Prosperity Bancshares (PB) 30 Apr 202020 Q1 Earnings call transcript

Company Profile

Participants

Charlotte Rasche	Executive Vice President and General Counsel
David Zalman	Senior Chairman and Chief Executive Officer
Tim Timanus	Chairman
Eddie Safady	Vice Chairman
Asylbek Osmonov	Chief Financial Officer
Kevin Hanigan	President and Chief Operating Officer
Merle Karnes	Chief Credit Officer
Jennifer Demba	SunTrust
Brad Milsaps	Piper Sandler
David Rochester	Compass Point
Brady Gailey	KBW
Ebrahim Poonawala	Bank of America
Michael Rose	Raymond James
Gary Tenner	D.A. Davidson
Ken Zerbe	Morgan Stanley
Jon Arfstrom	RBC Capital Markets

Call transcript

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Operator

Good day and welcome to Prosperity Bancshares, Inc., First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded.

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

Charlotte Rasche

and morning, weeks. Bancshares Good call gentlemen, welcome for at and being at for Thank same the quarter ladies XXXX Prosperity location prosperitybankusa.com Internet the first live next This be earnings to available broadcast replay few you. the over and will conference is call.

Randy Tim Zalman, And call with E. me I'm Chief Charlotte Director and Jr., Kevin Financial Chief Officer; Hanigan, and President President Eddie Stanford, Officer; the Chief Executive Safady, Vice Timanus Corporate and of Vice and General Counsel Chairman; Chief Executive Lending Dowdell, Operating is Osmonov, Hester, May President. on David Bob Senior Asylbek Karnes, Merle Officer; Strategy; Rasche, Credit Executive Officer; of Vice Chairman Officer; Chief Prosperity Bancshares. Chairman; today H.

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

open Finally, for questions. will the call we

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

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

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

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

David Zalman

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

was teams continue to November Our benefit XXXX. company, forward. going expect with strengths on associates will And LegacyTexas our X, and merger completed our find and we shareholders that commonalities our management

schedule year. efforts planned to repurchased of X,XXX,XXX operational the price for of share shareholder In of June average stock XXXX. during of our on value, first to enhance at this weighted remains integration, shares continue its per common $XX.XX Our quarter an Prosperity

the The the XX net compared three for with income for was XX, XXX million XXXX. March in period million XXXX, ended months same

three common $X.XX ended the diluted March the per XX.X% a compared the with XX, were in share months for same XXXX, earnings increase. for Our period XXXX, $X.XX

common on on return of on For and excluding was tangible efficiency the and XX, average for average ratio, an return quarter equity X.XX% on first assets basis, taxes average common the Prosperity's was XXXX XX.X%, months March return ended gains XXXX. net was assets on was of the equity three annualized X.XX%, sale XX.X%

linked-quarter loans or $XX.X were loans at March annualized compared XXXX. increased increase XX.X compared with XX.X%, at XX, at XX.X an XXXX, March million, with December XX, billion X% the billion, XX, of Our or billion XXX billion X.X% XXXX the X.X

XX.X increase XX, March billion, March an XX.X%, at were XX.X billion of with compared billion, XXXX. X.X XXXX or deposit XX, the Our at

A the deposits to broker and linked-quarter of higher or our December portion due $XX.X this reduction billion X.X% from in the planned Our decreased was XXX deposits XXXX. decrease at LegacyTexas of million, assumed XX, merger. cost

with XXX billion XXXX. X.X% points or new with and X% at and grew we deposits compared or assume basis XX, in generated million, November XXXX XX, March acquired XXXX XX, centers the merger banking March December the XXXX. grew Deposits we since annualized compared X deposits, Excluding at X $X

of at earning basis million quarterly points March earning Our or to of assets XXXX. assets XXXX XX interest of with was March XX the points non-performing XX, at XX points XX increase average assets XX, totaled average compared the interest million first quarterly earning $XX XXXX at interest basis The or $XX due assets XXXX and basis during merger. primarily average or quarter of December XX, quarterly million

and allowance challenging company of on During after known these the additional $XX during CECL first these adopting fourth reserves credit XXXX-XX methodology. our also increased standard, the of We insulate losses for help in quarter of million as XXXX, The its Prosperity amount $XXX accounting XXXX the million ASU times. from is allowance unprecedented the based believe should to to CECL. quarter

loans credit XXXX. the points XX, loans, losses Our compared X.XX% at allowance to now excluding with total at December program for stands basis warehouse purchase XX

to regard regarding acquisitions with conversations subsided. as other With expect would has potential one acquisition opportunities bankers

However, to right shareholders. existing enter accretive we it's when negotiations and remain all parties ready into our to for properly

difficult challenges believe extraordinary, today's and certainly remain and a in strength, with this from we position operating team our our credit robust downturn in deep quality, that team are While with times. navigating enter confident see capital, We and solid and We a future. sound through fundamentals. Prosperity adopting will management long-term experience economic in liquidity of has us

various locations capacity, I would the our pandemic, operated our to customers to team serve enabling dealing and daily retail needs. every throughout open full thank us personal at keep Prosperity past challenges the related several at months, our like associate with while to

Additionally, assist SBA around our crucial and closing for operational and working your and and were support loans staff customers. PPP Thanks to our submitting of clock applications accepting again lending of the our thousands processing team company.

discuss results Financial achieved. financial to discussion specific turn we Asylbek, some me Chief Let over to our Officer the of our

Asylbek?

Asylbek Osmonov

Zalman. morning everyone. you, Mr. Thank Good

accretion for an before to discount loan XX, or merger million the March million XXX.X period was the in was XXXX income due for quarter to Net The in months the XXXX. in for XXXX first November ended with losses XXX XX.X%. compared same XX.X provision increase credit million three $XXX.X interest the of million primarily LegacyTexas increase in and XXXX,

for March ended XX, ended XXXX. for months The net to the XXXX, was interest X.X% three X.XX% equivalent XX, compared XXXX in period the margin December same basis on a for the X.XX% tax and quarter

accounting margin purchase core XX, and ended for X.XX% for the compared XXXX. the interest was to adjustments, quarter ended December X.XX% X.XX% XXXX, XX, in XXXX for net period March quarter the same the Excluding

card for merger non-interest Durbin was is the the months XX.X to in XX, from income for to now Note, XXXX. due Non-interest the was with impacted ended the March period million by same in primarily million Amendment. LegacyTexas three XXXX, The compared increase LegacyTexas. the debit income $XX.X income

increase to the LegacyTexas. in million, XXXX, Non-interest expense for merger primarily XX, March compared XX.X the XXXX. million was ended due with The three XXX.X the for was to same months period

second the we million million. expense non-interest XXX For expect to XXXX, XXX quarter normalized around to range

expenses one-time in quarter, in we are In addition expect not to protection the X conversion. normalized million Further, guidance. included which related to to non-interest X June to upcoming to this, we in expense second paycheck incur the program expenses expect million merger SBA related

most with cost realized quarter in we As XX% expect system third the planned from approximately X million discussed expect in savings prior date, quarter already in of is cost LegacyTexas cost integration that of To we of combined beginning some our merger for the to per from eventually savings. line have realize million X announced quarters, the merger XXXX savings June. and will to we cost this savings after the additional be

X.XX which for compared The XX, of a approximately and years million bond March XX.XX% and cash weighted showed months annual XX.X% for three The average XX, efficiency period life included the in XXXX in March flows for XX, of to the billion. ended the XX.XX% same merger-related XX.X expenses. was at months portfolio three December XXXX, ratio metrics projected XXXX X.X ended XXXX,

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

Tim Timanus

Asylbek. you, Thank

at made March $XXX,XXX XXXX totaled end estate. and assets non-performing XX XX, assets of up loans totaled in in basis XXXX XX, in assets quarter At other $XX,XXX,XXX of real or $X,XXX,XXX March was points other non-performing repossessed estate. Our loans and real $XX,XXX,XXX

was the XXXX. the quarter non-performing Net our have XX, are credit in the material been losses March $XX,XXX,XXX of energy Since for and list. $XX,XXX,XXX were assets company allowance XX% XXXX no from months credits. March addition company are the XX, deletions $XXX,XXX. credits credits, for the Of $XX,XXX,XXX March ended assets, service during no three there ended There XXXX, non-performing charge-offs which or XX, production to $XXX,XXX

million. The $XXX loans at average $XX.XXX billion. XXXX, loan monthly loan that total XX, of new XX% specific and intervals. were XXXX floating XX, Loans production rate for was outstanding quarter is up ended loans, reset XX% the XX, XX% March March XXXX fixed rate at made March The

Rasche. turn now over it to I'll Charlotte

Charlotte Rasche

assist are you this Tim. At your with can you, Eric, Thank time, us prepared questions. to please questions? answer we

Operator

Thank you.

with question your question-and-answer We session. will [Operator Demba Jennifer will today from proceed the first of come SunTrust. now Our Please begin Instructions] question.

Jennifer Demba

over talk you we reopening see what loan we'd is the you slower as most are like? the can things in are kind vulnerable still of David, near-term than shutdown your about and bucket

David Zalman

Yes.

I first gas probably maybe would be, say for oil would loans and vulnerable would the but deterioration extend guess And haven't the because that, we first thing it's obvious seen again, yet loans, out that's or probably portfolio. number in portfolio. that a that, the loan of pick be The you somebody I would

that's of it hedge, and about hedged at However, Legacy $XX with for minute, that, the of really production to you talk Kevin than year in look a next when in about from that. is so got you in can year, XX% majority we you in that this of into jump loans probably at And is it, barrel $XX can a production more again, loans. detail the but that go part

we've that we the say oil and through last with new that There's it them I from service in industry, that made loans about probably those any that have customers 'XX, a And $XX have little had to are on XXX for of XX and is barrel. that over that experience they put 'XX and million those us. years. came are We went customers this. there something back in now And most and didn't this when would in that we or XX the

guess going lot your probably probably a traveling hotels that next be restaurants they bunch of to motels I a vulnerable of coming the until -- so would don't loans, that's vulnerable guess I the money and going back the and for to these So PPP and be we the then would usually -- that. all start next make stuff out, again. hotels, but until people restaurant most just I And help and that came would is like think motels. thing be

should they very again, was should -- So, be it they helpful.

And so goes. that how we'll see

turning I really of some in and back nail I even this maybe be we the everything your it the fast on how are that states and restaurants of turn where But on quarter. are but third be the at future, it's coming And hair going other economy. a capacity, fourth don't XX% depend on don't know think on. that than on, back we're it's Friday, I we there'll inside coming XX%. on Texas or faster really I lot think the know quarter to to anybody a diminished knows almost, is going the not I think it's planning again, on, you're And salons the places,

are officers back medical coming Your in.

we I faster on, think the So be. the will better -- the it faster you that come

again, And we've predict before. feel but this I been the good about I thing can't the future, again, through

should who of probably -- current some to want may but credit sorry. the that We wanted to wrong, carry not pretty don't the go of probably give other better. our long banks. where I been don't feel underwriting some know much say has again, future, underwriting I us through we're has something have that this. we me stronger color. banks taking probably as I'm And then good some risk at our But, than have we help but just answer, Jennifer, been Yet, hopefully as other the

Jennifer Demba

have much and how Yes. balances that deferred bucket? overall, Do That's specifically in energy loan been hotel okay. of and your

David Zalman

I don't think down. that broken haven't I

extension of on But if loans else in did had can jump or as we yesterday, mentioned but XXXX looked you minute. Somebody out March, as XX,XXX. have of we have almost wasn't XX,XXX what that we a in an -- there

-- of So and X.X% a we over would amount dollar X% loans extended little were the about that $XX,XXX,XXX. be that our

Tim Timanus

by they're a If problems. of severe come that time. more more I this suspect going David, how on could back again, normalize and mid-March I to restaurants starting and online. full But XX% and allowed function quickly, relatively to Texas loan mentioned, more go, be based by mid-May. at This is to obviously out And not capacity different weekend said start going that open, I May, might go. to Jennifer, I at add. have to weekend, XX% the more, to are be of then it's really gets If as end this capacity then on many things story. a go then drawn mean and we're David in could how capacity. things They depending once mid-March, things

are they're So have can there important less people see doctors it obviously open happening, for medical are been. already the phone. flow But a lot reopened normally now is their offices thing him is, of things go has the not than client and business talked over to what

there are of customers just fairly we're to that online So back wait quickly. in see. positive our we'll But a things have will lot play get allow hoping to

David Zalman

in oil Kevin, want on to jump you all? at gas the and

Kevin Hanigan

prices loan particularly about as one I a long now very Low well next XX.X% $XXX oil the portfolio. average as Jennifer, portfolio $XX.XX. or is PDP hedged into X.X% we look million mean price of rolls XX.X% said know, of but time which for gas. that the thing said, you can destructive, producing our prices the David low year duration, $XX.XX. at It's Yes. is is lot just have Tim the are if and PDP I a as pretty we on of this of hedged of in be a this for mean, weighted year gas across side hedge at That the portfolio

the So us for hedges XXXX. in have can more only a these of lot a hedging move in not way because industry

way we're we're how it, be in unique we So much have. reporting might I unique this think the We regard. don't in

buying time, much It's not work. us

fact, in $XX nothing So works oil. at

stress be the So can portfolio. there within

are As we we reserved. We've the call covering poured March in fourth now our of CECL. portfolio talked January about results energy which in of XX.X% got back because the the quarter then had our

energy of pretty kept kind approach anybody's There's portfolio. an I it. everybody looks tight couple reserve don't has at we've up. that are got got a to think So And else starting that now

on where yesterday I had had X%. wanted Legacy. XXX heard we've We're think hard But against a we up former energy I air the off got it. healthy million we the to at approaching about a pretty of call those, identified somebody books. credits get really had We reserve working

resolutions back out So if were haven't $XXX reserve they've $XXX I come of all that them. just September, portfolio looked below at the all on was base to million. that it's at million, -- in down put portfolio we that And those or marks

exactly been well within In mark, mark have the top fact, quarter has of think that everyone, on. we but this I one one on we got the out

negative these gone haven't mark the all we in So in resolutions. of

we've making So a of months brings, are what darn We'll BP front our what's I we'll I -- think good portfolio, built in counterparties think what of see we're duration mostly with us. great progress or got XX hedging but see into pretty good basically Cargill. and on counterparties

It's side capture that of other debt. counterparties hedge guys MCRS our all the well volumes. we're these these or cash pretty to some monthly on pretty up of and doing benefiting the these these actually with on and are and reductions to instituting of commitment reducing they're flows clients from good So things us

Jennifer Demba

more Thank suspend David, question. now? you active? you. are activity inclined are buyback you One right still Or to

David Zalman

No, think would were other regulators right probably whether they would I your bold. like I to that do that capital. to you or sure I if not. something the you they said hand, that I on build now, I'm it do it probably this me, can't the make know up think pretty haven't

We stock wouldn't really now. not right to bottom most say part, And so just that formal, stock talking buying through committed just unless if the probably in went to back or be anything the our for but I'd something. them them I've

just we're So but that's where of at. kind

Operator

you. Thank

Milsaps your Our will with next question. of come question Sandler. from Brad Piper Please proceed

Brad Milsaps

that. together, of you process left terms sort in David, in sizing this bought environment sheet one of was, it sheet, the timing the their off kind this kind the you of meld change side know of I of want of the are just the do balance you big where point. of portfolio, their at what two some that running kind when kind might kind of have aspects where to right of Legacy curious Or some balance you'd of right of and do loan of

David Zalman

answer right I let it. schedule. I will Kevin on But we're think

getting there. want loans first the we over didn't we million mean, when this, -- there. fantastic cleaning said have up Sam million outsourcing And think Duff, the I I and of we done those about there'd some thought a port XXX cleaning Montgomery up necessarily they're XXX that be -- they're loans team or The in in won't loans. I guys just their David say

As call quarter, whatever if was we had Asylbek that on to Kevin actually look they we we the at earlier, we said that want CECL about, them, the now or it calculation marks much actually million? XX ALL our this took how

Asylbek Osmonov

related have to We that. XX million

David Zalman

XX million related that into put PCD, it PCD was the to really and that regular we a it it of out took was allowance.

of couple some else able strong think I we've get weren't gotten couple up it more program? probably money as making we couldn't that they lending to and customers with that outsource -- much a we were to picked somewhere out we has we where warehouse they and probably because say that the So so want think -- knock so going to in everything's perfect everything -- worked are far little a we on I don't to good. on we're I leery that really I where I think want wood, bit I be the was stay comfortable there we are were customers the just world, in even a financing really mean, but on.

out with worked well that's this. so real And

in loans. of lot seen estate really other was a portfolio yet, portfolio or real haven't lot of commercial portfolio, we a think growth the that I that

just So down you may gives again, color. jump you is. And want some that it I it's paying Kevin, to hope like in.

Kevin Hanigan

where a I ahead of to at we're numbers and it, we're think out least of more way our sit If XX. David pretty Brad. on of going way to I to original we'd the of than like work side, energy schedule, lot anything, out No, we XX million those ahead we back like covered well. our But, we'd just a today, think have work schedule about, probably still

Brad Milsaps

the mentioned kind and on Got quarter going just able into I range, you're rates what's it. environment which deposits that kind liabilities, What of sort terms of the to of of portfolio of does in on with just to away of impact about around you Even as getting NIM, XXX did how remixing addition your that -- from in the with does credit. impact, addition the -- deposits curious last quarter, this do kind what thoughts think, well. and sort of then you but in Legacy's what David,

Tim Timanus

is interest side I a We're May's in little with give insight think the of and a This what And over customers trying customers fashion being expense. on working staying the success. our capability time. can and Tim. considerate because us would a off I to with want call a been -- to I've some it on reduce I good we're have do others of you to that that. having run don't we core Legacy

money can lowering I and taking but good we're are yet the not it somewhere we're aware some success. end somewhat a it, I on could just a side, up that on add maybe that to determined core customers approach, these are guess going side, of and customer we think So focused rates relaxed like May's you call we having that else. I'm lost will the hot have feel on more inevitably but any

focused on So we're it. very

We have been.

interest All are be. down to price Obviously, like there high price continue go just differential ones the down. the going the there. a ones, although low We costs is

So we're it. having I think good success. good I feel about

Asylbek Osmonov

I we to Asylbek. would This add broker that CDs that is related the have. like to

million hopefully reprice XXX planning X.X% that at least are to at about we soon. have We

subordinated So in there's that end the debt XXX December. in think I also we we year payoff and that one have and of can

with help to high going that of So definitely cost repricing the us deposits.

David Zalman

or even again, side, probably guess the from last have month Legacy probably the know though this just might $X they really positive In deposits, billion. in have but it's our normally fourth been PPP, increase some And month that's I probably down saw we first month of a in two -- with, we And we this. I And April. because like the times time now come of and in $X peak usually increase. and quarter the quarter. like billion not this deposits in probably

when people we this back right looked, And times tend little of we a us their that money this with put in more get tougher, so happened and XXXX more went when is Asylbek?

Asylbek Osmonov

can safety, see flight you The that. to

David Zalman

probably projecting net he going this, X.XX net And accretion, have comfortable anywhere want interest margin total think Asylbek On as tell you from margin will far the the him I margin, forward. the that interest as I you without if you but net to in X.XX asked interest three, feels do what

Asylbek Osmonov

Yes. about X.XXs without value would The interest And loans that quarter. if with can you related in million XX in And the environment, also, to way of we our total insulated -- on about have margin, fixed and bond Probably we rates. XX% second income X.XX bit. very at I And I in rate. based X.XX, is little accretion. balance we've the structured, low because expect that to to a earning this fair look the is we provided when have think fixed speak XX% million is be the mid XX to range we time our sheet better portfolio assets

the from you little us. line, the bit impact accretive a the of margin. definitely bottom or at But I mean, the be timing margin look timing going that would SBA of think quarter. I depending it's environment our PPP forgiveness, wildcard in to I program could margin in EPS it this flat. the that So to maintain, to if definitely will very stay helped But the is to to say on going our it second the funding, is us be diluted

David Zalman

that you to probably whole that X% getting a could premium that X% take dilutive over the you're if that year if dilutive wouldn't So the you're getting in. or be take period. what me wouldn't you telling have be two you're it from

Asylbek Osmonov

Exactly. Yes.

David Zalman

a And from that will of coming money be PPP program. that lot in

done, all not. all $X.XX I them $X it's we or get and set if to approved have think we'll in loans, when billion PPP billion depending

Asylbek Osmonov

That's our going definitely a EPS impact and way. bottom-line to in accretive

Operator

Our with next Point. will of Please question come Rochester proceed from David question. your Compass

David Rochester

the of On book, detail you on lot energy a guys gave great that.

pretty I at look You of for just line you're wondering how and was in protected what reduction redeterminations point. along new spring baking oil this far But standpoint what well DACs? you from were the the in seeing in and you're your prices

Tim Timanus

process well an ongoing into customers process. The is It's for. underway fully that appropriate and are called We're redetermination. and aware the

haven't like some Obviously, the the had any but don't to they people are of process. what really resistance they the are. fallout numbers, We

the had understand haven't customers. are. well I'd process. We They virtually We call any so are. we what they We understand to declared all be with where working far seem defaults where in the

that everything like relates matter loan it's a really stay to think our how long I it weak. else of portfolio. does It's

a it. about to it. overly I'm more and now, prices be we're are concerned now, not bad Right years two probably going from now If from concerned about year

us option So People collateral, have we I of where the are down. the about feel good additional redeterminations. of paying option in pledging the

it. we need we're to and little certain be a at that to willing customers look and more considerate Sometimes time of give

not in down this that broken It's way a in process. viable time. a point any has at process it's So

Kevin Hanigan

the that. heavy would what's We're of about terms every board the MCR instituted halfway to and through Kevin. almost XX% just commitment in to from I stage of on. I General we've add across sense is happening anywhere client, think XX% is reductions usage at game. is This of this

David Rochester

Yes.

of terms in now? DACs you then the oil price are your in using And Okay. guys

Kevin Hanigan

$XX between Somewhere and $XX.

Asylbek Osmonov

Closer to $XX.

David Zalman

Kevin, that probably Thanks, that $XXs. Merle in the we're is is right? using Merle, here. Yes. said Merle

Merle Karnes

starting low averaging Well, $XXs. probably We're mid-XXs. into the we're in out the

David Zalman

Yes.

stressed we're high running case it and down low that $XXs. We takes teens, to it have a

David Rochester

decent outlook, loan terms And there. growth typically the in the I I had in are growth loan to thoughts guess your and tend put environment That's their you great get guys. tighten operating that, you some banks color. tougher just then standards. already the appreciate guys guys all we if other standards past, is tight because I of with some together underwriting when know

was just on that you're seeing as your So, wondering what that were thoughts today? unfold

David Zalman

the said. it's you think what same I as just

I think.

exactly And what you think so it's said. again, I

kind think we'll because our in do than these I some times we're probably peers a maybe position of better that in better of probably.

David Rochester

Yes.

just to which Okay. And any where replace coming about? curious were And down a on borrowings you off buying securities little cash planning you then working margin, were runoff I you seeing you're the that about is decent you're rates of if or flow talking switching days. these to reinvestment guys bit? the know talked just if some

David Zalman

putting just as instead the at, from side. that Bank using the we're got around of X.X%. really, a Loan and XXX million taking dollars Really, a we borrowing we Federal couple into we the putting loan that haven't money probably last up down bought now, where Right month, we might Home have bought back because they're it with and it because got we rates back and around paying it substitute -- of

Asylbek Osmonov

They the are on warehouse.

David Zalman

not deal. are warehouse receipt receipt, Yes, we Warehouse mortgage. warehouse

David Rochester

one depending one or on of on only outside market still end interested if types those so, bad you'd FDIC-assisted Got last you'd pop-up the market you'd things next over if And get. go the go gave those for how situations? year just earlier. be for maybe just then if M&A. the deals or you. I And Appreciated thoughts were to in just curious you deals was if

David Zalman

we the gotten you when If can back and times that yes, like we when deals pretty a even that's deal it this. like even And at Franklin look when has better jump we've things reasonable in, been price. like get some of our generally at did

end in was interested deal. an money, And a shareholder We sexy we be would more interested from would standpoint, said that, can that so depending it how we too. some market naturally. be consider we in Having and make

Operator

will your proceed Please from come Brady question. Gailey of question KBW. with next Our

Brady Gailey

that fee follow SBA's to on seeing the wanted the average you're PPP I up What's currently? program.

Eddie Safady

X% $XXX had more million This we around on that. morning, is a to first on And loans. right fee approvals this We're, over had million And right average $XXX early it phase -- now. into on on the as you X.X% Eddie. totaling about think the or take fees lot approvals about the about X,XXX to about tranche, through. that I of work and close was average In if we on in course, have we've of X,XXX second that,

will tranche, come analyzed in to loan was this this tell morning on really $XXX,XXX, $XXX,XXX. it the I at you down looking the size on it. through fees average we're closer started has what haven't So we about that average

David Zalman

we had about X% to fee. more you'd make probably an Probably a be assumption, what

Eddie Safady

all on average, X% lower are in level. About because these that

Brady Gailey

that'd next that? over way mean a earnings as end quarters billion think a these up guys fee, the mean to forgiven. $XX be of to the right at most X% loans nice $X.X So about the I million loans of margin that that I couple Is through margin. of that's PPP potentially that are Is pre-tax doing up you of tick if could flow the

Eddie Safady

XX funding. in share the And coming eight be seen. the bit. first which XX-month come It need forgiveness retiring weeks finance, these But that lion's that a next mean, start can after their out period up are loans conceivably start I weeks amortizations, to months. is. the they expenses debt after that there to will at they can be of eight little of yet rate is but are We see some the that will

David Zalman

like money that our money, though, increasing that put really if methodology, again, that, I losses, think would model would if allowance our too, see we weren't our said loan we And some for this of counting on. Having led to if possible. us is could I

That's count on So If can don't and have money. found I we just can just too I money you model in it to much you want wouldn't ever extra the reserves. that allow you cautioning that. us, know will

Brady Gailey

well? going topic, understandable from of here quarter, think you totally reserves you it's zero And given then the your odd see forward on are that see provision could did to that at, quality already and Prosperity a zero but as this credit a provision where

David Zalman

me going environmental a would I extra to there's extra would something take it what that money. say methodology, again, probably to all more we to the is and call I methodology. on have Merle's that to would look I put put the this like coming where like maybe you in try money just because this Well, of some economic based does But deal flexibility. found then at have

coming We maybe that have things are of to some -- that. have normal like is put other and not in only some budget what we we would above our that

methodology would a So allows would this if extra it. if it with and be money, there's the provision, I say

Tim Timanus

now, faced right we're what change. not defaults with could obvious that And

David Zalman

that change. No, could

Tim Timanus

it could get That if appropriately. does, our address then And worse. model will it

David Zalman

if But again, would you you $XX nice be it say or to some an it that But would have million, count income million my that just here's we in put be $XX could another away nice didn't thoughts. on. of

Brady Gailey

mark. value $XX Yes. of million That is makes for reserve sense. energy looking the me, another at of looking think XX%, fair excluding lastly And around I that then

that a you once Is more right like think bake So XX% into energy it, it? to about that way reserve. the it's

Tim Timanus

interest is way what That is mark over off call to bleed a we time. going But, today. fair that

everything So of over months, to that is XX-plus XX%, Still piece the being reserves deplete. you next depletable. is going to call over XX XX% what

David Zalman

We oil money ever to have I tell to went period. and then much me a how year we lost a We $XX go went look over back asked with barrel. two first, back and to

And show this so I may in in that the and be think did. two slide years, we

year and a and there, that gas bought XXXX most those $XX of XXXX came and a in of Oklahoma $XX that and that was we from that. $XX two million period, in or bank oil of from it of so majority losses the and million about was that think was over lost million I we

So but smaller again, at we were that side.

some that flavor it it say period. charge-off $XX that was a that's what where go if when could year something be be again, who last losses, $XX be you million, So over knows, can't oil but like we what to just million, we that, our time total knows, it it gives went again, could $XX through I two could who

Tim Timanus

that's through right. from quarter about of first the David, XXXX. went Yes, mid-June That of XXXX

portion XXXX XXXX. and was it the and year all XXXX of So of half of first

exactly correct. that's So

David Zalman

new is banker, you reserves, a say you X.XX%. But as in I my many, have as never for can have lifetime dimension whole again, too a never This and as far me. but never been at

we operate mean, ratios ever now I a downturn used we're I capital we capital into of now, in I right X%. banking never But situation that's to the right shape. of almost strong at where in also. off got but the XX%, of don't we thought losses know So now than ratios don't I now gone but you've loan right were X%. are been great hope I know have it, most where we're has and banks more a as started for first need we I've industry We in bank when we that really know, don't we as had allowance

Operator

of Our of question question. proceed your next America. with Poonawala from will Bank Please come Ebrahim

Ebrahim Poonawala

have questions Most been of my answered.

you mortgage guess the few Just over you're couple just the next Kevin, quarters? on of lending in you what the spreads? terms terms warehouse side extent can seeing next demand for one, the do the the see of over to -- out months I how in And both playing pricing or business of

Kevin Hanigan

Yes. Lending on down spreads have after beaten years margin stable pretty there. of being been

purchased on Purchased the was in saw Q, in refi. weighted our warehouse. coupon And was refi you of it average was volume the notably, big X.XX pretty think for a quarter XX% refi. quarter the XX% I terms

quarter. in volume of to I lot year that peak a warehouse going the this in volumes refi are think actually So mid-May.

from of for by away And math. far could and peak my I will to $X.X us, somewhere XX too folks May that $X somewhere $X volumes. May think out not what will of get and be peak we've there got we'd kind between XXXX and we're So between billion. be be It like keep bulge said We a at to this billion facilities lot billion volume. grew

an in our on weeks ago. customers comes balance application mind, is sheet of was our volume one keep to that that six taken by usually Just

to that on much it, the from post, a got pretty is see do dramatically of call And another don't I weeks XX May line. gets returns, lower when before we expect May what XX, it So we're purchase volume balance I drop is going know. lag once application that returning, back to June. volume and to realize six purchase starts that And going

lower months normally in it of period, may when is which be we're So a at the volumes of couple June-July the peak.

different, So little opinion. upon we're based this year at. all going looking to bit a is in just And the my facts be

goes extends people depend So if whether on back the their purchase and that if isn't also put July past will isn't market. ball foot on market, houses then traffic, there all volume into the over just all they but much today. my there's good back That crystal purchase the traffic that

had outs in United States outs be guys, where actually about in that the think bust We're on are good and to new tough will the record QX, February part occur homebuilders. sales kind in started quarters all pretty in for QX. a through quarters quarter but in of March. some see volume QX homebuilders there'll you some contracts the most of and than There pockets have I have to have homebuilding in going they They QX, be then will bust talking will more not national contracts. negative

think it's but temporary, before. be than ever a and will different QX warehouse, this homebuilders be for for to seen the both going So I we've

Ebrahim Poonawala

or any run of deferments, you. borrowers cetera, mortgage staying of actually these could loan? independent who do you they Thank the with that, helpful. that on you see taking what's after into with, do and going on that stuck onset might is That et very right the because just at And deferring are be the trouble concern any risk market companies

Kevin Hanigan

haven't that They're seen we Yes. yet.

in there's at X%. a the The does that's had in have agree been them, days GSEs like short deferment XX week, look we've And on seem it that those the less window all is going portfolio, there a really held we you to free bit. volumes market which things we've this buy it's our I've some might it, that and than a here As if up to track if deferments got into. on it last are

write have were had that warehouse up hedges period there would hit meaningful with they downs been on those of some guys If MSR it to maybe a dollars March. there's And period were have were that settle caught big of on in getting companies, some issues some going some where for for mortgage time who time -- that there for and MSRs. were be those during hedging to they

unscathed, say across that looked portfolio to identified in second we that any the getting of we week it without else Our jumbos anything period through during liquidity on fact, real also because concerns clientele made but in in without the terms And that. not I'm going just March hard line. pretty down time. or market probably accepting off of stopped them of jumbo slowed takeouts our the

on So and we're hedge took keeping we I think eye and the all MSRs an steps appropriate just volumes.

Ebrahim Poonawala

M&A. That's helpful. one you. a on follow-up just David, And Thank question, as

deal suggest at whatever is near-term now, Does little about mode next what lockdowns? other and you the you until a of we that and integration until three things of of guess, that you the enter least in transactions unlikely side to bit the talked terms piece some settle down. a for or six being capital I M&A get it highly Given the to you until of, get entertain form for a it's any months, complete build the near-term

David Zalman

little it I a bit. think I a understood but bit muffled little -- your was question,

think up, thought In opportunity Having you're mean, what M&A opportunity and -- I do. in an see really we're said operational that, I if the going do asking on we what we it there we of do. to of June but that really kind really consider are do these good for in these first would if We're time, foremost, kind to need an we came or to this the we because integration is operational is is our what are the times. all times probably position the integration. what wait a

we And So we Legacy just really did. kept the taken Mays been good and the could with been we've business Kevin whole and if on. that up, the thought we and I do, we've what has just they've ever greatest And of the partners some team feel team and remarkable. and comes

are we our where teams. comfortable with very feel I so And

we And it. if so do happens, that would

Operator

Our Rose question. Michael will Raymond Please James. from question with come proceed next of your

Michael Rose

Hey, guys.

quick two Just ones.

dividend buyback. on around that continue and I still guys reason great crisis, think increases look ROA comments to First, I here? pre-tax guess your kind of trends, the to If the that back annual slow understand you'd increase the I earnings from strong financial to you dividend any

David Zalman

milk not. money. hope My kids need I

would I that and I So we hope that not automatic it's up but can't tell that's again, It's being an in need. either, something or only what the they see see right what certainly from an thing it's don't hope get third issue. case. jump the But quarter I you now, they I fourth the

If dividend in we're leaning, it projecting. for earnings more the you way increases, especially me with that ask increase be would are which we

Michael Rose

anything track the I to a systems appreciate but it. to there? of way. similar Allison have the it any One very Got still the Thanks. different about we what as of go said, conversion cost savings, should question, them timing as relates comment, think in planned to other been on and back, just is pushed Johnny

Asylbek Osmonov

think I No, process. it's it's place already a in

waiting for the we we're seeing should have June the start savings. our So After conversion. conversion, June

we little quarter conversion, and cost realizing do might million that be delayed end, but are we $X cost, another realized about our on the said, $X it million because we quarter, the $X $X as bit to quarters. to in savings future June so Our million planning already the close to this to million

gets that, saves XX% savings. cost we to hoping our do that So than we're more announced. to cost but But us achieve it we'll definitely, XX%

Operator

Tenner Our question. Gary next question Please come proceed from your will D.A. with Davidson. of

David Zalman

He might have dropped off.

Tim Timanus

Or mute maybe.

David Zalman

mute. Probably

Operator

conference. line your live Tenner, the into Mr. is

David Zalman

move off. he probably I'd one, next to the is

Operator

All right.

of from Zerbe with next come question. your proceed Please will Kevin question Stanley. Our Morgan

Ken Zerbe

Zerbe. Ken Hey. It's

$XXX the said million normal is the million included about already kind quick that done, such additional $X Just like just that million, of million to million then like after is million. that to in you're you and of million $X to be get, $XXX million to everything $X $X close comment $XXX and The run rate $X follow-up the to should expense to million made. really the a $X going on

I want right. Thanks. make my got Just sure to numbers

Asylbek Osmonov

Yes.

So clarification.

to cost million million $X yes, the to savings $XXX million million So $XXX the $X provided. already range I in baked

think $X we're rate same So assuming going be million, if $XXX around $XXX right now, another take stays to million I to $X you million everything is to thinking million. run as

David Zalman

$X You million, or right? $X effect, million the the had tax

Asylbek Osmonov

not talking Yes, net the expenses. we're yes, expenses. Just about income,

So be I a conversion. from $XXX we to $XXX would say million the rate after all run will million savings realized between the

Operator

come RBC Our question. Jon next of question your Please Arfstrom will from Capital Markets. proceed with

Jon Arfstrom

little a stuff exposure quick us non-energy of in A an I on related, touch your some you're housing. there, seeing have as handled, thoughts the you know I idea on well,. in you're but in has stresses Ford Permian, or bit been can just of Eagle real the give estate kind probably Most question. portfolio guess, West seeing terms what of and you Texas the activity there?

David Zalman

prices is oil gas are housing. enough the and crazy maybe begin when work instead there's to There's a Midland/Odessa really at people, restaurants, of not not one X. shift with -- mark there's enough I'll off. start kind no of

a lot that normalized. see more becoming Midland/Odessa I So That's of the in area.

with really town is see increases the Texas or over that Lubbock area a think really didn't in there. in on college University. We more Texas is based I Tech big decreases West market more area the based the really

town, college and but in based related you And it's gas, probably you you've about in have I a you what think again, West retail may feel and you agricultural it's how on and the lot, some only oil lived a Texas it? probably not see some degree. comments Merle, and there, to on have

Merle Karnes

but pretty but they pretty I so think annual there's not growth There's that and be David's to people. some thing those some much not X% The will much absorption can job upside stable, has There'll It's downturn. right. downside. take that to normal. X% to back is get been just a of both There's stretched. Lubbock, economy some loss much redeploy Lubbock's rate. Midland/Odessa, upturn

there's I of to a going lot think net-net stress. be

be by by of hotels in stress one, been; a and to or fully going not going occupied, those fully occupied. because have COVID lot gas hotels to see number oil some work. They're You're the whether it's

but there, don't we hardly So some there'll exposure, hotels stress much any. be have

David Zalman

did any over And do we? we didn't there,

Merle Karnes

think one. I got we've

Tim Timanus

have one, might We yes.

Merle Karnes

I hotel. think older an it's

to XX% occupancy. I around breakeven think it's

David Zalman

That's good. Yes.

we other loans On on back. Legacy. When oil about hand, talked I economy and the the coming XX% depend hedged, ones that earlier -- would at talked gas, really that tell or you E&P the we the is least on from had being percent I the going to price XX-something

because the he guy deposit we also the to $XXX people million or back area. $XX And lent we million has had lent them paid million didn't or West down and from over $XX $XX of Texas to one to million, hedge the there, it We $XX bank. in some million most require we on

trust another companies. they've got have to, have but we loan the We in million a bank family and the $XX

keep that so, back. we what see because everybody at going they're see production see pulling produce market they're come to going guys economy else back back, that to oil that not to, prices they're just they're comes gas kind is, the think come really why you And to the think talked can and down. I I comes really of I And if when But are the on you're mean, you'll to. going hedged money. producing will are not -- these they until the and that back levels get

Tim Timanus

we've approvals. think and through I been downs saying, always and customers of to bust. And That's boom used use there. rodeo first out there and these think most are And before. have conservative loan rational old ups we've to the personally, that isn't been in people I our been important These our it's this it's to way think that are been. note the I Texas out the

restaurants. now, said, But don't these you we clearly right right As not values times are they're many solid We just don't before. now. have hard there. And many have through in customers hotels. estate been holding have our Real

am as I comfortable be. can as I So

David Zalman

didn't companies. we good. That's fortunately And finance any always drilling

Tim Timanus

financed. drilling We don't have any rigs

David Zalman

one Well, too. we might have

Tim Timanus

that have still one We maybe?

Merle Karnes

a... it's Well,

David Zalman

It's produces...

Merle Karnes

stuff. and units Pulling

Tim Timanus

Yes. know about I don't drilling.

David Zalman

It doesn't work.

Tim Timanus

Drilling rigs.

David Zalman

to... those work over We rigs still have

Tim Timanus

some have company. for are Yes, people once time. service business we that in have But some these again, been quite

Kevin Hanigan

don't any pipe. Also have we

David Zalman

We don't have any pipe.

Tim Timanus

pipe. any have don't We

David Zalman

any we're feel really we'll know at sin. And think and Again, what comfortable where we to free like do to we the don't sound but get from be make we're so... future, able all it through this, don't we not of want we

Jon Arfstrom

PPP ask maybe March to-date average you, and late monthly the is assuming numbers. take kind if to fair. I'm out periodically of April production But That's weak. pretty you Tim, about

if that's activity corporate of lenders, it it to going take is seeing? kind keep Prosperity the what Just or market on? customers the kind curious is you're your true then close some is Just what your the and to what message to lenders you're work of share? And telling curious

Tim Timanus

dwindled little Well, that a all bit, in applications I loan have new think much. actuality, not probably but

meetings robust. Our still reasonably committee loan are

been in once new marked been hasn't a there slowdown there requests, again. but So some, has

to been and our borrowers stay times, to fairway. message experience always We Good have comes discipline lending, and the or times always to hasn't when to try our into and try in cash and lenders, flow middle changed. adhere to We to good it collateral bad that's of it lend we honest. the principles. that And and are really try

and always before. been activities. was to As considerably are customers mentioned suspect things in bad, slow historically, we quit if certainly going deteriorate that's opportunity lending had lending down or earlier we call, really up And that haven't and their for to start up this freeze lenders us some an pick to good get

could. it a happens, So that's that not always but possibility. hoping We're

So different our people. to message there's no

and is any different the not really tomorrow, customers and to just bring same now. and yesterday, try right approach it's be good Our in today conservative

David Zalman

in good times. the old I you'll bad think to the it But back you'll in times. goes saying my us like love us

Jon Arfstrom

before. I've never that say you heard

Appreciate Just All kidding. a right. it. Thanks lot.

Operator

session. This closing back question-and-answer the any will conclude now Thank Charlotte turn to would remarks. Rasche like conference you. over our to for I

Charlotte Rasche

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

Operator

now you The for very much presentation. conference concluded. attending Thank today's is

disconnect. You may now

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