Q3 2023 Prosperity Bancshares Inc Earnings Call
Participants
Asylbek Osmonov; CFO; Prosperity Bancshares, Inc.
Charlotte M. Rasche; Executive VP & General Counsel; Prosperity Bancshares, Inc.
David E. Zalman; Senior Chairman & CEO; Prosperity Bancshares, Inc.
H. E. Timanus; Chairman of the Board; Prosperity Bancshares, Inc.
Kevin J. Hanigan; President, COO & Director; Prosperity Bancshares, Inc.
Unidentified Company Representative
Bill Carcache; Research Analyst; Wolfe Research, LLC
Brady Matthew Gailey; MD; Keefe, Bruyette, & Woods, Inc., Research Division
Brandon Thomas King; Associate; Truist Securities, Inc., Research Division
Broderick Dyer Preston; Analyst; UBS Investment Bank, Research Division
David Patrick Rochester; MD, Director of Research & Senior Research Analyst; Compass Point Research & Trading, LLC, Research Division
Jon Glenn Arfstrom; MD of Financial Services Equity Research & Analyst; RBC Capital Markets, Research Division
Manan Gosalia; Equity Analyst; Morgan Stanley, Research Division
Matthew Covington Olney; MD & Analyst; Stephens Inc., Research Division
Michael Edward Rose; MD of Equity Research; Raymond James & Associates, Inc., Research Division
Peter J. Winter; MD & Senior Research Analyst; D.A. Davidson & Co., Research Division
Presentation
Operator
Hello and welcome to the Prosperity Bancshares' Third Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.
Charlotte M. Rasche
Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares Third Quarter 2023 Earnings Conference Call. This call is being broadcast 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. Timanus Jr, Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Randy Hester, Chief Lending Officer; Merle Karnes, Chief Credit Officer; Mays Davenport, Director of Corporate Strategy; and Bob Dowdell, Executive Vice President.
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 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-K and 10-Q 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 E. Zalman
Thank you, Charlotte, and good morning to everyone. I would like to welcome and thank everyone listening to our third quarter 2023 conference call. I'm pleased to announce that the Board of Directors approved raising the fourth quarter 2023 dividend to $0.56 per share from $0.55 per share that was paid in the prior 4 quarters. The increase reflects the continued confidence the Board has in our company and our markets.
The compounded annual growth rate in dividends declared from 2003 to 2023 was 11.5%. 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.
Our tangible capital increased $243 million from September 30, 2022 to September 30, 2023. This is the amount Prosperity retained after paying $203 million in dividends and repurchasing $72 million of our common stock during this period, reflecting prosperity stable earnings.
Prosperity reported net income of $112 million for the quarter ended September 30, 2023 compared with $135 million for the same period in 2022. Our net income per diluted common share was $1.20 for the quarter ended September 30, 2023 compared with $1.49 for the same period in 2022. The Prosperity's earnings were primarily impacted by a lower-than-normal net interest margin. Although our net interest margin is lower than we would like, the good news is that based on our models, we show our net interest margin improving in a 12-month and 24-month time period to our more normal levels as our assets reprice to market rates. However, if rates increase more than we anticipate, this could change.
The net interest margin on a tax equivalent basis was 2.72% for the 3 months ended September 30, 2023, stable when compared with 2.73% for the 3 months ended June 30, 2023. Prosperity continues to exhibit solid operating metrics with annualized returns on tangible equity of 12.58% and on assets of 1.13% for the third quarter of 2023.
Our loans were $21.4 billion on September 30, 2023, a decrease of $221 million or 1% from the $21.7 billion at June 30, 2023. Our loans increased $2.9 billion or 15.8% compared with $18.5 billion on September 30, 2022.
Excluding the loans acquired in the First Capital acquisition, and new production by the acquired lending operation since May 1, 2023, and the warehouse purchase program loans. Loans on September 30, 2023, grew $111 million or 2.3% annualized compared with June 30, 2023, and grew $1.4 billion or 8.2% compared with September 30, 2022.
Interest rates have continued to increase, and there are signs of the economy slowing and loan growth moderating as intended by the Federal Reserve's actions. Deposits were $27.3 billion on September 30, 2023, a decrease of $68 million or 2 basis points compared with $27.4 billion on June 30, 2023. Deposits decreased $2 billion or 6.8% compared with $29.3 billion on September 30, 2022, primarily due to a decrease in business deposits and public fund deposits, partially offset by an increase in merger acquired deposits.
After a more challenging time in the first quarter of the year due to large bank failures outside of Prosperity's markets, our deposits stabilized during the third quarter. Total deposits excluding public funds, increased $216 million during the quarter. Importantly, this was achieved without the purchase of any broker deposits. Our noninterest-bearing deposits represented a strong 37.6% of total deposits.
Our nonperforming assets totaled $69 million or 20 basis points of quarterly average interest-earning assets on September 30, 2023, compared with $62 million or 18 basis points of quarterly average interest-earning assets on June 30, 2023, and $19.9 million or 6 basis points of quarterly average interest-earning assets on September 30, 2022. The increase during 2023 was primarily due to the merger and an increase in other real estate.
Our asset quality remains sound, and the allowance for credit losses on loans and off-balance sheet credit exposure was $388 million on September 30, 2023. As mentioned in our last conference call, the accounting for acquired loans has changed. Under the new accounting rules, the full loan balance of each acquired loan is booked at closing and reserve as needed to set aside. Our nonperforming assets include approximately $23.7 million from the First Capital acquisition. The bank appropriately reserve for these loans at closing based on day 1 accounting. However, we are now doing a deeper dive into the collateral values and liquidation alternatives for these loans. If appropriate, charge downs to the allowance for credit losses may occur in the next several quarters. Again, these loans are fully reserved for.
Our acquisition of Lone Star Bancshares is pending the receipt of regulatory approvals. We are committed to the transaction and continue to work together with Lone Star in anticipation of the closing. The parties have extended the termination date in the merger agreement to March 31, 2024, and are prepared to complete the transaction as soon as possible, following receipt of regulatory approval.
Our operational conversion date is set for second quarter 2024.
We continue to have conversations with bankers considering opportunities. We believe that higher technology costs, salary increases, loan competition, funding costs, succession planning concerns and increased regulatory burden, all point to continued consolidation.
The Texas and Oklahoma economies continue to benefit from companies relocating from states with higher taxes and more regulation. This, combined with people moving to the states requires additional housing and infrastructure, a driver for loans and increased business opportunities. Although there are signs of the economy slowing and loan growth moderating, I believe our bank is located in two of the best states we can be for future growth and continued prosperity.
Thanks again for your support of our company. Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Asylbek?
Asylbek Osmonov
Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the 3 months ended September 30, 2023, was $239.5 million compared to $236.5 million for the quarter ended June 30, 2023; an increase of $3.1 million or 1.3% and compared to $260.7 million for the same period in 2022, a decrease of $21.2 million or 8.1%.
The net interest margin on a tax equivalent basis was 2.72% for the 3 months ended September 30, 2023, compared to 2.73% for the quarter ended June 30, 2023, and 3.11% for the same period in 2022. Excluding purchase accounting adjustments, the net interest margin for the 3 months ended September 30, 2023, was 2.68% compared to 2.7% for the quarter ended June 30, 2023, and 3.1% for the same period in 2022.
Period-end borrowings decreased $550 million during the third quarter of 2023, primarily funded by cash flows from the bond portfolio. Noninterest income was $38.7 million for the 3 months ended September 30, 2023, compared to $39.7 million for the quarter ended June 30, 2023, and $34.7 million for the same period in 2022. Noninterest expense for the 3 months ended September 30, 2023, was $135.7 million compared to $145.9 million for the quarter ended June 30, 2023, and $122.2 million for the same period in 2022. The linked quarter decrease was primarily due to the merger-related expenses in the second quarter related to the First Capital Bank acquisition.
For the fourth quarter 2023, we expect noninterest expense to be in the range of $134 million to $136 million. The efficiency ratio was 48.7% for the 3 months ended September 30, 2023, compared to 53.2% for the quarter ended June 30, 2023, and 41.4% for the same period in 2022. The bond portfolio metrics at September 30, 2023 showed a weighted average life of 5.2 years and projected annual cash flows of approximately $2.1 billion. And with that, let me turn over the presentation to Tim Timanus for some details on loans and asset quality.
H. E. Timanus
Thank you, Asylbek. Our nonperforming assets at quarter end September 30, 2023, totaled $69.481 million or 32 basis points of loans and other real estate compared to $62.727 million or 29 basis points at June 30, 2023. This represents a $6.754 million increase. The September 30, 2023, nonperforming asset total was comprised of $60.126 million in loans, $35,000 in repossessed assets and $9.320 in other real estate.
Net charge-offs for the 3 months ended September 30, 2023 for $3.408 million compared to net charge-offs of $16.065 million for the quarter ended June 30, 2023. This is a 79% decline on a linked-quarter basis. There was no addition to the allowance for credit losses during the quarter ended September 30, 2023 compared to an $18.540 million addition to the allowance during the quarter ended June 30, 2023, that resulted from the acquisition of First Capital Bank of Texas. No dollars were taken into income from the allowance during the quarter ended September 30, 2023.
The average monthly new loan production for the quarter ended September 30, 2023, was $398 million compared to $565 million for the quarter ended June 30, 2023. Loans outstanding at September 30, 2023, were approximately $21.433 billion compared to $21.654 billion at June 30, 2023. This is a 1% decrease on a linked quarter basis. The September 30, 2023 loan total is made up of 42% fixed rate loans, 27% floating rate loans and 31% variable rate loans.
I will now turn it over to Charlotte Rasche.
Charlotte M. Rasche
Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator, MJ, will help us with questions.
Question and Answer Session
Operator
(Operator Instructions) Today's first question comes from Brady Gailey with KBW.
Brady Matthew Gailey
I know in the past, we've talked about the dynamic of the asset repricing, pushing the net interest margin higher. I think previously, you talked about a 3% margin within a year and like a 3.30% to 3.40% margin within a couple of years. Is that still the right way to frame the amount of NIM upside you're seeing going forward?
David E. Zalman
Every time I answer that question, Brady, I get looks in the room from my general counsel that I was supposed to be cautious on this all the time. But the answer is yes. I mean, our numbers are still showing -- again, we're showing -- we feel like we've kind of bottomed out where we're at. We feel there will be a decent increase in 6 months, 12 months and 24 months based on some of the numbers you just mentioned. And in our models, we just ran our models again as of September 30, '23, and we're still showing that right now.
Brady Matthew Gailey
Okay. And you could get there tomorrow if you restructure the bond book that, that's such a big opportunity. You guys clearly have the excess capital to consider doing something like that. I know it's gotten more costly just with the tick up in rates that we've seen, but it also would be more EPS accretive if you pull the triggers. Maybe just updated thoughts on how you're thinking about a possible bond restructuring or just a partial bond restructuring?
David E. Zalman
Well, we've looked at it. I mean, again, you either hold the bonds for 3 years and you get your money back or you sell them right now and take your loss and you get your money back through an accounting accretion, but to me, that's just kind of voodoo accounting, really. It would take our earnings from where we're at next year at $500 million to maybe $600-and-something million or $650 million, I mean, it would just propel the earnings. But again, those earnings will be propelled primarily from accretion numbers.
And more so than that, under accounting, you have to put your bonds either in available for sale or HTM. And since this bank has begun, we -- again, just because we were such an acquisitive bank, we always have to watch our capital. And so we never could take the chances when we didn't have that much capital to have a lot of big changes in our capital account. So we pretty much put probably 90% plus of all of our securities in HTM. So you really could do it from an accounting standpoint, and if you did do it, once you did it, it would change everything. You couldn't go back to the HTM.
Asylbek Osmonov
That's correct. And I can just add to his question, Brady, you said partially, if you have to think the whole portfolio, you have to do the 100%. So the decision would have to do "You want to take the whole portfolio or not?" And I think at that point, with the duration being short, and we can get all the cash within 3, 4 years, we determined just leave it and let it reprice and use the cash flows for paying off our borrowing.
David E. Zalman
Yes.
Brady Matthew Gailey
Okay. And then finally for me, just a quick one on the provision. I mean it looks like you booked about $3 million of net charge-offs, you built reserve by about $6 million. So I would have thought the provision would have been like $9 million or $10 million, but it's zero. So there must be something going on there.
Asylbek Osmonov
Yes. On the provision, Brady, we did put additional about $10 million for FCB as we mentioned in our comments earlier, we'll kind of dive in a little bit and we had to put additional $10 million that's related to FCB, but the charge-off at $3 million was -- some of them were related to overdraft and loans, so it's $23 million.
David E. Zalman
It's a crazy amount of -- a lot of times it goes through that category, but probably a majority of a lot of that time is just overdrafts and stuff like that.
Asylbek Osmonov
Combination of overdraft and loans, Yes. And $3 million being not material, we determined we don't need to provision anything this quarter. And then our model showed that we appropriately have allowance balance.
David E. Zalman
We have $388 million in allowance for credit losses and $60 million in nonperforming. So I'd say we're covered pretty good probably.
Brady Matthew Gailey
That's pretty strong. All right great, thanks for the color.
David E. Zalman
I would say that a lot of that money, I mean, some of that money was First Capital reserves. I mean we put -- again, I don't know the exact numbers, it is $85 million or so in reserves for First Capital.
Asylbek Osmonov
Including the -- yes, everything is about $95 million.
David E. Zalman
$95 million.
Asylbek Osmonov
Including in that...
David E. Zalman
But no matter how you look at it, $388 million, and even if we decided to charge off, but if we look at some of those things, I think you still have $388 million and [$60 million], still a very strong position.
Operator
The next question comes from Dave Rochester with Compass Point.
David Patrick Rochester
Appreciated the update on the longer-term NIM outlook, and it's good to hear the NIM has bottomed here and that makes sense just given the repricing opportunity you guys have on the asset side. What are you guys expecting at this point for NIM more near term? Any way to put some parameters around that expansion that you're expecting here in 4Q and into next year?
Asylbek Osmonov
Yes. If you look at -- I would say, for the fourth quarter, we have probably a moderate increase as we -- based on what we look at our balance sheet, we see -- third quarter, we believe, is bottomed from the NIM perspective. So now we're going to -- as we continue to optimize our balance sheet from the standpoint, we're using our bond portfolio cash flow to pay off higher borrowing. As you saw, we paid off $550 million right now or in the third quarter.
So we'll continue to do that optimization of balance sheet that will be NIM accretive for us. And as we continue to grow the loans that will reprice over time, that should help us from that standpoint. So I would say a moderate increase in the fourth quarter with all that what I described right now with balance sheet optimization.
David Patrick Rochester
And then 4Q is normally a pretty good quarter for deposit growth, right? I mean it's -- you normally see some seasonal strength there, that should help pay down some more of those borrowings potentially?
Asylbek Osmonov
It will. So we usually see the public fund growing in the fourth quarter because of the tax payment. It's usually end of the fourth quarter, like in the end of December and January. But I think more of the impact we'll see in the first quarter. And what we're also seeing that public funds, they not -- probably not keep their deposits as longer as they used to be because they're moving to some tax pool or other areas, but we'll see the benefit of it in the fourth quarter, but I don't know how much of a significance we'll see. But we usually see about $400 million to $500 million deposit increase due to tax collections from the public funds.
David E. Zalman
But again, just cautionary, they left that money with us a lot of times, but now that they can get 5% and 6%, they may move it quicker too.
Asylbek Osmonov
I agree. I think the timing of the keeping is probably very short, they'll be -- once they (inaudible) they'll be moving out to the higher-yielding export.
David Patrick Rochester
And that expansion you're talking about in 4Q isn't dependent on that kind of growth, it sounds like. That's more from the asset repricing and stabilization of the core deposit side?
Asylbek Osmonov
That's correct. Especially what we said on bond portfolio, we have $2.1 billion cash flow with paying off our -- and if you look at our loan portfolio, we have about $5 billion of cash flow from the loan portfolio that's going to reprice. But you have to keep in mind on the loan portfolio that out of $5 billion, about 65% is fixed to variable loans that probably at 5% and 5.5% yielding. So they're going to replace the 8% and 8.5% right now. And -- but the 35% is already floating, so we're not going to get a benefit out of that. But yes, based on what we see, and we see a modest increase in the fourth quarter.
David Patrick Rochester
Right. You're saying new loan yields are still in that 8% to 8.5% range?
Asylbek Osmonov
That's what we're seeing, it is.
David Patrick Rochester
Okay. great. Maybe just one more on capital. You're just about back to 50% in CET1 right now. I was wondering what your thoughts were on the buyback here with the stock near 50%. Seems like you've got a lot of excess capital here that you can deploy. I know some of that will go through the deal closing coming up, but 50% gives you a lot of flexibility there. So I just wanted to get your updated thoughts.
David E. Zalman
We do have a lot of capital. I know a lot of people are questioning why we're not doing more at the same time. There's a lot going on. I think that, again, I've always said that we like to use our capital for primarily mergers and acquisitions and also increasing dividends. At the same time, we truly are building capital.
You can see that even it's not one of our best years, we still retained quite a bit even after dividends and share repurchases. But I -- one thing that we're looking at right now is with the regulatory agencies looking on what their new requirements are, we've been hesitant. I mean right now would be like you mentioned, it couldn't be a better time at rebuying our stock, at least in my opinion. This is one of the cheapest things I've ever seen, [trading under] 10x next year's earnings so it would be a time. I think right now, we're just -- we're really trying to see from a regulatory standpoint, what they're going to -- what their new requirements are going to be, how they're going to consider losses in the bond portfolio, they consider that part of your capital, not part of your capital.
However, ours is an HTM right now. It doesn't seem like it's on the block for, anything, any change on that, it does look like if you have your bonds available for sale, that is going to be part of your capital calculation. At least right now, things could change. But we're just waiting to see that. And we do think there's going to be a number of opportunities out there right now with just -- with this everything happening. So having excess funds is not a bad place to be. It's a high-class problem right now.
Operator
The next question comes from Michael Rose with Raymond James.
Michael Edward Rose
Thanks for taking my questions; a lot has been asked and answered. But Kevin, while I have you on here. Can you just comment on the warehouse? Your guidance last quarter was pretty much spot on, and I just wanted to see how your crystal ball is looking as we think about that business over the next couple of quarters.
Kevin J. Hanigan
I think 90 days ago, we said we'd probably average about $950 million. We did just a shade better than that. Michael, through last night, the average is down from that $972 million for the quarter, it's down to $816 million, so it's dropped off pretty significantly. We closed yesterday at $740 million, almost exactly out in the warehouse. So I think for the quarter, not unlike -- to unlike last year's fourth and first quarter, we're probably looking more in the neighborhood of $725 million on average.
So any kind of shortfall we would have gotten out of the public funds in terms of excess liquidity coming into the fourth quarter, we're going to have a couple of hundred million here come off the warehouse that we'll use. If there's loan production, we'll go loan production, if there's not, we're going to pay down the Federal Home Loan Bank borrowings. So it will be down, we've got some uses for it.
Michael Edward Rose
Helpful. And then maybe just on the production. You guys have had pretty decent growth this year, I think some of the dislocations in your Texas markets, especially for some of your competitors, but it seems like some of those competitors are starting to get a little bit more aggressive on growth and just wanted to see where that leaves you guys? And should we consider kind of a mid-single-digit growth rate for next year, kind of what you've guided to for this year?
Kevin J. Hanigan
Yes. I think, Michael, I would tell you low-to-mid and off from what I said was mid last quarter. And that just by recapping, part of that is our decision to sell mortgages rather than to portfolio them. And that's brought us into that mid-range.
We've seen some relatively weaker loan demand, I'd say, over the last month or so. And there's a lot of things that don't pencil out real well at these rates or take so much equity into a deal, it's just harder to get deals done. So look, if it's on the lower side, that will be more money that can be used to pay down the borrowings. And if it's on the mid-side that would be great. So just looking forward, I'd say low to mid.
David E. Zalman
And a lot of it has (inaudible). When we were just flushed with deposits, we were looking at all kinds of loans, whether people had relationship with us or didn't have relationships with us. And now with deposits not being in the banks and everybody is trying to reduce their borrowing, we ourselves kind of restricted loans a lot because some loans that we would normally have made 6 months ago, we don't like today because we're not getting a complete deposit relationship. So some of this is by our own making, too. So I guess we were at one end of the spectrum, we went to another end of the spectrum and I guess that depends where we finally -- how the dust settles, where we all end up.
Kevin J. Hanigan
There's a lot of pluses and minuses, right? There's a lot of people really restricted basically have shut down, which you think creates opportunity. And I think we're into that period where the market is adjusting and borrowers are getting used to having to pay up and our requirements of, hey, while you might have done this historically with Bank XYZ, if you're coming here, you need to move your deposits from XYZ to us or we're not interested.
So we're going through that adjustment period as we speak. And if people are willing to pay up and move us deposits, we'll be there for them but...
David E. Zalman
I guess yesterday like one of the lenders came to us and said that one of the deals that they're in, 2 or 3 of the banks that are participating in their line of credit are not willing to participate anymore and ask if we would participate. And I asked what the rate was, and it was still I think, SOFR plus anyway, the total rate was about 7.5%.
And this guy has always wanted to -- good customers, always want to do business with us, but we've always been about 0.5 point short. So the lender asked -- said, we'd really like to come back and like us to do it. And he says, you're always about 0.5 point higher and I said, well, we still are. So if we do see the pricing where it becomes better, then that we may take more risk also, I think, at the same time.
Michael Edward Rose
And maybe just one final one for me, David. You threw out a lot of potential drivers for M&A as we move forward. Just broadly speaking, how do you think this all plays out? And then if you could just give us kind of a quick update on the Lone Star deal and maybe what's holding it up? I know you talked about it last quarter. I just want to see if anything has changed.
David E. Zalman
Well, I was hoping that some of the FDIC people were on the line, maybe they could answer that about approval on Lone Star. But we are still working with the regulators to get approval on the Lone Star deal. I'm hoping it's just times, I'd like to say that times are a lot different than what they were a year ago, but we're still completely committed to it, we're trying to get it done. And hopefully, we can get that thing done and approved. Hopefully, there will be some more opportunities out there that we're looking at. We'd like to move forward with those also.
Operator
The next question comes from Peter Winter with D.A. Davidson.
Peter J. Winter
Tim, I just want to go back to the comment about selling resi mortgages. You had talked about that last quarter, but resi mortgage was a pretty strong quarter for loan growth this quarter. And I'm just wondering, is that kind of happened towards the end of the quarter and it will all accelerate from here in terms of originate and sell?
H. E. Timanus
I think a lot of that growth that you're seeing was already in the pipeline. It's not unusual to take 60 to 90 days from the date of application to getting the loan actually closed and funded. So a lot of what you've seen for this quarter was really a carryover from the prior quarter. And I think you'll see more moderation going forward, if that makes sense.
Michael Edward Rose
Yes. No, it does. And then -- can I just ask about what you're seeing in terms of credit quality within commercial real estate, particularly multifamily and office? There's been a number of articles talking about office pressure, particularly in the Texas market.
H. E. Timanus
We have seen very few problems up to this point in time, really almost none. And I think there are a few obvious reasons for that. If you take office first, we typically have done owner-occupied as opposed to nonowner occupied. And the projects that we've been involved in have been reasonably small 2- to 3-story type facilities. So we're really not in the large nonowner-occupied office market, really never have been.
So that has insulated us somewhat from the problems that you've referred to in office. And in terms of multifamily, we've always tried to be very careful, obviously, with any loan, but certainly with multifamily. And I think our way of weeding through those opportunities and checking them out, has benefited us so far, the developers that we've done business with have got pretty decent projects and are holding their own.
There continues to be growth in our markets in terms of population. So that certainly hasn't hurt the multifamily piece of it. So I think it's stable right now, and I don't see any reason to think that that's going to change overnight. Obviously, from a macro standpoint out there in the world, so to speak, there are a lot of disconcerting things. But most of those really don't directly affect the markets that we're in, in Texas and Oklahoma. And we just don't see a big change in that anytime soon. So we think it's pretty stable going forward.
Peter J. Winter
And just one last question. Just -- credit, obviously, is very strong. You have nice reserve coverage to nonperforming loans. But is there -- how much longer can you take a zero provision expense, do you think?
H. E. Timanus
Well, I'll make a quick comment. A lot of that reserve is based on what we call environmental factors. And I mentioned it just a minute ago and what I was saying. There is some weakness out there in the world, and there are some things to be concerned about. And do those end up affecting us more than they have to date, who knows, but that possibility is there.
You asked about and I mentioned the office market, it's a pretty good example. If you look at the statistics, they're not good. And if that tend to creep into other segments, we don't know. But we're trying to be prepared for the future in a reasonable way. And we think that per our models and all of our calculations, we think where we are right now on the reserve is appropriate. And I wouldn't see any significant change anytime real soon on that.
So we're not expecting to take money out of the reserve. We don't see any huge additions to the reserve either based on what we see right now. So I think we feel comfortable with where we are, and we think it's steady as it goes for a little while.
David E. Zalman
I think most of times, Peter, probably there's not many banks probably carrying a [remodeled] reserve like us at 1.7% reserve compared to the losses that we've had historically. So I think when Tim's referring a lot to the environmental factors, probably there's probably a big piece and there is a larger piece in our reserves for the environmental factors.
So we're a number of banks a year or 2 ago, we're pulling money out of the reserve and putting back into income. We never did that, we've left that money. So we really don't like to play with that -- taking money in, putting money out at different times. We'd like to be pretty consistent.
So we do feel we're well reserved, and we shouldn't -- I don't see putting money in unless something catastrophic happens, I don't see us putting money in for the next 12 months, so that's just me.
Operator
The next question comes from Brandon King with Truist Securities.
Brandon Thomas King
So industry is experiencing a softer revenue growth outlook next year, although not as much the case for Prosperity. But I just wanted to get your thoughts on how you're thinking about expense growth next year? I know a lot of other banks are announcing initiatives in restructuring. But just want to get a sense of what you're thinking about how you want to manage expenses going forward?
Asylbek Osmonov
So Brandon, in a short term, I'll talk about the fourth quarter. I think it's going to be in line with what we had in the third quarter. As I mentioned, it's $134 million to $136 million. But if you go out for 2024, I think with the inflationary environment we are right now and we do our merit increases annually, so I would expect for next year probably 2% to 3% expense growth, but we have a lot of initiatives, we're trying to automate a few things, but nothing significant that we're trying to mitigate the cost. But if I had to get guidance for next year, that would be a 2% to 3% increase, but that's not including the special FDIC assessment is going to come in the first quarter, that's excluding that special assessment. So I would say, 2% to 3%.
David E. Zalman
And how much is that FDIC?
Asylbek Osmonov
So I think based on our initial calculations, about -- going to be $10 million annually on the special FDIC assessment. In addition, that we already had assessment in 2023, which is costing another $10 million so.
David E. Zalman
So really, you're talking about an extra $2.5 million or so a quarter?
Asylbek Osmonov
Yes, $2 million to $2.5 million, yes per quarter expenses. That's on the FDIC assessment.
Brandon Thomas King
And then lastly from me, I'm sorry if I missed it already, but what are you expecting for security cash flows and maturities over the next 12 months?
Asylbek Osmonov
So our cash flow, it's about $2.1 billion in the next 12 months.
David E. Zalman
That's on the security loan.
Asylbek Osmonov
I'm sorry, on the loans, it's about $5 billion.
David E. Zalman
But again, some portion of that...
Operator
The next question comes from Manan Gosalia with Morgan Stanley.
Manan Gosalia
Can you give us some more detail on the fixed rate loan repricing dynamics that you're expecting from your -- I know you mentioned 65 percentage fixed to variable rate loans repricing about 3-ish percentage points higher. But how much of the loans in dollars or in percentage are set to repay between now and the end of next year? And how does the increase in duration as a result of higher long-end rates impact that repricing dynamic?
Asylbek Osmonov
So when we looked at the $5 billion, that is including all the duration we have already in our loan portfolio and from the cash flow, I would say maybe a little bit higher in the first half than second half, but essentially, the cash flow would be evenly.
If you look back in the -- I would just give you numbers what happened in the last 3 quarters, and maybe that gives you some information. It's -- like in the Q1, we had $1.3 billion; in Q2, we had $1.5 billion; and in Q3, we had $1.4 billion. So based on that cash flow, you can see that the actual cash flows, you can see that, that's going to be evenly distributed over 12 months.
Manan Gosalia
And that's loans repricing about 3-ish percentage points higher?
Asylbek Osmonov
On the fixed and variable loans, Yes. There's that the -- 65% out of $5 billion, that's the repricing by additional 3%, but floating is floating, so it's -- it's at the market rate -- Yes, it's already priced.
Manan Gosalia
Sorry, I meant the numbers you gave for the last 3 quarters were all of those repricing 3 percentage points higher? Or was it only half of that? Or can you help us think through that?
Asylbek Osmonov
I think that's the same percentage as well.
Kevin J. Hanigan
65% of that $1.4 billion, $1.5 billion is fixed or variable that is repricing higher. The other 35% is floating, so.
Asylbek Osmonov
The composition is very similar to what we had experienced cash flows and what we expect.
Manan Gosalia
Got it. And as we think through your model for NIM to improve over 6, 12 and 24-month time frame, how much of that improvement is coming from the securities maturing and paydowns in higher-cost funding versus repricing in loans?
Asylbek Osmonov
I would say this Manan, the model that we disclosed, that fixed balance sheet -- static balance sheet, what we have that's getting -- we have $2.1 billion on the bond portfolio and $5 billion on the loan. So -- and that's assuming also just make sure -- that model assumes that deposit static stayed flat, and there is no significant repricing in the bond -- or I'm sorry, in the deposit cost. But with the competition and all that, you don't know where we're going to be, but that's our model. So that's a variable we use.
David E. Zalman
I mean, basically, what we're saying is everything static, the amount of money of federal home loan in bank, amount of loans, amount of deposits. This is just repricing and duration changes that brings this net interest margin up.
Asylbek Osmonov
That's correct.
Manan Gosalia
And if I could just get a clarification. I think in the prepared comments, you mentioned that if rates increase more than you anticipate, that NIM trajectory could change. Does that mean that if rates are higher than you anticipate, then the NIM would be higher because of the repricing dynamic? Or would it imply, it would be lower either because of duration or because of deposit repricing?
Asylbek Osmonov
I mean our balance sheet, we are pretty neutral on that standpoint. So if longer rate stays higher is a benefit for us because it's longer time for our assets to reprice and -- but on the deposit, I think we assume what we have right now with a little bit just repricing of mature CDs. But other than that, we don't have any additional increases in the deposits.
David E. Zalman
To make an overall statement that higher rates or lower rates, we still have the -- still a significant increase in net margin where it does affect you, at least what I'm looking at in the model is more in the short term on the 6- and 12-month time horizons.
So if you look at a 12-month, you actually might do better, you might do better down 100 than you are if they stay the same. On the other hand, over 24 months, we still do better, interest rates going up or down, 300 basis points. It's kind of complicated.
Asylbek Osmonov
Yes, it is. I mean if Fed cuts the rates tomorrow, we'll benefit because our overnight borrowing is going to be repriced lower.
David E. Zalman
We actually do better it looks like if they do cut -- if interest rates went down 100 basis points, we actually do better -- a little bit better.
Operator
The next question comes from Bill Carcache with Wolfe Research.
Bill Carcache
As the debate continues around how long the Fed will keep rates higher for longer, do you think you have a good handle on which of your customers put on swaps a couple, say, 2 to 3 years ago when we were still under (inaudible) and have so far been isolated from the impact of higher rates or your customers not using swaps. Just curious how you're thinking about that sort of interest rate reset risk across your commercial customer base?
Kevin J. Hanigan
Yes. This is Kevin. We don't have a ton of swaps on the books. In the early days when people were talking about swaps, we offered them a fixed rate just straight out for 5 years or 7 years. And we can question the wisdom of that, those are our repricing opportunities today.
So the amount of swaps we have in the book is pretty negligible. Most of the client base we have is generally in our opinion, not sophisticated enough for swaps. We tend to do smaller middle market clients where you're educating them on swaps. The ones we have are larger companies, but there's just not a -- we don't have a lot of swaps on the books.
David E. Zalman
There's really -- I mean we have some smaller ones, but most of our swaps are in the middle market lending, really our larger customers.
Kevin J. Hanigan
Larger middle market clientele, but it's -- notionally, it's a couple of hundred million dollars.
H. E. Timanus
I think it's actually lower than that now. Yes, I think it's.
Kevin J. Hanigan
You're right. One of them has recently paid off.
H. E. Timanus
Yes. I think it's down below $100 million now.
Kevin J. Hanigan
Yes. So it's pretty...
Bill Carcache
Okay. Understood. That's really helpful. And then following up on your -- the comments that you made around the deposit base. Maybe if you could just speak to whether you see any risk that maybe terminal beta expectations could have to drift a little bit higher next year if rates were to hold just at these current levels?
Asylbek Osmonov
Yes. I think you have to look at what the competition is doing. I think that's the main driver. I mean, if you stay at rate for longer, it might impact it. But what we've seen last -- I'll look at the last few quarters, we had -- if you just look at cost of our deposit has increased in the first quarter because of the rate environment. We had a significant increase in the second quarter on our cost deposits.
But in the third quarter, we actually saw the increase being less than what we had in the second quarter. So I think that we're optimistic that the increase in the deposit is going to slow down then we go further because I think everyone who want to reprice, they already took opportunities to reprice then there is -- we believe it's going to slow down a little bit on the increase on the deposit level of increase going forward.
Kevin J. Hanigan
I completely agree with Asylbek, I said if we use history as a guide, once the Fed pauses, it's not atypical for betas to continue to rise, but it's vastly reduced rates. And they may rise for up to 6 months post pause, again, at nominal levels, but it's not an immediate freeze when the Fed (inaudible).
Bill Carcache
Got it. That's helpful. And then lastly.
Kevin J. Hanigan
Just one last point. We have a really -- unlike a lot of banks of our size, we have a really pretty significant, what I would call, smaller town retail deposits that seem to be a lot less sensitive to rates.
Bill Carcache
Understood. Yes, that makes a lot of sense. Finally, if I could squeeze in one last one. We've heard other banks talk about how positive operating leverage is going to be difficult to achieve next year. Maybe if you could just help us understand how you're thinking about positive operating leverage as you look to the new year given all the moving parts?
David E. Zalman
What do you mean by positive operating leverage?
Bill Carcache
By the ability to grow your revenues faster than your expenses and effectively manage expenses for the revenue environment so to potentially cut expenses if revenues were to slow or have a little bit more room to invest if revenue growth was stronger. Just the idea of managing expenses so that revenue growth outpaces expense growth.
David E. Zalman
I think that's the beauty of our whole bank. I mean that's the whole story where everybody else is there almost maxed out because their rates have already, they're already taking advantage of the higher rates. We're just going to hit it. We will just be going into our strides of -- even though we'll have higher expenses, and we probably manage expenses better than anybody, and we will continue to do that. But the beauty of this whole bank really is if the models work and everything goes where everybody else is going to have that challenge, we should be doing much better.
Kevin J. Hanigan
Yes. We're expecting some positive operating leverage, checking our efficiency ratio because of the NIM declines largely have gone from 42 to 48. As NIM returns and NII improves because of it, our efficiency ratio is going to drop back down to where our normal levels, low 40s, what we normally play and probably and that's just -- that's really just a function of this kind of late-stage asset repricing that we have.
David E. Zalman
Once the [Queen Marry returns] we'll be doing better.
Operator
The next question comes from Brody Preston with UBS.
Broderick Dyer Preston
I just wanted to clarify something on the expense guidance, I think you said 2% to 3% for next year, excluding the special assessment. Is that inclusive of Lone Star or would Lone Star be additive to that expense guide?
Asylbek Osmonov
That was a core number I was giving, Lone Star will be added on top of it.
Broderick Dyer Preston
Got it. And I know it's challenging, but if you had to kind of hazard a guess for our modeling purposes, when do you think we should layer Lone Star in from a closing timing perspective?
Kevin J. Hanigan
I'd say it's hard to say. We're hoping sooner rather than later. Our latest extension with them is through March 31?
Broderick Dyer Preston
Right.
Kevin J. Hanigan
So I think both companies are focused on getting it done before them.
Broderick Dyer Preston
Got it. And I did just want to clarify on the timing of the cash flow from the securities book. Is that pretty even as well, so about $500 million a quarter moving forward?
Asylbek Osmonov
Yes, that's even.
Broderick Dyer Preston
Got it. And just given that you have seasonal muni strength through the fourth quarter and the first quarter, typically, I think it was said earlier, you could pay down more deposits. Is there any thought to maybe just keeping a little bit of that left over in cash just for the eventual third quarter kind of run off a little bit next year, so you don't have to take up borrowings next year in case you do get that 3Q runoff of muni?
Asylbek Osmonov
Yes. I think we'll -- definitely, the cash coming in from the public funds, will probably keep it, but we don't know how long they're going to keep it, probably not long term. So from that standpoint, we're not going to be investing. But yes, I think we'll keep it ballpark same. I don't think we're going to increase significant or decrease significant our cash.
David E. Zalman
We don't -- I mean the bottom line is we don't want to be borrowing $4 billion. Our bank historically, we never -- I guess if you go back, we -- it's not uncommon to see as $1 billion or $2 billion but we don't like being $4 billion or $5 billion.
Broderick Dyer Preston
And so at what point, I guess, from the securities roll-off perspective, would you think about maybe reinvesting some of those cash flows? Is it kind of once borrowings gets back down close to zero? I'm just trying to think about when the yield on that portfolio could start to pick up again.
David E. Zalman
Right now, I see all the payments being going to reduce our debt. So I don't see -- ask me in a couple of quarters, maybe. I think the money has probably spoken for a while here, I think instead of reinvesting.
Asylbek Osmonov
Yes. I think we're going to continue just paying down the borrowing at this moment.
H. E. Timanus
And loan demand is going to be a factor in that too.
David E. Zalman
Well, that's true. I mean the loan demand, even though we've tried to moderate it, we've tried to cut it down, we may decide if things, if the pricing does get good, and we're finally getting terms and conditions that we like, we may want to increase that, so that's a good point here.
Broderick Dyer Preston
And sorry to stay kind of in the weeds here, but any thought given to when you do decide to start reinvesting, maybe putting some of those securities on as AFS just to give you more flexibility in the future than the HTM book gives you?
David E. Zalman
No.
Broderick Dyer Preston
Got it. And I also just want to ask, I noticed that there was some strength from First Capital on the deposit side when I was looking at the press release. Anything specific that drove that?
Kevin J. Hanigan
I think right at quarter end, they had a customer that sold this business and it was pretty good size chunk of money. Most of that money has moved -- has subsequently moved off the balance sheet.
Broderick Dyer Preston
And then this is my last one. I just wanted to try the buyback question a little bit differently. David, I just pulled up the price to tangible book chart on SNL and hit max, just to get a long-term view. And this is at least per SNL's history, the cheapest your stock has ever been on price to tangible book value. And so if you do get the clarity that you're looking for in terms of whether or not HTM is going to be included in capital. And as you noted, it doesn't feel like the winds are blowing that way right now. How aggressive would you be on the buyback? I think you've got 3.4 million shares left in the existing authorization that expires in January. I assume you'd re-up that but you just got a lot of capital, the stock is very cheap. And so once we get that clarity, would you look to be more aggressive than even perhaps you've typically been in the past?
David E. Zalman
I mentioned earlier, I think this is the best price that we've ever had anything we could buy in right now into our stock. So I think we would be interested in purchasing more. On the other hand, a lot of it depends on possible mergers and acquisitions at the same time, too. So we have to keep both of those into consideration, I think, do we really think is it better to buy our stock back or can we make more money by buying or acquiring another bank?
And so I know that's hard. It's not giving you what you need, but those are really truthfully -- both of those go hand in hand on how much stock we can buy back and how much we -- I really don't think that we're going to be impacted by the HTM number I don't think. I mean, the Fed themselves have a trillion 2 hundred million loss on their balance sheet. So it'd be hard to spank somebody else when we've got such a -- when the Fed's got such a big loss. But -- and they know that time will work that out.
So I don't think that's going to be an issue. So I think once we do find out really where regulatory are going to be -- we would be more interested in buying our stock, especially at these prices. But again, we still we're constantly in talks with other banks at the same time, too, and that would impact that.
Kevin J. Hanigan
It would be a fair statement to say that when we look at buying another bank, particularly in bank of size, we look at tangible book value earn back on that transaction versus a buyback. And we do realize there's not much integration risk on doing a buyback. So it's a safer bet. So you'd be willing to suffer more dilution on your own deal than you would on buying another bank.
David E. Zalman
And what's different this time, I think, in M&A than it's ever been before, when you're looking at acquiring or merging with a bank, banks have losses in their portfolio. So instead of being net capital positive is just what somebody recommended at the beginning of the call, why don't you take some of your capital and redo your bond portfolio. We're not willing to do that. But in a merger, in acquisition, you go to market-to-market. So you're going to mark their capital down, which would bring the overall capital down, although we will get that money back really quickly. So those are just the considerations.
Broderick Dyer Preston
Yes. I would just think that just given the experience with Lone Star for a relatively simple deal, and it's been extended due to factors that are outside of your control and may not be warranted. It just seems like the buyback, which is something that I know your shareholders would like, would be the safest and easiest route, so you're not kind of tied up with the merger. But I appreciate.
David E. Zalman
If there's nothing else, we'll buy back our stock, let me say that.
Operator
The next question comes from Matt Olney with Stephens.
Matthew Covington Olney
Just following up on the time deposits. Asylbek, do you have any color on those time deposits being rolled over here in the near term, just the dollar amounts and the prices, the yields coming off that?
Asylbek Osmonov
Yes. I mean we introduced our 7-month special CD program 7 months ago. So we see that was rolling over, and we see a good level of renewal on that one. And I mean -- but from the growth, we don't see as much of an increase in the growth, what we saw in the first 2 months of it. From dollar-wise, Matt, I think I need to get back with you. I don't have specifics on the...
David E. Zalman
How much is in that we sold in that product?
Unidentified Company Representative
About $1.5 billion.
David E. Zalman
$1.5 billion, that was something like that. Yes.
H. E. Timanus
And we don't have hardly any CDs that go beyond 2 years. Our total CDs are what right now. I doubt they're in 10% of our...
Asylbek Osmonov
It's not 12%, higher than 10%, but that only grows what we see that is in that 7-month special program and they are just renewing it.
David E. Zalman
But over time, if rates stay higher, I think you will see the percentage of CDs to the deposits continue to grow. Remember, before rates went to zero, it wasn't uncommon for a bank like us to have 20% or 30% of their money in certificates of deposits. So over time, I think you could see that change for sure.
Asylbek Osmonov
Yes, Matt, I just confirm, it is $1.5 billion on the 7-month special CD.
Matthew Covington Olney
And then on the $4 billion borrowing position, any color on the duration here? I assume most, if not all of these are eligible to be paid down in the near term?
Asylbek Osmonov
Yes. We -- essentially, we have a $3 billion from the Fed that we can pay off any time and rest of them with FHLB and overnight pretty much. So all $4 billion can be paid off in a day if we need to.
Matthew Covington Olney
And then on those cash flows, you mentioned Asylbek the $2.1 billion that you expect over the next 12 months. Any color or commentary you can give us as far as the yields on those maturities?
David E. Zalman
About 2%.
Asylbek Osmonov
Yes, exactly. It's exactly pretty much the same with our portfolio shows around 2%.
Operator
The next question comes from Jon Arfstrom with RBC Capital Markets.
Jon Glenn Arfstrom
Real quick, the $10 billion -- a little over $10 billion in noninterest-bearing deposits, do you feel like -- is that a floor? Is it over in terms of the noninterest-bearing outflows?
David E. Zalman
The first -- Anybody would like to say yes that it is, but we really don't know that. I think that if interest rates stay high. When I see money moving, normally you would think it's because our money market rate, we're paying about 3%. That's if we have over, what, $1 million in it or something or $100,000?
Asylbek Osmonov
For the 3%...
David E. Zalman
Yes, $500,000, Okay. So you would think that maybe that's where the money would be leaving from to go to buying these treasury notes. But when I really look at it, we have another -- not only the $10 billion that we have in noninterest bearing, we have another how much and interest-bearing checking is paying 20, 15 or 25 basis points, a huge amount of money. But those are the 2 categories that I actually see go, that people are -- they're just starting to work their money more.
So I guess the answer to the question is, in and by itself, I think you probably will see -- we will see money come out of those accounts and buying either higher rate CDs or going to buy treasury at the same time. Hopefully, our bank, historically, Jon, has grown 2% to 4% a year organically in deposits. And of course, you haven't seen that at all. So I'm hoping this is just a gut feel is that we will start. Maybe at some point, we will turn around and start building that bank, again, to offset what's really going on.
But people -- the bottom line, people are working their money. This is interesting because I ask Asylbek to look into it. Our bank historically before you had all the helicopter money drop, we would grow the bank 2% to 4% organically every year on deposit side. And then, of course, you add 10% to 20% gains with helicopter money.
But Asylbek went back and took all the money that we've lost and taking out the money that came from the acquisition of First Capital. And believe it or not, today, if you would have never had the helicopter money, we're kind of about in the same place. We still have grown about 2% to 4%.
So whether -- it looks like a lot of the money has left the bank. If you wouldn't had it to begin with all the helicopter money we're probably right where we would have been to begin with. I know that's getting kind of esoteric, but we really wanted to look at that. So that ain't what -- so I think the future is we'll still get back to that as a category to you. You will see banks in the future start growing deposits again organically at some point in time.
Jon Glenn Arfstrom
Okay. Just two more random ones. FTEs were up 140 employees, and I normally wouldn't ask about it, but that's more than normal. In it, is that acquisition related or what's driving that?
Asylbek Osmonov
Yes. I think because the acquisition had an impact on it because FTEs is on average. So that had a 3 months of people from the FCB acquisition that's impacting.
David E. Zalman
I think we have that, but you also have -- the regulators are pushing harder for data governance, they're pushing harder in BSA, they're pushing harder in compliance. I think you're seeing all of that.
Now some of that could probably be offset by the mortgage department, the mortgage, I think we're letting people go or reassess them in the mortgage department. So we might be able to offset that. But part of that is just regulatory burden too. As you get bigger and bigger, the regulatory burden nobody would believe it's just -- it's crazy.
Jon Glenn Arfstrom
Yes, that's what I was getting at. That's what I was wondering. I remember you saying once, David, you had after the financial crisis, 20 new employees working for the government, but they were on your payroll instead of the government, something like that.
Kevin J. Hanigan
This was just 20 now.
David E. Zalman
Probably over 200 now.
Jon Glenn Arfstrom
Okay. And just one more and this can be quick. But on credit, it sounds like you're not seeing anything, but I'm curious, do you guys expect a credit cycle for the industry when you look around and you look at your peers and you look at some of the loan proposals that you're making to take loans from other banks. Do you guys expect the credit cycle?
David E. Zalman
I mean, I'll be the first to answer and then the other guys can answer too. But I think the credit cycle is probably going to be more regional in nature. I think that if you're in San Francisco or New York and you have populations that are moving out, I think those are going to probably be impacted, especially from the office space. And more so then.
I think -- what we're seeing in Texas and Oklahoma, A properties don't seem to be affected at all. In fact, if anything, more people are moving to the A properties, it's really the B and C properties are impacted. And the bigger charge-off that we had last quarter or so really came from a 3-deal office deal that we had that really never was past due, and maybe we jumped the gun and just sold it too quick, but we always like to get rid of our problems right away.
But -- so I think you do see that seasonally popping up. I do think that from the First Capital Bank that we acquired, we do see some problems which are not really commercial real estate office problems, they are more in what nursing home (inaudible) a couple of nursing homes stuff.
Unidentified Company Representative
Acute care, some spotty retail.
David E. Zalman
So we see that and so I think a lot of it -- I think a lot of it has to do with the underwriting and the risk that the banks took too. But it also comes from where you're located. I think your circumstances around, you add a lot to it. So I think the banks that had good underwriting are located in growth states are going to be fine. The banks that have good underwriting in states where they're seeing outflow, they probably will be fine too, but the banks that historically have had bad underwriting, they're going to be bad in both of those scenarios, regional, and I think it's just going to always go back. I think it's going to go back to your underwriting really. That's just me.
Operator
This concludes our question-and-answer session. I would now like to hand the call back to Charlotte Rasche for closing remarks.
Charlotte M. Rasche
Thank you. Thank you, ladies and gentlemen, for taking the time to participate in our call today. We appreciate your support of our company, and we will continue to work on building shareholder value.
Operator
The conference has now concluded. Thank you for your participation. You may now disconnect your lines.
