[Management View]
Prosperity Bancshares announced a definitive agreement to acquire American Bank Holding Co., enhancing its footprint in South and Central Texas, including four new branches in San Antonio and potential No. 1 market share in Corpus Christi. Management emphasized disciplined deposit pricing, sound asset quality, and strategic M&A as key priorities.

[Outlook]
Management projects net interest margin (NIM) expansion to 3.35% in six months, 3.48% in 12 months, and 3.76% in 24 months under stable rates, excluding merger effects. Fee income guidance was raised to $38–$40 million per quarter, driven by increased service and debit card fees. Noninterest expense for Q3 2025 is expected to range from $141–$144 million. Management remains open to further M&A opportunities, including potential expansion beyond Texas and Oklahoma.

[Financial Performance]
- Net income: $135 million (+21% YoY; +16% adjusted YoY).
- EPS: $1.42 (+21% YoY; +16.4% adjusted YoY).
- Return on average assets: 1.41% (vs. 1.17% in Q2 2024).
- Return on average tangible common equity: 13.44% (vs. 12.34% in Q2 2024).
- Net interest margin: 3.18% (vs. 2.94% in Q2 2024; 3.14% in Q1 2025).
- Deposits: $27.4 billion (-1.6% YoY; -2% QoQ).
- Loans: $22.2 billion (-$123 million YoY; +$219 million QoQ core loans).

[Q&A Highlights]
Question 1: Can you provide an update on loan growth expectations and warehouse performance?
Answer: Management expects low single-digit loan growth for the rest of the year, with $40 million growth so far in Q3. Warehouse balances averaged $1.79 billion in Q2, slightly above expectations, and are projected to improve further in Q3 to $1.25 billion. Commercial loans showed stronger growth than mortgage loans, with $73 million added in Q2.

Question 2: What are the drivers behind NIM expansion, and how should we view deposit costs?
Answer: NIM is projected to grow due to bond portfolio repricing ($1.9 billion annual cash flow at ~2.15%) and $5 billion in loan cash flow (~60% fixed/variable rate). Deposit costs are expected to remain stable, with no significant downward pressure.

Question 3: How should we think about the balance sheet size and deposit trends?
Answer: Deposits have stabilized after seasonal declines in Q2, and growth is expected in Q4 and Q1 2026. Management remains disciplined in deposit pricing, avoiding high-cost brokered deposits.

Question 4: What is the expected NII accretion from the American Bank acquisition?
Answer: The acquisition is expected to add $85–$90 million in annual NII, plus $15–$16 million from AOCI adjustments, resulting in mid-single-digit margin accretion.

Question 5: Are there plans for further M&A or stock buybacks?
Answer: Management remains active in M&A discussions and prioritizes strategic acquisitions. Stock buybacks are not currently planned.

Question 6: What drove the increase in nonperforming assets (NPAs), and what is the outlook?
Answer: NPAs rose by $29 million QoQ, driven by $13 million in real estate loans, $119 million in used vehicle notes, and $51 million in single-family home loans. Most are fully reserved or collateralized, and management expects to work through these issues over the next year.

Question 7: Will the American Bank acquisition deepen Prosperity's presence in San Antonio?
Answer: Management views the acquisition as a strategic entry into San Antonio and is open to further expansion in the market.

Question 8: How does the regulatory environment impact M&A timelines?
Answer: Management expects a return to historical three- to four-month timelines for deal closures, citing improved clarity in regulatory processes.

Question 9: What is the updated fee income guidance?
Answer: Fee income guidance was raised to $38–$40 million per quarter, reflecting strong growth in service and debit card fees.

[Sentiment Analysis]
Management displayed optimism regarding loan growth, margin expansion, and the strategic benefits of the American Bank acquisition. Analysts were constructive, focusing on growth drivers and M&A opportunities, with questions reflecting confidence in Prosperity's operational and financial stability.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Q2 2024 |
|----------------------------|---------------|---------------|---------------|
| Net Income ($M) | 135 | N/A | 116 (adjusted)|
| EPS ($) | 1.42 | N/A | 1.22 (adjusted)|
| NIM (%) | 3.18 | 3.14 | 2.94 |
| Deposits ($B) | 27.4 | 28.0 | 27.9 |
| Loans ($B) | 22.2 | 21.9 (core) | 22.3 |
| Noninterest Income ($M) | 43 | 41.3 | 46 |
| Noninterest Expense ($M) | 138.6 | 140.3 | 152.8 |

[Risks and Concerns]
- Nonperforming assets increased to $110.5 million, primarily in single-family home loans and legacy portfolios.
- Sequential deposit declines (-2%) reflect seasonal and pricing pressures.
- No addition to credit loss reserves despite rising NPAs, requiring ongoing monitoring.

[Final Takeaway]
Prosperity Bancshares delivered strong financial results in Q2 2025, with notable improvements in profitability metrics and efficiency. The pending acquisition of American Bank Holding Co. is expected to enhance geographic reach and provide immediate NII and margin accretion. While nonperforming assets require attention, management remains confident in its reserve coverage and ability to address portfolio challenges. Strategic M&A and disciplined pricing continue to position Prosperity for sustainable growth, with further expansion opportunities on the horizon.