2026, compared with $28.48 billion at December 31, 2025, an increase of $4.12 billion or 14.5%. Total noninterest-bearing deposits were $10.74 billion at June 30, 2026, compared with $9.47 billion at December 31, 2025, an increase of $1.27 billion or 13.4%. Interest-bearing deposits were $21.86 billion at June 30, 2026, compared with $19.01 billion at December 31, 2025, an increase of $2.85 billion or 15.0%.
Average deposits for the six months ended June 30, 2026, were $32.18 billion, an increase of $4.28 billion or 15.4% compared with $27.89 billion for the six months ended June 30, 2025. The ratio of average interest-bearing deposits to total average deposits was 67.6% and 65.9% during the first six months of 2026 and 2025, respectively.
The following table summarizes the daily average balances and weighted average rates paid on deposits for the periods indicated below:
Average Balance
Average Rate (1)
Regular savings
2,701,022
2,672,948
0.71
Money market savings
8,056,501
2.44
6,302,971
2.63
Certificates, IRAs and other time deposits
Total interest-bearing deposits
21,765,572
18,387,447
32,178,003
27,894,151
1.37
Borrowings and Subordinated Debt
The following table presents the Company’s borrowings as of the dates indicated:
FHLB advances
Subordinated notes - Fixed to floating rate notes maturing on December 29, 2031
35,000
Subordinated notes - Fixed to floating rate notes maturing on June 15, 2032
2,669,576
2,151,216
FHLB advances and long-term notes payable— The Company has an available line of credit with the Federal Home Loan Bank of Dallas (“FHLB”), which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At June 30, 2026, the Company had total borrowing capacity of $7.62 billion under this line. FHLB advances of $2.40 billion were outstanding at June 30, 2026, with a weighted average interest rate of 3.76%. At June 30, 2026, the Company had no FHLB long-term notes payable balance outstanding.
Securities sold under repurchase agreements— At June 30, 2026, the Company had $199.6 million in securities sold under repurchase agreements with banking customers compared with $201.2 million at December 31, 2025, a decrease of $1.6 million or 0.8%. Repurchase agreements are generally settled on the following business day. All securities sold under repurchase agreements are collateralized by certain pledged securities.
Junior Subordinated Debentures—On January 1, 2026, in connection with the American Merger, the Company assumed the obligation related to $6.2 million in Floating Rate Junior Subordinated Debentures and trust preferred securities (the “Debentures”) that mature in April 7, 2034. The Debentures, which qualify as Tier 2 capital for regulatory purposes, have a floating rate based on the three-month Term Secured Overnight Financing Rate (“SOFR”) plus 2.85%. In March 2026, the Company gave irrevocable notice of its intent to redeem the Debentures and they were redeemed on April 7, 2026.
Subordinated notes—On January 1, 2026, in connection with the American Merger, the Company assumed the obligations related to $35.0 million of Fixed-to-Floating Rate Subordinated Notes that mature on December 29, 2031. The subordinated notes, which qualify as Tier 2 capital for regulatory purposes, are payable quarterly in arrears at an annual floating rate equal to three-month term SOFR as determined for the applicable period, plus 2.50%. The Company may, at its option, beginning on the first repricing date and on any scheduled interest payment date thereafter, redeem the subordinated notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount being redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders. The subordinated notes are subordinated in right of payment to all of the Company’s existing and future senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company’s subsidiaries.
On February 1, 2026, in connection with the Southwest Merger, the Company assumed the obligations related to $35.0 million of Fixed-to-Floating Rate Subordinated Notes that mature on June 15, 2032. The subordinated notes, which qualify as Tier 2 capital for regulatory purposes, have a fixed rate of interest of 5.00% until 2027 followed by a floating rate interest based on three-month term SOFR plus 255 basis points. The Company may, at its option, beginning on June 15, 2027, and on any scheduled interest payment date thereafter, redeem the subordinated notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount being redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders. In addition, the Company may redeem all or portion of the subordinated notes at any time upon occurrence of a Tier 2 capital event, tax event or investment company event as defined in the agreement. The subordinated notes are subordinated in right of payment to all of the Company’s senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company’s subsidiaries.
Liquidity
As more fully discussed in the Company’s 2025 Form 10-K, liquidity involves the Company’s ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate the Company on an ongoing basis and manage unexpected events. The Company’s largest source of funds is deposits and its largest use of funds is loans. The Company does not expect a change in the source or use of its funds in the future.
The Company has an available line of credit with the FHLB, which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At June 30, 2026, the Company had total borrowing capacity of $7.62 billion under this line. FHLB advances of $2.40 billion were outstanding at June 30, 2026, with a weighted average interest rate of 3.76%. At June 30, 2026, the Company had no FHLB long-term notes payable balance outstanding.
The Company has the ability to borrow on a collateralized basis from the Federal Reserve Discount Window. The discount window allows depository institutions to manage liquidity on a short-term basis and borrowings are usually no longer than 90 days. As of June 30, 2026, the Company had $8.45 billion available in borrowings with no borrowings outstanding.
The Company has available access to purchase funds from correspondent banks, which has been utilized on occasion to take advantage of investment opportunities, however, the Company does not generally rely on this external funding source.
As of June 30, 2026, the Company had outstanding $5.03 billion in commitments to extend credit, $119.7 million in commitments associated with outstanding standby letters of credit and $879.8 million in commitments associated with unused capacity on Warehouse Purchase Program loans. Since commitments associated with letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
The Company has no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. As of June 30, 2026, the Company had cash and cash equivalents of $1.68 billion compared with $1.75 billion at December 31, 2025, a decrease of $64.5 million or 3.7%. The change was primarily due to an increase in net purchases of investment securities of $1.41 billion, a decrease in deposits of $255.1 million, payment of cash dividends of $121.0 million and repurchase of common stock of $70.8 million, partially offset by an increase in cash provided related to loans of $525.6 million, net cash provided by the American Merger and the Southwest Merger of $478.1 million, net proceeds from other short-term borrowings of $450.0 million, and net cash provided by operating activities of $347.5 million.
56
Share Repurchases
On January 26, 2026, Bancshares announced a stock repurchase program under which it could repurchase up to 5%, or approximately 4.9 million shares, of its outstanding common stock over a one-year period expiring on January 26, 2027, at the discretion of management. Under the stock repurchase program, Bancshares may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. Repurchases under this program may also be made in transactions outside the safe harbor during a pending merger, acquisition or similar transaction. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Shares of stock repurchased are held as authorized but unissued shares. Bancshares is not obligated to purchase any particular number of shares, and Bancshares may suspend, modify or terminate the program at any time and for any reason without prior notice. Bancshares repurchased approximately 200 thousand shares of its common stock at an average weighted price of $68.34 per share during the three months ended June 30, 2026, and approximately 1.04 million shares of its common stock at an average weighted price of $68.19 per share for a total of $70.8 million during the six months ended June 30, 2026.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial, and the Company has one sublease arrangement. Sublease income was $840 thousand and $750 thousand for the three months ended June 30, 2026, and 2025 and $1.7 million and $1.6 million for the six months ended June 30, 2026, and 2025, respectively. As of June 30, 2026, operating lease ROU assets and lease liabilities were approximately $31.4 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.
As of June 30, 2026, the weighted average of remaining lease terms of the Company’s operating leases was 4.8 years. The weighted average discount rate used to determine the lease liabilities as of June 30, 2026, for the Company’s operating leases was 2.7%. Cash paid for the Company’s operating leases was $3.8 million and $2.9 million for the three months ended June 30, 2026, and 2025, respectively, and $7.4 million and $5.9 million for each of the six months ended June 30, 2026, and 2025, respectively. During the six months ended June 30, 2026, the Company obtained $8.1 million in ROU assets in exchange for lease liabilities for ten operating leases, of which five were related to the American Merger and the Southwest Merger.
Allowance for Credit Losses on Off-balance Sheet Credit Exposures.
The Company records an allowance for credit losses on off-balance sheet credit exposure that is adjusted through an entry to provision for credit losses on the Company’s consolidated statement of income. At June 30, 2026, and December 31, 2025, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $37.6 million.
Capital Resources
Total shareholders’ equity was $8.31 billion at June 30, 2026, compared with $7.62 billion at December 31, 2025, an increase of $689.1 million or 9.0%. The increase was primarily the result of the common stock issuance in connection with the American Merger of $306.8 million, common stock issuance in connection with the Southwest Merger of $282.6 million, net income of $284.9 million and stock based compensation expense of $6.6 million, partially offset by dividend payments of $121.0 million and stock repurchase of $70.8 million.
The Basel III Capital Rules require the Company and the Bank to maintain a capital conservation buffer, composed entirely of common equity tier 1 capital (“CET1”), of 2.5%, effectively resulting in minimum ratios of (1) CET1 to risk-weighted assets of 7.0%, (2) Tier 1 capital to risk-weighted assets of 8.5%, (3) total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of 10.5% and (4) Tier 1 capital to average quarterly assets as reported on consolidated financial statements (known as the “leverage ratio”) of 4.0%.
The CET1, Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets include total assets, excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet arrangements. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, excluding goodwill and other intangible assets. A financial institution with a conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
Financial institutions are categorized by the FDIC based on minimum Common Equity Tier 1, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios. As of June 30, 2026, the Bank’s capital ratios were above the levels required for the Bank to be designated as “well capitalized.”
The following table provides a comparison of the Company’s and the Bank’s risk-weighted and leverage capital ratios to the minimum and well-capitalized regulatory standards as of June 30, 2026:
Minimum Required For Capital Adequacy Purposes
Minimum Required Plus Capital Conservation Buffer
To Be Categorized As Well Capitalized Under Prompt Corrective Action Provisions
Actual Ratio as of June 30, 2026
The Company
CET1 capital (to risk-weighted assets)
7.00
N/A
15.94
Tier 1 capital (to risk-weighted assets)
6.00
8.50
Total capital (to risk-weighted assets)
8.00
10.50
17.38
Tier 1 capital (to average assets) (leverage)
4.00
(1)
11.12
The Bank
6.50
15.24
10.00
16.46
(2)
5.00
10.64
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages market risk, which for the Company is primarily interest rate risk, through its Asset Liability Committee consisting of senior officers of the Company, in accordance with policies approved by the Company’s Board of Directors.
The Company uses simulation analysis to examine the potential effects of market changes on net interest income and market value. The Company considers macroeconomic variables, Company strategy, liquidity and other factors as it quantifies market risk. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Sensitivity and Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed on February 26, 2026, (the “2025 Form 10-K”), for further discussion. There have been no material changes in the Company’s market risk exposures that would affect the quantitative and qualitative disclosures from those disclosed in the 2025 Form 10-K and presented as of December 31, 2025.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.
Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
Bancshares and the Bank are defendants, from time to time, in legal actions arising from transactions conducted in the ordinary course of business. After consultations with legal counsel, Bancshares and the Bank believe that the ultimate liability, if any, arising from such actions will not have a material adverse effect on their financial statements.
ITEM 1A. RISK FACTORS
There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
a. None.
b. None.
c. The following table details the Company’s repurchases of shares of its common stock during the three months ended June 30, 2026:
Period
Total Number of Shares Purchased
Weighted Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Program
Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period (1)
April 1 - April 30, 2026
4,039,951
May 1 - May 31, 2026
50,000
69.04
3,989,951
June 1 - June 30, 2026
150,000
68.11
3,839,951
200,000
68.34
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
c. Insider Trading Arrangements and Policies.
During the three months ended June 30, 2026, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K) with respect to Bancshares common stock.
ITEM 6. EXHIBITS
Exhibit
Number
Description of Exhibit
2.1*
Agreement and Plan of Merger, dated as of January 27, 2026, by and between Prosperity Bancshares, Inc. and Stellar Bancorp, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 29, 2026 (File No. 001-35388))
3.1
Amended and Restated Articles of Incorporation of Prosperity Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Registration No. 333-63267) (the “Registration Statement”))
3.2
Articles of Amendment to Amended and Restated Articles of Incorporation of Prosperity Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 001-35388))
3.3
Amended and Restated Bylaws of Prosperity Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 20, 2019 (File No. 001-35388))
4.1
Form of certificate representing shares of Bancshares common stock (incorporated herein by reference to Exhibit 4 to the Registration Statement)
31.1**
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2**
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1***
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2***
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH**
Inline XBRL Taxonomy Extension Schema Document
101.CAL**
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase Document
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (formatted as Inline XBRL and contained in Exhibits 101)
* Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The Company hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
** Filed with this Quarterly Report on Form 10-Q.
*** Furnished with this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROSPERITY BANCSHARES, INC. ®
(Registrant)
Date: 8/6/2026
/S/ DAVID ZALMAN
David Zalman
Senior Chairman and Chief Executive Officer
/S/ ASYLBEK OSMONOV
Asylbek Osmonov
Chief Financial Officer