Blue Owl Capital Q1 2026 Margin Drivers and Market Expansion Insights

Summary: What the Q1 2026 mergers changed for PB’s market presence and gross-margin (margin) drivers

In Q1 2026, Prosperity Bancshares materially expanded its footprint through completed mergers (American Bank Holding Corporation on Jan. 1, 2026 and Southwest Bancshares, Inc. on Feb. 1, 2026) plus a third merger (Stellar Bancorp announced with regulatory approvals and expected close July 1, 2026). ¹ This expansion showed up immediately in the balance sheet scale (notably +15.1% loans and +16.4% deposits YoY as of Mar. 31, 2026) and contributed to margin expansion via net interest margin (NIM) drivers—even as merger-related expenses and one-time effects affected the quarter’s reported earnings. ²

Because the excerpts do not provide a “gross margin” line item in the typical industrial sense, the closest—and explicitly discussed—margin driver in the filings is net interest margin on a tax-equivalent basis (NIM), alongside merger-related expense dynamics that affect operating “margin” (efficiency and expenses). ³⁴

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1) Market presence: what changed because of the mergers (Q1 2026)

Balance sheet scale expanded quickly during Q1

• Loans rose to $25.2B at Mar. 31, 2026, up $3.3B (+15.1%) versus $21.9B at Mar. 31, 2025, and management attributes loan growth primarily due to the mergers with American and Southwest. ²
• Deposits rose to $32.6B at Mar. 31, 2026, up $4.6B (+16.4%) versus $28.0B at Mar. 31, 2025, and management also attributes deposit growth primarily due to the mergers. ²
• Management further states that excluding deposits acquired from American and Southwest, core deposits increased about 1.2%, while public fund deposits saw normal seasonal decrease, implying that a portion of “presence” is coming through acquired deposit bases, not only organic growth. ²

Deposit quality and cost position improved/held up

• PB reported noninterest-bearing deposits of 32.4% of total deposits at Mar. 31, 2026, with cost of funds 1.45% and cost of deposits 1.32% (vs. 1.38% a year earlier), which is a key structural input into NIM over time. ²

Near-term footprint expansion is not just “two mergers”—Stellar is pending

• Beyond the two completed Q1 deals, management announced Stellar Bancorp on Jan. 28, 2026, with all necessary regulatory approvals received and an expected completion date of July 1, 2026. ¹
• The company also indicates operational integration timing for each deal (American integration scheduled for September 2026, Southwest for November 2026), reinforcing that market presence is expanding now, while full operating “lock-in” takes place later. ⁵

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2) Gross-margin / margin drivers in Q1 2026: how the mergers affected them

A) NIM expanded in Q1 2026, with mergers + repricing cited as key drivers

• PB’s net interest margin on a tax-equivalent basis was 3.51% for the quarter ended Mar. 31, 2026, up from 3.30% for the quarter ended Dec. 31, 2025 and up from 3.14% for the same period in 2025. ³
• Management states the increase in net interest income and NIM in Q1 2026 is primarily due to repricing of earning assets and addition of American Bank and Texas Partners banks during this period. ³
• Another discussion reinforces that management is “pleased with our margin expansion” and attributes it to asset repricing in Q1 and the addition of 2 banks. ⁶

Interpretation (grounded in the excerpts): the mergers appear to have boosted NIM primarily by bringing in acquired banking relationships that, along with PB’s repricing actions, increased earning-asset yields relative to funding costs during the quarter. ³⁶

B) The quarter’s reported profitability was pressured by merger-related expense, affecting “operating margin”

Even though NIM expanded, the quarter’s earnings were impacted by deal costs:

• PB reported merger-related expenses from the American and Southwest mergers of $42.5M (or $0.34 per diluted share) during Q1 2026. ¹
• Noninterest expense was $217.3M in Q1 2026, up sharply from $138.7M in Q4 2025, and management explicitly attributes the linked-quarter increase primarily to merger-related expenses of $42.5M and the addition of acquired banks during the period. ³

A “margin” takeaway for investors is that NIM (a gross margin analog for banks) improved, but operating expenses (efficiency/expense structure) were temporarily worse due to merger costs. ³⁴

C) Efficiency ratio and how much was merger-driven

• PB’s efficiency ratio was 59.2% for the quarter ended Mar. 31, 2026, compared with 43.7% for quarter ended Dec. 31, 2025. ⁴
• Excluding merger-related expenses, the efficiency ratio was 47.6% for Q1 2026, showing that the deterioration in efficiency was largely attributable to one-time/merger costs rather than an underlying permanent operating deterioration. ⁴

D) Management expects NIM to flatten somewhat in Q2 despite merger progress

• PB guided that in Q2 2026, it expects projected margin to be flat and slightly higher than Q1, noting Q1 effects such as continued repricing of earning assets, but also recognized about $4M of loan income from nonaccrual loans (not expected in Q2) and that fewer days than the calendar quarter helped margins historically. ⁶
• Separately, PB’s longer-term model (including Stellar) suggests exiting combined NIM around 3.70%, with around 3.60% for 2026 assuming full-year Prosperity and half-year Stellar in the model. ⁷

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3) Net interest margin: what portion of the “margin story” is tied to integration and acquisition churn?

The excerpts imply that while the mergers drove growth and NIM expansion in Q1, the company also expects some headwinds during integration:

• Management remarks that for acquisitions, “it is more likely than not that there’s some asset runoff… in the ensuing 18 months,” and since they have 3 mergers, they expect to face these headwinds for the next year to 15 months / 18 months. ⁸
• This matters for gross-margin drivers because asset runoff can reduce the earning-asset base and therefore affect future NIM trajectory and net interest income scale, even if Q1 benefited from immediate addition/repricing effects. ⁸³

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Bottom line (directly answering the question)

1. Market presence: In Q1 2026, the American and Southwest mergers quickly increased PB’s scale, with loans up to $25.2B (+15.1%) and deposits to $32.6B (+16.4%), with management attributing both loan and deposit growth primarily to the mergers. ² A third merger (Stellar) was also announced with regulatory approvals and expected to close July 1, 2026, extending the footprint further beyond Q1. ¹

2. Gross-margin drivers (proxied by NIM and expense-driven operating margin):

   • NIM expanded to 3.51% in Q1 2026, and management attributes the increase primarily to repricing of earning assets and addition of the acquired banks during the quarter. ³ Management similarly characterizes Q1 margin expansion as driven by asset repricing plus addition of 2 banks. ⁶
   • However, reported operating margin was compressed by $42.5M of merger-related expenses, driving a sharp rise in noninterest expense and worsening the efficiency ratio—though the efficiency ratio improved markedly when excluding merger-related expenses. ¹³⁴

Taken together, the mergers enhanced PB’s market presence immediately (scale and deposit base) and contributed to stronger banking “gross margin” economics through NIM expansion, while also creating near-term dilution to operating margin via merger costs. ²³⁴