Prosperity Bancshares (PB) 24 Apr 192019 Q1 Earnings call transcript

Company Profile

Participants

Charlotte Rasche	EVP & General Counsel
David Zalman	Chairman & CEO
Tim Timanus	Vice Chairman
Asylbek Osmonov	Interim Chief Financial Officer
Eddie Safady	President
Randy Hester	Chief Lending Officer
Merle Karnes	Chief Credit Officer
Bob Dowdell	EVP
David Hollaway	Former CFO
Jennifer Demba	SunTrust
Dave Rochester	Deutsche Bank
Brett Rabatin	Piper Jaffray
Brady Gailey	KBW
Peter Winter	Wedbush Securities
Ebrahim Poonawala	Bank of America Merrill Lynch
Matt Olney	Stephens
Jon Arfstrom	RBC Capital Markets

Call transcript

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Operator

Good day, and welcome to the Prosperity Bancshares First Quarter 2019 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

Charlotte Rasche

you. Thank and conference to call. ladies quarter Bancshares’ and earnings XXXX gentlemen, morning, Prosperity welcome first Good replay locations This the and for internet is at the call being prosperitybankusa.com will broadcast be few the next for live over at weeks. same available Executive Rasche, General and President Bancshares. Counsel Vice Prosperity Charlotte I'm of And Chairman Chief today Executive Officer; Zalman, me here David H.E. with is and (Tim) Financial Officer. Timanus, Jr., Vice Chairman; Asylbek Osmonov, Interim Chief our Credit former Chief Officer; Randy Financial Safady, Hester, Lending and Officer; David Karnes, President, President; Hollaway, Dowdell, Bob Chief Chief Executive Officer. Vice Eddie Merle David lead highlights with review for a the Zalman off will of recent the quarter. Osmonov, He will will will be quality. followed by statistics, asset Timanus, including some Asylbek financial our who and activity, Tim who recent of lending our discuss review

will questions. we Finally, the call open for

the moderator. be by During the call, interested parties following that our provided instructions may call by participate will live

may and we Federal future or me from achievements let matters forward-looking unknown risks, Bancshares by purposes in this Certain performance actual achievements the or statements laws, different may Prosperity disclaimer. materially Securities of and implied other the cause uncertainties expressed known discussed usual be such for begin, Before to forward-looking such performance and constitute involve of results, or results, presentation statements. the of the make may which factors, as

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

over call the turn me to David let Zalman. Now,

David Zalman

XXXX welcome like would and first to everyone I our call. thank Charlotte. you, conference listening to Thank quarter

showed the on annualized For common quarter of assets equity of average XX.XX% tangible average of and we annualized. impressive annualized X.XX% on XXXX, returns first

much be compared bank. period of for or same noted in XXXX, of of March of or XX XX.X%. quarter $X.XX in X% $X.XX for XXXX, an in a with should were losses. were quarter increase to first XXXX It $XXX,XXX to XX.X%. loan the The XX quarter million were provision per in XX at Diluted million XXst an attributable XXXX the to XX, earnings acquired compared the first Our compared increase period by Loans XXXX billion increase for for XXXX. an for earnings XXXXXXX majority of an XXXX of XXXXXXXX XXX million billion, higher a a that share was the earnings the XXX March at first same which impacted

linked annualized or Our billion quarter XX basis X.X% XX December loans XXX XXXX. increased million million XX, XX.X at points from

some continued During we shut the the government seasonal loans first downs in economy. loan annualized. trade down impacted during We pay pause average quarter increased the X.X% quarter by XXXX, the saw controversy and experienced tariffs first growth the and

are X% organic forecast we our year. maintaining for However, the loan growth

in assets at business points loan, city a two change higher-end is XX in The restructure. in quarterly we The collateral home for XXXX loan neighborhoods earning home large XXXX the have one has been Our energy other guarantor assets With customer $XX,XXX,XXX own averaged a needed additional loan to to assets quarter XX house with who the XXXX of totaled loan XX, the March a many and as respect primarily basis points basis XXXX. amount. currently XX, or restructured billion, infrastructure earning XX March and for was of we loans. million XX, $XX,XXX,XXX when at at banked March were to basis servicing $XX,XXX,XXX With December loan March and to quarterly regard average years XX or when well a points due the or with XXX of average of for major XX quarterly who compared TDR assets basis is One lead than provided XX, deposits points XX, the compared is non-performing XXXX. classified interest loan servicing at XXX us large a at million market with strong or of on was The a located home interest it. and they XX Texas. XXX billion, and more with million the listed in a have connection decrease the

quarterly increased average with XXXX. to deposits we've annualized conversations opportunities. have million XX, ending quarter seasonality. to XXXX million linked On an an acquisition acquisitions XXX deposits prior normal a regard XXX compared basis which banks XXXX regarding as the XX Our billion, in in for at due saw With million fourth points X.X% or potential to In quarter other quarter basis, XX of active of deposits us. XX quarters continue is primarily XX, indicated or decreased we million December seasonally from XXX increase we with December

We BB&T merger. growing of a in SunTrust have the vibrant states. Prosperity experienced banks considering the and equals announcement interest fortunate selling is more considering after and of or from operate merger to

see to every and and sound the involved again success manner. focus and be generation product of safe easy in our day want acquisitions. business-friendly thank for intended maintaining company. tax alone in our to of ever-changing every We XXX moving to leaders, relationships, jobs for next and enjoyable distribution Approximately continues continue investing to in We Thanks Prosperity and a I support customer make core quality on to a everyone in channels. want company bank Sunday. organically expanding growth experience company make employment to helping mergers asset operate the your it climate grow sound both are people tailwind customer develop technology to building and become. to the has We and it through Texas and efficient to lower Saturday an political in in Texas companies Oklahoma while created manner a and operating and due rates. including from and the and

me financial specific Let results some Financial Asylbek to Osmonov, discussion achieve. also to Officer Chief back over of our we turn the our to discuss Interim

Asylbek?

Asylbek Osmonov

ended Zelman. Mr. X.X%. Net an before and XX, of to XXXX, X.XX% compared The months XXXX net provision million losses ended for interest for months margin you, a XX, XXX.X on for XXX.X equivalent for compared same March three XXXX period the the the credit for basis XXXX million three the million period same X.XX% tax XXXX. or Thank XX, in for was was X.X March in ended quarter increase December income X.XX% to the interest

cash XX, the XX, income XXXX. XXXX three expense compared was equivalent ended XX.X interest XXXX. period XXXX XX, March compared for March compared of for months at March the for ended months three March let metrics Tim XX, XX.XX% ended three in Excluding the XXXX. same And XX.XX% projected XXXX the me three XXXX. for million months XXXX. showed for three million same December quarter details with to of flow adjustments to weighted was the and average a million loan in to March for X.X accounting was purchase months ended period for XXXX in XX.X net XX, to asset tax effective quality. for in ended the duration months compared Timanus presentation the it ratio life the a X.XX% the some approximately XX, and of And Non-interest XX, XXXX the margin over X.XX% to turn bond X.XX% years X.XX billion. X.XX XX.XX% was December period on annual million the the ended XX.X and on The basis the Non-interest for XXXX XX.X same for same The portfolio for and period efficiency

Tim Timanus

Thank Asylbek. you,

increase XX points estate at of compared XX totaled loans XX, $XX,XXX,XXX XXXX. XX, December $XX,XXX,XXX $XX,XXX,XXX December of XX, from or basis XXXX. quarter points Our basis to real and non-performing March is assets This at or XXXX end other an

were monthly new $XXX,XXX,XXX to $XXXXXXXXXXX the XX% to $XXX,XXX $XXX,XXX ended $XXX,XXX,XXX assets I'll over ended XXXX, of credits, variable ended previously loan credit in months three XXXX. ended December asset but XX, XX, made March March turn $X for months production repossessed million XX, for David ended in increase March up $XXX,XXX,XXX,XX mortgage $XX,XXX,XXX rate can the On loans, put in Of energy $X,XXX,XXX service that $XXX,XXX and in December XX, real-estate. up for other added XX, quarter $X,XXX,XXX March during sale are there XXXX, quarter the mentioned assets. loans, a these all in As well which XXXX, XXXX, quarter was December the of the related of nonperforming was credits. charge-offs floating the made the XX, of residential Since service $XXXXXX an for of to XXXX, compared credits. for XX% loan. nonperforming compared March XX, average Charlotte total contracts assets March March contract for rate. assurance under outstanding no been three XX, One, company allowance where XX% for X,X or $XX,XXX,XXX The two ended be XX, XXXX. and The to had this XXXX, at XXXX. comprised rate nonperforming and fixed is XXXX, XX% charge-offs $XX,XXX,XXX net will Loans the XX, now was it compared losses XXXX. quarter the are Rasche. totaled December energy loan company other the to Net close. prepared is at

Charlotte Rasche

can we Thank your to answer are Cole, questions? this discuss you Tim. you, questions. At prepared with time, please

Operator

our with Certainly. Jennifer And question go from Please Demba [Operator comes ahead. Instructions] today first SunTrust.

Jennifer Demba

morning. Thank you, good

David Zalman

Good morning.

David Hollaway

morning. Good

Jennifer Demba

a your you and us if could loss little new etcetera. their wondering the just David, nonperforming and sizes more on two give loans detail expected new

David Zalman

we I'll time for $XX ran And customer have to long with even of The know Basin. period some in Tim million XX it in Permian a and they They banked once a again as we from long guarantor. regulator. time that to start don’t trying Old we days, with a with that it for XX time goes company, over extremely and loan late a were with the but became American million some XX interest again. want in a a jump it I pay additional of from it, restructure off, period TDR for collateral Bank loan days. may Yes, or strong is to we $XX with down customer a the got love good it's that

is we ever any, borrower anchorage. gut real we've had So, and and strong my ever shouldn’t lose this for feeling that

look you it. easy a like And very we won't don’t you home is of large now so, you pretty be that fact it's -- we is and still away don’t want lose it that of feeling million want to having in of the in listed it it's about home gut said it's just the home somebody I major city loans that million find but highest loan. give but is And town. our it metropolitan out for shouldn’t, richest one but got parts been loans to want whether to the areas never it's is Again, $X $XX one and what

think maybe don’t it see think of much we have, So, will it. you do will

Tim Timanus

Yes. of loss, see about, I seven, market think work when you XX have nine maybe time you'll a marketing a sell probably it out. it, to don’t it you move months six to to from

David Zalman

Yes.

with a been we the I $XX a said low bank for always we've nonperforming normal lowest in always NTA million. as $XX size a that's million, I've think historically, for probably running is and we've been. about million our got million that be ever between they're number $XX $XX volume of assets

guess loss that. again on losses any seeing NTAs but for have on when it's other on go shouldn’t these like like the not my I just see and hand, that's we something we're So, the

So, feel Tim, want about we good pretty to comment? you it.

Tim Timanus

color. I Jennifer, Yes little additional you can a give

the Let's I'm and service to million that is amount. about start started going The with twice round $XX out just numbers. loan at about balance well the credit. use approximately

pledged by appraised And of it we of little has being an for million. primarily when he the So, collateral, It equipment it value about paid $X recently, restructuring had value as bit. appraised it has a some customer did been real-estate that XXXX additional quite is down over that $XX an secured million. of a

of current; I terms interest credit amortization the guess appraised and but in it's April now; it guarantee. loan is we no October appeared payment. paid service So, values, to It only through This will well right go years. covered current year of over amortize be to on on that's interest is so scheduled is in an five on our this

history a a As decent with say, that American with David years they had for and is this State customer was him. Bank many

based on on would but collateral amount appear So, but the extremely just significant paper be once loss that to for doesn't given an there appraisal, main collateral again appears guarantee no the what to there. sufficient be appraised there's that a sell

that loan, is two It's about up figures loans, lane balance made the residential a second other round The the of loan a million. and and ones lane. different first $X actually

second lanes the first about million, lane is $X $X The about million.

basically due lane mentioned, six lane April is of second it's yet. appraised it's past March first an for the $XX than And value come payment, first one shape The so the about as due, the worst not is in payment has months has the million. due past, And David month the house lane.

house. and to the somebody if but So, on to once guess there a the whether it customer what it on pays is be you again paper pay depends compare really appraisal appear loss for doesn't there, I the

$X of is million. the and $XX once again balance the is two appraisal the loans about on So, about million the house

that hopefully clarity. little a gives So, you

Jennifer Demba

residential And also by the that bank? made Okay. was acquired mortgage, an

Tim Timanus

No.

David Zalman

made that we No. one.

Jennifer Demba

there is this at either And for loans reserve Okay. point? any right

Tim Timanus

A amount. small

David Zalman

Yes.

Given one process the There substantial a these either loans excess reserve against now. those the things. call of appraisal way right model our not I amount, or works what a is we is way mark the

Jennifer Demba

Thank much. you, very

Operator

And Bank. our with comes from Deutsche question next go Dave Rochester Please ahead.

Dave Rochester

morning guys. good Hey,

David Zalman

Good morning.

Charlotte Rasche

Good morning.

Dave Rochester

up we trend that and of to $XX $XX for was year thinking expected you forward, the how now. guys. step a the expense about maybe your to wondering are was going was better just still expect you guidance trend what's should progresses as million million than sort a trend you new quarterly and with that theme I be using The bit

David Hollaway

million. $XX we prior call, I'll at in end quarter lower agree take This to also, $XX we of lower stated a the came question. expected as quarter bit to I this than project million in our for but But a we $XX to this million be and we've quarters, million if few I expense better next forward think did anticipated. quarters. noninterest $XX looking we around what you're been prior saying be the we to That's

Dave Rochester

great. left color securities until expect Okay. trend maybe improve some the you've Is and at should to to purchase a roll that rates going could what be if And then, just it off forward like looks securities you purchase then give lower. some this that'd as borrowings rates are push we us point,

David Zalman

a Generally, so. most strategy you make of then has mid-year kind up little bit borrowings want strategy of the be deposits the in that and to loan even lot call, as Zalman. down, But anymore. the time, home our think part, us home and of had on on going certain times deposits it But from That helped is at borrowing time. David our lot a deposits still funds the I portfolio. and in at been I pickup the we end. I lowest We "Yes," That that's money of we yes, bank answer said think for bank and in There our margin federal same back a at the loan pull X.X% I forward. average year, This a get do same leveraging bond last in it probably answer, mid-year doesn't the a period up sense see throughout borrowing a not deposits the federal the annualized. X.X% course are into is net truly that helps were at probably more with the with leverage interest mean the short the that's so may think were though we may

Dave Rochester

within your in a And the today, how much market you're you're month? mid-teens, of what seeing in ARPUs terms Yes. then buying yields

David Zalman

getting it think, did got small We're one was I a yesterday X.X. yesterday, XXX one, we we think I

Dave Rochester

last Okay. And then, think -- I sorry. ahead, quarter you oh go

David Zalman

right. We did. We a X% of great probably was more on big floating in, That that yes. got one

Dave Rochester

today the go you thinking and And asset you've still were on year? you quarter all as new how range, this serving are the trends about there the are mid through it's rest the think of borrowing last side, we Okay. I bigger NIM then, picture said think of fives yields I given at

David Zalman

but First, again, into, that since at always net to net a model I XXXX And that shows interest question our we're performs With go looking bank technical. regard it most interest and raised, detail number and first the about more a so it's get around continual rates into part And model if still can here the one, to and I'll increase margin it been of also another we've loan then we some saw and with on in things, a But the this better. had two, at I said interest go he years. this answer is go the modest the that "Yes," even average then it three continues the time. had we since not there's -- margin. short just rates home interest X.X%. the way used the loans increased over up, less of he'll rates margin we've for to the static up. And next jump federal in term it's based more moving static I've bank still we've borrowings in or caused one net rate,

continue to the something and or most another should ups the our in would get it downs, may for be interest I to say glitches, should net part, So, that. quarter continue run get is long days better. margin like always some some But better. There

Tim Timanus

Yes.

David Hollaway

I agree.

a bit. benefitted this the before increased at up be of security But pick our and those that in able borrowing the average our mentioned repricing our again funding our and in replacing higher that money deposits. side that we've quarter helped with and to important balances we quarter loan and and FX our yield we loans in on of This will were by you saw portfolio yield is from mix increased shrink

of front on it the us So, mix money helped the the margin. with

going the we to you our this it's our look you give asset be if balance forward I rate the not if throughout. we might positive. and the up sheet, size sometime our to but we margin And reprise cost control If think we should continue same at story mentioned, catch as still funding positive continue see saw going to of hike on be quarter interest net be exact

Dave Rochester

Okay. All guys. right, great, thanks

David Zalman

Thanks.

Charlotte Rasche

you. Thank

Operator

And ahead. Please Rabatin with our from go Brett next Piper comes Jaffray. question

Brett Rabatin

morning. Hey, good

David Zalman

Good morning, Brett.

Charlotte Rasche

morning. Good

Brett Rabatin

about to in a ask little charges I service fee in quarter seasonal income year wanted know I the first are this and usually decrease XQ but the little deposit bigger. a was more

And that. was just credit any was And in of item on on I impact or of thoughts that rebound NSF what card line fees in curious, card, it the debit XQ was or particular? kind more so, the just

David Zalman

difference the Yes, you the way in or or if would. get but that also, before, don’t the significant quarter I really just year remember was higher it It's any of see our I also year we not fee I our on I change part that, most mean Brett, in. would do But for last I like think one even business it's is look in comparing think trust there think it's things. I like just was again, don’t $XXXXXX income. anything those sometimes we'll much. some being company it last if income, seasonality. It is a you're really are I as again what bottom But say material in

Brett Rabatin

I wanted so the the quarter first and your decreased with answer at our just if thing question this same prior decrease income year look you trend card, card our but quarter, debit it's NSF specifically million Yes, going ran back forward fee on would thing a but I XX, XX million. bouncing one-off mean we say I happened quarter there's the see but unless quarters some XX XX, following the I during we run agree should credit

David Hollaway

the sometimes a big that he more think fee something trust Yes seasonal you'll have I said. but for part we did it's like most

David Zalman

during candidly and at mentioned quarter in what it bit quite why transactions that's to that foreign what and compared been obviously just of of we're a example usage the an looked Beck, but completely try first quarter of this as to sure also the other first what are than calendar example we've and were was the quarter our that thing ATMs quarter year. the just linked understand One transpired not not prior this that's the had case an down

Unidentified Analyst

a TCE thoughts capital color any share fan been of And David for out approaching more using the your or there. now, is then stance the have know capital? aggressive XX buybacks I using never I on you acquisitions for appreciate huge on growth there and -- but

David Hollaway

I'm still that story building to we're still good do always said the plummeted today I consistent. or I grow something we're for we that's a really use bank always I'm what or jump do. would buying the I bank price the for but part say with pretty the the and to If capital then money organically to husband guess. use going for in the I've still most money going and same and else we want another just a is we story. bank a

doing are that. We

about We dividends to so year our also continuing do every too. increase that we're XX%

is think and you mergers can money dividends you acquisitions I can using growth. it the see for organic increased for and So see

Unidentified Analyst

Appreciate the color.

Operator

with comes Gailey ahead. our question Please go next And from KBW. Brady

Brady Gailey

guys. morning good Hey

David Zalman

Morning Brady.

Brady Gailey

and is it question. you MOE there's a more like this would I've the MOE, say selling possibility at and really you consider longtime color that the closer point? think M&A after that an on, about you with to interest an BB&T, then think Bank following of heard you maybe something of or and Frost announcing more like then give side deal capital the is but Texas franchise on like little guys MOE doing think on don't you're you up actually another side, much it I do Oklahoma I another heard I maybe David was on about just MOE announced the So SunTrust talk

David Zalman

as anything the you it. you get very to open mentioned. social we're think get aspects got anywhere enhances through of else are There's you I shareholder tough to MOE that value before and

BB&T, it since I past tough. that very considering I in since gut never talked as I is feeling who and out SunTrust have to those everybody's amount seem God unusual that the that who that something Again of nobody deals were the the company BB&T past big the that whether play I of comes an didn't my looking value will. our the think play talking shareholders mentioned shareholder and what's got of and people things think we're God seen good In get all business. they're to So future now for the what's

think outright MOEs. that I it So we're We're leave and I looking at looking all. at so open. We're looking mergers and at purchases

just decision. something tuned happen are but always You of have if make stay – going but kind right it we to hopefully to to doesn't going it we're the doesn't

Brady Gailey

And if at capital then a look I XX.X% your TCE mean you're at you now.

run deal but doing much your around I good now XX works had times especially use better sure know you'd you're when cash like I'm if to a earnings. trading with as having that So the use possible map currency your as a you currency

to capital So deploy desire how of do currency your a benefit think you use about cash transaction? using the and excess in your versus

David Zalman

a be almost Our want double-digit if accretion we has and it do preference least at number. deal we because a to bigger

crossover the least We going probably cash deal. -- never we're into have long put that method us that I'll make and we're line cash like So don't know up really that's to end the this on analogy probably we we or We're crazy we'll what always you Brady. cash. with it on our into at was component to really bottom something thinking money whoever way get or and some be how I it the and that but probably focused we'll and one guys buying accretion because you've does to really understand it to also back we're it take another focused XX% got the has is look always to put accretion.

Brady Gailey

All right, guys. Thanks great.

Operator

Winter from Please with Wedbush Securities. And next our go question comes ahead. Peter

Peter Winter

Good morning.

David Zalman

Morning Peter.

Peter Winter

for of could secretion I just in dilution in regards book? follow if for what's Kind is M&A tolerance book it value outlook on your the tangible to of earning terms up your terms what on with on the David, dilution that? question tolerance of just tangible

David Zalman

we've somebody's the – know long to on really we our we've did Again that went accretive deals it past ever how will that bottom I back probably in negative that to guess deals years we've money get always jump back and basically. the say in it say that's don't I to how back back it We're Again to get takes is kind to going get above it to in money strategy liked looked line pay when that's whatever at book money money our we the take long the is like us premium tangible. tangible we we'd for know is negative full their at we money what value always our looked on five accretion and us least our how and at of really. looking get I back in

Peter Winter

Okay.

David Zalman

to used method to a been it we I crossover and this the accounting on transactions years money know way three different don't know Dilution want the it's they the dilution. method back crossover it's realize. when crossover but they again the be there's have but I some methods extremely successful now getting do back I method crossover dilution method I I deal not I our way see a now than and know on say like we've and done that's and more being this accounting XX street of the big them

same I know. about So the back maybe they don't come

Peter Winter

follow-up question. just a then And

that I growth guidance than loan period growth X% at for at if of the end higher the moderated much and it average. this average reiterated You loan look the isn't quarter and

that to drivers So get the some just year? I this was to wondering of what's loan X% growth

David Zalman

about in, to again at throughout you have, $XXX of would annualized think on we loan another have it's payoff. up the the we you few days Well, million quarter if were average you had that X.X% period last X.X% loans and period the look looked I big payoff something loan

still not want but at. economy. very look the be at be not X% our have So where fundamentals to we want for here. people moving is to still We in We X% again good me

a have of requests. We lot

a somebody are I I in when loans but can that think in I time about we but minute million again think billion have $XXX a last booked jump heard funded yet. not

maybe and So, had in Dallas than Austin. before bigger and we've especially in ever Houston

an having turn over that's our turns now if a portfolio So we lot. said that indication

So guys come. we payoffs on time can lot a a happen. payoffs loans now our again some like it's a seen but long ever of a It's are but in of billions been a have what got to but get our we are of excited. from right three lot I than got again lot to busier tell sounds They're because

You got happen. it really to make

So fundamentals how deals we're are anything? unrealistic still yes. from do doing at think really. full don't People are what to with telling I pipeline all X% coming The everybody is that's is and is up you good. me say Tim, and want

Tim Timanus

you think described Well, accurate. I is what just

that loans our be were that really funding on estate the the primary perception are been Our borrower and been that real non-recourse market in large little never to felt fine. equity business projects very financing it's If appropriate my the for any of that we've candidly overall bank those anyway. get through projects. and primarily like very seems do pipeline the in still we to there's Those the part slowdown

the overall that market they some fact volume the off affect us. of terms fallen really doesn't have So of those in

far is looks fine and tell. as reasonably Texas think doing mean everything still we decent. can I as I So Oklahoma

weakness see at So all. I any don't substantial there

David Hollaway

say they weren't as strong as were. things would I fact In

that projects see that in that we're we're was wouldn't unless doing the all economy wouldn't the secondary these doing good. payoffs getting all getting market are You really and the that financed be because

David Zalman

not decision mixed exactly to wants I project our It's a but the that blessing. buy mean we're earning good asset it's when right refinancing. of justification or somebody it's losing the that's Well

you So that's solid I the right those are are mean the projects works sometimes. way market and just

Peter Winter

Great. much. Thanks very

Operator

next from of Bank question Poonawala Lynch. comes Please Merrill our with And ahead. go Ebrahim America

Ebrahim Poonawala

guys. morning Good

David Zalman

Morning.

Ebrahim Poonawala

question around cost. if have sorry addressed already I a this deposit you I'm

on of what seeing to up you do here comments Are deposit I trend you doing? pace pricing pricing are are to growth expect competition? your around heard from on and ease things margin terms secondarily expectation keep I So do pressure still higher what seeing for based expect loan or you competitors with guess deposit one but you in growth the

David Zalman

off? You to want

David Zalman

can highlight Yes on little give that. bit I

increased did those quarter. deposit we we and of the this increased some to deposit the But cost rate over Regarding this our not quarter by quarter any have significantly. of bank normalize carried last deposits

margin deposit have long think at from it's term don't in and going the look saw So think but costing this XX I we like little sheet I look earlier the at think like it a margin moderate our to mentioned increase increasing we long next bit. that XX looking of we're but a asset at we prices the a significant see to don't why we side months, it's be balance once I you time when look sheet and we term. balance months quarter quarter our just should up catch that's in

David Hollaway

can If I summarize to have it normalized. Yes. cost Ebrahim deposit seems

X in we trying and deposit bigger or was again going getting quarter Net think. $X time re-pricing from we think saw a the to go do quarter it on you're more over but real cost buildup two a seen can as three it's years. little forward X accounts our like and billion so checking their out taking said just we one, and We market now think really do impacting hardly money interest that this low X.XX have think of math CDs into the anything that mentioned. period y just part are long I that over stuff we normalized first a wasn't accounts. of earning you people more for portfolio money and next the to you margin that in that assets last have of say and even having but the It really purchase

that rates what that So increases increase third grade interest question any I your without about think the loans. and was really in margin

alone we Our we're at X% do expecting hopefully least better.

growth for shooting X%. I think X% on the we're about to positive

math too the organic growth. do can on you that So

Ebrahim Poonawala

It mentioned ability seller strongest hurdle lot do helpful. it to still high that factors would that given you. M&A in currency a seem very what and more in been That's remain can your is the making? more has the rather sort a strength one in your conversation Thank you of I add terms means just of years. question. your if to stock And that's Is expectations deal around probably deal still a with it do where there something to in you in other louder four are pricing the footprint five footprint or to it

David Zalman

two an pay if big most it people a can't you're talking into I'd doing MOE ways. premium you the MOE. MOE answer about say I'll realize an

paid banks killed. one seen you've premium that big stocks other most over and get a for the So have

I over a better. they've really I understand So it, ago they quarter would all say then ways time of little little understands on I well. one a they I a understand an understand in probably think people And MOE too do not doing this some say high. the think that. two talked expectations outright to would a they were doesn't purchase it Hopefully it one I understand mitigated quarter different that bit it too. price two companies may different have in number

in So, I think both it's working favor ways. our

Ebrahim Poonawala

Got it, makes Thanks, Dave. sense. that

David Zalman

Uh-huh.

Operator

[Operator Instructions] go from question ahead. Olney Please next Matt And Stephens. with comes our

Matt Olney

in remains XQ. down there yield at? Great, is to to that see the as your we XQ impact follow-up, thanks. balance levels, And take full down of during impact you're go then you these this remaining And to opportunity I from we to taking current of see additional where it's curve assuming this back mentioned a going the borrowings or do want sheet the are borrowings, strategy.

David Zalman

as billion related also and $X.X I'll year think that. to But for most back last a it's with start a we're much part, or as were we off also them the something. borrowing now I

Matt Olney

Half billion, half yes.

David Zalman

try going conference a in billion; able $XXX the think that. said to I to we million we're we've to around to last stick do $X been call

bit. our and core Whatever long and reduce our I to summer a the big for hope we basically. we to the loans, is goal it benefit on fund and in. reducing don’t in can be think that securities. the up to positioned it's have where back we our don’t still row is try think having billion, in we maybe that also I short part, there on borrow backing reduce to may to deposits may But keep a a under it times most little $X it with core leverage Basically basically always help of deposit even but join that securities in. put

David Hollaway

Yes, I agree with completely that statement.

or at mentioned overall, bit a to million because our tick level as at and -- were up with think it's we the little about borrowings probably going quarter so this a I $XXX

David Zalman

Mid-year.

David Hollaway

we to to think impact deposits. it but we I on our positive continue keep if were Mid-year. our depends But core able borrowings, going forward still should all

David Zalman

in not I that money. long came think now on a working get to weren’t we such been lot the a of it's were flush deposits, it's on Because through deposits any there any place for with deposits, visually better. time,

we think last year have them, just fund I we number deal. saw a were closed a portion think its of interest understand rates we saw shouldn’t as funds, of the else. we because that down public lot had so I those go. they went and draw we did sense went this year, They those really right funds some public This might then of see much up, as somewhere

can't but the give bank home So, be is the to just try $X a is or to billion at some exact philosophy But federal may an the philosophy number. you at least loan same, maintain there the I under.

David Hollaway

our help We lower and deposit us would Exactly, borrowings want like keep our increase we to reiterated. going that forward.

Matt Olney

securities the on in then, given premium quarter the was think curve quarter. where $X.X per amortization And the around helpful. million that's $X.X migrations first expect today, I million in the what is yield would level? And you that book, from Okay, expense

David Zalman

jump just I'll Again, in.

I on rates understand seeing refinancing. seen But have premium might the amortization of that an recently rates think kind mortgages interest go really we've to tend people go up. on rates we I what they down, go What interest down mortgages. uptick and

even I did probably But that don’t wish back that meeting might your that add I I'd maybe would may what's see I see So, say I premium where and ILN opinion amortization also don’t increase be? in in I decrease again this. will our

David Hollaway

but quarter with compared thinking less X.X, than the maybe little same I would interest think a we special the it's what this to I'm going had I in or quarter. drop rate say because going to the fourth to it's stay tick-up don’t in bit drop

David Zalman

the But interest should downs. amortization be pay should accelerated that affected rates, the by be really by

David Hollaway

Yes.

David Zalman

off in you don’t going up interest mortgages, I on still slightly, rates that would a mortgages. pay much but are you wouldn’t not think see if And think ever so bigger

the let's So, maybe at. leave that words

David Hollaway

let's next yes Maybe, just -- quarter.

David Zalman

Yes, I agree.

Matt Olney

for the a on be think in markets. stain and of like just also seems the of obviously helpful. Oklahoma, lot lastly But Texas that's out And MOE discussed footprints you've these then M&A. these Okay, could now I footprints. it possibilities

me kind remind out moving the is of of at tolerance just point the So, for what this footprint?

David Zalman

primarily maybe. in on always the I've in, there come California of have one. in can't or if said necessarily on I necessarily said I poster we're we be always other but place the But York, news think contiguous open us us get New I warning to us that, to kind I go don’t you're York New that are be sign In that's jump and the never that and we're are see said don’t say to they those work, in doesn't state we're and boundary really think Midwest, of us, our I Texas that states I that and I our right. states got that a would first a would when the as to never in contiguous see much see I've but that basically. the can so out we us focus. in in to would markets if Having preferably that Oklahoma. state I don’t

Matt Olney

Very good, you. thank

David Zalman

Uh-huh.

Operator

RBC comes Capital question next our go Please with Jon Markets. ahead. And from Arfstrom

Jon Arfstrom

morning. Thanks, good

David Zalman

Good Jon. morning,

Charlotte Rasche

morning. Good

Jon Arfstrom

won't they lit a cigar take they David, into California. don’t let you

So, if you put they'll let it I you. out think

David Zalman

know, up in. you on clean in say like don’t let it. they just me the car know, don’t having I I smell

Jon Arfstrom

a Maybe loan Tim again. production or for the you, question on just David,

terms guess year. sequentially the you productions up gross? guess, than kind is that to, that of or You're I'm you of little a question asked make ago ago, today it's that are bit and higher were as year they getting than that year are sense? gross maybe what monthly is a the does never high loan last something from down a a And I've how but Is NAT in calculate or that. And I I monthly a just different payoffs there the seeing production

Tim Timanus

It a is does. It gross number.

As the average $XXX million. quarter I've was this said earlier, for production

was of $XXX the $XXX million. fourth 'XX, of entire it the 'XX, million it was but year For quarter for

up 'XX. So, our the little what number and look go production But you for for made a than this of average for 'XX less was year quarter have that bit to entire at the in back 'XX.

we Our of million, just been to able thus the And that's that 'XX. of rolling average first first been haven’t production company. in $XXX far rightly sustain the the quarter quarter the ever since just in history 'XX was of

again $XXX On the the in at on million. payoffs looking the $XXX side, as -- side an approximately quarter it's million, of incoming year, example, once the payoffs it's on first this

equity started to to credit Now, hard fund constructions used you is realize these haven’t loans that there funded numbers and because necessarily There million, up have the there to $XXX up. haven’t that projects. start borrowers that the are are being of out the in of lines yet,

just again million. of at you gross and once the was burn rate working lot So, production to there But of look $XXX this. a million, parts $XXX are if

it never and all the time. sticks all moving it's So,

I I'm So, answering hope question. your

Jon Arfstrom

any activity, Yes, a down pay you of would some then you it are. payoff different say? was And ago year just terms in than of the

Tim Timanus

million. of all for was average the XXXX Well, $XXX

above the So, of above $XXX December, it it million December million that way And what for obviously. it’s at average quarter quarter in first is $XXX for the was 'XX. ended was

up quarter. So it yes, spiked this

Jon Arfstrom

That's you. right. all all Okay, had, I thank

Tim Timanus

Uh-huh.

Operator

answer Rasche Charlotte and the remarks. conference to over closing back will question session. to this conclude And any like I'd our for turn

Charlotte Rasche

for continue to appreciate and participate We in company taking call the get shareholder to and our building gentlemen our for work Thank support you, we ladies today. value. Thank Cole. time will we that you on

Operator

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

disconnect. now may You

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