Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares third quarter 2026 earnings conference call.

This call is being broadcast live on our website and will be available for replay for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer; H.E.

Tim Timanus, Jr., Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Senior Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Robert Franklin, Vice Chairman; Randy Hester, Chief Lending Officer; Mays Davenport, Director of Corporate Strategy; Bob Dowdell, Executive Vice President; and Ray Vitulli, Houston Area Chairman. David Zalman will lead off with a review of the highlights for the recent quarter.

He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics, and Tim Timanus, who will review our lending activities, including asset quality. Finally, we will open the call for questions.

Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws, and as such, may involve known and unknown risks, uncertainties, and other factors, which may cause the actual results or performance of Prosperity Bancshares to be materially different from future results or performance expressed or implied by such forward-looking statements.

Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in our filings with the Securities and Exchange Commission, including forms 10-Q and 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

Now let me turn the call over to David Zalman.

Thank you, Charlotte. I would like to welcome and thank everyone listening to our third quarter 2026 conference call.

I'm pleased to announce that the board of directors approved increasing the fourth quarter 2026 dividend to 64 cents per share from 60 cents per share that was paid in the prior four quarters, an increase of 6.7%. The increase reflects the continued confidence the board has in our company and our markets.

The compound annual growth rate in dividends declared from 2003 to 2026 was 10.4%. We continue to share our success with our shareholders through the payment of dividends and opportunistic stock repurchases, while also continuing to grow our capital.

We are proud of this year's growth and would like to highlight the following results. Prosperity's total assets reached $54.1 billion at September 30, 2026, up $15.8 billion or 41% compared with $38 billion at September 30, 2025.

Our loans totaled $32 billion at September 30, 2026, an increase of $10 billion or 45% compared with $22 billion at September 30, 2025. Our deposits were $41 billion at September 30, 2026, up $13 billion or 48% compared with the $27.8 billion at September 30, 2025.

These increases primarily reflect our three recent mergers. We are highlighting their magnitude because they demonstrate the expertise of our associates, who have extensive experience executing acquisitions and integrating the acquired institutions.

Our greater scale strengthens our competitiveness, improves efficiency, and enables technology investments that would be difficult for a smaller bank. We completed the operational integration of American Bank in September.

All American Bank locations are now branded Prosperity Bank, and we welcome the American Bank customers and associates to our family. We remain focused on completing the operational integrations of Texas Partners Bank in November and Stellar Bank in March of 2027 and delivering the outcomes we believe are possible.

The Texas Partners and Stellar Bank teams are already an integral part of our organization and operations. We are excited about our future as a larger bank, including the potential growth in earnings.

Excluding the one-time expenses listed in the press release, net income was $200 million and earnings per diluted common share was $1.67 for the three months ending September 30, 2026. Annualized returns on average assets and average tangible common equity were 1.5% and 15.81% on average tangible common equity for the same period.

Excluding the merger-related expenses, the efficiency ratio was 48%. We are proud of these earnings and expect them to improve after all merger-related cost savings are realized.

The net interest margin on a tax-equivalent basis was 3.73% for the three months ending September 30, 2026, up from 3.47% for the three months ending in June 30, 2026, and 3.24% for the three months ending September 30, 2025. This 49 basis points year-over-year increase reflects the strong net interest margin improvement we expected.

Loans totaled $32 billion at September 30, 2026, compared with $22 billion at September 30, 2025. We've seen an increase in our average monthly loan production numbers over the past two quarters.

This should help bolster our pipelines next year. In the third quarter of 2026, average monthly new loan production increased approximately $180 million compared to the second quarter of 2026 and approximately $320 million compared to the first quarter of 2026.

The overall deposits totaled $41 billion at September 30 compared with $27.8 billion at September 30, 2025. Our linked-quarter core deposits, excluding Stellar Bank, increased 2% annualized during the third quarter of 2026.

Our non-interest-bearing deposits of $13.8 billion at September 30, 2026, represented 33.6% of total deposits. The level of non-interest-bearing deposits as a percentage of total deposits continues to remain strong in light of our recent acquisition activity.

Looking forward, we believe core deposits will continue to grow in line with our historical run rate of 2% to 4% growth, and we remain conservative with our loan growth projections for '27, projecting flat to slightly increasing loan balances due to the recent acquisitions. We believe that the combination of our growth outlook with our loan pipelines, assets repricing, net interest margin expansion, and the realization of our cost savings will drive meaningful earnings per share growth in 2027.

Our non-performing assets totaled $193 million or 41 basis points of quarterly average interest-earning assets at September 30, 2026, compared with $119 million or 36 basis points of quarterly average interest-earning assets at September 30, 2025, and $130 million or 34 basis points of quarterly average interest-earning assets at June 30, 2026. The amount at September 30, 2026, and June 30, 2026, was impacted by non-performing assets acquired in the mergers.

The allowance for credit losses on loans and off-balance sheet credit exposures was $629 million at September 30, 2026. The allowance for credit losses on loans was three times the amount of non-performing assets.

We are excited about the synergy we have with our new partners: Stellar Bank, Texas Partners Bank, and American Bank. Our top priority is the operational integrations of the remaining two banks, and our combined teams are working very hard to ensure they are successful.

We also continue to have conversations with other bankers considering strategic opportunities and are open to transactions that will be beneficial to our company's long-term future and will increase shareholder value. The Texas and Oklahoma economies continue to expand in late 2026 despite labor supply constraints and headwinds from inflation and energy prices.

Texas has a growing population of 31.7 million and continues to attract people and businesses with its business-friendly state government and lack of a state income tax. Major construction projects across Texas include new data centers, factories producing various products from chips to new drugs, and SpaceX and Tesla projects.

Both states remain attractive places to live and do business. Thanks again for your support of our company.

Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss the specific financial results we achieved.

Thank you, Mr. Zalman.

Good morning, everyone. The third quarter represents the first full quarter that includes Stellar Bank, and our results reflect both the increased scale of combined company and ongoing integration activity for all three merged banks.

Net interest income before provision for credit losses for three months ended September 30, 2026, was $443 million, an increase of $169.5 million compared to $273.4 million for the same period in 2025, and increase of $112.4 million compared to $330.6 million for the quarter ended June 30, 2026. The net interest margin on a tax-equivalent basis was 3.73% for the three months ended September 30, 2026, an increase of 49 basis points compared to 3.24% for the same period in 2025, and increase of 26 basis points compared to 3.47% for the quarter ended June 30, 2026.

The linked-quarter increase was primarily due to additional Stellar Bank and higher investment yields. Excluding purchase accounting adjustments, the net interest margin for the three months ended September 30, 2026, was 3.59% compared to 3.19% for the same period in 2025 and 3.41% for the quarter ended June 30, 2026.

Fair value loan income for the third quarter of 2026 was $11.6 million compared to $4 million for the second quarter of 2026. Fair value loan income for the fourth quarter of 2026 is expected to be in the range of $7 to $10 million.

Non-interest income was $52.7 million for the three months ended September 30, 2026, compared to $60.7 million for the quarter ended June 30, 2026, and $41.2 million for the same period in 2025. The second quarter of 2026 included a net gain of $8.2 million resulting from the conversion of Visa stock, partially offset by the loss on the sale of investment securities.

The non-interest income for the third quarter of 2026 was reduced by $2.6 million net loss due to write-down of assets. Non-interest expense was $308.6 million for the three months ended September 30, 2026, compared to $176.2 million for the quarter ended June 30, 2026, and $138.6 million for the same period in 2025.

The third quarter of 2026 included $69.7 million of merger-related expenses. Excluding this merger-related expenses, non-interest expense was $238.9 million.

This amount includes the operating expenses of Stellar Bank. During the third quarter, we continue to realize cost savings from the acquired banks, with additional savings expected as we complete the remaining two system conversions.

For the fourth quarter of 2026, we expect non-interest expense to be in the range of $235 to $238 million, excluding remaining one-time merger-related expenses. The efficiency ratio was 62.1% for the three months ended September 30, 2026, compared to 46% for the quarter ended June 30, 2026, and 44.1% for the same period in 2025.

Excluding merger-related expenses, the efficiency ratio is 48% for the third quarter of 2026. The provision for income taxes for the third quarter of 2026 included approximately $5 million related to out-of-state tax settlement.

This one-time tax expense reduced diluted earnings per share by approximately 4 cents and resulted in higher-than-normal effective tax rate of 24.4%. The bond portfolio metrics at September 30, 2026, have a modified duration of 3.9 and projected annual cash flows of approximately $2.2 billion.

With that, let me turn the presentation over to Tim Timanus for some additional on loans and asset quality.

Thank you, Asylbek. Our non-performing assets at quarter-end September 30th, 2026, totaled $193,872,000 or 60 basis points of loans and other real estate, compared to $130,576,000 or 52 basis points at June 30th, 2026.

Since September 30th, 2026, $4,289,000 of non-performing assets have been removed or put under contract for sale. The September 30th, 2026, non-performing asset total was comprised of $171,031,000 in loans, $57,000 in repossessed assets, and $22,784,000 in other real estate.

Net charge-offs for the three months ended September 30th, 2026, were $4,437,000, compared to net charge-offs of $2,183,000 for the quarter ended June 30th, 2026. There was no provision to the allowance for credit losses during the quarter ended September 30th, 2026.

No dollars were taken into income from the allowance during the quarter ended September 30th, 2026. The average monthly new loan production for the quarter ended September 30th, 2026, was $635 million, compared to $454 million for the quarter ended June 30th, 2026.

Loans outstanding at September 30th, 2026, were approximately $32.06 billion, compared to $25.028 billion at June 30th, 2026. The September 30th, 2026, loan total is made up of 38% fixed rate loans, 30% floating rate loans, and 32% variable rate loans.

I will now turn it over to Charlotte Rasche.

Thank you, Tim. At this time, we are prepared to answer your questions.

Our call operator, Megan, will assist us with questions.

Hey, good morning, guys.

Morning,

Peter.

Wanted to start on the margin outlook for the quarter. Appreciate the accretion on the loans, the 7 to 10 million.

Maybe just to wrap up on the accretion side, I think you had some on the securities book as well. I'd imagine some of that might continue, and then the CDs might be more short-lived, but was just curious if there are any expectations for that as well, so that accretion number might be a little bit bigger in 4Q.

For the fourth quarter, we're excited to see the continued repricing of our bond portfolio. As I mentioned, we still have $2.2 billion on annualized cash flow from bond portfolio.

We have what, 2.92% rate, average rate on the bond, and we've been recently buying 5.50% to 5.75%, repricing. That's going to continue to reprice on the bond portfolio side.

On the loans side, we have what 38% on the fixed loans. They're going to continue to reprice.

If you look at our average rate on loans without fair value, it's 5.93%, we are putting higher loans as on our production, so that's going to benefit from that. One thing I want to note that we did increase our deposit rates in the end of the third quarter due to that Fed increase rate.

It has not fully baked in in our third quarter, but we'll see that baked in in the fourth quarter. I think if you're looking on margin, I think it's going to be flat to slightly up because it takes little time for assets to reprice.

In long-term, our model shows we're going to continue to expand on the margin significantly as the bond portfolio and the loan kind of reprice. If you look for 12 and 24 is looking really good.

The assumption we provided that exit rate on the fourth quarter margin being 3.70% to 3.75% stands as is, we're comfortable with that. The guidance we provided for next year is also stands as for average for the quarter 3.80% to 3.85% right now.

We are seeing expansion of the margin.

I think he was looking for some help on accretion.

The accretion on the loans, like I said, $7 to $10 million. On the CD accretion, we had what, $2.5 million.

I think it's going to reduce a little bit to $1.3 million and for the fourth quarter and kind of burns off first and second quarter of next year.

Okay. Accretion comes down in 4Q, but the underlying margin is expanding, and so that's what kind of keeps it flat to maybe up a little bit just on a reported basis?

That's correct. That's right.

Okay. That's great.

It's good to hear that you guys are still thinking positively about the margin. You have a lot of opportunities there to expand that, it sounds like.

Maybe just switching to expenses real quick. That result was solid.

The guide certainly shows you've got more cost savings coming. Where do you think that expense range that 235 to 238 goes as you head into next year?

I know you'll get a lot more of the cost savings from Stellar on the integration, maybe those flow through more fully into 2Q, and that's normally when you've got your merit coming through on a full quarter basis. Was just curious how you think that trends to the extent that you've got projections through the year.

That's a good question. We did see some cost savings already baking in.

It's not just from American, but some cost savings from Stellar and Texas Partners. We're going to continue to see that.

I think based on our estimates, we have additional $65 to $70 million pre-tax of cost savings coming in, if you compare to our third quarter expenses. If you look at our expectation when we're all settled in, more like starting second quarter and third quarter, when we have quarterly clean expense run rate, I would say we're looking at about $220 to $225 million per quarter.

That's a pre-tax number. That's going to be our run rate once everything is settled.

All right. Great.

Maybe we'll just one last one on credit. Through the deal accounting and what not, that allowance ratio went up pretty decently this quarter.

It seems like you're pretty well-positioned to have a zero provision for '27. I know you don't have a crystal ball, but is that kind of what it feels like at this point?

I think so. Really at $193 million in total non-performing assets and having over $600 million in provision or allowance, I think we're covered pretty good.

Hey, when he said 27, I wasn't sure if he meant next year 27 or 27 years worth. I didn't [laughter] It felt like 27 years worth.

[laughter]

We'll stick to next year for now. [laughter] All right.

Thanks, guys. Appreciate it.

It's a great call.

Thanks, Peter.

Thank you.

Hey, good morning, everybody. Thanks for the questions.

Wanted to just to go back. I know last quarter you mentioned that you were going to probably have to increase deposit rates a little bit, and then you just alluded to it.

Was just curious. Your money market rate average was up 9 basis points linked-quarter, but it's your core funding is really low cost, great core deposit funding base.

Asylbek, how much have you increased the rate, and then how much will we be thinking about the cost of funds from here? Are you guys are thinking about the margin and with potential rate hikes?

It wasn't one rate for everything. We kind of looked at it, different buckets of the deposit and did different rate increases.

If you're looking for fourth quarter specifically, we calculate it's going to go up by 6 or 7 basis points from the Q3. We're shooting maybe cost average will be 1.46%, 1.45% to 1.46% on the cost of deposits.

If you look at cost of fund total, I think going to goes up from 1.50% to 1.57% to 58%, 8 basis points with our deposit increases we did end of the quarter, on the third quarter.

Our primary focus, Brett, again, it's not that we don't focus on them. It's just that they're not as rate-driven as your checking accounts and all that.

Our main focus really on the increase was really on the money market accounts and really focused on balances that were $1 million or more. We actually raised our money market rates about a quarter of a point, from 2.75% to 3%.

Again,

we're still offering the special rates. We have a couple of special CD rates that are what are they right now?

So, 7-month CD is 3.75%,

so... We're offering a couple of special promotional deals like that.

That's really where we're focused on, and that's where the rates have increased. I would say, going forward, if interest rates increase again, that's probably the focus where we'll be in at those two products primarily.

The majority of the rest of the bank is just core funding, and I think rate-driven stuff is probably more in that, and even that is not rate-driven like a lot of other banks, really.

Mhm. Okay.

That's helpful. Then the other question I wanted to ask was just around loans and with the monthly production up to $635 million, it sounds like the outlook is still for maybe modest growth from here.

Does the production give you guys any confidence that growth might improve from here? Then just any color on either the payoffs from legacy Prosperity or the deals that you've had, how much that might have impacted 3Q?

Brett, David's nodding at me. This is Kevin, I'll take that one.

Bear with me as I walk you through a couple of things and what may seemingly get off-topic and end up back on-topic, if you will. The monthly production, we have looked back as if all the acquisitions were done last year.

We looked at the production by bank: American, Partners, Stellar, ourselves, going back to January. Those numbers have picked up from Q1 to Q2 to Q3.

It went up about $180 million in total between Q1 and Q2, and a little over $200 million. It's not only going up, but it's increasing its path upward.

It's worth noting the major driver of that upward trajectory is in Prosperity, the legacy Prosperity portfolio. Stellar dipped down a little bit in Q2 and Q3.

We believe that to be largely related to the acquisition and getting to know each other and lenders getting to know each other, and what we have seen there is a rebound in their pipeline. I think as that pipeline improves, we pick back up to where Stellar was, and see further improvement.

That's all the tailwinds for loan growth. The headwind is our history and what happens when we make acquisitions.

I think you all know it, but I'll say it. It is not unusual.

In fact, it's more typical that loans at those institutions tend to shrink for 6 months to a year after an acquisition. That to me, that ties in where David said he thinks loans for next year are probably flat and maybe up a little bit.

It's the headwind of integrating Stellar, and it's the tailwind of this production improving. I would say for the good side of next year, and before I get into what I think '28 is going to be, and I know it's way too early to be talking about '28, but I will briefly.

I think the good side for 2027, from our perspective, is now the Street has seen a new run rate with Stellar on board, and that run rate's pretty strong. Depending upon what you add back, it was $1.67 to $1.67 to $1.69.

I think from an earnings perspective, we've got this nice new run rate, nice new margin. We have the continued margin expansion from repricing, and we got another $70 million worth of pre-tax cost saves.

I think that delivers, in spite of what is likely to be a flat kind of loan growth year, that's going to deliver double-digit, in fact, low to mid-teen double-digit EPS growth for 2027 even with flat. If I take that and say we go through the Stellar transition through 2027 and we rebound off of this new production that we're currently seeing, and look into 2028, and let's face it, a lot of things can happen between now and then, this gets squishier, but that leads us to believe in 2028, we can get to low, mid I'm going to say 3% to 5% loan growth kind of numbers in 2028 post dealing with all the potential run-off from the acquisitions.

What that means is another year of double-digit EPS growth. I think we're really set up for two consecutive years of really nice EPS growth.

Maybe a little disappointing to you that we can't eke out more growth next year, but we're being realistic and just trying to offset this nice production increase with our history and knowing what happens. Long-winded, but I think we're really in a great position from an EPS growth standpoint for the next two years.

That's great, Kevin. I appreciate the narrative there.

That helps explain quite a bit. Thanks for all the color, guys.

Good morning.

Good morning. Three

Back to your net interest margin, 3.80% to 3.85% for '27, that's great, strong core NIM expansion. Given the belly of the curve moving up significantly more since we last spoke, why not it could be higher?

I feel like this rate environment is actually pretty good for you, for your NIM.

If you look at our balance sheet, we're neutral to modestly asset sensitive. If you look at our model, yeah, increased rate environment does help, benefits us.

When we run the model, we kept it flat rate, there's expectation Fed going to increase the rates, but for our model, we kept it flat. There might be a possibility to do better, but us being conservative, we're just going to stick to our guidance that we provided.

I think, Janet, our models, again, may be trying to underpromise and overperform, but our models look really good for '28 and '29, quite frankly. We really, as Kevin mentioned earlier, we really are looking at some double-digit earnings increases over the next couple of years.

Right. Makes sense.

Just to make sure I'm interpreting correctly, your core deposits growing 2% to 4% and loans being flat to slightly increasing in '27, is that excluding the runoffs or is that inclusive?

No, when I refer to core deposits, that's all deposits excluding public funds and government agencies and stuff like that. What do we have in public funds right now?

Close to $3

$2 to $3 billion.

$2 to $3 billion.

Those are real seasonal in nature. Right now they're probably lower than they are all year right now.

Next quarter, you could see our public funds increase $500 to $800 million, probably.

It's

very possible. Then that'll stay in the bank through and start running out at the end of the first quarter and second quarter again.

When I refer to the core deposits, it's our checking accounts, our money market accounts, and stuff like that, just our core. Again, we don't have any wholesale deposits.

We don't have any broker deposits or anything like that.

Right. On the loan side, on the flat to slightly up, that's inclusive of any

runoffs?

Including.

It would be, because I think that because again, gosh, I hope I'm not overly optimistic. I think Stellar Bank and our bank are very, very similar in nature, and I'm in loan committee, and I don't see a whole lot of difference in what they would have done and what we would do.

I just really think that Stellar Bank and us are very much alike, and I don't see a lot of change. Again, as Kevin mentioned, no matter what we do and how hard we try, sometimes we do go backwards in acquisitions, but I think with Stellar, and American Bank, too, and Texas Partners, all of us are very similar in the way we lend money, and so I don't see a whole lot of changes in what we do.

I'm hoping for the best, yeah.

Right. Thank you.

If I can squeeze in one more, maybe I missed it. Could you talk about your appetite around buybacks from here?

At $60-something, it's got a huge appetite. [laughter] And we have the money to do it with.

We're projecting earnings of how much next year, Asylbek? What do we have projected earnings, or what the analysts have us, total earnings?

It's $850 to $880 million, something like that?

In 20 2029, it's even really high.

You take the 64 cents the 64 cents a quarter dividend, and that's what, about $300 million?

$310 million or so.

We have a lot of gunpowder to do something with. So...

Okay. Thank you.

Mhm.

Hey, good morning, guys. Thanks for taking my questions.

Just following up on loan growth, I'd ask this a lot, but Kevin, if you can give some updates on kind of mortgage lending in the warehouse, just given the higher-for-longer backdrop. Obviously, saw you were fairly close, I think, to your average guide for the quarter, but just given where mortgage rates are now, if you can just discuss kind of the near-term outlook and into next year.

Thanks.

Thanks, Michael. For the quarter, we averaged $1.229 billion, I think, and our estimate going into the quarter on the high side was $1.225 billion, we were spot-on on that one.

Since quarter-end, it's been a downward trend. At the end of the quarter, we were at $1.132 billion.

Last night, we ended up at $1.110 billion, and we're basically at $1.1 billion average for quarter-to-date, and I expect that to go down further, A, because of rates, and B, because of the typical seasonal decline in warehouse in Q4. Michael, I'm thinking on the low side, $850 million to maybe on the high side $900 million average for the quarter.

All right. That's helpful.

I appreciate it, Kevin. Then maybe David, just you talked about kind of ongoing conversations with bankers for M&A opportunities, but clearly you're integrating a bunch of deals right now.

Do you expect that we could see a little bit of a pause here, or if you just find the right opportunity, you guys are just open for business and you're going to make the decision based on what's out there at this point? Thanks.

I think we're always in the market, but let's face it. Our focus is truly the combination of Stellar Bank and Texas Partners.

That's our primary focus. For us to really jump into something, it has to make a whole lot of sense and maybe increase our Texas franchise or something like that that would be significant, but that's really our main focus right now is to really put these banks together, really, for the most part.

I'd say in the near term, buybacks way more likely than acquisition.

At the stock price that it's at, when we're trading less than 10 times earnings, we probably make more money buying our stock back than really buying somebody else, really.

Makes sense. I appreciate all the color.

Thanks, guys. Mhm.

Hey guys, this is Brooks O'Neil on for David Chiaverini. Quick question here on fee growth.

Now that you guys are a $54 billion bank, where does fee growth come from going forward? Is treasury management for Stellar's commercial clients the main lever here?

I know last quarter you guys had mentioned treasury management build-out that included additional hires from Texas Partners. Could you just speak on that going forward?

I think there's a lot of opportunity especially with merger with Stellar. I think we really like our trust business and brokerage business, we would love to continue.

If you look at past few years, we have grown very well on that two areas. Now with addition of Stellar and having partners at Stellar with the lenders referring the business, so that's a focus for ours, and I think that's going to be main focus for next few years on the brokerage and the trust.

I think our trust looks good. We're growing there.

I think treasury management, I think that plays a bigger and bigger piece because it offers so many different products to our customers. Again, I think that's where we're focused on right there.

I think sometimes I saw where we try to sell treasury management sometimes to smaller businesses that really don't necessarily need the complete treasury management, we need to rethink who we're really pushing it to and who we don't on the automatic consolidations. For the most part, I think we have a lot of good products, and we're really looking forward to all of the customers and the growth that we can do.

Mhm.

Great. Thank you.

Appreciate the color.

Hey, great. Thanks for the questions, guys.

Hey, Will.

Hey, just another one on the buyback, just followed up here. David, it sounds like you're very constructive here at this price level.

If I go back and look kind of pre some of these merger announcements, looking back till the latter half of 2025, in the fourth quarter last year, you purchased 2% of the company. Is that kind of order of magnitude on the table here at these price levels in this valuation?

I think it's really based on how opportunistic it is. When we're trading below 10 times earnings, it's pretty opportunistic.

It just seems like our stock price is pretty seasonal also. It looks like your September-October prices really go down, and then about time that our stock vests at the first of the year, our stock price goes to sky-high.

I guess that's because we have to pay the taxes on that accelerated price. Again, it's real seasonal, but, again, we'll be opportunistic.

Again, trading less than 10 times earnings will be definitely opportunistic.

Yeah. Okay.

That's fair enough. Another quick follow-up, just on the core deposit growth, 2% to 4%.

Should we think about the balance sheet growing at that same level, that same capacity in 2027, that 2% to 4%, or within that, knowing we might have more flattish year for loans, is there a chance to optimize some of your funding, and balance sheet growth is also a little flat? Just how do you kind of think about those dynamics?

No, I think historically, again, when we look at our bank and we've look at the acquisitions, our core deposits have always grown 2% to 4%, excluding some of the people that joined us. I don't see that anything different.

We do see ups and downs, but, again, just in the last three days, I saw our core deposits go up $300 million just in the last few days. Again, our public funds are down a little bit, which is seasonal.

That's in nature. I think 2% to 4% is very realistic for us.

We've always done that since the beginning is having that kind of growth, and I still think that you will see that and balance sheet growth, yeah.

Yeah. Will, if you look at on total assets, you just have to look at period to period.

As we mentioned, our public funds goes down in second quarter and third quarter, if you look at Q4 to Q2, you might not get clear picture because we have a seasonality on public funds. As we stated, if we see the 2% to 4% on core deposit growth, over time our balance sheet continue to grow.

I think that's why I feel so confident in our earnings numbers and our earnings model, because when you have core deposit growth, and I know analysts push loan growth, but the bottom line is when you have deposit growth and you have core deposit growth, not growth that you're going out and paying 4% for money, but core deposit growth, you can take those same funds and you can get 5.7% in a security with about a 4-year duration, we make really good money, and that's what it all boils down to. Sometimes they say you don't have the growth, but we really have a 77% loan-to-deposit ratio.

I think our policy allows us to go to 85%, we have room for growth. The real value in any bank is really the core deposit relationships, and that's really what we focus on.

Understood, and certainly appreciate the confidence around the ultimate earnings power here. Maybe lastly for me, just maybe a cleanup question.

It looks like the Stellar credit mark was maybe a decent bit higher than where you guys had thought it might be when the steel is announced. I guess, is A, is that true, is that fair, and B, what kind of were the drivers behind that?

It was a little bit higher what we projected. What we do, when we put a projection, we kind of look at high level, but when we go inside and dig in, and being our conservative nature, we put up a little bit more of the marks than we anticipated.

Yeah. Okay.

Already thanks for the questions, guys. I appreciate it.

Hi. Thanks for taking my questions.

We've

talked about capital use for buybacks, and I'm wondering any appetite to use capital on repositioning the securities portfolio given the movement we've seen in the belly of the curve and you've been historically pretty active on mortgage-backed securities? MBS rates are above 6% right now.

Any appetite to do more there? I don't see any.

Over the years I've been in banking, the banks that used financial engineering to make their numbers look better, never turns out well. You sell and reposition, put a new market value, and then the next week, the market value changes again.

will never be able to control rates really, determine what interest rates are going to be up or down. We never extend the portfolio to something that we can't live with.

I think if you looked at the previous two to three years before this year, you saw our earnings really down, and that's because we never try to call the markets. We try to have something that we're going to be able to survive and up with interest rates going very up or very down.

That's just not something we do, and I don't see that. Several banks that we bought were banks that really just continued buying and selling and reengineering the balance sheet, and that for us, that just doesn't work.

The answer to your question is simply no, I don't see that, really.

All right. Very clear.

Then shifting to competition, we've heard from you guys a lot in the past about loan competition in your market, not necessarily meeting your standards. Can you just give us an update on what you're seeing today, any change versus last quarter on the competitive side?

Probably in the last month or so, I don't see them being as crazy as they were. Again, when we talk about the out-of-state competition, we're really talking about a couple of banks, really.

Those are the banks that I think they're smaller, they're trying to grow. I think there'll always be competition.

The bottom line, look, we're one of the largest Texas banks right now with 350 locations, and people in Texas, I don't care who you are, they're going to want to do business with Texas people. They can say whatever they want, they can pay whoever they want, they can try to take all the people they want, and you can underprice all you want and do all that stuff you want, but when it's all said and done, they're still going to want to deal with the Texas bank.

Thank you.

yeah. Good morning, everyone.

Thanks. Just kind of on all this conversation about the potential for organic growth, the competition versus successful track record on M&A, from a strategic standpoint, do you like the idea of continuing to grow loans via M&A, using the legacy bank for good core deposit growth versus trying to push the envelope on the organic side?

Is that a fair way to think about it strategically?

Say that again. I want to try to really understand what you're saying.

I don't know if I quite understood what you're saying.

Yeah. Just, do you like growing loans via M&A just given your successful track record there versus kind of pushing the envelope to grow loans organically right now?

I think we've been successful with the M&A growth deal. It makes it easier because you get to analyze the portfolio that you have and what you like and don't like, and you kind of really know what your potential losses are.

The thing that we don't like, I think, is to say you're going to have double-digit loan growth every year. We're just not going to do that.

I don't see that, and we're not going to really go out and try to buy wholesale deposits just to make that happen. I think that you'll see reasonable growth with our 2% to 4%, our deposit growth, and like I mentioned earlier, we have a 77% loan-to-deposit ratio.

We can go up to about 85% in our policy, we have room to grow there. I think that we'll continue to grow.

I think the answer to your question exactly is I like what we've been doing. I've been doing this a little while, about 30 or 40 years, and I've probably gone through a lot of analysts, and I've been through a lot of these meetings, and a lot of the same stuff that people come up with and say, "Well, you can't do this, and you can't do that."

I remember being $300 million and them saying that you can't do that, and can't do this, and today we're $54 billion and making a lot of money. I think the strategy that we have, and the model that we have, and the asset quality that we have, and the growth that we have organically and through M&A, it's just been a winning formula, and I think that that's what we'll stick with, probably.

It's really a balanced approach. Yeah.

I was going to say we really want both.

Yeah.

On the loan growth side, we're not going to be somebody that's going to grow at double the rate of GDP. If we can do acquisitions and grow loans at GDP rate, we are just fine with that.

If the market is all growing at 10% because we think they're doing crazier things, well, in those cases, let them grow at 10%, and we'll grow slower. If we need to grow more than that, growing through acquisitions, the way we do it, and I think you all seen the way we do it, there's enough marks put on these loan books that we buy that credit's never an issue.

We do it with the ability to increase our reserves, we sit here today in a really strong credit position, no matter what the market does. The simple answer is we want both, but we're not going to go overboard chasing growth above GDP rates.

I think, basically, it's a model if you're a long-term investor. If you're a long-term investor, you're going to love our model.

If you're a short-term investor, you probably wouldn't.

That's probably a very fair point. That's helpful.

Then now at $54 billion in assets, does the idea of indexing these regulatory thresholds, does that change your outlook for the ultimate size or scale of the bank or anything strategically that would open up for you all if those policies come through?

I don't know that I I saw the indexing thresholds that you're referring to. I'm I'm saying I guess you're referring to the $100 billion in size threshold would be our next threshold.

But, right now, we don't Again, the way when you're a $50 billion bank, you you could be a $150 billion bank. All the stuff that that's required from enterprise risk management to BSA to all the regulatory burden they put on you right now, you you could be that bigger size.

Again, we we probably didn't talk about it enough in addition to the mergers that we've done in with Texas Partners and Stellar and American. We also We also spent three years in-house on our own IT infrastructure, and we put in a new data processing that really allows us Again, I'm not saying we're going to build up to this size, but it allows us to go up to about, $500 billion in size.

Just to give you an idea, we were running out of capacity on a holiday weekend. We were running batch batch, with our checks, and and basically, we'd start on Friday, and it it may be caught up by Monday morning in main on our servers.

Today, we can run through all of that, and it catches up within an hour's time. We can run the whole process within an hour's time.

We've spent a lot of time on our infrastructure, IT IT infrastructure, a lot of money on technology. So, I I if we have a great team with internal audit and enterprise risk management, now AI, everything.

I so I I feel good where we're at. I think we're we're in a good position.

Got it. Really appreciate all the color.

Thank you. Mhm.

Hey, thanks. Good morning, everyone.

Good morning.

Just a few clean-up questions here at the end, I guess. On credit, obviously, not a big deal, but the 60 basis points in NPAs, David, that probably drives you nuts.

It does.

What is the plan to work that down? Is there anything bigger in there or how do you expect that to trend over the next few quarters?

I talked to our directors about this at the last meeting. It's a good question.

At the size that we're at, I don't ever see us really getting below $100 million in non-performing. We're at about $200 million right now, and we'll probably realistically settle, when it's all said and done, a year from now or two years from now, again, with everything else being stable, we're probably settle about $125 to $150 million is where we'll probably end up in non-performing, on a run rate.

Okay. Energy lending, any comments there?

Do you have an increased appetite? Is there more activity in your West Texas markets?

Anything to note there?

In our West Texas markets, I wish they would borrow more. Those guys, when they borrow, they sign personally, and they usually have about $100 million in their checking account, and they're borrowing $100 million, but [laughter] they just haven't borrowed a whole lot.

We do have some really great customers. will continue to bank the customers that we banked for the last 20 and 30 years.

I think, probably, the middle market we're not as big in anymore. Kevin maybe able to talk to that.

We're not. Our underwriting's a little different when it comes to revolvers and borrowing base reviews.

It's good in a conservative way. Not that long ago, and we all remember the potential smarting of 2014 through '17, or whenever that period was.

I don't look for that category to grow into a 5% of total loan kind of category. We're comfortable with where we are.

The bank's got a tremendous list of great oil and gas and oilfield services customers who have really great balance sheets that rarely need to borrow. Every now and then, we get one of them pop up that's doing an acquisition and they allow us to lend them some money, as David said.

I can think of one client who routinely has $100-plus million, and if he's making a $50 or $60 million acquisition, he allows us to make him a loan. He usually doesn't keep it out very long, but rather than just paying cash, that's great for us as guys like that, and everybody in this room knows who I'm talking about.

We got a couple of people like that. Jon, don't look for that to be a category that takes off.

I think over my years of experience, especially in the lending to oil service industries, when prices got really high, everybody would jump into the market: your bankers and lawyers. They wanted to be oil and gas guys, and that's when you'd lose all the money.

I think we've learned our lessons. We're not any new company that's just jumping into the business, we're really not looking at that.

What we're really looking at are existing companies, and we have a lot of them, and so we're still taking care of them. Doesn't mean we won't look at something new, but it would have to be extraordinarily appetizing to do it, really.

Yeah. Just last one here.

In Houston, and maybe even Ray can comment, I don't know, but you have a larger market share and you have a larger branch count with almost $12 billion in deposits. How's it gone so far, and is there anything you want to do differently or need to do differently with the larger density you have in Houston?

This is Ray. It's gone very well.

I think, as far as the question of what to do differently, I'd actually say more of how we're going to leverage the synergies that we're getting as part of the merger. For example, I think Asylbek mentioned on the wealth side, we're starting to see referrals on the wealth side and just using the bigger offering with the merger to our advantage, and we're already seeing that.

Super excited about the footprint that we have, that we've expanded in Houston and East Texas, and we think that there's great runway there.

Bob, you have any comments from your

view? I guess the comment I'd make, David, is, with the three acquisitions, you added about 20% to the balance sheet, all in great opportunity areas.

In support of loan growth, whether we get there or not, our opportunities have increased. Dallas and Houston represent almost 60% of our loans today in great business opportunities.

To me, I think it's a matter of us getting out there and getting that done. We've built on opportunity, we've increased the size in those markets, and I think it bodes well for the next several years.

I think we do have the opportunity, Bob, and I think that the only reason sometimes I hold back right now when you put these things together, it does take a lot of time, as integrating and making sure the operational integrations are going right. Once you get past that, our opportunity is just almost endless with the amount of people we have on the ground and the amount of banks that we have in the Texas market, in Oklahoma.

I think the opportunity is just great, really.

Okay. Thank you.

Mhm.

Thank you. Thank you, ladies and gentlemen, for taking the time to participate in our call today.

We appreciate your support of our company, and we will continue work on building shareholder value.