Prosperity Bancshares (PB) 29 Apr 212021 Q1 Earnings call transcript

Company Profile

Participants

Charlotte Rasche	Executive Vice President & General Counsel
David Zalman	Senior Chairman & Chief Executive Officer
Asylbek Osmonov	Chief Financial Officer
Tim Timanus	Chairman
Kevin Hanigan	President & Chief Operating Officer
Randy Hester	Chief Lending Officer
Mays Davenport	Director, Corporate Strategy
Jennifer Demba	Truist Securities
Ken Zerbe	Morgan Stanley
Peter Winter	Wedbush Securities
Brady Gailey	KBW
Michael Rose	Raymond James
Brett Rabatin	Hovde Group
Brad Milsaps	Piper Sandler
Dave Rochester	Compass Point
Jon Arfstrom	RBC Capital Markets

Call transcript

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Operator

Good morning and welcome to the Prosperity Bancshares Incorporated First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Charlotte Rasche, Senior Executive Vice President and General Counsel. Please go ahead.

Charlotte Rasche

you. Thank and conference to call. ladies quarter Bancshares and earnings XXXX gentlemen morning, Prosperity welcome first Good replay several This Chairman Zalman, the Vice and and H.E. for here Internet Officer; is President and at the call being of today prosperitybankusa.com Chief will broadcast and General with be Executive Prosperity Rasche, me I'm Senior Charlotte weeks, live Counsel over for Executive next Bancshares available David is Kevin Hanigan, Timanus, Merle Eddie Chairman; Executive Tim Mays Chairman; Safady, Randy Corporate Officer; Dowdell, Chief Asylbek Karnes, of President. and Strategy; Officer; Officer; and Officer; Financial President Hester, Jr., Osmonov, Credit Davenport, Lending Operating Director Vice Bob Chief Vice Chief Chief David off the a for Zalman of review with lead the will highlights recent quarter. Osmonov, recent of review he Asylbek who asset Tim activities Timanus, He will financial discuss and will our our lending quality. will including followed some statistics be by

will Finally, call questions. we open the for

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

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

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

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

David Zalman

first the and quarter. positive of fruit you. Charlotte, the the entire been Best honor. Bank I has of right in all great results in America as America's Forbes Prosperity number for for want in this reflected our Banks hard and of continues X XXXX. Prosperity and our directors with work the XXXX Best has achieve us bear congratulate our helping Texas for thank as Legacy to top XX the been combination by team, customers, Thank Bank associates shareholders to and since

million March compared or Our diluted for XXXX, million with XXXX was the for net common XX, an ending period XXXX, three income $X.XX of XX, period $XXX.X the income net compared in three the The increase $XXX.X XXXX same with an per X.X%. ended for for million share months March of same $X.XX increase months $X.X in X.X%. was the

X.X% the returns assets, assets, equity. return and a XXXX on average average months average annualized average ended on equity tangible common equity XX, common on three on and XX.XX% common tangible X.XX% Our equity average were for average March return common

ratio, of the efficiency net Prosperity's or on months taxes and gains three losses sale ended XX, excluding XX.XX% for assets XXXX. Our March and was the write-down

increased and to expect to expenses, for value. to shareholder continue prudent future make capital needs We our expenditures watch also but plan

loans. of or $XXX a Our due XXXX increase loans at compared million an warehouse X.X% million XX, billion, at in March primarily to XX, March increase $XX.X purchase were XXXX when $XX.XXX billion to program $XXX

and in purchase $XXX PPP decrease loans March Our loans oil XXXX. of a March with At discount issue. $XXX represented million oil totaling excluding oil year-over-year, This of the at gas the and At most loans linked was that XX, quarter loans planned. and gas $X.X gas compared XXXX due billion warehouse X% of and of our XXXX, XX, December in primarily decreased in which billion the XXXX, program net the and loans million $XXX XX, was $XXX company totaled more discount decrease million loans. $XXX a loans, March PPP million from a of $XX.X or had net of at $XXX XX, to million million seasonal the

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

businesses, owners billion some hotels, Our linked and and non-performing hear assets XXXX. services, billion in or their X.X%, need business. annualized spending are dire continue payments quarter XX, such grow loans as decreased liquidity contributed The strength the XX.X% deposits the of $XX.X other hospitality Deposits assistance of December restaurants the continues. Our regarding government Consumers stimulus restaurant XX.X%. from business increased were now at PPP also we year-over-year which $X.X of funds, from to other as more and to

and over and in as X% Further, businesses average and and and large and Both of average to in Oklahoma Our is American Consumer to major Airlines, continue as spending have than Texas. XX, Texas expansion Companies XXXX. many Fed new The new Tesla and nonperforming more retail economy XX, growth Costco XXX,XXX quarterly Samsung other the job outperform. interest assets March jobs over to seen a at Reserve or its quarter businesses population earning with XX Texas to XXXX as Boeing, U.S. into Texas $XX.X companies points has three such levels meaning above to early the have for announcing additions Texas are of Amazon. job permits million average other and is Dallas Oracle XXXX assets and has of of also states Oklahoma Federal XXXX population move growing points projected XX including assets interest higher to doing quarterly and next growth, the projecting operating moves more rate. According the state, March years. continue the Oklahoma. more with improve at in for XXXX futures. announcing housing vaccinated or is the expected nation. compared and are reopen. expansion most the and basis basis HP fastest of Dallas in earning should totaled now people well Reserve, Texas bright million $XX.X the is over

hospitality, but office these and their and that oil areas participate continue monitoring building, We are experience withstand industries. with of borrowers downs loans, gas and can to in ups the carefully

As for and bank new you are rates increased, expect net the acquisitions, I increase associates have we want stock administration more transactions under regulatory regarding to had. tax decline, success thank and have less are interest the conversations consolidations. Overall, which see continue be will believe change will the prevalent, may prices continue recipe helping be ever-changing create increasingly current and that technology and margins a mergers to the which more to more I will market. is our for all I there throughout expensive year will introduced, burden

and support bench of to hard to a we'll to team company. have We Thanks work a again Prosperity everyone's our quality improve for value. continue shareholder deep and and your of strong life

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

Asylbek Osmonov

income net Zalman. same decrease XXXX you, provision or ended everyone. three for March Net The the X.X%. the was XXXX. losses X.XX% to the quarter interest a $X.X credit million million in income months in ended interest $XX in Good XX, Thank for and equivalent margin for million income for the million for current loans. million X.XX% before loan Mr. $XXX XXXX compared value for same three to fair December period PPP from XXXX ended basis X.XX% fee XX, was and the XXXX, includes morning, months $XX.X of interest income $XXX.X The net XX, on in compared quarter period tax March a

points March was purchase margin March quarter The period of $XX.X December compared margin the quarter three X.XX% ended since has expense to liquidity the in XX, in and for XX, the million and million Non-interest million for the XX accounting the XXXX $XX.X been XXXX. the period interest to period for in compared a the XX,XXXX XX, XXXX same to margin the quarter compared first the pandemic. and to the for XXXX. for XXXX. compared Non-interest by XX, for million December interest XXXX points influx impacted XXXX same for $XX interest $XXX.X quarter same March $XXX.X ended was X.XX% ended for quarter December million same X.XX% liquidity months Excluding adjustments, income X an basis. XX, XXXX $XXX.X quarter ended non-interest by ended to period December excess linked quarter-ended expense the million the for in XXXX compared from was months ended decreased net On the the three by XXXX. of net net million start XX, the XXXX. the basis impacted $X.X during Excess basis

same the for ended XX.X% of second million. compared $XXX months for XX, was to we in December $XXX three quarter XX.X% XXXX. March three the ratio XXXX, For expense The XXXX million period months and non-interest XX.X% the XX, the XXXX efficiency to ended expect for

During the result XXXX, fair from be $XX.X fair income estimate XXXX additional million from PPP we loan we loans. that payouts. majority of recognized quarter income loan the in does fee for paydowns million first Also income. for and may amount first the $X.X second first $XX PPP payoffs. forgiveness $X This during $XX includes the We account from estimate accretion value not from quarter early around quarter million. value anticipated loan fair to million early value loan million recognized income loans, in $X to This from any XXXX, the round or million

had March, in XXst the half $X.X be forgiveness. million. XXXX fee of will first balance more to XXXX, We second loans round a quarter anticipate the PPP remaining than of As due recognized loan of balance this deferred of remaining

XX, turn loan in $XXX.X details which Timanus? life showed forgiven. loans the years Tim average X-year about fees, The PPP cash as bond recognized XX/XX/XXXX portfolio at $X and And the of recorded round over a weighted and approximately loan Regarding is million over quality. billion. and that $XX asset with be flows me period some annual presentation to XXXX, PPP metrics we or in projected Timanus generated of until X.X on million loans let March will for the of deferred second of

Tim Timanus

you. Thank

$X,XXX,XXX XX, XXXX assets. loan compared the includes other December approximately the Charlotte the non-performing $XX,XXX,XXX loans, the quarter ended were which at three charge-offs floating-rate XX, were non-performing loans company been the reset XX allowance for and basis $X,XXX,XXX or March of or for to month. estate were nonperforming Our of XXXX outstanding assets loan March credits. billion at ended it for and XXXX. $XX.XXX March XX, basis end XX, $XX,XXX, comprised March $XX.X non-performing average decline made added to over PPP $XXX,XXX March I'll March in Asylbek, XXXX $X,XXX,XXX Rasche. XXX specific Of XXXX, The XXXX months million repossessed energy asset are is $XXX all XX, million XX% quarter points billion, fixed a PPP production credits, or for $XXX,XXX loans was of December XX% quarter losses in of XX now totaled No are Loans rate that March XXXX to monthly to the assets turn XXXX. XX, compared ended per ended XX% Net estate. The assets, XX% at nonperforming removed. up credit XXXX, loans. intervals. million. $XXX,XXX The March $XX,XXX,XXX dollars in Since in and real assets have service includes XX, total XX, in of which $X.X XX% $XXX approximately at in total This XX, approximately loans, an other in loans during represents and XX, was XXXX.. new This quarter real points average

Charlotte Rasche

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

Operator

We begin question Truist Instructions] question-and-answer Our Jennifer the [Operator Demba will Securities, please session. is from go first ahead. with now

Jennifer Demba

morning. Good you. Thank

David Zalman

morning. Good

Charlotte Rasche

morning. Good

Jennifer Demba

second you And on of mortgage securities are the going Second and kind we're your we waiting what and the in grow are improve expecting quarters while industry? in warehouse, question And in question the Thanks. for David. third of David, to pipeline is how demand year? the portfolio, to this for loan seeing much my then

David Zalman

answer let I'll the when mortgage Jennifer. first on one the take I'll second the warehouse Thanks, aspect. Okay. Kevin

rightly You're in historically the you -- past, watched us.

points. purchasing $X.X on much and actually had that duration. our historically probably off about were duration we our and -- even were years We have night. the so basis we not that not money XX years at this and X.XX our probably only selling Bank average anything Loan Home we've life X weren't is invested three billion Federal maybe leveraging bank -- at portfolio roll billion $X billion every anywhere $X We that of quarter, bond been from the year We to have we the a to

to we it say you usually was securities. we all less again were on markets, than but when think hard getting the buy in X% I So buy

they're left purchased overnight think the that up that you'll see picked like yields pick it's us and right of that up probably have more more, but that's been investing $XXX probably going were start Now and we perceived even now that yesterday. again again so I million money high, to

to that and tell or higher to to speak thinking thinking, purchasing speeding but So probably will for I continue. rates I up continue continue X.XX% maybe the go. toward will WE I think X% to will probably chip, -- end think year I don't even more. from start around maybe guess, tenure We can want that will go what that

and more and might see go in again, not us a you'll think even currently. position is leverage portfolio that start maybe not I you So it's investing once unlikely securities rates using it that of up, start but see

Kevin Hanigan

quarter. during And even the first

Just $X.X billion the of right to mortgage have we've had of on, we now. market the add on too bond is because purchased payoffs a lot portfolio just,

David Zalman

$X you -- people. I billion year that I deposits come gosh over first the quarter, deposits. most over Even had we had and in in mean in just, $X new billion only not over We and think for year

checks cautious really still people The spend, first stimulus saving. they and didn't were were

ever to money busier starting restaurants been. spend We I and my they've to are they you when notes, I seeing mean, are in as mentioned people than especially more now, talk retailers

looks even and So buying and retail people out people and clothes going again. like it

start using we're of will they some money. So thinking that

are forward a don't much to thrown our and address up not should so. there -- lot, margins will probably go out because that start may So net we We'll different so moves -- you're again. that hopefully you'll Kevin, being just should starting not again I whole interest glad want the world, but waited now. go -- stimulus too, don't it's rates mortgage deposits, improve I'm lose think future we going you in going to there deal? the but some, some warehouse making to But I a it down into but

Kevin Hanigan

David. am Thanks, don't this. know Sure. I Jennifer, I predicting good of how

I I billion, think I last I was only 've $X first $XXX million. think the quarter with average said -- quarter, I thought about I

than couple a hundred are million couple We of better that number.

we had volume time since where has be lives at XXXX. be at sit least look I to by It as actually five for down So real. today, may seems rip which slowing this around, it

rates. but say quarters bias Now if to the the Bankers obviously three And quarters year, for But what year that of the I drop XX%, there's just volume in downside on at in their rebuy this think pretty quarters the last three look in I going look remaining huge I just Mortgage quarters shy XX%, to last the year year while depends two at purchase upside volume, last the for off they when mostly be to versus think projection three their had towards rates. this the skewed of took starting compared happens last it. of more they up would of of a XX.X% volume Association, and rates I is refine to minds quarter

volume than XXXX quarter I quarter As like forecasts of I are. that wise more just would looks a was probably say, the any of lot to the If quarter. the second us, pertains where other want

onboard $X in volume, So to have as volume high a I billion ahead as rates the think at that that fuel was $X could The last $X billion look range. I hired to it moderately for it's mix weeks have that to be they they fits some and we $X even for system, a stage person for just books to customer of Group operate working even won't could change of X so book think this so but are average could success. I in impact we're Warehouse At have doesn't the it add a I going another we have if game went the into we come retail new a driven, on as deals the billion of big terms in that that couple thing every besides billion today, are they only something quarter, X and that -- basically in the or our gave. our if the quarter, number. moderate on back said

Jennifer Demba

you. Thank

Operator

with Ken Zerbe next is ahead. The go Please from question Stanley. Morgan

Ken Zerbe

wanted just David. back go a on to thanks, comment great M&A. Actually, Hi, you to made bank

or how industry. last picked that talk M&A role of have about the would bank we think the in meaningfully been so. few change Can I why the M&A outlook and but is has industry-wide going much months forward, rates tax Thanks. kind also part for question surprised to you Prosperity's up of all second

David Zalman

I can. If

the insider mean a answer and that, pay a bank I you rules, you have under big capital shareholders ownership somebody gain have and on of if lot like me you Let but a BlackRock tax or some second today or sell Vanguard XX% part you'll current not it. first. you the have

to So go it. capital $XX million. say to cost you change, they of $XXX just pay pay amount where bank million. million. get I have XX% rate keep no gains and to If and add this basis this $XXX $XX $XX tax in loss I million I'm million had going to

million deal, be home just administration because difference reluctant to would taking another just be see million taking people mind, want wait ownerships, I big $XX $XX between So more and it. sale in till in, but wrong, is may come you'll you the that I I have that it's think to home do mean big my I think a just now

will there affect saying my capital in degree think So gains taxes, banks. big individual is some as to new if reason ownerships I that that's

Kevin targeted at that first probably But focused there was is don't in not the make don't Prosperity. house easily. together would want So look And a try deal looked to on his number of good. this lot wanted your Texas the deal. your tell intend we -- interested, where a again, our that but any the with closed sure number another not. certain I A larger for again, again, think we market continued that wish we're really our more it lot team We that to and on play of if focused on transactions. continue and of were order. not to of a help These from we up us on so and we something. Legacy easy, we that have something that throw you wanted on focused one really focused It's them not on people. do of I list what There the that want have just our we're it's including Seriously, spend has to not we've to we don't what work one deal in I on sometimes and might after M&A mean a it's to been bank. and areas, people making think have some know to part time trend even list transactions were you just as been really are try do be to question and we're wish the in. that's work been I came keeping jump of a number want and what really to we're a we're in and mess on hard transactions, kind doesn't within make we into future of of may be that's most that team. smaller now I think really working we to focused that what part, and right that's of the of

comments. my be would those So

Ken Zerbe

Hi.

super Now helpful.

that, core So I maybe name question think to was if that just get expect value mistaken one NIM just guys PPP the there and PPP exclude you there several you all thinking that about quarters thank you income and you decline. value for over is how I the next if fair smaller that, continue noise. we loan the I is to fair mentioned fees, are

Asylbek Osmonov

This is Asylbek.

address that. me Let to try

on the on liquidity, If first to than think a our is we impact at NIM, our kind our pandemic what that in touched the all there and of impacted you core grown it's we quarter our in deposits more billion many look is began. I the continue first $X.X on going since and have so of and -- earlier second to variables first has excess quarter $X billion quarter

invest portfolio bond trying the that liquidity growing actively we excess on or So, the to loans. the

excess it's have you balance that about portfolio, if had net cash $X.X billion So look could to we our have bond on on of that our accretive interest If we and margin reinvest going XX/XX/XXXX, we impact our income. in at sheet. the definitely

portfolio, had if we look So the you also quarter, bond $X.X billion on purchased first at -- just but bond we our the in the elevated in pay-offs bond portfolio portfolio. on

curve -- is lately, the what improving. saw with we improving long term curve is like So

reinvesting are a we than yield at maybe bond we portfolio ago. now quarter So did higher

So amortization, about significant, what's $XX.X this was amortization with there refi with at the premium so million. quarter look that's low benefiting you in rate our premium was if what environment, our refi interest was happened much the and

you only it million. was If $X compare year to period, last same

on first that impacted million in the the us going PPP second how other thing Kevin are with we're the fees You we And PPP, deferred loans. significant with to know much income have than first $XX but of margin. And but believe slow about that thus down $X.X going -- remaining PPP and round quarter, that generated we quarter, within we recognize, to I million we can $XX helping we more the our think had as also in a fee second about in premium and and from the mentioned half is round consider the core, slowed go one amortization see earlier we refi down income. margin we our don't I should

with that timing timing is to customers the when I be but we're be I would more going would of touch quarter, but our I still that fourth get some believe though would like should deposits, next on to we help have going think I process, billion to our start from CDs, repriced net out lastly to it the perspective. we a know about event wildcard that recognize. billion interest the income the but waiting and of reprice the essence, think going start And six to second in months next -- $X.X quarter months the forgiveness to XX and are in $X.X that going third us margin. that's probably is help that the us in margin

margin long-term moving at is asset pieces bank now. lot our prospects, a of the future. But in and you right net there So we look our impact near that kind if income are interest of sensitive

So term. the curve us benefit will any pickup in long-term in the long

but... know it start So our that. kind was loans we that up, would goes long-winded the we answer I feel rate benefit that and pretty confident growing it of as

Kevin Hanigan

No.

if I think think what it's all can recap good, I okay. that's say, said, historically would report because I only we you just

on we we would do. excess got invested. billion borrow never even investments have billion net $X We overnight or would going or liquidity X Historically, which that. count another everything point back you've point margin that X X $X today but again point our that billion more to and up, can were net X mentioned again it down to interest You also interest invest in

those PCD it the loans the accrue deal PCD for -- many at Legacy part Texas so all that through were with loans the had interest. have don't loans PCD loans most of the We

interest as pan-off. we're So we accrued, but you not only just that income the accruing showing our take we're in it

there So the million from on still out bonds. to and going is million lot. that's big higher there, $XX I a amortization a mean again the $X amortization the then number of almost

amortization you'll but come down expecting, month. higher this What see think I should a it considerably. we're

has options, or front lot. willing have would are it. there, and say would if I we I A got don't many work some you lot haven't just -- you give get in net color Bank want interest said, we I know take that's for but and you us I flavor and think, and but we positions the for a it can can't number. we an everybody those to us yet neutral declining. a don't lot been for the So see on of most to us out I of just to margins exact keep give building, to reason

Ken Zerbe

helpful. That's a you complex is I All topic. understand very right, thank much.

Operator

is The Winter Please Peter Wedbush next Securities. with question from go ahead.

Peter Winter

the is for growth wanted morning. and this half ask levels loan to thinking maybe the you're Good I pipelines compare how and they in pre-pandemic what loan to second about of year?

David Zalman

many that dried are it of has coming lot been has there see a fallen of although bit lot picking on our of dip away, has off. completely. requests maybe gas we up people easy, of bit a up markets the as haven't right mean be as have things understand a Oil mixed a I see deal some. and up that to It's there, don't a are loan new growth down they there as pandemic dipped try loan whole describe side, and totally hotel from, that first, a I still deals bit it out restaurant have terms and much. Multifamily standpoint. might not there, would Well the some oil not bag new very out I in bad are there that, where of said having substantially gas picked obviously not a most little think predicted. But might and from although a We not

be mention office, certainly mention scale. but hasn't in all steady and our increase good slow rates a occupancy it's been that I'll Most didn't of the think but loan I robust. now markets, to So major going I aren't that requests that

to pickup, occupied some and this anymore. get bad are no this people a pick requests those, pandemic, of end of going going There later see spec have the don't see it not of think, as lot whether back but there been starting has happens So while year, down than increase the some a probably off they're So it loan still I fall been be we but an it's owner quarter don't whole requests. fourth. that would it the our as That's not I suspect to office we in office hasn't thought some of up, lot is request, unknown, could next of I but predictable or quarter overnight third the substantial or from

Kevin Hanigan

in that are definitely GDP X I in is that truly if your do good no half. that's portfolio came fair completely. in the we in that will to that hard only us at have growth go with taxes put talking a not with grown little stuff that they're really I wanted going like on the again structured it throw growth I saying that. in that growth, we it's and Well, if with guarantees X about of on really still And time, give X.X, people guidance the Legacy predicting commercial it really a same B a in the That to come anticipate have portfolio, why plus I'm we through, jump those would area. -- least think not a real and properties think over think out at buy with most all caution secondary half now, estate this. second second really towel wet is is have My these plus, it areas to could the and not

to continue that in area. business we lose So

a we our this year, even you're lot probably still because think what growth of next I with loan to see won't have go. of growth, So

also, real may on my Where demand, might Kevin good. the too. and is we quickly single-family jump just want mentioned Legacy it in at that That's very think I thoughts. to

We I and the good anytime single-family from standpoint, is see have the dropping soon. very listed off demand housing residential don't that

As was in call, a some this mentioned matter, earlier of is growth Texas also. that Oklahoma and in population for lot in there

our So live people are have they to somewhere. and coming into markets

and far next that's loans source So certainly I a into to year. throughout think good year going of be this

David Zalman

fastest We growth the out place live. I we population can to better have ask there. for a mean

two we Coast. seats house the saw like a everybody we So and the East this I mean, California up places gained, all lost I in seats year. growth house picked mean where

York that area. in New losses.

are where definitely and things moving. this is growing are So people

So giving Again, it a taxes on lot certain to create that create for loans should forward. it. Thanks degree. of should going pan growth, us a

growth just of growth, laws. based it's the we'll on how there a still new think tax much matter have I be

Kevin Hanigan

think to taxes agree get real completely. are life, that's it's people That's go not works. I but just going Real obviously. mean way just I spend taxes, money. they're the they it scared dollars I are over out, emotional, too

wildcard. a that's So

We see. will

Peter Winter

you switch talk X.XX%, about gears I Great. -- That's If January In a through loans you do day kind appreciate it of guys you CECL what of from sense elevated of a one is the get lot was Xst, the non-core that. through and worked can you for which as reserves. guys from for the Legacy, Legacy? I with have CECL some the color, it's you right level loans

David Zalman

even wants here. that Nobody to answer

Tim Timanus

answer So question. I'll try to that

there's have we the ran comes we to we we know That's layer allowance, bit that a Economy model the current but environment, of layered the at that progressing, the have and and level. we stress there stress unknown little it So situation. a I had -- is have if base also much about so on to scenario. it's why because that and when we current the a

going rate to to we progresses, with and we cycle we end, but we'll I've forward, I X-X, as industry mean they too the with bring it's the the run X-X be heard say would have for where be If see to I know hard from time, so, I just continue in think to right but that at predict or predict, economy probably run is if... what we as going what you but other progress the model, forward normal down a going to look hard maybe but banks go us would it's everyone now, normal don't

David Zalman

grow to say, really the income I a loans and in take a care out. Peter formula instead this. statement. of based money counting may on as would be on money money I rather after I instead a strong of extra taking would of know the provision into in Again back the it's rather what

to actually office I they at money up model, I instead because stress improve, lower continue still and would out to yet. finally say X-X I things but and not still if of continue X-X, to the way the the so rather have loans take something. loan have they our stress not to portfolio are just go have on taking things would it's extra unrealistic grow test the that still loans, is us mean us think difference put on over you hotel allow it's it, I you some to to

Peter Winter

questions. Thanks for my taking it. Got

Operator

Brady next The Please with ahead. Gailey from KBW. question go is

Brady Gailey

guys. Thanks, good afternoon

David Zalman

Good morning.

Brady Gailey

mean on if was really to smaller of more look you or when it back to wanted is like downstream is the wish your bank that are nothing at is there and time targets is that I now Texas those But right list, targets Oklahoma, look working transformational the then of State within larger it kind Hi. mergers, outside M&A. Southeast? to and more -- the I David, circle

David Zalman

questions, do have share you're -- transaction in and state before, I we and I probably you're market third those smaller be would a be about that larger targets and Well, some more balanced, probably we going an that mentioned as they basically or some to if that to have have I would that we're I to our in dominant customers have the talking that we we've don't think be the you of And in, smaller answered they're in that focused and they I think other in not out would ones targets, some a probably The within already and we're focused large have do area period would again, large have reasonable was ability presence state, have of offices $X it is, in us be in, market I have within deal probably, of -- would it part to all Texas, have if presence the in billion to that a another the state, a you just won't are the larger and see back, a mean either or would area market go would bank time. yes, ones not too. those we your think the markets probably be targets ones, yes, area.

Brady Gailey

growth put how Okay, billion, is portfolio much money average the letting right know you use, do that's think and right, I helpful. to potentially bond guys cash, about balances over larger all mean then $X end of there of this bond still that you could much book have think were $XX quarter. a to talked to I get were period billion, larger And billion that I see about do continue up How back have much, still going couple to you you to the time? how grow

David Zalman

I put When function that's mistake have the bond -- just don't a kept of book place duration. not is short I book our loans. made because, a the the we three we've in only think mean year is bond might investing what duration three more extremely

up so really So maybe rolling of is we have well, the doesn't all it highest get the the say, invested invested, matter could but should all time, rate, much it of have because didn't somebody it you matter. the truth

organically grows, So grow year, in XX% I've that one know think deposits. the Bank ever I seen I bank our in don't as

But that $X of don't I the to money expect a billion be lose either. to lesser. may a So lot don't expect I be that norm. There

for but now billion to will we the facility to in billion put portfolio into loans, to you at $X closer most continue mark. will we part, that's think to the So, were closer huge the difference grow today, and the the warehouse put year-end I $X mortgage we don't were bond

gas, So for that's estate hope a of structured we in the there most put is the -- a talking not least which through so to X% the least think in as don't we $Xbillion year out. the loans. we were market there get and would I But why our too. grow billion bank the loans should We Legacy balances no that there. if was of commercial reason whenever there that as get out I and that out $X real is swing a at trying part right in you're at oil a and all year decent

it will So a be combination.

Kevin Hanigan

we well grow billion. timing think portfolio the to we buying billion a And additional we've is first liquidity quarter, I just $X.X as bond expect deposits our of what had, got were end we year add the didn't use up in on, $X.X the and to in

put buying like quarter a as use that to in loans but we're bonds, in If again So later the it's just going more bank. Osmonov it though so additional that special said we through the don't the that that we came in through Mr. going will balancer. grow, work

David Zalman

approach rolls taking every of on keep bet not making short we off been, rates. probably. should than so, much exactly the we're we middle of road such is so a should the a We're it be have more just just investing There future the We're ratio. yet year probably and have has we

Brady Gailey

it. Got Thanks guys.

Operator

go question James. next with Michael Rose Raymond from Please ahead. The is

Michael Rose

little for the there if guys see Hi are that Texas come that you are any to income just loan you in bank announced of to maybe is looking smaller sorts a back. to at point fee for opportunities investment any M&A, this wanted guys, guys like opportunities waiting Thanks. last fee just on night. I growth

David Zalman

the the referring business. deal bought I No, where mortgage to Veritex think I you're they mean,

loans we -- company this at month mean, have organically. our think business booked I mortgage almost mortgage our We were think I this and million. own I $XXX we in XXX building was did

Asylbek Osmonov

XXX into for We $XXX did portfolio that million. went

David Zalman

a department continues comes So lot from from our mortgage to well as of business customers as our other. grow,

So think we're I doing that.

interested most of business that if the trust that in would probably Michael I look for buying and side think a be be more on would the a would at that part. more we we business, more be

Michael Rose

sort just expect of maybe we fees quick Obviously, kind little bit build continues Okay, near-term the these the service deposit system. that's Any remain of I NSF in this charge fees kind of down liquidity helpful. near quarter. a just while And that. and Thanks. follow-up. should levels on growth mean one NSF weighed to to is outlook.

David Zalman

year, quarter. because our a at last look almost but if it over significant, in our did end drop fewer drop we overdraft That's you in, of If almost off at was you had is look off of of million $X.X there stimulus million. overdraft, came this money drop the drop $X kind and quarter

think that continues, then people as going will travels that do our hearing the held opens cards. fees, we're business I'm if our being overdraft So -- it. pretty we what income But and fee is pretty the to look well cash had up that and to their card as income I see compare. just up overall, that doing debit you our kind the increase the business up non-interest will I and strong you of used debit in shopping, but using of a at because growth mean we if liquidity

actually income increased compared quarter. trust last to Our

think I on pretty well we're them. holding So

the of and except the know non-interest income we Our what reason the drop-off overdraft there.

Asylbek Osmonov

million I COVID. less month mean, and fees again, before to were $X compared million $X overdraft a -- quarter a less

month. almost I think to six $X come debit just card will away that probably in months you're month, not eventually again, that. and million from this a immediately, up ATM if fees And were our just back, year one last

help maybe you a the are us bit fees to. what in we that little that transactions can tells few we pretty add in of little a considering raise other areas may fees that for bit spending be or opportunities some we low that we're raising past those there So that I the and have people out that amount would and think a

David Zalman

Yes, to I extra like feel us to going bit know with a probably the be, give it's of mortgage will boost I mortgage increase trust think, volume mortgage volume and the also little going on income.

Asylbek Osmonov

Right.

a So of couple triggers. have we

we pull there too. think I can

Michael Rose

questions. Very helpful. my for taking Thanks

Operator

The with ahead. go Group. next question is from Please Brett Hovde Rabatin

Brett Rabatin

Hey, good morning everyone.

David Zalman

morning. Good

Charlotte Rasche

Good morning.

Brett Rabatin

might how terms growth? in balance much the about we want slow move that David, sheet. your bucket, out to Wanted guess, I that bank organic that some looking to or of are that you portfolio. to remaining that were the of just loans post be move talk payoff the off know there maybe were of just you're first, Where loan expecting size might to, I Legacy

Randy Hester

I mean take it. like Kevin

Kevin Hanigan

going to in two it Yes. I'm answer ways.

I merger. think into going the

structured $XXX I declines in I mean million we're that $XXX real $XXX and then gas and that call declines the by million and shrunk and has the fact, estate with and oil think gas $XXX another in We and some expected probably expected million oil group portfolio -- or done we in meaningful million. almost well some pretty

into about we -- and think $XXX talking million think you million of in out changed real great any hold would the transcripts, the we pandemic thought was this in $XXX hold retail So that hit office. back were portfolio. at from and especially, up portfolio and or things not that portfolio our structured we exit a were real that Legacy it we was pandemic a would going portfolio portfolio as thought I to estate I was estate it If loans that go merger, the going the not to look then we But pertains

how come decline hasn't back the share the to into out be down written office, of great vacancies. actually office rest estate job Oddly our we year, office is and remainder shrink I structure, So for side will many think was retail has usually million particularly coming throughout is Dallas just with new a for story to to There part rates the is this of good in last aggressive of got surrounding. a portfolio, another it's people growth pandemic how migration year in may office in a was we of vacancy vacancy little out most enough statistics is so stats and but sign in down office so. actually yesterday some COVID see time. and of and job about year, on or space playing somebody, just increases I and net how that time we regard, the some that come bit really well, the hanging a great of been The in up about out more There jobs, but portfolio growth, we so and that not $XXX,XXX think back $XXX bought. Dallas despite yet reflection And It's that yesterday, vacancies. that good many in portfolio in real about reflected market. -- little the office jobs just where Dallas. a not over

that I anticipated right loan in for cautiousness greater we run-off COVID real has exposure the had move world XXXX. that in in than structured Legacy November levels portfolio was it the from we of So originally been estate our of resulted but back the has think in us, announced.

Brett Rabatin

and today One, new rate you're curious Kevin. the Okay, you're existing then, that's of know I securities. your great it what guess kind the And I'm other yield? XQ, thinking to just just might what what relative portfolio. And about was curious reinvestment reinvesting just the appreciate I what was color, then about it. was thing buying in

Asylbek Osmonov

We of Yes, product was bought. you're I small I amount we about the you bought XX-year don't got we have on tell today, average the at the XX-year then product. number would X.XX what as. this probably looking the depending that what

the rates, in think on and XXX basis I were probably, XXX a speed that points. you're bought yesterday, but the it again, interest rate depends area probably up probably probably in base

about probably You're XXX, XXX.

that's So right.

Brett Rabatin

color. the Appreciate Okay.

Operator

from Milsaps with Sandler. question Piper go Brad Please The next is ahead.

Brad Milsaps

good Hey, morning guys.

Tim Timanus

Good morning.

Charlotte Rasche

Good morning.

Brad Milsaps

deposits. Just of your had on a follow-up cost

of cost the Specifically, deposits. bearing interest demand

quarters XX I think at pretty stayed fourth basis for about XX, points. stable they've

at category months. start I be and average you've see like that we to rates. some money maybe public Can would remind lower in I last this might reset coming contractual growing when stayed pretty funds think in the looks because us that the for of about amount got think would Yet the some XX is new you stable there. it

kind color additional when on you So, any might see relief? there some of

Asylbek Osmonov

bearing look give decreased. you it is Is cost color, I'll little our of This has Brad. at actually but Hey, you deposits. if bit a Asylbek. interest

If points with right deposits like you last of now was it basis look QX the XX at in our cost of XX. year,

steadily So we've you're decreasing been right. absolutely that but

quarter. the to third think or going in in new repricing is start are kicking portion floors. expense end the funds bit to the the holding have to public that majority the of little that That think would, start on but quarter I a contract second kind that significant interest of longer, have I going we a some going We of is those be and fourth the majority

public are getting new with right what's going stretch contract to holding to then deposits. up the But that interest So funds. a now, on the getting we we're that's rate the be

Brad Milsaps

are you're demand about about funds for asking that. $X it. category, so Interest-bearing I billion that the Yes. it's was saying so specifically public or were

and another some relief? quarter You start probably then have to see you'll

Asylbek Osmonov

second fourth it's in Yes, but at the of third we looked quarter end the the towards comes the this we quarter it year. repricing of and when

Brad Milsaps

thank great Okay, you guys.

Asylbek Osmonov

Welcome.

Operator

with Please next Rochester Point. The is question go ahead. Compass Dave from

Dave Rochester

guys morning good Hey,

Asylbek Osmonov

morning. Good

Dave Rochester

Back on color topic the M&A appreciate there. all the

even You just guys I you longer gave than or something are it a the lot on think the year of good that. in take do color, might announcing feeling was potential maybe positive wondering, for next you

given this Just spreads are be the they where at to where seem point. bid-ask

Tim Timanus

used is up you not the but you year. just good I by know mean, an see There year because don't is and think I, answer really feel if tax could I I Even just so Again I at, not stuff we're of this this retroactive, us we're -- say again there make if I where can't at wouldn't still -- it's mean, people again, that but to that picked again, give that. working But action. that we if does in it what something like I be. I happens, the think it definitely lot, think it transactions. there it's will it again, too change lot of would situation. things it they thanks works. happens, if say doesn't, -- happen should to more other a not, a I is on by

think. I

Dave Rochester

be, Yes What target, okay. would Texas. top X would When you outside? you you went think about that your X markets outside of potentially if Oklahoma maybe and or

Asylbek Osmonov

want to and don't in particular know investors to just start purchasing first go don't that. With I you really banks stock because that, in there. there. those go want I thing to the With

Dave Rochester

or let on And you term at buyback, have a how the get continuing a take look what get you're higher if but near just a would growing in you they done then is capital levels deal grow. you think a about thought to you'll understood. you that? past Yes, the do keep working don't those that while is And

Mays Davenport

our money the price. $XX got last that's and we I the fairly almost cheap; proportion. trading look out and Historically, when lot we Microsoft and we've to other at fell I drawing at earnings at I training XX money started other we dividends also like then used banks thought mean, increase continue whenever pretty mean when so of right it again used But stock it we're something like acquisition were and to when our using I year, it of it was it XX I trading bind $XX times to and we we XX banks look we depends. to trading [indiscernible] money. and mean, and companies and these other take Apple used a now

So, would a accretive. it make deal more

do were if we've to acquisitions. used So into we we again historically, stock would I it reemphasize there possibility this money to dividends historically that that I our go is want use would know say you didn't and is also increase market to support that to

Dave Rochester

backing from point loan wondering yield book book this last the Appreciate differential else. one where everything all out on on at Thanks. coming I just the on and was new loans the yields book, fees that. are noise Maybe the back was just is. front PPP what where just one versus

Asylbek Osmonov

want coming are Tim that loans already is that. Williams I for

Tim Timanus

generated a without values I that think yes, we on XXX at of that the difference if quarter for think actual don't also there the I Well, XXX. is back the look fair the and were core you yields loans huge on

our falls on So where a X.X the to all production it it's X% the new on on loans here our bond the growing the so. Right which soon a end, and I booking end, better X% little yield, high mortgage loans I Yes, is around it's portfolio invest don't as but think quarter be to that we're lot loans. number. Exactly. of to going and it's and the low mortgage difference generating quarter think quarter. mortgage on interest next to or then of well, in we're X now, in I And loans putting was in well out, it's whole X.X lower one didn't a

Okay.

outlook what what, the that's So is.

Dave Rochester

are Maybe this, the one have runoff this just question, you and sorry, give year. just, guys may guys book, of you expecting structured last I CRE potential left that? great. Thanks. What's more missed for did that what Okay,

Kevin Hanigan

this I the for this of million Yes, roughly remainder indicated number of Kevin. year. a is $XXX

Dave Rochester

And great. much Okay, at point that think you pretty that stabilizes?

Kevin Hanigan

that and multifamily how it's in play portfolio held Believe up the out could It our the pretty in we've occupancies, office COVID well. eyes It world also there retail has post and really it on. depends office and or particularly got again. on retail, not but

Dave Rochester

thanks great, guys. Okay,

Kevin Hanigan

Thank you.

Operator

Please question from Jon Arfstrom thanks RBC. The is ahead. next go for. with Yes,

have we me. Let just some… And [indiscernible]

Jon Arfstrom

Can bit reserve? on talked about you increase change Asylbek a the more little environmental the reserve. factors touch on million on in you $XX the the

Asylbek Osmonov

Yes.

current factor, so same Texas was GDP forecast, So factor is, that it's that's you the there it's with million increase this our mix WTI of related use as there's of model. combination factoring. external the, you for a look our US to of internal But that incurred so if know price, pricing or and CRE so of this our with in a have losses that call use and Texas historically we, the included environmental we models Also the if models environmental at, all factors the lot goes that we factors model. that we the show the the unemployment a of factors like $XX GSP that, internal and we you're our looking included

David Zalman

Thanks Scott.

Jon Arfstrom

question. kind into my next ties It of

You talking what's in in 'XX, the... about Texas XXX,XXX new jobs

Tim Timanus

older, a at they John of was and weeks meeting that I've ago three is probably one a got had I actually about to higher number that actually. got probably my meetings. than number four from that number that that's little another little

Jon Arfstrom

your point situation labor the like is in Texas. view What in

David Zalman

never everywhere like down did. it else. of rest the like shut the is country Probably We

of really, they going, that a drivers, of to in I restaurants, truck But and home. people So when need mean again, people, to we're number need you're from lot lot work need in the work but jobs construction they a people kept people a work they until of else, work actually and a can government make government I at to unemployment the little given, think because or willing runs the October. bonus September money with I don't out just gives them the that aren't more mean like they think everywhere people bonus there at talking I

outside can So it's mean today even can't it's see really you not enough open we're because sign work issue. a people we to businesses where find I tough have so a real

Jon Arfstrom

you And lenders this are feel hiring you like lenders at you do where capacity have point? are hiring, your or

David Zalman

our we bank lead bankers been do that, -- capacity, have I capacity. I out somebody of I do would and like that all, bank a never still look 'XXs. that have but I everything to we us like willing buys a and hires X's at a but when bring we're another think on, think first they're but to on I them we're, probably, it's and and think XX's group X's, we comes if good, really do we that not say goes bringing we like bank, think

Asylbek Osmonov

are It's right. the we bringing find in. add we program come then we're think to those somebody incrementally, them And If that one here, that there one process a in. there. can That's selective

David Zalman

hiring to but something, continue contact talk We have generally us as don't and we a number people do or of that. far that to we will groups them as to

Asylbek Osmonov

rating do. the employees, never feel other mean right. we've to with comfortable institutions, like felt it's right thing doesn't and That's it I just

that are they, they're don't they person they philosophy, So valid a for right a we'll of look leaving kind in. if see I and bring change makes the along if folks the that comes sense, them reason will them and but where at in right

Jon Arfstrom

But higher big term. like for would David. you, it one maybe do rates have you're a talking you strengthening typically I touch Last of bit longer and tight yours of have maybe of materially the labor earlier, a rates, higher about about little had concerns guys in we bond and on mean energy you a big portfolio sort welcome conference it sounds you modestly can that concern

David Zalman

the loans like even so our At booking big in because show it's least we're numbers, mean rights and at mean really we're that. of would I sensitive, stuff stuff higher a this lot rate you asset be, better though fixed the it model home I the

I be an really models us how to give too an if Just a it's $XXX again basis just -- probably. much mean right you, up million to increase That's of help in may idea, a are interest points $XXX rates XX-year million these -- much you lot. XXX tell almost

Jon Arfstrom

as Well, we're so world right. But growth waiting just the waiting for. All well. that's for that's loan

David Zalman

Yes.

Jon Arfstrom

a lot. Thanks

Operator

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

Charlotte Rasche

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

Operator

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

disconnect. You may now

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