Prosperity Bancshares, Inc. (PB) Earnings Call Transcript & Summary

Good day, and welcome to the Prosperity Bancshares First Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 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 Bancshares. And here with me today is David Zalman, Senior Chairman and Chief Executive Officer; H.E. Tim Timanus Jr., Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Randy Hester, Chief Lending 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 Asylbek Osmonov, who will review some of our financial statistics, and Tim Timanus, 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 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 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 Zalman.

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 customer 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 3 months ended March 31, 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 3 months ended March 31, 2025, compared with $1.18 for the same period in 2024, an increase of 16.1%. For the 3 months ended March 31, 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 showed considerable improvement compared with the same period in 2024. Loans were $21.9 billion at March 31, 2025, an increase of $712 million or 3.3% compared with $21.2 billion at March 31, 2024, primarily due to the merger of Lone Star State Bancshares. As of March 31, 2025, loans, excluding Warehouse Purchase Program loans and loans acquired in the Lone Star merger decreased $67.6 million compared with December 31, 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 31, 2025, an increase of $851 million or 3.1% compared with $27 billion at March 31, 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 noninterest-bearing deposits of 34.5% of total deposits as of March 31, 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 3 months ended March 31, 2025, compared with 2.79% for the same period in 2024 and 3.05% for the 3 months ending December 31, 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 nonperforming assets totaled $81.4 million or 24 basis points of quarterly average interest-earning assets at March 31, 2025, compared with $83 million or 24 basis points of quarterly average interest-earning assets as of March 31, 2024, and again, $81.5 million or 23 basis points of quarterly average interest-earning assets at December 31, 2024. The allowance for credit losses on loans and off-balance sheet credit exposure was $386 million at March 31, 2025, compared with $366 million at March 31, 2024. Our current nonperforming 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 revenue 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 to stay close to our customers and their needs and maintain a quality loan portfolio. Although there is market volatility, we continue to have active conversations 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 we'll 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 Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Asylbek?

Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the 3 months ended March 31, 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 31, 2024. The linked quarter decrease was primarily due to having 2 less days in the first quarter of 2025. The fair value loan income for the first quarter of 2025 was $3.3 million compared to $3.6 million for the fourth quarter of 2024. For the second quarter of 2025, the fair value loan income is expected to be in the range of $2 million to $3 million. The net interest margin on a tax equivalent basis was 3.14% for the 3 months ended March 31, 2025, an increase of 35 basis points compared to 2.79% for the same period in 2024, an increase of 9 basis points compared to 3.05% for the quarter ended December 31, 2024. Excluding purchase accounting adjustments, the net interest margin for the 3 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. Noninterest income was $41.3 million for the 3 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. Noninterest expense for the 3 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 noninterest expense to be in the range of $141 million to $144 million. The efficiency ratio was 45.7% for the 3 months ended March 31, 2025 compared to 46.1% for the quarter ended December 31, 2024 and 49.1% for the same period in 2024. The bond portfolio metrics at 3/31/2025 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 Timanus for some details on loan and asset quality.

Thank you, Asylbek. Nonperforming assets at quarter end March 31, 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 31, 2024. This is basically flat with some nonperforming assets coming off and others coming on. Since March 31, 2025, $895,162 of nonperforming assets have been removed or put under contract for sale. The March 31, 2025 nonperforming asset total was comprised of $73,378,000 in loans, $29,000 in repossessed assets and $8,012,000 in other real estate. Net charge-offs for the 3 months ended March 31, 2025 were $2,704,000 compared to net charge-offs of $2,592,000 for the quarter ended December 31, 2024. This is an increase of $112,000 on a linked-quarter basis. There was no addition to the allowance for credit losses during the quarter ended March 31, 2025. No dollars were taken into income from the allowance during the quarter ended March 31, 2025. The average monthly new loan production for the quarter ended March 31, 2025 was $317 million compared to $333 million for the quarter ended December 31, 2024 and $295 million for the full year 2024. Loans outstanding at March 31, 2025 were approximately $21.978 billion compared to $22.149 billion at December 31, 2024. The March 31, 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.

[Operator Instructions] First question comes from Manan Gosalia with Morgan Stanley.

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'd 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, do you want to start off on that question?

Sure. Thanks, David. Yes, 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 5 quarters, we've had $549 million worth of runoff between the Lone Star and the FirstCapital 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 3 quarters when we were on this call -- or 3 weeks in the quarters, loans were down anywhere from $25 million to $90 million within the first 3 weeks of the quarter. Loans are actually up modestly in the first 3 weeks of this quarter. And I do know, if I just look at the pipelines, we've got some loans -- nonconstruction-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.

Yes. I'd add, too, that we usually have a quarterly management meeting where our Chairman and President come from all different parts of the states of Texas and Oklahoma and between Dallas, Houston, West Texas, on and on, Oklahoma. And I asked that exact question. I said the loans -- the total loan dollars were down. But at the end of the meeting, I always ask what their -- 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 not knowing what to do, but they all seem to be extremely optimistic. Tim, do you want to add to that or?

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 and...

I think it's still -- the good part is I think the customers are still pretty optimistic. Again, they're just uncertain 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 of 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.

Yes. And since it's an important topic with the tariffs and everything else, and we've listened to other calls 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 is going to flip it. I think that will slow down as well if the tariffs become an issue.

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

That's really helpful color. If we think about the balance sheet, I think you have a couple of quarters where the balance sheet has gone down. You had the opportunity to pay down some of the high-cost borrowings. Should we expect that [Technical Difficulty]?

We couldn't really understand anything that you said, Manan. 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?

Better.

Okay. 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?

We're -- 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 million -- $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 of the -- because again, we have so much liquidity coming from the bond portfolio. And so I think that -- I think you're pretty much going to see -- I think we might reduce it maybe $200 million, but that's probably about it.

Yes. And depending also, as we discussed on the loan growth and probably the deposits, so if opportunity presents, we'll continue to pay down the borrowings. And also, what we'll start doing a little bit is buying securities that are yielding 5.25% or so, 5.5%. 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 of 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.

The next question comes from Catherine Mealor with KBW.

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?

Yes. 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 -imagine that 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 to 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 -- but we will -- again, we will buy when there's another downturn into the stock price.

Yes. 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?

Yes. I mean, I -- again, we start 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 3 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 that -- I think you will see something. 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 we will see stuff get done this year, by the end of the year for sure.

The next question comes from Michael Rose with Raymond James.

I don't know if you touched on this, but I think previously, you talked about kind of a full year margin in the 3.25% to 3.30% range 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 these ships are going to follow off of the planet, our deal is not predicated on the growth. It's predicated on repricing. And I think we're still sticking with the deal of the 2.25% to -- 3.25% to 3.30%.

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?

Yes, 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 -- 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 billion ] average so far for the quarter, and we closed the book out last night at $1.148 billion. So it's looking like -- typically, the second quarter is good. The third quarter is usually our best quarter, and then Q1 and Q4 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 $1.050 billion to $1.1 billion for this quarter. Just other color, Michael, we have -- we actually got 2 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 into next quarter, 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 that I might have expected, understanding that fourth quarter was pretty strong in NSF. Anything to read into that at all or just activity levels? Or just any color would be helpful.

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

And your next question comes from Peter Winter with D.A. Davidson.

You guys obviously have a very strong deposit franchise. You've done a great job mentioning 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 it's -- you're already at the lower -- near the low end of peers at 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, we're -- I think our total cost of funds -- our total cost of deposits is like 1.38%. So about -- sometimes 100 percentage basis points and less than some of our peer group. But we would like to keep -- a lot of times, we reward our customers when rates come down and we still try to keep them. But I think it depends on the timing of that. And so if the repricing is -- if we get enough repricing in, in the bond portfolio and the loan portfolio, we probably won't be as aggressive as bringing down rates. If they came -- 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.

Yes. I'll just -- Peter, I'll give you a little bit of additional information on that. When we had a 100 basis point cut since end of last year to -- we did not increase significantly, our deposit rates. What we did cut is our special CDs that we pretty much cut 1:1 on the special CDs. And there were some customer we gave them exception rates. So we cut those exception rates. But overall, if you're looking bigger base to our customer, we did not decrease the rates. If you look at interest bearing demand deposits, we have 70 basis 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 rate. So we haven't touched those. So overall...

That's 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? Will they lower on 1x, 2x or 3x or will they lower them at all? That's the whole question. We actually -- if they didn't lower them any at all for the rest of the year, it would be better for us. If they lower them even 3x, 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 just on credit, it's obviously excellent. Reserve coverage to the nonperforming assets, very strong, over 4x. But with a more uncertain economic environment, do you still expect to take a 0 provision throughout the year?

Well, we have what, $81 million in nonperforming 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 because -- just because of times like this, because of what's going on, and we can justify having the extra money in the account, I think. Right now, do you want to comment on that?

Yes. 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're covered there. So...

What do we have, about $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.

Yes. 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 '24.

Our next question comes from Jon Arfstrom with RBC Capital.

Asylbek, 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 $1.9 billion that -- what that's rolling off at?

Yes. I mean, we're not buying a lot when I say we're not doing 1:1. So we still have cash flow coming in. What's rolling off is our -- we have MBS, 15-year MBS that's rolling off, and that's what we're essentially buying, just replacing those. I think on the -- depending on the day when we buy, I think we're buying -- yielding around [ 5.25%, 5.50% ]. That's what we're replacing.

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

Exactly. So that's the where spread comes in. I think on the duration, I think it's around -- maybe new ones putting 4...

4 to 5.

Yes, 4 to 5.

Yes, the duration. So 15-year mortgage-backed security with an average duration probably -- probably anywhere from 3 to 5. I mean, depending on the coupon basically of where you're going to be. We haven't -- Jon, there probably the -- we haven't bought a bunch of securities. We have been buying some. A lot of this stuff -- a number of the stuff that we did buy was primarily for CRA purposes and stuff like that. Having said that, we did buy probably a couple of hundred million dollars here recently because we did -- we had excess funds, and we've 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 at the debt and borrowings, which we were paying how much on?

About 4.4%, I would think.

So even that, I mean that was really a net interest margin improvement if you're getting 2 on your bond portfolio, we were still -- might have not gotten the 5, but we still had a good margin and reducing the 4.4.

That's correct.

Okay. Good. That's helpful. And then, David, back on capital, you're doing a return on tangible of 13% with 11% tangible equity, which is incredible. I've seen you run with much lower TCE over the years 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. But I -- it's a high-class problem, I guess, I would say. On the other hand, there is no doubt in my mind that we're going to use that money. So I think if we do a deal, it will probably be -- there will 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 if it's a small deal. So I think it just gives us a lot of optionality. I wouldn't want to just say here's a special dividend or something like that because I do feel that we're going to be able to use it. And we'll -- our return on tangible capital usually has been around 16%. It's been -- again, we had 2 things that affected that. One, 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 it 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 acquisition, 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 3, maybe do a little of each, right? I mean, it's a good place to be.

Okay. I remember the 4% days, I do. But 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 had -- we bought -- if we did a bigger deal and it fell to 7.5% or 7.75% and it took us at the end of the year to get back to 8%, that's probably acceptable.

And the next question comes from Ebrahim Poonawala with Bank of America.

David, I wanted to follow up on M&A. You'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? Like, 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 the first -- I'll answer to the first question. I think I understood that is basically based on the stock prices where they're at today, do they have to go up to get more deals or -- 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 product 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 -- even if you have some private deals 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. So 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 meaningfully? 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 your warehouse balances could look like?

Yes, it is rate dependent. Believe it or not, it wasn't that long ago, we were talking about refi -- 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 generally 6 months or 6 weeks after that, you're closing the loan. So I've always said we've got really, really good vision over the next 6 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 the -- what is normally a 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.

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.