Catherine Mealor — Managing Director, KBW
Thanks. Good morning.
Asylbek Osmonov — CFO, Prosperity Bancshares
Morning.
Catherine Mealor — Managing Director, KBW
I wanted to start maybe with your outlook for loan growth. I wanted to see with, you know, the loans have been declining for the past few quarters, and I think we were hopeful that we would see that inflection this quarter. I'm just kind of curious if you could talk about the push and pull between paydowns and the decline in some of your acquired books, and then your outlook for organic growth moving forward. Thanks.
Kevin Hanigan — President and COO, Prosperity Bancshares
Hey, thanks for the question. This is Kevin. I'll take the first cut at that. I think for the fourth quarter, first of all, year to date for the fourth quarter, loans are down slightly, maybe $40 million-$45 million. As David said in his lead-in comments, you know, we're seeing some structure and pricing aspects that are not favorable in terms of the way we're thinking about credit, still, and maybe on an accelerated basis. Between that and some elevated payoffs in the fourth quarter, I think this is going to be a flat quarter, which I know is disappointing, but I think that's really where we're going to kind of come out of this.
Going into next year, we feel a little bit better about it in that we've got a bunch of construction deals that we have approved over the course of this year that have not funded up yet. We're still waiting for all the equity to go into those deals. Just off of a steady state book, I would say low single digits for next year. As you know, we expect to have both of the acquisitions that we have announced closed and on the books into next year, probably by the end of the first quarter of next year, which will help out, obviously, for just the total volumes. The only thing I would caution out of all of what I've said is, you know, once we buy a bank, a couple of banks like that, there's typically some loan runoff even for a good bank.
These are both pretty good credit quality banks. One of the headwinds for overall next year, not just organic off of today's balance sheet, will be any payoffs we get out of those two acquisitions. I think that's probably a fair summary, but David or Tim may want to add to that.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
I would just remind everybody that when you're in a market that's very aggressive in terms of pricing and terms, and that's what we have had for some time now, you just simply have to be careful and prudent. There's still loans to look at out there. We have active loan committees, but we don't want to make a mistake and end up having a problem with our net interest margin because we've priced too low and things of that nature. We see a lot of that going on in the market. We just need to be careful and prudent, and things will be fine.
Kevin Hanigan — President and COO, Prosperity Bancshares
The last thing I probably should have mentioned is, it's not lost on you or us that the competitive landscape in Texas has taken on some major changes over the last couple of months. I would expect some of the new out-of-state players who've bought banks here to be aggressive into this market. Offsetting that aggressiveness, and maybe this isn't as prevalent as it's been, you know, 15, 20, 30 years ago, there's a fair amount of Texas-based businesses that want to bank with a Texas bank. Just the fact that you've got an out-of-state competitor taking over a local institution, there'll be more than a handful of clients who say, you know, we're Texans and we want to bank with a Texas bank, somebody we can look in the eye in terms of the top decision makers.
I think net net, that probably plays out on a positive basis for us.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
Yeah, that's a very real aspect and always is.
Catherine Mealor — Managing Director, KBW
How should we think about if, because I think you're right. I think the competitive landscape, I mean, if you see stress in structure and pricing that you don't think are acceptable today, my gut is just given all the M&A that you've seen in Texas, that's only going to get worse next year. I appreciate the comment on, you know, Texans wanting to bank with other Texas banks. That helps that. In the scenario where we don't see a pickup in loan growth next year, I was excited to see the buyback activity this quarter and the new authorization. How aggressive do you think you can get on this buyback given where your stock is trading and the slow growth? Is it appropriate for us to incorporate this entire 5% buyback into our estimates over the next year?
Kevin Hanigan — President and COO, Prosperity Bancshares
I'm going to let David take that one. I'm going to say that's going to be price-dependent. My goodness, we sure wish we could have been buying more in the previous quarter. We were blacked out for a good part of the period, you know, when we got S-4s out there on acquisitions. I do expect very soon we'll be active again.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Katherine, I would say that, you know, I've read a lot of the analysts, things that came out this morning. I think once the herd gets into a certain motion, they all run in that same motion and they all focus on the net interest income. The bottom line is, our balance sheet, we reduced our balance sheet in size, and that primarily came from borrowings that we had at the Fed or Federal Home Loan Bank. If you looked a year ago, we were probably borrowing about $4 billion. Today, we might have closed at $2 billion, but we probably average about $1.5 billion borrowings a day, maybe $1.5 billion-$1.8 billion. We really lowered our balance sheet. The things that I guess are missing, I don't know, maybe I just need to bring it up.
If I told you a year ago that we're going to increase our earnings by 15% and we're going to take our net interest margin from 2.95% to 3.24% in one year, I think everybody would be hysterical. That's what's happened. Our earnings from nine months last year to nine months this year has grown over 15%. Our net interest margin went from 2.95% to 3.24%. I mean, that's just magnificent. The beautiful part about that is, based on y'all's projections, you have that to look forward for 2026 and 2027, double-digit growth. Yes, we're very excited about the quarter. At the low prices that we're at right now, we're going to back up the truck. There's no question. With the earnings we have and the price that it's at right now, it's ridiculous.
I noticed, you've noticed some other bank sales that have gone through, like the FirstBank deal in Colorado. That bank is similar to us. I think we're better, however, but a lot of the same good core, same good core deposit structures went for 15x earnings. Anybody take your earnings of next year, [$6] and something, multiply that times, that's our real price. That's the real value of our bank, you know, $90-$100 a share. Where we're trading at today is just absolutely ridiculous. We will be buying, and we will be buying strong.
Catherine Mealor — Managing Director, KBW
Great. Love to hear that. Thank you.
Michael Rose — Managing Director of Equity Research, Raymond James
Hey, good morning. Thanks for taking my questions. Maybe just following up on the loan growth discussion, you know, just given the amount of dislocation that we're going to see, and I know it's competitive, but I think one, maybe one area that you guys haven't talked up as much over the years and others have is just, you know, hiring efforts and hiring more lenders, bringing more bodies on staff. You guys have a great efficiency ratio, but any thoughts given to being a little bit more active on the hiring front to really bolster that loan growth, you know, potential? Because certainly I appreciate the margin expansion, the fixed asset repricing, but you know, it's kind of price times volume, right? I think we'd like to, we'd all like to see some greater earning asset growth to, you know, really reap the benefit of that margin expansion. Thanks.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
Yes, we're constantly looking at people that potentially can come in and help to grow our bank. I've approved three or four just within the last month that we think have a very good opportunity with us. That's something we're constantly focused on. Likewise, if we have somebody that's just simply not performing and enough time has gone by where that should not be the case, we typically look at those people and try to determine, you know, should they still be with us or not. There are two sides to that coin, but we absolutely are looking at bringing people in, and we have approved a fair number here over the last year, really, and some recently. We're active in that regard.
Michael Rose — Managing Director of Equity Research, Raymond James
Okay, helpful. Kevin, maybe if I can just ask quickly the kind of the warehouse question and kind of expectations for, you know, the next quarter. It looks like we're going to get a rate cut here in a couple of hours. Just wanted to see what you guys are seeing. Thanks.
Kevin Hanigan — President and COO, Prosperity Bancshares
Yeah, thanks for the question, Michael. First of all, I have to say after a six or seven-year run of really hitting the nail on the head on our thought process about a forward look in this space, I missed it this quarter. I said $1.25 billion, we averaged $1.218 billion. So, the record is broken. You know, Michael, quarter to date, through last night, we're averaging $1.222 billion. So basically flat to the average of last quarter. Typically, the warehouse is decent in October, and November and December are relatively weak months. In fact, it wouldn't surprise me if we saw a week or two below $1 billion or below $900 million before the year is out. Now, all that's rate dependent. I would say, for the quarter, we probably average $1.1 billion.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Yeah, the only hopeful thing you could say, I saw some numbers today. I don't know if they're accurate or not, where refinancings are up 111% over last year, simply because of rate and that.
Kevin Hanigan — President and COO, Prosperity Bancshares
Believe it or not, there's another mini refi boom going on.
Michael Rose — Managing Director of Equity Research, Raymond James
That's good to hear. I'll step back. Thanks for taking my questions.
Dave Rochester — Analyst, Cantor
Hey, good morning, guys. Maybe if I could just start on the margin. I know that's continuing to trend higher. What's the medium-term outlook on that or the one-year view on that expansion you're looking for? Maybe the more normalized margin that you expect, just given your rate outlook. If you could just quantify or update the number that you're seeing in terms of fixed-rate loans that are going to be repricing over the next year or two, that'd be great. Thanks.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I can probably start on the margin, Asylbek, if it's okay. I mean, we have, as we said last year, we really felt the margin, I think we gave numbers like we'd end up at 3.25% or 3.30%, I think, at year-end, this year. We feel comfortable. I think we've hit the, I think we've got really close to what we said right now. We still see margin increasing over the next 12 months, 24 months, and 36 months. Sometimes these models that we have, they look too good. I don't want to give you these numbers because I think that our rates are lower. For example, like on a money market, you know, if you have $1 million with us, it may be 3%. At our bank, if you're at one of the other banks, they're maybe making 4%.
As interest rates come down, we may not go down as much as some of the other banks go down, right up front. The exception rates absolutely will go down on those. The overall rates, we probably won't see as much rate going down as the other banks are. Having even said that, time is on our side. They will go up. It's just maybe not as fast as we would like them to go up, either with their interest rates going up or down. We still see margin improvement for 12 months, 24 months, and 36 months. It looks really good for us. There's no question. You've got a $10 billion portfolio of bonds at a little over 2%. That's with a three-point-something year duration. As those are maturing, it's just, it'll be a home run for us.
Asylbek Osmonov — CFO, Prosperity Bancshares
I agree. What we just discussed, the security and the fixed loans will be a tailwind for us that continue to reprice for several years. That is why we see expansion of the margin continue to do. Specific to your question, how much of fixed loans we have, if you look at loans without warehouses, 39% of the loans are fixed-rate loans.
Dave Rochester — Analyst, Cantor
In terms of just what's rolling over the next year or two, any sense for dollar amounts there?
Kevin Hanigan — President and COO, Prosperity Bancshares
I think if you look at it, it's rolling off probably from a requesting standpoint. Of course, floating and variable will be faster than fixed one. I think it will have a good value or volume of repricing. If you look at the big picture, we have about $5 billion of loans gets repaid or paid down every year for opportunity to, out of that $5 billion, about $3 billion has opportunity to reprice because $2 billion is already at the floating rate.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
You get another $2 billion of our security.
Kevin Hanigan — President and COO, Prosperity Bancshares
Exactly. That's why we have about $5 billion in repricing opportunity between loans and securities.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I would point out that some of the fixed-rate loans that we think will reprice were made back when loans were made at quite a bit lower rates, 3.5% to 4.5% to 5%. We will see what rates are at the time that repricing occurs. I expect a pickup in the rate on those loans.
Kevin Hanigan — President and COO, Prosperity Bancshares
We will see.
Dave Rochester — Analyst, Cantor
I agree. Yeah, it should be pretty decent. Where are your new loans pricing now?
Kevin Hanigan — President and COO, Prosperity Bancshares
I'd say between [$6.50 and $7.25].
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
That's correct. Once again, we see some competitive pricing at 5% or even below, and we've tried.
Asylbek Osmonov — CFO, Prosperity Bancshares
Those we aren't doing.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
We've tried to stay away from those.
Asylbek Osmonov — CFO, Prosperity Bancshares
That's correct.
Dave Rochester — Analyst, Cantor
Yeah?
Kevin Hanigan — President and COO, Prosperity Bancshares
What's the way I think the lowest one we chased was probably $6.25, maybe.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
If we went that low, it was only because a customer had as much in deposits as we had in loans. For the most part, we're seeing some people pricing a 30-day sell for +2. We just haven't gone to those kind of levels, no.
Dave Rochester — Analyst, Cantor
Yeah. Okay. Appreciate the call. Maybe just switching to expenses real quick. Appreciated the 4Q guide there. How are you thinking about the step up in that run rate as we get into next year? I know sometimes you've had a little bit of a step up in the first quarter, and then you've got merit and other stuff kicking in for 2Q. Anything lumpy that you're expecting over the next year or so, just in terms of platform enhancements or anything like that that we should be aware of? Thanks.
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, I think you know the guidance of what I gave you for the fourth quarter. In the first quarter, it usually goes up because of the Merritt situation. In the longer term, I think I don't see significant increase in any expenses. It's going to be normal inflationary increase we see throughout. I know we're working on the platform change for next year, and we kind of looked at it in numbers. It provides about an additional 1% and then to 1.5% additional expense for the run rate I provided. That's going to be baked in starting next year. Overall, I think we have pretty good expense management, and we'll continue to do that next year.
Dave Rochester — Analyst, Cantor
Okay, great. If I can just sneak in one more, just on the M&A picture in general, you know, obviously a lot of eyes are on Texas. A lot of big bank guys are on Texas. I know you've been a strong acquirer for a long time. You're very well known in the market as a buyer of banks. I'm just curious how you guys would field an inbound call from one of these larger bank CEOs who loves your footprint, your lower cost of deposits, you got stellar credit quality. What would you look for in one of those combinations potentially? Are you starting to see any of that interest come your way at all?
Kevin Hanigan — President and COO, Prosperity Bancshares
You got a future in politics the way you phrased that.
Dave Rochester — Analyst, Cantor
That was okay.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I really think that's what the market's missing. I mean, again, our bank's not up for sale, but at the same time, what is the real value of our bank when you look at the banks that have sold like FirstBank in Colorado? They're 15x earnings. Just take that multiple where we're at and what's out there in the market. You can see how underpriced that we are today. We will always do what's right for the shareholder. We probably wouldn't be bullied in one way or another depending on one hedge fund owning the stock or another hedge fund owning the stock. We're always going to do right by the shareholder. We always have in the past, and we'll continue to do that. I think that the market's really missing the optionalities that we do have.
Kevin Hanigan — President and COO, Prosperity Bancshares
Yeah, our scarcity value is increasing.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Yeah, I mean, we're the second largest bank based in Texas right now. I mean, it's one of the best growing states in the United States. I just think people are really missing the boat here.
Dave Rochester — Analyst, Cantor
Yep. Totally agree. Thanks, guys. Appreciate it.
Manan Gosalia — Analyst, Morgan Stanley
Hi, good morning all.
Kevin Hanigan — President and COO, Prosperity Bancshares
Good morning.
Manan Gosalia — Analyst, Morgan Stanley
Just a follow-up to your comments that things are looking a little bit frothy on the loan side and competition is only increasing from here, and you have to be careful. Is there anything that you can do to drive loan growth within your risk return parameters? You know, maybe increasing branches or investing in your product set or hiring more. Is there anything else that can be done here?
Kevin Hanigan — President and COO, Prosperity Bancshares
You know, outside of hiring people and lowering rates, structurally, we're not going to bend.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Again, analysts are always on one side. They're always focused just on loan growth. The bottom line is, guys, we have an 80% loan-to-deposit ratio. We don't want to be a 100% loan-to-deposit ratio. A lot of our growth depends on our growth on deposits. That's where your real money is really made, not in deposits that you're paying 4% and 5% for. It's core deposits. That's why when some people ask, "Why did you pay so much for this bank compared to this bank?" Because banks are completely different, and so deposits are the most important thing. We'll take those deposits as they come in, and we will put those into loans. You know, we made the same kind of return when we were 60% or 65% loan-to-deposit ratio as we are now, which is 80%. We're focused on it, and we're going to continue to make loans.
To make loans in a market where it's not profitable or there's too much risk, it's good for the short term because everybody's impressed with the net interest income growth. If you're a long-term shareholder like I am, I'm not looking one year out or six months out. I'm looking five and 10 years out.
Asylbek Osmonov — CFO, Prosperity Bancshares
Just give us some statistics. I know Tim mentioned what the average monthly production was for the third quarter was $356 million. Our production for the second quarter average was $353 million. If you just compare what we had a year ago in the same periods, the average in the second quarter of last year was $255 million, and the third quarter was $260 million. If you look at just period over period, our production is up almost $100 million. The production is there. Like I think Kevin mentioned, some of those real estates need to put their money first before they start taking out. From that statistic, you can see that we are.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
If you look at the increase, if you look at the amount of loans that we decreased this time, the majority of the loans were in the category of the one to four family residential home loans. People, the home prices were higher, interest rates were higher. We were trying to get out of those more and sell more of those to the market where we could keep more of those. We can easily build our loan-to-deposit ratio we want. We're really focusing not just on loan growth or your net interest growth. We're focusing on earnings per share growth. We're focused on capital growth. I mean, we're focused on the whole bank, not just on one particular area.
Manan Gosalia — Analyst, Morgan Stanley
Got it. I appreciate that. I guess just on maybe on the product side, are there any gaps that you might want to invest in there?
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
I don't think so on the product side. We've never redlined necessarily very many products, if any. We're willing to look at anything that's reasonable. I don't think there's an obvious gap in products anywhere. I don't know. We're really, we offer just about any type of loan that you could want. We're one of the biggest ag lenders in the state of Texas, in the United States, really. We're in construction lending. We're in commercial and industrial. We're probably in, we're in middle market lending. We're in oil and gas. I can go on and on. There's not many areas that we don't touch. We touch almost all the areas that are out there, actually.
Manan Gosalia — Analyst, Morgan Stanley
Got it. Very clear. Maybe a follow-up on the buyback comment. You noted that you would have liked to be more active in the quarter and that you were not because of M&A. You have obviously spoken in the past a lot about M&A being a strong part of your growth strategy, and you are typically in multiple conversations at different stages. I guess you also noted that you will be buying back more aggressively at these prices. Should we take that to mean that you are pivoting away from an M&A strategy to a buyback strategy in the near term while your stock is at these prices?
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I think that we'll always look at M&A, but based right now where our stock price is, we're really focused on getting our stock price up. I will admit, we just heard during this meeting that we have gotten all of our approvals on the American Bank and Corpus Christi. We're excited about that. We're excited about putting the two banks in San Antonio and Corpus together. It would definitely give us, from Victoria all the way to Corpus Christi, a dominant market share along what we call the Gulf of America there. We're excited about that. Our main focus right now will be to get our stock price up. We think it's terribly undervalued. You can never say no to M&A because if it's a cash deal, it really doesn't matter. It's only stock that if we give our stock and it's too low away, that's what matters.
We'll still continue to look at all opportunities, but our main focus right now is to get our stock price up.
Manan Gosalia — Analyst, Morgan Stanley
Great. Thank you.
Peter Winter — Analyst, D.A. Davidson
Thank you. Kevin, I wanted to follow up with comments that you made earlier about, you know, as you close the deal with American Bank and Southwest, that there'll be some runoff in the loan portfolios to meet your standards. Do you have a sense of how much runoff you'd be expecting from those portfolios?
Kevin Hanigan — President and COO, Prosperity Bancshares
Not nearly as much as we experienced this year with the Lone Star acquisition.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
First Capital.
Kevin Hanigan — President and COO, Prosperity Bancshares
First Capital. Lone Star has been fine. They're both, first of all, they're both pretty high-quality credit banks. We did a deep, as we do on all acquisitions, we did a deep credit dive on both of these. American Bank is, gee, it's one of the cleaner banks we've seen, ever. I think it's going to be muted compared to what we've experienced here more recently. There's always going to be some, but I think it'll be muted compared to what we have seen in the past. I think Tim and David could probably.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Yeah. Peter, both of those banks, we did due diligence on both of them. I don't want to say clean as a whistle because there's always issues that come up. Again, nothing like, you know, on our First Capital deal that we did in West Texas, we probably outsourced over $460 million in loans. We don't expect anything like that with these two deals right here. Nothing like that.
Kevin Hanigan — President and COO, Prosperity Bancshares
Let's just say I'd be really disappointed if we were talking about a year from now, we lack loan growth due to runoff in those portfolios.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Our experience, especially along that Gulf Coast right there, our experience with Victoria, we paid a lot for that bank, which we paid a lot for the American Bank at the same time. Both banks are very similar with very core deposits, and really, those banks grew. I mean, I don't think there's any question with the core deposits that American Bank has and that market share that we'll own from along that Gulf of America side down that coast. I think it's going to be really a good, good deal.
Peter Winter — Analyst, D.A. Davidson
Got it. That's helpful. Thank you. If I could go back to the margin, I mean, clearly, it's been a good story. It's been progressing the way you guys had thought it would. I was just curious with the third curve suggesting more rate cuts, are you still comfortable with kind of a 3.35% NIM in the fourth quarter and 3.40% by the middle of next year?
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, I think those maybe ticked down a little bit because the numbers we provided was that static balance sheet and the, you know, no rate cuts. If you're looking 12 months, 24 months, our margin showing that with 100 basis points down being still higher than what we projected for average for this year. I will continue to grow the margin. It's going to be ticked down a little bit lower.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Even at 100 basis points down, it may be slower as accomplished, but 12 months from now, I hate to give these numbers out because then if we're not accurate, but you know, we're still showing close to what you said, I think at 3.38%.
Peter Winter — Analyst, D.A. Davidson
I'm sorry, just to follow up. When you say, Asylbek, tick lower, tick lower from the $3.40?
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, what we just said on our model showing 100 basis points down, 12 months, we're showing 3.38%.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
We're 3.48% with no in a static market.
Peter Winter — Analyst, D.A. Davidson
Got it. Okay, thank you.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I will say this, Peter, as you go out 24 months and farther, we do still pick up pretty significantly, even with interest rates going down 100 basis points.
Asylbek Osmonov — CFO, Prosperity Bancshares
That was just to clarify, that was a standalone, not including American or [partners].
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Right. Right.
Kevin Hanigan — President and COO, Prosperity Bancshares
Correct. Am I lost contact?
Asylbek Osmonov — CFO, Prosperity Bancshares
Hello?
Charlotte Rasche — SEVP and General Counsel, Prosperity Bancshares
Hello?
Kevin Hanigan — President and COO, Prosperity Bancshares
Yes.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
Yes.
Jared Shaw — Managing Director, Barclays Capital
Hi, good afternoon. Hi. Just on the margin for the deposit costs, what should we, or what are you expecting in terms of beta, with that broader rate backdrop?
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, for our model on the deposit betas, that's non-maturity deposit, we use 13 basis points beta, pretty low.
Jared Shaw — Managing Director, Barclays Capital
Okay. Looking at the, you know, I hear what you're saying about the buyback and appreciate all that. When you look at the M&A environment here, especially for smaller deals, does the consolidation that we've seen more recently make it easier for you from a competitive standpoint to maybe get some of those deals with fewer competitors, or maybe the inverse where there's more eyes on Texas that actually makes it harder?
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Candidly, we have more deals than we have money, quite frankly. It's just a matter of what we really want to do.
Jared Shaw — Managing Director, Barclays Capital
Okay, thank you.
David Chiaverini — Analyst, Jefferies
Hi, thanks. I wanted to follow up on the deposit question. Can you talk about deposit competition? You mentioned about the 80% loan-to-deposit ratio. Are you comfortable at that level? Can you talk about the extent to which these kind of out-of-state competitors are coming in and potentially pressing on the deposit pricing front?
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Yeah. I mean, we're at 80%. We probably would go to 85% in our loan-to-deposit ratio. At that limit, we would probably stop. We're still focused on core deposits. We don't have any brokered deposits. When we go out, we really try to go, you know, we're really trying to get a total deposit relationship, not just the certificate of deposits to build up deposits. That's what we're focused on. We do see the people coming in, especially, you know, I may take a different stand because a number of these banks that have bought other banks out in the state, they weren't able to get into the state. Because of that, they've raised their interest rates so much on money they pay here compared to where they pay somebody else because they haven't been successful at building market share, especially in deposits.
I'm almost thinking since now they're making headway into the state and they really have some market share, they may not be under so much pressure to show their other people in the other states that they're having to grow those deals. I think it may become easier for us, quite frankly. I don't know. That's just another spin on it anyway.
Asylbek Osmonov — CFO, Prosperity Bancshares
If you look at it, we always had competition, so it's nothing new for us related to the deposits. I know we have grown this quarter in the core deposits. That's all relationship, you know, and that's what brings it, not just the rate, but the relationship we have with our customers.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
We really focus on relationships. Kevin kind of alluded to it a while ago. People want to bank with the Texas bank. I think where we're at in this state and with the other guys coming in, the amount of opportunities we have are just, it's unbelievable. The kind of customers that we have are unbelievable. Customers that have been around their daddy and their daddy's generation have had businesses and they're coming to us. We're getting to handpick those again. We're not here showing you 8% and 10% loan growth, but what we are putting on is really quality stuff and really building a really quality organization.
David Chiaverini — Analyst, Jefferies
Thanks for that. Shifting over to credit quality, still very strong. We did see the [NPA] uptick. Can you talk about the drivers behind the uptick, and are there any pockets or areas you're keeping a closer eye on?
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
I think I can give you some color on that. Out of the a little over $119 million in non-performing assets, about $57 million of it is single-family homes. Those NPAs with respect to the homes are a result of pressure that we got from a regulatory standpoint to make loans in minority areas, etc. We did not get the down payments that we would normally want, etc. This is the result of it. It's not surprising. The good news is there's a market for the homes. It takes a while to go through the foreclosure process and get them back. We've been able to sell them as we get them back, some at a profit, some break even, some at a very small loss. The point is we've been able to sell them. Yes, if we didn't have those homes, you could take $57 million away from the non-performing.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Again, we were required under fair lending. We had to get a certain amount that we couldn't.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
That's correct.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
We would be eliminated from doing M&A. We were kind of forced into this, making loans with no money down, very low interest rates, and even giving money for closing costs.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
That's exactly right.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
It was a regulatory issue.
Tim Timanus, Jr. — Chairman, Prosperity Bancshares
It was a regulatory issue. Please don't misunderstand what I'm saying. I'm not implying that we don't have a good relationship with the regulators. No, the facts are what they are. During the last two or three calendar years, there was very significant pressure from the regulators to address these markets that they felt were underserved. We understood that. When you don't require a down payment and you make loans to people that barely have enough cash flow to make the first payment, you're going to have trouble. What we see right now is the clear evidence of that.
The challenge is all banks, it's not just us, all banks are required to do this. There are just a certain number of these customers that everybody's trying to get and everybody's fighting for these customers. That's just one of the things that happened, really.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Right. We have discontinued some of those aggressive programs. We discontinued them a few months ago. We are not putting any more of those on the books. We will just deal with what is there. As I say, we are able to sell these homes. I do not think that is going to change dramatically. I think we will be able to continue to sell them. In another year or so, I think that part of the non-performing will be effectively gone.
Kevin Hanigan — President and COO, Prosperity Bancshares
In terms of any pockets we're looking at, we look at the, you know, our credit history is pretty good. We look, we're looking at the entire portfolio. As we look across the entire portfolio, I'd say there's maybe one deal we think has got the potential for some stress.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Shared National Credit.
Kevin Hanigan — President and COO, Prosperity Bancshares
It's a shared National Credit. We don't have a lot of Shared National Credits, but it's a Shared National Credit that we've got our eye on. It's still performing. It's making its payments, but it's one we got our eye on. It's $35 million. Outside of that, the portfolio looks pretty good. I did pull up our shared national total. I think we've got a whopping total of $270 million in Shared National Credit. It's not a field we play a lot in. Of that number, $153 million of that is stuff we agent. A lot of that is structured and sold by us.
Michael Rose — Managing Director of Equity Research, Raymond James
Very helpful. Thank you.
Ben Gerlinger — VP of Equity Research, Citi
Hey, good afternoon, or good morning, I guess, in Texas.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
You guys are doing New York?
Ben Gerlinger — VP of Equity Research, Citi
Yeah, I'm in Georgia, so East Coast.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Okay, you're in the South.
Ben Gerlinger — VP of Equity Research, Citi
When you guys think about the two pending deals, I think you said, Dave, that you just got regulatory approval while we're on the phone here. Would it be fine to define the potential close dates for these two?
Charlotte Rasche — SEVP and General Counsel, Prosperity Bancshares
I think we're probably looking around fourth quarter, this quarter to close, probably the end of the year, the American deal, and first quarter of 2026 for Southwest.
Ben Gerlinger — VP of Equity Research, Citi
Gotcha. Okay, that's helpful.
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, the financial impact is going to be more on the next year, not this year.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
We'll probably roll the American Bank into the first month of next year.
Ben Gerlinger — VP of Equity Research, Citi
Okay, that is helpful. Asylbek, you've done a really good job of making a chainsaw to the expense base of the banks that you guys pick up. Is it fair to assume it's going to be kind of business as usual as extracting the savings, or is there anything kind of long-tailed associated with them that you think about that might bleed into the two or three Q next year?
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, I mean, definitely when you do mergers with other banks, there's always cost savings regardless. We always strive to get the cost savings just by acquiring banks. I think it also depends on the system conversion. We're going to get some benefit early on because there'll be some departure, and additional costs will be like second half of the year, I would say. Overall, we'll get some cost savings in 2026, but most of all of it we're going to get in 2027 and beyond.
Ben Gerlinger — VP of Equity Research, Citi
Gotcha. All right, I appreciate the help. I just wanted to fine-tune the buyback comment of backing up the truck. Does that mean you have to wait until the second one closes and then you could just be there the next day, or is there something else beyond that?
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I think we had an S-4 filed. I know there's probably been some other little people shortages with doing some Tomfoolery or rethinking that we won't be able to buy back. I think we should be able to start buying back.
Charlotte Rasche — SEVP and General Counsel, Prosperity Bancshares
Next week.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
Next week, we should be out there buying.
Ben Gerlinger — VP of Equity Research, Citi
Gotcha. I appreciate the help. Thank you, everyone.
Matt Olney — Analyst, Stephens
Hey, thanks for squeezing me in here. David, can you clarify your commentary about the current balance of the borrowings? I think it was around $2.4 billion at 09/30, and I thought I heard you say it was below that.
David Zalman — Senior Chairman and CEO, Prosperity Bancshares
I think on the last day or so, a couple of days we pulled, if you look a year ago, we were at $3.9 or $4 billion.
Asylbek Osmonov — CFO, Prosperity Bancshares
Yeah, $3.9 billion, and we ended at $2.4 billion in the 09/30. We were able to reduce some from that for the October month, so we're running.