PROSPERITY BANCSHARES INC
For the period ended Dec 31, 2025. Filed Feb 26, 2026.
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FY2025 · Filed Feb 26, 2026
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Item 7. Results of Operations
Net Interest Income
The Company’s operating results depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, including securities and loans, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect 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.”
2025 versus 2024. Net interest income before the provision for credit losses for 2025 was $1.08 billion compared with $1.03 billion for 2024, an increase of $55.0 million or 5.4%. The change was primarily due to a decrease in the average balances and average rates on other borrowings and a decrease in the average rates on interest-bearing deposits, partially offset by a decrease in the average balances and average rates on federal funds sold and other earning assets, a decrease in the average balances on investment securities, a decrease in the average rates on loans and a decrease in loan discount accretion of $5.1 million. Interest income was $1.57 billion in 2025, a decrease of $53.4 million or 3.3% compared with 2024. Interest income on loans was $1.30 billion for 2025, a decrease of $17.7 million or 1.3% compared with 2024, primarily due to a decrease in the average rates on loans and a decrease in loan discount accretion of $5.1 million. The Company had $22.7 million of total outstanding net accretable discounts on Non-PCD loans and PCD loans at December 31, 2025. Interest income on securities was $230.7 million during 2025, a decrease of $16.0 million or 6.5% compared with 2024, primarily due to a decrease in the average balances on investment securities. Average interest-bearing liabilities decreased $1.32 billion or 5.9% during 2025 compared with 2024. The average rate on interest-bearing liabilities decreased from 2.69% to 2.34% during the same time period, resulting in a decrease in interest expense of $108.4 million. The total cost of funds decreased to 1.61% during 2025 compared to 1.87% during 2024.
Net interest margin, defined as net interest income divided by average interest-earning assets, was 3.22% on a tax equivalent basis for 2025, an increase of 29 basis points compared with 2.93% for 2024.
2024 versus 2023. Net interest income before the provision for credit losses for 2024 was $1.03 billion compared with $956.4 million for 2023, an increase of $70.1 million or 7.3%. The change was primarily due to an increase in the average balances and average rates on loans and on federal funds sold and other earning assets, an increase in loan discount accretion of $9.4 million and a decrease in the average balance and rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits. Interest income was $1.62 billion in 2024, an increase of $179.2 million or 12.4% compared with 2023. Interest income on loans was $1.31 billion for 2024, an increase of $164.2 million or 14.3% compared with 2023, primarily due to an increase in the average balances and average rates on loans. The Company had $35.2 million of total outstanding net accretable discounts on Non-PCD loans and PCD loans at December 31, 2024. Interest income on securities was $246.7 million during 2024, a decrease of $36.6 million or 12.9% compared with 2023, primarily due to a decrease in the average balances on investment securities. Average interest-bearing liabilities increased $699.4 million or 3.3% during 2024 compared with 2023. The average rate on interest-bearing liabilities increased from 2.27% to 2.69% during the same time period, resulting in an increase in interest expense of $109.1 million. The total cost of funds increased to 1.87% during 2024 compared to 1.54% during 2023.
Net interest margin, defined as net interest income divided by average interest-earning assets, was 2.93% on a tax equivalent basis for 2024, an increase of 15 basis points compared with 2.78% for 2023.
The following table presents, 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, expressed both in dollars and 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 table as loans carrying a zero yield.
| Years Ended December 31, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 · 2024 · 2023 | |||||||||||||||||||||||
| AverageOutstandingBalance · Interest Earned/Paid · Average Yield/Rate · AverageOutstandingBalance · Interest Earned/Paid · Average Yield/Rate · AverageOutstandingBalance(1) · Interest Earned/Paid · Average Yield/Rate | |||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||
| Loans held for sale | $9,215 | $608 | 6.60% | $7,603 | $522 | 6.87% | $6,508 | $452 | 6.95% | ||||||||||||||
| Loans held for investment | 20,829,523 | 1,224,368 | 5.88% | 20,973,042 | 1,242,836 | 5.93% | 19,754,541 | 1,089,743 | 5.52% | ||||||||||||||
| Loans held for investment - Warehouse Purchase Program | 1,134,031 | 70,498 | 6.22% | 973,206 | 69,804 | 7.17% | 815,853 | 58,801 | 7.21% | ||||||||||||||
| Total loans | 21,972,769 | 1,295,474 | 5.90% | 21,953,851 | 1,313,162 | 5.98% | 20,576,902 | 1,148,996 | 5.58% | ||||||||||||||
| Investment securities | 10,696,480 | 230,696 | 2.16% | 11,934,793 | 246,726 | 2.07% | 13,719,899 | 283,302 | 2.06% | ||||||||||||||
| Federal funds sold and other earning assets | 1,010,707 | 44,153 | 4.37% | 1,216,728 | 63,825 | 5.25% | 248,691 | 12,245 | 4.92% | ||||||||||||||
| Total interest-earning assets | 33,679,956 | 1,570,323 | 4.66% | 35,105,372 | 1,623,713 | 4.63% | 34,545,492 | 1,444,543 | 4.18% | ||||||||||||||
| Allowance for credit losses on loans | (345,158) | (344,167) | (314,350) | ||||||||||||||||||||
| Noninterest-earning assets | 4,946,200 | 4,839,630 | 4,741,815 | ||||||||||||||||||||
| Total assets | $38,280,998 | $39,600,835 | $38,972,957 | ||||||||||||||||||||
| Liabilities and Shareholders' Equity | |||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||
| Interest-bearing demand deposits | $4,873,634 | $35,917 | 0.74% | $4,900,189 | $35,342 | 0.72% | $5,150,049 | $19,554 | 0.38% | ||||||||||||||
| Savings and money market deposits | 8,996,090 | 183,146 | 2.04% | 8,949,010 | 194,317 | 2.17% | 9,129,845 | 168,184 | 1.84% | ||||||||||||||
| Certificates and other time deposits | 4,434,168 | 160,914 | 3.63% | 4,301,763 | 178,965 | 4.16% | 2,832,754 | 84,607 | 2.99% | ||||||||||||||
| Federal funds purchased and other borrowings | 2,389,589 | 104,234 | 4.36% | 3,802,910 | 181,640 | 4.78% | 4,008,616 | 206,323 | 5.15% | ||||||||||||||
| Securities sold under repurchase agreements | 196,205 | 4,620 | 2.35% | 257,171 | 6,954 | 2.70% | 389,313 | 9,404 | 2.42% | ||||||||||||||
| Subordinated debentures | — | — | — | — | — | — | 1,031 | 38 | 3.69% | ||||||||||||||
| Total interest-bearing liabilities | 20,889,686 | 488,831 | 2.34% | 22,211,043 | 597,218 | 2.69% | 21,511,608 | 488,110 | 2.27% | ||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||||||||
| Noninterest-bearing demand deposits | 9,501,997 | 9,683,980 | 10,224,241 | ||||||||||||||||||||
| Allowance for credit losses on off-balance sheet credit exposures | 37,646 | 37,134 | 33,271 | ||||||||||||||||||||
| Other liabilities | 246,359 | 363,607 | 253,047 | ||||||||||||||||||||
| Total liabilities | 30,675,688 | 32,295,764 | 32,022,167 | ||||||||||||||||||||
| Shareholders' equity | 7,605,310 | 7,305,071 | 6,950,790 | ||||||||||||||||||||
| Total liabilities and shareholders' equity | $38,280,998 | $39,600,835 | $38,972,957 | ||||||||||||||||||||
| Net interest rate spread | 2.32% | 1.94% | 1.91% | ||||||||||||||||||||
| Net interest income and margin(1) | $1,081,492 | 3.21% | $1,026,495 | 2.92% | $956,433 | 2.77% | |||||||||||||||||
| Net interest income and margin (tax equivalent)(2) | $1,083,677 | 3.22% | $1,029,678 | 2.93% | $960,073 | 2.78% | |||||||||||||||||
(1)
The net interest margin is equal to net interest income divided by average interest-earning assets.
(2)
In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates for the years ended December 31, 2025, 2024 and 2023.
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.
| Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2025 vs. 2024 · 2024 vs. 2023 | ||||||
| Increase(Decrease)Due to Change in | Increase(Decrease)Due to Change in | |||||
| Volume | Rate | Total | Volume | Rate | Total | |
| (Dollars in thousands) | ||||||
| Interest-earning assets: | ||||||
| Loans held for sale | $111 | $(25) | $86 | $76 | $(6) | $70 |
| Loans held for investment | (8,505) | (9,963) | (18,468) | 67,218 | 85,875 | 153,093 |
| Loans held for investment - Warehouse Purchase Program | 11,535 | (10,841) | 694 | 11,341 | (338) | 11,003 |
| Securities | (25,599) | 9,569 | (16,030) | (36,861) | 285 | (36,576) |
| Federal funds sold and other temporary investments | (10,807) | (8,865) | (19,672) | 47,664 | 3,916 | 51,580 |
| Total (decrease) increase in interest income | (33,265) | (20,125) | (53,390) | 89,438 | 89,732 | 179,170 |
| Interest-bearing liabilities: | ||||||
| Interest-bearing demand deposits | (192) | 767 | 575 | (949) | 16,737 | 15,788 |
| Savings and money market accounts | 1,022 | (12,193) | (11,171) | (3,331) | 29,464 | 26,133 |
| Certificates of deposit | 5,508 | (23,559) | (18,051) | 43,875 | 50,483 | 94,358 |
| Other borrowings | (67,505) | (9,901) | (77,406) | (10,588) | (14,095) | (24,683) |
| Securities sold under repurchase agreements | (1,649) | (685) | (2,334) | (3,192) | 742 | (2,450) |
| Subordinated debentures | — | — | — | (38) | — | (38) |
| Total (decrease) increase in interest expense | (62,816) | (45,571) | (108,387) | 25,777 | 83,331 | 109,108 |
| Increase in net interest income | $29,551 | $25,446 | $54,997 | $63,661 | $6,401 | $70,062 |
Provision for Credit Losses
The Company’s provision for credit losses is established through charges to income to bring the Company’s allowance for credit losses on loans and off-balance sheets credit exposures to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Allowance for Credit Losses” and “Financial Condition—Allowance for Credit Losses on Off-Balance Sheet Credit Exposures”. The allowance for credit losses on loans at December 31, 2025, was $333.7 million, or 1.53% of total loans and 1.63% of total loans excluding Warehouse Purchase Program loans. The allowance for credit losses on loans at December 31, 2024, was $351.8 million, or 1.59% of total loans and 1.67% of total loans excluding Warehouse Purchase Program loans. Acquired loans were recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected default rates, loss given defaults and recovery rates, with no carryover of any existing allowance for credit losses. The allowance for credit losses on off-balance sheet credit exposures was $37.6 million at December 31, 2025 and 2024. There was no provision for credit losses for the year ended December 31, 2025, compared with $9.1 million for the year ended December 31, 2024, and $18.5 million for the year ended December 31, 2023. The $9.1 million provision was due to loans acquired in the Lone Star Merger and consisted of a $7.9 million provision for credit losses on loans and a $1.2 million provision for credit losses on off-balance sheet credit exposures. The $18.5 million provision was made as a result of the loans acquired in the merger of First Bancshares of Texas, Inc., and consisted of a $12.0 million provision for credit losses on loans and a $6.5 million provision for credit losses on off-balance sheet credit exposures.
Net charge-offs for the years ended December 31, 2025, 2024 and 2023 were $18.1 million, $14.6 million and $38.0 million, respectively. For the year ended December 31, 2025, $18.9 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Noninterest Income
The Company’s primary sources of recurring noninterest income are credit, debit and ATM card income, nonsufficient funds (“NSF”) 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 and brokerage. 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. For the year ended December 31, 2025, noninterest income totaled $168.3 million, an increase of $2.5 million or 1.5%, compared with 2024. This increase was primarily due to increases in other noninterest income and service charges on deposit accounts, partially offset by a decrease in net gain on sale or write-up of securities.
For the year ended December 31, 2024, noninterest income totaled $165.8 million, an increase of $12.5 million or 8.2%, compared with 2023. This increase was primarily due to a gain on Visa Class B-1 stock exchange net of investment securities sales of $11.2 million and increases in service charges on deposit accounts, partially offset by a decrease in other noninterest income.
The following table presents, for the periods indicated, the major categories of noninterest income:
| Years Ended December 31, | |||
|---|---|---|---|
| 2025 | 2024 | 2023 | |
| (Dollars in thousands) | |||
| Nonsufficient funds (NSF) fees | $37,552 | $35,417 | $33,691 |
| Credit card, debit card and ATM card income | 37,408 | 37,308 | 36,471 |
| Service charges on deposit accounts | 29,988 | 26,498 | 24,582 |
| Trust income | 14,648 | 14,750 | 13,269 |
| Mortgage income | 3,859 | 3,096 | 2,298 |
| Brokerage income | 5,385 | 4,742 | 4,275 |
| Bank owned life insurance income | 8,328 | 7,980 | 6,653 |
| Net gain on sale or write-down of assets | 1,217 | 2,824 | 1,986 |
| Net gain on sale or write-up of securities | — | 11,245 | — |
| Other | 29,916 | 21,949 | 30,040 |
| Total noninterest income | $168,301 | $165,809 | $153,265 |
Noninterest Expense
For the year ended December 31, 2025, noninterest expense totaled $556.2 million, a decrease of $14.4 million or 2.5% compared with 2024. The change was primarily due to lower regulatory assessments and FDIC insurance, a reversal of the 2024 FDIC special assessment, a decrease in other noninterest expense and a decrease in merger related expenses.
For the year ended December 31, 2024, noninterest expense totaled $570.6 million, an increase of $13.9 million or 2.5% compared with 2023. The change was primarily due to an increase in salaries and benefits, an increase in credit and debit card, data processing and software amortization and additional expenses related to the Lone Star Merger, partially offset by a decrease in the FDIC special assessment of $16.3 million and a decrease in merger related expenses of $10.7 million.
The following table presents, for the periods indicated, the major categories of noninterest expense:
| Years Ended December 31, | |||
|---|---|---|---|
| 2025 | 2024 | 2023 | |
| (Dollars in thousands) | |||
| Salaries and employee benefits(1) | $353,105 | $352,353 | $328,430 |
| Non-staff expenses: | |||
| Net occupancy and equipment | 37,088 | 35,786 | 35,517 |
| Credit and debit card, data processing and software amortization | 48,614 | 47,300 | 41,570 |
| Regulatory assessments and FDIC insurance | 18,095 | 27,370 | 40,165 |
| Core deposit intangibles amortization | 14,442 | 15,670 | 12,676 |
| Depreciation | 19,674 | 19,054 | 18,283 |
| Communications(2) | 13,988 | 13,697 | 14,413 |
| Net other real estate expense (income)(3) | 653 | (291) | (834) |
| Merger related expenses | 330 | 4,444 | 15,133 |
| Other | 50,224 | 55,190 | 51,345 |
| Total noninterest expense | $556,213 | $570,573 | $556,698 |
(1)
Total salaries and employee benefits include $12.1 million, $12.8 million and $12.2 million in 2025, 2024 and 2023, respectively, in stock-based compensation expense.
(2)
Communications expense includes telephone, data circuits, postage, and courier expenses.
(3)
Net other real estate expense consists of rental expense, rental income and gains and losses on sales of real estate.
Salaries and Employee Benefits. Salaries and employee benefits were $353.1 million for the year ended December 31, 2025, compared with $352.4 million for the year ended December 31, 2024. Salaries and employee benefits were $352.4 million for the year ended December 31, 2024, an increase of $23.9 million or 7.3% compared with 2023, primarily as a result of the Lone Star Merger. The number of full-time equivalent associates employed by the Company was 3,941, 3,916 and 3,850 at December 31, 2025, 2024 and 2023, respectively. Total salaries and benefits for the year ended December 31, 2025, included $12.1 million in stock‑based compensation expense compared with $12.8 million and $12.2 million recorded for the years ended December 31, 2024 and 2023, respectively.
Net Occupancy and Equipment. Net occupancy and equipment expense was $37.1 million for the year ended December 31, 2025, an increase of $1.3 million compared with $35.8 million for the year ended December 31, 2024. Net occupancy and equipment expense was $35.8 million for the year ended December 31, 2024, compared with $35.5 million for the year ended December 31, 2023.
Credit and Debit Card, Data Processing and Software Amortization. Credit and debit card, data processing and software amortization expenses were $48.6 million for the year ended December 31, 2025, an increase of $1.3 million or 2.8% compared with 2024. Credit and debit card, data processing and software amortization expenses were $47.3 million for the year ended December 31, 2024, an increase of $5.7 million or 13.8% compared with 2023, primarily due to an increase in software maintenance expense, data processing costs and the Lone Star Merger.
Regulatory Assessments and FDIC Insurance. Regulatory assessments and FDIC insurance assessments were $18.1 million for the year ended December 31, 2025, a decrease of $9.3 million or 33.9% compared with the year ended December 31, 2024, due to a decrease in the FDIC special assessment and a reversal of the 2024 FDIC special assessment. Regulatory assessments and FDIC insurance assessments were $27.4 million for the year ended December 31, 2024, a decrease of $12.8 million or 31.9% compared with the year ended December 31, 2023, due to a decrease in the FDIC special assessment.
Core Deposit Intangibles Amortization. Core deposit intangibles (“CDI”) amortization was $14.4 million for the year ended December 31, 2025, a decrease of $1.2 million or 7.8% compared with the year ended December 31, 2024. CDI amortization was $15.7 million for the year ended December 31, 2024, an increase of $3.0 million or 23.6% compared with the year ended December 31, 2023, primarily due to the Lone Star Merger.
Merger Related Expenses. Merger related expenses were $330 thousand for the year ended December 31, 2025, a decrease of $4.1 million compared with the year ended December 31, 2024. Merger related expenses were $4.4 million for the year ended December 31, 2024, a decrease of $10.7 million, primarily due to lower merger related expenses for the Lone Star Merger.
Efficiency Ratio
The Company’s efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of the Company and is not calculated based on GAAP. A GAAP-based efficiency ratio is calculated by dividing total noninterest expense, excluding credit loss provisions, by net interest income plus total noninterest income, as shown in the Consolidated Statements of Income. The Company’s efficiency ratio, as calculated and used by the Company, excludes from noninterest income the net gains and losses on the sale of securities and assets, which can vary widely from period to period. Taxes are not included in either calculation. The Company believes this non-GAAP financial measure provides information useful to investors by excluding certain items that may not be indicative of its core net operating earnings and business outlook. This non-GAAP financial measure should not be considered a substitute for, nor of greater importance than, the GAAP basis financial measure. Because a non-GAAP financial measure is not standardized, it may not be possible to compare this financial measure with other companies’ non-GAAP financial measures having the same or a similar name. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.
The Company’s efficiency ratio calculated pursuant to GAAP was 44.50% for the year ended December 31, 2025, compared with 47.85% for the year ended December 31, 2024 and 50.17% for the year ended December 31, 2023. The efficiency ratio, as used by the Company, excluding net gains and losses on the sale, write-down or write-up of assets and securities, was 44.55% for the year ended December 31, 2025, compared with 48.43% for the year ended December 31, 2024 and 50.26% for the year ended December 31, 2023.
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 was $150.7 million for the year ended December 31, 2025, an increase of $17.5 million or 13.1% compared with $133.3 million for the year ended December 31, 2024. Income tax expense was $133.3 million for the year ended December 31, 2024, an increase of $18.1 million or 15.7% compared with $115.1 million for the year ended December 31, 2023. The effective tax rate for the years ended December 31, 2025, 2024 and 2023 was 21.7%, 21.8% and 21.5%, respectively. The effective income tax rates differed from the U.S. statutory rate of 21% during 2025, 2024 and 2023 primarily due to the effect of tax-exempt income from loans, securities and bank owned life insurance (“BOLI”) offset by the effect of state taxes.
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 year ended December 31, 2025.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.