프로스페리티 방크셰어스(PB) 2026년 3분기 실적 발표 콘퍼런스 콜: 순이자마진(NIM) 확대 및 비용 절감

프로스페리티 뱅크셰어스(Prosperity Bancshares)의 2026년 3분기 실적은 스텔라 뱅크(Stellar Bank) 인수 후 첫 온전한 분기 실적과 지속적인 통합 작업, 견조한 기초 순이자이익을 반영했습니다. 경영진은 보수적인 대출 성장 전망에도 불구하고 추가적인 마진 확대와 비용 절감이 2027년 이익 성장을 뒷받침할 것으로 예상하고 있습니다.

핵심 요약

• 특정 일회성 비용을 제외한 조정 순이익은 2억 달러(희석 주당순이익 1.67달러)를 기록했습니다. 조정 평균자산수익률(ROA)은 1.50%, 평균유형자기자본이익률(ROTCE)은 15.81%였습니다.
• 세금효과 감안 순이자마진(NIM)은 3.73%로 전 분기 대비 26bp, 전년 동기 대비 49bp 상승했습니다. 매수회계 조정을 제외한 순이자마진은 3.59%였습니다.
• 총자산은 541억 달러에 달했으며, 대출 잔액은 약 320억 달러, 예금은 410억 달러를 기록했습니다. 전년 동기 대비 증가세는 주로 최근 단행된 3건의 은행 합병이 반영된 결과입니다.
• 월평균 신규 대출 취급액은 2026년 2분기 4억 5,400만 달러에서 6억 3,500만 달러로 증가했습니다. 그럼에도 경영진은 인수한 포트폴리오가 통합 기간 중 축소되는 경우가 많기 때문에 2027년 대출 잔액이 보합 내지 소폭 증가에 그칠 것으로 예상합니다.
• 분기 배당금은 주당 0.64달러로 6.7% 인상되었습니다. 경영진은 자사주 매입이 기회주의적으로 진행될 것이지만, 단기적으로 추가 인수보다는 자사주 매입 가능성이 더 높다고 밝혔습니다.
• 경영진은 남은 통합 작업이 완료되면 3분기 비용 대비 연간 6,500만 달러에서 7,000만 달러의 세전 비용 절감 효과가 추가로 발생할 것으로 기대하고 있습니다.

주요 재무 데이터

사업 및 영업 실적

이번 분기는 스텔라 뱅크가 포함된 첫 번째 전체 보고 기간이었습니다. 프로스페리티는 9월에 아메리칸 뱅크의 운영 통합을 완료했으며, 11월에 텍사스 파트너스 뱅크 전환을 마치고, 2027년 3월에 스텔라 뱅크 통합을 마무리할 계획입니다.

대출 취급 실적은 2분기 연속 개선되었습니다. 월평균 취급액은 2분기 대비 약 1억 8,000만 달러, 1분기 대비 약 3억 2,000만 달러 증가했습니다. 경영진은 기존 프로스페리티 부문이 주요 동인이었으며, 스텔라 뱅크의 파이프라인 역시 인수 관련 차질에서 벗어나 회복되기 시작했다고 밝혔습니다.

스텔라 뱅크를 제외한 핵심 예금은 이번 분기 동안 연환산 2% 속도로 증가했습니다. 경영진은 과거 핵심 예금 성장 목표치인 2%~4%를 계속 유지하고 있습니다. 은행 측은 도매 예금이나 중개 예금이 없다고 보고했으며, 공공 자금 예금은 계절성을 유지하고 있습니다.

유가증권 포트폴리오의 수정 듀레이션은 3.9년이며, 연간 예상 현금흐름은 약 22억 달러입니다. 경영진은 기존 채권의 평균 수익률이 2.92%인 데 비해 포트폴리오 현금흐름이 대략 5.50%~5.75% 수준의 수익률로 재투자되고 있다고 언급했습니다.

신탁, 브로커리지, 자금 관리(Treasury Management) 서비스가 주요 수수료 성장 기회로 꼽혔습니다. 경영진은 스텔라 뱅크 및 기타 인수건을 통해 확대된 기업 고객 기반이 추가적인 고객 소개 기회를 창출할 것으로 기대하고 있습니다.

경영진 가이던스

• 2026년 4분기 순이자마진: 경영진은 자산 리프라이싱이 매수회계 상각액 감소 및 예금 비용 상승을 상쇄함에 따라 보고되는 마진이 보합 내지 소폭 상승할 것으로 예상하고 있습니다. 또한 4분기 기말 마진 목표 범위를 3.70%~3.75%로 재확인했습니다.
• 2027년 순이자마진: 경영진은 금리 동결 가정을 바탕으로 평균 3.80%~3.85% 범위를 유지했습니다. 은행은 자사의 대차대조표를 중립적이거나 완만하게 자산 민감적(asset-sensitive)인 상태로 설명했습니다.
• 4분기 공정가치 대출 수익: 3분기 1,160만 달러에서 감소한 700만 달러~1,000만 달러로 예상됩니다.
• 4분기 비용: 남은 일회성 합병 비용을 제외한 비이자비용은 2억 3,500만 달러~2억 3,800만 달러 수준이 될 것으로 예상됩니다.
• 장기 비용 런레이트(Run rate): 통합이 실질적으로 완료되면 경영진은 분기별 비용이 약 2억 2,000만 달러~2억 2,500만 달러 수준이 될 것으로 기대하며, 일회성 요인이 제거된 깨끗한 런레이트는 2027년 2분기 또는 3분기경에 달성될 것으로 예상하고 있습니다.
• 대출 성장: 경영진은 인수 관련 잠재적 이탈(runoff)을 포함하여 2027년 대출 잔액이 보합 내지 소폭 증가할 것으로 전망합니다. 통합 압력이 완화되는 2028년에는 3%~5%의 대출 성장 가능성을 보고 있습니다.
• EPS 성장: 경영진은 대출 잔액이 보합세를 유지하더라도 마진 확대와 비용 절감에 힘입어 2027년 10%대 초중반의 EPS 성장을 예상하고 있습니다. 또한 여건 변화에 따라 2028년에도 2년 연속 두 자릿수 EPS 성장이 이어질 수 있다고 시사했습니다.
• 모기지 창고대출(Mortgage warehouse) 잔액: 금리 상승과 통상적인 계절적 약세로 인해 4분기 평균 잔액이 3분기 평균 약 12억 3,000만 달러에서 감소한 약 8억 5,000만 달러~9억 달러 수준이 될 것으로 경영진은 예상합니다.

리스크 및 주시 사항

인수 통합은 여전히 주요 운영 우선순위입니다. 경영진은 인수된 대출 포트폴리오가 거래 후 6개월에서 12개월 동안 일반적으로 축소되어 2027년 대출 성장에 역풍으로 작용한다는 점을 인정했습니다.

예금 금리(비용) 역시 상승하고 있습니다. 경영진은 4분기 평균 예금 비용이 약 6~7bp 상승하여 1.45%~1.46% 수준이 되고, 총 조달 비용은 약 1.57%~1.58%로 상승할 것으로 예상합니다.

부실자산(NPA)은 합병으로 취득한 자산의 영향 등으로 2분기 1억 3,000만 달러에서 약 1억 9,300만 달러로 증가했습니다. 경영진은 다른 여건이 안정적이라고 가정할 때 향후 1~2년에 걸쳐 정상화된 부실자산이 약 1억 2,500만 달러~1억 5,000만 달러 수준에서 안정을 찾을 것으로 기대하고 있습니다.

대출 경쟁이 여전히 존재하지만, 경영진은 지난달 가격 책정 및 심사(underwriting) 행태가 덜 공격적으로 바뀌었다고 밝혔습니다. 은행은 신용 기준을 완화하거나 도매 조달에 의존하여 대출 성장을 추진하지는 않을 것임을 재확인했습니다.

애널리스트 Q&A 하이라이트

• 마진 확대: 경영진은 인수 관련 상각액 감소가 유가증권 및 신규 대출의 수익률 상승으로 상쇄될 것이라고 밝혔습니다. 장기적인 리프라이싱은 여전히 2027년 마진 전망의 핵심 동인입니다.
• 자본 배분: 경영진은 단기적인 추가 인수보다 자사주 매입 가능성이 더 높다고 설명했습니다. 어떠한 인수 거래도 텍사스 지역 프랜차이즈를 실질적으로 강화해야 하며, 경영진의 당면 과제는 기존 통합을 완료하는 데 있습니다.
• 신용 충당금: 경영진은 6억 2,900만 달러의 충당금이 약 1억 9,300만 달러의 부실자산 대비 견고한 수준이라고 규정했습니다. 2027년에 충당금 추가 적립이 전혀 없을 가능성도 언급했지만, 이를 공식 가이던스로 제시하지는 않았습니다.
• 유가증권 전략: 경영진은 포트폴리오 재조정이나 기타 대차대조표 엔지니어링을 일축하며, 예정된 현금흐름을 통해 유가증권 리프라이싱이 자연스럽게 이루어지도록 하는 방식을 선호한다고 밝혔습니다.
• 자체 성장 대 인수 성장: 프로스페리티는 균형 잡힌 전략을 유지할 계획입니다. 경영진은 자체 성장과 인수를 모두 희망하지만, 심사 기준 완화가 전제되어야 한다면 경제 성장률을 한참 상회하는 대출 성장을 목표로 삼지는 않을 것이라고 밝혔습니다.
• 휴스턴 시장의 기회: 3건의 인수를 통해 은행은 휴스턴, 동부 텍사스, 달라스 지역에서의 입지를 확대했습니다. 경영진은 달라스와 휴스턴이 이제 전체 대출의 약 60%를 차지하며, 통합이 완료된 후 더 큰 장기적 기회가 창출될 것이라고 설명했습니다.

실적 발표 컨퍼런스 콜 전문

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전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good day, and welcome to the Prosperity Bancshares Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

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

Charlotte Rasche

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares Third Quarter 2026 Earnings Conference Call. This call is being broadcast live on our website and will be available for replay for the next few weeks.

I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me today is David Zalman, Senior Chairman and Chief Executive Officer; H.E. Tim Timanus, Jr., Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Senior Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Robert Franklin, Vice Chairman; Randy Hester, Chief Lending Officer; Mays Davenport, Director of Corporate Strategy; Bob Dowdell, Executive Vice President; and Ray Vitulli, Houston area Chairman.

David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics; and Tim Timanus, who will 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.

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

Now let me turn the call over to David Zalman.

David Zalman

Thank you, Charlotte. I would like to welcome and thank everyone listening to our third quarter 2026 conference call. I'm pleased to announce that the Board of Directors approved increasing the fourth quarter 2026 dividend to $0.64 per share from $0.60 per share that was paid in the prior 4 quarters, an increase of 6.7%. The increase reflects the continued confidence the Board has in our company and our markets.

The compound annual growth rate in dividends declared from 2003 to 2026 was 10.4%. We continue to share our success with our shareholders through the payment of dividends and opportunistic stock repurchases while also continuing to grow our capital. We are proud of this year's growth and would like to highlight the following results.

Prosperity's total assets reached $54.1 billion at September 30, 2026, up $15.8 billion or 41% compared with $38 billion at September 30, 2025. Our loans totaled $32 billion at September 30, 2026, an increase of $10 billion or 4% on compared with $22 billion -- excuse me, at September 30, 2025. And our deposits were $41 billion at September 30, 2026, up $13 billion or 48% compared with the $27.8 billion at September 30, 2025. These increases primarily reflect our 3 recent mergers.

We are highlighting their magnitude because they demonstrate the expertise of our associates who have extensive experience executing acquisitions and integrating the acquired institutions. Our greater scale strengthens our competitiveness, improves efficiency and enables technology investments that would be difficult for a smaller bank. We completed the operational integration of American Bank in September. All American bank locations are now branded Prosperity Bank, and we welcome the American Bank customers and associates to our family.

We remain focused on completing the operational integration of Texas Partners Bank in November and Stellar Bank in March of 2027 and delivering the outcomes we believe are possible. The Texas Partners and Standard Bank teams are already an integral part of our organization and operations. We are excited about our future as a larger bank, including the potential growth in earnings. Excluding the onetime expenses listed in the press release.

Net income was $200 million, and earnings per diluted common share was $1.67 for the 3 months ending September 30, 2026. The annualized returns on average assets and average tangible common equity were 1.5% and 15.81% on average tangible common equity for the same period. Excluding the merger-related expenses, the efficiency ratio was 48%. We are proud of these earnings and expect them to improve after all merger-related cost savings are realized.

The net interest margin on a tax equivalent basis was 3.73% for the 3 months ending September 30, 2026, up from 3.47% for the 3 months ending in June 30, 2026 and 3.24% for the 3 months ending September 30, 2025. This 49 basis points year-over-year increase reflects the strong net interest margin improvement we expected.

Loans totaled $32 billion at September 30, 2026 compared with $22 billion at September 30, 2025. We've seen an increase in our average monthly loan production numbers over the past 2 quarters, this should help bolster our pipelines next year. In the third quarter of 2026, average monthly new loan production increased approximately $180 million compared to the second quarter of 2026 and approximately $320 million compared to the first quarter of 2026. The overall deposits totaled $41 billion at September 30 compared with $27.8 billion at September 30, 2025.

Our linked quarter core deposits, excluding Stellar Bank increased 2% annualized during the third quarter of 2026. Our noninterest-bearing deposits of $13.8 billion at September 30, 2026, represented 33.6% of total deposits. The level of noninterest-bearing deposits as a percentage of total deposits continues to remain strong in light of our recent acquisition activity. Looking forward, we believe core deposits will continue to grow in line with our historical run rate of 2% to 4% growth, and we remain conservative with our loan growth projections for '27, projecting flat to slightly increasing loan balances due to the recent acquisitions.

We believe that the combination of our growth outlook with our loan pipelines, assets repricing, net interest margin expansion and the realization of our cost savings will drive meaningful earnings per share growth in 2027. Our nonperforming assets totaled $193 million or 41 basis points of quarterly average interest-earning assets at September 30, 2026 compared with $119 million or 36 basis points of quarterly average interest-earning assets at September 30, 2025, and $130 million or 34 basis points of quarterly average interest-earning assets at June 30, 2026. The amount at September 30, 2026 and June 30, 2026, was impacted by nonperforming assets acquired in the mergers.

The allowance for credit losses on loans and off-balance sheet credit exposure was $629 million at September 30, 2026. The allowance for credit losses on loans was 3x the amount of nonperforming assets. We are excited about the synergy we have with our new partners, Stellar Bank, Texas Partners Bank and American Bank. Our top priority is the operational integration of the remaining 2 banks, and our combined teams are working very hard to ensure they are successful. We also continue to have conversations with other bankers considering strategic opportunities and are open to transactions that will be beneficial to our company's long-term future and will increase shareholder value.

The Texas and Oklahoma economies continue to expand in late 2026 despite labor supply constraints and headwinds from inflation and energy prices. Texas has a growing population of 31.7 million and continues to attract people and businesses with its business-friendly state government and lack of state income tax. Major construction projects across Texas include new data centers, factories producing various products from chips to new drugs and SpaceX and Tesla projects. Both states remain attractive places to live and do business.

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

Asylbek Osmonov

Thank you, Mr. Zalman. Good morning, everyone. The third quarter represents the first full quarter that includes Stellar Bank, and our results reflect both the increased scale of combined company and ongoing integration activity for all 3 merged banks.

Net interest income before provision for credit losses for 3 months ended September 30, 2026, was $443 million, an increase of $169.5 million compared to $273.4 million for the same period in 2025 and increase of $112.4 million compared to $330.6 million for the quarter ended June 30, 2026. The net interest margin on a tax equivalent basis was 3.73% for the 3 months ended September 30, 2026, an increase of 49 basis points compared to 3.24% for the same period in 2025, an increase of 26 basis points compared to 3.47% for the quarter ended June 30, 2026.

The linked quarter increase was primarily due to additional Stellar Bank and higher investment yields. Excluding purchase accounting adjustments, the net interest margin for the 3 months ended September 30, 2026, was 3.59% compared to 3.19% for the same period in 2025 and 3.41% for the quarter ended June 30, 2026.

Fair value loan income for the third quarter of 2026 was $11.6 million compared to $4 million for the second quarter of 2026. Fair value loan income for the fourth quarter of 2026 is expected to be in the range of $7 million to $10 million. Noninterest income was $52.7 million for the 3 months ended September 30, 2026, compared to $60.7 million for the quarter ended June 30, 2026 and $41.2 million for the same period in 2025.

The second quarter of 2026 included a net gain of $8.2 million, resulting from the conversion of Visa stock partially offset by the loss on the sale of investment securities. The noninterest income for the third quarter of 2026 was reduced by $2.6 million net loss due to write-down of assets. Noninterest expense was $308.6 million for the 3 months ended September 30, 2026 compared to $176.2 million for the quarter ended June 30, 2026 and $138.6 million for the same period in 2025.

The third quarter of 2026 included $69.7 million of merger-related expenses. Excluding these merger-related expenses, noninterest expense was $238.9 million. This amount includes the operating expenses of Stellar Bank.

During the third quarter, we continued to realize cost savings from the acquired banks with additional savings expected as we complete the remaining 2 system conversions. For the fourth quarter of 2026, we expect noninterest expense to be in the range of $235 million to $238 million, excluding remaining onetime merger-related expenses.

The efficiency ratio was 62.1% for the 3 months ended September 30, 2026, compared to 46% for the quarter ended June 30, 2026 and 44.1% for the same period in 2025. Excluding merger-related expenses, the efficiency ratio was 48% for the third quarter of 2026.

The provision for income taxes for the third quarter of 2026 included approximately $5 million related to out-of-state tax settlement. This onetime tax expense reduced diluted earnings per share by approximately $0.04 and resulted in higher-than-normal effective tax rate of 24.4%. The bond portfolio metrics at September 30, 2026 and have a modified duration of 3.9 and projected annual cash flows of approximately $2.2 billion.

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

H. E. Timanus

Thank you, Asylbek. Our nonperforming assets at quarter end September 30, 2026, totaled $193,872 or 60 basis points of loans and other real estate compared to $130,576 or 52 basis points at June 30, 2026. Since September 30, 2026, $4,289 million of nonperforming assets have been removed or put under contract for sale. The September 30, 2026, nonperforming asset total was comprised of $171,031 in loans, $57,000 in repossessed assets and $22,784 and other real estate.

Net charge-offs for the 3 months ended September 30, 2026, were $4,437 million compared to net charge-offs of $2,183,000 for the quarter ended June 30, 2026. There was no provision to the allowance for credit losses during the quarter ended September 30, 2026. No dollars were taken into income from the allowance during the quarter ended September 30, 2026.

The average monthly new loan production for the quarter ended September 30, 2026 was $635 million compared to $454 million for the quarter ended June 30, 2026. Loans outstanding at September 30, 2026, were approximately $32.06 billion, compared to $25.028 billion at June 30, 2026. The September 30, 2026 loan total is made up of 38% fixed-rate loans, 30% floating rate loans and 32% variable-rate loans.

I will now turn it over to Charlotte Rasche.

Charlotte Rasche

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

Operator

[Operator Instructions] The first question comes from Dave Rochester with Cantor.

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David Rochester

Wanted to start on the margin outlook for the quarter. I appreciate the accretion on the loans of $7 million to $10 million. Maybe just to wrap up on the accretion side. I think you had some on the securities book as well. I imagine some of that might continue. And then the CDs might be more short-lived, but I was just curious if there are any expectations for that as well, so that accretion number might be a little bit bigger in 4Q.

Asylbek Osmonov

Yes. For the fourth quarter, I mean, we're excited to see the continued repricing of bond portfolio. As I mentioned, we still have $2.2 billion of annualized cash flow from bond portfolio, we have a $2.92, average rate on the bond, and we've been recently buying like $5.50 to $5.75. So that's going to continue to reprice on the bond portfolio side.

On the loan side, we have a 38% on the fixed loans. They're going to continue to reprice -- if you look at our average rate on loans without fair value, it's $5.93, so we are putting higher loans on our production. So that's going to benefit from that. But one thing I want to note that we did increase our deposit rates in the end of the third quarter. due to the Fed increase rate. So it has not fully baked in, in our third quarter, but we'll see that baked in, in the fourth quarter.

So I think if you're looking on margin, I think it's going to be flat to slightly up because it takes a little time for assets to reprice. But in long term, our model shows we're going to continue to expand on the margin significantly as the bond portfolio and the loan kind of reprice. And if you look for 12 and 24 was looking really good. And the assumption we provided that exit rate on the fourth quarter margin being $3.70, $.3.75 as is. So we're comfortable that. And the guidance we provided for next year is also stands as a or average for the quarter, like $3.80 to $3.85 right now. So we are seeing expansion of the margin.

Unknown Executive

Yes. I think it's for some help on accretion. So the accretion on the loans, like I said, $7 million to $10 million -- on the CD accretion, we had, what, $2.5 million. I think it's going to reduce a little bit to $1.3 million for the fourth quarter and kind of burns off first and second quarter of next year.

David Rochester

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

Asylbek Osmonov

That's correct. That's right.

David Rochester

Okay. That's great. It's good to hear that you guys are still thinking positively about the margin. You have a lot of opportunities there to expand that it sounds like. Maybe just switching to expenses real quick. That result was solid. The guide certainly shows you've got some more cost savings coming. Where is -- where do you think that expense range that $2.35 to $2.38 goes as you head into next year? I know you'll get a lot more of the cost savings from Stellar on the integration, so maybe those flow through more fully into 2Q, and that's normally when you've got your merit coming through on a full quarter basis. So I was just curious how you think that trends to the extent that you've got projections through the year?

Asylbek Osmonov

Yes, that's a good question. We did see some cost savings already baking in. It's not just from American but some of cost savings from Stellar and Texas Partners -- so we're going to continue to see that. I think based on our estimates, we have additional $65 million to $70 million pretax of cost savings coming in if you compare to our third quarter expenses. If you look at our expectation when we all settled in more like starting second quarter and third quarter, when we have like quarterly clean expense run rate, I would say, we're looking at about $220 million to $225 million per quarter. That's a pretax number. So that's going to be our run rate on everything is settled.

David Rochester

All right. Great. Maybe just one last one on credit. Through the deal accounting and whatnot, that allowance ratio went up pretty decently this quarter. It seems like you're pretty well positioned to have a 0 provision for '27 you don't have a crystal ball, but is that kind of what it feels like at this point?

David Zalman

I think so. I mean, really at $193 million in total nonperforming assets and having over $600 million in provision or allowance, I think we cover pretty good.

Kevin Hanigan

When we said '27, I wasn't sure if you meant next year, 27% 27 years worth 27 years worth SP59206847 Let's take the next year for now.

Operator

The next question comes from Brett Rabatin with StoneX Group.

Brett Rabatin

I wanted to -- just to go back, I know last quarter, you mentioned that you were going to probably have to increase deposit rates a little bit and then you just alluded to it. I was just curious, your money market rate average was up 9 basis points linked quarter, but it's -- your core funding is really low cost, great core deposit funding base. As how much you increased the rate? And then how much should we be thinking about the cost of funds from here and how you guys are thinking about the margin with potential rate hikes?

Asylbek Osmonov

Yes. I think we -- I mean, it wasn't 1 rate for everything. We kind of looked at it different buckets of the deposits and the different rate increases. But I'll tell you this for -- if you're looking for fourth quarter specifically, we calculated what would be average cost of deposit would be. It's going to go up by like 6 or 7 basis points from the Q3. So we're shooting maybe cost average will be 146, 145%, 146% on the cost of deposits. But if you look at cost of fund total I think kind of goes up from 150 to 157 to 58, so 8 basis points with our deposit increase that we did end of the quarter -- on the third quarter.

David Zalman

And our primary focus, Brett, again, we really don't it's not that we don't focus on them. It's just that they're not as rate driven as you're checking accounts and all that -- our main focus really on the increase was really on the money market accounts and really focused on balances that were $1 million or more. We actually raised our money market rates about 0.25 point from 2.75% to 3%. And again, we're still offering the special rates. We have a couple of special CD rates where are they running.

Asylbek Osmonov

So like 7 months cities like 3.75%.

David Zalman

So we're offering a couple of special promotional deals like that. But that's really where we're focused on, and that's where the rates increase. And I would say, going forward, if interest rates increase, again, that's probably the focus where we'll be in at those 2 products primarily. The majority of the rest of the bank is just core funding and -- and I think the rate-driven stuff is probably more in that. And even that is not rate driven like a lot of other banks, really.

Brett Rabatin

Okay. That's helpful. And then the other question I wanted to ask was just around loans. And with the monthly production up to $635 million, it sounds like the outlook is still for maybe modest growth from here. Does the production give you guys any confidence that growth might improve from here? And then just any color on the payoffs from the legacy prosperity or the deals that you've had, how much that might have impacted 3Q?

Kevin Hanigan

Yes, Brent, David's nodding at me. This is Kevin. So I'll take that one. And bear with me as I walk you through a couple of things, and what may seemingly get off topic and end up back on topic, if you will. So the monthly production, we have looked back as if all the acquisitions were done last year. So we looked at the production by bank, American Partners Stellar ourselves, going back to January, and those numbers have picked up from Q1 to Q2 to Q3.

And it went up about $180 million in total between Q1 and Q2, a little over $200 million. So it's not only going up, but it's increasing its path upward. It's worth noting the major driver of that upward trajectory is in prosperity, the legacy Prosperity portfolio. Stellar dipped down a little bit in Q2 and Q3. We believe that to be largely related to the acquisition and getting to know each other and lenders getting to know each other.

And what we have seen there is a rebound in their pipeline. So I think as that pipeline improves, we picked back up to where Stellar was and see further improvement. That's all the tailwinds for loan growth. The headwind is our history and what happens when we make acquisitions, I think you all know it. but I'll say it, it is not unusual. In fact, it's more typical that loans at those institutions tend to shrink for 6 months to a year after an acquisition.

So that to me, that ties in, where David said, he thinks loans for next year are probably flat and maybe up a little bit. It's the headwind of integrating Stellar, and it's the tailwind of this production improving. So I would say for the good side, of next year. And before I get into what I think '28 is going to be, and I know it's way too early to be talking about '28 by well briefly.

I think the good side for 2027 from our perspective, is now the Street is seeing a new run rate with Stellar on board, and that run rate is pretty strong. Depending upon what you add back, it was $1.67 to $1.69. So I think from an earnings perspective, we've got this nice new run rate, nice new margin. We have the continued margin expansion from repricing and we got another $70 million worth of pretax cost saves. So I think that delivers in spite of what is likely to be a flat kind of loan growth year, that's going to deliver double digits. In fact, low to mid-teen double-digit EPS growth for 2027, even with flat.

If I take that and say we'd go through the Stellar transition through 2027, and we rebound off of this new production that we're currently seeing and look into 2028. And let's face a lot of things going to happen between now and then. So this gets pitcher. But that leads us to believe in 2028, we can get to low mid -- I'm going to say, 3% to 5% loan growth kind of numbers in 2028, post dealing with all the potential runoff from the acquisition.

So what that means is another year of double-digit EPS growth. So I think we're really set up for two consecutive years of really nice EPS growth maybe a little disappointing to you that we can't take out more growth next year, but we're being realistic and just trying to offset this nice production increase with our history and knowing what happens. So long-winded, but I think we're really in a great position from an EPS growth standpoint for the next 2 years.

Brett Rabatin

That's great, Kevin. I appreciate the nature of there. That helps explain quite a bit.

Operator

The next question comes from Janet Lee with TD Cowen.

Sun Young Lee

Three -- back to your net interest margin, 3.80% to 3.85% for '27. That's great. Strong core NIM expansion. Just given the value of the curve moving up significantly more since we last spoke, why not it could be higher? I feel like this rate environment is actually pretty good for you, for your NIM?

Asylbek Osmonov

Yes. We are -- if you look at our balance sheet, we're neutral to modestly asset sensitive. So if you look at our model, yes, increased rate environment does help benefits us. But when we run the model, we kept it flat rate. there's expectation rate or Fed going to increase run rates. But for our model, we kept it flat. So I mean there might be a possibility to do better, but us being conservative, we're just going to stick to our guidance to -- that we provided.

David Zalman

Yes, I think, Janet, our models, again, maybe trying to underpromise and overperform. But our models look really good for '28 and '29 quite ranging. So I mean we're -- we really -- as Kevin mentioned earlier, we really are looking at some double-digit earnings increases over the next couple of years.

Sun Young Lee

Right. Makes sense. And just to make sure I'm interpreting correctly, your core deposits growing 2% to 4% and loans being flat to slightly increasing in '27. Is that excluding the runoffs? Or is that inclusive?

David Zalman

No, that's -- we refer core deposits. That's all deposits, excluding public loans and government agencies and stuff like that. We have a lot of what we have in public funds right now close $2 billion or $3 billion. credit -- and those are real seasonal in nature. Like right now, they're probably lower than they are all year right now next quarter. You can see our public funds increase $500 million to $800 million probably. I mean, it's very possible in the out of state in the bank through and start running out at the end of the first quarter and second quarter again.

So when I refer to the core deposits, it's our checking accounts or money market accounts and stuff like that, just our core. And again, we don't have any wholesale deposits. We don't have any broker deposits or anything like that.

Sun Young Lee

Right. And on the loan side, on the flat to slightly that's inclusive of the potential any one offs?

David Zalman

We do because I think because, again, Gosh, I hope I'm not overly optimistic. I think Stellar bank and our bank are very, very similar in nature, and I don't see an in loan committee, and I don't see a whole lot of difference in what they would have done and what we will do. So I just -- I really think that Stellar Bank and us are very much like, and I don't see a lot of change.

Again, as Kevin mentioned, no matter what we do and how hard we try sometimes, we do go backwards and acquisitions. But I think with Stellar and American Bank too and Texas partner, all of us are very similar in the way we lend money and so I don't see a whole lot of changes in what we do. So I'm hoping for the best, Janet.

Sun Young Lee

All right. If I can squeeze in 1 more. Maybe I missed it. Could you talk about your appetite around buybacks from here?

David Zalman

Well, it's $60-something, it's got a huge appetite -- and we have the money to do it with. I mean we're projecting earnings of how much next year also that when we had projected earnings was the analysts have us total earnings. I mean it's a $50 million to $880 million, something like that. So it's even really high. So you take the $0.64 a quarter dividend, and that's what about $300 million...

Asylbek Osmonov

$10 million or so.

David Zalman

So we have -- we have a lot of gun powder to do something with.

Operator

The next question comes from Michael Rose with Raymond James.

Michael Rose

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

Kevin Hanigan

Yes. Thanks, Michael. Yes, for the quarter, we averaged [ $1.229 billion ] I think, and our estimate going into the quarter on the highest it was $1.225 billion. So we were spot on that one. Since quarter end, it's been a downward trend. At the end of the quarter, we were at $1.132 billion. Last night, we ended up at $1.110 billion, and we're basically at $1.1 billion average for quarter-to-date, and I expect that to go down further. A, because the rates [indiscernible] because of the typical seasonal decline in warehouse in Q4. So Michael, I'm thinking on the low side, $850 million to maybe on the high side, $900 million average for the quarter.

Michael Rose

All right. That's helpful. I appreciate it, Kevin. And then maybe, David, just you talked about kind of ongoing conversations with bankers for M&A opportunities, but clearly, you're integrating a bunch of deals right now. Any do you expect that we could see a little bit of a pause here? Or if you just find the right opportunity, you guys are just open for business and you're going to make the decision based on what's out there at this point?

David Zalman

I think we're always in the market, but let's face it. I mean our focus is truly the combination of Stellar Bank and Texas Partners. That's our primary focus. For us to really jump into something, it has to make a whole lot of sense and maybe increase our Texas franchise or something like that, that would be significant. But that's really our main focus right now is to really put these banks together really for the most part.

Kevin Hanigan

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

David Zalman

Yes, the stock price that it's added we weren't trading less than 10x earnings, we'd probably make more money buying our stock back than really buying somebody else really.

Michael Rose

Makes sense. I appreciate all the color.

Operator

The next question comes from David Chiaverini Jefferies.

Unknown Analyst

This is Brooks on for David Chiaverini. Quick question here on fee growth. Now that you guys are a $54 billion bank, where does fee growth come from going forward? And treasury management for Stellar is commercial clients, the main lever here. I know last quarter, you guys have been mentioned treasury management build-out that included additional hires from Texas Partners. Could you just speak on that going forward?

Asylbek Osmonov

So yes, I think there's a lot of opportunity, especially with the merger with the Stellar. I think we really like our trust business and brokerage business, so we would love to continue -- and if you look at the past few years, we have grown very well on that 2 areas. And now with the addition of Stellar and having partners at Stellar with the lenders referring the business. So that's a focus for ours. And I think that's going to be the main focus for the next few years on the brokerage and the trust.

David Zalman

Yes. I think our trust looks good. We're growing there. But I think treasury management, I think that plays a bigger and bigger piece because it offers so many different products to our customers. And again, I think that's where we're focused on right there. I think sometimes you try to sell a saw where we try to sell treasury management sometimes to smaller businesses that really don't necessarily need to complete treasury management. So we need to really thank who are really pushing it to and who we don't on the automatic consolidations. But for the most part, I think we have a lot of good products and we're really looking forward to all the customers and the growth that we can do.

Unknown Analyst

Appreciate the color.

Operator

The next question comes from Will Jones with KBW.

William Jones

Great. Just another one on the buyback, just follow up here, David. It sounds like you're very constructive here at this price level. If I go back and look kind of pre some of these merger announcements looking back to latter half of 2025. I mean in the fourth quarter last year, you purchased 2% of the company -- is that kind of order of magnitude on the table here at these price levels in this valuation?

David Zalman

I think it's really based how opportunistic it is. I mean, again, when we're trading below 10x earnings, it's pretty opportunistic. It just -- it seems like -- our stock price is pretty seasonal. So it looks like your September, October prices really go down and then about time that our stock vest at the first of the year or some price goes to sky high, I guess that's because we have to pay the tax on that accelerated price.

So again, it's real seasonal. But again, we'll be opportunistic. And again, trading less than 10x earnings will be definitely opportunistic.

William Jones

Yes. Okay. That's fair enough. Another quick follow-up just on the core deposit growth 2% to 4%. Should we think about the balance sheet growing at that same level, that same capacity in 2027, that 2% to 4%? Or within that knowing we might have more flattish year for loans? Is there a chance to optimize some of your funding and balance sheet growth is also a little flat? Just how do you kind of think about those dynamics?

David Zalman

No. I think historically, again, when we look at our bank and we look at the acquisitions, our core deposits have always grown 2% to 4%, excluding some of the people that joined us, I don't see that anything different. I mean we do see ups and downs. But again, I just in the last 3 days, I saw our core deposits go up $300 million just in the last few days.

And again, our public funds are down a little bit, which is seasonal that's in nature. But I think 2% to 4% is very realistic for us. We've always done that since the beginning and having that kind of growth. And I still think that you will see that and balance sheet growth. Yes.

Asylbek Osmonov

Yes. And Bob, if you look at on total assets, you just have to look at period-to-period as we mentioned, our public fund goes down in second quarter and third quarter. So if you look at Q4 to Q2, you might not give a clear picture because we have a seasonality in public funds. But as we stated, if we see the 2% to 4% on core deposit growth over time, our balance should continue to grow.

David Zalman

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

I mean, we have sometimes they say you don't have the growth, but we really have a 77% loan-to-deposit ratio. I think our policy allows us to go to 85%, so we have room for growth. But the real -- the real value in any bank is really the core deposit relationships, and that's really what we focus on.

William Jones

pYes. Understood. I certainly appreciate the confidence around the ultimate earnings power here. Maybe lastly for me, just maybe a cleanup question. It looks like the stellar credit mark was maybe a decent bit higher than where you guys had thought it might be when the deal is announced. I guess is a, is that true up are? And b, what kind of were the drivers behind that?

Asylbek Osmonov

Yes, it was a little bit higher what we projected. But what we do when we put a projection, we kind of look at high level. But when we go inside and dig in and being our conservative nature of what we have. We've put up a little bit more of the marks than we anticipated.

William Jones

Okay. I appreciate it.

Operator

The next question comes from Ryan Kenny with Morgan Stanley.

Ryan Kenny

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

David Zalman

I don't see any -- I mean, over the years I've been in banking, the banks that use financial engineering to make their numbers look better, never turns out well, you sell and reposition putting in market value in the next week, the market value changes again. We'll never be able to control rates, really determine what interest rates are going to be up or down. We never extend the portfolio, it is something that we can't live with.

I think if you look at the previous 2, 3 years before this year, you saw our earnings really down, and that's because we never try to call the markets. We try to have something that we're going to be able to survive with interest rates going very up, we're very down. And I just -- that's just not something we do, and I don't see that every -- several banks that we bought were banks that really just continue fund and selling and reengineering balance sheet and for us, that just doesn't work. The answer to the question is simply no. I don't see that really.

Ryan Kenny

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

David Zalman

Probably in the last month or so, I don't see them being as crazy as they were. But again, when we talk about the out-of-state competition, we're really talking about a couple of banks really. And it's -- those are the banks that I think they're smaller trying to grow. I think there will always be competition. But the bottom line look, we're one of the largest Texas banks right now with 350 locations and people in Texas, I don't care who you are, you're going to want to do business with Texas people. And that's just -- they can say whatever they want, they can pay wherever they want, they can try to take all the people they want and you can underprice all you want. I mean you do all that stuff you want. But when it's all said and done, they're still going to want to deal with the Texas fine.

Operator

The next question comes from Stephen Scouten with Piper Sandler.

Stephen Scouten

Just kind of along this conversation about the potential for organic growth, the competition versus successful track record on M&A. From a strategic standpoint, do you -- like the IDS continue to grow loans via M&A using the legacy bank for good core deposit growth versus trying to push the envelope on the organic side. Is that a fair way to think about it strategically?

David Zalman

Say that again. I want to try to really understand what you're saying. I don't know if...

Stephen Scouten

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

David Zalman

I think we've been successful with the M&A growth deal. I mean it's it makes it easier because you get to really analyze -- you get to analyze the portfolio that you have, which you like and don't like and you kind of really know what your potential losses are. The thing that we don't like, I think, is to say you're going to have double-digit loan growth every year. We're just not going to do that. I mean I don't see that, and we're not going to really go out and try to buy wholesale deposits just to make that happen.

I think that you'll see reasonable growth with our 2% to 4% our deposit growth, and we do have about -- like I mentioned earlier, we have a 77% loan-to-deposit ratio. We can go up to about 85% in our policy. So we have room to grow there. I think that will continue to grow. But I think the answer to your question exactly is. I like what we've been doing. I've been doing this a little while about 30 or 40 years, and I've probably gone through a lot of analysts, and I've been through a lot of these meetings and a lot of the same stuff that people come up with and say, well, you can't do this and you can't do that.

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

H. E. Timanus

It's really a balanced approach.

David Zalman

Yes.

Kevin Hanigan

I was going to say, we really want both. But on the loan growth side, we're not going to be somebody that's going to grow at double the rate of GDP. So if we can do acquisitions and grow loans at GDP rate, we are just fine with that. If the market is all growing at 10% because we think they're doing crazier things, Well, in those cases, let them grow at 10%, we'll grow slower. And if we need to grow more than that, growing through acquisitions, the way we do it, and I think you've all seen the way we do it, there's enough marks put on these loan books that we buy, the credit is never an issue.

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

David Zalman

I think basically, it's a model if you're a long-term investor. If you're a long-term investor, you're going to love our model. If you are a short-term investor, you probably wouldn't.

Stephen Scouten

Yes, that's probably a very fair point. That's helpful. And then now at $54 billion in assets, does the idea of indexing these regulatory thresholds, does that change your outlook for the ultimate size or scale of the bank or anything strategically that would open up for you all if those policies come through?

David Zalman

I don't know that I saw the indexing thresholds that you're referring to -- I guess you're referring to the $100 billion in size ratio would be our next ratio. But right now, we don't -- again, the way -- when you're a $50 billion bank, you could be $115 billion bank, all the stuff that is required from enterprise risk management to BSA. So all the regulatory burden they put on you right now you could be that bigger size.

And again, we probably didn't talk about it enough in addition to the mergers that we've done with Texas Partners, Stellar's and American. We also spent 3 years in-house on our own IT infrastructure and we put in a new data processing that really allows us, again, I'm not saying we're going to build it to this size. But it allows us to go up to about of $500 billion in size. Just to give you an idea, we were running out of capacity on a holiday weekend. We are running batch with our checks. And basically, we start on Friday it may be caught up by Monday morning and may not our servers.

But today, we can run through all of that and it catches up within an hour's time. We can run the whole process with an hour's time. So we spent a lot of time on our infrastructure, IT infrastructure, a lot of money on technology. And so we have a great team with internal audit, enterprise risk management, now AI, get everything. So I feel good where we're at. I think we're in a good position.

Stephen Scouten

Really appreciate all the color.

Operator

The next question comes from Jon Arfstrom with RBC Capital Markets.

Jon Arfstrom

Just a few cleanup questions here at the end, I guess. On credit, obviously, not a big deal, but the 60 basis points in NPAs, David, that probably drives you nuts -- what is the Yes. What is the plan to work that down? Is there anything bigger in there? Or how do you expect that to trend over the next few quarters?

David Zalman

Our directors, I talked to our directors about this at the last meeting. It's a good question. At the size that we're at, I don't ever see us really getting below $100 million in nonperforming. We're at about $200 million right now and we'll probably realistically settle when it's all said and done a year from now or 2 years from now. Again, without -- with everything else being stable, we'll probably settle about 125 to 150 is where we'll probably end up in nonperforming on a run rate.

Jon Arfstrom

Okay. Energy lending. Any comments there? Do you have an increased appetite? Is there more activity in your West Texas markets? Anything to note there?

David Zalman

In our West Texas markets, I wish they would borrow more. Those guys, when they borrow, they signed personally and they usually have about $100 million in their checking account, and they're borrowing $100 million, but they just haven't borrowed a whole lot. So we do have some really great customers. We'll continue to thank the customers that we bank for the last 20 and 30 years. I think probably the middle market were not as big in anymore. Kevin, may be able to talk to that.

Kevin Hanigan

Yes, we're not -- our underwriting is a little different when it comes to revolvers and borrowing base reviews, and it's good in a conservative way, not that long ago, and we all remember the potential smarting 2014 through '17 or whenever that period was. So I don't look for that category to grow into a 5% of total loan kind of category. We're comfortable with where we are the banks got a tremendous list of great oil and gas and oilfield services customers who have really great balance sheets that rarely need to borrow.

Every now and then, we get one of them pop up that's doing an acquisition, and they allow us to loan them some money. As David said, I can think of one client we routinely has $100-plus million, if he's making a $50 million or $60 million acquisition, he allows us to make him alone. It usually doesn't keep it out very long. But rather than just paying cash, that's great for us. guys like that, and everybody in this room knows who I'm talking about. But we got a couple of people like that.

Jon, I don't think it's going to -- don't look for that to be a category that takes off.

David Zalman

Yes, I think I'll remind years of experience, especially in the lending to oil service industries, when prices got really high, everybody would jump into the market, your bankers and lawyers, they want it to be oil and gas guys and that's when you lose all the money. So I think we've learned our lessons. We're not -- any new company that's just jumping in the business, we're really not looking at that. What we're really looking at are existing companies, and we have a lot of them and they're -- so we're still taking care of them. Doesn't mean we won't look at something new. It would have to be extraordinarily appetizing to do it, really.

Jon Arfstrom

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

Ramon Vitulli

Yes. Yes, this is Ray. It's going very well. I think as far as the question that we'll do differently, I'd actually say more like how we're going to leverage the synergies that we're getting as part of the merger. For example, I think also Doug mentioned on the wealth side, we're starting to see referrals on the wealth side and it's using the bigger offering with the merger to our advantage, and we're already seeing that. So it's super excited about the footprint that we have that we've expanded in Houston and East Texas. And we just -- we think that there's a great runway there.

David Zalman

Bob, do you have any comments on Houston?

Robert Dowdell

Yes. I mean I guess the comment I'd make, David, is you added -- with the 3 acquisitions you added about 20% of the balance sheet, all in great opportunity areas. So in support of loan growth, whether we get there or not, our opportunities have increased. So Dallas and Houston represent almost 60% of our loans today and great business opportunities. So to me, I think it's a matter of us getting out there and getting that done. So -- we've got -- we've built on opportunity. We've increased the size in those markets. And I think it bodes well for the next several years.

David Zalman

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

Operator

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

Charlotte 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.