Q2 2026 Prosperity Bancshares Inc Earnings Call

July 29, 2026

Speaker #1: Good day, and welcome to the Prosperity Bancshares Q2 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal your conference specialist by pressing the star key, followed by zero.

Operator: Good day. Welcome to the Prosperity Bancshares Q2 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 your touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone.

Speaker #1: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

Speaker #2: Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares Q2 2026 earnings conference call. This call is being broadcast live on our website and will be available for replay for the next few weeks.

Charlotte M. Rasche: Thank you. Good morning, ladies and gentlemen. Welcome to Prosperity Bancshares' Q2 2026 Earnings Conference Call. This call is being broadcast live on our website and will be available for replay for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer, H.E. Tim Timanus Jr., Chairman, Asylbek Osmonov, Chief Financial Officer, Eddie Safady, Senior Vice Chairman, Kevin Hanigan, President and Chief Operating Officer, Robert Franklin, Vice Chairman and former CEO of Stellar Bancorp, Randy Hester, Chief Lending Officer, Mays Davenport, Director of Corporate Strategy, Bob Dowdell, Executive Vice President, and Ramon Vitulli, Houston Area Chairman and former president of Stellar Bancorp. David Zalman will lead off with a review of the highlights for the recent quarter.

Speaker #2: I'm Charlotte Rasche, Executive Vice President and General Counsel of PROSPERITY BANKSHARES, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer Aichi Timtamanish Jr., Chairman, Asobek Osmonov, Chief Financial Officer, Eddie Safadi, Senior Vice Chairman, Kevin Hannigan, President and Chief Operating Officer, Robert Franklin, Vice Chairman, and former CEO of Stellar Bancorp, Randy Hester, Chief Lending Officer, Maze Davenport, Director of Corporate Strategy, Bob Dowdell, Executive Vice President, and Ray Vittuli, Houston Area Chairman and former President of Stellar Bancorp.

Speaker #2: David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics.

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

Speaker #2: And Tim Tamanish, 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.

Speaker #2: Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws and, as such, may involve known and unknown risks, uncertainties, and other factors which may cause the actual results or performance of Prosperity Bancshares to be materially different from future results or performance expressed or implied by such forward-looking statements.

Speaker #2: 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 BANKSHARES 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.

Charlotte M. 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' 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.

Speaker #2: All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now, let me bring the call over to David Zalman.

Speaker #3: Thank you, Charlotte. I would like to welcome and thank everyone listening to our Q2 2026 conference call. I'm excited to announce that on July 1st, 2026, PROSPERITY BANKSHARES completed the merger of Stellar Bancorp and its wholly-owned subsidiary, Stellar Bank, headquartered in Houston, Texas.

David Zalman: Thank you, Charlotte. I would like to welcome and thank everyone listening to our Q2 2026 conference call. I am excited to announce that on 1 July 2026, Prosperity Bancshares completed the merger of Stellar Bancorp and its wholly owned subsidiary, Stellar Bank, headquartered in Houston, Texas. Stellar Bank operated 52 banking offices, including its main office in Houston and banking offices in the Houston, Beaumont, and East Texas areas, and in Dallas, Texas. I am also pleased to announce that Robert Franklin, former CEO of Stellar Bancorp, and Joe B. Swinbank, a former Stellar director, have joined the Prosperity Bancshares board of directors, and that Ray Vitulli, former CEO of Stellar Bank, and Pat Parsons, a former Stellar Bank director, have joined the Prosperity Bank board of directors. Pat was instrumental in building Stellar's Beaumont franchise over the years.

Speaker #3: Stellar Bank operated 52 banking offices, including its main office in Houston, and banking offices in the Houston, Beaumont, and East Texas areas, as well as in Dallas, Texas.

Speaker #3: I'm also pleased to announce that Robert Franklin, former CEO of Stellar Bancorp, and Joe Swinbank, a former Stellar director, have joined the Prosperity Bancshares Board of Directors, and that Ray Vittuli, former CEO of Stellar Bank, and Pat Parsons, a former Stellar Bank director, have joined the Prosperity Bank Board of Directors.

Speaker #3: Pat was instrumental in building Stellar's Beaumont franchise over the years. With regard to earnings, excluding the gain on the Visa Class B2 stock exchange, and the net of investment security sales that we had, and merger-related expenses, net income was $162,000, and earnings per diluted common share was $1.62 for the three months ended June 30, 2026.

David Zalman: With regard to earnings, excluding the gain on the Visa Class B-2 stock exchange and the net of investment security sale that we had and merger-related expenses, net income was $162 million, and earnings per diluted common share was $1.62 for the three months ended 30 June 2026, compared with $135 million, or $1.42 per diluted common share for the same period in 2025. This represents a 20.4% increase in net income and a 14.1% increase in diluted earnings per share. These earnings for the Q2 2026 do not reflect any contribution from Stellar. Excluding one-time merger-related expenses and charges related to security sales, Stellar had $42.1 million in pre-tax, pre-provision core income. Assuming a 21% tax rate, Stellar's Q2 net income would have been approximately $33 million.

Speaker #3: Compared with $135 million, or $1.42 per diluted common share, for the same period in 2025. This represents a 20.4% increase in net income and a 14.1% increase in diluted earnings per share.

Speaker #3: These earnings for the Q2 of 2026 do not reflect any contribution from Stellar. Excluding one-time merger-related expenses and charges related to security sales, Stellar had $42.1 million in pre-tax, pre-provision, core income.

Speaker #3: Assuming a 21% tax rate, Stellar's Q2 net income would have been approximately $33 million. Annualizing this amount for Stellar and PROSPERITY Q2, core net income after excluding the non-recurring items shows an annual run rate of approximately $780 million.

David Zalman: Annualizing this amount for Stellar and Prosperity Q2, core net income after excluding the non-recurring items shows an annual run rate of about approximately $780 million. This does not reflect any cost savings that we expect to achieve after the operational integrations of American Bank in September, Texas Partners Bank in November, and Stellar Bank in March 2027. As mentioned on prior calls, these are the results we expected, and we believe these tailwinds should continue to be positive for the near future. With regard to loans were $25 billion at 30 June 2026, an increase of $2.8 billion or 12.8% compared with the $22.2 billion at 30 June 2025, and this was primarily due to the American Bank and Texas Partners Bank mergers.

Speaker #3: This does not reflect any cost savings that we expect to achieve after the operational integrations of American Bank in September, Texas Partners Bank in November, and Stellar Bank in March of 2027.

Speaker #3: As mentioned on prior calls, these are the results we expected, and we believe these tailwinds should continue to be positive for the near future.

Speaker #3: With regard to loans, loans were $25,000,000 at June 30, 2026, an increase of 2.8 billion, or $12.8%, compared with the $22.2 billion at June 30, 2025.

Speaker #3: This was primarily due to the American Bank and Texas Partners Banks mergers. Loans, excluding warehouse purchase program loans, were $23.7 billion at June 30, 2026, compared with $23.8 billion at March 31, 2026.

David Zalman: Loans excluding warehouse purchase program loans were $23.7 billion at 30 June 2026, compared with $23.8 billion at 31 March 2026, a decrease of $117 million. We experienced pay-downs this quarter with our one-to-four family residential portfolio decreasing $100 million plus, as well as other large pay-downs. We also are focusing on the integration with our new partners. Our deposits were $32.6 billion at 30 June 2026, an increase of $5.1 billion or 18.7% compared with $27.4 billion at 30 June 2025, primarily again due to the American Bank and Texas Partners merger. Our linked quarter deposits decreased $33 million from $32.6 billion at 31 March 2026. However, our non-interest-bearing deposits increased $159 million during Q2 2026. Excuse me. Our non-interest-bearing deposits of $10.7 billion at 30 June 2026, represent 32.9% of our total deposits.

Speaker #3: A decrease of $117,000,000. We experienced paydowns this quarter with our 1 to 4 family residential portfolio decreasing $100,000,000 plus as well as other large paydowns.

Speaker #3: We also are focusing on the integration of our new with our new partners. Our deposits were $32.6 billion at June 30, 2026, an increase of 5.1 billion, or $18.7%, compared with $27.4 billion at June 30, 2025, primarily again due to the American Bank and Texas Partners merger.

Speaker #3: Our linked-quarter deposits decreased $33 million from $32.6 billion at March 31, 2026. However, our non-interest-bearing deposits increased $159 million during Q2 of 2026. Excuse me.

Speaker #3: Our non-interest-bearing deposits of $10.7 billion at June 30, 2026, represent $32.9% of our total deposits. The net interest margin on tax-equivalent basis was 3.47 for the three months ending June 30, 2026, compared with 3.18% for the same period in 2025 and 3.51% for the three months ended March 31, 2026.

David Zalman: The net interest margin on a tax equivalent basis was 3.47% for the three months ending 30 June 2026, compared with 3.18% for the same period in 2025, and 3.51% for the three months ended 31 March 2026. The net interest margin in Q1 2026 was impacted by a one-time loan interest income of $4 million from a non-accrual loan. Excuse me. The net interest margin continues to be positively impacted by the repricing of assets, as we predicted and mentioned during previous calls, and Asylbek will give you a lot more color, but we're really excited where our net interest margin is headed. Asset quality.

Speaker #3: The net interest margin in the first quarter of 2026 was impacted by a one-time loan interest income of $4,000,000 from a non-accrual loan. The excuse me.

Speaker #3: The net interest margin continues to be positively impacted by the repricing of assets, as we predicted and mentioned during previous calls. Also, that will give you a lot more color, and we're really excited about where our net interest margin is headed.

Speaker #3: Asset quality: Our non-performing assets totaled $130 million, or 34 basis points of quarterly average interest-earning assets, at June 30, 2026, compared with $122 million, or 33 basis points of quarterly average interest-earning assets at March 31, 2026, and $110 million, again at 33 basis points of quarterly average interest-earning assets at June 30, 2025.

David Zalman: Our non-performing assets total $130 million, or 34 basis points of quarterly average interest-earning assets at 30 June 2026, compared with $122 million or 33 basis points of quarterly average interest-earning assets at 31 March 2026, and $110 million, again at 33 basis points of quarterly average interest-earning assets at 30 June 2025. You saw somewhat of an increase there, but based with the new banks that have come in with this and the amount of assets, we're still basically at the same ratio. The allowance for credit losses on loans and off-balance sheet credit exposure was $420 million at 30 June 2026. The allowance for credit losses on loans was 2.9 times the amount of non-performing assets. With regard to acquisitions, we are excited about the synergy we have with our new partners, Stellar Bank, Texas Partners Bank, and American Bank.

Speaker #3: So you saw somewhat of an increase there, but with the new banks that have come in, and the amount of assets, we're still basically at the same ratio.

Speaker #3: The allowance for credit losses on loans and off-balance sheet credit exposure was $420 million at June 30, 2026. The allowance for credit losses on loans was 2.9 times the amount of non-performing assets.

Speaker #3: With regard to acquisitions, we are excited about the synergy we have with our new partners—Stellar Bank, Texas Partners Bank, and American Bank. Our top priority is the operational integration of all three banks and our combined teams to ensure they are successful.

David Zalman: Our top priority is the operational integration of all three banks, and our combined teams are working very hard to ensure they are successful. While we continue to have conversation with other bankers regarding potential acquisition opportunities, we remain focused on the integration of our three transactions. Texas has one of the strongest and most diverse state economies in the US, ranking as the second largest by GDP after California, and approximately the eighth largest economy in the world. Oklahoma has a smaller but stable economy, heavily influenced by oil and gas with more modest growth. Texas continues to shine as more people and companies move to the state because of the business-friendly political structure and no state income tax. Prosperity continues to focus on building core relationships, maintaining sound asset quality, and operating the bank in an efficient manner while investing in ever-changing technology and product distribution channels.

Speaker #3: While we continue to have conversations with other bankers regarding potential acquisition opportunities, we remain focused on the integration of our three transactions. Texas has one of the strongest and most diverse state economies in the U.S., ranking as the second largest by GDP after California, and approximately the eighth largest economy in the world.

Speaker #3: Oklahoma has a smaller, but stable, economy, heavily influenced by oil and gas, with more modest growth. Texas continues to shine as more people and companies move to the state because of the business-friendly political structure and no state income tax.

Speaker #3: PROSPERITY continues to focus on building core relationships, maintaining sound asset quality, and operating the bank in an efficient manner while investing in ever-changing technology and product distribution channels.

Speaker #3: We intend to continue to grow the company both organically and through mergers and acquisitions. I want to thank everyone involved in our company for helping to make it the success it has become.

David Zalman: We intend to continue to grow the company both organically and through mergers and acquisitions. I want to thank everyone involved in our company for helping to make it the success it has become. Thanks again for your support of our company. Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Asylbek?

Speaker #3: Thanks again for your support of our company. Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved.

Speaker #3: Osselbeck?

Speaker #2: Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended June 30, 2026, was $330.6 million, an increase of $62.8 million compared to $267.7 million for the same period in 2025, and an increase of $9.4 million compared to $321.2 million for the quarter ended March 31, 2026.

Asylbek Osmonov: Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended 30 June 2026 was $330.6 million, an increase of $62.8 million compared to $267.7 million for the same period in 2025, an increase of $9.4 million compared to $321.2 million for Q1 2026. The net interest margin on a tax-equivalent basis was 3.47% for the three months ended 30 June 2026, an increase of 29 basis points compared to 3.18% for the same period in 2025, and a decrease of 4 basis points compared to 3.51% for Q1 2026. The linked-quarter margin decrease was primarily due to the previously mentioned one-time loan interest income of $4 million recorded during Q1 2026. Excluding this one-time loan income, net interest margin increased by 1 basis point on a linked-quarter basis.

Speaker #2: The net interest margin on a tax-equivalent basis was 3.47% for the three months ended June 30, 2026, an increase of 29 basis points compared to 3.18% for the same period in 2025, and a decrease of 4 basis points compared to 3.51% for the quarter ended March 31, 2026.

Speaker #2: The linked quarter margin decrease was primarily due to the previously mentioned one-time loan interest income of $4.0 million recorded during the first quarter of 2026.

Speaker #2: Excluding this one-time loan income, net interest margin increased by 1 basis points on linked quarter basis. Excluding purchase accounting adjustments, the net interest margin for the three months ended June 30, 2026, was 3.41% compared to 3.14% for the same period in 2025 and 3.44% for the quarter ended March 31, 2026.

Asylbek Osmonov: Excluding first accounting adjustments, the net interest margin for the three months ended 30 June 2026 was 3.41%, compared to 3.14% for the same period in 2025 and 3.44% for Q1 2026. The fair value loan income for Q2 2026 was $4 million, compared to $3.7 million for Q1 2026. Fair value loan income for Q3 2026 is expected to be in the range of $6 to $8 million. Non-interest income was $60.7 million for the three months ended 30 June 2026, compared to $46.5 million for Q1 2026 and $43 million for the same period in 2025. The higher non-interest income during Q2 2026 includes a net gain of $8.2 million resulting from the conversion of Visa stock, partially offset by loss on the sale of investment securities.

Speaker #2: The fair value loan income for the second quarter of 2026 was $4.0 million, compared to $3.7 million for the first quarter of 2026. Fair value loan income for the third quarter of 2026 is expected to be in the range of $6 million to $8 million.

Speaker #2: Non-interest income was $60.7 million for the three months ended June 30, 2026, compared to $46.5 million for the quarter ended March 31, 2026, and $43 million for the same period in 2025.

Speaker #2: The higher non-interest income during the second quarter of 2026 includes a net gain of $8.2 million resulting from the conversion of Visa stock, partially offset by a loss on the sale of investment securities.

Speaker #2: The non-interest expense was $176.2 million, for the three months ended June 30, 2026, compared to $217.3 million for the quarter ended March 31, 2026, and $138.6 million for the same period in 2025.

Asylbek Osmonov: The non-interest expense was $176.2 million for the three months ended 30 June 2026, compared to $217.3 million for Q1 2026, and $138.6 million for the same period in 2025. Q1 included merger-related expenses of $42.5 million. For Q3 2026, we expect non-interest expense to be in the range of $244 to $250 million. This includes the additional Stellar Bank operations. However, this projection does not include any one-time merger-related expenses associated with the Stellar merger. Efficiency ratio was 46% for the three months ended 30 June 2026, compared to 59.2% for Q1 2026, and 44.8% for the same period in 2025. The bond portfolio metrics at 30 June 2026 have a modified duration of 3.7 and projected annual cash flows of approximately $2.2 billion.

Speaker #2: The first quarter included merger-related expenses of $42.5 million. For the third quarter of 2026, we expect non-interest expense to be in the range of $244 million to $250 million. This includes the additional Stellar Bank operations.

Speaker #2: However, this projection does not include any one-time merger-related expenses associated with the Stellar merger. The efficiency ratio was 46% for the three months ended June 30, 2026, compared to 59.2% for the quarter ended March 31, 2026, and 44.8% for the same period in 2025.

Speaker #2: The bond portfolio metrics at 6:30, 2026, have a modified duration of 3.7 and projected annual cash flows of approximately $2.2 billion. I will now provide a high-level overview of Stellar financial performance for the second quarter of 2026.

Asylbek Osmonov: I will now provide a high-level overview of Stellar financial performance for Q2 2026. Stellar also delivered strong financial results during the quarter. Stellar's net interest income before provision for credit losses for the three months ended 30 June 2026 was $106.4 million, an increase compared to $105.9 million for the quarter ended 31 March 2026. The Q2 results included one-time merger-related expenses and losses related to the sale of certain investment securities. Excluding these one-time charges, Stellar's adjusted pre-tax, pre-provision net income was $42.1 million, an increase of $2.9 million compared to Q1 2026. Let me turn over the presentation to Tim Timanus for some additional detail on loan and asset quality. Timanus.

Speaker #2: Stellar also delivered strong financial results during the quarter. Stellar's net interest income before provision for credit losses for the three months ended June 30, 2026, was $106.4 million, an increase compared to $105.9 million for the quarter ended March 31, 2026.

Speaker #2: The second quarter results included one-time merger-related expenses and losses related to the sale of certain investment securities, excluding this one-time charges Stellar's adjusted pre-tax, pre-provision net income was 42.1 million, an increase of 2.9 million, compared to the first quarter of 2026.

Speaker #2: Now, let me turn over the presentation to Tim Timanis for some additional detail on loan and asset quality. Mr. Timanis?

Speaker #3: Thank you, Osselbeck. Our non-performing assets at quarter end June 30, 2026, totaled $130,576,000, or 52 basis points of loans and other real estate, compared to $122,107,000, or 48 basis points, at March 31, 2026.

H.E. Tim Timanus Jr.: Thank you, Asylbek. Our non-performing assets at quarter end, 30 June 2026, totaled $130,576,000, or 52 basis points of loans and other real estate, compared to $122,107,000, or 48 basis points at 31 March 2026. Since 30 June 2026, $5 million of non-performing assets have been removed or put under contract for sale. The 30 June 2026 non-performing asset total was comprised of $119,271,000 in loans, $9,000 in repossessed assets, and $11,296,000 in other real estate. Net charge-offs for the three months ended 30 June 2026 were $2,183,000 compared to net charge-offs of $41,309,000 for the quarter ended 31 March 2026. There was no provision to the allowance for credit losses during the quarter ended 30 June 2026. No dollars were taken into income from the allowance during the quarter ended 30 June 2026.

Speaker #3: Since June 30, 2026, $5,000,000 of non-performing assets have been removed or put under contract for sale. The June 30, 2026, non-performing asset total was comprised of $119,271,000 in loans; $9,000 in repossessed assets; and $11,296,000 in other real estate.

Speaker #3: Net charge-offs for the three months ended June 30, 2026, were $2.2 million, compared to net charge-offs of $41.3 million for the quarter ended March 31, 2026.

Speaker #3: There was no provision to the allowance for credit losses during the quarter ended June 30, 2026. No dollars were taken into income from the allowance during the quarter ended June 30, 2026.

Speaker #3: The average monthly new loan production for the quarter ended June 30, 2026, was $454 million, compared to $312 million for the quarter ended March 31, 2026. Loans outstanding at June 30, 2026, were approximately $25.028 billion, compared to $25.288 billion at March 31, 2026.

H.E. Tim Timanus Jr.: The average monthly new loan production for the quarter ended 30 June 2026 was $454 million compared to $312 million for the quarter ended 31 March 2026. Loans outstanding at 30 June 2026 were approximately $25.028 billion compared to $25.288 billion at 31 March 2026. The 30 June 2026 loan total is made up of 34% fixed-rate loans, 33% floating rate loans, and 33% variable rate loans. I will now turn it over to Charlotte Rasche.

Speaker #3: The June 30, 2026, loan total is made up of 34% fixed-rate loans, 33% floating-rate loans, and 33% variable-rate loans. I will now turn it over to Charlotte Rasche.

Speaker #4: Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator, Dave, will assist us with questions.

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

Speaker #1: We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star and then two. Our first question comes from Janet Lee with TD Cowen. Please go ahead.

Speaker #1: If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Our first question comes from Janet Lee with TD Cowen.

Speaker #1: Please go ahead.

Speaker #5: Good morning.

Janet Lee: Good morning.

Speaker #6: Good morning.

Speaker #4: Good morning.

David Zalman: Good morning.

Kevin Hanigan: Good morning.

Speaker #5: On the last call, you talked about net interest margin reaching the 3.70% level as you exit 2026 and then getting into the 3.80% range in 2027.

Janet Lee: From the last call, you've talked about net interest margin reaching the 370 level as you exit 2026, then getting in the 380 range in 2027. Do you still have a good line of sight into reaching that level, or is there any changes to the outlook versus before?

Speaker #5: Do you still have a good line of sight into reaching that level, or is there any change to the outlook versus before?

Speaker #6: Janet, no. Our models are still showing us hitting—I think, again, Asylbek may want to jump in on this—but we're still saying that we'll end up with 3.75 at the end of the year. But our models are still showing 370 to 380, and so.

David Zalman: Janet, no. Our models are still showing us hitting, I think, again, Asylbek may want to jump in on this, but we're still saying that we'll end up with 3.75 at the end of the year, but our models are still showing 370 to 380.

Asylbek Osmonov: Our exit, yes, it is. We've provided guidance of 370. I think we're going to increase to 370, 375 because with additions still very accretive to us. The guidance stays the same. For 2027, we said 380. I think it's still for whole year, 380, 385. That will be updated guidance.

Speaker #2: Yeah. So, I would say yes, it is. We've provided guidance of $370 million. I think we're going to increase to $370 million or $375 million because with the addition of Stellar, it's very accretive to us.

Speaker #2: So, the guidance stays the same. And for 2027, we said $380. I think it's still for the whole year, $380 to $385. That will be updated guidance.

Speaker #6: The only caution I would put is, as we start getting past the 3.7% net interest margin, we are still very competitive. We offer some of the most competitive CD rates, but we've been a little bit lower on our money market accounts, and we may want to raise our money market account rates just a little bit.

David Zalman: The only caution I would put as we start getting past the 3.7% in net interest margin, we still are very competitive. We offer some of the competitive CD rates, we've been a little bit lower on our money market accounts, and we may want to raise our money market accounts rate just a little bit. That may temper the net interest margin a little bit anyway. We may be trying to grow more organically at that point in time once we hit 3.7.

Speaker #6: So that may temper the net interest margin a little bit anyway. We may be, again, maybe trying to grow more organically at that point in time, once we hit the 3.7.

Speaker #5: Okay, makes sense. But the 380-plus range still contemplates that you're raising rates on your deposits?

Janet Lee: Okay. Makes sense. The 380+ range still contemplates that you're raising rates on your deposits.

Speaker #2: Some rates, yes. We have increased some of them, so yes. But.

Asylbek Osmonov: Some rate. Yes, we have increased some of them, yes.

Speaker #5: Okay, got it. I understand that the priority is on the integration part, but on the Stellar side—perhaps even on the legacy PROSPERITY side—what are you seeing in terms of loan growth and demand there?

Janet Lee: Okay. Got it. I understand that the priorities is on the integration part, on the Stellar side, perhaps, or even on the legacy Prosperity side, what are you seeing in terms of loan growth and demand there? It looks like outside of the mortgage warehouse, it was fairly stable quarter-over-quarter. Just wanted to see what you're seeing on that front.

Speaker #5: It looks like, outside of the mortgage warehouse, it was a fairly stable quarter over quarter. Just wanted to see what you're seeing on that front.

Speaker #2: Yeah, this is Kevin. I'd say for the remainder of the year, company-wide, still relatively flat for the remainder of the year. That does include Stellar, which has got a pretty robust pipeline of billions to us, right?

Kevin Hanigan: Yeah. This is Kevin. I'd say for the remainder of the year, company-wide, still relatively flat for the remainder of the year, though that does include Stellar has got a pretty robust pipeline, a billion two-ish, right?

David Zalman: Yeah.

Speaker #2: And so they feel as though they'll grow their loans. They grew them about $200 million in the first half of the year. They'll probably grow them another $200 million in the back half of the year.

Kevin Hanigan: They feel as though they'll grow their loans. They grew them about $200 million in H1 of the year. They'll probably grow them another $200 million in the back half of the year. Overall for the company, I would call it flattish for the remainder of the year. Maybe on the better news front, as Tim said, production has been picking up, and we have several hundred million, probably closer to $400 million of construction deals, which we've approved so far this year that are booked. They're in our pipeline. They will not provide any fundings this year as all the equity has to go into those deals first. Beginning in Q1 and more materially in Q2 of next year, the pull-through of those deals is going to start generating some positive overall company growth.

Speaker #2: But overall, for the company, I would call it flattish for the remainder of the year. Maybe on the better news front, as Tim said, production has been picking up.

Speaker #2: And we have several hundred million, probably closer to $400 million, of construction deals which we've approved so far this year that are booked. They're in our pipeline.

Speaker #2: They will not provide any funding this year, as all the equity has to go into those deals first. But beginning in the first quarter, and more materially in the second quarter of next year, the pull-through of those deals is going to start generating some positive overall company growth.

Speaker #3: And this is Tim. Everything that Kevin said is accurate, in my opinion. We do forecast stability going forward. We have a decent pipeline of loans.

H.E. Tim Timanus Jr.: This is Tim. Everything that Kevin said is accurate, in my opinion. We do forecast stability going forward. We have a decent pipeline of loans. We see decent loan activity out there in the marketplace. Really, the only thing we see that's a hindrance is some of the very aggressive structure and pricing that the competition is putting forward. We have to be cognizant of that and careful with it. Basically, everything looks decent right now.

Speaker #3: We see decent loan activity out there in the marketplace. Really, the only thing we see that's a hindrance is some of the very, very aggressive structure and pricing that the competition is putting forth.

Speaker #3: So we have to be cognizant of that and careful with it. But basically, everything looks decent right now.

Speaker #2: Yeah. As Tim said, and it's no news to all of you on the call, but credit spreads are at 25- or 30-year lows across the risk. They're just getting to the point of being ridiculous.

Kevin Hanigan: Yeah, as Tim said, it's no news to all of you on the call, credit spreads are at 25 or 30-year lows across the risk spectrum. Some things out there are just getting to the point of being ridiculous. We have looked at two meaningfully large transactions in the last two weeks priced at SOFR 125. The math on that yields you an opening day coupon of like 483.

Speaker #2: We have looked at two meaningfully large transactions in the last two weeks, priced at SOFR 1.25. The math on that yields you an opening-day coupon of, like, 4.83%.

H.E. Tim Timanus Jr.: Yeah.

Speaker #2: Which is ridiculously low. And it's not like either one of those things came with massive amounts of demand deposits in a relationship. So just risk-reward across the spectrum right now is, I think, slightly mispriced.

Kevin Hanigan: Which is ridiculously low, it's not like either one of those things came with massive amounts of demand deposits in the relationship. Just risk-reward across the spectrum right now is, I think, slightly mispriced.

Speaker #6: And I'll give you a little bit more color because I think that, no disrespect, but the analysts continue to want to show just the growth in the loans and growth all the time.

H.E. Tim Timanus Jr.: I'll give you a little bit more color because I think that, no disrespect, the analysts continue to want to show just the growth in the loans and growth all the time. I think you need to take profitability into consideration. Just to give you a little color, last week we had a loan at loan committee, and it was a grade A company, there's no question about it. It was a $20 million credit, and it was priced at, with especially some of the regional banks coming from outside the state trying to make a mark inside the state, they priced it at a 7-year fixed rate at 5.5% with a 25-year amortization. Of course, there's not many of any deposits with that. You have to consider, okay, do I want to make a loan at 5.5%?

Speaker #6: But I think you need to take profitability into consideration, and just to give you a little color, last week we had a loan at loan committee, and it was a Grade A company.

Speaker #6: There's no question about it. But it was a $20 million credit, and it was priced with—especially some of the regional banks coming from outside the state, trying to make a mark inside the state—they priced it at a seven-year fixed rate at 5.5% with a 25-year amortization.

Speaker #6: And of course, there's not many, if any, deposits with that. And so you have to consider, okay, do I want to make a loan at 5.5%, or can I go with a pretty high duration? Or do I want to just go buy a mortgage-backed security with a 4.8-year duration and get 5%?

H.E. Tim Timanus Jr.: Can I go with a pretty high duration? Do I want to just go buy a mortgage-backed security with a 4.8-year duration and get 5%? Can we really operate on 50 basis points? I would tell you the difference is, no, you can't pay the lender, the officer reserve for loan loss, and make it off of 50 basis points. I guess my point is we're really paying attention to profitability at the same time. It's not an excuse, but I think that you guys just need to know that too. We're not going to just put loans on. Most of the loans that come, the bigger loans that come, they're really more of a dry relationship.

Speaker #6: So, can we really operate on 50 basis points? And I would tell you the difference is, no, you can't pay the lender, the officer, reserve for loan loss, and make it off of 50 basis points.

Speaker #6: So we're really—I guess my point is, we're really paying attention to profitability at the same time. It's not an excuse, but I think that you guys just need to know that too.

Speaker #6: We're just not going to just we're not going to just put loans on most of the most of the loans that come, the bigger loans that come, they're really more of a dry relationship.

Speaker #6: I mean, if you're really bringing over a customer and you're bringing over the customer's deposits and total relationship, that's a completely different story. And even that rate may make some sense.

H.E. Tim Timanus Jr.: If you're really bringing over a customer, and you're bringing over the customer deposits and total relationship, that's a completely different story, and even that rate may make some sense. The bigger dry relationships, just to grow loans at those kind of pricing, in my opinion, doesn't make a lot of sense.

Speaker #6: But the bigger driver in relationships just to grow loans, to grow loans at those kind of pricing, in my opinion, doesn't make a lot of sense.

Speaker #5: Got it. Appreciate all the color. I'll step back.

Janet Lee: Got it. Appreciate all the color. I'll step back.

Speaker #1: And the next question comes from Brett Rabotin with StoneX Group. Please go ahead.

Operator: The next question comes from Brett Rabatin with StoneX Group. Please go ahead.

Speaker #4: Hey, good morning, everybody. Thanks for the questions. I wanted to start on the other income. I know there was some noise in Q2 with the gains and the securities.

Brett Rabatin: Hey, good morning, everybody. Thanks for the questions. Wanted to start on the other income. I know there was some noise in Q2 with the gains in the securities. With the increase in other, was that related to anything in particular, and does that continue from here?

Speaker #4: What was the increase in 'other'? Was that related to anything in particular, and does that continue from here?

Speaker #2: Yeah. On the other one, we had just about $2.5 million—just, I would say, annual income that we get—but it's not going to be expected, maybe, next quarter.

Asylbek Osmonov: Yeah, on the other one, we had just about USD two and a half million, just I would say annual income that we get that, but it's not going to be expected maybe next quarter, but annual income would generate about USD two and a half million. Other than that, everything is core except the, of course, gain on Visa stock. If you're thinking going forward, I would say our range around $50 million Prosperity before Stellar, and Stellar has $5 to 6 million. I would say between $54 to 56 million, that would be a good run rate on the non-interest income.

Speaker #2: But there was an annual income—we generate about $2.5 million. Other than that, everything is a core, except, of course, the gain on Visa stock.

Speaker #2: So, if you're thinking going forward, I would say our range is around $50 million for Prosperity before Stellar, and Stellar has $5 to $6 million. So, I would say between $54 to $56 million—that would be a good run rate on the non-interest income.

Speaker #4: Okay, that's great color. Appreciate that. I'll step back. And then, David, you were just talking about your kind of thesis on loans versus securities.

Brett Rabatin: Okay, that's great color. Appreciate that. I'll step back. Then, David, you were just talking about your thesis on loans versus securities and with where the bond market has moved. I was just curious if there was any maybe increased appetite to actually grow the securities portfolio from here, and just thoughts on how you view the securities portfolio size post-Stellar integration.

Speaker #4: And with where the bond market has moved, I was just curious if there was any maybe increased appetite to actually grow the securities portfolio from here and just thoughts on how you view the securities portfolio size kind of post-Stellar integration?

Speaker #6: Well, again, our first focus will always be loans. But on the other hand, when the price is getting to where it is right now, you really can't we're not going to put a bunch of stuff on the books and just to grow loans and not be profitable and take the risk.

H.E. Tim Timanus Jr.: Well, again, our first focus will always be loans. On the other hand, when the price is getting to where it is right now, we're not going to put a bunch of stuff on the books just to grow loans and not be profitable and take the risk. I would say, I think you'll continue to see we're focused on building loans first, but whatever we don't, we'll continue to put into the bond market. We still grow organically. It's still hard for you guys to see, but when we strip out the banks that have joined us, I think, Cullen, you did a deal showing yesterday that our deposits actually have grown organically about 3.2%. Once things always stabilize, we'll still have 2% to 4% organic deposit growth all the time.

Speaker #6: So I would say I think you'll continue to see we'll focus on building loans first, but whatever we don't, we'll continue to put into the bond market.

Speaker #6: And we still grow organically. It's still hard for you guys to see, but when we strip out when we strip out the banks that have joined us, I think, Colin, you did it showing yesterday that our deposits actually have grown organically about 3.2%.

Speaker #6: So once things always stabilize, we'll still have 2 to 4 percent organic deposit growth all the time. It's just when you put all these things together and some customers come, some customers leave, it'll take a year or so.

H.E. Tim Timanus Jr.: It's just when you put all these things together and some customers come, some customers leave, it'll take a year or so, but we'll always have organic growth. That in itself always outproduces what we are able to put in loans sometimes. I think you'll have a combination of both growth in loans and securities really going forward.

Speaker #6: But we'll always have organic growth, and that in itself always outproduces what we are able to put in loans sometimes. So, I think you'll have a combination of both growth in loans and deposits, loans, and securities really going forward.

Speaker #4: Okay. And then if I could just ask one quick last one, just around—it sounds like you guys are still seeing some irrational stuff on the lending side, but the monthly loan production was obviously stronger late quarter.

Brett Rabatin: Okay. If I could just ask one quick last one just around, it sounds like you guys are still seeing some irrational stuff on the lending side, but the monthly loan production was obviously stronger linked quarter. Would you guys attribute that to just increased activity in the markets, customer gains? Anything in particular you would point to just kind of describe the linked quarter improvement and loan production?

Speaker #4: Would you guys attribute that to just increased activity in the markets, customer gains? Anything in particular you would point to, to just kind of describe the late-quarter improvement in loan production?

Speaker #6: Yes. Once again, we see things as being very stable and maybe growing a bit. Our people are constantly out there trying to bring customers in, and that obviously includes loan customers as well as deposit customers.

H.E. Tim Timanus Jr.: Yes. Once again, we see things as being very stable, and maybe growing a bit. Our people are constantly out there trying to bring customers in, and that obviously includes loan customers as well as deposit customers. The problem with the pricing and the structure that we're seeing in the market, those things historically come and go. Right now they're here. We're having to deal with it. How long it lasts, I guess is anybody's guess. I think there's reason to think that we can improve our loan growth, and therefore improve our loans outstanding. You have to understand that quite often the loans that we put on the books don't fund right away. They're construction loans. They're different types of loans where equity has to come in and get funded first. It can be a few months before we start funding those loans.

Speaker #6: The problem with the pricing and the structure that we're seeing in the market—those things historically come and go. Right now, they're here.

Speaker #6: We're having to deal with it, but how long it lasts, I guess, is anybody's guess. So I think there's reason to think that we can improve our loan growth.

Speaker #6: And therefore, improve our loans outstanding. You have to understand that quite often, the loans that we put on the books don't fund right away.

Speaker #6: They're construction loans. They're different types of loans where equity has to come in and get funded first. So it can be a few months before we start funding those loans.

Speaker #6: So that's a normal time delay. That's a good thing, not a bad thing. So I see a lot of positive things out there. And not that many negative things other than the current structure that we're having to deal with on a competitive basis.

H.E. Tim Timanus Jr.: That's a normal time delay. That's a good thing, not a bad thing. I see a lot of positive things out there, and not that many negative things other than the current structure that we're having to deal with on a competitive basis.

Speaker #3: At the bottom line, Tim, at Brent, again, Texas is still growing. You're still seeing businesses move into Texas. You're seeing population growth and business growth.

David Zalman: The bottom line, Tim, and Brett, again, Texas is still growing. You're still seeing businesses move into Texas. You're seeing population growth and business growth. I think we're still going to have opportunities to grow and build a portfolio. We saw a lot more production this time. A lot of it was pay-downs too. Just the one to four families, if you look at it was over $100 million decrease. Again, we're getting pay-downs in that in the housing market. People haven't been willing with the higher interest rates to lock in and to buy the one to four families. A lot of our pay-downs were in that category right there. Texas is still probably the best market out there. There's just no question about it.

Speaker #3: So, I think we're still going to have opportunities to grow and build a portfolio. I mean, we saw a lot more — we saw more production this time.

Speaker #3: A lot of it was paydowns too. I mean, just a 1 to 4 families if you look at it, it was over 100 million dollars decrease.

Speaker #3: And again, we're getting paydowns in that and the housing market. People haven't been willing, with the higher interest rates, to lock in and to buy the one- to four-family.

Speaker #3: So, a lot of our paydowns were in that category right there. But Texas is still—it's probably the best market out there. There's just no question about it.

Speaker #6: That's absolutely correct. And Oklahoma is doing well, also. So from a geographical standpoint, everywhere we operate right now looks good.

H.E. Tim Timanus Jr.: That's absolutely correct. Oklahoma is doing well also.

H.E. Tim Timanus Jr.: From a geographical standpoint, everywhere we operate right now looks good.

Speaker #3: And again, we're probably more cautious. We're probably more focused on profitability than some of the other banks because we don't want to just put loans on the books just to say that we've grown loans too, at the same time.

David Zalman: Again, we're probably more cautious. We're probably more focused on profitability than some of the other banks, because we don't want to just put loans on the books just to say that we've grown loans too at the same time. We're trying to balance that out.

Speaker #3: So, we're trying to balance that out.

Speaker #4: Okay, that's great. Appreciate all the color, guys.

Brett Rabatin: Okay. That's great. Appreciate the color, guys.

Speaker #1: The next question comes from Manan Ghassalia with Morgan Stanley. Please go ahead.

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

Speaker #7: Hi, good morning. You spoke about credit spreads being at multi-decade lows in the $20 million credit line. I guess the question is, how widespread is that competition on structure and pricing?

Manan Gosalia: Hi, good morning.

David Zalman: Good morning.

Manan Gosalia: You spoke about credit spreads being at multi-decade lows and the $20 million credit line. I guess the question is how widespread is that competition on structure and pricing? Is that happening for a specific loan segment like construction or a specific type of client where there might be a higher likelihood maybe of getting other business down the line? Is it widespread across construction, CRE, middle market C&I?

Speaker #7: Is that happening for a specific loan segment, like construction, or a specific type of client where there might be a higher likelihood of getting other business down the line?

Speaker #7: Or is it widespread across construction, CRE, middle market, and C&I?

Speaker #3: Yeah. The SOFR 125s are outliers. That's two deals both of them pretty recent, but I'd say that's two deals that I think we go back all the way back into December, January time frame, it's two deals from then to now.

David Zalman: Yeah. The SOFR 125s are outliers. That's two deals, both of them pretty recent, but I'd say that's two deals that I think we go all the way back into December, January timeframe. It's two deals from then to now. It was two recent deals, very large, prominent clientele. Asylbek can probably give you a little bit of color on originations both at, and pricing on originations at both at Stellar and at Prosperity for the last quarter that might help you understand what we are doing.

Speaker #3: So, large, prominent clientele. Asylbek can probably give you a little bit of color on originations and pricing on originations, both at Stellar and at Prosperity for the last quarter. That might help you understand what we are doing.

Speaker #5: But I would also say, though, that the one I described, with the seven-year fixed rate, 25-year amortization, at 5.5%, is not unusual. Those are loans that everybody's bidding on.

H.E. Tim Timanus Jr.: Yeah.

David Zalman: I would also say, though, that the one that I described with the seven-year fixed rate with the 25-year amortization at five and a half is not unusual, and those are loans that everybody's bidding on. They're not bringing deposits to the bottom line. That's loans like on one to four family, not one to four family, multifamily units, retail centers, office buildings and stuff like that. It's just going to the lowest bidder for the most part.

Speaker #5: I mean, they're not deposit they're not bringing deposits to the bottom line. That's loans like on 1 to 4 family not 1 to 4 family multi-family units, retail centers, office buildings, and stuff like that.

Speaker #5: And it's just—it's just going to the lowest, it's just going to the lowest bidder for the most part.

Speaker #1: Yeah.

Manan Gosalia: Yeah.

Speaker #6: And Asylbek, if—let me mention before you start—that it is not across the board. It is primarily the larger loans. And what we're seeing, more often than not, is the large banks, or relatively large banks, that have recently entered the Texas market or are trying to enter the Texas market.

H.E. Tim Timanus Jr.: Asylbek

Asylbek Osmonov: Yes

Asylbek Osmonov: Yes let me mention before you start that it is not across the board. It is primarily the larger loans. What we're seeing more often than not is the large banks or relatively large banks that have recently entered the Texas market or are trying to enter the Texas market, and they're focused on those larger loans. They make a bigger splash that way, and it's understandable.

Asylbek Osmonov: let me mention before you start that it is not across the board. It is primarily the larger loans. What we're seeing more often than not is the large banks or relatively large banks that have recently entered the Texas market or are trying to enter the Texas market, and they're focused on those larger loans. They make a bigger splash that way, and it's understandable.

Speaker #6: And they're focused on those larger loans. They make a bigger splash that way, and it's understandable.

Speaker #3: I think that's a good point, Tim. I mean, not everybody is doing this. If you ask me, I can count them on one hand and I don't even need all five fingers.

David Zalman: I think that's a good point, Tim. I mean, not everybody's doing this.

H.E. Tim Timanus Jr.: It's not everybody.

David Zalman: If you ask me, I can put them on one hand, and I don't even need all five fingers.

Speaker #6: Yes. Mostly the bigger loans.

H.E. Tim Timanus Jr.: Yes. It's mostly the bigger loans.

Speaker #3: But it's a couple of the banks that have come in—more the regionals, the bigger regionals—that are trying to buy their way into the market.

David Zalman: It's a couple of the banks that have come in, more the regionals, the big regionals that are trying to buy their way into the market. I'm not saying that they're wrong. When we go into a market before we did a lot of mergers and acquisitions. If we started to open up a banking center or something, we would give special deals too, and I guess that's what they're trying to do at the same time. It's still not across the board, but these are all very large loans, and it's just rate-driven, and I think that's the way they can say that they're making a splash. That's just my opinion.

Speaker #3: And I'm not saying that they're wrong. When we go into a market, before we did a lot of mergers and acquisitions, if we started to open up a banking center or something, we would give special deals too.

Speaker #3: And I guess that's what they're trying to do at the same time. But it's still not across the board, but these are all very large loans and it's just rate-driven and I think that's the way they can say that they're making a splash.

Speaker #3: That's just my opinion.

Speaker #6: Right. So Osselbeck?

Manan Gosalia: Right. Asylbek.

Speaker #4: Yeah. I'm just going to give the facts. The average loan production monthly for the Q2 that Tim mentioned was $454 million. The average rate on that blended was around 6.5%.

Asylbek Osmonov: I'm just going to give the facts. The average loan production monthly for Q2 that Tim mentioned, the $454 million. The average rate on that blended was around 6.5%. I think when we talked to, I looked at Stellar's number too. I think the new loans they're putting up also around 6.5%. We're comparable at that point. We know that our fixed loans and some loans are going to reprice at the higher rate at this rate.

Speaker #4: And I think when we looked at Stellar's number two, I think the new loans they're putting up are also around 6.5%. So we're comparable at that point.

Speaker #4: So we know that our fixed loans and some loans are going to get repriced at the higher rate that at this rate.

Speaker #7: That's all very helpful, Colar. I really appreciate it. I guess, when we talk to some of the other banks that have been mentioning looking at the all-in returns of their client relationships—not just the loans and deposits, but also, I guess, cash management, investment banking, etc.—I guess a question for you is: as you do more acquisitions, as you grow the size of the balance sheet, is there anything that you need to invest in on the product side or on the fees side to capture more of the economics of the client?

Manan Gosalia: That's all very helpful color. I really appreciate it. I guess when we talk to some of the other banks, they've been talking about looking at the all-in returns of their client relationships, not just the loans and deposits, but also, I guess, cash management, investment banking, et cetera. I guess the question for you is, as you do more acquisitions, as you grow the size of the balance sheet, is there anything that you need to invest in on the product side or on the fees side to capture more of the economics of the client?

Speaker #5: Well, I think that's the good news, is that over the last three years, we spent a lot of time, money, and energy on our new technology.

David Zalman: Well, I think that's the good news is that over the last three years, we spent a lot of time, money, and energy on our new technology. If we wouldn't have, we had our own computer conversion that we had from, we were on Fiserv from one platform to the DNA product. If we wouldn't have done that and spent all that money and time, there's no way that we could have done these three deals that we're doing right now. I think that we're well-positioned because we did spend the time, the money, and the energy to let us know that we did want to be a bigger bank. To do that, we had to have the technology, and I think that you're seeing that growing. I think that we're even bringing in some really good people, especially at Texas Partners.

Speaker #5: If we wouldn't have if we had our own computer conversion that we had from we were on Fiserv from one platform to the DNA product, if we wouldn't have done that and spent all that money and time, there's no way that we could have done these three deals that we're doing right now.

Speaker #5: So I think that we're well positioned because we did spend the time, the money, and the energy to let us know that we did want to be a bigger bank—and to do that, we had to have the technology.

Speaker #5: And I think that you're seeing that growing. And I think that we're even bringing in some really good people, especially at Texas Partners, that have a lot of experience and a lot of big bank experience with treasury management.

David Zalman: It has a lot of experience and a lot of big bank experience with treasury management. I see our treasury management really growing, and our products, I think, are very good.

Speaker #5: And I see our treasury management really growing, and our products, I think, are very, very good.

Speaker #7: Got it. Thank you.

Manan Gosalia: Got it. Thank you.

Speaker #1: And the next question comes from Peter Winter with D.A. Davidson. Please go ahead.

Operator: The next question comes from Peter Winter with D.A. Davidson. Please go ahead.

Speaker #8: Good afternoon. I was wondering, Kevin, can you give an update on the mortgage warehouse business and just also with this increase in mortgage rates, does that kind of virtually shut down refine activity?

Peter Winter: Good afternoon. I was wondering, Kevin, can you give an update on the mortgage warehouse business? Just also with this increase in mortgage rates, does that kind of virtually shut down refi activity?

Speaker #3: Yeah. Refined activity has not completely shut down. There has always been some, but it has been muted. I just looked at the first 28 days of the quarter, so through last night.

Kevin Hanigan: Yeah, refi activity is not all the way shut down. There has always been some, but it has been muted. As I just looked at the first 28 days of the quarter, so through last night, I think we are averaging right at $1.25 billion in outstandings, which is off from the $1.316 billion or whatever it was, $1.316 billion, I think, in Q2. That is a little unusual for Q3. Usually, Q3 is pretty good, particularly in July and August, with September being a little off. It would not surprise me if we average $1.2 billion, maybe as good as $1.225 billion in Q3, which is roughly $100 million off the average of Q2.

Speaker #3: I think we're averaging right at $1.25 billion in outstandings, which is off from the $1.316 billion, or whatever it was—$1.316 billion, I think—in Q2.

Speaker #3: So that's a little unusual for the third quarter. Usually, the third quarter is pretty good, particularly in July and August, with September being a little off.

Speaker #3: So it wouldn't surprise me if we average $1.2 billion, maybe as good as $1.225 billion in Q3, which is roughly $100 million off the average of Q2.

Speaker #8: Got it. Thank you. And then, David, just how are you thinking about deposit growth in the second half of the year? You mentioned you might get a little bit more competitive on money market rates, but just how are you thinking about deposit rates going forward, assuming the Fed is on hold?

Peter Winter: Got it. Thank you. David, just how are you thinking about deposit growth in H2 of the year? You mentioned you might get a little bit more competitive on money market rates, just how are you thinking about deposit rates going forward, assuming the Fed is on hold?

Speaker #5: I was wondering if you were going to ask me a question, Peter. Thank you.

David Zalman: I was wondering if you were going to ask me a question, Peter. Thank you.

Speaker #8: You're welcome.

Peter Winter: You're welcome.

Speaker #5: No. It's hard to tell you that you're going to see a lot of growth, because when you do these deals, there are some relationships that come and go.

David Zalman: No. It's hard to tell you that you're going to see a lot of growth because when you do these deals, there are some relationships that come and go. The only thing I can tell you is, and we really believe this, our numbers show this, that on an organic basis on legacy deposits, we always have continued to grow 2% to 4%. Where we do lose is when new banks join us, they may have been paying a higher interest rate than we've been willing to pay, there may have been some circumstances or the customer just doesn't like us to be part of that deal. I think over time, if you ask me to make a guess, first of all, the Fed, a lot of people were talking about them raising rates because of inflation.

Speaker #5: The only thing that I can tell you is, and we really believe this—our numbers show this—that on an organic basis, on legacy deposits, we have always continued to grow 2% to 4%.

Speaker #5: And where we do lose is when new banks join us, and they may have been paying a higher interest rate than we've been willing to pay, or there may have been some circumstances, or the customer just doesn't like us to be part of that deal.

Speaker #5: But I think over time, if you ask me to make a guess, first of all, the Fed—a lot of people were talking about them raising rates because of inflation.

Speaker #5: I think that Trump stirred put this new guy in, Walsh, and he's not going to raise rates, in my opinion. Having said that, I think our modeling guy—our modeling guy has put in, what, a quarter of a point increase.

David Zalman: I think the Trumpster put this new guy in, Warsh, and he's not going to raise rates, in my opinion. Having said that, I think our modeling guy has put in, what, a quarter of a point increase-

Asylbek Osmonov: End of the year.

Speaker #5: End of the year. And so I don't think they will. Our models really show really great net interest margin, just where they are right now.

David Zalman: End of the year. I don't think they will. Our models really show really great net interest margin, just where they are right now. It shows greater if interest rates go up, and it shows less if interest rates go down a little bit. But again, our customers have been very loyal to us. If you look at the last-- You followed us, Peter, forever, and you just take a look at a graph of the last 10 or 20 years. We've had increased earnings, increased earnings per share, increased assets, increased deposits every year until we hit 2022. We're seeing interest rates go up. You saw our net interest margin going down, and then we really got bombed in 2023 and 2024 with net interest margins going down to 2.75.

Speaker #5: I mean, it shows greater if interest rates go up, and it shows less if interest rates go down a little bit. But again, our customers have been very loyal to us.

Speaker #5: If you look at—if you look at the last, you followed us, Peter, forever, and you just take a look at a graph for the last 10 or 20 years, we've had increased earnings, increased earnings per share, increased assets, increased deposits every year. Until we hit 2022, we started seeing interest rates go up.

Speaker #5: You saw our net interest margin going down, and then we really got bombed in '23 and '24, with net interest margins going down to 2.75%.

Speaker #5: And of course, now we've built it back up to 350 and we're going to 380. And our customers have stayed with us and they really didn't have to.

David Zalman: Now we've built it back up to 350, and we're going to 380. Our customers have stayed with us, and they really didn't have to. They could have gotten stuff better at some other places. So when I commented earlier that once we get up to the 3.7, I would like to see us bump our customers up a little bit. We still want to make good money, but I want to reward them for staying with us at the same time, too, and possibly start growing more organically in that phase.

Speaker #5: They could have gotten stuff better at some other place. And so, when I commented earlier that once we get up to the 3.7, I would like to see us bump our customers up a little bit too.

Speaker #5: We still want to make good money, but I want to reward them for staying with us at the same time too. And possibly start growing more organically in that phase.

Speaker #4: And I said, the one thing on the deposit—it's kind of hard to see. When you see our balance sheet, our deposits have decreased, but if you kind of peel off, there's public funds that have seasonality each time.

Asylbek Osmonov: I would say the one thing on the deposit, it's kind of hard to see when you see our balance sheet, our deposits have decreased. If you kind of peel off, there's a public fund that has seasonality each time, so it goes down Q2 and Q3. If you strip out the public fund, our core deposits have increased in Q2.

Speaker #4: So it goes down second and third quarter. But if you strip out the public fund, our core deposits have increased in the second quarter.

Speaker #5: Yeah, I mean, I was extremely excited this time because last year at this time, this is usually one of our worst quarters, with public funds being down.

David Zalman: Yeah, I was extremely excited this time because last year at this time, this is usually one of our worst quarters with public funds being down and-

Speaker #5: And, we—the core deposits' growth. So I thought this was pretty good for, usually, a seasonally pretty tough deposit deal. Yeah.

Asylbek Osmonov: Core deposit being down

David Zalman: Core deposit. I thought this was pretty good for usually a seasonally pretty tough deposit deal. Yeah.

Speaker #8: That's great. Thanks, David.

Peter Winter: That's great. Thanks, David.

Speaker #5: You're welcome.

David Zalman: You're welcome.

Speaker #1: And the next question comes from Michael Rose with Raymond James. Please go ahead.

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

Speaker #6: Hey, good afternoon, everyone. Thanks for taking my questions. Just wanted to start on the Stellar side—I think maybe Ray is there. It looks like the margin was up pretty meaningfully in the quarter, and it looks like maybe there might have been some restructuring. Securities balances were down.

Michael Rose: Hey, good afternoon, everyone.

David Zalman: Good morning

Michael Rose: taking my questions. Just wanted to start on the Stellar side. I think maybe Ray is there. Looks like the margin was up pretty meaningfully in the quarter and looks like maybe there might have been some restructuring. Securities balances were down and just trying to better understand how much of that benefit is driving the NIM guidance that Asylbek laid out. Thanks.

Speaker #6: And just trying to better understand how much of that benefit is driving the NIM guidance that Asylbek laid out. Thanks.

Speaker #3: Yeah, Michael, this is Ray. The so we picked up nine basis points on the NIM. There was about a $30 million pay down of sub debt in there, but it's really driven by is Asylbek said, we booked 525 million plus we renewed another six or seven hundred.

Ramon Vitulli: Yeah, Michael, this is Ray. We picked up nine basis points on the NIM. There was about a $30 million pay down of sub-debt in there, but it's really driven by, as Asylbek said, we booked $525 million, plus we renewed another $600 or $700, so that's about 1.1.2 in the quarter at an average rate of 6.50% on the loan side. Deposit cost held in there, that was really the driver, most of the driver of that NIM expansion.

Speaker #3: So that's about 1.1, 1.2 in the quarter, and an average rate of 650 on the loan side. Deposit costs held in there, and that was really the driver.

Speaker #3: Most of the driver of that NIM expansion.

Speaker #4: And just to add, on the sale of securities, it happened at the end of the quarter, so there was no impact on the margins.

Asylbek Osmonov: Just to add on the sale of security, it happened the end of the quarter, so there was no impact on the margin. The margin that they have nine basis point increase, that was a core increase on the margin.

Speaker #4: So the margin—there was a nine basis point increase. That was a quarter-over-quarter increase on the margin.

Speaker #6: Okay, very, very helpful. And then maybe just one follow-up, just as it relates to the integration efforts and cost savings realizations of the two other deals—not Stellar—but where do you stand with those? I understand you gave the expense outlook; just trying to better understand the puts and takes.

Michael Rose: Okay. Very helpful. Then maybe just one follow-up, just as it relates to the integration efforts and cost savings realizations of the two other deals, not Stellar. Where do you stand with those? I understand you gave the expense outlook, just trying to better understand the puts and takes. Thanks.

Speaker #6: Thanks.

Speaker #4: Yeah. On American and partners bank, we realized some of them, but most of the cost savings is going to come in after the system conversion, which we scheduled for September or November.

Asylbek Osmonov: Yeah, on American and Partners Bank, we realized some of them, most of the cost savings is going to come in after the system conversion, which we are scheduled for September or November. Assuming that all the integration is done, we still expect from American and Texas Partner additional $20 to 25 million cost savings coming in. We should see the full impact of it in 2027.

Speaker #4: But let's assume that all the integration is done. We still expect from the, I'm sorry, from the American and Texas partner, an additional $20 to $25 million in cost savings coming in.

Speaker #4: So, we should see the full impact of it in 2027.

Speaker #5: 2024 tax ref.

David Zalman: Before tax, Ray.

Speaker #4: Before tax. Yeah, before tax, 2025, before tax. And on the Stellar, we're still in line with what we announced on the pre-merger—how much savings we're going to get.

Asylbek Osmonov: Before tax.

David Zalman: Before tax.

Asylbek Osmonov: Yeah, before tax. 2025 before tax. On the Stellar, we're still in line what we announced on the pre-merger, how much of savings we're going to get. We expect to get that savings. It might be a little bit pushed back on the timing of it because the system conversion doesn't happen till March of next year because of the timing of everything going on with three acquisitions. But the cost savings that we projected is still in line on Stellar as well.

Speaker #4: So, we expect to get that savings. It might be a little bit pushed back on the timing of it because the system conversion doesn't happen until March of next year.

Speaker #4: Because of the timing of everything going on with three acquisitions, the timing might shift, but the cost savings that we projected are still in line on Stellar as well.

Speaker #6: Okay. That's very helpful, Asylbek. Thanks for taking my questions. I'll step back.

Michael Rose: Okay, that's very helpful, Asylbek. Thanks for taking my questions. I'll step back.

Speaker #1: And the next question comes from David Chiaverini with Jefferies. Please go ahead.

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

Speaker #7: Hi, thanks for taking the questions. You mentioned a couple of times your focus on profitability. Can you remind us how you're thinking about ROTC targets once the conversions are done and the cost savings are fully baked in, looking out to 2027?

David Zervos: Hi, thanks for taking the questions. You mentioned a couple of times about your focus on profitability. Can you remind us how you're thinking about ROCE targets once the conversions are done and the cost savings are fully baked in looking out to 2027?

Speaker #5: What kind of targets? I didn't catch that.

David Zalman: What kind of targets? I didn't catch that.

Speaker #7: Your return on tangible common equity.

David Zervos: Your return on tangible common equity.

Speaker #5: Yeah. Well, I mean, we're right now we're running even right now. We're running about 15% return on tangible capital, but I'm really hoping again, you might have these numbers in your model, but I'm thinking if we get the numbers we say we're going to hit, we should be hitting 17, 18%.

Ramon Vitulli: Return on tangible common equity, yeah.

David Zalman: Well, right now we're what? Running even right now, we're running about a 15% return on tangible capital.

Asylbek Osmonov: Fifteen and a half.

David Zalman: I'm really hoping, again, you might have these numbers in your model, but I'm thinking if we hit the numbers we say we're going to hit, we should be hitting 17% and 18%, shouldn't we?

Speaker #4: Yeah. I think initially we're going to take a hit because of the conversion, but we build it up very quickly. So our project.

Asylbek Osmonov: Yeah, I think initially we're going to take a hit because of the conversion, but we build it up very quickly. Our projection-

Speaker #5: Oh, you're talking about tangible capital, or not return on tangible. Are we talking about return on tangible capital, or where tangible capital is going to be?

David Zalman: Are we talking about return on tangible capital or where tangible capital is going to be?

Speaker #4: I think it will return on tangible capital.

Asylbek Osmonov: I think return on tangible capital.

Speaker #5: But return on tangible capital.

David Zalman: Return on tangible capital.

Speaker #7: Yep. You answered it. Yep.

David Zervos: Yep, you answered it. Yep.

Speaker #5: Yeah. Basically, they want to kind of know, do you have that in your model? But I mean, if we're hitting the numbers that we're saying, you can do the math.

David Zalman: Yeah. Basically, they want to kind of know what. Do you have that in your model? If we're hitting the numbers that we're saying, you can do the math, just add the extra money that he just told you on those cost savings to the $780 million, and divide that by the share-

Speaker #5: Just add the extra money that he just told you on those cost savings to the 780 million. And divide that by the share. You're going to get I think you're going to start hitting 17 and 18 percent return on tangible capital.

David Zervos: Yep

David Zalman: you're going to get I think you're going to start hitting 17% and 18% return on tangible capital.

Speaker #4: That's right. Yeah. That's correct.

Asylbek Osmonov: That's right. Yeah. That's correct.

Speaker #7: Perfect. And a follow-up to that on capital—with your buyback, you reduced it in the second quarter. How should we think about the buyback going forward?

David Zervos: Perfect. A follow-up to that on capital with your buyback, you reduced it in Q2. How should we think about the buyback going forward?

Speaker #5: Whenever people are naughty and we have an opportunity to buy, we're going to buy. I mean, again, you can see the amount of money that we're making or propose to make.

David Zalman: Whenever people are naughty and we have an opportunity to buy, we're going to buy. You can see the amount of money that we're making or proposed to make. There's no black swan. We have a runway of $780 million right now. We have a lot of cost savings that's going to add to the bottom line. I think our projections are at $850 to $880 million. We're paying how much in dividends? Two hundred and-

Speaker #5: Again, that's something—there's no black swan. So we're going to have a run rate of $780 million right now. We have a lot of cost savings that's going to add to the bottom line.

Speaker #5: So I think our projections are $850 to $880 million. We're paying how much in dividends? $200 and $200-something. So the difference between that and what we're going to make, or what we are making, is—it's a lot of money.

Asylbek Osmonov: Yeah

David Zalman: Two hundred and something. The difference between that what we're going to make is, or what we are making is, it's a lot of money. We have a lot of gunpowder to do something with, and we will. If we see that there's real opportunities and the stock price falls and there's something out there in the market, we would definitely be buying our stock back. We're trading right now at 10 times next year earnings or so. We're pretty cheap.

Speaker #5: So we have a lot of gunpowder to do something with. And we will. I mean, if we see that there are real opportunities and the stock price falls, and there's something out there in the market, we would definitely be buying our stock back.

Speaker #5: I mean, we're trading right now at 10 times next year's earnings or so, so we're pretty cheap.

Speaker #3: Yeah. And it was muted in Q2 largely for blackout purposes. We just couldn't buy. We would have loved to buy a lot more, particularly during certain periods in Q2, but we were just—we were blacked out.

Charlotte M. Rasche: Yeah. It was muted in Q2 largely for blackout purposes.

David Zalman: Right.

Charlotte M. Rasche: We just couldn't buy. We would've loved to have bought a lot more, particularly during certain periods in Q2, but we were blacked out.

Speaker #6: Right.

David Zalman: Right.

Speaker #7: Got it. Very helpful. Thank you.

David Zervos: Got it. Very helpful. Thank you.

Speaker #1: And the next question comes from Steven Skelton with Piper Sandler. Please go ahead.

Operator: The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Speaker #2: Yeah. Good morning. Thanks. Going back to the Stellar Legacy results a little bit, it seems like with the $33 million in net income you mentioned, maybe that's a fair bit ahead of where consensus numbers had them at one point in time.

Stephen Scouten: Yeah, good morning. Thanks. Going back to the Stellar legacy results a little bit, it seems like with the $33 million in net income you mentioned, maybe that's a fair bit ahead of where consensus numbers had been at one point in time. I'm wondering if their results are kind of ahead of what you guys assumed when you first announced the deal, if it's kind of tracking ahead of expectations, and just if there were any material changes to the marks kind of at closing versus what you were expecting.

Speaker #2: I'm wondering if their results are kind of ahead of what you guys assumed when you first announced the deal, if it's kind of tracking ahead of expectations, and just if there were any material changes to the marks at closing versus what you were expecting.

Speaker #4: Yeah. On that, definitely running ahead of what we projected. I think when we put it together, the expectation was about $126 million for 2027 on Stellar net income.

Asylbek Osmonov: Yeah. On that, definitely running ahead what we projected. I think when we put together expectation was about $126 million for 2027 on Stellar net income. If you take the $33 million, we're talking about $130 million, so it is ahead of it. On the mark side of it, I think it's maybe a little bit higher than what we projected, but we're still working on it right now, and we have not finalized the marks yet. I think the preliminary number coming in a little bit higher than what we projected on the marks, loan marks.

Speaker #4: If you take the 33 million, we're talking about 130 million. So it is ahead of it. But on the mark side of it, I think it's maybe a little bit higher than what we projected.

Speaker #4: But we're still working on it right now. And we don't have we have not finalized the marks yet. But I think the preliminary number coming in a little bit higher than what we projected on the marks.

Speaker #4: Loan marks.

Speaker #2: Okay. And you had said $6 to $8 million in expected accretion in the third quarter, Asylbek?

Stephen Scouten: Okay. You had said $6 to $8 million in expected accretion in the Q3 estimate?

Speaker #4: Yes. That is including all.

Asylbek Osmonov: Yes. That is including all.

Speaker #2: Okay. And then one question on—I'm sorry.

Stephen Scouten: Okay. Oh, sorry.

Speaker #4: No, I just want to say, it always depends. If there’s some loan that pays off with a discount or a premium, it could have an impact. But if you look at the model, it’s $6 to $8 million.

Asylbek Osmonov: No, I just want to say it always depends if there's some loan pays off with a discount or premium, it could impact. If you look at the model, it's $6 to $8 million.

Speaker #2: Sure. Kind of scheduled versus accelerated. Yep, that makes sense. And then, in terms of the pro forma loan loss reserve, do you know where that will go to, pro forma, with the close for Stellar?

Stephen Scouten: Sure. Kind of scheduled versus accelerated. Yep, that makes sense.

Asylbek Osmonov: Yes.

Stephen Scouten: In terms of a pro forma loan loss reserve, do you know where that will go to pro forma with the close for Stellar? You guys have had a kind of a zero provision for several years now. Do you think we'll start to see provision be more in line with loan growth moving forward, or is there still some excess that can be worked out over time?

Speaker #2: And then you guys have had a kind of a zero provision for several years now. Do you think we'll start to see provision be more in line with loan growth moving forward?

Speaker #2: Or is there still some excess that can be worked out over time?

Speaker #4: On Stellar one, we're still working on it. So we don't have any numbers. But I know it's going to be an addition to and maybe a pretty good healthy addition to that.

Asylbek Osmonov: On the Stellar one, we're still working on it, so we don't have any numbers, but I know it's going to be an addition too, and maybe a pretty good healthy addition to that. We're working through that.

Speaker #4: But we're working through that.

Speaker #5: There's 420 right now.

David Zalman: There's 420 right now.

Speaker #4: Including the unfunded prosperity bank.

Asylbek Osmonov: Including that unfunded Prosperity Bank.

David Zalman: For Prosperity, and so, going with Stellar could take us up to 600.

Speaker #5: Prosperity. And so, going with Stellar could take us up to 600.

Speaker #4: Yeah. We're still working on it. So we'll could this. So we'll give it that more in the third quarter. But on the provision, it's kind of hard to say if we're going to provision or not.

Asylbek Osmonov: Yeah, we're still working on it. We'll give you that more in Q3. On the provision, it's kind of hard to say if we're going to provision or not. We just have to run the models and whatever model tells us if we need to provision, we'll do provision. If it tells us we don't, we're not going to take provision.

Speaker #4: We just have to run the models, and whatever model tells us if we need to provision, we'll do a provision. If it tells us we don't, we're not going to take a provision.

Speaker #5: It's hard provision when you get three times the amount and allowance compared to your non-performing. So I don't see that. If you're asking me personally, unless there's something that I don't know and the loan portfolio is going to blow up.

David Zalman: Well, it's hard to provision when you get three times the amount in allowance compared to your non-performing. I don't see that. If you're asking me personally, unless there's something that I don't know in the loan portfolio that's going to blow up. We have three times the amount of money that we have in allowance for loan losses compared to what we have in non-performing right now.

Speaker #5: But we have three times the amount of money in allowance for loan losses compared to what we have in non-performing right now.

Speaker #5: So I don't see, in the next 12 months, any provisioning. That's just me.

David Zalman: I don't see in the next 12 months any provisioning. That's just me.

Speaker #2: Very good. Very helpful. Thank you, guys, for the time, Tom.

Stephen Scouten: Very good. Very helpful. Thank you guys for the time this morning.

Speaker #1: And the next question comes from John Arfstrom with RBC Capital Markets. Please go ahead.

Operator: The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Speaker #6: Hey. Thanks. Good morning, guys.

Jon Arfstrom: Hey, thanks. Good morning, guys.

Speaker #5: Morning, John.

David Zalman: Morning, Jon.

Speaker #6: Asylbek, can you just walk through the expense cadence again in terms of what you're expecting and the timeline? I'm just trying to—I know it's way out in the future—but just trying to get an understanding of what you think the run rate looks like when everything is fully converted.

Jon Arfstrom: Asylbek, can you just walk through the expense cadence again in terms of what you're expecting and the timeline? I know it's way out in the future, but just trying to get an understanding of what you think the run rate looks like when everything is fully converted.

Speaker #4: I'll give you the run rate. I gave $244 to $250 million—that's including Stellar—and have some savings that we pull forward from American Bank and Texas Partners Bank, but not all of it.

Asylbek Osmonov: I'll give you the run rate I gave, $244 to $250 million. That's including Stellar and have some savings that we pull forward from American Bank and Texas Partners Bank, but not all of it. We expect, as I mentioned earlier, from Partners and American, additional $20 to $25 million cost savings going to be coming in. For the Stellar, I think we expect that's all pre-tax numbers, so what I'm talking.

Speaker #4: So, we expect, as I mentioned earlier, from Partners and American, an additional $20 to $25 million in cost savings going to be coming in. And for the Stellar, I think we expect that's all pre-tax numbers.

Speaker #4: So what I'm talking and for the Stellar, we expect additional probable cost saving around 85, 80 to 85 million dollars. And that is cost saves that we announced plus additional of new CDI.

Jon Arfstrom: Yep.

Asylbek Osmonov: For the Stellar, we expect additional probable cost saving around $80 to $85 million, and that is cost saves that we announced plus additional of new CDI. In combination, is around $85 million additional cost save on Stellar's side, which with all baked in and everything, of course, the timing, as I mentioned.

Speaker #4: So in combination, it's around $85 million additional cost savings on the Stellar side, which, with all baked in and everything, of course, the timing as I mentioned.

Speaker #5: That's pre-tax.

David Zalman: That's pre-tax.

Speaker #4: That's all pre-tax numbers. Yeah.

Asylbek Osmonov: That's all pre-tax numbers, yeah.

Speaker #5: So you got 85 and 25.

David Zalman: You got 85 and 25.

Speaker #4: Yeah. 20 to 25.

Asylbek Osmonov: Yeah. 20 to 25-

David Zalman: You got to add the tax rate on that.

Speaker #5: And you’ve got to add the tax rate on that.

David Zalman: You got to add the tax rate on that.

Speaker #4: Yeah. So between an additional $100 to $110 million.

Asylbek Osmonov: Yeah. Between additional $100 to 110 million.

Speaker #5: But again, we ought to be conservative on that. I mean, these are numbers, and we like to give you a little bit less, in case we do screw up or we don't make it.

David Zalman: Again, we ought to be conservative on that. These are numbers, and we like to give you a little bit less in case we do screw up or we don't make it. I think we leave a little room in there.

Speaker #5: But I think we leave a little room in there.

Speaker #4: And it's also—I mean, we're kind of looking long term, right? We don't know what inflation is, so there might be some additional costs there. But this is what we have right now, what we expect.

Asylbek Osmonov: It's also, we're kind of looking long term, right? We don't know what the inflation is, the additional cost there might be in, this is what we have it right now, what we expect, and that's what we're projecting. We feel very comfortable about the savings.

Speaker #4: And that's what we're projecting. And we feel very comfortable about the savings.

Speaker #5: We've looked at this up and down, two and three times, because I didn't want to—we didn't want to—just put something out there that we didn't know if it was going to do it or not.

David Zalman: We've looked at this up and down two and three times because we didn't want to just put something out there that we didn't know if it was going to do it or not. We feel pretty good with these numbers.

Speaker #5: But, I mean, we feel pretty good about these numbers. I mean, you guys have looked at it.

David Zalman: You guys have looked at it.

Speaker #6: Yeah, okay. Yeah, you guys have definitely delivered on that in the past. David, you kind of alluded to this, but with your asset size—not that $50 billion is a big deal, but you're a much larger bank.

Jon Arfstrom: Yep. Okay. Yeah, you guys have definitely delivered on that in the past. David, you kind of alluded to this, with your asset size, not that $50 billion is a big deal, but you're a much larger bank. Anything else you need to do at your asset size that maybe you weren't thinking about or doing a year ago? You did kind of reference some higher-end products. Anything else to do that could cause some expense pressures, or do you feel like you have what you need?

Speaker #6: Anything else you need to do at your asset size that maybe you weren't thinking about or doing a year ago? Kind of reference some hiring in products, but anything else to do that could cause some expense pressures or do you feel like you have what you need?

Speaker #5: No. In fact, we needed to get to this size just to utilize the cost that we had, quite frankly. I mean, the way the regulators treated us, they were treating us like we were $50 billion and $100 billion.

David Zalman: No. In fact, we needed to get to this size just to utilize the cost that we had, quite frankly. The way the regulators treated us, they were treating us like we were $50 billion and $100 billion. We were geared up to be a bigger bank, this really just utilizes all the additional costs that we took on to do that, really.

Speaker #5: So we're good. We were geared up to be a bigger bank, and so this really just utilizes all the additional costs that we took on to do that, really.

Speaker #6: Okay. All right. Thank you very much.

Jon Arfstrom: Okay. All right. Thank you very much.

Speaker #5: Thank you.

David Zalman: Thank you.

Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Charlotte Rasche for any closing remarks.

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

Speaker #3: 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.

Charlotte M. Rasche: 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.

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

Q2 2026 Prosperity Bancshares Inc Earnings Call

Request DemoDemo

Prosperity Bancshares

Earnings