Q1 2022 Prosperity Bancshares Inc Earnings Call
Good day and welcome to the prosperity Bancshares first quarter 2022 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like turn the conference over to Charlotte Rashi. Please go ahead.
Thank you.
Good morning, ladies and gentlemen, and welcome to prosperity Bancshares' first quarter 2022 earnings conference call. This call is being broadcast live over the Internet at prosperity Bank USA Dot com and will be available for replay for the next several weeks I'm, Charlotte Rasche Executive Vice President and <unk>.
General counsel of prosperity Bancshares and here with me today is David Zalman.
Your chairman and Chief Executive Officer.
H E Tim to Manish Junior Chairman also backups, Manav, Chief Financial Officer, Eddie Saturday Vice Chairman.
Kevin Hanigan, President and Chief operating Officer.
Randy Hester Chief lending Officer, Merle Karnes, Chief Credit Officer, Mays, Davenport director of corporate strategy, and Bob Dowdell Executive Vice President.
David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by also backups Manav, who will review some of our recent financial statistics and Tim to manner.
I will 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 provided by our call moderator.
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 uncertainties and other factors which may.
Cause the actual results or performance of prosperity bancshares to be materially different from future results or performance expressed or implied by such forward looking statements.
Additional information concerning factors that could cause actual results to be materially different than those in the forward looking statements can be found in prosperity Bancshares filings with the Securities and Exchange Commission, including forms 10-Q, and 10-K and other reports and statements we have filed.
All forward looking statements are expressly qualified in their entirety by this cautionary statement.
Now, let me turn the call over to David Zalman. Thank you Charlotte and everyone. Welcome to the prosperity Bancshares first quarter 2022 conference call each year Forbes assesses the 100 largest banks in the United States on growth credit quality and earnings as well as other factors sports America's Best Bank.
Louis Prosperity Bank has been ranked in the top 10 since the list inception in 2010.
We have twice been ranked number one we were ranked number two in 2021 and are ranked number six for 2022. It is a testament to Prosperities performance call.
What's your vision and consistency and distinguishes us among most banks.
I want to congratulate and thank all of our customers associates and directors for helping us achieve this great honor.
Let's go on to the financials on a linked quarter basis. Our net income was $122 3 million for the three months ended March 31, 2022, and that's compared with $126 8 million for the three months ended December 31 2021.
The change was primarily due to a decrease in loan interest income.
Average warehouse purchase program loans decreased $504 million in the first quarter of 2022 compared with the prior quarter.
P. P fees were lower as the loans were repaid.
This was partially offset by an increase in securities interest income.
Our net income per diluted common share was $1 33 for the three months ending March 31, 2022, compared with $1 38 for the three months ending December 31 2021.
Our annualized return on average assets for the three months ended March 31, 2022 was $1 two 9%.
Our average our annualized return on average tangible common equity for the three months ended March 31 2022.
Was 15, 3% respectively.
<unk> efficiency ratio was 43, 6% for the three months ended March 31 2022.
Going onto the loans when you compare year over year loan totals, excluding the warehouse purchase program and PPP loans at March 31, 2022, or $16 6 billion compared to $16 2 billion at March 31.
2021, an increase of four.
$409 million or two 5%.
On a linked quarter basis linked quarter loans decreased $548 million or two 9% from $18 6 billion at December 31, 2021, primarily due to a decrease in warehouse purchase program loans.
<unk> quarter loans, excluding warehouse purchase program and the PPP loans decreased $33 million from $16 7 billion at December 31 2021.
We continue to see and approve a record volume of loans. However, we had a significant paydowns during the quarter Sam will provide specific information on loan production.
With regard to deposits deposits at March 31, 2022 were <unk> 31 billion, an increase of $2 3 billion or 8% compared with $28 8 billion at March 31 2021.
Linked quarter deposits increased $296 million or 1%.
Three 9% annualized from 38 billion at December 31, 2021.
Deposits seem to be normalizing historically, excluding the last two years are our organic.
Organic deposit growth right ran about 4% with most of the growth in the first quarter decreasing in the second quarter and increasing in the fourth quarter.
<unk> continue to rise we expect that our time deposits will increase as they are currently at only 8% of total deposits right now.
Sumer deposits increased over the last several years during the pandemic that we are now seeing people spend more of their savings we expect that business deposits will increase over time, if the economy stays strong.
Replacing the excess consumer deposits that are being spent.
On asset quality, our asset quality remains down year over year nonperforming assets decreased 38%.
Our nonperforming assets totaled $27 million at March 31, 2022, compared with $44 million at March 31, 2021, and $28 million at December 31, 2021.
On the economy companies and individuals continue to move to Texas and Oklahoma.
Primarily because of lower tax rates and a favorable pro business political environment. The overall economy remains strong despite concerns around higher interest rates inflation supply chain issues and the war between Russia and Ukraine.
Our bank has sound credit quality solid core capital and strong earnings we expect that our earnings will benefit from the higher interest rates. However, as I previously mentioned because of large bond portfolio with an effective duration of three six years. It will generally take us longer to see.
The full effect of the increase.
Our securities portfolio is 97% held to maturity, which will protect the bank from having an unrealized loss in the portfolio that adversely affects our tangible capital and a raise rising rate environment.
With regard to acquisitions as we've indicated in prior quarters. We continue to have active conversations with other bankers regarding potential acquisition opportunities. Although the conversations have slowed somewhat given the war and the decline in the stock prices.
Overall I want to thank our associates for helping create the success. We have had we have a strong team and a deep bench at prosperity and we will continue to work hard to help our customers and associates succeed and to increase shareholder value. Thanks again for your support of our company, let me turn over our discussion.
To also back a small enough our chief financial officer to discuss some of the specific financial results. We achieved oscillate. Thank you. Mr. Zalman. Good morning, everyone net interest income before provision for credit losses for the three months ended March 31, 2022 was $239 9 million.
Compared to $254 6 million for the same period in 2021, a decrease of $14 6 million or five 7%.
Current quarter net interest income includes fair value loan income of $5 2 million compared to $16 3 million for the same period in 2021, a decrease of $11 1 million.
The current quarter also includes PPP loan fee income of $3 3 million compared to 13 million for the same period in 2021, a decrease of $9 7 million. However, the interest income on our security for the first quarter of 2022 increased six point or 60.
$10 3 million compared to the same period in 2021.
The first quarter of 2022 net interest income excluding the impacts of PPP loans warehouse purchase program loans and fair value alone income improved compared to the same result in the fourth quarter 2021.
The net interest margin on a tax equivalent basis was 288% for the three months ended March 31, 2022 compared to $3 four 1% for the same period in 2021 and 297% for the quarter ended December 31 2021.
Excluding purchase accounting adjustments the net interest margin for the quarter ended March 31, 2022 was 281% compared to $3 one 9% for the same period in 2021 and $2, 91% for the quarter ended December 31 two.
'twenty one.
The decrease in net interest margin on a linked quarter basis was primarily due to higher liquidity and lower PPP loan fees.
Noninterest income was $35 1 million for the three months ended March 31, 2022 compared to $34 million for the same period in 2021.
And $35 8 million for the quarter ended December 31 2021.
Noninterest expense for the three months ended March 31, 2022 was $119 9 million compared to $119 1 million for the same period in 2021 and $119 5 million for the quarter ended December 31 2021.
For the second quarter of 2022, we expect noninterest expense to be in the range of $120 million to $122 million. The expected increase in noninterest expense is based on the annual merit increases in the second quarter 2022.
The efficiency ratio was 43, 7% for the three months ended March 31 2022.
241, 3% for the same period in 2021 and 42, 8% for the three months ended December 31 2021.
During the first quarter 2022, well recognized $5 2 million and fair value loan income.
This amount includes $1 5 million from anticipated accretion, which is in line with our guidance provided last quarter and $3 7 million from early payoff.
As of March 31, 2022, the remaining discount balances $7 8 million due to the low remaining discount balance we estimate the accretion income for next few quarters to be around $1 million to $2 million.
Also during the first quarter of 2022, we recognized $3 3 million in fee income from PPP loans as of March 31, 2022, PPP loans had a remaining deferred fee balance of $3 9 million.
As the PPP program winds down we expect PPP fee income to be around $1 million to $2 million for the second quarter 2022.
The bond portfolio metrics at 331, 2022 showed a weighted average life of five one years and projected annual cash flows of approximately $2 2 billion.
And with that let me turn over the presentation to Tim <unk> for some details on our loan and asset quality.
Thank you also back.
Our nonperforming assets at quarter end March 31.
2022.
<unk> totaled $27 million $184000.
<unk> 15 basis points of loans and other real estate.
Compared to $28.088 million or 15 basis points at December 31, two.
2021.
This represents approximately a 3% decrease in nonperforming assets.
The March 31, 2022 nonperforming asset total.
Was made up of $25 million $460000 in loans.
$19000 in repossessed assets and.
And $1 million $705000.
In other real estate.
Yes.
Of the $27 million $184000 in nonperforming assets only $15000 are energy credits all of which are service company credits.
Since March 31, 2022 $6.356 million in nonperforming assets have been removed or put under contract for sale.
But there is no assurance these contracts will close.
This represents 23% of the nonperforming assets at March 31, 2022.
Okay.
Net charge offs for the three months ended March 31, 2022 $1.217 million.
Compared to $807000 for the quarter ended December 31 2022.
Excuse me 22.
'twenty one.
No dollars were added to the allowance for credit losses. During the quarter ended March 31, 2022, nor were any taken into income from the allowance.
The average monthly new loan production for the quarter ended March 31, 2022 was $632 million.
This compares to an average for the entire calendar year of 2021.
$621 million per month.
Loans outstanding at March 31, 2022, or approximately $18.6 billion to $8 billion, which.
Which includes $86 $3 million in PPP loans.
The March 31 2020 to.
Loan total is made up of 39% fixed rate loans.
35% floating rate loans, and 26% and favorable rate loans I'll now turn it over to Charlotte Rasche.
Thank you Tim at this time, we are prepared to answer your questions. Matt can you. Please assist us with questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
And anytime you question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And our first question will come from Jennifer <unk> with <unk> Securities. Please go ahead.
All right. Thank you good morning.
Good morning.
Can you give us a little more color on the pay down you had in the quarter and kind of lack of loan growth on a core basis.
Well I can kind of start and probably catheter Tim can jump in at the same time, but the bottom line is we just had a lot a lot of projects.
Where it had been construction projects.
The family.
Projects as some offices and the projects completed to customers either sold them. It took them into the secondary market and that's the way it's supposed to work our production was good but again just had had a lot of paydowns and.
You could put some lipstick on it I guess, but the bottom line is they are just.
Bottom line is is that we just.
<unk>, a good amount of business, but at the same time.
Our customers.
Anish your projects and complete them and sell them. So they made money on the deal. So that's about it really.
That's all correct.
The warehouse.
Loans decreased by approximately $430 million on a linked quarter basis and.
In the structured real estate loans decreased by about $70 million.
On top of that as David says there were a number of projects.
That had been completed.
And had development NOI that was sufficient to enable the projects to be sold.
So they were successful projects.
One was about $84 million that.
It was paid down there were several in the $6 million to $10 million range. So when you take all of that into consideration and that's really the main driver and the answer to your question.
What's your confidence in net loan growth for the rest of <unk>.
This year.
What are you seeing in the pipeline.
Well again, I think our pipelines are strong, but having said that the payoffs are still strong I think in this quarter.
In April alone. The first week, we had like $140 million in Paydowns and so again good projects some in public storage and some on the industrial side, but again, we're still going to shoot for the 5% growth it may be hard to get there but.
Yes.
Still living in a very you couldnt ask can be in a battery economy in a place where the poppy type of populations growing business is moving.
Hopefully hopefully with inflation you know your your business customer shifts you would have to start drawing up on their lines at the same time and you just have a lot of people come in and so I mean, we're still going to shoot for the 5% maybe maybe.
We may have to reach that more in the third and fourth quarter than the second quarter, but again because of the paydowns, but again, we have a good group of people in.
Yeah.
I think we can do it Kevin did you want to talk a little bit.
Jennifer.
I think one of the things we've done we haven't done a ton of it in the past.
The quarter, we hired.
Six really solid producers in the Houston market alone.
All of which have started and these are folks who have been around the market for considerable period of time and have produced well wherever they've been most have worked for me when I was in Houston in the past.
Institutionally.
I know what they can do and that doesn't mean, they're going to do it but I wouldn't bet against them, which is why we hired them.
So I think.
We've added a number of really really good producers that have portfolios.
And we're planning on having them move some of those portfolios over to us probably a little bit of color Jennifer I may be able to help let me Austin was on fire and probably our biggest producer on a percentage basis. Historically, he Houston had big has been our biggest producer with.
At quarter, plus $100 million plus even after all the pay downs in this quarter for example.
It's kind of neutral or even down a little bit on the Houston market. So a lot of they weren't able to jump in because of all the paydowns, but so Dallas is still doing good.
However relates to <unk>, we are still reducing the structured commercial real estate loans. If you took that out they would have still been positive too, but again Houston being one of our biggest producers.
And then.
A lot of the payoffs being and that hurt us this time that.
At the same time, that's the way it's supposed to work and customers are supposed to get out there do projects and making good in settlement. That's what's really happened and it's just unfortunate for US we have to get out there and start hessling more and try to get the loans in that.
Having said that I would say this that we're in a market right now where things have really improved for us we need loans, but at the same time.
Our bank is still made up of extremely core deposits and we make money both ways.
Just to give you an example on the bond portfolio.
And probably last quarter, we talked we were probably making a one 5% or $1 25 on a bond purchase that we would purchase today, we're probably making more like 325 or $3 50, So we're going to make money both way and but again, we still want to build loans at the same time that we're focused on that we still want to get there, but again our bank is.
With a core deposits to make money both ways either loans and bonds.
I'd add to that everything that David has said and Kevin had said is correct.
The backdrop to it all is that the economy in Texas as well as Oklahoma is still good.
Businesses are still moving to both states people are still moving to both states.
I guess the primary unknown right now is what effect, if any higher interest rates youre going to have on the business climate.
Today, it doesn't seem to have had a detrimental effect.
But time will tell on that.
And in addition to the new folks that we've hired in Houston that Kevin mentioned, we've hired a scattering of favorable throughout the rest of the state of Texas and Oklahoma also so.
We're hopeful that we've got gotten the increase in good producers so if the.
If the economy holds the way its been I think we're optimistic.
When will it be with any other bank on another bank. Besides mind, let me say that our ours, so I feel comfortable where we're at.
How much more structured commercial real estate runoff is expected until that portfolio stabilizes at something you want to have zero exposure or.
No. This.
This is Kevin again, Jennifer I think.
There is probably another 150 to go maybe 180 to go out of the portfolio. There is some core customers in there that we've kept and renewed already.
<unk> extended those loans out for three to seven years. So there is a core group that fits.
And we've got a little bit more to go.
As anticipated the number.
The amount of run off out of that portfolio continues to come down I think it was $72 million for the quarter.
And I would think Q.
Q2 is going to have a similar number I'd say $60 million to $70 million again.
Thanks, so much.
Okay.
Our next question will come from Dave Rochester, with Compass point. Please go ahead.
Hey, good morning, guys.
Good morning.
Hey on that commentary on the structured CRE pay Downs I know you mentioned you had maybe 140 million overall in Paydown. So far this quarter, how much of that that.
That you expected that was coming up at 150, or so was actually in that $1 40 that you've already realized.
The 140 I mentioned.
Didn't have anything to do with the structured commercial real estate.
Got it projects that were outstanding and complete it in so.
Okay.
I guess going forward how much in the way of had pay downs are you expecting in your core CRE books outside of that structured book for the rest of the year.
Any sense of that.
Candidly thats very hard to predict.
<unk>.
All the projects seem to be on schedule.
Seem to be doing well.
Whether or not the owners decide to sell them or hold on to them.
Those are decisions that we're not necessarily privy to.
Until it happens.
So I don't know that we can.
Give you a really accurate count of that any of them could be held any of them could be sold.
I think the piece of this.
I think the people there so the projects were pretty smart Jaime.
Cap rates, where they were a big public storage. So this whole portfolio out.
Huge multifamily project for a big developer here in Houston.
So an office deal so all of them. So it made a good profit base for interest rates, where as interest rates go up.
They made a smart decision I would think as interest rates go up you probably are not going to have as much opportunity to sell going forward. So I think the people that have been selling.
Probably made a good decision and really to do it right now, but you have to anticipate that the cap rates will go up and that may impair some sales that wouldn't otherwise.
They held back I just thought it was and I just thought it was unusual to San Jose.
Some companies that really sold our whole portfolio, where we used to CMA be so just a position and so so so some people are really taking some macro views on interest rates, I think really well and that that.
Of that one in Houston that I think you're referring to.
He was offered.
What I would call an unbelievable amount of money for all of its projects. Yes. So every one of them, Brian I would've done the site, yes, absolutely more money than <unk>.
Evergreen bluish possible, yes, I guess, the best way to put it.
So cap rates end up trending up I mean, you would expect that that.
Pay down activity to subside pretty substantially I would imagine well.
Well just depends on how high rates go but there should be some decrease in the sales thats right. Okay.
Okay.
And then just switching to the deposit growth that was nice to see when it's normally not a great quarter for deposit growth or are you still seeing growth this quarter and what's your outlook on.
Growth overall for the rest of the year.
Again, I had mentioned earlier that before we were growing 10% plus a year our organic growth rate was between 2% to 4% organic growth I still think we'll see that this year.
Usually the second quarter, we see a down quarter.
And it starts picking up in the fourth.
Fourth quarter, So I think probably you'll probably see deposits down next quarter, but probably increase towards the end of the year and the one thing to keep in mind. We also have public funds that.
We have a end of the year growing so once they started using those public funds. They are going to go down a little bit on the second and third quarter, but we're going to pick up back again on the public funds back end of the year. So from from that dynamics, you might see some shrinkage in the deposits overall, but if you look at it nonpublic deposits.
We should most of our growth comes from the quarter pause exactly for consumer deposits really and I would say also that I think that probably.
If the economy stays ethylene I'll go into World War, III or something like that and business days that businesses are starting to make more.
More money too and those deposits should really be coming into the bank to help they should they should probably be increasing.
Interest rates, obviously have an impact on deposits.
So.
That's something we'll have to deal with it hasnt happened yet it hasnt been significant yet, but it is reasonable to assume that that is coming but there are things that play in and some of our markets.
I don't know how long, it's going to last but some of our larger competitors have been closing locations.
And to what extent they'll continue to do that I don't know don't have any idea, but we have picked up a fair amount of business from Wells Fargo from Bank of America from even chase.
Because of dislocation within their banking centers.
So once again I don't have any idea, whether that's going to continue but if it does thats going to supplement our deposit some right there are.
I would at least anticipate wood.
Yeah.
Okay. That's.
That's good color.
Maybe just one last one how are you guys thinking about Super core margins at this point.
A higher rate backdrop are you thinking maybe we've hit a bottom here and on your securities purchases. This quarter, what was the average rate on those and whats your appetite for continuing to grow the book.
Yeah.
The software I'll take this question. So if you look at our balance sheet.
Asset sensitive position, so as well.
Positioned well in the interest rate rising environment.
So from that standpoint, when we analyzed Super core we expect the Super core to continue to expand and we've seen it and based on our models. We ran several version of models you know, we anticipation with 50 basis points increase in May I think from the Super core margin standpoint, we hit the bottom in the first quarter I think of a margin going to be expanding starting.
Second quarter, assuming everything stays the same with variable stay the same and with increasing rate environment. We see expansion in our models right now so it'll be positive the interest rate increase will be positive on our own.
I don't think Theres any question Dave that.
We have bottomed out again.
If interest rates are going to rise as they are predicted to rise and we are sitting very very pretty with $2 $2 billion a year just in bond portfolio rolling off.
We have another $1 billion, plus and that's not even invested yet plus we have another $5 billion or so and allowance.
We're talking a year looks really good in two years, you're really looking at a net interest margin. It goes back to more historical level, where we were where we really should make a lot of money.
Okay. You mentioned the cash there are you looking to grow the securities book more here given our rates.
We are normally we buy in every market. Fortunately, we we still are buying in every market but.
We didn't buy as much I guess over the last month or two but again, we have so much money rolling off all the time, we are continuing to roll to buy and I would even think.
Before the right Scott so low we actually even leverage the bank by about $1 billion or so so I think that may even be a possibility once we get fully invested and we will probably even leverage the bank by $1 billion and how to help also at the same time and just one question with what the average yield on the bond portfolio was 162 in the first quarter.
So if you take $2 2 billion and reinvest is putting in a quarter.
Can see how much upside we have but it takes time as we mentioned right. It takes time to get there, but upside is there and these guys have yoga model the numbers I'm sure there'll be plug and obviously rates in and taking a breath.
Yeah, Thank last monthly <unk>.
I think the last day, we bought was Friday at three we got $3 40, or something like that <unk> 50, I think it was down yesterday, maybe about 10 basis points, but you guys have the model you can see you can do the numbers you can see what it really looks like its really nice it really it looks bright for us in the future.
Everything works like it's supposed to do and interest rates go up to what they are saying.
Yeah, alright that sounds good thanks, guys.
Yes.
Our next question will come from Brad Millsaps with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, good morning.
David maybe you want to start with with fee income.
Banks have changed the structure of their NSF overdraft programs, just kind of curious if you could kind of offer any color on kind of how you guys are thinking about it.
Any changes we should think about in that kind of fee line going forward.
Well I think somebody telling me there was supposed to be looking at a committee meeting today, where they're talking about it but I'd have to tell you that I'd have to tell you that really I don't see us changing at.
At least right now.
The reason you would change it because youre, losing business or its a competitive our competitive basis.
Tim mentioned, a while ago, maybe you saw our lobbies for the new accounts that are coming in from the number of banks that he mentioned those are the banks that have actually lowered their service charges and those customers are coming over to us. So I don't see lowering our service charges right now it may maybe in the future it will.
We offer some products that really that really is some customers that they really don't want charges I continue to keep a certain amount in your checking account and stuff like that but.
I think we offer a service where maybe some of the each banking center. We have 275, they make a decision every day about their overdrafts and so those customers, where sometimes they may not like pain.
They do like as carrying them in the overdraft and paint and where they are never going to find that one of the other banks. So that has some to me that has some value how much value that is and again I'm not saying, we'll never do it if things ever got competitive where we were losing business or not growing we would have to do it but right now.
What I see our lobbies and those customers are coming from the other banks, we don't have to do it right now they are still coming to us and those are the banks that have lowered their fees. So I don't see why we would do it.
Oh, great. Thanks, that's very helpful. Thanks for that color and then just maybe as my follow up Kevin could you talk maybe a little bit about the mortgage warehouse business.
Kind of your Crystal ball for balances and also.
What youre seeing from a.
From a yielded rate standpoint.
For borrowers in that business.
Yes sure Brad.
Yes.
First quarter ended up just about where we thought it was in January .
<unk>, we talked about it being a $1 billion $2 $50 billion to $1 billion, three and I think ended up to $1 billion and $2 69.
Almost right in the middle of that range.
And interestingly, our weighted average coupon on the portfolio.
The quarter was $3 18, so it was up a couple of basis points of where it was in Q4 of last year that said, it's still pretty competitive pricing environment out there.
Certainly havent seen anybody coming in where we can increase rates on anybody and we do get some requests for decreases.
So it still remains competitive.
My Crystal ball.
<unk>.
As more difficult in this rising rate environment, because we haven't seen the impact of rates hit hit.
Hit the volumes yet is usually about a six week lag from application to alone shown up on the warehouse. So that's yet to come.
But if I was to pick a number Brad I think it will be I think in the second quarter, we will average somewhere between $1 billion $3 50, and $1 four on the high side.
Volumes have picked up in April from where they were in March which is typical seasonal nature.
What we're doing.
And we seem to be getting at least our fair share or a bit more than our fair share from our plant base. So.
Let's go with $1 billion $3 $51 billion for an average in Q2.
Great. Thank you guys I appreciate it.
Our next question will come from Brady Gailey with <unk>. Please go ahead.
Hey, Thanks, good morning, guys.
Morning.
I wanted to circle back.
On the topic of loan growth.
There are no balances this quarter were somewhat stable just do pay offs.
Think about bigger picture.
And a great market there in Texas.
Lot of your peers that are growing.
Just had a lot faster pace frost is around 10%, even if a finance around 10% now.
<unk> that are growing.
20%.
Such a great market.
But you know your growth I know you guys are just consistent kind of mid single digit.
Kind of what you've always done it seems like the opportunity.
It would be a lot higher than that so what makes prosperities.
Growth profile, a little while so good because of your markets.
The fact that you guys are just more disciplined credit.
Credit underwriting, but what pulls down kind of the growth profile, especially nowadays relative to your Texas peers.
Let me start if I cannot I think theres, probably a lot of answers to your question. There is a number of answers to that I think when you look at Frost I mean.
Their loan to deposit ratio is 138% or something like that.
Don't have it off the top of embedded a lot lower than ours. So the growth is good for them they didn't need to grow.
You look at banks like <unk>. So some of the smaller banks on a percentage basis theyre hiring a bunch of people.
They are probably taking more risk than we are and it probably charging lower rates.
There was reasons for everything that no matter, how you cut it I think what you did say we should be we should be doing better.
I've seen the bank have been with the bank for 25 or 30 years. So I've seen our bank, sometimes when somebody else is doing better than we are and sometimes we do less than what they are but overall our consistency in our growth seems to outshine, the other guys and our asset quality.
These prevails, especially in the half.
Harder times, which we may see that but having said that.
But we should we should be doing better the growth rates that youre seeing I would tell you that in <unk>.
This is my opinion.
20% growth rate in loans as Tim historically is not where you really want to be.
<unk> wasn't that great in the future. So again theres reasons for it and they may have certain raises in the hire people what it is that historically the banks going through.
My lifetime and banking any bank is growing super fast like that there is usually some type of issues down the road not saying that's wrong. It's just it's not it's not what we've taken what we our position has been has to grow.
In my opinion. This is just my opinion, but.
The mother's milk or a bank is the deposits that you have to grow the loans at the same time, but we've tried to have consistent growth in the overall as a company, but more importantly, just to say that you want loans right now.
<unk>.
We're probably more interested or is interested in earnings per share.
Well, let's just use some of the examples that you had I mean vertex to have 20% loan growth and you looked at their stock price has really gone the other way so.
I don't know that loan growth in and by itself is going to make the stock price go up I think the recipe there has to be the faith in.
The consistency.
What you've done in the past the way youre going into the future. So I think its more total than that.
Tim do you want to well I would just say that.
One of the things that accounts for the differences that you're speaking of.
Is the structure of the loans.
And while we're certainly not knowledgeable about the structure of every loan that these other banks put on it.
In many cases, we are because we compete for the same loan and we find out.
What what actually happened.
And once again, we don't know about all of them, but it comes down to the structure.
Whether or not the borrow is required to have any of its money in the transaction.
Often the equities that the borrower has to put in is very minimal.
Okay.
It depends on whether there is any recourse to a person or another entity.
Lot of times, there is no recourse back into alone.
It depends on the amortization of the loan sometimes there are a lot longer than the useful life of the collateral that supports alone justifies. So all those things are risk factors.
And you have to look at each one.
On its own merit and evaluated.
But we're trying to grow loans, but at the same time not put our bank in jeopardy. I'll just use an example attempts to mine as mortgage warehouses.
We probably lost a customer that 100 million $150 million line, because we were charging what we felt was a fair rate and another bank came in and charged them one 8% well for us to me that was it.
It wasn't enough of a return for the risk that youre, taking on what we could reinvest the money and so I think theres a number of deals I think you have to you have to consider profitability asset quality and all of those things that come into it but but.
Not to make light of it we should be doing better.
Kevin do you want to jump in on the deal.
The only thing I would add there or.
Modify warehouse.
Warehouse customer Dave was talking about we lost several quarters ago drug. So it doesn't doesn't impact my crystal ball for Q2 right.
But we've had a number of customers.
The rights that they have been given is just not something that we could live with I mean, that's correct pricing has just been so cheap on some of these deals the terms and conditions you'd have to ask the question why do we want just to have a loan on the books didn't make a whole lot of sense just have alone. If you could make money out of it for example, when when prime was at three in a quarter, which was.
Not that long ago.
It wasn't uncommon to see somebody approval loan at 2%, maybe even a little lower than that are barely above that.
That works a little bit on occasion, but too much of that year in travel. So we've seen we saw a number of loans, even commercial loans that wanted to be priced at two 5%. It just didn't make a whole lot of stuff right. So we're trying to we're trying to be as balanced as we can.
Alright.
All great color.
And then just finally for me I wanted to ask.
About M&A.
Been a while since you.
Kevin So I think the market's looking for.
What is Prosperities next deal.
But you know you are.
Currency trades at 10 to 11 times earnings, which doesn't give you a ton of power there, especially in a state like Texas, where things are relatively expensive.
There is talk about.
The nation slipping into a recession.
So to me it seems like M&A will be a lot less likely for you guys right now is that the right way to think about it near term.
I would say that.
Before you had the year, Ukraine, Russia, or our stock was trading about 75% $76 a share and we had negotiations in talks with several banks.
We've continued those tough with the banks however, the stock price, where it is that doesn't make a lot of sense, though.
I would never say never you never know that we're staying in contact with the banks.
We have had talks with we will continue to do that and if it works. It works I mean, but again we have.
Just to grow to grow doesn't make a whole lot of sense I mean, when you when you when you own a lot of the shared a number of share yourself, you really want to make sure that you're increasing the earnings per share to book value and a tangible book value of our bank at the same time.
Okay, great. Thanks, guys.
Our next question will come from Brett Robinson with Hep D Group. Please go ahead.
Hey, good morning, everyone.
Morning.
I wanted to ask.
A lot of stuff I wanted to talk about has been covered but one of the things that.
Obviously, they talk about recession, and I think everyone is fully aware that you guys.
Superior credit quality commercial institutions.
And so I was just hoping to get.
A flavor for what you what you view as credit risk in this environment or as rates move higher.
If not in your portfolio just as you see it across the landscape what loan categories.
What types of business. There is our commercial real estate do you kind of worry about more as we move into higher cap rates and potentially slower economic growth.
But I would say higher interest rates.
What theyre intended to do is to cause a downturn or a recession in <unk> and probably land values and stock prices, that's the whole intent to bring in place and down.
Having said that I don't know that you will exactly have a recession. This time is it just an opinion theres. So much money is so much stimulus in peoples deposit accounts that it may be it may be maybe we won't but having said that if there. If there is a recession I don't think there's any other bank that you would rather be with.
Somebody asked about the loans, a while ago I don't think and maybe we could have taken more risk we could make more money, but again I don't think theres any other bank that you would rather be with in a recessionary period of time and generally.
And my favorite Com and as you like has been the good times and you'd love us in the bad times and I think that's still true today.
If youre talking about recession and inflation. If you do we do have a recession.
I think youre going to see it's going to be different on the west coast and the east coast may be than in Texas, because Texas steel is enjoying a terrific amount of growth youre seeing companies still com population growth. So.
It may affect us I think different parts of the country may be affected differently. I think good growth states are probably going to be affected differently. If there is a downturn. So I think Texas is a good place to be anybody else.
I think I think that's right.
If you could maybe make a reasonable assumption that homebuilding at home sales.
Like slowdown that Hasnt happened yet in any of our markets.
That's a possibility.
But we don't think it would be terribly drastic so to speak.
But that's something that we'll watch.
We've mentioned earlier in this call.
First of all properties.
That may slow the sale of some of those down it doesn't necessarily mean that the cash flow that's been.
Derived from those projects would suffer significantly.
So.
Yeah.
It's a little here a little there I don't know that Theres, one category that we feel.
That we just absolutely would need to stay away from obviously oil and gas right now is running contrary to all of these figures how long that last we don't know.
But at 90 to $100 a barrel things were pretty good in the oilfield right now.
And you saw that in my comment on our nonperforming assets with only 15000.
In the oil patch, so sometimes our bank runs contrary to other banks to adjust the stock and add a while ago you may want to jump in but where do you read that mortgage companies their business is down.
30% or 40% our mortgage business, we have more applications than we've ever had and so Eddie you want to comment on that.
Right.
We've not seen any slowdown in our application volume impact.
Last week was our highest application volume in the bank's history, so and primarily on the purchase side and I think Thats primary because we never really went after the refinances. These repurchases over half of our business comes from our own bank customers yet.
Yes.
I would say on the asset on a larger scale, maybe not pertaining just us but across the nation.
In times like these I would say raw undeveloped land.
Is that the highest risk <unk>.
Developed land without anything vertical on it as net those things just eat cast in stone throw off cash. So you better have a strong guarantor in tough times.
Homebuilding would be next.
And in all three of those categories I would say, it's going to be more severe.
In states that have less population growth.
And then beyond that category you go to various categories of commercial real estate and anything.
Ports commercial real estate in terms of contractors and things of that nature.
The unique thing about most of the markets, we're in and it's not just for us but its for Texas in General is when you think about those categories.
We're in markets, where housing you might have a one or two months supply of housing.
Or is it more normal time that has six or seven months of supply.
And Thats a combination of people still move in here and not getting houses out of the ground fast enough. So in those higher risk categories, Texas, Theres, probably a little better insulated than most because of population growth.
But if you if you start thinking about it in terms of markets that have less in the way of population growth.
In tougher times come those are going to be the categories that get hit first probably on the commercial side, you'd probably see not a properties and liquid b property to see property office property and office space and people not going back to work.
And hopefully you don't have any malls that youre finding missing.
<unk>.
That's all that's all great color appreciate all that.
And you just mentioned that she probably with the stock where it was M&A seem less likely.
Would you do more in the buyback or how to use excess capital going forward.
First of all I would not rule out.
A deal.
<unk>.
Just because our stock price is down.
We have to be adjustment on both sides. If we did a deal just because we couldn't pay the same as we might've been talking before with the day have to accept the fact that our stock is.
Is trading at an underappreciated value right now, but having said that I think right now where our stock prices you could count on us buying stock back right now we couldnt right now before the earnings announcement, but based on where the prices today, we definitely think it's underappreciated.
Buyback stock.
Okay, Great appreciate all the color.
Our next question will come from Gary <unk> with D. A Davidson. Please go ahead.
Thanks, Good morning.
Good morning, I was wondering given the move in rates in the $2 billion or so added to the securities portfolio This quarter.
If you could provide a kind of period end.
<unk> yield.
And that portfolio will give us an idea of a jumping off point for second quarter.
I think that the period end was about 180 to 185 from.
Recalling correctly that was a period and I think.
Bond portfolio yields.
And does that include sort of a normalized level of bunker and amortization.
It came down in the first quarter with respect to move down further.
Here in <unk>.
Yes regarding the premium amortization I know, we've had 18 were $12 8 million in the.
First quarter I think it is normalized.
Project to be about 11% to $12 million for the second quarter.
What are you seeing the normalization of the rate and the CPR.
Slowdown so $11 million to $12 million I expect for the second quarter.
Okay. Thank you and then.
Last question in terms of just the floating rate portfolio can you just remind us of any impact of floors.
That needs to be cleared for a portion of the portfolio.
Yes, if you look at our presentation, which show about 34, 35% on the floating.
They do the first 25 basis points, we did have some floors to clear and I think the next 25 will have some floors, but it's much less than what I think $50 should be over the floors by that time.
That's probably right.
All right perfect. Thank you.
Again, if you have a question. Please press Star then one.
Yes.
Okay.
As there are no more questions. This concludes our question and answer session I would like to turn the conference back over to Charlotte Rasche for any closing remarks.
Excuse me. Thank you, Matt. Thank you, ladies and gentlemen for taking the time to participate in our call. Today. We appreciate your support of our company and we will continue to work on building shareholder value.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.