Prosperity Bancshares Inc
NYSE:PB
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Prosperity Bancshares Inc
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Good day and welcome to the Prosperity Bancshares Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like to now turn the conference over to Charlotte Rasche. Please, go ahead.
Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares third quarter 2019 earnings conference call. This call is being broadcast live over the Internet at prosperitybankusa.com and will be available for replay at the same location 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, Chairman and Chief Executive Officer; H. E. Tim Timanus Junior, Vice Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, President; Randy Hester, Chief Lending Officer; Merle Karnes, Chief Credit Officer; 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 recent financial statistics; and Tim Timanus, 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 that will be provided by our call moderator, Jake.
Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for 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, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Additional information concerning factors that could cause the 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 to thank everyone listening to our third quarter 2019 conference call. I'm excited to announce that our board of directors voted to increase the fourth quarter dividend of 2019 to $0.46 per share, a 12.2% increase from the $0.41 per share in the third quarter of 2019. Our company continues to do well and we want to share that success with our shareholders. Prosperity Bancshares also repurchased 654,000 shares of its common stock at an average weighted price of $63.59 per share during the third quarter of 2019 and 1.473 million shares of its common stock at an average weighted price of $64.10 per share during the first three quarters of 2019. For the third quarter of 2019, we showed impressive returns on average tangible common equity of 14.77% annualized and on average assets of 1.47% annualized.
Our earnings were $81.758 million in the third quarter of 2019 compared to $82.523 million for the same period in 2018, a decrease of $765,000. However, in the third quarter of 2018, we had non-core loan discount accretion of $3.457 million compared to only $1.283 million of such income in the third quarter of 2019, a $2.174 million decrease in non-core income. Our diluted earnings per share were $1.19 for the third quarter of 2019 compared to $1.18 for the same period in 2018, an increase of 80 basis points.
Our net income was $246.418 million for the nine months ended September 30, 2019 compared with $238.481 million for the same period in 2018, an increase of $7.937 million, or 3.3%. Our earnings per diluted common share were $3.55 for the nine months in the September 30, 2019 compared with $3.42 for the same period in 2018, an increase of 3.8%. It should be noted that during the nine months ended September 30, 2018, we had $5.329 million or more in net income than during the same period in 2019, again due to non-core loan discount accretion income.
Our loans at September 30, 2019 were $10.673 billion, an increase of $380 million or 3.7% compared with $10.293 billion at September 30, 2018. Our linked quarter loans increased $85.970 million or 80 basis points, 3.2% annualized from the $10.587 billion at June 30, 2019. Our deposits at September 30, 2019 were $16.930 billion, an increase of $196 million or 1.2% compared with $16.734 billion at September 30, 2018. Our linked quarter deposits increased $42.291 million or 30 basis points from $16.888 billion at June 30, 2019. As mentioned in previous calls, Prosperity generally experiences most of its deposit growth in the fourth and first quarters of the year and we do not expect that to be different this year.
Completion of our merger with LegacyTexas Financial Group remains on schedule, as we have received all required regulatory approvals and shareholder meetings for each company are scheduled for next week. The management teams from both companies meet on a weekly basis and share many similar viewpoints. Both Legacy's and our goal is to develop people to be the next generation of leaders, make every customer's experience easy and enjoyable and operate in a safe and sound manner. We want to expand our use of technology and our digital products, making it easier for our customers to do business and continue to enhance shareholder value.
We believe our customers remain positive about the economy. Consumers are still the most positive, why we see commercial customers pausing a bit due to geopolitical concerns. In Texas and Oklahoma, unemployment remains low and demand at businesses is good. In our opinion, the economy in our market areas remains sustainable. I want to thank everyone involved in our company for helping to make the success that it has become. Thanks again for your support of our company.
Let me turn over our discussion to Asylbek, 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 three months ended September 30, 2019 was $154 million compared to $157.3 million for the same period in 2018, a decrease of $3.3 million or 2.1%, a lower loan discount accretion in the third quarter 2019 partially contributed to the decrease. The net interest margin on a tax equivalent basis was 3.16% for the three months ended September 30, 2019 compared to 3.15% for the same period in 2018 and 3.16% for the quarter ended June 30, 2019. Excluding purchase accounting adjustments, the core net interest margin for the quarter ended September 30, 2019 was 3.14% compared to 3.09% for the same period in 2018 and 3.14% for the quarter ended June 30, 2019.
Non-interest income was $30.7 million for the three months ended September 30, 2019 compared to $30.6 million for the same period in 2018. Non-interest expense for the three months ended September 30, 2019 was $80.7 million compared to $81.8 million for the same period in 2018. The efficiency ratio was 43.7% for the three months ended September 30, 2019 compared to 43.5% for the same period in 2018 and 43.74% for the three months ended June 30, 2019. The bond portfolio metrics at 9/30/2019 showed a weighted average life of 3.62 years and effective duration of 3.19 and projected annual cash flows of approximately $1.8 billion.
And with that, let me turn over the presentation to Tim Timanus for some details on loans and asset quality.
Thank you Asylbek. Our non-performing assets at quarter end September 30, 2019 totaled $51.157 million or 48 basis points of loans and other real estate compared to $41.558 million or 39 basis points at June 30, 2019. This is an increase of 23% from June 30, 2019. The September 30, 2019 non-performing assets total was made up of $50.314 million in loans, $28,000 in repossessed assets and $815,000 in other real estate. Of the $51.157 million in non-performing assets, approximately $16 million or 31% are energy credits, all of which are service company credits. Since September 30, 2000, $2.938 million in non-performing assets are under contract to be sold or have already been removed from the non-performing asset list.
Net charge-offs for the three months ended September 30, 2019 were $1.046 million compared to net recoveries of $115,000 for the three months ended June 30, 2019. $1.100 million was added to the allowance for credit losses during the quarter ended September 30, 2019 compared to $800,000 for the quarter ended June 30, 2019.
The average monthly new loan production for the quarter ended September 30, 2019 was $289 million compared to $287 million for the quarter ended June 30, 2019. Loans outstanding at September 30, 2019 were $10.673 billion compared to $10.587 billion at June 30, 2019. September 30, 2019 loan total is made up of 38% fixed-rate loans, 38% floating rate and 24% variable rate loans.
I will now turn it over to Charlotte Rasche.
Thank you, Tim. At this time, we are prepared to answer your questions. Jake, can you please assist us with questions?
[Operator Instructions] The first question comes from Brady Gailey with KBW. Please go ahead.
Thanks, good morning guys.
Good morning, Brady.
Good morning.
I just want to start with loan growth and with legacy about to clothes. I know in the past when y'all done acquisitions, you've kind of looked at a portfolio of the target loans and decided to run them off. I think I remember either you guys or Kevin talking about that number being about $500 million for legacy. Just wondering an update to that number, how much do you expect to move out of legacy under the Prosperity umbrella? And then how does that impact net loan growth for 2020?
Well, again, the $500 million that Kevin had mentioned and – like we had mentioned at the same time, is probably a close number and what we are talking about. How that would – how – the time frame that it takes to do that, that could take us up to two years to probably do that. So I guess if you did some Boolean math and said you're growing 5% a year on loans, 5 times are combined loans. Again, I don't know, if you want to count, a big portion there is of mortgage warehouse. So we have over $10 billion so that's 5% to $500 million a year, you add their loans to it. So basically, it would effective the 5% organic growth, there is no question, you just have to put a pencil to it, and I think you probably can do the same thing, take their $7 million or $8 million and exclude the mortgage warehouse and just take 5% and then subtract that while running off, it's a – it would probably be a pretty easy calculation.
Got it. All right, that's helpful. And then so buybacks continued in the third quarter. You bought back about 1% of the company and you bought it back a little under $64 a share, the stock now is north of $70 – well north of $70. So should we expect that buybacks kind of stop with the stock trading at this level?
Right now, I would say the answer to that is yes. I mean, right now, whenever we start buying when we think that the market is really completely out of kilter. We felt like the market was out of kilter at those prices we were buying it at. And so I think we'll be there to support, we still have a lot of capital, we're creating a lot of capital, we have a lot of earnings. You had our earnings what we have and you had the earnings that Legacy brings to the table. I mean its $500 million or so a year and even after dividends, we have a lot of money. So we'll continue to buy if the stock ever goes disproportionately lower than we think it should be.
Okay. And then last question for me is on the margin. It was great to see the margin flat linked quarter, that's a lot better than most of your peers out there this quarter. But how do you expect the margin to trend towards the back part of the year and into 2020?
Well, the reason probably are, our net interest margin did better than our peers. We never went up; our net interest margin never went up like the other guys did because we had a certain amount of fixed rates on our bond portfolio and our loan portfolio. So as rates came down or coming down, that helps us at the same time. We have about a three-year average life, both on the loan portfolio and the bond portfolio. But going forward, it's a little bit harder question. If you look at our bank without Legacy and you look at our bank with Legacy, we've run both models.
And now again, these are models and we're throwing a lot of information into them. So I can't tell you that they're exactly accurate, especially when you combine Legacy's with ours because, again, we're making a lot of assumptions. But from what we see, we don't think our combined bank is going to be much different than what our bank would have been uncombined. We think that if interest rates don't move, we would still see a net interest margin that would increase over 12, 24 and 36 months. If interest rates go down 50 basis points, we see probably a flat margin. If they go down more 50 basis points we would see a decline in net interest margin. I know that's a lot of information, but that's just kind of what we have right now.
That's helpful. Thanks guys.
The next question comes from Peter Winter with Wedbush. Please go ahead.
Good morning.
Good morning, Peter.
I was just wondering as you guys have had more time to spend with Legacy bank and getting ready to close the deal, have you noticed or come across any positives or negatives as you've dug deeper and getting ready to combine the two banks?
I think that – I'll start off with the negative side. I don't think that we found anything negative. I think the loans that we did our due diligence on and the loans that you've been seeing some of their charge-offs this quarter, we completely identified those and there any surprises in any of that. We also – I think our management committee – we have an Executive Management Committee, and we also meet with their executive manage meeting – their executive management, which is Kevin and Mays and Tom and Scott and Aaron and Chuck, and we meet with them and our guys, we meet every week.
And I would tell you they've been – it's been a pleasure to work with them. I think that we have to make decisions, but the more we work with them, I think they're more alike with us and the way we think. But I think it's just – it's been – in my opinion, I know everything and I don't want to be naive, anything can happen, but I think that it's been extremely favorable, and Kevin and I still have a bromance going, we text almost every night.
Okay. And then you've assumed 25% cost saves, and just given your history, that seems kind of conservative for you guys. You usually beat the expense saves. I guess my question is how quickly do you start to realize the expense saves and get the full amount in the run rate?
Well this again, somebody else can jump in, in just a minute, I'm sure, Asylbek or somebody. But this is a little bit different in that even though we're closing the deal in the next few days or so, the operational integration doesn't really completely take effect until June of next year. So you all have done some numbers and Asylbek, you may want to jump in.
Yes, I’ll give a little bit of color. Yes, we currently have a higher level estimates, but I think once we close the merger, we should have – able to provide more clear guidance on the timing and the cost. But as the – when you look at it, the elements of the cost saves changes from preliminary, but we still expect to get the 25% cost saves that we announced at the merger. And from the timing perspective, I think we expect to take full advantage of the cost save in 2021. But as you mentioned, probably, half of the savings are going to come in 2020 because since its integration has to take place in 2020.
Right. You'll probably need to start consolidating some of the steps even before the complete operational integration with the...
Absolutely right. There is a few – I mean, we're working on a different project. I mean we've had a lot of streamlines that we're working through that and some of them will be consolidated before even the – our mid-year point.
But I think, a good number is a 50% of it, I think, is a good way of looking at it.
Yes. I would say 50% in 2020 and a full advantage in 2021.
That’s great. Thanks very much.
The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Thank you, good morning.
Good morning.
Just had another question around the deal closing. Obviously, it's closing fairly soon. Is there anything from a securities repositioning that you're doing on the asset side around closing that we should be mindful of? And if you can just talk to where your expectations are for the pro forma margin for both banks combined coming into fourth quarter or I guess 1Q will be the full quarter?
I probably would start with the pro forma. Again, this is just a pro forma and these are putting these two models together, but Asylbek, we're looking, what, at 3.4% margin?
Yes, based on the pro forma. Yes, both combining those companies right now, as we don't do much of a balance sheets remixing, we're seeing at 3.40% right now.
So you're seeing that you'll see – you've already seen our – you saw our balance sheet where we were borrowing money from the Federal Home Loan Bank over $1 billion, we've cut that down dramatically because it didn't make sense anymore to do that. From Legacy side you may see us sell a small portion of their CMO portfolio, not a whole lot, but you'll probably see a little bit of that. And you'll probably see us taking money as our bonds mature instead of buying securities and won't use that money to probably fund their loans.
Understood. And the 3.40% David just in relative to your comments earlier, you do expect that 3.40-ish margin to stay fairly stable assuming rates don't go down more than 50 basis points?
The 3.40%, if interest rates don't move at all, we should see a pretty good increase in 12, 24 and 36 months. If interest rates go down 50 basis points, it should be flattish. If it goes on more than 50 basis points then there will be some decline in the net interest margin.
Understood. And just separately in terms of just loan growth or business outlook. As you look into the fourth quarter into next year, are things looking better, worse as you think about the economy? Obviously Texas still doing very well, but would appreciate your thoughts just in terms of the feedback you are getting from clients and how you're thinking about next sort of 2020?
The consumer is doing extremely well. Manufacturing has slowed a little bit. We've seen businesses that I think they're still doing very well. But again, they're pausing, I guess I would say a little bit because of the geopolitical, they're looking down the line and looking at the election or wondering if somebody really does get into office that would really raise taxes and start putting wealth taxes and stuff. I think it just bothers business people to make longer term decisions when they see something like that. But overall, when you look at it, our unemployment rates in Oklahoma and Texas are the lowest they’ve ever been. Still harder to find employees to work, I mean, so it's a very good market, I would say that. From a loan side we continue to see a tremendous amount, a lot of payoffs, but more so than at the competition is very, very strong up there.
We're seeing banks that are offering rates that we don't feel that we can offer sometimes. And so I would, where we put 5% organic growth for this year, I think I would change that to maybe 4%, because we're just not going to play, we’re not going to – I think Johnny Alison said we're not going to get the most stupidest award. So we don't want to do that. So we don't – we want to be there. So I think that we'll be competitive, but again we're not going to – we're just not going to do stupid things either. So with that, I would say that we'll probably be more like a about a 4% growth for this year.
Got it. Great. Thanks for taking my questions.
The next question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.
Hi, good morning.
Good morning.
Just two follow-ups on Ebrahim’s kind of balance sheet question. Just kind just kind of curious, you had an update on how you plan to fund or how you plan to approach Legacy's warehouse business? And then as a part two of that, would you anticipate using some of your liquidity to fund it versus where Legacy has relied on wholesale funding to fund that business? I'm just trying to get a sense of kind of what the balance sheet kind of looks like pro forma?
Yes. I don't know that we've had the balance sheet exactly the way it is. But the – fundamentally, where we intend to use our money to fund the warehouse receipt – I mean, the mortgage warehouse loans, again, if I remember looking at their balance sheet this quarter they were borrowing over $2 billion or so. I think, they will probably – we may increase our borrowings a little bit but for the most part, I think that they'll probably be in the middle of the road. We'll probably try to fund most of their loans with our core deposits basically.
But having said that, it's not going to work overnight, just that easy, and we'll have to see where we – their mortgage warehouse loans were higher than they have had been traditionally through the average of the year. They usually run about $1 billion – a little over a $1 billion. I think in this last quarter, again, it was closer to $2 billion. So we need to really see what the average is going to be. But again, I guess, fundamentally, we intend to fund – use our deposits to fund most of their loans. But having said that, you may still see us having to borrow $1 billion or so through this transition period till our stuff runs off.
Got it. No, that's helpful. Yes, their margin was down I think 17 basis point [indiscernible] has to do with the warehouse. And your 3.40% NIM guide, does that obviously include the things you're talking about? Does it also include any accretion income that you would expect to get in 2020?
We did – we're including accretion income in there.
Okay. And then just one final...
We don't want to start that again.
I understand. I don't – we don't want to bottle it either. Just in terms of CECL, I was just curious if you guys could provide any update. I know there'll be a lot of moving parts with Legacy coming in. They've historically maybe provisioned at a higher rate than you guys have. But you'll have the mark and everything else that goes with CECL. So just kind of curious how to think about sort of that aspect once the deal is closed.
Yes, this is Asylbek. Currently, we are – both teams running the parallel on CECL models at a standalone basis, but after the merger we'll work on that consolidated model like aligning the – like qualitative and economic factor or assumptions. And I think once we go through that process we'll have better clear picture on the consolidated basis. But if its standalone, I mean, our model is showing that we would have about $20 million to 30 million of additional provision related to CECL, which is about 23% to 34%.
Got it and that's helpful. And the charge-offs that Legacy had this quarter, obviously, I know you identified those. But does that change your mark at closing? Or will you still stick with the same the mark that you identified initially?
That's a good question. We had $175 million, so let us just look at it and see.
Okay, fair enough. All right, thank you guys.
[Operator Instructions] The next question comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks. Good morning guys.
Good morning, Matt.
Good morning, Matt.
From a capital planning standpoint with Legacy, I believe you'll be absorbing some sub-debt and trust preferred securities. Just remind us of your plans, what you expect to do with this capital and how quickly you can do it?
So we are planning to – once the merger occurs, we’re planning to pay off when their maturity comes in, so we’re not going to keep it in our balance sheet going forward, but I think one of the maturity comes in, in 2020.
And...
So that’s we intend to pay off right away…
Yes, in December...
Right.
December 15.
It's about $15 million.
Yes.
Got it. So trust-preferred to pay down almost immediately and the sub-debt comes due you said in 2020, is that right?
Yeah, I think its October 2020.
I thought it would – yes...
Yes, next year.
Okay, got it. And then going back to the margin discussion and specifically on the core loan yields, once I back out the accretable income, I believe the core loan yields compressed about 5 bps this quarter. Obviously, you have some variable rate loans that put some pressure on that, but I was a little surprised to see 5 bps of pressure this quarter. Any color you can provide on that?
Matt, I didn't see that. Again, I'd also like you might've gone into that. When I looked at it, again when I compared income to income, I would – we have probably more accretion last year than this year. So I didn't see the lower income on loans.
This is Asylbek. On the loans core base, yes, we went down about 4 basis points on the loan, but it's because of their short term or long term rate environment we have. So some of those variable and floating loans we have that increased. But if you look at the over – compared to last year, I mean, we were at core basis at the 4.87% on loan yield and we had 5% this year. So year-over-year we increased...
I kind of thought it was better really. When you took out the additional accretion we had last year compared to the accretion this year, I thought it was actually better compared to last year.
Yes, we went up 13 basis points compared...
Yes, that was positive.
Yes, even in this rate environment it’s pretty positive in my mind.
Okay, thank you for that. And then just lastly, the premium amortization expense was about $400,000 higher in the third quarter than 2Q? Obviously, the rate environment is influencing that as you look towards the fourth quarter. Any color you can give us as far as your expectations on the premium amortization expense for 4Q?
Yes, you’re referring to the securities portfolio basically, I guess.
Yes.
My general overall feeling is rates are rising. I think that you should see it decrease to may be 300,000 to 400,000 probably.
I would add the same thing, yes. I think it’s – I expect at standalone basis, probably less than what we had $8 million, but...
I mean really if rates continue to stay where they're at, it's crazy, we’re seeing – you're seeing the prime rate adjust in the overnight, but there has been some good things which a big part of this is if you know our bank and I think you do. A lot of our yields dependent on the 10 year treasury and that's been extremely positive over the last few weeks. It's gone from 1.5 to almost 1.8. And so that makes a big difference. When we're buying securities or fixing rates for five years, it makes a big difference.
Yes, I think there is seasonality too, because summer time, there's a lot of homes being bought that I think is going to come down in the fourth quarter. So that's going to help to slow down as well.
But it's when – when that – when your ten year went down so much, I mean, you saw a lot of refinancing. So if they – if we can truly have a yield curve and not have this inverted yield curve, you shouldn't see as much of a pay down, I wouldn't think that the refinancing, I guess, I'll refer to.
Okay.
Without that dramatic one way or the other.
Right, right.
Thank you guys.
The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good morning everyone.
Good morning, Jon.
Good morning.
Good morning.
Maybe one for you, Tim. Credit looks fine, but give us an update on health in ag and energy. And then maybe just even though it's not a huge number, touch on the increase in NPLs.
Well, let me do the last part of the question first.
Okay.
The nonperforming list is really made up primarily of the bulk of it in four credits that total about $33 million to $34 million. One of them is a home mortgage credit that we've got about $9 million and the appraisals that we have are in the $12 million to $13 million range. So on paper there isn't a loss there. We shall see. Another one is a well service company and there's about $13 million to $14 million outstanding. It's actually current.
They're making the payments timely. On paper, once again, in terms of appraisals there is enough equipment to pay it off. And they also pledged additional real estate that has an appraised value of about $9 million. So on paper we don't think there's any loss of there. And then the other two credits are commercial real estate credits, one about $7 million, it's actually current. We think there's value there. We think if we had to foreclose, we probably wouldn't lose anything or wouldn't lose much. But once again, it's current and it's actually performing at this moment.
And then the second one is about $3 million. And we're going to be paid off, we think, by the end of this week. So when you take the $33 million, $34 million that’s in these four credits out, it makes our non-performing look pretty good. Agriculture, it's not the best, but it's not a dramatic problem either. You hear a lot of publicity about the tariffs and all that, and the government is covering a lot of these farmers with payments from the government in that regard. So while I don't think agriculture is booming and doing as well as it could, I don't see any big, big problems there. And then, what was the third part of the question?
Energy, primarily energy service, yes.
Energies, in our opinion it’s kind of in the doldrums. It's not getting significantly better. It's not getting significantly worse. Most of the people that we talk to think that the oil price is going to fluctuate between $45 and $55 over the course of the next year. The majority of the people that we do business with now can handle that. Obviously, if those predictions are incorrect and it goes way down, then it's a problem for everybody. The service sector seems to be struggling more than the production side right now. I think because of what I just said, I think the forecasts are our flat in terms of pricing of the commodity. So there's not a whole lot of extra dollars being spent on service work.
We said over time that most of the customers that we have are customers that have been in business for a long time and have weathered the storms. They started the last downturn with strong balance sheets. Those balance sheets were hurt quite a bit in 2015, 2016 and into 2017, but they're still alive and are bouncing back a little bit. And so, I don't see a whole lot of change right now. Now the credits that that Legacy is bringing to the table are more on the production side. I know that they have a focus on removing some of those out of the bank, so we'll see how that goes. So, I guess, I have personally a little less, less confidence in where some of theirs are going to be, but having said that, we've looked at the credits. We think they're going to be okay and they're dealing with them. So we don't think there is any major issue there.
Okay. That's all helpful. And then David, maybe one for you. I think we all understand the efficiency from the merger and the expected runoff and we've seen you do that many times. But as you look through this a little bit more and talk with the legacy management team, any areas where you are a bit more optimistic in terms of opportunities for new business whether it's a product line or just larger lending limits?
I think it's a combination of that, John. I'm really excited about it. I mean, you really have – mortgage warehouse I would admit that we don't have the experience that they have in it. So we're there to learn in that. They have the commercial real estate portfolio that is a little bit different than ours. But again, I think that this gives us an opportunity to really dominate to two of the largest markets in the State of Texas. You're going to – I mean, we dominate Dallas, we dominate Houston and I think just the size that we have and what we can offer, the different products that we can offer. We're really beefing up right now on our own new cash management system.
And so you combine that with the lenders that we have out there, and both markets will become very prevalent. And I think it's a great opportunity. These guys really have been great to work with. As Tim said, they do have some issues maybe on the oil and gas side. We identified that. I think, it's something we can work with. We've been through many of these things. And I just think it's going to be a great opportunity that we can move through it quick and we'll go on to our next deal.
Okay and then just one last one. You talked earlier about expanded use of technology. Any area in specific area you'd call out where you feel like you have to catch up the quickest where you might be at a disadvantage?
I don't know that we have to catch up, but for me if – I just think that if you're going to be in business, and I talked about this earlier before this meeting ever started, I just think almost everything has to be digital. It not only – in the past things were digital, just on your checking account and you could look at your little – your phone and all of that. I think going forward your checking account has to be digital.
Your mortgage application has to be digital. Your – I think even small commercial loans are going to have to be more digital. I think everything that we offer, people are important on that. I mean, I think it's a combination, but I think you're going to have to have the digital platform for everything. And I think that's what we're moving to open up a new account to do just about anything. Our goal is to really be digital on any product that we offer. That's my goal. And that doesn't happen overnight, but that's really my goal really.
Okay. Okay, all right. Thanks. Good luck with the close. Thanks.
Thanks.
The next question comes from Ryan O'Rien [ph]. Please go ahead.
It’s that me [indiscernible].
It’s close.
Okay, Ryan O'Rien. Ryan O'Rien with no firm, I'm unattached.
Hi.
Hi, everyone. Maybe just going back to what the pro forma financials are going to look like. As you kind of put the two balance sheets together, think about normalized mortgage warehouse, some of the funding efficiencies. I mean, it's kind of the earning assets land around $28 billion and then it'll do whatever from there based on growth? Or is it a little lower or higher than that? Can you help us think about just a point estimate or a range for where earning assets might be and let’s call it six months once most of the dust has settled on the repositioning?
I again, that's it – just Asylbek will give you better color on. My gut feeling it's around $30 billion. Do you have it, Asylbek?
Yes, I think it's going to be around between $28 billion to $30 billion.
Yes, and that’s total asset.
No, there's an earning asset.
Earning assets.
Yes, total assets as we spend as of 9/30, it's about $32 billion to $33 billion.
Right.
Yes.
And then maybe just more broadly on the deal, I mean, you certainly referenced David, you and Kevin have hit it off. At the time there was a lot of concern and narrative that maybe the cultures didn't mesh and maybe some of the legacy Texas lenders higher than expected attrition could be a key risk for the deal. I know it hasn't even closed yet, so it's early, but just any – how are you feeling on that next level down? I don't know if you've had a chance to talk with those lenders or Kevin, but as you look at that next level down, do you feel better, worse, or about the same on a legacy Texas commercial lending – lender attrition?
I feel good where we're at. They've gotten over, was it 50 or 60?
62...
62 signed contracts, most of their people all signed contracts to stay with us. So that means they're not endure to live with us, but they're giving us a chance. And every deal that has been successful in our history, we've done 42 of them and only two of them, I would say, I regret them being tough. So every deal that's been extremely successful is successful because of the management that stays with it. So the success of this deal truly will be – it will be because of Kevin may – the team, let’s say Aaron, Chuck, the team that stayed at Tom, it would be those guys, if they're staying and they're going to be part of it, this does going to work fine. I'm looking at the table around the table right now and I see Tim brought his company over and the majority of all his people stay. I look at Eddie and he brought his people where the majority of his people stay. So the success of any of this thing of everything is to really make it, everybody has to work together and management has to be – management has to be part of it. If management is not part of it, then it's a tougher deal.
Thank you very much.
This concludes our question-and-answer session. I would like to now turn the conference back over to Charlotte Rasche for any closing remarks.
Thank you, Jake. Thank you, ladies and gentlemen, for taking the time to participate in our call today. We appreciate the support that we get for our company and we will continue to work on building shareholder value.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.