Q3 2025 Prosperity Bancshares Inc Earnings Call

Conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on the Touchtone phone towards your draw. Your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Charlotte Rashi. Please go ahead.

Thank you good morning, ladies and gentlemen, and welcome to prosperity Bancshares' third quarter 2025 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.

Tim to manage junior Chairman also backups, Manav, Chief Financial Officer, Eddie <unk>, Vice Chairman, Kevin Hanigan, President and Chief Operating Officer, Randy Hester, Chief lending Officer, and Mays Davenport director of corporate strategy <unk>.

<unk> Executive Vice President is unable to join us today.

Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by also backhouse Manav, who will review some of our recent financials fifth.

It's fixed and Tim <unk>, who will discuss 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 purposes of the federal Securities.

Flaws 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.

Turning factors that could cause the actual results to be materially different than those in the forward looking statements can be found in prosperity Bancshares 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.

To welcome and thank everyone listening to our third quarter 2025 conference call.

The third quarter, we signed a definitive merger agreement with Southwest Bancshares, Inc. The parent company of Texas Parkers Bank headquarter in San Antonio, Texas. We are excited about this transaction as it significantly expands our San Antonio Metro footprint with four additional branches.

And increased our deposit market share and bolstered our presence in the Texas Hill country and adds an experienced C&I lending team.

I would also be remiss not to mention how excited we are about our pending merger with American Bank holding Corporation and Corpus Christi, Texas.

The combination will strengthen our presence and operations in south, Texas, and the surrounding areas and enhance our presence in central Texas, including San Antonio.

Bond with the Texas Partners acquisition, we will have 10 banking centers in the San Antonio area.

I am pleased to announce that the board of directors approved increasing the fourth quarter 2025 dividend to <unk> 60 per share from 58 per share that was paid in the prior four quarters the.

Operator: Good day and welcome to the Prosperity Bancshares Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

The increase reflects the continued confidence the board has in our company and our markets.

Compound annual growth rate in dividends declared from 2003 to 2025 was 10.7.

Good day and welcome to the Prosperity Bank shares. Third quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance? Please signal conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions to ask a question. You may press star then 1 on a touchtone phone,

7%.

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.

To add draw your question, please press star then 2, please note this event is being recorded.

Charlotte Rasche: Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares Inc.'s Third Quarter 2025 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 Inc. 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, Vice Chairman, Kevin Hanigan, President and Chief Operating Officer, Randy Hester, Chief Lending Officer, and Mays Davenport, Director of Corporate Strategy. Bob Dowdell, Executive Vice President, is unable to join us today. David Zalman will lead off with a review of the highlights for the recent quarter.

I would now like to turn the conference over to Charlotte Rashi. Please go ahead.

Prosperity reported net income of $137 6 million for the quarter ending September 32025.

Compared with $127 3 million for the same periods in 2024.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bank shares. Third quarter 2025 earnings conference. Call, this call is being broadcast live on our website and will be available for Replay for the next few weeks.

Net income per diluted common share was $1 45 for the quarter ended September $32025 compared with $1 34.

For the same period in 2024, an increase of eight 2%.

Our earnings were primarily impacted by a higher net interest margin.

The net interest margin on a tax equivalent basis was three to four for the three months ending September 32025, compared with 295% for the same period in 2020 core as.

I'm Charlotte Rashi Executive Vice President and general counsel of Prosperity Bank shares. And here with me today is David Salman, senior chairman, and chief executive officer, he Tim to manage Junior, chairman also, back osmanov Chief Financial Officer Eddie safety Vice chairman. Kevin Hannigan president and Chief Operating Officer Randy. Hester Chief lending officer and May St. Davenport director of corporate strategy. Bob dowel Executive Vice President is unable to join us today.

Charlotte Rasche: He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics, and H.E. (Tim) Timanus Jr., who will discuss 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 purposes of the Federal Securities Law and, as such, may involve known and unknown risks, uncertainties, and other factors which may cause the actual results or performance of Prosperity Bancshares Inc. to be materially different from future results or performance expressed or implied by such forward-looking statements.

As mentioned in previous calls our net interest margin should continue to improve over the next 24 to 36 months with interest rates, either increasing or decreasing 200 basis points.

Prosperity continues to exhibit solid operating metrics with annualized return on tangible equity of 13, 313, 43% and return on assets of 144%.

Our loans, excluding warehouse purchase program loans were $20 7 billion at September 32025, compared with $20 9 billion at June 32025, a decrease of $160 million or <unk> 77 basis points.

Charlotte Rasche: Additional information concerning factors that could cause the actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares Inc.'s 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.

We continue to work through credits acquired in previous mergers and we are experiencing borrowers using their own cash to pay down balances are not drawing on their lines. It is also an extremely competitive lending environment with aggressive terms and conditions being offered and in some cases, we've just elected not to.

David Salman will lead off with a review of the highlights for the recent quarter. He will be followed by also back osmanah who will review some of our recent financial statistics statistics and Tim to Manas who will discuss 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 Ford looking statements for 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 Bank shares to be materially different from future results or performance expressed or implied by touch forward-looking statements additional information concerning factors that could cause the actual results

To be materially different than those in the forward-looking statements can be found in Prosperity Bank. Shares filings with the Security and Exchange Commission, including forms, 10, q, and 10K, and other reports. And statements, we have filed with the FCC.

Dissipate.

Deposits were $27 7 billion at September 32025.

All 4 were looking statements are expressly qualified in their entirety by these cautionary statements.

David Zalman: Thank you, Charlotte. I'd like to welcome and thank everyone listening to our Third Quarter 2025 Conference Call. In the third quarter, we signed a definitive merger agreement with Southwest Bankshares Inc., the parent company of Texas Partners Bank, headquartered in San Antonio, Texas. We are excited about this transaction as it significantly expands our San Antonio metro footprint with four additional branches and increased our deposit market share and bolsters our presence in the Texas Hill Country and adds an experienced C&I lending team. I would also be remiss not to mention how excited we are about our pending merger with American Bank Holding Corporation and Corpus Christi, Texas. The combination will strengthen our presence and operations in South Texas and the surrounding areas and enhance our presence in Central Texas, including San Antonio.

And an increase of $308 million or one 1%.

Four 5% annualized from the $27 4 billion at June 32025, we are encouraged that the deposits at the core deposits have grown importantly, prosper does not have any broker deposits.

Now, let me turn the call over to David Zalman. Thank you, Charlotte. I'd like to welcome and thank everyone listening to our third quarter 2025 conference call.

Our nonperforming assets totaled $119 million or 36 basis points of quarterly average, earning assets at September 32025.

Paired with $110 million or <unk> 33 basis points of quarterly average interest earning assets at June $32 25, there is a slight increase in NPA. However, credit remains strong with some isolated incidences.

Market, share and bolsters our presence in the Texas Hill, Country and adds an experienced cni. Lending team.

Allowance for credit losses on loans and off balance sheet credit exposure was 377 million at September 32025, compared to $119 million.

Nonperforming assets as of September 32025.

David Zalman: Combined with the Texas Partners acquisition, we will have 10 banking centers in the San Antonio area. I am pleased to announce that the Board of Directors approved increasing the Q4 2025 dividend to $0.60 per share from $0.58 per share that was paid in the prior four quarters. 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 2025 was 10.7%. 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. Prosperity Bancshares Inc. reported net income of $137.6 million for the quarter ending September 30, 2025, compared with $127.3 million for the same period in 2024.

I would also be remiss. Not to mention how excited we are about. Our pending merger with American Bank, holding Corporation and Corpus Christi Texas. The combination was strengthen, our presence and operations in South Texas, and the surrounding areas and enhance our presence in Central Texas, including San Antonio.

We remain focused on completing our pending acquisition of American Bank, holding company and Southwest Bancshares, Inc.

Combined with the Texas Partners acquisition, we will have 10 banking centers in the San Antonio area.

We also continue to have conversation was up with other banks, considering strategic opportunities, we believe that higher technology and staffing costs funding costs loan competition succession planning concerns and regulatory burden all point to continued consolidation we remain ready to move forward in the event a transaction mature.

I am pleased to announce that the board of directors approved increasing the fourth quarter 2025 dividend to 60 cents per share from 58 cents per share. That was paid in the in the prior 4 quarters.

Realizing will be beneficial to our company's long term future and will increase shareholder value.

As of October 2025, Texas boast one of the worlds strongest and most diverse economies ranking <unk>.

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 2025 was 10.7%.

Largest globally with a GDP of approximately $2 seven trillion.

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.

In 2024, the state produces nine 3% of the U S. GDP and continues to outpace national growth in many metrics. Although the economy is showing some signs of moderation influenced by factors such as tariffs and immigration policies, We believe Texas remains the best.

Prosperity reported net, income of 137.6 million for the quarter. Ending September 3rd, 2025,

David Zalman: Net income per diluted common share was $1.45 for the quarter ended September 30, 2025, compared with $1.34 for the same period in 2024, an increase of 8.2%. Our earnings were primarily impacted by a higher net interest margin. The net interest margin on a tax-equivalent basis was 3.24% for the three months ending September 30, 2025, compared with 2.95% for the same period in 2024. As mentioned in previous calls, our net interest margin should continue to improve over the next 24 to 36 months, with interest rates either increasing or decreasing 200 basis points. Prosperity Bancshares Inc. continues to exhibit solid operating metrics, with annualized return on tangible equity of 13.43% and return on assets of 1.44%.

Compared with the 127.3 million for the same period in 2024.

Place for business with our pro business attitude and no state income tax.

This is evidenced by major corporations, continuing to move their operations to Texas and Oklahoma.

And that income per diluted column, and share was a145 for the quarter, ended September, 30 2025 compared with the dollar. 34 cents were the same period in 2024 and increase of 8.2%.

As of October 2025, Oklahoma economy is demonstrating resilience and modest growth outpace the national averages in key areas like unemployment and population expansion despite broader use slowdowns from tariffs and policy uncertainties.

Our earnings were primarily impacted by a higher net interest margin.

Thanks again for your support of our company, let me turn over the discussion to also backhouse Manav, our chief financial officer to discuss the specific financial results. We achieved <unk>. Thank you Mr. Shlomo good morning, everyone.

Than that, interest margin on a tax equivalent basis, was 2 3.24 for the 3 months ending September 3225 compared with 2.95% for the same period in 2024.

As mentioned in previous calls, our net interest margin should continue to improve over the next 24 to 36 months, with interest rates either increasing or decreasing by 200 basis points.

Net interest income before provision for credit losses for the three months ended September 32025 was $273 4 million, an increase of $11 7 million compared to $261 7 million for the same period in 2024, an increase of $5 7 million.

David Zalman: Our loans, excluding the warehouse purchase program loans, were $20.7 billion at September 30, 2025, compared with $20.9 billion at June 30, 2025, a decrease of $160 million or 77 basis points. We continue to work through credits acquired in previous mergers, and we are experiencing borrowers using their own cash to pay down balances or not drawing on their lines. It is also an extremely competitive lending environment, with aggressive terms and conditions being offered, and in some cases, we've just elected not to participate. Deposits were $27.7 billion at September 30, 2025, an increase of $308 million or 1.1%, 4.5% annualized from the $27.4 billion at June 30, 2025. We are encouraged that the core deposits have grown, importantly, Prosperity Bancshares Inc. does not have any broker deposits.

Prosperity continues to exhibit solid operating metrics, with annualized returns on tangible equity of 13.34%, 13.43%, and a return on assets of 1.44%.

Compared to 206% to $7 7 million for the quarter ended June 32025.

Fair value loan income for the third quarter of 2025 was $2 9 million compared to $3 1 million for the second quarter of 2025.

Our lungs, excluding the warehouse purchase program loans were 20.7 billion at September 3225 compared with 20.9 billion at June, 30 2025, a decrease of 160 million or 77 basis points.

Fair value loan income for the fourth quarter of 2025 is expected to be in the range of $2 million to $3 million.

The net interest margin on a tactical one basis was 324% for the three months ended September 32025, an increase of 29 basis points compared to 295% for the same period in 2024, an increase of six basis points compared to $3 one.

We continue to work through credits acquired in previous mergers and we are experiencing borrowers. Using their own cash to pay down. Balances are not drawing on their lines. It is also an extremely competitive lending environment with aggressive terms and conditions being offered. And in some cases we've just elected not to participate.

Deposits were $27.7 billion at September 30th, 2025.

<unk>, 8% for the quarter ended June 32025.

And increase of 308 million or 1.1%.

Excluding purchase accounting.

Accounting adjustments the net interest margin for the three months ended September <unk> 2025 was 321% compared to 289% for the same period in 2024 and $3 one 4% for the quarter ended June 32025.

4.5% annualized from the 27.4 billion at June 3225.

David Zalman: Our non-performing assets total $119 million or 36 basis points of quarterly average earning assets at September 30, 2025, compared with $110 million or 33 basis points of quarterly average interest earning assets at June 30, 2025. There is a slight increase in NPAs, however, credit remains strong with some isolated incidences. The allowance for credit losses on loans and off-balance sheet credit exposure was $377 million at September 30, 2025, compared to the $119 million in non-performing assets as of September 30, 2025. We remain focused on completing our pending acquisitions of American Bank Holding Corporation and Southwest Bankshares Inc. We also continue to have conversations with other banks considering strategic opportunities. We believe that higher technology and staffing costs, funding costs, loan competition, succession planning concerns, and regulatory burden all point to continued consolidation.

We are encouraged at the deposit that the court deposits have grown importantly, Prosperity, does not have any broker deposits.

Our non-performing assets, total 1119 million or 36 basis. Points of quarterly, average earning assets at September 30th 2025

Noninterest income was $41 2 million for the three months ended September 32025, compared to $43 million for the quarter ended June 32025, and $41 1 million for the same period in 2024.

Compared with $110 million or 33 basis points of quarterly average interest-earning assets at June 30, 2025, there is a slight increase in NPAs. However, credit remains strong with some isolated incidences.

Noninterest expense was $138 6 million for the three months ended September 32025, and for the three months ended June 32025, compared to $148 3 million for the same period in 2024 for.

The allowance for credit losses on loans and off-balance sheet. Credit exposure was 377 million at September 3020 compared to the 119 million and in non-performing assets as of September 3202.

For the fourth quarter of 2025, we expect noninterest expense to be in the range of $141 million to $143 million.

We remain focused on completing our pending acquisitions of American Bank Holding Company and Southwest Bank shares.

The efficiency ratio was 44, 1% for the three months ended September <unk> 2025, compared to 44, 8% for the quarter ended June 32025, and 46, 9% for the same period in 2024.

David Zalman: We remain ready to move forward in the event a transaction materializes and will be beneficial to our company's long-term future and will increase shareholder value. As of October 2025, Texas boasts one of the world's strongest and most diverse economies, ranking the eighth largest globally with a GDP of approximately $2.7 trillion in 2024. The state produces 9.3% of the U.S. GDP and continues to outpace national growth in many metrics. Although the economy is showing some signs of moderation, influenced by factors such as tariffs and immigration policies, we believe Texas remains the best place for business with a pro-business attitude and no state income tax. This is evidenced by major corporations continuing to move their operations to Texas and Oklahoma. As of October 2025, Oklahoma's economy is demonstrating resilience and modest growth, outpacing national averages in key areas like unemployment and population expansion, despite broader U.S.

The bond portfolio metrics at 932025 have a modified duration of three eight and projected annual cash flows of approximately $1 9 billion.

Bergen all point to continued consolidation, we remain ready to move forward in the event of transaction materializes and will be beneficial to our company's long-term future and will increase shareholder value.

As October 2025 Texas Post 1 of the world's strongest and most diverse economies.

And with that let me turn over the presentation to attempt to manage for some details on loan and asset quality.

Thank you <unk>.

Our nonperforming assets at quarter end.

At September 32025.

Totaled $119 million $563000.

Our 54 basis points of loans and other real estate.

Compared to a $110 million $487000 or 50 basis points.

At June 32025.

This is an increase of $9.076 million.

Ranking a eighth largest globally with a GDP of approximately 2.7 trillion dollars in 2024. The state produces 9.3% of the US GDP and continues to outpace National growth in many metrics. Although the economy is showing some signs of moderation influenced by factors such as tariffs and immigration policies, We Believe Texas Remains the best place for business with a pro business attitude and no state income tax. This is evidenced by major corporations continuing to move their operations to Texas and Oklahoma.

Since September 32025.

$1 million $121000 of nonperforming assets have been removed as a result of the sale of homes.

David Zalman: slowdowns from tariffs and policy uncertainties. Thanks again for your support of our company. Let me turn over the discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss the specific financial results we achieved. Asylbek?

As of October 2025, Oklahoma's economy is demonstrating resilience and modest growth, outpacing national averages in key areas like unemployment and population expansion, despite broader U.S. slowdowns from tariffs and policy uncertainties.

The September 32025, nonperforming asset total was made up of.

Asylbek Osmonov: Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended September 30, 2025, was $273.4 million, an increase of $11.7 million compared to $261.7 million for the same period in 2024, an increase of $5.7 million compared to $267.7 million for the quarter ended June 30, 2025. Fair value loan income for the third quarter of 2025 was $2.9 million compared to $3.1 million for the second quarter of 2025. The fair value loan income for the fourth quarter of 2025 is expected to be in the range of $2 to $3 million.

$105 million $797000 in loans.

$16000 in repossessed assets.

And $13 million $750000 in other real estate.

Net charge offs for the three months ended September 32025.

We're $6.458 million.

Compared to net charge offs of $3 million $17000 for the quarter ended June 32025.

Thanks again for your support of our company. Let me turn over the discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss the specific financial results. We achieved also back. Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the 3-month period ended September 30, 2025, was $273.4 million, an increase of $11.7 million compared to $261.7 million for the same period in 2024, and an increase of $5.7 million compared to $267.7 million for the quarter ended June 30, 2025.

This is an increase of $3 million $441000 on a linked quarter basis.

There was no addition to the allowance for credit losses during the quarter ended September 32025.

Asylbek Osmonov: The net interest margin on a tax-equivalent basis was 3.24% for the three months ended September 30, 2025, an increase of 29 basis points compared to 2.95% for the same period in 2024, an increase of 6 basis points compared to 3.18% for the quarter ended June 30, 2025. Excluding purchase accounting adjustments, the net interest margin for the three months ended September 30, 2025, was 3.21% compared to 2.89% for the same period in 2024 and 3.14% for the quarter ended June 30, 2025. Non-interest income was $41.2 million for the three months ended September 30, 2025, compared to $43 million for the quarter ended June 30, 2025, and $41.1 million for the same period in 2024. Non-interest expense was $138.6 million for the three months ended September 30, 2025, and for the three months ended June 30, 2025, compared to $140.3 million for the same period in 2024.

Fair value loan income for the third quarter of 2025 was $2.9 million, compared to $3.1 million for the second quarter of 2025. The fair value loan income for the fourth quarter of 2025 is expected to be in the range of $2 million to $3 million.

No dollars were taken into income from the allowance during the quarter ended September 32025.

The average monthly new loan production for the quarter, Andy September 32025 was $356 million.

The net interest margin on a tax-equivalent basis was 3.24% for the three months ended September 30, 2025, an increase of 29 basis points compared to 2.95% for the same period in 2024, and an increase of 6 basis points compared to 3.18% for the quarter ended June 30, 2025.

<unk> two $353 million for the quarter ended June 32025.

Loans outstanding at September 32025 were approximately $22.028 billion.

Compared to 22.

Excluding purchase accounting adjustments, the net interest margin for the 3-month period ended September 30, 2025, was 3.21%, compared to 2.89% for the same period in 2024 and 3.14% for the quarter ended June 30, 2025.

197 billion at June 32025.

The September 32025 loan total is made up of 36% fixed rate loans.

34% floating rate loans, and 30% variable rate loans.

Non-interest income was $41.2 million for the three months ended September 30, 2025, compared to $43 million for the quarter ended June 30, 2025, and $41.1 million for the same period in 2024.

I will now turn it over to Charlotte Rasche. Thank.

Thank you Tim.

At this time, we are prepared to answer your questions our call operator will assist us with questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

Asylbek Osmonov: For the fourth quarter of 2025, we expect non-interest expense to be in the range of $141 to $143 million. The efficiency ratio was 44.1% for the three months ended September 30, 2025, compared to 44.8% for the quarter ended June 30, 2025, and 46.9% for the same period in 2024. The bond portfolio metrics at 9/30/2025 have a modified duration of 3.8 and projected annual cash flows of approximately $1.9 billion. With that, let me turn over the presentation to Tim Timanus for some details on loan and asset quality.

Uh, non-interest expense was 138.6 Million for the 3 months and the September 30th 2025 and for the 3 months ended June 30th 2025 compared to 140.3 million for the same period in 2024.

Any time your question has been addressed and you would like to withdraw your question. Please.

For the fourth quarter of 2025, we expect non-interest expense to be in the range of $141 million to $143 million.

Press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Catherine Mealor with <unk>. Please go ahead.

Thanks, Good morning.

The efficiency ratio was 44.1% for the three months ended September 30, 2025, compared to 44.8% for the quarter ended June 30, 2025, and 46.9% for the same period in 2024.

Morning.

I wanted to start maybe what's your outlook for loan growth just wanted to see with Linzess and declining for the past few quarters and I think we were hopeful that we would see that inflection this quarter, but just kind of curious if you could talk about the push and pull between pay downs and the decline in stone here acquired books and then your outlook for organic growth moving forward.

The bond portfolio metrics at 9:30 in 2025 have a modified duration of 3.8 and projected annual cash flows of approximately $1.9 billion.

H.E. Timanus Jr.: Thank you, Asylbek. Our non-performing assets at quarter end September 30, 2025, totaled $119,563,000 or 0.54% of loans and other real estate compared to $110,487,000 or 0.50% at June 30, 2025. This is an increase of $9,076,000. Since September 30, 2025, $1,121,000 of non-performing assets have been removed as a result of the sale of homes. The September 30, 2025, non-performing asset total was made up of $105,797,000 in loans, $16,000 in repossessed assets, and $13,750,000 in other real estate. Net charge-offs for the three months ended September 30, 2025, were $6,458,000 compared to net charge-offs of $3,017,000 for the quarter ended June 30, 2025. This is an increase of $3,441,000 on a linked quarter basis. There was no addition to the allowance for credit losses during the quarter ended September 30, 2025. No dollars were taken into income from the allowance during the quarter ended September 30, 2025.

And with that, let me turn over the presentation to Tim to manage some details on loan and asset quality.

Thank you, asylbek.

Thanks.

Okay. Thanks for the question. This is Kevin I'll take the first cut at that.

Our non-performing assets at quarter, in September 30th, 2025,

I think for the fourth quarter first of all year to date for the fourth quarter loans were down slightly maybe 40% to $45 million.

Total 1909563000.

Or 54 basis points of loans and other real estate.

And.

As David said in his leaving comments, we're seeing some structure and pricing.

Aspects of that.

Are not favorable in terms of what the way we're thinking about credit.

At June 30th 2025.

Still and maybe accelerated basis, so between that and and some elevated payoffs in the fourth quarter, I think theres going to be a flat quarter.

This is an increase of 9,076,000.

Which I know is disappointing, but I think thats really where were going to kind of come out of this.

Since September 30th, 2025, 1 12100 of non-performing assets have been removed as a result of the sale of homes.

Going into next year, we feel a little bit better about it we've got a bunch of.

Construction deals that we have approved.

The September 30th 2025 non-performing asset total was made up of

Over the course of this year that have not funded up yet, but we're still waiting for all the equity would go into those deals.

105 million 797,000 in loans.

So just talk about steady state book I would say low single digits for next for next year.

16,000 and repossessed assets.

And as you know we expect to have both of the acquisitions.

And $13,750,000 and other real estate.

That we've announced.

Closed in on the books in the next year, probably by the end of the first quarter of next year.

Net charge-offs for the three months ended September 30, 2025.

Which will which will help out obviously for for just a total volumes.

we're 6,458,000.

The only thing I would caution.

All of what I've said is once we buyback a couple.

Couple of items like that.

Typically some loan runoff even for a good bank and these are both pretty good credit quality banks. So.

Compared to net, charge offs of 3,017,000, for the quarter ended June 30th 2025.

One of the headwinds for overall next year, not just organic off of today's balance sheet.

This is an increase of 3,441,000 on a length quarter basis.

We will be any payoffs, we get out of those two acquisitions.

Thats probably.

Fair summary, but David or Tim may want to add to that.

There was no addition to the allowance for credit losses during the quarter ended September 30th 2025.

Well I would just <unk>.

Remind everybody that when.

When you are in.

No dollars were taken into income from the allowance during the quarter ended, September 30th 2025.

H.E. Timanus Jr.: The average monthly new loan production for the quarter ended September 30, 2025, was $356 million compared to $353 million for the quarter ended June 30, 2025. Loans outstanding at September 30, 2025, were approximately $22.028 billion compared to $22.197 billion at June 30, 2025. The September 30, 2025, loan total is made up of 36% fixed-rate loans, 34% floating-rate loans, and 30% variable-rate loans. I will now turn it over to Charlotte Rasche.

A market that is very aggressive in terms of pricing and terms and thats. What we have had for some time now.

He just simply have to be careful and prudent.

The average monthly new loan production for the quarter ended September 30, 2025, was $356 million.

And.

Theyre still loans to look at out there.

We have active loan committees.

Compared to $353 million for the quarter ended June 30, 2025.

But we don't want to make a mistake and end up having a problem with our net interest margin because we priced too low and.

Thanks of that nature, and we see a lot of that going on in the market. So.

Loans outstanding at September 30th 2025 for approximately 22.028 billion.

We just need to be careful and prudent and thanks will be fine.

Last thing I, probably should have mentioned.

Compared to $2.2 billion, $1.9 billion.

It's not lost on you or us.

Competitive landscape in Texas has taken on some major changes over the last couple of months.

The September 30, 2025 loan total is made up of 36% fixed-rate loans.

And I would expect some of the new out of state players who've bought banks here to be aggressive.

34% floating rate loans and 30% variable rate loans.

Charlotte Rasche: Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator will assist us with questions.

Into this market.

Offsetting that aggressiveness.

And maybe this isn't as prevalent as it has been.

I will now turn it over to Charlotte rashy. Thank you. Tim at this time, we are prepared to answer your questions. Our call, operator will assist us with questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Catherine Miller with KBW. Please go ahead.

15, 2030 years ago.

Theres, a fair amount of Texas based businesses that want to bank with the Texas Bank.

So just the fact that you've got an out of state competitors, taking over a local.

We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone, if you're using a speaker-phone, please pick up your handset before pressing the keys.

Institution, there'll be well be more than a handful of clients or say.

We're Texans and we want to bank with a Texas Bank somebody we can look in the eyes in terms of the top decision makers. So so I think net net that probably plays out on a positive basis for US yes, that's a very regal aspect.

If at any time your question is being addressed and you would like to address your question, please press star, then 2.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Katherine Mueller with KBW, please go ahead.

[Analyst 1]: Thanks. Good morning.

It always is.

Kevin Hanigan: Good morning.

Thanks, good morning.

[Analyst 1]: I wanted to start maybe with your outlook for loan growth. I wanted to see with, you know, the loans have been declining for the past few quarters, and I think we were hopeful that we would see that inflection this quarter. I'm just kind of curious if you could talk about the push and pull between paydowns and the decline in some of your acquired books and then your outlook for organic growth moving forward. Thanks.

And so and so how should we think about that.

Thank you Ryan I think the competitive landscape I mean, if you're if you see stress in structure and pricing that you don't think are acceptable today. My gut is just given all the M&A that you've seen in Texas, that's only going to get worse next year.

But I appreciate the comment on <unk>.

Moving forward. Thanks.

Kevin Hanigan: Hey, thanks for the question. This is Kevin. I'll take the first cut at that. I think for the fourth quarter, first of all, it's year to date for the fourth quarter, loans are down slightly, maybe $40 to $45 million. As David said in his lead-in comments, you know, we're seeing some structure and pricing aspects that are not favorable in terms of the way we're thinking about credit, still, and maybe on an accelerated basis. Between that and some elevated payoffs in the fourth quarter, I think this is going to be a flat quarter, which I know is disappointing, but I think that's really where we're going to kind of come out of this.

Texas, Atlanta today with other Texas banks, so that helps that but in the scenario, where we don't see a pickup in loan growth next year.

Hey, thanks for the question. This is Kevin. I'll take the first cut at that.

I was excited to see the buyback activity this quarter and the new authorization.

How aggressive do you think you can get on the buyback given where your stock is trading in the slow growth I mean is it appropriate for us to.

Um, I think for the fourth quarter, first of all, it's year to date for the fourth. Quarter wounds are down slightly maybe 40 to 45 million dollars.

um, and

Incorporate this entire 5% buyback into our estimates over the next year.

As David said in his leading comments, you know, we're seeing some structure and pricing aspects that, um,

I'm going to let David take that one im going to say that's going to be price dependent.

My goodness, we sure wish we could have been buying more.

In the previous quarter, we were blacked out for a good part of the period.

are not favorable in terms of the way we're thinking about credit. Um, still, and maybe on an accelerated basis. So, between that and some elevated payoffs in the fourth quarter, I think this is going to be a flat quarter.

When we got as far as out there on acquisitions.

Kevin Hanigan: Going into next year, we feel a little bit better about it in that we've got a bunch of construction deals that we have approved over the course of this year that have not funded up yet, but we're still waiting for all the equity to go into those deals. Just off of a steady state book, I would say low single digits for next year. As you know, we expect to have both of the acquisitions that we have announced closed and on the books end of next year, probably by the end of the first quarter of next year, which will help out, obviously, for just the total volumes. The only thing I would caution out of all of what I've said is, you know, once we buy a bank, a couple of banks like that, there's typically some loan runoff even for a good bank.

I do expect very soon we will be active again.

Catherine I would say that I've read a lot of the analysts.

Thanks that came out this morning, and I think once the herd gets into a certain motion I all running that same motion I'll focus on the net interest income, but the but the bottom line is as our balance sheet, we reduced our balance sheet size and it primarily came from borrowings that we add at the fed or federal home loan Bank. If you look a year ago, we were.

I know this is disappointing, but I think that's really where we're going to kind of come out of this, uh, going into next year. We feel a little bit better about it and that we've got a bunch of construction deals that we have approved.

Uh, over the course of this year, we have not funded up yet, but we're still waiting for all the equity to go into those deals. Uh, so just off of a steady state book, I would say those are in single digits for next year.

Borrowing about $4 billion in today.

You might we might have closed at $2 billion, but we've probably averaged about $1 billion of have borrowings a day. So we.

Maybe $1 billion to Big night, So, we really lowered our balance sheet that things that every debt.

Uh, and as you know, we'll we expect to have both of the Acquisitions, um, that we have announced, um, closed and, and on the books, uh, in the next year, probably by the end of the first quarter next year, uh, which will, which will help out obviously for for just a total volumes. Uh, the only thing I would caution out of all of what I

I guess are missing I don't know, maybe I just need to bring it up as I told you a year ago that we're going to increase our earnings by 15% and we're going to take our net interest margin from $2 95 to three to four in one year I think everybody would be as static well, that's what's happened with our earnings.

Kevin Hanigan: These are both pretty good credit quality banks. One of the headwinds for overall next year, not just organic off of today's balance sheet, will be any payoffs we get out of those two acquisitions. I think that's probably a fair summary, but David or Tim may want to add to that.

Sad is, you know, once we buy a bank, a couple of banks like that, there's typically some loan runoff even for a good bank, and these are both pretty good credit quality banks. So, one of the headwinds for overall next year, not just organic off of today's balance sheet, will be any payoffs we get out of those two acquisitions. I think that's probably a.

Nine months last year to nine months. This year has grown over 15%. Our net interest margin went from three <unk> at $2 95 to $3 24, I mean, thats just magnificent and the beautiful part about that is based on <unk> projections, you have that to look forward for 2026 and 2027 double digit.

H.E. Timanus Jr.: I would just remind everybody that when you're in a market that's very aggressive in terms of pricing and terms, and that's what we have had for some time now, you just simply have to be careful and prudent. There's still loans to look at out there. We have acting loan committees, but we don't want to make a mistake and end up having a problem with our net interest margin because we've priced too low and things of that nature. We see a lot of that going on in the market. We just need to be careful and prudent, and things will be fine.

Fair summary. But David or Tim may want to add to that.

Well, I would just, uh, remind everybody that when you're in a market that's very aggressive in terms of pricing, in terms...

And that's what we have had for some time now.

Growth. So yes, we're very excited about the quarter and year.

Uh, you just simply have to be careful and prudent.

At the low prices that we're at right now we're going to back up the truck there is no question.

And, uh, there are still loans to look at out there. Uh, we have active loan committees.

<unk>.

The earnings we had and the <unk>.

And the price that is set right now is ridiculous I noticed even though to some other bank sales that have gone through like the first bank deal in.

Um, but we don't want to make a mistake and end up, uh, having a problem with our net interest margin because we've priced too low.

In Colorado.

Bank are similar to us I think we're better however, but a lot of the same good core same good core deposit structures went from 15 times earnings anybody take take care earnings next year $6 is something multiply that times.

Kevin Hanigan: You know what? Last thing I probably should have mentioned is it's not lost on you or us that the competitive landscape in Texas has taken on some major changes over the last couple of months. I would expect some of the new out-of-state players who have bought banks here to be aggressive into this market. Offsetting that aggressiveness, and maybe this isn't as prevalent as it's been 15, 20, 30 years ago, there's a fair amount of Texas-based businesses that want to bank with a Texas bank.

And things of that nature, and we see a lot of that going on in the market. So, uh, we just need to be careful and prudent and things will be fine. You know what, last thing? I probably should have mentioned is

It's not lost on you or us that the competitive landscape in Texas has taken on some major changes over the last couple of months.

That's our real processor real value of our bank 90 to $100 a share so where we're trading at today is just absolutely ridiculous and we will be bond, we will be buying strong.

Great Love to hear that thank you.

The next question comes from Michael Rose with Raymond James. Please go ahead.

Um, and I would expect some of the, the new out of state players who have bought Banks here to be aggressive, um, in into this Market. Um, offsetting that aggressiveness um and and maybe this isn't as prevalent as it's been, you know, 15, 20, 30 years ago.

Hey, good morning, Thanks for taking my questions, maybe just following up on the loan growth discussion just given the amount of dislocation that we're going to see and I know, it's competitive but I think one maybe one area that you guys haven't talked up as much over the years and others have as just your hiring efforts and hiring more lenders bring more bodies on staff you guys have a great efficiency.

Kevin Hanigan: Just the fact that you've got an out-of-state competitor taking over a local institution, there'll be more than a handful of clients who say, "You know, we're Texans and we want to bank with a Texas bank, somebody we can look in the eye in terms of the top decision makers." I think net-net, that probably plays out on a positive basis for us.

There, there's a fair amount of Texas space businesses that want to bank with the Texas Bank.

Uh, so so just the fact that you've got an out of state competitor taking over a local, uh, institution, they'll be a, they'll be more than a handful of clients or say, you know.

But any thoughts given to to be in a little bit more active on the on the hiring front to really bolster that loan growth potential.

H.E. Timanus Jr.: Yeah, that's a very real aspect and always is.

Or Texans and we want to bank with a Texas Bank. Somebody we can look in the eye in terms of the top decision makers. So so I I think they'll net net, that probably plays out on a positive basis for us.

yeah, that's a very real aspect and always is

Potential because certainly I appreciate the.

[Analyst 1]: How should we think about if, because I think you're right, I think the competitive landscape, I mean, if you see stress in structure and pricing that you don't think are acceptable today, my gut is just given all the M&A that you've seen in Texas, that's only going to get worse next year. I appreciate the comment on, you know, Texans wanting to bank with other Texas banks. That helps that. In the scenario where we don't see a pickup in loan growth next year, how, I mean, I was excited to see the buyback activity this quarter and the new authorization. How aggressive do you think you can get on this buyback given where your stock is trading and the slow growth? I mean, is it appropriate for us to incorporate this entire 5% buyback into our estimates over the next year?

The margin expansion in the fixed asset repricing, but it's kind of price times volume right and I think we'd like to we'd all like to see some some greater earning asset growth.

and so, and so, how should we think about if

Because I think you're right. I think.

It really reap the benefit of that margin expansion. Thanks.

Yes.

We're constantly looking at people that.

Potentially can come in and help to grow our bank.

I have approved three or four.

Just within the last month.

That we think have a very good opportunity with us. So that's something we're constantly focused on.

Competitive landscape. I mean, if if you're if you see stress and structure and pricing that you don't think are acceptable today, I my gut is just giving all the m&a that you've seen in Texas. That's only going to get worse next year. Um but I appreciate the comment on, you know, Texans wanted to to dance with other Texas Banks so that helps that. But in in the scenario where we don't see a pickup in loan growth next year. Um, how I mean I was excited to see

Likewise, if we if we have somebody that's just simply not performing.

And enough time has gone by where that should not be the case.

the buyback activity, this quarter and, and the new authorization, like, how aggressive do you think you can get on this buyback given where your stock is trading, and the slow growth, I mean, is it appropriate for us to

We typically look at those people and try to determine.

Incorporate this entire 5% buyback into our estimates over the next year?

Kevin Hanigan: I'm going to let David take that one. I'm going to say that's going to be price-dependent. My goodness, we sure wish we could have been buying more in the previous quarter. We were blacked out for a good part of the period, you know, when we got S-4s out there on acquisitions. I do expect very soon we'll be active again.

Should they still be with us or not so there are two sides to that coin but.

We absolutely are looking at bringing people in and we have approved a fair number here.

I'm gonna let David take that 1. I'm gonna say that's going to be price dependent and my my goodness. We we sure wish we could have been buying more.

Uh, in the previous quarter, we were blacked out for a good part of the period and.

Over the last year really.

And some recently so we're active in that regard.

H.E. Timanus Jr.: Catherine, I would say that, you know, I've read a lot of the analyst things that came out this morning. I think once the herd gets into a certain motion, they all run in that same motion and they all focus on the net interest income. The bottom line is, our balance sheet, we reduced our balance sheet in size, and that primarily came from borrowings that we had at the Fed or Federal Home Loan Bank. If you look a year ago, we were probably borrowing about $4 billion. Today, you know, we might have closed at $2 billion, but we probably average about $1.5 billion borrowings a day, so maybe $1.5 billion to $1.8 billion. We really lowered our balance sheet. The things that I guess are missing, I don't know, maybe I just need to bring it up.

U, you know, when we got S4s out there on Acquisitions. So so, um, I do expect uh, very soon. We'll be active again.

Okay helpful.

Kevin maybe if I can just ask quickly the kind of the warehouse question and kind of expectations for.

The next quarter it looks like we're going to get a rate cut here a couple of hours.

It seems you guys are saying yes.

Yes.

For the question Michael first of all I have to say after six or seven year round.

<unk>.

Really hit the nail on the head.

Our thought process about before.

Spacer I missed it this quarter I sort of 1 billion $2 50, we averaged 1 billion 2018 so.

The record is broken.

Michael quarter to date.

H.E. Timanus Jr.: If I told you a year ago that we're going to increase our earnings by 15% and we're going to take our net interest margin from 2.95 to 3.24 in one year, I think everybody would be hysterical. That's what's happened. Our earnings from nine months last year to nine months this year has grown over 15%. Our net interest margin went from 2.95 to 3.24. I mean, that's just magnificent. The beautiful part about that is, based on y'all's projections, you have that to look forward for 2026 and 2027, double-digit growth. Yes, we're very excited about the quarter. At the low prices that we're at right now, we're going to back up the truck. There's no question. With the earnings we have and the price that it's at right now is ridiculous.

<unk>.

Through last night, we're averaging a $1 billion through 'twenty, two so basically flat to the average of last quarter.

Typically the warehouse is decent in October and November and December are relatively weak months in fact.

Surprise me if we saw.

A week or two with below $1 billion or below $900 million before the year's out now all that's rate dependent.

Things that came out this morning and and I think, once the herd gets into a certain motion, they all running that same motion and they all focus on the net interest income. But the but the bottom line is, is our our balance sheet. We reduced our balance sheet in size and that primarily came from borrowings that we had at the fed or federal Home Loan Bank. If you look at a year ago, we were probably borrowing about 4 billion dollars and today we, you know, you might we might have closed at 2 billion, but we probably average about a billion and a half borrowings a day. So we, we maybe a billion and a half to billion, 8 weeks. We, we really lowered our balance sheet, the things that every that I don't, I guess they're missing, I don't know. Maybe I just need to bring it up. If I told you a year ago that we're going to increase our earnings by 15% and we're going to take our net interest margin from 2.95 to 3.24 and 1 year I think everybody would be as static. Well that's what's happened. We our earnings from 5 9s last year to 9 months this year has grown over 15%

But I would say.

For the quarter, we probably averaged 1 billion one yes.

Yes. The only helpful thing you could SaaS also numbers today I don't know if theyre accurate or not were refinancings are up 111% overlaying up year simply because right now.

Theres another mini refi boom going on.

That's good to hear I'll step back thanks for taking my questions.

Our net interest margin went from 320 to 295 to 324. I mean, that's just magnificent. And the beautiful part about that is, based on y'all's projections, you have that to look forward to for 2026 and 2027—double-digit growth. So yes, we're very excited about the quarter, and yes, at the low prices that we're at right now, we're going to back up the truck. There's no question. We will, with the earnings we have, and the...

H.E. Timanus Jr.: I noticed, you've noticed some other bank sales that have gone through like the FirstBank deal in Colorado. That bank is similar to us. I think we're better, however, but a lot of the same good core, same good core deposit structures went for 15 times earnings. Anybody take your earnings next year, $6 and something, multiply that times, that's our real price. That's the real value of our bank, you know, $90 to $100 a share. Where we're trading at today is just absolutely ridiculous. We will be buying and we will be buying strong.

The next question comes from Dave Rochester with Cantor. Please go ahead.

Hey, good morning, guys, maybe if I could just start on the margin.

I know thats, continuing to trend higher or what's the medium term outlook on that or the one year view.

On that expansion and Youre looking for and then maybe the more normalized margin that you expect just given your rate outlook and then if you could just quantify or update the number.

But you are seeing in terms of fixed rate loans are going to be repricing over the next year or two that would be great. Thanks.

And the price that is at right now is ridiculous. I noticed you've noticed some other bank sales that have gone through like the First Bank deal in, um, in Colorado. I mean that that bank is similar to us. I think we're better. However, but a lot of the same, good core, same good core. Deposit structures went from 15 times earnings anybody take take your earnings next year, 6 dollars, and something multiplied. That times, that that's our real price. That's a real value of our bank, you know, 90 to 100 dollars a share. So, where we're trading at today is just absolutely ridiculous, and we will be buying, we will be buying strong.

[Analyst 1]: Great. Love to hear that. Thank you.

I can probably start on the margin also black minimal okay.

Great. Love to hear that. Thank you.

Operator: The next question comes from Michael Rose with Raymond James. Please go ahead.

As we said last year, our we really felt the marketing I think we gave numbers like we ended up at $3 25, or $3 30, I think at year end.

The next question comes from Michael rose. With Raymond James, please go ahead.

[Analyst 2]: Hey, good morning. Thanks for taking my questions. Maybe just following up on the loan growth discussion, just given the amount of dislocation that we're going to see, and I know it's competitive, I think maybe one area that you guys haven't talked up as much over the years and others have is just hiring efforts and hiring more lenders, bringing more bodies on staff. You guys have a great efficiency ratio, but any thoughts given to being a little bit more active on the hiring front to really bolster that loan growth potential? Because certainly I appreciate the margin expansion and the fixed asset repricing, it's kind of price times volume, right? I think we'd all like to see some greater earning asset growth to really reap the benefit of that margin expansion. Thanks.

This year.

We feel comfortable I think we've hit the I think we've got really close to what we said right now we still see margin.

Increasing over the next 12, 24 and 36 months.

Sometimes these models that we have they look too good so I don't want to give you these numbers because I think that.

Our rates are lower for example, like on our money market fees of $1 million with as it may be 3% at our bank if you're at one of the other banks for might be making 4% so as interest rates come down.

We may not go down as much as some of the other banks still down.

H.E. Timanus Jr.: Yes, we're constantly looking at people that potentially can come in and help to grow our bank. I've approved three or four just within the last month that we think have a very good opportunity with us. That's something we're constantly focused on. Likewise, if we have somebody that's just simply not performing and enough time has gone by where that should not be the case, we typically look at those people and try to determine, you know, should they still be with us or not. There are two sides to that coin, but we absolutely are looking at bringing people in, and we have approved a fair number here over the last year, really, and some recently. We're active in that regard.

Hey, good morning, thanks for taking my questions. Um, maybe just following up on the loan growth discussion, you know, just giving the amount of dislocation that we're going to see. And I know it's it's competitive but, you know, I think 1, maybe 1 area that you guys haven't talked up as much over the years and and others have is just, you know, hiring efforts and hiring more lenders. Bring more bodies on staff. You guys have a great efficiency ratio but any thoughts given to to be in a little bit more active on the on the hiring front to, to Really bolster that loan growth, um, you know, potential because certainly appreciate the, um, the margin expansion and the fixed asset repricing. But, you know, it's kind of price times volume, right? And I think we'd like to we'd all like to see some some greater, um, earning asset growth to, you know, to really reap the benefit of that margin expansion. Thanks.

Right upfront.

The exception rates absolutely will go down on those that the overall rates, we probably won't see as much rate going down.

As the other banks are so but havent, even said that time is on our side.

Yes. Well, uh, we're constantly looking at people that potentially can come in and help to grow our bank.

Uh, I've approved 3 or 4 just within the last month.

<unk>.

They will go up it just maybe not as fast as we would like them to go out whether interest rates going up or down. So we still see margin improvement or 12, 24 36 months I mean, it looks really good for Chris I mean, there is no question you got a $10 billion portfolio of bonds at Lilly.

Uh, we think we have a very good opportunity with us.

Little over 2% with three <unk>.

Something year duration, so as those are maturing I mean, it's I mean.

It's just it'll be a homerun for us.

Well, we're just discussing now the security and the fixed long hauled a tailwind for us but continue to reprice for several years. That's why we see expansion of the margin continued to do and specific to your question how much of fixed loans. We have if you look at loans without warehouses, 39% of the loans are fixed rate loan.

So that that's something we're constantly focused on uh, likewise if we if we have somebody. That's just simply not performing. And uh, enough time has gone by where that should not be the case. We typically look at those people and and try to determine, you know, should they still be with us or not? So there are 2 sides to that coin. But, uh, we, we absolutely are looking at, at bringing people in and we have approved a fair number here over the last year, really. And, and some recently. So, we're active in that regard.

[Analyst 2]: Okay, helpful. Kevin, maybe if I can just ask quickly the kind of the warehouse question and kind of expectations for, you know, the next quarter. It looks like we're going to get a rate cut here in a couple of hours. Just wanted to see what you guys are seeing. Thanks.

<unk>.

And in terms of just whats rolling over the next year or two any any sense for dollar amounts there.

I think just if you look at it.

Kevin Hanigan: Yeah, thanks for the question, Michael. First of all, I have to say after a six or seven-year run of really hitting the nail on the head on our thought process about a forward look in this space, I missed it this quarter. I said $1.25 million. We averaged $1.218 million. So the record is broken. You know, Michael, quarter to date, through last night, we're averaging $1.222 million, so basically flat to the average of last quarter. Typically, the warehouse is decent in October, and November and December are relatively weak months. In fact, it wouldn't surprise me if we saw a week or two below $1 billion or below $900 million before the year's out. Now, all that's rate dependent. I would say for the quarter, we probably average $1 billion.

Rolling off probably.

From a pricing standpoint of course.

Okay, helpful. Um, Kevin maybe I could. If I could just ask quickly the kind of the warehouse question and and kind of expectations for, you know, the next quarter, it looks like we're going to get a rate cut, uh, here in a couple hours. Um, just want to see what you guys are seeing. Thanks. Yeah. Um, yeah. Thanks for the question. Michael. First of all, I have to have to say after 6 or 7 year, run of

Floating and variable will be faster than fixed one, but I think it will have a good <unk>.

Oil volume of repricing. It if you look at the Big picture, we have about $5 billion of loans.

<unk> repaid or paid down every year.

For opportunity to out of that 5 billion about $3 billion has opportunity to reprice because of $2 billion is OLED OLED at the.

Floating rate. So then you get another $2 billion of our secured exactly Yvonne.

Of um, you know, really hitting the nail on the head on on our our thought process about it. Before we look this space, I I missed it. This quarter, I set a billion 250, we averaged a billion 28. So um the record is broken, uh, you know, Michael quarter to date. Um, through last night, we're averaging a billion 222. So basically flat to the average of last quarter.

We have about $5 billion of reprice opportunity between loans and securities.

Yes.

Our point outfit.

Some of the fixed rate loans.

We think we will reprice.

Were made back when loans were made.

Made it quite a bit lower rates.

H.E. Timanus Jr.: Yeah, the only hopeful thing you could say, I saw some numbers today. I don't know if they're accurate or not, where refinancings are up 111% over last year simply because of right.

It wouldn't surprise me if we saw a a week or 2 at below a billion or below 900 million before the the the year is out now all that's right dependent. Um but I I would say um for the quarter we probably average a billion 1

Three five to four 5% to 5% so.

We will see what rates are at the time that that require repricing occurs but.

Kevin Hanigan: Yeah, believe it or not, you know, there's another mini refi boom going on.

I expect to pick up and the rate on those loans. So.

Yeah, the only hopeful thing I could say is that I saw some numbers today. I don't know if they're accurate or not, but we're seeing originations up 111% over last year simply because, believe it or not, there’s another mini refi boom going on.

So we'll see.

[Analyst 2]: That's good to hear. I'll step back. Thanks for taking my questions.

Yes, it should be pretty decent where are your new loans pricing now.

That's good to hear. All that stuff back. Thanks for taking my questions.

Operator: The next question comes from Dave Rochester with Cantor. Please go ahead.

So I'd say between $6 50, and 7% quarter.

That's correct.

[Analyst 2]: Hey, good morning, guys. Maybe if I could just start on the margin. I know that's continuing to trend higher. What's the medium-term outlook on that or the one-year view on that expansion you're looking for? Maybe the more normalized margin that you expect, just given your rate outlook. If you could just quantify or update the number that you're seeing in terms of fixed-rate loans that are going to be repricing over the next year or two, that'd be great. Thanks.

The next question comes from Dave. Rochester, with Cantor. Please, go ahead.

Once again.

We see some competitive pricing.

At 5% or even below.

And we have trials, we arent doing.

We've tried to.

Stay away from those.

Correct, yes.

I think when we chase was probably six in a quarter maybe.

If we went that low it was only because of the customer.

As we added loans before the most part work.

Hey, good morning guys. Um maybe if I could just start on the the margin. Um, you know, I know that's continuing to Trend to hire what's the medium-term outlook on that, or the 1-year view on that expansion, you're looking for and then maybe the, the more normalized margin that you expect just giving you your, uh, your rate Outlook. And then, if you could just quantify or update the number, um, that you're seeing, in terms of fixed rate loans, that are going to be repricing over the next year or 2, that'd be great. Thanks.

H.E. Timanus Jr.: I can probably start on the margin, Asylbek, if that's okay. I mean, as we said last year, we really felt the margin, and I think we gave numbers like we'd end up at $325 or $330, I think, at year-end of this year. We feel comfortable. I think we've hit the, I think we've got really close to what we said right now. We still see margin increasing over the next 12, 24, and 36 months. Sometimes these models that we have, they look too good. I don't want to give you these numbers because I think that our rates are lower. For example, like on a money market, if you have $1,000,000 with us, it may be 3%. At our bank, if you're at one of the other banks, they're maybe making 4%.

We're seeing some people pricing.

30 day sell for a plus two and I mean, we just haven't gone to those kind of levels.

Yes.

Appreciate the color and maybe just switching to expenses real quick.

I appreciated the <unk> guide there how are you thinking about the step up on that run rate as we get into next year.

I know, sometimes you've had a little bit of a step up in the first quarter and then you've got merit and other stuff kicking in for <unk>.

And then anything lumpy that youre expecting over the next year or so just in terms of platform enhancements or anything like that that we should be aware of thanks.

Yes, I think the guidance what I gave you for the fourth quarter and the first quarter, yes. It usually goes up because of the merit.

I can probably start on the margin also back. That's okay. I mean, as we said last year, we really felt the margin. I think we gave numbers like we end up at 3:25 or 3:30. I think a year in, uh, this year, uh, we feel comfortable. I think we've hit the, I think we've gotten really close to what we said right now. Uh, we still see margin, uh, increasing over the next 12, 24, and 36 months. I mean, sometimes these models that we have, they look too good. So, I don't want to give you these numbers because I think that.

Situation, but in longer term I think I don't see significant <unk> expenses is going to be normal inflationary.

H.E. Timanus Jr.: As interest rates come down, we may not go down as much as some of the other banks go down right up front. The exception rates absolutely will go down on those. The overall rates, we probably won't see as much rate going down as the other banks are. Having even said that, time is on our side. It's just that they will go up. It's just maybe not as fast as we would like them to go up with their interest rates going up or down. We still see margin improvement for 12, 24, and 36 months. It looks really good for us. There's no question. You've got a $10 billion portfolio of bonds at a little over 2%. That's with a three-point-something year duration. As those are maturing, it'll be a home run for us.

Our rates are lower; for example, like on a money market. You know, if you have a million dollars with us, it may be 3% at our bank. If you're at one of the other banks, you may be making 4%. So as interest rates come down...

Inflationary.

The increase that we see throughout I know, we're working on the platform change for next year, and we kind of looked at it in our numbers.

It provides about additional one to one 5% additional expense for the run rate that provided so that's kind of been baked in starting next year, but overall I think we'll have pretty good expense management and we will continue to do that next year.

Okay, great and if I could just sneak in one more.

Just on the M&A picture in General obviously, a lot of eyes are on tax and there's a lot of big Bank guys are on Texas.

We may not go down as much as some of the other Banks go down. Uh, right right up front. I mean, what? The exception rates, absolutely will go down on those, but the overall rates, we probably won't see as much rates going down as as the other banks are. So but but having even said that time is on our side, it's just uh, that they will go up. It just maybe not as fast as we would like them to go up with their interest rates going up or down. So we still see margin improvements for 1224 and 36 months. I mean, it looks really good for us, I mean there's no question. You got a 10 billion dollar portfolio of bonds?

And I know you've been a strong acquire for a long time, you are very well known in the market as a buyer of banks, but.

Asylbek Osmonov: I agree. What we just discussed, you know, the security and the fixed loans will be a tailwind for us that continue to reprice for several years. That is why we see expansion of the margin continue to do. Specific to your question, how much of fixed loans we have, if you look at loans without warehouse purchase program loans, 39% of the loans are fixed-rate loans.

But I'm just curious how you guys would field an inbound call from one of these larger bank Ceos, who loves your footprint your lower cost of deposits you've got stellar credit quality.

What would you look for in one of those combinations potentially and are you starting to see any of that interest come your way at all.

A little over 2%, that's uh, with a 3-something year duration. So as those are maturing, I mean it's, I mean, it'll be a home run for us. I agree. And that, well, we just discussed, you know, the security and the fixed loans will be a tailwind for us that continues to the price for several years. That's why we see expansion of the margin continue to do. And specific to your question, how much of fixed loans we have? If you look at loans without warehouses, 39% of the loans are fixed-rate loans.

[Analyst 2]: In terms of just what's rolling over the next year or two, any sense for dollar amounts there?

You got it you got a future in politics, the way you phrased that.

Okay.

I really think that's what the market's missing I mean again, our banks not up for sale, but at the same time, what is the real value of our bank. When you look at the bank set of satellite first bank in Colorado.

In terms of just what's rolling over the next year or two, any sense for dollar amounts there?

Asylbek Osmonov: I think just if you look at it, it's rolling off probably from a repricing standpoint, of course, that, you know, floating and variable will be faster than fixed one. I think we'll have a good volume of repricing. If you look at the big picture, we have about $5 billion of loans gets repaid or paid down every year for opportunity to, out of that $5 billion, about $3 billion has opportunity to reprice because the $2 billion is already at the floating rate.

I mean.

There are 15 times earnings I mean, just take that multiple where we're at and what's out there in the market you can see how underpriced that we are today. So we'll always do what's right for the shareholder.

I think just if you look at it, it's um, rolling off, uh probably uh from a requesting standpoint, of course that um, you know, floating and variable will be faster than fixed 1. But I think it's, we'll, we'll have a good.

We're probably wouldn't be bullied into one way or another depending on one hedge fund owning the stock or another hedge fund side, but we're always going to do right by the shareholder and we always have in the past and we'll continue to do that but I think that the market is really missing the optionality that we do have.

H.E. Timanus Jr.: You can enter the $2 billion of our securities.

Asylbek Osmonov: Exactly. We have about $5 billion in repricing opportunity between loans and securities.

H.E. Timanus Jr.: I would point out that some of the fixed-rate loans that we think will reprice were made back when loans were made at quite a bit lower rates, 3.5% to 4.5% to 5%. We'll see what rates are at the time that that repricing occurs. I expect a pickup in the rate on those loans. We'll see.

Value or volume of repricing? It, if you look at the big picture, we have about 5 billion dollar of loans, it gets repaid or paid down every year that for opportunity to out of that 5 billion about 3 billion, has opportunity to reprise because of 2 billion is already at the floating rate. So that's you get another 2 billion of our security. Exactly. So that's, uh, we have about 5 billion in repricing Opportunity between loans and securities.

Our scarcity value is increasing yes, yes, I mean, we're the second largest bank based in Texas right now so.

and I,

I would point out that, uh,

And one of the best growing states in the United States. So I just think people are really missing the boat here.

some of the fixed rate loans that we think will reprise.

uh, were made back when loans were

So are we.

made at quite a bit lower rates.

Great. Thanks, guys appreciate it.

The next question comes from Manan <unk> with Morgan Stanley. Please go ahead.

Hi, good morning, all.

Your line.

So just a follow up to your comments that things are looking a little bit frothy on the launch side and competition is only increasing from here and you have to be careful.

Um, 3 and a half to 4 and a half to 5%. So, uh, we'll see what rates are at the time, that, that replies repricing, ours. But uh, I expect to pick up in the rate on those loans.

[Analyst 2]: I agree. Yeah, it should be pretty decent. Where are your new loans pricing now?

So we'll see. I agree. Yeah, it should be pretty decent. Where are your new loans? Pricing now?

Kevin Hanigan: I'd say between $650 and $700 a quarter.

Is there anything that you can do to drive loan growth within your risk parameters maybe.

H.E. Timanus Jr.: That's correct. Once again, we see some competitive pricing at 5% or even below. We've tried.

Increasing branches or investing in your product set or hiring more is there is there anything else that can be done here.

Well I'd say between 650 and 70 quarter that that's that's correct. Uh, once again we see some competitive pricing

at 5% or even below.

Asylbek Osmonov: Those we aren't doing.

H.E. Timanus Jr.: We've tried to stay away from those. That's correct.

Outside of the hiring people in lowering rates structurally we're not going to bend.

Kevin Hanigan: I think the last one we chased was probably $600.25, maybe.

But again, it's again analysts are all want always on one side. There really is focused just on loan growth I mean, the bottom line is guys. We have an 80% loan to deposit ratio, we don't want to be 100% longer deposit ratio a lot of our growth depends on our growth on deposits and thats, what youre real money is really made not in deposits that you are paying four 5%.

H.E. Timanus Jr.: If we went that low, it was only because a customer had as much in deposit as we had in loans. For the most part, we're seeing some people pricing 30 days sell for plus two. We just haven't gone to those kind of levels, no.

[Analyst 2]: Yeah. Okay. Appreciate the call. Maybe just switching to expenses real quick. Appreciated the Q4 guide there. How are you thinking about the step up in that run rate as we get into next year? I know sometimes you've had a little bit of a step up in the first quarter, and then you've got merit and other stuff kicking in for Q2. Anything lumpy that you're expecting over the next year or so, just in terms of platform enhancements or anything like that that we should be aware of? Thanks.

He tried to, uh, stay away from those, that's correct. Yeah, yeah, I think when we chased was probably 6 and a quarter, maybe if, if we went that low, it was only because the customer had as much in deposit as we added loans before the most part. We're, I mean, we're we're seeing some people pricing, uh, 30 days. So for plus 2. And I mean, we just haven't gone to those kind of levels, you know?

For as core deposits and Thats why <unk> <unk> pay so much for this bank compared to this bank because banks are completely different.

And so deposits are the most important thing we will take those deposits as they come in and we will put those into loans, but we may we made the same kind of return when we were 60% or 65% longer deposit ratio. As we are now is 80% that again, we're focused on it and we're going to continue to make loans, but again to make loans in our market.

Asylbek Osmonov: Yeah. I think the guidance of what I gave you for the fourth quarter. In the first quarter, yeah, it usually goes up because of the merit situation. In the longer term, I think I don't see significant increase in any expenses. It's going to be normal inflationary increase we see throughout. I know we're working on the platform change for next year, and we kind of looked at it in numbers. It provides about an additional 1% to 1.5% additional expense for the run rate I provided. That's going to be baked in starting next year. Overall, I think we have pretty good expense management, and we'll continue to do that next year.

Yeah, okay. Appreciate the caller. Maybe just switching to expenses real quick. I appreciated the 42 guide there. How are you thinking about the stuff up in that run rate as we get into next year? I know sometimes you've had a little bit of a step up in the first quarter, and then you've got Merit and other stuff kicking in for Q2. And then, um, anything, you know, lumpy that you're expecting over the next year or so, just in terms of platform enhancements or anything like that that we should be aware of? Thanks.

It's not profitable or there's too much risk.

Good for the short term because everybody's impressed with the net interest income growth, but we are a long term shareholder like I am.

Not looking one year out or six months out Im looking five and 10 years out.

And just give us some statistics, Tim mentioned, what the average have masked the production loss for third quarter was $250 $356 million and our production for the second quarter averaged $353 million, but if you just compare what we've had a year ago in the same periods. The average was in the second quarter of last year was.

Yeah, I think you the guidance of what I gave you for the fourth quarter in the first quarter. Yeah, usually goes up because of the Merit uh uh situation. But in longer term, I think I don't see a significant increase in the expenses. It's going to be normal if inflationary, uh, increase. We see throughout. I know, we're working on the platform change for next year and we kind of looked at it in numbers. It, it provides about additional 1 and then to 1 and a half percent additional expense for the round rate, I provided. So that's, uh, going to be baked in starting next year, but overall, um, I think we have pretty good expensive.

$255 million in the third quarter was $260 million. So if you look at just period over period, our production up almost $100 million.

Management. And we will continue to do that next year.

[Analyst 2]: Okay. Great. If I could just sneak in one more, just on the M&A picture in general, you know, obviously, a lot of eyes are on Texas. A lot of big bank eyes are on Texas. I know you've been a strong acquirer for a long time. You're very well known in the market as a buyer of banks. I'm just curious how you guys would field an inbound call from one of these larger bank CEOs who loves your footprint, your lower cost of deposits, you got stellar credit quality. What would you look for in one of those combinations potentially? Are you starting to see any of that interest come your way at all?

So the production is there like I think Kevin mentioned that some of those real estate they need to put their money first before they start taking out so from that statistic you can see that we are if you look at the increase when you look at the amount of loans that we decreased this time the majority of the loans were in the category of one to four family residential home loans.

Okay, great. If I could just sneak in 1 more, uh, just on the m&a picture in general, you know, obviously a lot of eyes are on Texas. A lot of big Bank, guys are on Texas and you know, I know you've been a strong acquire for a long time. You're very well known in the market as a buyer of banks.

And again people home prices were higher.

Interest rates were higher and again, we were trying to get out of those more and sell more of those to the market, where we could keep more of those and we can we could.

Kevin Hanigan: You got a future in politics, the way you phrased that.

But I'm just curious how you guys would feel about an inbound call from one of these larger bank CEOs who loves your footprint, your lower cost of deposits, and your stellar credit quality. You know, what would you look for in one of those combinations potentially? And are you starting to see any of that interest come your way at all?

We can easily build.

[Analyst 2]: I thought it was okay.

<unk>.

You got a, you got a future in politics. The way you phrase that.

H.E. Timanus Jr.: I really think that's what the market's missing. I mean, again, our bank's not up for sale, but at the same time, what is the real value of our bank when you look at the banks that have sold like FirstBank in Colorado? They're 15 times earnings. Just take that multiple where we're at and what's out there in the market. You can see how underpriced that we are today. We'll always do what's right for the shareholder. We probably wouldn't be bullied in one way or another depending on one hedge fund owning the stock or another hedge fund owning the stock. We're always going to do right by the shareholder. We always have in the past, and we'll continue to do that. I think that the market's really missing the optionalities that we do have.

Longer deposit ratio, we want but we're really focusing not just on loan growth net interest go.

We're focused we're focusing on.

Yes.

Earnings per share growth, we're focused on capital growth I mean, we're focused on the whole bank not just on one particular area.

Got it.

I appreciate that but I guess just on maybe on the product side is there is there are there any gaps that you might want to invest in there.

I don't think so on the product side, we we've never Red line necessarily very many products and if any.

We're willing to look at anything that's reasonable.

I thought it was okay. I I really I really think that's what the Market's missing. I mean, again our bank's not up for sale but at the same time, what is, what is the real value of our bank? When you look at the banks that have sold like First Bank in Colorado and these? They're I mean, they're 15 times earnings, I mean, just take that multiple of where we're at and what's what's out there in the market? You can see how underpriced that we are today. So it our we'll always do what's right for the shareholder. I mean um, we're we're we're probably wouldn't be bullied in 1 way or another depending on WE 1 hedge fund owner in the stock or another hedge fund on the stock. But we're always going to do right by the shareholder and and we always have in the past and we'll continue to do that.

So.

I don't think there is an obvious gap.

Kevin Hanigan: Yeah, our scarcity value is increasing.

that but I think that the Market's really missing the optionality that we do have

H.E. Timanus Jr.: Yeah, I mean, we're the second largest bank based in Texas right now. I mean, it's one of the best-growing states in the United States. I just think people are really missing the boat here.

And products anywhere.

I don't know.

Really we offer just about any type of allowing me to take it one by one of the biggest add lenders in the in the state of Texas in the United States really whereas construction lending we're in commercial and.

[Analyst 2]: Yeah, totally agree. Thanks, guys. Appreciate it.

Yeah, our scarcity value is increasing. Yeah, yeah, I mean we're the second largest bank based in Texas right now. So I mean, 1 of the best growing states in the United States. So I I just think people are really missing the boat here.

Yep, totally agree. Thanks, guys. Appreciate it.

Operator: The next question comes from Manan Gosalia with Morgan Stanley. Please go ahead.

In industrial.

Theres probably enough we're in middle market lending with oil and gas I mean, I can go on and off there's not many areas that we don't touch so we touch almost all of the areas that are out there actually.

The next question comes from Manning gasalia with Morgan Stanley. Please go ahead.

[Analyst 3]: Hi. Good morning, all.

Hi, good morning. All

Kevin Hanigan: Good morning.

[Analyst 3]: Just to follow up to your comments that things are looking a little bit frothy on the loan side and competition is only increasing from here and you have to be careful. Is there anything that you can do to drive loan growth within your risk return parameters? You know, maybe increasing branches or investing in your product set or hiring more. Is there anything else that can be done here?

Got it very clear.

And then maybe a follow up on the buyback comment you noted that you would have liked to be more active in the quarter and that you want because of M&A.

And you've obviously spoken.

Asked a lot about M&A being a strong part of your growth strategy and Youre typically in multiple conversations at different stages.

And then I guess you also noted that you will be buying back more aggressively at these prices.

Um so just a follow-up to your comments that things are looking a little bit frothy on on the loan side, and competition is only increasing from here and you have to be careful. Um, is there anything that you can do to drive loan growth within your risk, return parameters? You know, maybe, uh, increasing branches or, uh, investing in your product set or hiring more is there, is there anything else that can be done here?

Kevin Hanigan: Outside of hiring people and lowering rates, structurally, we're not going to bend.

Should we take that domain that youre pivoting away from an M&A strategy to a buyback strategy in the near term while the stock is at these prices.

H.E. Timanus Jr.: Again, analysts are always on one side. They're always focused just on loan growth. The bottom line is, guys, we have an 80% loan-to-deposit ratio. We don't want to be a 100% loan-to-deposit ratio. A lot of our growth depends on our growth on deposits. That's where your real money is really made, not in deposits that you're paying 4% and 5% for. It's poor deposits. That's why when some people ask, "Why did you pay so much for this bank compared to this bank?" Because banks are completely different. Deposits are the most important thing. We'll take those deposits as they come in, and we will put those into loans. You know, we made the same kind of return when we were 60% or 65% loan-to-deposit rate because we are now is 80%. We're focused on it, and we're going to continue to make loans.

No, that's out of hiring people and lowering rates. Uh, structurally, we're not going to bend, I mean, right?

I think that we will always look at M&A with.

Phase right now where our stock price is we're really focused on getting our stock price up and we werent able to buy I will say that we just heard during this meeting that we have done all of our approvals on the American banking Corpus Christi. So we're excited about that we're excited about putting the two banks in San Antonio and Corpus.

But, but again, it's again analysts are on 1 always on 1 side. They're always focused just on loan growth. I mean, the bottom line is guys, we have an 80% loan to deposit ratio. We don't want to be 100% longer deposit ratio. A lot of our growth depends on our growth on deposits, and that's where your real money is really made. Not in deposits that you're paying for and 5% for its poor deposits. And that's why when some people ask,

It would definitely give us.

From Victoria, all the way to.

Corpus Christi, it will give us a dominant market share along what we call the Gulf of America there so.

We're excited about that but again, our main focus right now will be to get our stock price up we think it's terribly undervalued and again you can never say no to M&A because.

H.E. Timanus Jr.: To make loans in a market where it's not profitable or there's too much risk, it's good for the short term because everybody's impressed with the net interest income growth. If you're a long-term shareholder like I am, I'm not looking one year out or six months out. I'm looking 5 and 10 years out.

Again, if it's a cash deal.

It really doesn't matter, it's only stop that if we give our stock and its too low way that's what matters. So we will still continue to look at all opportunities, but our main focus right now is to get our stock price.

Asylbek Osmonov: Just give us some statistics. I know Tim mentioned what the average monthly production was for the third quarter was $356 million. Our production for the second quarter average was $353 million. If you just compare what we had a year ago in the same periods, the average in the second quarter of last year was $255 million, and the third quarter was $260 million. If you look at just period to over period, our production is up almost $100 million. The production is, you know, there. Like I think Kevin mentioned, some of those real estate, they need to put their money first before they start taking out. From that statistic, you can see that we are.

Market, where it's not profitable or there's too much risk, it's good for the short term because everybody's impressed with the net interest income growth. But if you're a long-term shareholder like I am I'm not looking 1 year out or 6 months out. I'm looking 5 and ten years out.

Great. Thank you.

Next question comes from Peter Winter with D. A Davidson. Please go ahead.

Okay.

Thank you.

Kevin I wanted to follow up with <unk>.

Comments that you made earlier about.

You closed the deal with American Bank and.

Southwest that there'll be some runoff in the loan portfolios to meet your standards.

Do you have a sense of how much.

Run off you'd be expecting from those portfolios.

Nearly as much as we experienced this year with the.

H.E. Timanus Jr.: If you look at the increase, if you look at the amount of loans that we decreased this time, the majority of the loans were in the category of the one to four family residential home loans. People, the home prices were higher, interest rates were higher. We were trying to get out of those more and sell more of those to the market where we could keep more of those. We can easily build our loan-to-deposit ratio we want. We're really focusing not just on loan growth or your net interest growth. We're focusing on earnings per share growth. We're focused on capital growth. I mean, we're focused on the whole bank, not just on one particular area.

The Lone Star acquisition first half first capital.

<unk> been buying up.

I'm sorry.

First of all.

They are both pretty high quality credit banks.

We do very deep as we do on all acquisitions, we do a deep deep.

Credit dive on both of these American bank as GE is one of the cleaner banks, we've seen ever.

And just give us some statistic. I know Tim mentioned. What the average monthly production was for third quarter was 250, but 356 million, and our production. For the second quarter, average was 353 million. But if you just compare what we had a year ago and same periods, the average was on the second quarter of last year, was 2555 million and the third quarter was 260 million. So if you look at just period to period our production up almost 100 million dollars. So we the production is, you know, there, like I think Kevin mentioned that, you know, some of those uh, real estate. They need to put their money first before they start taking out. So from that statistic, you can see that we are. If you look at the increase, if you look at the amount of loans that we decreased this time, the majority of the loans were in the category of the 1 to 4, family residential home loans. And again, people the home prices were higher, uh, interest rates were higher. And again we we were trying to get out of those more and sell more of those to the

Ever.

So I think.

It's going to be muted compared to what.

What we've experienced here more recently theres always going to be some.

Market where we could keep more of those. And we can, we could, you know, we can, we can easily build our, our, uh, along the deposit ratio we want. But we're really focusing, not just on loan growth or net interest growth. We're, we're focusing, we're focusing on, uh,

But I think it will be muted compared to what we've seen in the past.

Tim and David.

Earnings per share growth, we're focused on Capital Growth, I mean we're focused on the whole Bank, not just on 1 particular area.

[Analyst 3]: Got it. No, I appreciate that. I guess just on maybe on the product side, are there any gaps that you might want to invest in there?

I'm sorry, Peter both both of those banks, we did due diligence on both of them.

I don't want to say clean as a whistle because there is always issues that come up but again nothing like on our first capital deal that we did in West, Texas, We probably we've probably outsource over $460 million in loans, we don't expect anything like that.

Got it. No I I I appreciate that. But I I guess just on maybe on the product side, is there is there are there any gaps that that you might want to invest in their

H.E. Timanus Jr.: I don't think so on the product side. We've never redlined necessarily very many products, if any. We're willing to look at anything that's reasonable. I don't think there's an obvious gap in products anywhere. I don't know. I mean, we really, we offer just about any type of loan that you could want. I mean, we're one of the biggest ag lenders in the state of Texas, in the United States, really. We're in construction lending. We're in commercial and industrial. We're probably in middle market lending. We're in oil and gas. I can go on and on. There's not many areas that we don't touch. We touch almost all the areas that are out there, actually.

I don't think so on the product side. We've never really launched necessarily very many products, if any.

With these two deals for out here last month.

Um, we're willing to look at anything. That's reasonable.

Sure.

Let's just say I'd be really disappointed if we're talking about a year from now we lacked loan growth due to run off in those portfolios and our experienced especially along the Gulf that Gulf Coast right there.

Um, so, uh, I don't think there's an obvious gap, uh, in products anywhere.

Our experience with Victoria, we paid a lot for that bank, which we paid a lot for the American back at the same time of both banks were very similar with very core deposits and really those banks grid.

I don't think Theres any question with core deposits at American Bank Hasnt that market share that will own from alone that Gulf of Americas down that caused it would just be I think it's going to be a really good deal.

I don't know. I mean, we're really, uh, we, we offer just about any type of loan that you could want. I mean, for 1 of the biggest a lenders in the, in the state of Texas in the United States, really, we're in construction lending, we're in commercial and Industrial. Uh, we're uh, there's, there's probably enough. We're in Middle Market, lending, we're in oil and gas. I mean, I can go on and on there's not many areas that we don't touch. So we we touch almost all the areas that are out there actually.

[Analyst 3]: Got it. Very clear. Maybe a follow-up on the buyback comment. You noted that you would have liked to be more active in the quarter and that you weren't because of M&A. You've obviously spoken in the past a lot about M&A being a strong part of your growth strategy, and you're typically in multiple conversations at different stages. I guess you also noted that you will be buying back more aggressively at these prices. Should we take that to mean that you're pivoting away from an M&A strategy to a buyback strategy in the near term while your stock is at these prices?

Got it that's helpful. Thank you and then just if I could go back to the margin.

Clearly it's been a good story.

And progressing the way you guys have thought it would.

But just I was just curious with the third suggesting more.

The rate cuts are you still comfortable with kind of a $3 35, NIM in the fourth quarter and $3 40 by the middle of next year.

Got it right there. Um, and then, uh, maybe a follow-up on the buyback comment. You noted that you would have liked to be more active in the quarter, and that you want to be because of M&A. Um, and you've obviously spoken in the past a lot about M&A being a strong part of your growth strategy, and you're typically in multiple conversations at different stages. Um, and then, I guess you also noted that you will be buying back more aggressively at these prices.

Yes, I think those are a little bit maybe it ticked down because the numbers. When we provided was the static balance sheet and the no rate cuts. So if you're looking.

H.E. Timanus Jr.: I think that we'll always look at M&A, but based right now where our stock price is, we're really focused on getting our stock price up. We weren't able to buy, I will admit, I say that we just heard during this meeting that we have gotten all of our approvals on the American Bank and Corpus Christi. We're excited about that. We're excited about putting the two banks in San Antonio and Corpus together. It would definitely give us, from Victoria all the way to Corpus Christi, a dominant market share along what we call the Gulf of America there. We're excited about that. Our main focus right now will be to get our stock price up. We think it's terribly undervalued. You can never say no to M&A because if it's, you know, if it's a cash deal, it really doesn't matter.

So should we take that domain that you are pivoting away from an m&a strategy to a buyback strategy in the near term while you're a stock is at these prices?

At 12 months 24 months our margin.

Showing that.

100 down being still higher than what we projected that for average for this year. So I will continue to grow the margin is going to be ticked down a little bit lower but again, even even at a 100 basis points down it may be slower is accomplished but the 12 months from now I.

I think that we'll always look at M&A, but based right now where our stock price is, we're really focused on getting our stock price up and we weren't able to buy. I will admit, say that we just heard during this meeting that we did, we have gotten all of our approvals on the American Banking Corp in Corpus Christi. So, we're excited about that. We're excited about putting the two banks in San Antonio and Corpus together. It would definitely give us, from Victoria all the way to...

I hate to give these numbers out because and if were not accurate.

We're still showing close to like you said I think at 330 day so.

And so I'm sorry, just to follow up so when you say ASO Buck tick lower tick lower from the <unk> 40.

H.E. Timanus Jr.: It's only stock that if we give our stock and it's too low away, that's what matters. We'll still continue to look at all opportunities, but our main focus right now is to get our stock price up.

Yes, so what we just said on the our model showing 100 basis point down 12 months, we're showing <unk> 38, or $3 48 with no in a static market.

Corpus Christi, it will give us a dominant market share along what we call the Gulf of America there. So we're we're, we're excited about that. But again, our main focus right now will be to get our stock price up. We think it's terribly undervalued and uh again you can never say no to m&a because we if if it's, you know, again if it's a cash deal, uh, it it really doesn't matter. It's only stock that if we give our stock and it's too low the way that's what matters. So we'll, we'll

Still continue to look at all opportunities, but our main focus right now is to get our stock price up.

[Analyst 3]: Great. Thank you.

Got it okay.

Great. Thank you.

Thank you.

Operator: Next question comes from Peter Winter with DA Davidson. Please go ahead.

The next question again, I will say this Peter as as you go out 24 months and further we do still pick up pretty significantly even with interest rates going down 100 basis points.

Next question comes from Peter Winter with D.A. Davidson. Please go ahead.

[Analyst 4]: Thank you. Kevin, I wanted to follow up with comments that you made earlier about, you know, as you close the deal with American Bank Holding Corporation and Southwest Bankshares Inc., that there'll be some runoff in the loan portfolios to meet your standards. Do you have a sense of how much runoff you'd be expecting from those portfolios?

And that was just a clarify that a stand alone not including American or rock winners right correct.

Uh, thank you. Uh, Kevin. I wanted to follow up with the comments that you made earlier about, you know, if you close the deal with American Bank and Southwest, there'll be some runoff in the loan portfolios to meet your standards. But...

Kevin Hanigan: Not nearly as much as we experienced this year with the Lone Star acquisition.

Do you have a sense of how much, uh, runoff you you'd be expecting from those portfolios?

Non loss content.

H.E. Timanus Jr.: First Capital.

Kevin Hanigan: First Capital. I mean, Lone Star's been fine. I'm sorry. They're both, first of all, they're both pretty high-quality credit banks. I mean, we did a deep, as we do on all acquisitions, we did a deep, deep credit dive on both of these. American Bank is, gee, it's one of the cleaner banks we've seen ever. I think, you know, it's going to be muted compared to what we've experienced here more recently. There's always going to be some, but I think it'll be muted compared to what we have seen in the past. I think Tim and David could probably.

Hello Hello.

For the next question.

Yes, yes, okay, great and wonderful. Our next question comes from Jared Shaw with Barclays Capital. Please go ahead.

With the Lone Star acquisition of First Capital, I mean, Lone Star has been fine. I'm sorry. Uh, they're both. First of all,

Hi, good afternoon.

Okay.

Maybe just.

Just on the on the margin for the deposit cost what should we or what are you expecting in terms of data.

They're, they're both pretty high quality credit Banks. I mean we we we did a deep is we do on all acquisitions. We did a deep deep credit dive on on both of these American Bank is

With that broader.

Great backdrop.

Yes, our model on the deposit betas, that's non maturity deposit we used 13 basis points beta.

Gee, it's 1 of The Cleaner Banks, we've seen, um, ever. Uh, so so I think, you know, it's going to be muted compared to what, um, what we've experienced here more more recently. There, there's always going to be some

Pretty low.

H.E. Timanus Jr.: I'm sorry, Peter, both of those banks, we did due diligence on both of them. I don't want to say clean as a whistle because there's always issues that come up. Again, nothing like, you know, on the First Capital deal that we did in West Texas, we probably outsourced over $460 million in loans. We don't expect anything like that with these two deals right here. Nothing like that.

Okay.

And then.

Looking at the I hear what Youre, saying about the buyback and I appreciate all that.

You look at the M&A environment here, especially for smaller deals.

Does the consolidation that we've seen more recently does that make it easier for you.

From a competitive standpoint to maybe get some of those deals with fewer competitors or maybe the inverse where theres more eyes on Texas, It actually makes it harder.

Kevin Hanigan: Let's just say I'd be really disappointed if we were talking about a year from now, we lack loan growth due to runoff in those portfolios.

Annually, we at Lee.

Have more deals than we have money quite frankly, it's just a matter of what we really wanted to do.

H.E. Timanus Jr.: Our experience, especially along that Gulf Coast right there, our experience with Victoria, we paid a lot for that bank, which we paid a lot for the American Bank at the same time. Both banks are very similar with very core deposits. Really, those banks grew. I don't think there's any question with the core deposits that American Bank has and that market share that we'll own from along that Gulf of America side down that coast, it'll just be, I think it's going to be really a good, good deal.

Okay. Thank you.

The next question comes from David Giovanni with Jefferies. Please go ahead.

Um but but I think it'll be muted compared to what what we have seen in the past is I think Tim and David could probably. Yeah. Well I think Peter both both of those Banks we didn't do diligence on both of them, you know, they're I don't want to say clean as a whistle because there's always issues that come up. But again nothing like, you know, on the first capital deal that we did in West Texas, we we probably, we probably outsourced over 460 million dollars in loans. We don't expect anything like that. Uh with with these 2 2 deals, right here, nothing like that. So I I let's just say, I'd be really disappointed if we were talking about a year from now, we lack loan growth through to runoff in those portfolios and our experience, especially along that Gulf that Gulf Coast right there to our experience. With Victoria, we paid a lot for that thing, which we paid a lot for the American Bank at the same time. But both banks are very similar with very quarter.

Hi, Thanks, So wanted to follow up on the deposit question can you talk about deposit competition, you mentioned about the 80% loan to deposit ratio are you comfortable at that level and can you talk about the extent to which these kind of out of state competitors are coming in and potentially.

Deposits and really those Banks grew. I mean, and I I I don't think there's any question with the court deposit that American Bank has and that market share that will own from along that Gulf of America side down that Coast it'll it'll just be. I think it's going to be really a good good deal.

[Analyst 4]: Got it. That's helpful. Thank you. If I could go back to the margin, I mean, clearly, it's been a good story. It's been progressing the way you guys had thought it would. I was just curious with the third curve suggesting more rate cuts, are you still comfortable with kind of a 3.35% minimum in the fourth quarter and 3.40% by the middle of next year?

Pressing on the deposit pricing front.

Yes.

We're at 80%, we probably would go to 85% and our loan to deposit ratio at that limit.

Got it, that's helpful. Thank you. And then just um, if I could go back to the margin and it clearly it's it's been a good story. It it it's been progressing. The way you guys have thought it would.

Probably stop.

We're still focused on core deposits, we don't have any broker deposits and really when we go out we really try to do.

We're really trying to get a total deposit relationship not just the certificate of deposits to build to build up deposits and so I mean, that's what we're focused on we do see the people coming in especially.

Um, but just, I was just curious, with the third curve suggesting more rate cuts, or are you still comfortable with kind of a 3.35% NIM in the fourth quarter and 3.40% by the middle of next year?

Asylbek Osmonov: I think those a little bit maybe ticked down because the numbers we provided was that static balance sheet and the, you know, no rate cuts. If you're looking, you know, 12 months, 24 months, our margin showing that with 100 down being still higher than what we projected for average for this year. I will continue to grow the margin. It's going to be ticked down a little bit lower.

I may take a different stay in because.

A number of these banks that are bought other banks out in the state they werent able to get into the state.

And because of that they've raised their interest rates. So much on on Monday pay here compared to where they pay somebody else because they haven't been successful building market share, especially in deposits I'm almost thinking since now they are making headway until the state and they really have some market share they may not be under so much pressure to show there are other.

H.E. Timanus Jr.: Even at 100 basis points down, it may be slower as accomplishment, but 12 months from now, I hate to give these numbers out because then if we're not accurate, but you know, we're still showing close to what you said, I think, at $3.38.

Yeah, I think those are a little bit, maybe take down because of the the numbers where we provided was that static balance sheet and the uh, you know, no rate Cuts. So if you're looking uh you know, 12 months, 24 months, our margin showing that it with 100 down being still higher than what we projects that for average for this year. So I will continue to grow the margin. It's going to be a tick down a little bit lower. But again, even even at 100 basis points down, it may be slower as accomplishment, but the 12 months from now,

Other people in the other states that Theyre Avenue to grow those deals and I think it may become easier for us quite frankly, I don't know if thats just another that's another spin on it anyway and if you look at it we've always had competition. So it's nothing new for us related to the deposits and I know.

I hate to give these numbers out because then if we're not accurate. But uh, you know, we're, we're still showing close to what you said I think at 338. So,

[Analyst 4]: I'm sorry, just to follow up. When you say, Asylbek, tick lower, tick lower from the $3.40?

Asylbek Osmonov: Yeah. What we just said on our model showing 100 basis points down, 12 months, we're showing 3.38%.

So I'm sorry just the part. So when you see us about Tickler Tickler from the 340,

We have grown this quarter in the core deposits.

And that's all relationship and that's what brings it not just just right, but the relationship we have with our customers. We really we really focus on relationships I mean.

H.E. Timanus Jr.: We're 3.48 with no in a static market.

[Analyst 4]: Got it. Okay. Thank you.

Yeah. So what we just said, on this, our model showing 100 basis point down, 12 months, we're showing 338 we're 348 with no in a static Market, you know?

Kevin kind of alluded to a lot of Colombian people want to bank with the Texas Bank and they and I think where we're at in this state and what the other guys coming in the amount of opportunities. We have are just unbelievable and the kind of customers that we have are unbelievable customers.

Got it. Okay, thank you.

Operator: The next question.

H.E. Timanus Jr.: I will say this, Peter, as you go out 24 months and farther, we do still pick up pretty significantly, even with interest rates going down 100 basis points.

The next question again, I will say this Peter as as you go out 24 months and further we do still pick up pretty significantly. Even with interest rates going down, 100%.

Been around their data and our data generation of that businesses that are coming to us and again, we're getting a hand picked those again, we're not we're not here show any 8%, 10% loan growth of what we are putting on is really quality stuff and really building a really quality organization.

Asylbek Osmonov: That was just to clarify, that was standalone, not including American Bank Holding Corporation or Texas Partners Bank.

H.E. Timanus Jr.: Right. Right.

And that was just to clarify, that was standalone, not including American or Partners. Right? Right, right, right, right. Right.

Kevin Hanigan: Am I lost contact?

Thanks for that and then shifting over to credit quality still very strong we did see the NPA uptick can you talk about the drivers behind the uptick in are there any pockets or areas, you're keeping a closer eye on.

Asylbek Osmonov: Hello?

H.E. Timanus Jr.: Hello?

My lost contact.

Operator: Are we ready for the next question?

Kevin Hanigan: Yes.

H.E. Timanus Jr.: Yes.

Operator: Okay. Great. Wonderful. Our next question comes from Jared Shaw with Barclays Capital. Please go ahead.

Hello, hello. Are we ready for the next question?

Yeah, yeah, okay, great, wonderful. Our next question comes from Jared Shaw, with Barclays Capital. Please go ahead.

[Analyst 2]: Hey, good afternoon.

Hi, good afternoon.

I think I can give you some color on that.

Kevin Hanigan: Hey.

[Analyst 2]: Hey, just on the margin for the deposit costs, what should we, or what are you expecting in terms of beta with that broader rate backdrop?

<unk>.

Out of the.

A little over $119 million in nonperforming assets.

Maybe, hey, just on the, on the margin for the deposit costs. What should we or what do you expecting in terms of beta? Um, with that broader? Um,

About $57 million of it.

Asylbek Osmonov: Yeah. For our model on the deposit betas, that's non-maturity deposit. We use 13 bps beta, pretty low.

Rate backdrop.

He is single family homes.

And.

Those NPA.

With respect to the homes are a result of.

Yeah, for our model on the deposit betas, that's not mature to deposit. We use 13 basis points; beta is pretty low.

[Analyst 2]: Okay. I hear what you're saying about the buyback and appreciate all that. When you look at the M&A environment here, especially for smaller deals, does the consolidation that we've seen more recently make it easier for you from a competitive standpoint to maybe get some of those deals with fewer competitors, or maybe the inverse where there's more eyes on Texas that actually makes it harder?

Pressure that we got from a regulatory standpoint to make loans in minority areas et cetera.

<unk>.

We did not get the down payments that we would normally want.

Et cetera and.

This is a result of it it's not surprising.

Does the consolidation that we've seen more recently make it easier for you?

Good news is as a market for the homes.

It takes a while to go through the.

Foreclosure process and get them back.

H.E. Timanus Jr.: Candidly, we have more deals than we have money, quite frankly. It's just a matter of what we really want to do.

From a competitive standpoint to, to maybe get some of those deals with with fewer competitors, or maybe the inverse, where there's more eyes on Texas, that actually makes it harder.

But.

We've been able to sell them as we as we get them back some at a profit some breakeven summit, a very small loss, but the point is we've been able to sell so.

Candidly, we have more deals than we have money, quite frankly. It's just a matter of what we really want to do.

[Analyst 2]: Okay, thank you.

Okay, thank you.

Yes.

If we didn't have those homes, you could take $57 million away from the nonperforming.

Operator: The next question comes from David Chiaverini with Jefferies. Please go ahead.

And we were required under fair lending, we had to get a certain amount of dilution.

The next question comes from David Chia Verani with Jeffrey's. Please go ahead.

[Analyst 2]: Hi, thanks. I wanted to follow up on the deposit question. Can you talk about deposit competition? You mentioned the 80% loan-to-deposit ratio. Are you comfortable at that level? Can you talk about the extent to which these kind of out-of-state competitors are coming in and potentially pressing on the deposit pricing front?

We would be we would be eliminated from doing M&A. So we were kind of forced into this making loans with no money down.

Very low interest rates.

Even give them money for closing costs.

Exactly right.

It was a regulatory issue it was a regulatory issue.

And please don't misunderstand, what im saying im not implying that we don't have a good relationship with the regulators now, but the facts are what they are.

Hi, thanks. So wanted to uh, follow up on the deposit question. Um, can you talk about deposit competition? You mentioned about the 80% loan to deposit ratio. Are you comfortable at that level? And can you talk about, you know, the extent to which these kind of out out of state competitors are coming in and potentially, you know, pressing on the deposit pricing front.

H.E. Timanus Jr.: Yeah. I mean, we're at 80%. We probably would go to 85% in our loan-to-deposit ratio. At that limit, we would probably stop. We're still focused on core deposits. We don't have any broker deposits. When we go out, we really try to go, you know, we're really trying to get a total deposit relationship, not just the certificate of deposits to build up deposits. That's what we're focused on. We do see the people coming in, especially, you know, I may take a different stand because a number of these banks that have bought other banks out in the state, they weren't able to get into the state. Because of that, they've raised their interest rates so much on money they pay here compared to where they pay somebody else because they haven't been successful at building market share, especially in deposits.

And.

During the last two or three calendar years.

There was very significant pressure from the regulators to address these markets that they felt were underserved and we understood that.

But when you don't require downtime and you make loans to people that barely have enough cash flow to make the first payment.

different stand, because

Youre going to have trouble.

And what we see right now is to clear evidence of that when the challenge is all banks its not just as all banks are required to do this so they are just a certain number of these customers everybody is trying to get in everybody's fighting for these customers and Thats just one of the things that happens right now we have we have.

A number of these banks that have bought other banks out in the state weren't able to get into the state.

H.E. Timanus Jr.: I'm almost thinking since now they're making headway into the state and they really have some market share, they may not be under so much pressure to show their other people in the other states that they're having to grow those deals. I think it may become easier for us, quite frankly. I don't know. That's just another spin on it anyway.

Discontinued some of those aggressive programs.

We discontinue them.

Few months ago.

So we're not putting any more of those on the books and we'll just deal with what's what's there and as I say, we're able to sell these homes.

Asylbek Osmonov: Yeah. If you look at it, we always had competition, so it's nothing new for us related to the deposits. I know we have grown this quarter in the core deposits. I mean, that's all relationship, you know, and that's what brings it, not just the rate, but the relationship we have with our customers.

I don't think thats going to change dramatically I think we will be able to continue to sell them. So in another year or so I think that part of the nonperforming will be effectively gone.

H.E. Timanus Jr.: We really focus on relationships. Kevin kind of alluded to it a while ago. People want to bank with Prosperity Bank. I think where we're at in this state and with the other guys coming in, the amount of opportunities we have is just, it's unbelievable. The kind of customers that we have are unbelievable. Customers that have been around their daddy and their daddy's generation have had businesses and they're coming to us. We're getting to handpick those again. We're not here showing you 8% and 10% loan growth, but what we are putting on is really quality stuff and really building a really quality organization.

Yeah and in terms of any pockets, we're looking at we look at the.

Our credit history is pretty good we look we're looking at the entire portfolio.

And as we looked across the entire portfolio I would say, there's maybe one deal.

And because of that, they've raised their interest rates. So much on on Monday, they pay here compared to where they pay. Somebody else because they they haven't been successful in building market share, especially in deposits. I'm almost thinking since now, they're making Headway into the state and they really have some market share, they may not be under so much pressure to show their other other people in the other states that they're having to to grow those deals. And I think it, it may become easier for us quite frankly. I don't know. That's just another, that's another spin on it anyway. Yeah, and if you look at, we always had a competition. So it's nothing new for us related to the deposits. And I know we, uh, well, we have grown, uh, this quarter and the court deposits. I mean, that's all relationship, you know? And that's what brings it not. Just just the rate, but the relationship we have with our customers. We really, we really focus on relationships. I mean, uh, Kevin kind of alluded to it a while ago, I mean, people want to bank with the Texas bank and they and I think where, where we're at in this state

We think has got the potential for some stress shared national credit.

The shared national credit, we don't have a lot of shared national credits.

It's a shared national credit.

But we've got our eye on it's still performing well.

It's making those payments, but it's when we got our eye on and it's $35 million.

And with the other guys coming in that, the amount of opportunities we have are just, it's unbelievable. And the kind of customers that we have are unbelievable. Customers that, you know, have been around their daddy and their daddies generation have had businesses and they, they're coming to us. And again, we're getting a handpicked. Those again, we're not, we're not here showing you 8 and 10.

Now that the portfolio looks pretty good right.

Is really quality stuff, and really building a really quality organization.

[Analyst 2]: Thanks for that. Shifting over to credit quality, still very strong. We did see the NPA uptick. Can you talk about the drivers behind the uptick, and are there any pockets or areas you're keeping a closer eye on?

It did pull up our shared national total I think we've got a.

A whopping total of AR.

$270 million in shared national credits. So it is not.

Not a field, we play a lot of that.

Thanks for that. And then, shifting over to credit quality, still very strong. We did see the NPA uptick. Can you talk about the drivers behind the uptick, and are there any pockets or areas you're keeping a closer eye on?

H.E. Timanus Jr.: I think I can give you some color on that. Out of the a little over $119 million in non-performing assets, about $57 million of it is single-family homes. Those NPAs with respect to the homes are a result of pressure that we got from a regulatory standpoint to make loans in minority areas, etc. We did not get the down payments that we would normally want, etc. This is the result of it. It's not surprising. The good news is there's a market for the homes. It takes a while to go through the foreclosure process and get them back. We've been able to sell them as we get them back, some at a profit, some break even, some at a very small loss. The point is we've been able to sell them. Yes, if we didn't have those homes, you could take $57 million away from the non-performing.

Of that number 153 of that stuff reagents.

Uh, I think I can give you some color on that.

Um,

out of the, uh,

All of that is structured and sold by us.

a little over 190 million in non-performing assets.

Very helpful. Thank you.

Okay.

Uh, about 57 million of it.

The next question comes from Ben <unk> Linger with Citi. Please go ahead.

is single family homes and, uh, those npas

Okay. Good afternoon, or good morning, I guess in chunks.

With respect to the homes, uh, are a result of.

Okay.

Sure.

In Georgia so.

We received pressure from a regulatory standpoint to make loans in minority areas, etc.

Okay.

Okay.

When you guys think.

And uh, we we we did not get the down payments that we would normally want.

Looking at the two pending deals I think you said David that you just got regulatory approval, while we're on the phone here.

Uh, Etc. And uh,

The potential close dates for these two.

Yes, I think we're probably looking around fourth quarter.

This quarter to close probably at the end of the year, the American deal and first quarter of 2026 for southwest.

This is a result of its not surprising. The good news is as a market for the homes. Uh it it takes a while to go through the 4, 4 closure process and get them back but uh we've been able to sell them as we as we get them back some at a profit, some Break, Even some at a very small loss.

Okay.

Gotcha Okay.

Helpful additional impact going to be more on the Nextgen share, we'll talk we'll probably roll the American bucket was the first first months of next year, Yes, alright.

Asylbek Osmonov: We were required under fair lending. We had to get a certain amount that we couldn't.

But the point is we've been able to sell them. So, yes, if we didn't have those homes, you could take $57 million away from the non-performing.

H.E. Timanus Jr.: That's correct.

Asylbek Osmonov: We would be eliminated from doing M&A. We were kind of forced into this, making loans with no money down, very low interest rates, and even giving money for closing costs.

Okay that is helpful. And then I also like you've done a really good job.

Making a change out of the expense base of the banks that you guys pick up.

Fair to assume it's going to be kind of business as usual the obstructing the savings or is there anything.

H.E. Timanus Jr.: That's exactly right.

Asylbek Osmonov: It was a regulatory issue.

H.E. Timanus Jr.: It was a regulatory issue. Please don't misunderstand what I'm saying. I'm not implying that we don't have a good relationship with the regulators.

Long tailed associated with the notion that might bleed into two or three Q next year.

But again, we were, we were required under Fair lending, we had to get a certain amount that we didn't, we would be, we would be eliminated from doing m&a. So we were kind of forced into this making loans with no money down, very low, interest rates and even give them money for closing costs. That's exactly right. So it was a, it was a regulatory issue. It was a regulatory issue. Uh,

And death.

Roughly when would you do a merger with other banks you know there is always cost savings regardless. So we will always strive to get the cost savings just by acquiring banks and I think it's also depends on the system conversion, we're going to get some benefit early on because there'll be some departure, but.

Asylbek Osmonov: No, no.

H.E. Timanus Jr.: The facts are what they are. During the last two or three calendar years, there was very significant pressure from the regulators to address these markets that they felt were underserved. We understood that. When you don't require a down payment and you make loans to people that barely have enough cash flow to make the first payment, you're going to have trouble. What we see right now is the clear evidence of that.

And please don't misunderstand what I'm saying. I'm not implying that we don't have a good relationship with the Regulators, no, okay? But the facts are what they are. And, uh,

During the last 2 or 3 calendar years.

And additional cost will be.

Like second half of the year I would say.

But overall, we will get some cost savings in 2026 about most or all of it we're going to get in 2007 and beyond.

uh there was uh very significant pressure from The Regulators to address these markets that they felt were underserved and we understood that

uh,

Got you I appreciate the help and then I just wanted to fine tune the buyback comrade backing up the truck.

But when you don't require a down payment and you make loans to people that barely have enough cash flow to make the first payment.

you're going to have trouble.

Asylbek Osmonov: The challenge is all banks, it's not just us, all banks are required to do this. There are just a certain number of these customers that everybody's trying to get and everybody's fighting for these customers. That's just one of the things that happens, really.

Does that mean you have to wait until the second one closes and then you can just be there. The next day or is there something else.

We really we had this and I think we had an S. Four filed in.

H.E. Timanus Jr.: Right. Now, we have discontinued some of those aggressive programs. We discontinued them a few months ago. We're not putting any more of those on the books, and we'll just deal with what's there. As I say, we're able to sell these homes. I don't think that's going to change dramatically. I think we'll be able to continue to sell them. In another year or so, I think that part of the non-performing will be effectively gone.

I know, there's probably been some other.

The little people shortages with deals of tomfoolery banking that we won't be able to buy back, but I think we should be able to start buying back.

And what we see right now is the clear evidence of that. Well, the challenge is all banks; it's not just us. All banks are required to do this, so there are just a certain number of these customers that everybody's trying to get, and everybody's fighting for these customers. And that's just one of the things that happened. Really, right now we have discontinued some of those aggressive programs.

Next week next week, so we should we should be out there buying.

We discontinued them a few months ago.

Got it I appreciate that thank you everyone.

The next question comes from Matt Olney with Stephens. Please go ahead.

Hey.

Thanks for squeezing me in here, David can you clarify your commentary about the current balance of the borrowings.

Kevin Hanigan: In terms of any pockets we're looking at, we look at the, you know, our credit history is pretty good. We're looking at the entire portfolio, and as we look across the entire portfolio, I'd say there's maybe one deal we think has got the potential for some stress.

It was around $2 4 billion at 930, and I thought you I thought I heard you say it was below that.

Yeah, and in terms of any Pockets we're looking at. We look at the

Well I think on the last day or so a couple of days a week.

If you look a year ago with three nine or $4 billion nine.

<unk> $9 billion and we ended at $2 4 billion in the 930, but we were able to reduce some from that followed in October months. So were running if you average for the month, you probably werent near the two points or don't know with much lower what do you think the average was probable for the for that month.

Asylbek Osmonov: Shared National Credit.

Kevin Hanigan: It's a shared National Credit. We don't have a lot of shared National Credits, but it's a shared National Credit that we've got our eye on. It's still performing. It's making its payments, but it's one we got our eye on. It's $35 million. Outside of that, the portfolio looks pretty good. I did pull up our shared national total. I think we've got a whopping total of $270 million in shared National Credit. It's not a field we play a lot in. Of that number, $153 million of that is stuff we agent. A lot of that is structured and sold by us.

Last year, you are looking at a quarter, but again, we start reducing it was a renewal as our bonds started maturing.

You know, our credit history is pretty good. We look, we're looking at the entire portfolio and as we look across the entire portfolio, I'd say there's maybe 1 deal, we think it is got the potential for some stress Fair National Credit. It's a, it's a shared National Credit we don't have a lot of shared National credits but um it's a shared National Credit um, that we've got our eye on. It's it's still performing, right? Um, it's, it's making us payments but it's it's 1. We got our eye on and it's 35 million.

We started we were just reducing our cash instead of buying back and again, we'll get we're going to get back into the bond bond business. Today. There's no question, we're not we're not letting the balance sheet.

Outside of that, the portfolio looks pretty good, right? And I did pull up our shared national total. I think we've got a...

A whopping total of a.

We've always carried about $2 billion in leverage and I think we let it maybe get down a little too far.

270 million in Insurance National Credit. So it's not, it's not a, not a field, we play a lot in and of that. Um,

<unk> asked our guys to buy and they did but we're not going to we're not going to work.

We're still going to keep about $2 billion of leverage on the deal.

You know, of that number, $153 million of that is stuff we agents. So, you know, a lot of that is structured and sold by us.

[Analyst 2]: Very helpful. Thank you.

We're not going the other way, but my point is a lot of it is you just had a lot of the net interest income. This came from a smaller balance sheet and we let it get too.

Very helpful. Thank you.

Operator: The next question comes from Ben Jarlinger with Citi. Please go ahead.

The next question comes from Ben gerlinger with City, please go ahead.

Two small in my opinion as I commented, what we made right currently would have $1 8 billion borrowing but like I said I think we're going to buy some securities. So we want a carrier about $2 billion leverage little bit historically done.

Kevin Hanigan: Hey, good afternoon or good morning, I guess, in Texas.

H.E. Timanus Jr.: You guys are doing good.

Hey, good afternoon, or good morning, I guess in Texas. Um,

Kevin Hanigan: Yeah, I'm in Georgia, so East Coast.

H.E. Timanus Jr.: Yeah, you're in the South.

Got it okay, well, thanks for clarifying that and then on <unk>.

Kevin Hanigan: When you guys think about the two pending deals, I think you said, Dave, that you just got regulatory approval while we're on the phone here. Can you fine-tune the potential close dates for these two?

Yeah, I'm in Georgia. So

Deposit growth I think the fourth quarter can be more favorable quarter for <unk>.

Um, when you guys think about the two pending deals, I think you said, Dave, that you just got regulatory approval while we were on the phone here.

Posit growth seasonally any color on what youre seeing so far our expectations for the fourth quarter.

The potential close dates for these two.

Charlotte Rasche: Yeah, I think we're probably looking around, you know, fourth quarter, this quarter to close, probably the end of the year, the American Bank Holding Corporation deal, and first quarter of 2026 for Southwest.

Thanks.

You can read us for very transparent, what we say it happens in our case.

Yeah, I think we're probably looking around, you know, fourth quarter.

We're pretty consistent in our fourth quarter has always been pretty consistent and I think you're probably looking at at least another two or $300 million gain in deposits probably led by grid. So our seasonality of public funds and and I should get Andrew to three normal big customer deposits and big customer deposits from the commercial side and ready for commercials.

This quarter to close, probably the end of the year, the American deal, and the first quarter of 2026 for Southwest.

Kevin Hanigan: Gotcha. Okay, that's helpful.

H.E. Timanus Jr.: Yeah, the financial impact is going to be more on the next year, not this year. We'll probably roll the American Bank Holding Corporation back into the first month of next year.

Gotcha. Okay. Let's

Kevin Hanigan: Right. Gotcha. Okay. That is helpful. Asylbek, you've done a really good job of making a chainsaw to the expense base of the banks that you guys pick up. Is it fair to assume it's going to be kind of business as usual? Is it extracting the savings, or is there anything kind of long-tailed associated with it that you think about that might bleed into the two or three Q next year?

Yes.

Okay.

Helpful, Financial impact is going to be more on the next year or not this year. We'll probably, we'll probably roll the American Bank into the first first month of right next year. Yeah. Right. Right.

Okay. That's helpful. Thank you guys.

The next question comes from Janet Lee with TD Cowen. Please go ahead.

Gotcha. Okay, that is helpful. And then also, like you've done a really good job of.

Hello.

Selling into deposits a lot also I believe there was about $150 million of Runoffs from Lonestar acquisition on the deposit side as well through June do you expect any sort of deposit run off from the two acquisitions as well heading into 2026.

Asylbek Osmonov: Yeah, I mean, definitely when you do mergers with other banks, there's always cost savings regardless. We always strive to get the cost savings just by acquiring banks. I think it also depends on the system conversion. We're going to get some benefit early on because there'll be some departure, and additional costs will be the like second half of the year, I would say. Overall, we'll get some cost savings in 2026, but most of all of it we're going to get in 2027 and beyond.

taking a chainsaw to the expense base of the the banks that you guys pick up is it fair to assume it's going to be kind of business as usual. Is it tracking the savings or is there anything kind of long-tailed associated with them? What you think about it? Might bleed into the 2 or 3 Q next year.

The American Bank.

Acquisition is very solid I mean their deposit is made up of.

But we're probably as close as you could get so I don't we don't expect anything there.

Yeah, man, definitely when you do mergers with other Banks, you know, there's always cost savings regardless. So we always strive to get the cost savings just by, you know, acquiring Banks. And I think it's also depends on the, you know, system conversion, we're going to get some benefit early on, you know, because there'll be some departure. But uh and additional cost will be um like second half of the year I would say.

<unk> partners there.

Their deposit makeup is different and again, probably the difference you saw in the prices they have.

but overall, uh, we'll get some cost Savings in 2026, but most of all of it, we're going to get in 27 and Beyond

Kevin Hanigan: Gotcha. All right. I appreciate the help. I just wanted to fine-tune the buyback comment of backing up the truck. Does that mean you have to wait until the second one closes and then you could just be there the next day, or is there something else beyond that?

A big Treasury Department with a lot of.

A lot of commercial accounts.

It's just a bigger part of their that's a bigger part of their deposit makeup and so there is more risk again, we don't we're not anticipating a lot, but you never know it could be it's not rate driven it's really based on their treasury product that they have I think that we have our I think our treasury product is as good and probably the guy that's running.

Gotcha. All right, I appreciate the help. I just wanted to fine-tune the buyback, comma, and backing up the truck.

H.E. Timanus Jr.: You know, we really had this, and I think we had an S-4 filed. I know there's probably been some other little people shortages with doing some Tomfoolery or rethinking that we won't be able to buy back, but I think we should be able to start buying back.

Does that mean you have to wait until the second one closest? And then you can just be there the next day? Or is there something else that? You know, we really had this, and I think we had an S4 filed. And I know there's probably been some other.

Theyre Treasury Department will be end up running our Treasury department. So that's good but again there is a bigger portion of their deposits are a bigger portion of their deposits are in this in this treasury area. So there is more risk in that for sure.

Charlotte Rasche: Next week.

H.E. Timanus Jr.: Next week, we should be out there buying.

Little people shortages with doing some tom food or rethinking that we won't be able to buy back. But I think we should be able to start buying back, uh, next week. Next week? Yeah. So we should, we should be out there buying.

Kevin Hanigan: Gotcha. I appreciate the help. Thank you, everyone.

Gotcha. All right. I appreciate the help. Thank you, everyone.

Operator: The next question comes from Matt Olney with Stephens. Please go ahead.

Got it.

Fee income came in a little stronger than you guided to before I believe that range was like 38 to 40.

[Analyst 2]: Hey, thanks for squeezing me in here. David, can you clarify your commentary about the current balance of the borrowings? I think it was around $2.4 billion at 9:30, and I thought I heard you say it was below that.

The next question comes from, Matt only with Stevens, please go ahead.

How do you feel about the fee income is that is there an updated view on where the fee income could be over the next coming quarters.

H.E. Timanus Jr.: I think on the last day or so, a couple of days, we pulled it. If you look a year ago, we were at $3.9 or $4 billion.

Hey, uh, thanks for squeezing me in here. Uh, David, can you clarify your commentary about the current balance of the borrowings? I think it was around $2.4 billion at 9:30 and I thought I heard you say it was below that.

And I think I'm going to stick to the guidance I gave a 38% to 40 I know this quarter, we were a little bit higher but sometimes we do have one off items happen but.

Asylbek Osmonov: Yeah, $3.9 billion, and we ended at $2.4 billion in the 9:30, but we were able to reduce some from that for October month. We're running.

Sure.

If we come in higher than that is good but I would say 30 to 40 is the guidance still continue for fourth quarter.

H.E. Timanus Jr.: You average for the month, you probably weren't near the $2.4 billion.

Thank you.

Asylbek Osmonov: No, we're much lower.

H.E. Timanus Jr.: What do you think the average was probably?

The next question comes from John Armstrong with RBC capital markets. Please go ahead.

Asylbek Osmonov: For that month?

H.E. Timanus Jr.: I don't hear you're looking at a quarter, but again, we started reducing it.

Well, I, I think on the last day or so, couple of days, we put pulled. If you look a year ago, we were at with 3.9 or 4, billion 349 billion, and we ended at 2.4 billion in the 930. But we were able to reduce some from that for in October month. So we're running the 2 average for the month. You probably weren't near the 2 points or no. No no we much lower. What do you think? The average was probably for the for that?

Asylbek Osmonov: We started reducing.

H.E. Timanus Jr.: As our bonds started maturing, we started just reducing our cash instead of buying back, you know. We're going to get back into the. My

Hey, Thanks, good morning.

Good morning, John.

This year, you're looking at a quarter, but again, we started reducing it. We started reducing it as our bonds began maturing.

I Hope I hope I'm lost.

Yes.

Yeah just.

Operator: There's no question. We're not letting the balance sheet, you know, we've always carried about $2 billion in leverage, and I think we let it maybe get down a little too far. I know I've asked our guys to buy, and they didn't. We're not going to, we're not going to, we're still going to keep about $2 billion of leverage on the deal, and we're not going the other way. My point is, a lot of it is you just had a lot of the net interest income just came from a smaller balance sheet. We let it get too, too small in my opinion.

David I put.

Backup the truck amongst all model on the share count on a given.

We started we just reducing our cash instead of buying back, you know? And again we we'll get we're going to get back into the bond buying business, too. There's no question. We're not, we're not letting the the balance sheet, you know.

I guess the question for you is do you have an optimal capital target in mind.

For the company I think one of the evaluation issues of the returns have gone down as your capital has gone up so I'm just curious.

Now I would like to take your capital ratios.

We were saving a lot of our capital because we had aspirations of Athena we were bidding on a bigger bank, we didnt get the bigger bank than we thought we would have needed to cash as part of the deal.

Charlotte Rasche: The comments we made, right? Currently, we have $1.8 billion borrowing, but like I said, I think we're going to buy some securities, so we want to carry about $2 billion leverage a little bit as we've historically done.

We didn't get it.

With our stock maintenance slow.

We have a lot of room I mean, if you can do them, let at 11% plus.

Leverage, and I think we let it maybe get down a little too far. I I know I've asked our guys to to buy and they didn't, but we're we're not going to, uh, we're not going to. We're we're we're still going to keep about 2 billion dollars of Leverage on the deal. And so we're not going the other way, but my point is a lot of it is you just had a lot of the the net interest income just came from a smaller balance sheet. We let it get too, too small in my opinion and the comments what we made, right? Currently we have 1.8 billion borrowing, but I like I said, I think we're going to buy some security. So we want to carry about 2 billion. Leverage a little bit as the historically done, right?

Operator: Right.

David Zalman: Got it. Thank you for clarifying that. On deposit growth, I think the fourth quarter can be a more favorable quarter for deposit growth, seasonally. Any color on what you're seeing so far or expectations for the fourth quarter?

Leverage ratio right now so.

You can do the math yourself on what the earnings we make even if we spent $500 million it still wouldn't change.

Needle very much where we're at so I mean, we have.

We have a lot of bullets sideline.

Operator: I think you can read us. We're very transparent in what we say. It happens, and we're pretty consistent. Our fourth quarter's always been pretty consistent, and I think you're probably looking at at least another $200 million or $300 million gain in deposits probably.

Okay.

Got it. Okay, well thanks to clarifying that and then on deposit growth, I think the fourth quarter can be a more favorable quarter for deposit growth. Uh seasonally any color on what you're seeing so far are expectations for the fourth quarter. Again, I think, you know, you

One eight.

We found out and even 8%, we still have 3% to 4% of capital on the <unk>. We got a lot of money I mean, we really do unless something goes wrong. So we've got a lot of bullish.

Charlotte Rasche: I agree. It's our seasonality of public funds, and we should get two to three normal big customer deposits from that.

Okay, Okay, well look forward to that.

Operator: Big customer deposits from the commercial side.

And then one other thing I wanted to ask about you talked about moderation.

Charlotte Rasche: Exactly.

Operator: Getting ready for commercial side.

Charlotte Rasche: Yep.

Operator: Yeah.

Charlotte Rasche: Yep.

Like moderation in Texas activity.

You can read us for very transparent what we say it happens and and we're pretty consistent in our fourth. Quarter has always been pretty consistent and I think you're probably looking at at least another 2 or 3 hundred million dollar gain in deposits. Probably that I agree. It's our seasonality of public funds and we should get 2 to 3, normal big customers, deposit and big customer deposits from the commercial getting ready for commercials. Yeah.

David Zalman: Okay, that's helpful. Thank you, guys.

What are you seeing that or is it a change in tone or am I misreading that.

Okay, that's helpful. Thank you, guys.

Asylbek Osmonov: The next question comes from Janet Lee with TD Cowen. Please go ahead.

No you're good genomics elong, you've been around me too long.

I think again when Kevin was talking about the loans at this time.

The next question comes from Janet Leigh with TD Cohen, please go ahead.

H.E. Timanus Jr.: Hello. Dialing into deposits a little, I believe there was about $150 million of runoffs from the Lonestar acquisition on the deposit side as well through June. Do you expect any sort of deposit runoffs from the two acquisitions as well heading into 2026?

Normally normally we see tons of business out there.

Coming in.

Taking care of it we're not we're not out there trying to underprice something it just coming in.

Sort of noticed when we have our management meeting the tone in a room from the area managers that were out there they see a little bit of a.

Hello, I'm dialing into the positives a little. So, I believe there was about $150 million of runoffs from the Lone Star acquisition on the deposit side as well, through June. Do you expect any sort of deposit runoffs from the two acquisitions as well, heading into 2026?

Operator: The American Bank Holding Corporation acquisition is very solid. I mean, their deposit is made up of, they're probably as close to us as you could get, so we don't expect anything there. The Texas Partners Bank, their deposit makeup is different. It's probably the difference because you saw in the prices. They have a big treasury department with a lot of commercial accounts. It's just a bigger part of their deposit makeup, and so there is more risk. We don't, we're not anticipating a lot, but you never know. It's not rate-driven. It's really based on their treasury product that they have. I think that our treasury product is as good, and probably the guy that's running their treasury department will end up running our treasury department, so that's good.

Of a moderation from the type of customer that we have.

I want to say is from the tariffs or the maybe the change in policy and I don't know, where theyre going but they're definitely feeling that a little bit having said that again I don't think theres any other place in the United States that you would rather be but there's definitely a ton of a moderation I think by now but again.

Again at the <unk>.

<unk> still overall is very good you still see that yes.

J P. Morgan Chase has more employees here than they have in New York City, you just add Wells Fargo open up one of the biggest operation centers and the other side I think it was Irving.

Everybody is moving to this Neal so when I say moderation. There is I think there is a slight moderation I think it'll change I think what Kevin said earlier Youll see youll see a pickup I think in and probably the first quarter of next year and.

Operator: There's a bigger portion of their deposits in this treasury area, so there is more risk in that for sure.

So, Texas I think is still and always be good, but again compared to where it was I do.

The American Bank, uh, acquisition is very solid. I mean, they're, they're a deposit is made up of a, a probably as close as you could get. So I don't, we don't expect anything there. Uh, the Texas Partners bank, their deposit makeup is different. And again, it's probably the difference because you saw in the prices, they have a, uh, a big Treasury Department with a lot of, a lot of commercial accounts. Uh, that it, it, it just a bigger part of their, it's a bigger part of their deposit makeup. And so there is more risk again. We don't, we're not anticipating a lot but you never know. It could be, it's not rate driven. It's really based on their treasury product that they have. I think that we have a, I think our treasury product is as good and probably the guy that's running their Treasurer department will be end up running our Treasury Department so that's good. But again there's a a bigger portion of their deposits are a bigger portion of their deposit.

I do feel a little bit a little bit of moderation.

Are in this in this treasury area. So there is more risk in that for sure.

H.E. Timanus Jr.: Got it. Fee income came in a little stronger than you guided to before. I believe that range was like $38 to $40. How do you feel about the fee income? Is there an updated view on where the fee income could be over the next coming quarters?

Okay. Okay, that's very helpful.

Got it. And fee income came in a little.

Yes, that's helpful. I appreciate that thank you.

This concludes our question and answer session I would like to turn the conference back over to Charlotte Rashi for any closing remarks.

Charlotte Rasche: Yeah. I think I'm going to stick to the, you know, the guidance I gave, 38 to 40. This quarter we were a little bit higher, sometimes we do have one-off items happen. If we come in higher than that, it's good, but I would say 38 to 40 is the guidance I would still continue for fourth quarter.

Stronger than you guided it to before, I believe that range was like 38 to 40. Um, how do you feel about the fee income? Is there an updated view on where the fee income could be over the next coming quarters?

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 to work on building shareholder value.

Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah, I think I'm going to stick to the, you know, the guidance I gave uh 38 to 40, I know uh this quarter. We were a little bit higher but sometime we do have 10 of items happen, but in, you know, uh, if we come in higher than that is good, but I would say 38 to 40 is the guidance. I would still continue for fourth quarter.

H.E. Timanus Jr.: Thank you.

Thank you.

Asylbek Osmonov: The next question comes from John Arfstrom with RBC Capital Markets. Please go ahead.

The next question comes from John Armstrong with RBC Capital Markets. Please go ahead.

[Analyst 1]: Hey, thanks. Good morning.

Kevin Hanigan: Morning, John.

Hey, thanks. Good morning.

[Analyst 1]: I hope I'm last. David, I put back up the truck in my Excel model on the share counter, and it gave me an error. I guess the question for you is, do you have an optimal capital target in mind for the company? I think one of the valuation issues is the returns have gone down as your capital has gone up. I'm just curious how far down you'd like to take your capital ratios.

Morning.

Hope, I hope I'm west. Um, just, uh, David. I put um.

Back up the truck in my Excel model on the sheer counter, and it gave me... So, I guess the question for you is, do you have an optimal...

Capital Target in mind.

Um, for the company, I think one of the valuation issues is the returns have gone down as your capital has gone up. So I'm just curious.

Operator: We were saving a lot of our capital because we had aspirations of, you know, we were bidding on a bigger bank. We didn't get the bigger bank, and we thought we would've needed the cash as part of the deal. We didn't get it. With our stock being this low, I think we have a lot of room. I mean, if you can do the we're at 11% plus leverage ratio right now, so.

How far down would you like to take your capital ratios?

Kevin Hanigan: Mm-hmm.

Operator: I mean, you can do the math yourself, and with the earnings we make, even if we spent $500 million, it still wouldn't change the needle very much where we're at. I mean, we have a lot of bullets, I think.

Kevin Hanigan: Yep.

[Analyst 1]: Okay, one other thing.

We we were saving a lot of our Capital because we had aspirations of, you know, we were bidding on a bigger Bank. We didn't get the bigger bank and we thought we would have needed the cash as part of the deal. Uh, we didn't get it, um, with our stock being this low. Uh, I, I think we have a lot of room. I mean, if you, you can do them for what 11% plus, uh, leverage ratio right now. So, I mean, you can do the math yourself and what the earnings we make. Even if we spend 500 million, it still wouldn't change the needle very much where we're at. So I mean we have a we have a lot of bullets, I think.

Okay.

Operator: I mean, if you fell down even to 8%, you still have 3 or 4% of capital. I mean, we got a lot of money. I mean, we really do unless something goes wrong, but we got a lot of bullets.

[Analyst 1]: Yeah. Okay. We'll look forward to that. One other thing I wanted to ask you about, you talked about slight moderation in Texas activity. What are you seeing there? Is it a change in tone, or am I misreading that?

You fell down even to 8%. You still have 3 or 4% of capital. I mean, we got a lot of money. I mean, we really do. Unless something goes wrong, but we got a lot of bullets.

Operator: No, you're good. You know me too long. You've been around me too long. I think when again, when Kevin was talking about the loans this time, normally we see just tons of business out there and, you know, coming in, we're just taking care of it. We're not out there trying to underprice something. It's just coming in. We sort of noticed when we have our management meeting the tone in the room from the area managers that were out there. They see a little bit of a moderation from the type of customers we have. I don't want to say it's from the tariffs or maybe the change in policies, and they don't know where they're going, but they're definitely feeling that a little bit.

Yeah, okay. Okay. Well, we'll look forward to that. Um, the, uh, and then one other thing I wanted to ask about. You talked about moderation, like moderation in Texas activity. What are you seeing there? Is it a change in tone? Or am I misreading that?

Operator: Having said that, I don't think there's any other place in the United States that you would rather be, but there's definitely a tone of a moderation, I think, right now. The economy still overall is very good. You still see, gosh, you have JP Morgan Chase has more employees here than they have in New York City. You just had Wells Fargo open up one of the biggest operations centers on the other side. I think it was Irvine. Everybody's moving to this deal. When I say moderation, I think there's a slight moderation. I think it'll change. I think what Kevin said earlier, you'll see a pickup, I think, in probably the first quarter of next year. Texas, I think, is still going to always be good. Compared to where it was, I do feel a little bit of moderation.

No, you're good. You know, me too long. You've been around me too long. Uh, I I think when I get to, when Kevin was talking about the loans, this time, you know, normally normally we see just tons of business out there and, you know, coming in, you know, we're just taking care of it. We're not we're not out there trying to under price something, it's just coming in. We we sort of noticed when we have our management meeting the tone in the room from the, the area managers that were out there. They see a little bit of a, of a moderation from the type of customers we have. I don't, I don't want to say it's from the terrorists or, or the, maybe the changing policy that they don't know where they're going, but they're definitely feeling that a little bit. Having said that, uh, again, I don't think there's any other place in the United States, that you would rather be, but there's definitely a tonne of a moderation. I think right now. But again,

Again, the economy is still overall very good. You still see, gosh, you got...

You have JP Morgan. Chase has more employees here than they have in in New York City. You just had Wells Fargo open up 1 of the biggest operations centers in the other side. I think it was Irving uh everybody's moving to this deal. So when I say moderation there is, I think there's a slight moderation, I think it'll change. I think with Kevin said earlier, you'll see you'll see a pickup I think in in in probably the first quarter of next year and but and so Texas I think is still going to always be good. But again compared to where it was I do I do feel a little bit a little bit of moderation.

[Analyst 1]: Okay. That's very helpful.

Kevin Hanigan: that's helpful.

[Analyst 1]: Yeah, that's helpful. I appreciate that. Thank you.

Okay. Okay, okay, that's very helpful. Yeah, yeah, yeah, that's helpful. I appreciate that. Thank you.

Asylbek Osmonov: This concludes our question and answer session. I would like to turn the conference back over to Charlotte Rasche for any closing remarks.

[Analyst 2]: 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 to work on building shareholder value.

This concludes our question-and-answer session. I would like to turn the conference back over to Charlotte Rasche for any closing remarks.

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 to work on building shareholder value.

Asylbek Osmonov: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.