Q1 2023 Prosperity Bancshares Inc. Earnings Call
Good day and welcome to the prosperity Bancshares fourth quarter 2023 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
Today's presentation, there will be an opportunity to ask questions.
Ask a question you May press Star then one on attached on phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Charlotte Rasche. Please go ahead.
Thank you.
Good morning, ladies and gentlemen, and welcome to prosperity Bancshares' first quarter 2023 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 few weeks.
I'm, Charlotte Rasche Executive Vice President and General Counsel of prosperity Bancshares and here with me today is David Zalman.
Senior Chairman and Chief Executive Officer.
Hey, Tim to manage junior Chairman also back Us Manav Chief Financial Officer.
Kevin Hanigan, President and Chief operating Officer, Randy Hester, Chief lending Officer Merle.
Merle Karnes Chief Credit Officer.
Davenport director of corporate strategy, and Bob Dowdell Executive Vice President Eddie Saturday, Our Vice Chairman is under the weather and unable to join us today.
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 man, that's who 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 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, 10-K, and other reports and statements we have filed with the FCC.
All forward looking statements are expressly qualified in their entirety by these cautionary statements.
Now, let me turn the call over to David Zalman. Thank you Charlotte and good morning, everyone. Each year Forbes assesses the 100 largest banks in the United States.
On growth credit quality and earnings as well as other factors or it's America's Best Bank list.
Ross Burney Bank has been ranked in the top 10 since the list inception in 2010.
We have twice been ranked number one ranked number two in 2021 and ranked number six for 2023. It is a testament to Prosperities performance culture vision and consistency and distinguishes distinguish.
Among most banks.
Congratulate and thank all of our customers associates and directors for helping us achieve this honor.
On a linked quarter basis. The net income was $124 million for the three months ended March 31, 2023, compared with 122 million for the same period in 2022.
Net income per diluted common share was $1 37 for the three months ended March 31, 2023, compared with $1 $3 33.
For the three months ended March 31 2022.
For the three months ended March 31, 2023, the annualized return on average assets were 131%.
Annualized return on average tangible common equity was $14 three 4% and the efficiency ratio was 40, 368%.
Loans on a linked quarter linked quarter loans, excluding warehouse purchase program.
Increased $436 million or two 4%.
Nine 6% annualized from $18 1 billion at December 31, 2022.
Excluding warehouse purchase program loans.
Loans at March 31, 2023 were $18 5 billion.
Compared with $16 7 billion at March 31, 2022, an increase of $1 8 billion or 10, 8%.
Loan growth is helped by fewer loans being paid off early compared with previous quarters. We expect this to continue while rates remain at their current levels or increase.
Deposits at March 31, 2023, or 27 billion, a decrease of $1 5 billion or five 4% from $28 5 billion at December 31 2022.
Deposits decreased $4 1 billion or 13% compared with deposits of $31 1 billion at March 31 2022.
The majority of all deposits lost in 2022, where public bonds.
These investments.
We're in interest bearing transaction accounts at low rates, because there was no yield to be down as rates increased public funds started investing their money and state bonds, such as text pool to obtain higher rates.
Of the deposit decrease in the first quarter.
$959 million or 63% of the $1 5 billion decrease.
Occurred prior to March Tim here.
Historically prior to the pandemic in 2017, and 18 and 19, our deposits decreased seasonally in January an average of two 2%.
We also saw $236 million of deposits flow into our wealth management group.
As we all are aware the market was flooded with excess phones. The last few years during the COVID-19 pandemic.
And most people kept their money primarily in checking and low interest bearing accounts because no one was paying much for money.
Now that the rates are increasing people are finding the best they can for their investment funds that were lying dormant.
When we look at pre Covid deposits at March 31, 2020.
We had $23 8 billion and deposits at March 31, 2023, we have 27 billion in deposits.
This represents a compound annual growth rate of four 3% annually.
Historically before the excess funds in the system prosperity had organic deposit growth rates of approximately 2% to 4% annually. So we are still averaging deposits on the high end of our historical growth rate.
Our average deposit accounts was $34000 at March 31, 2023, and $36000 at December 31, 2022, our uninsured and pledged deposits are 29% 29, 9% of our total <unk>.
<unk>.
We currently have 11 3 billion of liquidity available to draw along which represents approximately $4 billion in excess of our uninsured and and pledged deposits.
With regards to the net interest the.
Net interest margin, while most banks have experienced some of their best net interest margins recently because of our large bond portfolio. Our net interest margin always takes longer to adjust.
Our model show, our net interest margin improving to more historical levels in the next 12 to 24 months and even better than 36 months. Our average net interest margin from 2012 to 2022 was $3 three seven compared.
With our current net interest margin of $2 93 as of March 31 2023.
Our asset quality remains sound year over year nonperforming assets decreased nine 9%.
Nonperforming assets totaled $24 5 million at March 31, 2023, compared with $27 5 million at December <unk> December 31, 2022, and $27 2 million at March 31 2022.
Texas, and Oklahoma continue to do well, Texas population increased by 470 70002 thousand 22, continuing a steady uptick from 2002 to 2022, the state Ganged over 9 million residents more than.
Any other state and almost $3 million more than Florida, the next largest gaining state.
Texas, and Oklahoma continue to benefit from strong economies and are home to 56 Fortune 500 headquartered companies.
Texas now has more fortune 500 companies than any other state, including New York and California.
Despite the higher rates and a possible slower economy going forward, we believe that Texas and Oklahoma economies should outperform most other states.
With regard to acquisitions as we recently announced we received all necessary regulatory approvals for our acquisition of first Bancshares of Texas, Inc, and expect that transaction will be effective.
<unk> 2023.
Our acquisition of Lone Star State Bancshares is pending regulatory approvals and is expected to close during the second quarter of 2023, although delays could occur.
We continue to have active conversations with other bankers regarding potential acquisition opportunities. Although the conversations have slowed given the recent bank failures and the decline in stock prices.
Overall I want to thank all our associates for helping create the success. We've had we've had a strong team we have a strong team and a deep bench of 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.
<unk>, let me turn over our discussion to also back us Manav, our chief financial officer to discuss some of the specific financial results. We achieved also Beth.
Thank you Mr. Zalman. Good morning, everyone net interest income before provision for credit losses for the three months ended March 31, 2023 was $243 5 million.
Compared to $239 9 million for the same period in 2022, an increase of $3 5 million or one 5%.
Alone and secured interest income increased $54 1 million and $18 2 million respectively. In the first quarter. Additionally, fed funds interest income increased $6 2 million.
This was partially offset by an increase in interest expense of $74 9 million.
Net interest income increased $3 5 million, despite having $7 9 million less in combined PPP loan fee income and fair value loan income.
The net interest margin on a tax equivalent basis was 293% for the three months ended March 31, 2023 compared to 288% for the same period in 2022 and 3.05% for the quarter ended December 31 2022.
Excluding purchase accounting adjustments the net interest margin for the.
Quarter ended March 31, 2023 was $2, 91% compared to $2, 81% for the same period in 2022 and 3.04% for the quarter ended December 31 2022.
The current quarter and net interest margin was impacted by $3 billion of additional cash held at the fed for liquidity insurance purposes. During the month of March list 3 billion additional cash was funded through if it you'll be borrowings.
Further at the end of the first quarter, we increased rates on deposits, we expect the full impact of those increases in the second quarter.
Noninterest income was $38 3 million for the three months ended March 31, 2023, compared to $35 1 million for the same period in 2022 and $37 7 million for the quarter ended December 31 2022.
Noninterest expense for the three months ended March 31, 2023 was $123 million compared to $119 9 million for the same period in 2022 and $119 2 million for the quarter ended December 31 2022.
The linked quarter increase was partially attributed to the higher FDIC assessment rate.
For the second quarter 2023, we expect noninterest expense to be in the range of $123 million to $125 million. The expected increase is based on the annual merit increases in the second quarter 2023.
This projects and exclude book the impact from one time merger related costs, which we estimate to be around $26 million to $28 million and additional noninterest expense from our pending acquisitions.
Additionally, second quarter results will be impacted by day to accounting provision expense related to the upcoming acquisitions.
Estimated range of this acquisition related provision expense is $28 million to $31 million.
The efficiency ratio was 43, 7% for the three months ended March 31, 2023, compared to 43, 7% for the same period in 2022 and 49% for the three months ended December 31 2022.
The bond portfolio metrics at 331, 2023 showed a weighted average life of five three years and projected annual cash flows of approximately $2 2 billion and with that let me turn over the presentation, Tim to matters for some details on loans and asset quality.
Yes.
Thank you <unk>.
Our nonperforming assets at quarter end March 31, 2023.
Totaled $24 million $485000.
Our 13 basis points of loans and other real estate.
Compared to $27 million $494000 or 15 basis points at December 31, two.
2022.
This represents approximately an 11% decrease in nonperforming assets.
The March 31, 2023, nonperforming asset total was comprised of $22 million $496000 in loans.
Zero dollars in repossessed assets.
And $1.989 million in other real estate.
Of the $24 million $485000 in nonperforming assets at quarter end.
Only $217000 or energy credits.
Since March 31 2023.
$328000 in other real estate have been removed from the nonperforming assets. This represents 134% of the nonperforming assets.
Net charge offs for the three months ended March 31, 2023 were negative $615000 compared to net charge offs of $603000 for the quarter ended December 31 2022.
In other words for the first quarter of 2023, our recoveries exceeded charge offs by $615000.
No dollars were added to the allowance for credit losses during the quarter ended.
March 31, 2023, nor were any taken into income from the allowance.
The average monthly new loan production for the quarter ended March 31, 2023 was $436 million.
Loans outstanding at March 31, 2023 were approximately $19.334 billion.
Compared to $18 840 $1 million at December 31, 2022.
This is a 262% increase on a linked quarter basis.
The March 31, 2023 loan total is made up of 43% fixed rate loans.
29% floating rate loans, and 28% variable rate loans, Charlotte I will now turn it over to you.
Thank you Tim at this time, we are prepared to answer your questions.
Okay.
But now they can you please assist us with questions.
Can you please assist us with questions.
We lost our modeling.
Sure.
We'll start the questions in just a minute.
We are showing that were attached mhm.
Yes, Sir.
So we had to go to the restroom.
Yeah.
Bad timing.
Yes.
No.
We're working to get the question started we apologize for the delay.
On <unk> can you hear me now.
Yes.
Thank you I apologize.
We will start the question and answer session to ask a question you May Press Star then one on your onshore.
If you're using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
We are the first question.
From Brady Gailey with <unk>. Please go ahead.
Okay.
You guys can hear me right.
Yes. Good morning, Thanks, Matt Thank God, we were wondering.
Yeah.
So sure.
Although ASO block niche and.
You move deposit rates up near the end of the quarter.
Just wondering the magnitude of that.
I hear your comments on longer term, there's opportunity for the margin to expand how do you expect the margin to trend in the near term.
I'll give you the answer on the interest bearing deposits to how we based on our projections the new rate increases on deposits. It will bump up our interest bearing deposit rate from 110, what we have to about 140 to $1 45.
So thats going to be a little headwind, but what if you look at short term on margin I think it's very hard to pinpoint just because of the two acquisition upcoming in the second quarter, we're going to bring their loans and their bond portfolio both of them going to be a replies reprice of the market rate, that's going to be a tailwind for us on that standpoint.
So I won't be hard to pinpoint specifically for the near term but.
The information I gave you shouldnt.
Give you some information on the Q2.
Okay.
The 3 billion Shelby.
Shelby.
Which turned into cash on your balance sheet I know, that's pretty earnings neutral, but how long will those balances stay on the balance sheet.
So we started to about the middle of the 13th or 14th of March and is paid almost through end of the month.
Okay. So it's gone now.
They were gone by end of the quarter before the end of the quarter.
Alright, that's helpful and then I'm just curious I know the unrealized.
Loss in your held to maturity bond bucket has been going down over the last couple of quarters I imagine it went down this quarter, what what is data Mel.
After tax unrealized losses in the held to maturity bond book.
So if you look at it.
331, the net of tax was about $1 $1 billion. That's a decrease from $1 3 billion was at the end of the year. So we have $200 million decrease in after tax.
Alright, and then finally for me anything specific holding up this lone star approval.
I think we're just waiting on the regulatory approval right now it's just the waiting from them, yes, it's nothing specific.
<unk> been busy lately as you know.
I can imagine yes, thanks Bill.
Hello, guys I was hoping to get it done in the second quarter, yes.
Okay.
Thank you and our next question today comes from Peter Winter of D. A Davidson. Please go ahead.
Yeah. Good morning, I was wondering could you talk about the outlook for deposit trends for.
For here in deposit.
Data beyond the second quarter.
I can address the betas, specifically so if you look at.
Ill give you the cumulative beta that we had through 331, if you look at over 12 months, but cumulative beta on deposit.
12 basis points with a recently increases on the deposit rate that I mentioned on my speech is going to go up to about 16 to 17 basis points on cumulative betas.
Yes, Peter I think as far as trend.
I still don't know if everything is kind of.
Our deals look like they have stabilized you have but you still have you still have.
Money that that's in the system, that's probably still looking for higher rates. So I think in the long run if you'd asked me in the long run things things will.
Stabilized and I think you will eventually go back to a point, where our bank historically grew 2% to 4% organically year over year, and I think that in our budgeting and what we're looking for once things stabilize.
Don't read in social media on the headlines on CNBC or Bob that I think that that's kind of what we're hoping to go back eventually.
Eventually.
Call it somewhere in between call it 3%, so but anywhere historically its always been 2% to 4% and I think that will happen I don't know that thats going to happen this month or next month.
I am I am hoping now that after five or six months of things calm down I'm, hoping that's what we will get back to you.
Okay.
And are.
Are we.
Third were to stop raising rates in may or are we at a level.
Where.
Youre almost done raising deposit costs or just given where the data is being lower than peers theres still some pressure.
Deposit costs.
I think that where we did raise them what I think is a market I mean, when you can get 3% on a money market account.
With the larger deposit that's pretty good you may.
It may still go up a quarter of a point from there so but.
Based on where the fed is right now in them going up a quarter.
Our 50 basis points I don't see much more than that there I will say that probably is our deposits as our deposits probably.
Our bonds and everything right prices and when we look at our models, we really see a very strong net interest margins going forward and so.
Thank the model looks stronger than I think they really are so I think that what I would suggest is that as our migraine causes we may just from a customer standpoint pay.
Pay more to that and maybe not shows.
Real strong when you look at the models are extremely strong and I know in a real world that that doesn't happen I mean, our net interest margin as I mentioned earlier in the <unk>.
The call the call earlier was that our average has been about 3.37, but we've been as high as 380, and we've been as low as where we are today. So I still think somewhere in between for a bank. Our as you know, we didnt, where a number of the other banks went out and purchased brokered Cds we.
Again, I don't know anybody I mean, I think thats everybody they need to do what they need to do we adding I've never really put a lot of money I never put a lot of faith in the brokerage Cds in fact, when we look at purchasing a bank I, usually just ex all of those brokerage Cds and there'll be of any credit for that so again it doesn't mean that we won't be there one day, but.
That's not something that we participated with and don't really want to be.
We took the position that we may lose some money, we may not be as big as we always were.
It's going to take this time to maybe get back to that point excluding the.
The acquisitions that help us of course, but we wanted to we wanted to remain profitable over that period of time and make sure that what we're looking at are truly core relationships core deposits and thats kind of where we're at today long story I just wanted to give you. Some color yes, just to add on I think on the modeling side of it I think we will we excited our model shows very good in 2014.
Six months and our model has beta of 36, but then right now we're running our actual betas on our deposit lesson there.
That model shows so that's looking at Opco.
I think it all boils down our company I think we have a great company as strong looking forward I think we're in better a better position than most of our peers simply because of the net interest margin that we see going forward. So I think that if they're if they're longer term player.
You can see what we're going to be in a year or two years.
That's what we're focusing on is more of the longer term really.
Got it and just one last question.
You had very solid loan growth loans held for investment this quarter is that level sustainable just given the economic backdrop because.
Tim did mention the average.
Monthly loan production, which was down.
A fair amount relative to the fourth quarter.
Yes. This is Kevin I think.
At year end, our January call, we said mid to high single digits.
And we hit the high single digits portion in Q1, I think we all see.
Weakness in loan demand.
And we've experienced that for the last couple of months.
And what's really aiding or the tailwind to loan growth is a much reduced level of loan payoffs.
I think we see asset durations, extending a bit if our typical asset duration and real estate was three years it might be three and a half but it may go up to four.
Before this is all said and done so so the loan growth.
Is a little different for last three years as we as the legacy portfolio is running off we kept talking about well we got the headwinds of the run off we have the opposite effect now I think the whole industry has the opposite effect of slower pay offs still some alone originations.
Clearly, but slower payoff. So I think we're still good at mid single digits to high single digits I'll reiterate again, what we said in January .
January .
We choose to start selling off mortgage loans, rather than portfolio loans will be at the lower end of that versus the higher end yes.
Yes.
Also want to say with the caveat that now that a lot of the banks that have such high loan to deposit ratios. They really cut back on the loans that they're doing and we've always said at a time and harder times those are the kind of customers that we will.
We will probably get and go after so we can get better terms and conditions. So that's also helping us at the same time right now we don't really want to turn those customers away. So that this is really kind of a time, where we really performed well.
That's correct, we're actually already starting to see that.
We've been able to make some loans.
Two what we believe are very good credits.
That historically.
He might not have been able to lend to.
Not because of credit reasons, but because of very significant competition that really just just price the loans down to the point that you couldnt R&D, making any money off of them and you couldnt get any equity.
And the project or the collateral that you are dealing with that is changing right now more and more banks are out of the market and are pulling out of the market.
So our opportunity seem to be increasing somewhat.
And you have to recognize that we do have loans that got booked that have not funded up yet.
So the actual loans outstanding.
We'll probably continue to grow just simply from from funding loans that we have already booked that are.
And progress so to speak.
Got it thanks very much.
Okay.
Okay.
The next question, we have will come from Brad Millsaps of Piper Sandler.
Hey, good morning good.
Good morning, Brandon.
Alright, Thanks for taking my questions just curious David how much of the public funds that exited this quarter do you expect could come back and then kind of as a follow up to that would you expect.
Utilized some of those funds to pay down to the extent they do come back some of the three three or so billion in borrowings you had outstanding at the end of the quarter.
The $2 billion that we lost last year.
I don't really see those funds coming back those were really investment funds and unless we're willing to pay attach put great.
480, or something like that I don't really see those coming back you will see you will see public funds go down throughout this quarter and next quarter, but you will by the end of the year, you will see public funds come up and I would say.
That could be three.
$3 to $500 million between 4% to $604 $600 million probably.
Okay. So in the interim you mentioned you weren't going to go to the brokered CD Route you might you might just rely more on just cash flows from your bond book or.
Adding adding some additional federal home loan bank advances.
Yes, I mean, I don't I don't want us to continue to borrow money from the federal home loan Bank.
I guess I look at it this way I ask myself, we had $3 $5 billion in borrowings at the federal home loan bank at the end of the quarter and so in my mind I asked myself how.
How do you.
If you wanted to get out of that how you would get out of that in my mind.
We have $2 $2 billion in bond roll off a year and we also are going to have about $434 million of.
Of liquidity from the banks that are joining us.
First capital and Lone Star. So in my mind, if you use just those two it takes us about 15 or 16 months that we would be out of the federal home loan bank.
Lately again, unless we lose more deposits were temporary that changes every day, but if everything were stagnant at March that <unk> 15 to 16 months I will say, though for the most of our most of the time, we always do have some portion borrowed at the federal home loan bank and probably always will even in a normal time, we would probably have anywhere from a one <unk>.
The $2 billion, we leveraged at if not not when the yield curve is inverted like it is but when it's not we usually leverage that and so that would get us out of that so then the next question would be.
Okay, So where are you going to get your money at.
At least 5%.
Full year for your loans.
He has all of that money for their federal home loan Bank and my point is.
I Hope I've said this historically, we always have grown 2% to 4% and issues like that 3% number where we're at.
3%.
That still doesn't get us around 800 to a $1 billion and additional money here and I think thats. The money, we would use for the growth and the loan I hope I didn't make that too complicated, but that always in the back of my mind I'm thinking about that myself. So thank.
Thank you Sundar point outfit.
The <unk>.
The bulk of the.
Money, we had borrowed from the federal home loan bank was not really because we needed. It. It's because we felt like it was prudent to have on hand, given what was taking place in the overall market.
We didn't know whether somebody was going to come in in the next two minutes and want to pull all their money out.
As quickly as we are changing are you referring to the additional $3 billion.
$3 billion that we were talking about that I would say.
Talking about I was talking about the core but kind of the core <unk> app.
I'm talking about for sure. It yet yes, we didn't really has gone as it turns out we didn't really need it but we felt like it was prudent to have an all hands for a while there yes. My comments were all relating to the to that.
Yeah, Yeah that was my question, yes, thanks for clearing that up David and then finally for me I think when you guys announced the two deals.
Together.
You had something in there you know 2023 estimated earnings from the combination with 75% cost savings at somewhere around $77 million, obviously, a lot has changed.
Would you mind, giving us an update on kind of what you think.
You know that the banks can contribute to the extent that it has changed just kind of wanted to get a sense of.
Kind of contribution from from those two organizations once they once they become a part of prosperity.
Yeah, I think on the cost saves when we announced that we're going to have a combined 25% cost saves on theirs I think that stays as is and we are pretty optimistic about it you're right. The timing has shifted.
75% was based that on our Q1 acquisition of the estimate of acquisition now since the timing shifted to one the first capital being made first and we're hoping loans.
Lone star being sometime in the second quarter. So it's timing wise on savings it does shift a little bit but on the 25% cost save overall, we expect in the long run that stays as is.
Right and I think I think that's what you estimated something $77 million of contribution does it make sense just given what's happened to haircut that to some degree and if so would you could you give us any color on maybe kind of how much to think about.
Yeah the day one.
One time cost and plus.
They too.
<unk> expense, that's going to happen immediately after the merger of the banks, but I did.
I'd say that they're going to bring an.
Operating expense as they emerge I would expect probably after merger maybe within not maybe the first quarter, but the second quarter idle right. After the acquisition, we shouldnt utilize the savings.
Yeah.
How do they use after the revenue and.
Income side, Yeah, Yeah, yeah exactly Kevin.
I'm just trying to interpret there for you Brad.
Thank you.
On the income that we have right.
Well I think I don't think theres been really.
Significant change in the profiles of these two banks.
It has not yet people think might've occurred.
The party is not over yet so to speak so.
We have to look at it day by day week by week, let's say their balance sheets haven't been altered significantly in their P&L is haven't been altered significantly so far yes, so far and I think what the estimates we've had on other.
Loan markups on all of that stays the same I didn't think there was a significant change that should bring in.
The income that we expected I don't think there was a significant shift in their estimate that it's just the delay factor, Brian that's really the only thing.
Understood. Thank you I appreciate it guys.
The next question from Mike.
With Raymond James Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Kevin would be remiss, if I didn't ask about the warehouse.
This quarter's average volume was a little bit higher than what you had kind of.
Contemplated 90 days ago, just wanted to get any sort of thoughts since we as we kind of move forward.
Yes, given that dynamics out there. Thanks.
Thank you Michael Youre right I think we said in January we thought we've averaged $5 50 to 600 for the quarter I will tell you in February I was thinking it was not even going to get to.
$5 50, and was worried about it but we ended up averaging six to 18, because it truly rallied in the last 45 days of the quarter.
Ending up 799, almost $800 million at quarter end.
I'm going to go with 800 to 850 for the quarter, Michael I think it's we're averaging right now about 770% through the first 26 days of the quarter 25 days of the quarter.
And I think it will tick up from there so.
If I had to pick a number 825.
Okay.
Very very helpful.
Just one minor question for ASO block the other.
Non interest income was up a couple of million Bucks almost 3 million Bucks just wanted to see if there was anything specific there.
Was in there and if anything will come out from a run rate perspective. Thanks.
Yeah, we've got some one off items.
Incentives and one off income that we have and some of them kind of annual or some of them was just one time. So there wasn't anything particular.
Okay. So maybe a few more.
And one timers.
Yes.
Okay.
Maybe just finally for me.
Just given where the capital ratios I mean, you guys have lots of capital.
During two deals.
As we kind of go through this in <unk>.
Wanted to get a sense for buyback from here you guys did buyback a little bit of shares I assume you pause when everything started to happen, but just given where capital I just wanted to get your your appetite just given where the stock is and then I'm. Just wondering if that's from an acquisition point of view I know you said.
Conversations that maybe slowed down a little bit, but just wanted to see if you'd looked at any of the banks that have failed or.
Maybe some stress situations if they would be of interest to you. Thanks.
First this is David I'll address the capital issue as you know we've always again.
We've always made our capital really to try to increase dividends.
And and.
And really to use in the M&A game and then we use the rest of the money that we used money extra we felt the stock was really disproportionate.
I don't think that any of that's going to change as far as.
As far as the dividends go I mean thats.
First and foremost as seen black our directors really like that.
Acquisitions will.
We will continue to do that I don't see that stopping as far as buying a stock where a lot of our own stock a lot of it.
I think some of that's going to depend on regulatory regular regulations or regulatory bodies, if they ever say anything so instead of making a commitment that we're going to do is continue to buy and buy I don't want to do that I think in a stressful more stressful time like this I think we have to look from a regulatory.
On the regulatory bodies, what theyre going to say about it but my general overall feeling is that.
We still make good money, we still have we paid the dividends that we still have quite a bit left so I think that and as you're you're HTM loss goes the other way over the year to two.
In the long run I guess in the long run I would say I don't see it changing a whole lot and lesser regulatory agencies come in and say.
You shouldn't be doing that or something like that.
Okay. Thanks, guys.
The next question comes from Brett Robinson with Hardie Group. Please go ahead.
Hey, good morning, everyone.
I wanted to ask on wanted to ask on the fee income side.
The other bucket, obviously had a little bit of noise this quarter.
Was just curious also backwards there was there anything that you would call out that would be non recurring or can you give us maybe some color on the other income bucket or do you think that might play out from here.
I think yes, we've had the one off items, if I would have to.
So I would say a couple of million dollars was one off item that did not come in Hawaii that came in and the rest of them will be more road continue repetitive from that bucket.
Okay.
And then could you give any update on the cash flow on the securities portfolio, what you might have.
Maturing in the next quarter or two.
I mean, our cash flow is $2 $2 billion. So if you <unk>.
<unk> I mean, if you take that quarter, and we expect about what the $515 million or so a quarter, yes, I don't think thats changed I mean, we're still around two points.
Okay great.
And then just lastly, some of the more conservative banks.
It would seem like it might be an opportunity for them to maybe.
Maybe take share through this situation, but it seems like some of the conservative players have said no we're going to we're going to wait and see how maybe this plays out.
I'm, just curious David or Kevin.
This environment as you see it is this an opportunity to maybe take share.
Or do you use.
Stick to your guns and get more conservative have you increased.
Your underwriting standards at all or changed them any thoughts on that.
I think we will take care.
That having to change our underwriting standards, Brett Theres enough pencils down.
Banks that are.
That are loaned up fully loaned up $100 9100, 100, plus percent loan to deposit ratio and they are.
Generally speaking their pencils down or maybe a deal pays off I could do a new deal, but they are not active in and I think as Tim said, a little earlier, we're seeing opportunities from from really good clients that we historically would not have bank because either the structure was to lose or the pricing was too low.
Those clients are now coming to us and we're able to get our structure and our pricing on those transactions. So I think this for US. This is no different than any other time during stress we tend to do well we can do.
Have liquidity and have the money to alone. So I think on the loan side, we're in a position to take market share.
As we want.
Yes, I'd have to say in my.
Long time in banking Avon I sit in loan committee and I would say what's been asked down on some of these projects commercial projects.
We're seeing that in my career that you could get that much down and people would still do it and I think it's just because they're just as the deposits that flowed out of a lot of these midsized banks.
They just they don't have.
Don't have the deposits to fund that.
The funded side I think we will we will have opportunities in it. This is a time that we should in this at the time, we actually look forward to a bright it's not uncommon for us today to get 50% to 55% equity upfront on a multifamily deal.
And all of those dollars go in where we fund a dollar and as David said in a long time since we've seen that kind of equity.
But were asking for it and we're we're generally getting and it's real equity in Israel.
It's not just us.
It's based on cost.
Yes.
That's pretty low for the multifamily market I appreciate the color guys.
Yes.
The next question comes from Manan <unk> with Morgan Stanley . Please go ahead.
Hi, Thanks for taking my question.
I wanted to ask about NIM going into next quarter. You know you noted that.
The portfolio is in Europe .
<unk> will have an impact on NIM, presumably there'll be a tailwind because you're acquiring them at market price.
Any thoughts on what the what the NIM can get to next quarter with the acquisitions would you be able to go over a 3% NIM next quarter.
I think it'll be hard to specifically point out because we still have to go through the merger process and evaluation, but we are excited about this out to acquisition because of cash they bringing in <unk> ability to reprise their bond portfolio in their mortgage.
Mortgage portfolio so.
I mean, I cannot give you specific guidance, especially because of the.
Fair value income that would have to calculate in that's getting hammered amortized.
Amortized based on the.
Duration of loans over the life of the loans, so, but I mean, but we are optimistic where we stand on it. Thank you could say that.
Once we get both closed and in our bank debt.
That should help the net interest margin, yes, I'd say that yes, that's for sure.
That's helpful.
And then.
Maybe on the loan yields in.
And in the core business in the current business.
You noted.
That you have acquired newer customized presumably at better pricing.
You have a fixed rate portfolio as well that should reprice higher.
In the event that the fed stays higher for longer how should we think about your loan yields over the course of the next year or so.
While our model show.
Our model show that.
Interest rates stay higher or even go up we still performed better from an income standpoint, and a net interest margin. So yes.
If you just look at our NIM.
NIM calculation, because our bond portfolio generating right now $5 24, and we've put a new laws that Kevin handle right now if you just take it and if it stays right phases for the next 12 to 24 month interest rate you can see theres upside of.
200 basis points on loans, so that their models are usually really good in there correct and I think that basically even if rates don't do anything we still do substantially better and improvement in net interest margin over 12, 24, 36, I mean substantial and if interest rates go up our models show that we even did better.
Other than that I think if they go down if interest rates go down it probably takes a little bit away from because of the composition of our mortgage.
The loan portfolio, but I think if interest rates went down for that 100 basis points or so I don't think that they will but if they did that that that doesn't give us the positive effect, but still.
Generally in a 100 down we still have substantial increase in Argentina and NAV over time.
Okay did you say over what timeframe that 200 basis points and Kevin I think that your net interest margin looks.
A lot better than 12 months, it looks better than 2000 real good in 24 months and fantastic in 36 months.
Got it all right and if I can just round out that discussion.
How should we think about the efficiency ratio given what he said on NIM and loan growth and the merit increases coming up.
So I think the efficiency ratio if you just.
Look at the long term it will take us time to once we have two bank merger with us.
Realize the cost savings, but in the long run I think we're going to be back to our normal 42, 43, 44% efficiency ratio in the long term.
Okay.
Great. Thanks, so much.
Yes.
The next question comes from Evan who knows I Love with Bank of America. Please go ahead.
Hey, good morning.
I guess also what I'll go back to calling up ever did you change your name.
Hey, this is Ebrahim <unk> Bank of America.
It was evident as Archie.
Sure, Kevin so you're not wrong.
David you are right, but I, let it fly sorry about that.
I guess I can pass offers you name it.
That's a bad idea to change is easier to pronounce.
So a question around the NIM one did you talk about I'm, sorry, if I missed it on the court.
The acquisitions do you see the NIM going drifting higher from here when we think about <unk> and the rest of the <unk> from the 293 this quarter.
Yes, as we've talked about in the long term is very positive I think in the short term because of that headwind we have on the interest bearing deposits a little bit there'll be a little bit may be down, but that's on the prosperity bank itself without acquisition, but with the two acquisitions looks really good with the adding to the banks and our balance sheet.
Yeah.
Got.
It helps.
It really takes it still it helps us in the short run to set it in the long term it really helps.
We don't have a very short very short periods without it wouldn't look as good and just on that point, David I think you mentioned multiple times around.
Question if any.
You have to go down 100, or 200 basis points. When you think about when it can look good or I think we've had fantastic over the next two to three years.
Is it the fed funds that matters more than the two to five year part of the club just remind us we could see a scenario where the fed funds drops can maybe over the next year or two but the bottom of the belly of the curve remains where it is.
If you can talk to where the sensitivity might be most.
Or is it just rate pricing. It just I mean, you've got your bond portfolio as rate pricing $2 $2 billion, a year are our loans re price our roll off historically, it's been a third about 6 billion. So just between those two you have about eight or $9 billion changing and price.
Sin in a year's time.
Got it and one last question when you think about.
More big picture in terms of the economic outlook you mentioned some of the other banks that are tight on loan to deposit ratios et cetera, pulling back its good for prosperity, but overall like do you see that adding to win.
Oh excellent anything our pace of going into a recession.
How do you think about just the macro outlook as you think about the next six to 12 months.
Well I think it does pull back.
Again, when I look when I look at the Texas economy, and I guess, IP, I think Texas, maybe more regional perspective compared to the rest of the economy.
I really don't see I don't see a hard recession.
Just me I think you may see a slowdown.
When you look at people.
The customers are still spending money out there.
They are still buying housing some of the markets even in house.
Some markets has gone down a little bit of value, but youre still people are still needing houses you have people moving into the state.
Texas is probably in a pretty good position I don't see a really hard recession I don't I may be wrong.
I don't have anything on the back of my name to say I know, what I'm, saying, but yes, my gut feeling that's my gut feeling is.
The way it was going it was just overblown everything was overblown I still think things need to slow down a little bit more quite frankly, so that so that the fed doesn't raise rates, but mike that feeling is that the fed will raise rates again.
At night for at least a quarter of a point, but then I think they probably will hold off but again for the most part.
You don't see things as crashing I don't see that I don't not yet.
Things still look pretty good and people are still buying so.
Got it thank you very much.
This concludes our question and answer session I would like to turn the conference back over to.
Charlotte Rashid for any closing remarks.
Thank you. 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.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.