Prosperity Bancshares, Inc.

Good day, and welcome to the Prosperity Bank Shares first quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. 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 Bank Shares' first quarter 2025 earnings conference call. This call is being broadcast live on our website and will be available for replay for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bank Shares, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer, H.E. Tim Tomanis, Jr., Chairman, Osobek Osmanov, Chief Financial Officer, Eddie Saffody, Vice Chairman, Kevin Hannigan, President and Chief Operating Officer, Randy Hester, Chief Lending Officer, Mays Davenport, Director of Corporate Strategy, and Bob Dowdell, Executive Vice President. David Zellman will lead off with a review of the highlights for the recent quarter. He will be followed by Osobek Osmanov, who will review some of our financial statistics, and Tim Tomanas, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions. 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 bank shares 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 Bankshare's filings with the Securities and Exchange Commission, including Forms 10Q and 10K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now let me turn the call over to David Zolman.

Thank you, Charlotte. I would like to welcome and thank everyone listening to our first quarter 2025 conference call. We and others believe that prosperity is doing the right thing. Prosperity has been ranked as one of Forbes' best banks since the list inception in 2010 and was ranked in the top 10 for 14 consecutive years. Additionally, Prosperity was named the best overall bank in Texas by Money for 2024-2025 and was ranked among America's best regional banks by Newsweek in 2025. Prosperity continues to focus on long-term relationships and our customers' success while maintaining strong asset quality, solid earnings, and a fair return to shareholders. Prosperity maintained a high tangible equity to tangible asset ratio of 11.2% with tangible equity of $3.9 billion. Our net income was $130 million for the three months ended March 31st, 2025, compared with $110 million for the same period in 2024. an increase of 19.8 million or 17.9%. The net income per diluted common share was $1.37 for the three months ended March 31st, 2025, compared with $1.18 for the same period in 2024, an increase of 16.1%. For the three months ended March 31st, 2025, annualized return on average assets and average tangible common equity were 1.34% on average assets and 13.23% on average tangible common equity, respectively, and the efficiency ratio was 45.7%. These ratios all show considerable improvement compared with the same period in 2024. Loans were 21.9 billion at March 31st, 2025, an increase of $712 million, or 3.3%, compared with 21.2 billion at March 31st, 2024, primarily due to the merger with Lone Star State Bank shares. As of March 31st, 2025, loans excluding warehouse purchase program loans and loans acquired in the Lone Star merger decreased 67.6 million compared with December 31st, 2024. The bank continues to reduce identified loans assumed in recent acquisitions in the amount of 434 million in 2024, and 115 million in the first quarter of 2025. Our deposits were 28 billion at March 31st, 2025, an increase of 851 million, or 3.1%, compared with 27 billion at March 31st, 2024, primarily due to the merger. Linked quarter deposits decreased $354 million from $28.3 billion at December 31, 2024. The decrease in deposits was primarily due to seasonality. As previously mentioned, we have over 500 municipal customers such as cities, schools, and counties that use the tax dollars they receive in December and January throughout the year. Prosperity has strong non-interest bearing deposits of 34.5% of total deposits as of March 31st, 2025, with a cost of funds of 1.66% and a cost of deposits of 1.38%. The net interest margin on a tax equivalent basis was 3.14% for the three months ended March 31st, 2025, compared with 2.79% for the same period in 2024 and 3.05% for the three months ending December 31st, 2024. Based on our models, we believe our net interest margin should continue to improve to a more normalized level as our bond portfolio and loan portfolio reprice. Our non-performing assets totaled 81.4 million, our 24 basis points of quarterly average interest earning assets at March 31st, 2025, compared with 83 million, our 24 basis points of quarterly average interest earning assets as March 31st, 2024. And again, 81.5 million, our 23 basis points of quarterly average interest earning assets at December 31st, 2024. The allowance for credit losses on loans and off balance sheet credit exposure was 386 million at March 31st, 2025, compared with 366 million at March 31st, 2024. Our current non-performing assets are higher than our historical levels, mainly due to acquired loans and accounting regulations for such loans that mandate we maintain loan balances on our books until they are resolved, despite being reserved for during acquisition. Texas and Oklahoma continue to benefit from strong economies and are home to 58 Fortune 500 headquartered companies. The Texas economy continues to expand. Employment growth was solid and sales tax revenues increased broadly, according to the Federal Reserve Bank of Dallas Texas Economic Indicators, published April 3, 2025. The March 2025 Texas Business Outlook surveys showed continued expansion in wages and benefits all across all sectors. Despite the uncertainty with tariffs, our teams in Texas and Oklahoma are optimistic based on conversations with our customers about their outlook and plans. We continue to be opportunistic, work hard, stay close to our customers and their needs, and maintain a quality loan portfolio. Although there is market volatility, we continue to have active conversation with other bankers regarding potential acquisition opportunities and remain ready to enter into a transaction when it is right for all parties and is appropriately accretive to our existing shareholders. Overall, I want to thank all the associates for helping create the success we have had. We have a strong team and a deep bench at Prosperity and 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 the discussion to Osobek Osmanov, our Chief Financial Officer to discuss some of the specific financial results we achieved. I'll slow back.

Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended March 31st, 2025 was $265.4 million, an increase of $27.1 million compared to $238.2 million for the same period in 2024, and a decrease of $2.4 million compared to 267.8 million for the quarter ended December 31st, 2024. The linked quarter decrease was primarily due to having two less days in the first quarter 2025. The fair value loan income for the first quarter 2025 was 3.3 million compared to 3.6 million for the fourth quarter 2024. For the second quarter 2025, The fair value loan income is expected to be in the range of $2 to $3 million. The net interest margin on a tax-equivalent basis was 3.14% for the three months ended March 31, 2025, an increase of 35 basis points compared to 2.79% for the same period in 2024, an increase of nine basis points compared to 3.05% for the quarter ended December 31, 2024. Excluding purchase accounting adjustments, the net interest margin for the three months ended March 31, 2025 was 3.1% compared to 2.76% for the same period in 2024 and 3.0% for the quarter ended December 31, 2024. Non-interest income was $41.3 million for the three months ended March 31, 2025 compared to $39.8 million for the quarter ended December 31, 2024 and $38.9 million for the same period in 2024. Non-interest expense for the three months ended March 31, 2025 was $140.3 million compared to $141.5 million for the quarter ended December 31, 2024 and $135.8 million for the same period in 2024. For the second quarter of 2025, we expect non-interest expense to be in the range of 141 to 144 million. The efficiency ratio was 45.7% for the three months ended March 31st, 2025, compared to 46.1% for the quarter ended December 31st, 2024. and 49.1% for the same period in 2024. The bond portfolio metrics at 331-2025 have a modified duration of 3.9 and projected annual cash flows of approximately $1.9 billion. And with that, let me turn over the presentation to Tim T. Mannes for some details on loan and asset quality. Thank you, Osselbeck.

Non-performing assets at quarter end March 31st 2025 totaled $81,419,000 or 37 basis points of loans and other real estate compared to $81,541,000 or 37 basis points at December 31st, 2024. This is basically flat with some non-performing assets coming off and others coming on. Since March 31st, 2025, $895,162 of non-performing assets have been removed or put under contract for sale. The March 31st, 2025 non-performing asset total was comprised of $73 million $378,000 in loans, $29,000 in repossessed assets, and $8,012,000 in other real estate. Net charge-offs for the three months ended March 31st, 2025, were $2,704,000, compared to net charge-offs of $2,592,000 for the quarter ended December 31st, 2024. This is an increase of $112,000 on a length quarter basis. There was no addition to the allowance for credit losses during the quarter ended March 31st, 2025. No dollars were taken in income from the allowance during the quarter ended March 31st, 2025. The average monthly new loan production for the quarter ended March 31st, 2025 was $317 million compared to $333 million for the quarter ended December 31st, 2024 and $295 million for the full year 2024. Loans outstanding at March 31st, 2025 were approximately $21.978 billion compared to $22.149 billion at December 31st, 2024. The March 31st, 2025 loan total is made up of 38% fixed rate loans, 32% floating rate loans, and 30% variable rate loans. I'll now turn it over to Charlotte Rasche.

Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator will assist us with questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are 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 2. At this time, we'll pause momentarily to assemble our roster. First question comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Hi. Good morning, all. Good morning. Can you give us some more color on what you're seeing on the loan growth side? I know you noted $115 million of deliberate reduction in acquired loans this quarter, but I guess even when you adjust for that, loans were fairly flat. So can you talk about what you're seeing there and maybe your updated expectations for loan growth in 2025? I think you've previously spoken about somewhere in the low to mid single-digit range. Is that still in line with how you're thinking about it?

Kevin, you want to start off on that question?

Sure. Thanks, David. Yeah, I think I think we're still in the camp of low single digits for the year. As David mentioned and as you mentioned, in the last five quarters we've had $549 million worth of runoff between the Lone Star and the first capital acquisitions. That runoff is about completed. I can think of maybe one other small deal that... May run off out of the books and it's not big enough to even Talk about but I think that's about completed And unlike the last at least three quarters when we were on this call You know three or three weeks in the quarters Loans were down anywhere from you know 25 to 90 million within the first three weeks of the quarter loans are actually up modestly the first three weeks of this quarter and And I do know, if I just look at the pipelines, we've got some loans, non-construction-related loans that are term loans, fully funded kind of term loans in our pipeline. So we may squeak out a little bit of growth this quarter, and then we're optimistic as we look later into the year, despite the tariffs and some other things, as we sit down with our bankers across the footprint. So we're going to keep our guidance where it's been.

Yeah, I'd add, too, that we usually have a quarterly management meeting where our chairman and presidents come from all different parts of the states, Texas and Oklahoma, and they're between Dallas, Houston, West Texas, on and on, Oklahoma. And I asked that exact question. I said, you know, the loans, the total loan dollars were down. At the end of the meeting, I always ask what they're, are they optimistic or pessimistic? And 100% of all of our chairman and presidents across all of our different areas responded by saying they're still very optimistic and their customers are still optimistic. Still holding back a little bit because of not knowing what to do, but they all seem to be extremely optimistic. Tim, do you want to add to that?

I think that's accurate. I would describe it as being a little bit sluggish right now. The flow of loans that we've been able to look at has been good. Our loan committee meetings have been active. We've had good loans to take a look at. Some of those I'm sure will move forward and end up being funded. But with all that's going on in the marketplace for a couple of weeks now, I think it's been a little sluggish. I think some borrowers are just maybe waiting another week to see what happens. We're not aware of any projects that have actually been taken off the map. They're all still scheduled to move forward. So I think it's a matter of just letting some of these things settle out.

The good part is I think the customers are still pretty optimistic. Again, they're just uncertain of where things are going. They're still making money and they still see their position improving over time, especially with the regulatory environment like it is. But again, as you say, it's still sluggish because not knowing where everything is.

Yes, but people contacting us and asking about loans and telling us what they would like to do, that continues unabated. So I think there's reason to believe that all this will break loose a bit here fairly soon and move forward in a normal way.

Yeah, and since it's an important topic with the tariffs and everything else, and we've listened to other calls or or looked at other transcripts and folks saying it could be bumpy for growth with tariffs if we don't get things resolved. The flip side of that is also, if that is in fact the case, my expectation is that payoffs that would normally occur could get slowed down as well. Projects that might get sold into a different market or have been built out and somebody's going to flip it, I think that'll slow down as well if the tariffs become an issue.

That would be normal, and I think you're right.

That's all really helpful, Carlos. Thank you for that. If we think about the balance sheet here, I think you have a couple of quarters where the balance sheet has gone down. You've used the opportunity to pay down some of the high-cost borrowings. Should we expect that in the new system here to the extent that long-term is for a quarter or two?

We couldn't really understand anything that you said, Manon. It was kind of cutting in or out. I'm sorry. I don't know if it's on our end or your end.

Sorry, can you hear me now?

We can.

Oh, okay. Thanks. I was asking about the balance sheet here. We've had a couple of quarters where the balance sheet has been shrinking, and I think you've taken the opportunity to pay down borrowings when loan growth has been weak. To the extent that loan growth remains sluggish over the next couple of quarters, should we continue seeing the balance sheet moving lower?

You know, again, the balance sheet we borrowed when COVID happened and a lot of deposits went out of the bank, I think. What did we borrow up to, what, $3.9 billion? We've reduced that now to about $2.7 billion. We don't see it reducing a lot more. If you look Historically, our normalized times, we've always leveraged the bank by a couple of billion dollars plus a little bit because, again, we have so much liquidity coming from the bond portfolio. And so I think you're pretty much going to see the, you know, I think we might reduce it maybe $200 million, but that's probably about it.

Yeah, and depending also, as we discussed on the loan growth and how that deposits. So if opportunity presents, we'll continue to pay down the borrowings. And also what we've started doing a little bit is buying securities that are yielding five and a quarter or so, five and a half percent. So we'll just see the market is doing and determine how much lower we want to bring our borrowing.

But historically, the bottom line is we've always leveraged the bank a couple billion dollars and probably you should still see that. So I would say the answer to your question is yes, I think we're pretty much there.

That's very helpful. Thank you. Mm-hmm.

The next question comes from Catherine Miller with KBW. Please go ahead.

Thanks. Good morning. I know that M&A and really M&A and improved growth, but really M&A is a focus for capital deployment. But curious your thoughts on the buyback just given where the stock price is today.

Yeah. Again, if we could have been buying shares back through this recent downside when we started hitting around the $64 and stuff, we would have definitely been in the market, but again, we couldn't because of the earnings announcement, but we would have been buying back, no question.

And even, Amanda, we've had a little bit of a rebound since then, so even in the high 60s, is that a place where you would be active, or would you wait for another pullback?

Right now, again, we're still saving our money, I'd say, for we really do want to do some M&A, some acquisitions. We have other opportunities that we're looking at, so Again, I think I would just pause and say if there is another downturn, we will be back in the stock. But again, I know it seems like we have a lot of capital, but we do have plans to use that. So we will, again, we will buy when there's another downturn into the stock price.

Yeah, I think it's safe to say we're watching it daily. And we'll see. We may buy back. We may not.

Okay, great. And then maybe just any additional comments on M&A. It feels like it's on pause, but I know you've been active in discussions. So just kind of curious if you think this is an environment where we're able to do M&A, and if you have a preference maybe with all of the volatility for maybe more of a small deal versus a large deal. I know your range is like 2 to 20, so it's a big range, but just kind of curious how you're thinking about that.

Thanks. Yeah, I mean, I... Again, we started off the year with everybody just being terribly excited with the regulatory environment really easing up, and I think everybody got terribly excited. I think we had three calls. I think I mentioned even in December. I think things did pause a little bit. We are starting those same calls are starting to come back again right now, and so I think you will see something. I think I think you will see some M&A coming forward. Again, I think people want to do something. And again, you have all these tariffs and that kind of stuff. But for the most part, I think those people that have made the decision to do something, they might have paused, but it hasn't left their mind and they are going to do something. I suspect there may be in their minds a limited amount of time before the next administration. So I think you will see stuff get done. by this year, by the end of the year, for sure.

Great, thank you.

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

Hey, good morning, guys. Thanks for taking my questions. I don't know if you touched on this, but I think previously you talked about kind of a full year margin in the 325 to a 330 range and given some longer-term outlook in prior calls. Has any of that changed just with the rate backdrop at all in your forecast?

No, that's the beautiful part about our company. No matter if somebody wants to say that the world is not round anymore and all the ships are going to fall off of the planet, our deal is not predicated on the growth. It's predicated on a repricing, and I think we're still sticking with the deal of the $325 to $330.

Okay, perfect. And then just for Kevin, I usually ask the warehouse question. You guys did a little bit better than what you were thinking at this time last quarter. Kevin, any thoughts just based on where rates are and what you've seen so far in the second quarter? Thanks.

Yeah, Michael, thank you. You're right. This quarter we did, I think we averaged $8.76, and our guidance was in the $8.50 range. So it was just slightly better than we had anticipated. Just as a catch-up quarter to date, we ended last night with the average that was $8.76 up to $1,088,000,000. Average so far for the quarter, and we closed the book out last night at $1,148,000,000. So it's looking like typically the second quarter is good. The third quarter is usually our best quarter. And then Q1 and 4 tend to be weaker quarters. So we're moving into a better time. I am a little bit concerned with where the rate environment is. So I think conservatively I'd say $1.5 billion to $1.1 billion for this quarter. Just other color, Michael, we actually got two new clients. One we boarded and started funding loans on for this month. It's a $75 million commitment that's been funding up. The other new client we have is a $40 million client that hasn't started funding up yet. I think they'll probably start funding up in the next several weeks. So those are going to be slightly helpful to whatever we've got going on. And then as we look in the next quarter, and we're not that far out yet, but we've got a client that's got itself for sale, and I think they'll sell that business and will have some impact on the third quarter. But we'll talk about that in July.

Very helpful. And if I could just squeeze one last one in. It looked like there was a bigger step down in NSF and debit card income than I might have expected, understanding that fourth quarter was pretty strong in NSF. Anything – you know, to read into that at all or just activity levels or just any color would be helpful.

So, Michael, I think there's just a seasonality. If you look at back in Q1, it's a slower quarter for us from the standpoint. So it wasn't anything unusual. It's just a seasonality of first quarter.

All right. Thanks for taking my questions. Your next question comes from Peter Winter with DA Davidson.

Please go ahead.

Thanks. You guys obviously have a very strong deposit franchise. You've done a great job managing the deposit costs when rates were moving higher. But the question is, if the Fed were to stop lowering rates, is there much room for you to further lower deposit costs? Because you're already near the low end up here, 2.08%.

I'm sorry, I didn't hear the last part, Peter. You said if the Fed stops lowering rates, what was the question?

is there still room to lower your deposit costs?

I would say yes. Again, we didn't go up as much as everybody else. I mean, I think our total cost of funds, our total cost of deposits is like 1.38, so about sometimes 100 percentage basis points, unless it's some of our peer group. But we would like to keep them. A lot of times we reward our customers when rates come down, and we still try to keep them. I think it depends on the timing of that. And so if the repricing is, if we get enough repricing in the bond portfolio and the loan portfolio, we probably won't be as aggressive as bringing down rates. If they start lowering rates really quick, we would have to be a little bit more aggressive. I don't know if that's a good answer or not.

Yeah, I'll just give you a little bit of additional information on that. When we had 100 base point cuts since the end of last year to We did not decrease significantly our deposit rates. What we did cut is our special CDs that we pretty much cut one-to-one on the special CDs. And there were some customers we gave them exception rates, so we cut those exception rates. But overall, if you're looking bigger base, our customer, we did not decrease the rates. If you look at interest-bearing demand deposits, we have 70 base points. We were in Q4 and Q1 and even same rate on the Q1 of last year. So I think there's opportunity to cut some of those rates if Fed did cut the rates. So we hadn't touched those.

So overall, probably because it's been slower than everybody anticipated with the rate cuts, we've really not had to cut our rates and we've still done better because of the repricing. Is that a good analogy?

That's right. So there's opportunity to cut it.

So the real question is, will the Fed lower rates? or will they lower them one time, two times, or three times, or will they lower them at all? That's the whole question. We actually, you know, if they didn't lower them at any at all for the rest of the year, it would be better for us. If they lowered them, you know, even three times, we would still hit the net interest margin that we've described to you earlier.

Got it. Got it. That's really helpful. And then, you know, just on credit, again, It's obviously excellent. Reserve coverage to the non-performing assets, very strong over four times. But with a more uncertain economic environment, do you still expect to take a zero provision throughout the year?

Well, we have, what, 81 million in non-performing and 386 million or something like that in reserve. So I think that we're in a good position We have to do these testing all the time to tell if they're adequate or not adequate. We've always been able to keep a little bit more just because of times like this, because of what's going on. We can justify having the extra money in the account, I think. Right now, do you want to comment on that?

Yeah, and I'll add that when we calculate or estimate our provision, we have a baseline and we layer on the recessionary scenario. So our model already anticipates some recessionary scenario in it where we stress certain variables on our loans. So with that anticipation in the model, I think even the economy goes a little bit worse than we are right now. I think we covered there.

What do we have, about an extra $100 million for the recessionary part of it? Around there, yes. It's close to that, yes. So, I mean, we're already... Again, we're already reserved for a recession if that happens.

Yeah, so from that standpoint, to answer specifically, unless the economy really gets worse than we are, then I don't think we'll be putting much of a reserve in the near future.

And actually, the reserve, if you look at it, if you look at it March 2024 compared to 2025, you have about $20 million more in the reserve than you did back in 2024.

Great. Thanks a lot. Very helpful. Yeah.

And your next question comes from John Arstrom with RBC Capital. Please go ahead.

Thanks. Good morning, everyone. Good morning, John. Asselbeck, maybe for you, give us a profile of what you're buying in the securities portfolio, kind of yield-type duration, and then remind us of the billion nine, what that's rolling off at.

Yeah, I mean, we're not buying a lot when I say, you know, we're not doing one-to-one, so we still have cash flow coming in. What's rolling off is our, you know, we have MBS, 15-year MBS that's rolling off, and that's what we're essentially buying, just replacing those. I think depending on the day when we buy, I think we're buying yielding around $525, $550. That's what we're replacing.

You're replacing the 2% with the 5%, yeah, basically.

Exactly. So that's where spread comes in. I think on the duration, I think it's around maybe a new one, putting four.

Four to five. Yeah, four to five. Yeah, the duration. So 15-year mortgage-backed security with an average duration probably anywhere from three to five. I mean, depending on the coupon, basically, of where you're going to be at.

Yep.

We haven't, John, they're probably the, you know, we haven't bought a bunch of securities. We have been buying some. A lot of this stuff, a number of this stuff that we did buy was primarily for CRA purposes and stuff like that. Having said that, we did buy probably a couple hundred million dollars here recently because we did, you know, we had excess funds and we'd gotten through paying down the 3.9, down to 2.7. So we are buying some. We are starting to buy back some now. But a lot of our excess money had been going just to reduce. That debt that the Fed and borrowings, which we were paying how much on? About 4.4%. So even that, I mean, that was really a net interest margin improvement. If you're getting two on your bond portfolios, we were still, might have not gotten the five, but we still had a good margin there reducing to 4.4%. That's correct.

Okay, good. That's helpful. And then, David, back on capital, you're doing a return on tangible 13%. with 11% tangible equity, which is incredible. I've seen you run with much lower TCE over the years that I've covered you, but what's optimal TCE for you? How do you think about optimal capital? Because it just feels like it's incredibly high at this point.

It's high. I remember the days when we started, we had a 3% tangible capital ratio, so this is extremely high. I, you know, it's a high-class problem, I guess, I would say. On the other hand, there's no doubt in my mind that we're going to use that money. So, you know, I think if we do a deal, it'll probably be, there'll be a combination of cash and stock. And right now, if the market gets crazy, the good thing is we have enough to do an all-cash deal, but it's a small deal. So I think it just gives us a lot of optionality opportunity I wouldn't want to just say here's a special dividend for something like that because I do feel that we're going to be able to use it. Our return on tangible capital usually has been around 16%. Again, we had two things that affected that. One, the net interest margin falling to 2.75. That in and of itself reduced that return. But now that you've got 11.2% tangible capital, that's a little bit of a stress on itself. But I can promise you we're going to use it. We're going to use it whether it's through the buyback of stock or through the mergers and acquisitions. We will use the money.

I think the really nice thing about it is the flexibility that it gives us to look at acquisitions, to look at buybacks, to look at dividends. I mean, we can look at all three. Right. Maybe do a little of each, right? I mean, it's a good place to be.

Okay. I remember the 4% days. I do. Okay. Is there a minimum in your mind that you wouldn't go below?

Just from my mind, again, I'd like to not go below 8%, but if we did a bigger deal and it fell to 7.5% or 7.75% and it took us the end of the year to get back to 8%, that's probably acceptable.

Okay. Thank you very much.

And the next question comes from Ibrahim Poonawalla with Bank of America. Please go ahead.

Hey, good morning. Good morning. I guess David wanted to follow up on M&A. We've seen public stocks down 20%, 30% in the last couple of months. You know as much as about M&A and psychology of CEOs and boards, do you think we need a significant recovery in public stock prices for a deal to pan out where you don't have to pay a massive premium? How do you think that plays itself out? And also remind us, are there private bank M&A opportunities in or out of Texas that you're looking at which are realistic and meaningful?

I guess I'll answer the first question. I think I understood that. Basically, based on the stock prices where they're at today, do they have to go up to get more deals? And I would say that basically if what's happened in the last few days and the trend is where it's at right now, we're seeing that I think that we'll still be able to do deals because people have seen the volatility, especially in our price where we were at $80 and then probably averaged $75 and now you're $67. But we were dealing with some of the same people a few years ago. where our stock price dropped to 55. And so they've seen us, they've watched us, and I think that they feel comfortable that if they take our price based on our stock price where it is today, they'll be fine. They've seen tremendous black swan activities over the last couple of years, and I think they have the confidence in us. But the good part is if they don't, you know, even if you have some private deals, and with the amount of capital that we have, I think it just really gives us the advantage for somebody that may want maybe not the whole thing in cash, but a certain percentage of cash. We have that ability to provide that with the excess capital that we have. So I'm very confident where we're at.

Got it. That's helpful. And I guess maybe one, Kevin, for you on the mortgage warehouse, you talked about the new commitments. I'm just wondering, how do you think about the interplay between where mortgage interest rates are, what that warehouse balance could look like, in the summer or over the next year is there a certain point where the warehouse activity picks up meaningful it just feels like we might be in a decade of very low refi activity and would love to hear how you think about that and what that means for if there is an upper end to what uh your warehouse balances could look like yeah it is rate dependent um you know

Believe it or not, it wasn't that long ago we were talking about people doing refis when rates were low. And now we're looking at, in my mind, as I said in my comments, at this level of rates, I'm a little bit worried about the tail end of this quarter if we stay at these levels. So I think rates are going to play an impact on the tail end of this quarter because a lot of this stuff is baked in. You take an application and it Generally six weeks after that, you're closing the loan. So I've always said we've got really, really good vision over the next six weeks, and then it becomes more rate dependent. So I think that rate dependency will hit the tail end of this quarter to the extent rates stay high and could bleed into what is normally the very strong third quarter. So that's just how I think about it. We'll see where rates go, and we'll take it from there. If I could just go back to your M&A question, I agree with everything David said. There is some psychological impact for all of us. When rates are high, everything feels good, right? And it feels like more deals ought to happen. But as you know, and as we try to convince people, to the extent we've all moved in concert with each other as a group, exchange ratio math doesn't change. It's just relative math. And most really knowledgeable CEOs end up getting there over the psychology of it all.

That's helpful, Carla. Thank you both.

Seeing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Charlotte Rasche 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.

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