Q4 2019 Earnings Call

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Good. Good morning. Welcome to Prosperity bancshares fourth quarter 2019 earnings conference call.

All participants will be in listen-only mode. Should you need assistance, please sing know the conference specialist by pressing star key followed by 0 months. After today's presentation will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Charlotte rep. She please go ahead.

Thank you. Good morning. Ladies and gentlemen, and welcome to Prosperity bancshares Sports quarter 2019 earnings conference call. This call is being broadcast live over the internet at Prosperity Bank USA and will be available for replay at the same location for the next few weeks. I'm Charlotte Executive Vice President and general counsel of prosperity bancshares in here with me. Today is David's almond senior chairman and chief executive officer h e Tim tomorrow is Junior chairman also back as Mana Chief Financial Officer Eddie, vice-chairman Kevin Hannigan president and Chief Operating Officer. Randy has Sir Chief lending officer Chief credit officer maze Davenport director of corporate strategy and Bob. Exec. Yep.

vice president

David gentleman will lead off with a review of the highlights for the recent quarters. You will be followed by also Becca smanos who will review some of our recent financial statistics and Tim Manus. So we'll discuss our lending activities including asset-quality. Finally. We will open the call for questions during the call interested parties May participate live by following the instructions that will be be provided by our call moderator taped before we begin. Let me make the usual disclaimers certain of the matters discussed in this presentation May constitute forward-looking statements for the purposes of the federal Securities laws, and as such may involve known and unknown risks and uncertainties and other factors which may cause the actual results performance or achievements of prosperity bancshares to be materially different from future results Performance Off.

achievements expressed or implied

Such forward-looking statements additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in prosperity bancshares filings with the Securities and Exchange Commission, including forms, 10-q and 10-K and other reports and statements. We have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now, let me turn the call over to David's almond. Thank you Charlotte. I would like to welcome thank everyone listening to our fourth quarter 2019 conference call, excuse me, the combination of Legacy Texas bank and prosperity bank effective November 1st 2019 has been one of the most exciting times in prosperity history the commonalities the enthusiasm and strengths that both companies off.

Should not only result.

An asset grow they should also enhance customer and Associate opportunities and ultimately increase the shareholder value. We are excited about Prosperity future opportunities. We are proud to announce that Prosperity Bank has been rated in the top ten of Forbes best banks in America for the seventh consecutive year and we are the highest rated Texas fine highest-rated texas-based Banks.

Before we review the highlights for the quarter. I want to remind everyone that there are many moving Parts in the results including the following one. There was a one time charge of 56.4 million related to the merger to the merger was effective on November first 2019. So the fourth quarter results reflect only two months of income contribution and three the net interest margin is elevated somewhat by a higher loan discount accretion income and we expect to have a huge recorders for the first quarter of 2020. We expect approximately thirteen to fourteen million dollars pre-tax in Lone discount application with regard to the financials net income was 86.1 Million where the three months ending December 31st 2019 catalog.

With a 3.3.

Again, we're the same. In 2018. Our earnings per diluted common share or $1.01 for three months ending December Thirty One 2019 compared with a dollar ninety-nine cents for the same period in 2018 and we're impacted by merger related expenses that 46.4 million are their net income was also impacted by higher loan discount accretion and we expect to have a future quarters.

It should also be noted that earnings per share is calculated based on average shares outstanding which were 85573000 for the fourth quarter Thursday. We issued approximately 26228000 shares in the merger. However, those new shares were only outstanding for 60 months of the quarter as of December 31st, 2019. We had 94746000 shares outstanding.

disregard

Two loans loans at December 31st 2019 were 18.8 billion and increase of 8.4 billion or 81.7% compared with 10.3 billion at December 31st, 2018 leave quarter loans increased 8.1 billion or 76.6 per month from the 10.6 billion at September 13th, 2019. Obviously, the majority of the increase was from the Legacy merger.

Excluding loans acquired in the merger and new production by the acquired lending operations since November 1st 2019 loans at December 31st, 2019 route 218 million or 2.1% compared with December 31st, 2018 and decrease 84 million thousand or eighty basis points on a linked quarter basis average loans the average loans, excluding the impact of the merger increased 407 million dead or percent during 2019.

Deposits and December 31st 2019 were 24.2 billion and increase of 6.9 billion or 40 to 40.2% off compared with 17257000000 at December 31st, 2018 Arlene quarter deposits increase $7 billion dollars billion or 42% from 16.9 billion s September 30th, 2019, excluding deposits assumed in the merging a new deposits generated at the acquired banking centers since November 1st 2019 deposits at December 31st, 2019 increase 801 million or 4.6% compared with December 31st, 2018 and increased 1.1 billion.

P.m. Or 6

27% on a linked quarter basis

as the quality or non-performing assets total 62.9 million or 25 basis points of quarterly average interest-earning assets at December 31st, 2019 compared with 18.9 million or ten basis points a quarterly average interest-earning assets at December 31st. 2018 is 51 million or 26 basis points of quarterly average interest-earning assets, except during September 13th, 2019. The increase in divorce court 8019 was primarily due to the merger Prosperity continues to exhibit strong credit quality.

What's the dark Acquisitions? Although the Legacy merger was affected in in November . We are still working diligently on the operational integration of our two Banks many individual banks are involved in the project and it is on track to be completed in June 2020 as you can tell from the news Bank mergers and Acquisitions activity is robust. We continue to have conversation with other Bankers regarding potential acquisition opportunities in are open to exploring a deal when it is right for all parties and appropriately accretive to our existing shareholders. I'd like to discuss we also have a share repurchase program. We announced today that our board of directors has authorized a share repurchase program under which the company can purchase up to 5% of its outstanding common stock approximately 4.7 million shares over the next year.

The board's approval of this.

Program reflects our continued confidence and prosperity future and our commitment to enhancing shareholder value as has been our approach previously management intends to repurchase shares only when the market conditions are favorable to do so, so overall despite all the gas prices remaining in the $55 to $60 per barrel range, Texas and Oklahoma continue to experience employment and population growth with many companies moving to these sites because of a favorable tax environments and business-friendly political climates consumer sentiment remains strong and the trends suggest a positive start the 2020. I would like to thank all of our customers Associates directors and shareholders for helping such a successful by thanks again for your support of our company. Let me turn over our discussion to also back awesome on all of our Chief Financial Officer to discuss some of the specific financial gain.

Results we achieved.

Good morning, everyone net interest income before provision for credit losses for the 3 months ended December 31st. 2019 was 232.5 Million compared to 157.2 million for the same period in 2018 an increase of 74.8 million or 46.6% increase was primarily due to two months of Legacy Texas net interest income and higher loan discount accretion in the fourth quarter 2019.

The net interest margin on a tax-equivalent basis was 3.66% for the three months ended December 31st, 2019 compared to 3.115% for the same period in 2018 and 3.16% for the quarter ended September 30th, 2019.

Excluding purchase accounting adjustments the core net interest margin for the quarter ended December 31st, 2019 was 3.26% compared to 3.1% for the same period in 2018 and 3.14% for the quarter ended September 30th, 2019 the name interest margin for the quarter ended December 31st, 2019 included only two months of Legacy, Texas net interest income.

Not interest expense was 35.5 million for the three months ended December 31st, 2019 compared to 29.1 million for Life same. In 2018. The increase in non-interest income was primarily due to two months of legacytexas non-interest income partially offset, the sales and write down of assets.

Interest expense for the 3 months ended December 31st, 2019 was 156.5 Million compared to 80.8 million for the same period in 2018.

The increase was primarily due to merger related expenses of 46.4 million and two months of legacytexas expenses.

Until the conversion, sorry until the system integration and conversion. We expect not interest expense to range around 120 to 125 million off. Those are excluding any additional merger-related expenses. We expect to realize portion of the previously-announced cost savings related to the merger beginning in the third quarter of 2020.

The efficiency ratio was 58.07% for the 3 months ended December 31st, 2019 compared to 43.2% for the same period in 2018 and 43.7% for the three months ended September 30th, 2019.

Merger-related expenses. The efficiency ratio was 40.85% for the three months ended December 31st, 2019.

The bond portfolio Matrix at 12:30 1019 showed a weighted average life of 3.42 years and projected annual cash flows of approximately 2 billion and with that. Let me turn over the presentation to dumanis on some detail on loans and asset qualities.

Thank you also back.

Non-performing assets at quarter in December 31st, 2019 total 62943000 dollars off or 33 basis points of loans and other real estate.

The December 31st 2019 non-performing asset total was comprised of 55684000 dollars in Loan $324,000 in repossessed assets and 6935000 dollars and other real estate.

Of the 62943000 dollars and non-performing assets 15811000 dollars or 25% off our energy credits.

15487000 of which are Service Company credits and $324,000 our production company credits.

Since December 31st, 2019 2259000 dollars and other real estate has been put under contract to be sold.

Net charge-offs for the 3 months ended December 31st, 2019 or 1291000 dollars.

1 million seven hundred thousand dollars was added to the lounge for credit losses during the quarter ended December 31st, 2019.

Average monthly new Loan Production for the quarter ended December 31st. 2019 was 496 billion dollars.

Loans outstanding at December 31st 2019 were 18845000. Excuse me, $18 billion $845,000 off the December 31st, 2019 loan total is made up of 38% fixed rate loans 34% floating rate and 28% variable rate off now turn it over to Charlotte ration. Thank you Tim at this time. We are prepared to answer your questions. Can you please assist us with questions?

Yes, we will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press star then to our first question is from Brady from KBW. Go ahead.

Hey, thanks.

Good morning, guys. Good morning. I wanted to start on the deposit side. You know Prosperity had some really nice deposit growth. Even if you exude the acquired legacytexas deposits, but then if you look on the Legacy, Texas, I'd you know, if you look at where deposits were for that franchise as of June 13th. It seems like deposits really were shrinking there. So it just seems like you know, legacytexas deposits have been shrinking pretty aggressively and prosperity has been growing really nice least maybe talk through the Dynamics of what happened on the deposit side there.

Stir crazy, this is this is Kevin. I'd say we're we're executing exactly as we thought we would as it pertains to the deposit side of the franchise with Prospect of continuing their historic strong growth in core deposits as we looked at the Legacy franchise and we go we can go back to 2 when we announced the deal. We talked about the the funding cost at Legacy being higher and having about six to seven hundred million dollars with the high cost deposits that we thought we would move off the balance sheet. We began to do that actually in Earnest before the merger was even completed and the way we were looking at it was basically we looked at a high cost funding in our money market accounts and CDs and kind of compared that to what we could borrow money from from the club and to the extent we had deposits that were higher than that.

And and didn't have any other.

Valuable deposits associated with them we price those out of the bank. So I think in in the fourth quarter and the last let's call it the last four months of last year. We probably based off a little over four hundred fifty million dollars of Legacy related deposits that had very high deposit funding costs. And again that was part of our our strategy from the outset. If if anything I would say we're ahead of the game in that we started earlier than we thought we would start so I I view that as nothing but a positive for the company cuz we can find ourselves much cheaper with the deposits that we're generating today. Then then the cost of those deposits. Yeah. I just mentioned that's what kept just reiterate what Kevin said that was always Our intention. We put the banks together and what made this combination so glad they had the loans and we were inundated with core deposits. And so we're just we're looking at the spring see both sides and it's just makes a lot of sense and just give me a little bit of color. This is also back ugh

You said about 250 or?

Because deposit that's what high cost and we knew that once we brought in Legacy, we would run them off. That's exactly what they did. That's would be one of the largest decreases. We we solve area is Thursday. We just we've never participated in the broker Mark. That's exactly right. And that's a

All right, that that cell phone then. My second question is on tangible book value per share. It seemed to come in a little lower than I was modeling. I'm not sure if that's wrong to the Legacy Texas deal. I also noticed that it looks like the loan Mark for legacytexas came a little higher than the loan Mark we talked about when you'll announce it off on announcement. It was around $175 million of a loan mark, and it looks like it came in at $294.

I'll start off at all so I could probably do it or Kevin. The 177 is the actual Reserve Mark. I think the rest of it comes from fossil back the choice we call it this, you know fast 91 loans, which is a yield interest rate different. So that's the market but hundred million came from that belongs which we didn't model in our announcement. We were mainly focusing on the credit part of a sob or three loans. I think we were talking we were really is still get what what what we think the credit Mark was going to be and I think that we're still spot on on what we did there.

Okay, and then finally just see so I know we talked about an increase of about 20.

30 million last quarter. Does that still feel like the right amount for Cecil?

This is Merle. I guess the range that we would estimate for the Cecil Reserve total would be between 340 million and 360 million.

And that will be split half between the reallocation of the impaired loans that you can see on the balance sheet. As of December Thirty one that will be reclassified as dead purchased credit deteriorated or p c d on March Thirty One. So I'll be just a reallocation within the loan block by debiting gross loans and credit history.

And the other half of the change about $130 million will be actually a reallocation of capital to the reserve and try to put it in English if that's okay, which we have our eighty-something million dollars in the lounge for a little lost the reserve that we had against the Legacy that actually comes back into it we had about I'm just an approximate numbers twenty or Thirty million dollars. I think that we're adding for our portfolio. Let's see so and then we're adding where the Legacy portfolio to see. So how much more a month for just just the for the Performing loans only it's going to be about a hundred and eighty million. So the total effect to cap it would be what it'll be about $130 million dollars increase in capital that would be reallocated as I think that's what they're looking for. Maybe Brady and Brady. This is Oscar.

Just to clarify when we gave this $23 million guide.

That was only on Prosperity of books. And because the Cecil impact and what moral just provided that's including the legacy of books. So just want to clarify that point. It's only Thursday. It's all said and done will have almost 1.7% Reserve which seemed extremely high. Hopefully we won't have to use it. But that's going to be a very high I reserve and we understand that.

I got it. That's very helpful. Thanks guys.

Our next question is from Jennifer from SunTrust. Go ahead.

Thank you. Good morning question on the net interest. Margin Outlook as you see it near-term also back if she said the loan discount accretion is going to come down to around Thirty million. Can you tell us what you thinking about the the net interest margin wage with those adjustments as well as deposit pricing? Yeah. Okay. So regarding to the what we expect near-term regarding the fair value income or loss we expect about thirteen fourteen million dollars. Mr. Zaman indicated and using our model our top line or all in name coming up about between 3:55 and 3:55 range. But if you look at a quarter basis, we seeing around need 330s for next few quarters.

Phones at the margin.

Regarding to the deposit cost that we came in in Consolidated Bank kind of same level. What we were on the third quarter is due to a few things that we did get some rates on our deposits. We were able to reprise high-cost deposit from Legacy at lower rate. So those combination of those brought our cost of deposit to 63% basis points by 61 basis points story. That's including non-interest-bearing deposits again, I think it has to take a range. I think we're saying anything between 345 or 354 maybe 350 in the Middle Bass at all in all in assuming expect it to appear value of Thirteen to fourteen dollars.

Okay, and you said I think in the results that had a small loss on the sale of assets. Can you give us some color on that? That was a some fixed-asset? We'll just wrote down and due to the Legacy. We have one property that we're going to sell or exit out of it. So we have to mark it down that property. So there was a few properties. It's just a building again. We're two two officers close together and we have to sell one of them. And again, we took a bigger market and maybe it is but if it is we'll bring the rest of the money back into income, but we didn't want to come back twice a month exactly. So that's one of the things in my mind.

Okay, great. Thank you. I'll I'll

Others jump in thank you.

Our next question is from Brad from Piper Sandler. Go ahead.

Hey, good morning. I appreciate all the color wanted to follow up on the expense guidance. It sounds like you know, you're really kind of aiming for the back of the year to really see some of the cost savings start to come through. It. Looks like you may picked up a few million dollars sort of out of the gate assuming maybe Prosperity expenses were flat. Just maybe want to get a sense of the magnitude of what you think. You could pick up in the back half up twenty. Do you expect to you know, reinvest, you know, some of those savings that you outlined, you know, when you announced the deal, which I think we're around 25% of all these expense space just kind of curious on how you're thinking about the back half right you absolutely right. I think we did pick up a little bit of saving the fourth quarter related Legacy, but the majority of savings that we found about 25% cost savings would come in the second half of the year. So, I mean that's I think when we evaluated that that we're still in line to get 25% uh,

savings from the Legacy

And but for near-term, I mean with the latest 120-125.

Yeah, if you look at the the legacies historical cost or they had the annual he was one about 44 per quarter. So the bulb 5% we should get $11 per quarter savings that we estimated. Okay, so there's no plans to necessarily really reinvest that that most of that you feel like should fall out of the expansion rate and the third and fourth quarter off and we always operated that if you know Revenue support will always let it Loose little bit, you know the investor the banks so but for right now, we just evaluating that part of it. But 25 savings, we we should see that coming in second half of the year.

And second question for David your comment around you know, your loan offices are is going to be you know, quite massive relative to you know, what you've had particularly given, you know, the low loss rates you've had. I know there are a lot of moving Parts with payoffs in in in what could happen the Legacy book in your own book, but given that size of Reserve would you would you imagine your provisioning needs are going to be pretty minimal all else equal in 2020 and Beyond I hope so you would hope so, I mean, you never know. We we put the reserve and it's not since you know, when you put a reserved it's not something you just pull out of the air. It's based on you know, it's based on what you see and so hopefully if we can do better than what we what we see then then I think that's absolutely right and wrong really Kevin you have been able to move some of these loans already. I've been doing a really good job of moving some of these haven't used and yeah particularly on the energy side Brady. I guess we we ended up dead.

September if we go back

To September with Reserve Base loans of five hundred twelve million. We put a massive effort in the fourth quarter into reducing particularly the stress off loans, so that that production portfolio got $545 million in the quarter and I would say about a hundred and twenty of that were inconsistent of the most stressed credits within the entire portfolio. So we got the the biggest the baddest in the worst are off our books. So the way I think about that is we mitigated the risk get those loans through the Mark we eliminate the risk of those loans by getting off the books and one hundred percent of those cases. We did it at values better than the marks we put on them which wage which helped it add to the equation number in the fourth quarter. So it's has been a massive de-risking of the energy book. We're not done yet. We probably dead.

another fifty or so million

At least to go in the energy portfolio based upon what we know today that number could grow Energy prices back up. But as we sit here today, we made substantial progress. We still have some more to go in in particular around energy. We have talked to storage lie about moving off somewhere in the neighborhood of five hundred million dollars worth of total loans off. The Legacy books long that will take anywhere from a year to a year and half to do we've made the most progress early on the most stressed assets and the faster we can do that the better for us because again, I'm not even know if I wanted to get into this but this the four hundred million dollars that we have four hundred million dollars in loans that really they're performing but still when they're in what do you call the PC with a c d b c d we still don't we don't screw in come on and we won't take that heat come in until we collect those loans. So it it's really beneficial for us that helps us with about another dog.

18 million or so and income once we once we get those either in or out so

Thank you.

Our next question is from Peter winter from wedbush Securities. Go ahead. Good afternoon. I suppose wondering just following up on that question about loans how much I guess you've targeted five hundred million and you wanted to exit I'm just wondering how much is left owed and how you're thinking about loan growth in 2020.

I think that basically we've said this before that you probably won't see any growth on the Legacy side because the growth because we're trying to Outsource or the table for five hundred million dollars on Prosperity side your for still be shooting for the 5% that we have been for the last couple of years. I think the last two years we didn't get quite 5% We hit 4% of the year before and I think we averaged about four percent growth this year, but got killed in the last quarter, but I think so, you know, you're probably looking around five hundred million dollar increase for overall for the bank eighty-two and half percent if you look at that way.

great. Thank you guys helpful.

on the combined

Right, okay.

And then I'm just wondering big picture David how how are things trending in in loan committee? Are you finding that the two companies are kind of on the same page from a risk tolerance risk tolerance standpoint for me. It's it's it's it's better than anything beyond my ever ever. I thought it would be I mean, I sometimes I see Kevin and the loan committee and he's asking the questions before I asked him but it would be my same exact questions. But again, not on what I'm thinking noise the wrong, but the reason it's I can't say how successful this thing is really become because of the people at at at Legacy. I mean, they're really on the team I thank God I I really maybe I'm you know, maybe not yet. I feel really great about it, but I'll let Kevin jump in if no it's the same. I think we came into this with our lenders and there's about fifty.

So you're fifty three of them all knowing you were going to reduce the risk of our loan.

Portfolio whether we get a merger or not may have been aware of that for the better part of a year with prosperity that that risk has been clearly defined and and it doesn't include that five for five hundred billion dollars worth of loans which were Outsourcing. I think you can read out of that the remaining seven and a half billion dollars worth of loans or are probably closer to the middle of the Fairway than maybe most of them thinks about when they think about these two Banks together. So I'd say it's business as normal. I mean, the expectation of our lenders is it is we need to move off the loans that we've or if I'd and and if you can find in structure good loans and bring them along committee. They're going to get done yet. Ride safe as it lands committee and their Chief credit officer turned our loan down. So Thursday, you say every day one of them they voted against our loan. So they they may be tougher the we are right now we might clarify that Peter. This is Tim to Man is dead.

There are three Legacy people on our loan committee now too in addition to Kevin. So it's Kevin and two of his his solid credit quality type of folks and they've been extremely helpful and everything's really been working very well.

That's all.

Just one final question on the the core. Margin you talked about it being like the 3:30 range for the next few quarters. It does seem like that. There's a lot of opportunities to optimize the balance sheet as you bring the two companies together that the core margin could could Trend upwards. I'm just wondering if you could talk about the quarterly trend.

We have somebody else we want to jump in but I mean those are just what if questions but I think we're sure everything that you're saying. I think the longer we go will be Optima will be able to optimize a lot of things. I mean, you've got a hundred and twenty five million dollar know. I'm sure that Legacy had that actually matures and at the end of this year. So, I mean that really adds to the bottom line. I talked just a minute ago about the four hundred million that wage doesn't screw on a cruise that again we don't take it in the income. I think the repricing that we see going forward, you know for them and for us but I think they're just a lot of synergies. I think it's exactly right this also Beck. I mean first thing we did they had a 15 million trust preferred with higher costs. We paid that off and like mr. Obama mentioned that we have is a subordinate notes that we can call at the end of the 2020 that would help definitely with the margin and we looking through those wage.

From items as you as I mentioned.

Earlier we have about 2 billion cash inflow from the bond portfolio. We could reinvest or use that funding to find some Warehouse or the loan. So there's a lot of ways we can pull and we're going through that and we working through them, but definitely we should probably have some kind of positive impact on me. And this will continue our plan we have the final piece of them is we're not done repricing the the liability side that the deposit liability sided that Legacy there's still work to be done much has been done but there's more to be done. So there's opportunities throughout the balance sheet you think about it for us to to work on Improvement?

Thanks very much for taking my questions.

Our next question is from a Brian Luna Wala from Bank of America Securities. Go ahead. Good morning guys. Good morning. It's just one foot follow-up. I guess this time on the Gap margin. So you mentioned the 13 and 1/2 million or so in a creation in the next quarter is like outside of like one of three payments if you can talk to about how that should send over the rest of the year and if we can even into next year like should we see a steady decline and if you can quantify what the pace of the decline?

Yeah, I agree with you.

The Raceway the guidance would give you that same only first or second quarter. But as you know, the balance gets paid off and the do the maturity that fair value will decrease over a year or two. So that's exactly right. What are we looking at total accretion? We think for the first year fifty million, so if you look at 4:50 million total first first year, but the thing is going to be a little bit of a uh higher than the first one and then slows the kind of a little bit slows down the subsequent. Just keep in mind. We're giving you numbers but in my history and experience with Thursday, it's it's very lumpy. I mean, sometimes we're giving you this and then we collect the loan that we didn't, you know, we didn't know if we would collect or not and that comes back into income and you know, hopefully those are good things but it could be very lucky. We're giving you one number, but it could be it could end up being a lot different too. So, you know if I would appreciate that David and they think let me think about that Fifty Dead.

I know it's a loud there like what's the level of reset if you think about?

20-21 cuz the Fall by half or any sense of what will be remaining after the end of the year. Yeah, if you look at our model and the way we project and I think in twenty Twenty-One, it would be half of what about twenty-five maybe Thirty million, but definitely it's going to drop off that's helpful and just moving on the expense side. So the one twenty twenty-five guidance you gave there's about eleven million dollars of savings. If you get all the savings do we get to that low hundred and ten million type of expensive and read by the fourth quarter, or do you think they might be still a little more work to be done in four Q so we don't see that until next year.

So I mean based on what we see right now in this all depends on the integration, right? Most of the costs have been comes from integration of the system, you know, consolidating our branches. You should see that in the second half of the year, but definitely I believe we're going to see that eleven million savings coming in the fourth quarter of this year, maybe third quarter. Yeah starting to occur. But if you're looking at 4. Definitely not going to get that understood that if I can sneak one in David for you you actually slightly surprised by your outlook on doing more m&a just talk to us in terms of the same opportunities said that you have seen today are these larger Bank smaller Banks and it should we still expect staying with in Texas in terms of looking at additional many opportunities?

But Texas is good.

Texas in Oklahoma is good. You know we talked about it when we did the deal with Legacy. We I think I'd mentioned it in cause we were dealing with two or three different banks at one time and we went for a long time and didn't do anything and you know, finally we we pulled the trigger and and we in Legacy and US joined up but there was still some opportunities out there that we were working on that, you know again our first our first concern I wouldn't take concern that our first objective is to get this completely fully integrated in June as good as it's going right now and I guess something can always happen. But if it keeps going as good as it's going right now, I think by the end of next year, you know, there is a possibility.

Have another deal possible.

Understood. Thanks for taking my questions.

Again, if you have a question, please press * then 1 our next question is from Michael Rose from Raymond James. Go ahead.

Hey, thanks for taking my questions. Just wanted to start off. We've seen fair amount of consolidation and m&a activity a lot of lender dislocations. Can you guys talk about a how you're defending against, you know people trying to pick some of your lenders off and then maybe any hiring plans if you guys may have to kind of capitalize on some of the disruption. Thanks God.

Mike is Kevin there is obviously a lot of disruption we're opportunistic when we look at hiring people, but we want to make sure they fit it's it's we spend a lot of time making sure the fit uh makes sense and that that goes even through walk us through the kind of portfolio you have how it's priced how how it's structured. So we're not deliberate about it opportunistic about it in terms of retention of people. I think Prosperity their retention over the years has been outstanding as I've gone. I've had time to get out amongst the markets and meet some folks. There's a lot of long-tenured employees here.

Is returned to the Legacy side.

Are 50-plus lenders all but one of those is under a contract so people can call but but they're they're not going to have much success and off our folks are happy. So I I'm not as worried about retention, um for us and again on the opportunity side, we're delivering we're going to make sure it fits and they can produce in this environment before we pull the trigger. It doesn't mean we won't and we're always talking to folks but we're deliberate about making sure the 5th is somebody that's going to last I would add just as a general culture of we not really gone out. I know sometimes it's opportunistic, but we try not to go out when somebody is having issues to try to hire their people now, it doesn't mean we wouldn't either people if if those people come to us directly, but as far as us going in soliciting the situation in a another bank that's having the issue that hasn't been the way we've done business.

the past

Now that you've had a I guess a couple of months to to kind of look at numbers on a combined basis and and kind of the opportunity set any greater color on what you may see if some potential revenue synergies is this is this gets more integrated and are you able to provide any quantification at this point? Thanks.

I think there are a few possibilities, you know, let's talk about trust Department. The latest didn't have trust Department that will be beneficial for us because we're picking up good territory in the lounge area, there's opportunity for there and there's other opportunities that we can expand from the non-interest income side of it. I mean Spotify we don't have the quantification but life does there a few things we can do relate to the Legacy, you know just overall and size is not everything but you know overall will be larger in the Dallas Market than we will be in the office or if we're in the past. We've only been a little over a billion dollars billion and half or so, so I think that presents a lot of opportunities. It's a great Market just like Euston is I mean, we're still very much concerned about using the being bigger in a larger City really helps to get business. So I think it just a lot of synergies are it has a lot

Okay, that's helpful. Maybe just one follow-up for me.

And just to pay you back on that question. Are there any technology Investments that you have planned? That would eat into the potential cost?

That you laid out for for the deal. I think there's a commercial loan system. You guys are putting into place et cetera.

Well, we just we just switched our core server to Fiserv. I mean our commercial commercial commercial Spicer. But and again we both we both done a lot assess a server our internet banking and internet banking. But again mostly we went on the platform of by server. We were on a number of different platforms to be good with it does suck that took us about a year to really get in place and exactly right because we started the process of upgrading our treasure Management in the internet banking before the acquisition. So I converted the system and we'll be getting ready to convert Legacy in June . But those I did think it technology in the future. I mean, there's only a few aggregators out there once I serve Jack Henry and I think in the future Banks one of the reasons banks are going to merge and consolidate is because the aggregators I don't know that they're offering a good enough product that is going to suck.

really be, you know, it's going to

Carrie Banks larger Banks through and I think in the future bass may have to consider going, you know in house and even doing some of their own coding and Engineering. I just think that's going to have to then maybe and that's I think that's really what is pushing more and more buttons together like that. Yeah Michael, this is Kevin. I think the consensus of of those of us in the room is that eleven million dollars is going to be realize or the vast majority of that will be realized tax affected through the income statement. We're not expecting a whole lot of dilution or reallocation of that money back. That's right also back. I mean really the the tech technology expenditures that we see coming. I mean, they're basically already in our budget and they're taking into consideration. That's as far as all these numbers are concerned. So because it's integration that we switch in this treasure management internet bank if we've been working for years, so that's already building.

Our financials. So if there's if there's a big number that comes down the road it's going to be a real surprise.

I agree with that very very clear. Thank you for taking my questions.

Our next question is from John Armstrong from RBC Capital Market. Go ahead. Good morning. Everyone else David one, one of the comments you made loan growth. You said you got killed last quarter on growth. Can you just expand on that a little bit and you know talk a little bit about what happened wage. I mean basically the payoffs and the last quarter were just unbelievable that we we saw a lot of our the number of our large projects go into vinyl financing they mostly from insurance companies where they were offering, you know, fixed rates for longer periods of time cash out and no, you know, no personal guarantee. So we couldn't really hold our own know it was good for our customers. That's what it's supposed to be working. And then we saw other other deals just being sold and you may want to give some color on it at all. But the Border there was a law.

Activity in the fourth quarter of people trying to close deals before year-end and is David indicated. There is a lot of competitive products.

Doubt there on the non-bank sources on refinancing the non-recourse seems to be a very big carrot as you could well imagine and if that availability is there plus the cash out component longer amortization and the name a good right? So and we're in some very Dynamic markets and Houston Dallas and Austin people are coming in and projects are selling where with there might have been a little bit more stickiness to it whether there would be a longer period to get to stabilization. We're seeing those properties sell a bit faster than we've recognized in the past. So forth quarter was just very active on all fronts and the payoff finances.

Okay, good. That's helpful. And then Tim you talked about the monthly production average of almost five hundred million. I I I'm guessing December might be a little bigger than that wage. And I compare that to what you talked about last quarter and I'm just I'm it seems to be fairly radical with the balance sheet size increase, but I'm just curious when you guys look at the pipelines today. Can you talk a little bit about geography and size and type and if it's any different than you know, what you saw a quarter ago before the merger closed so that make sense all she does just to put it in perspective. As I said earlier the average monthly production for the full quarter was 496 billion and that was essentially 271 million on the prosperity side.

and 225

And on the Legacy site and that is for the full three months of the quarter on the Legacy side. We expect that Legacy is going to pull up to the prosperity line and maybe even surpass it as you can probably expect, you know, any time there's a a combination of companies like we've had sometimes it takes the eye off the ball a bit and it takes the lenders a while to get back to normal so to speak so I think we've had some of that month there hasn't been any dramatic change.

And the market places that we operate is Eddie mentioned a minute ago. The competition is fierce has been probably always will be I guess, but you know when I look at when I look at the month of December , it was not particularly as strong, but then when you look at the legacy mode of October was was the worst of their three months. So it's hard to size it up and hard to predict. I don't see a whole lot different for the next quarter. Actually than what we're saying right now occurred in fourth-quarter. I don't know what I'm really helping you or not, but I would say that, you know, it's you know this year. The birth order was terrible the year before it was good. So I thank you almost have to look at it on an annual basis. Maybe a little slower. Like you said this first quarter, but I would kind of stick with the Water Club.

Percent is what I would think that's right.

And I guess I guess the one thing we can say with certainty at this point in time is is we don't see any economic deterioration in the baggage. We operate in now something could happen tonight that could cause that to change that's just the way the world works but right now everything seems stable and consistent.

Okay, that that helps and then last one David four you were maybe Kevin just given the larger balance sheet and wanted to follow up on em and hold you to it. But is there anything that doesn't make sense in terms of size meaning? Is there kind of a a minimum cut-off that you look at today with a balance sheet of over thirty billion to maybe you know pre-merger before you might consider that you wouldn't consider today.

You know, I want to be careful because you know, if you're telling me Dallas or Houston or Austin, and there's a five or six hundred million dollar Bank there. A lot of people would say you shouldn't mess with that on the other hand. It may be something that we would consider, you know, if it's in a market if you told me we were going to go if you told me we're going to go to another state and buy a billion dollar Bank. I'd have to say that probably wouldn't make a whole lot of sense. We moved to another state. We we'd have to we'd have to become be able to become a major player there within a in a short period of Time March, makes sense. Thanks. Thanks guys.

this concludes

A question-and-answer session. I would now like to turn the conference back over to charge for closing remarks. Go ahead. Thank you Kate. Thank you. Ladies and gentlemen for taking the time to participate in our call today. We appreciate the support that we get for our company and we will continue to work on building shareholder value pack.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.