Prosperity Bancshares Inc (PB) 2012 Q4 法說會逐字稿

Good day everyone and welcome to today's program. At this time all participants are in a listen only mode. Later you will have the opportunity to ask questions during a question and answer session. Please note this call is being recorded. It is now my pleasure to turn the call over to Charlotte Rasche. Please go ahead.

Thank you. Good morning ladies and gentlemen, and welcome to Prosperity Bancshares fourth quarter 2012 earnings conference call. This call is being broadcast live over the Internet at it www.ProsperityBankTX.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 Jr., Vice Chairman; and David Hollaway, our Chief Financial Officer.

David Zalman will lead off with a review of the highlights for the recent quarter and an update of our recently announced merger and acquisition activity. He will be followed by David Hollaway, who will spend a few minutes reviewing some of our recent financial statistics. And Tim Timanus 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, Toya, or you may e-mail questions to investor.relations@ProsperityBankTX.com.

I assume you have all received a copy of the earnings announcement we released earlier this morning. If not please call and Tracy Elkowitz at 281-269-7221 and she will fax a copy to you.

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, 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 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. I would like to welcome and thank everyone for listening to our year-end 2012 conference call. We experienced many successes during 2012. We were rated by Forbes Magazine as the Best Bank in America.

Our assets grew 49% from $9,823,000,000 on December 31, 2011 to $14,584,000,000 on December 31, 2012. We announced the first merger outside of Texas into Oklahoma City and surrounding areas. We reported our highest levels of net income and earnings per share, with $167.9 million in net income in 2012 compared to $141.7 million in 2011, an 18.4% increase.

We posted diluted earnings per share of $3.23 in 2012 compared to $3.01 for 2011, an increase of 7.3%.

We saw the deposits increase $3.582 billion or 44.4% in 2012. And we saw loans increase $1.414 billion or 37.6% in 2012.

In addition to our large increase in deposit and loan growth overall, we realized an organic growth rate on deposits of 10.1%, and an organic loan growth rate of 6.2%, from December 31, 2011 to December 31, 2012.

We are very fortunate to be located in the area of the United States that we are. Our market areas continue to experience low unemployment rates, population growth and increasing sales for homes and other products. Further, our market areas are experiencing growth in many areas industries, especially the oil and gas, chemical, manufacturing, medical and technology areas.

Some of our successes in the fourth quarter and for the full year 2012 include an increase in net earnings to $48.3 million in the fourth quarter of 2012 compared to $36.4 million for the same period in the prior year, an increase of $11.9 million or 32.6%.

Our diluted earnings per share were $0.85 for the fourth quarter of 2012 compared to $0.77 for the same period in the prior year, a 10.4% increase in earnings per share for the quarter -- on a linked quarter.

Total net income and earnings per share for 2012 are the best we've ever reported. Our tier 1 leverage ratio of 7.1% at year-end 2012 has continued to increase because of our strong earnings.

As mentioned earlier our loans increased 37.5% from $3.766 billion at year-end 2011 to $5.180 billion at year-end 2012. Loans increased 2% or 7.9% annualized, or $100.8 million on a linked quarter basis compared with loans of $5.075 billion at September 30, 2012. Our organic loan growth excluding acquisitions was 6.2% year-over-year.

Our nonperforming asset ratio of 10 basis points continues to be one of the best in the industry. Our deposits increased 44.4% or $3.581 billion to$11.642 billion when compared to their level at December 31, 2011.

Our organic deposit growth for 2012 excluding acquisitions was 10%. Our linked quarter deposits increased $687.2 million or 6.3%, 25.1% annualized. However, we do expect some of these fourth quarter deposits to decrease in the second quarter 2013 as they historically have done.

With regard to acquisitions, as you know, we've been very busy. During the last quarter of 2012, we spent a lot of time with the operational integration of the largest bank we ever merged with -- American State Bank in West Texas. In October of 2012 we completed the acquisition of Community National Bank Bellaire and completed the operational integration of it in December of 2012.

We announced on January 1, 2013 that we completed the previously announced acquisition of East Texas Financial Services [inked in] Tyler, and its wholly-owned subsidiary First Bank. The operational integration is planned for the first quarter of this year.

On December 10, 2012 we entered into a definitive agreement to merge with Coppermark Bancshares Inc., a $1.3 billion banking company located in Oklahoma -- our first out-of-state banking deal. We expect to complete the merger in the late first quarter or early second quarter of this year with the operational integration planned for the second quarter of this year.

We are very excited about teaming up with Coppermark and their entire team. We believe their values and operations are very similar in nature to ours. Coppermark's current management team will continue to lead our anticipated growth and expansion in Oklahoma.

We expect our industry's current operating environment, with higher regulatory scrutiny in higher operating costs emanating from the new Washington-driven legislative burdens, along with asset quality problems, will result in many banks revisiting their strategic options, including sale to bigger institutions. As we look forward, we recognize the need to grow our balance sheet, and specifically our loan portfolio, to offset the negative pressures on our net interest margin.

In 2013 we intend to continue to focus on loan growth, eliminate unnecessary expenses, grow deposits, and identify and make accretive acquisitions. Our management teams, along with our associates, are truly engaged and are working to achieve our goals. Again I would like to thank our whole team for a job well done.

Let me turn over our discussion to David Holloway, our Chief Financial Officer, to discuss some of the specific financial results we achieved.

Thank you, David. Net interest income for the three months ended December 31, 2012 was $108.3 million compared with $80.1 million for the three months ended December 31, 2011, an increase of $28.2 million or 35.2%. On a linked quarter basis, net interest income increased $1.4 million or 1.3%.

For the full year 2012 net interest income was $380.7 million compared with $326.7 million for the same period in 2011, an increase of $54 million or 16.5%. These increases were primarily due to an increase in average earning assets.

The net interest margin on a tax equivalent basis was 3.53% for the three months ended December 31, 2012 compared to 3.82% for the same period in 2011 and 3.52% for the three months ended September 30, 2012. For the full year 2012, the net interest margin on a tax equivalent basis was also 3.53% compared to 3.98% for the same period in 2011.

Non-interest income increased $10 million or 71.4% to $24.1 million for the three months ended December 31, 2012 compared to $14.1 million for the three months ended December 31, 2011. For the full year 2012 non-interest income increased $19.5 million or 34.8% to $75.5 million compared to $56 million for the same period in 2011. The increase was primarily due to the American State Bank transaction.

Non-interest expense for the three months ended December 31, 2012 was $57 million compared to $38.4 million for the three months ended December 31, 2011 -- an increase of $18.6 million or 48.4%. For the full year 2012 non-interest expense was $198.5 million compared with $163.7 million for the same period in 2011, an increase of $34.7 million or 21.2%. Again the numbers were impacted by the American State Bank transaction.

The efficiency ratio was 42.9% for the three months ended December 31, 2012 compared to 40.8% for the same period last year and 46.1% for the three months ended September 30, 2012. The efficiency ratio for the full year 2012 was 43.5% compared to 43.8% for the same period last year.

Bond portfolio metrics at year-end 12/31 showed a weighted average life of 2.97 years, effective duration of 2.99 and projected annual cash flows of approximately $2 billion.

And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?

Thank you, Dave. The bank's nonperforming assets at year-end December 31, 2012 totaled $13,015,000 which is 25 basis points of loans and other real estate. This is compared to $14,051,000 or 28 basis points at the end of the third quarter of 2012 and $12,052,000 or 32 basis points at the end of 2011. This represents a decrease of 7% for the end of the third quarter 2012 and an increase of 8% from the end of 2011.

The December 31, 2012 nonperforming asset total was made up of $5,713,000 in loans, $68,000 in repossessed assets and $7,234,000 in other real estate. As of today, $2,400,000 or 18% of the December 31, 2012 nonperforming assets are under contract for sale. But as we always say, there can be no assurance that any of these contracts will close.

Net charge-offs for the three months ended December 31, 2012 were $1,913,000 compared to net charge-offs of $1,255,000 for the three months ended September 30, 2012. Net charge-offs for the year ended December 31, 2012 were $5,130,000 compared to $5,190,000 for the year ended December 31, 2011. So net charge-offs were basically flat from year to year.

$3,555,000 was added to the allowance for credit losses during the quarter ended December 31, 2012 compared to $1,800,000 for the third quarter of 2012. $6,100,000 was added during the year 2012 compared to $5,200,000 for 2011.

The average monthly new loan production for the fourth quarter of 2012 was $187 million compared to $134 million for the third quarter ended September 30, 2012. This represents a 40% increase. The average monthly new loan production for the year ended December 31, 2012 was $138,000 compared to $104,000 for 2011. This represents a 33% increase.

Loans outstanding at December 31, 2012 were $5.180 billion compared to $5.079 billion at the end of the third quarter 2012 and $3.766 billion at the end of 2011. The December 31, 2012 loan total is made up of 46% fixed rate loans, 33% floating rate and 21% variable rate. I will now turn it over to Charlotte Rasche, who will coordinate any questions.

Thank you, Tim. At this time we are prepared to answer your questions. Toya, can you assist us with questions?

(Operator Instructions) Ken Zerbe, Morgan Stanley.

Great, thanks. Two questions, I guess the first one just on the pre-amortization. I saw it tick up again this quarter, obviously a huge component of your net interest income. How should we be thinking about the dynamics there? I mean, given a steady-state interest rate environment, should that stay in sort of that mid-ish $20 million range? Or does that naturally slow down over time or just decline over time? Thanks.

Again, Dave Holloway, a couple of points to that; one, yes, as you know it went up a little bit. But also keep in mind the bond portfolio itself was much larger quarter over quarter. You could kind of level out on a percentage basis. It did not speed up. It kind of, as you noted, it kind of helped steady. So that would be the answer to question one.

And two, yes, absolutely, if you know the prepayment cash flow speeds slow down, all this refinancing of the cash we're getting back, that amortization would obviously begin to slow down, which would help us both from the margin and bottom-line perspective.

Ken, this is David Zalman. I think that a lot of it depends really on the interest rates. Today when you're looking at the 10-year up to 1.9%-something, and yield's going up, that naturally will slow down the premium amortization extending the portfolio a little bit, too, at the same time. And on vice versa, if interest rates go down, it would do the opposite.

But having said that, I think a lot of it is really dependent upon the interest rates themselves. And so what we're seeing today, it [is a] possible, because the premium amortization could slow down unless interest rates go back the other way.

And also a function of the volume of the portfolio.

Right, that's a big, big part of it.

All right, that helps. The other question I had, just on the reserve, your total reserves -- looks like right now the ratio is about 1%. How should we be thinking about this, just given all the acquisitions you've made?

I mean, I don't mean to try to dumb it down and make it into simple thing that we could just plug into our models. But do the regulars look at it as, okay, here's your core portfolio, here's all the acquisitions. You have those marked.

So I mean, I guess I'm just trying to ask could it -- should it continue to trend lower? Or just given the increase in provision we saw this quarter the [3.6], are you trying to hold that steady at say 1% on a combined basis? How should we think about that? Thanks.

I'll give a try at that first. This is Tim Timanus. We have a methodology that we have a comfort level in, and the auditors have a comfort in it and so do the examiners. And it takes into consideration numerous factors, one of which is growth in loans.

So, as you said, we've grown loans organically and by acquisition, so that would indicate a possible increase in reserve. But that's only one of many factors that we look at.

I have no reason to believe right now that there's going to be any significant change in the 1% level for the coming year. But that is nothing but a guess on my part. It depends on changes in these factors. And they're numerous -- there are 10 to 20 factors that we look at, if that makes sense to you.

No, it does; so, basically barring any additional acquisitions, maybe keep a 1% reserve ratio, obviously with provisions driven by growth and stuff having come down. I mean that's kind of where we come out. I wanted to make sure that was -- we're thinking about it the right way.

Well, we obviously don't have any target that we shoot for. It is what it is. But 1% is [accurate] at this time based on the methodology that we have confidence in. And when I try to look forward at the various factors that we rely on, in arriving at the provision, I just don't see anything on the horizon that is an obvious major change.

Okay, that helps, thank you very much.

Dave Rochester, Deutsche Bank.

Hey, good morning guys. Just switching back to the margin for a minute, do you happen to have the purchase accounting that related to the securities amortization 4Q? I think the figure from 3Q was around $3.5 million or so.

Yes, I can jump in. This is Dave Holloway. That number we showed in the last quarter for the acquisitions around $3.5 million, and it's basically the same for this fourth quarter.

Okay great, thanks. And how much loan discount accretion are you expecting in 1Q? Should we see about the same level, $14 million? Should I go down from here or?

Dave, that's the million dollar question isn't it? It's not a linear equation, because that accretion comes back to us based on the cash flows of these loans it's attached to. And the reality is that price it should be kind of lumpy as we go forward, you know, not so linear.

So when you ask the question, will it be $14 million in the first quarter, that's a good question. I think the way I would answer this question is it should trend down. You shouldn't -- if you think about it kind of in a logical way, some -- [while these] loans are being touched early on and we're getting a little bit more accretion upfront. But as we go over time, these loans continue to pay down, that accretion will come down.

So I think it's a long answer to say I don't know if we can give you a specific number. But we think it will start trending down as we continue to go forward in time. Does anybody else want to comment on that? (multiple speakers)

I agree.

And I guess the only offset to reduction would be just adding new deals, right, as you close those and you're amortizing more discounts that could potentially add to it?

I'd say it will add to it. Again, we announced the deal in Tyler. You'll have a mark there, a 91 mark and an 03 mark. And then Coppermark will be -- you know they have over $800 million in loans so you'll have a mark -- a 91 mark and an 03 mark on Coppermark as well. So that will add to it.

Yes, good. Thanks. And on the expense side, can you just talk about the trend heading into 1Q? I know you've got some new expense from the deal closing, but could we see further cost saves from [ASBC] to keep that number flat versus 4Q?

Yes, again, I come at it in a different way. First, absolutely, you'll see some lumpiness, and not so much from the Tyler deal. But as we get further in the year, and Coppermark being a larger deal, we'll see some lumpiness there.

But, yes, to get to the heart of the question, the expense -- the total net -- the total non-interest expense you see in that fourth quarter, that's probably a good run rate absent the noise that comes from acquisitions, you know, somewhere -- that number -- flattish, a little up, a little down would be a good range.

Okay great, thanks guys.

John Pancari, Evercore Partners.

Hi, this is Rahul Patil on behalf of John. Could you just discuss the recent trends in loan demand? Were there any big changes in 4Q following the tax law changes and what you expect -- where does the pipeline stand at the end of the year?

I'm sorry, but I didn't catch your name and we couldn't hear you very well either. Could you try to --

I heard him -- I heard what he asked I think. I think my answer is that we did not see, in the fourth quarter, in my opinion, anything that was specific from a loan demand perspective that was specific to the changes in the tax law. I suspect that's going to change and that people are going to alter their behavior based on the tax law going forward.

While we don't have hard and fast answer for why loan demand went up so significantly during the quarter, we're obviously thankful that it did. And we don't see anything on the horizon that necessarily creates a big change from that going forward.

The Texas economy is still very good, certainly compared to many other parts of the nation. And absent some unforeseen upheaval in the oil and gas industry, we don't see a change in that. So, while there's a lot -- always uncertainty about what's going to happen with loan demand, I just don't see anything that's out there that changes it significantly at this point time.

Okay, all right. That's helpful. And then on the -- are you still seeing still elevated pay down activity? I know last quarter you mentioned that the average pay downs you're seeing were around [$135 million]. What was it in 4Q?

Well, I don't have a hard number on that, but the answer is we are still experiencing elevated pay down. We're still able to add to the loan portfolio on an organic basis. But the answer is yes, pay downs continue to be elevated.

If the recent uptick in the 10-year means anything and we start to see rates increase, and I'm not sure that we will, but if we do, then that pay down activity will lessen. So, I think that is something we've lived with now for -- every year it's increased a bit for the last two or three years. So that's something we've lived with and we'll continue to live with.

Okay, thank you.

Jon Arfstrom, RBC Capital Markets.

Thanks, hey just a follow-up on the loan growth story. Anything, Tim, that's unique about it? Is it larger deals, smaller deals, geographies or any other color you can add?

I'll jump in and then Tim probably can. I don't think -- I think it's probably size of our Bank where we're at. I think we're seeing more deals. I think we're becoming more known throughout the state of Texas.

If anything, I would say there has been a lot more activity in the Permian Basin area. You know, the Midland, Odessa area is on fire with the oil and gas industry so we're probably seeing increased demand from West Texas or the Permian Basin area. Of course, Austin is a very good growth area in Houston is a very good growth area.

So I mean, overall in Texas, and I think Tim mentioned this, we're seeing unemployment rates lower, much lower in some cases, than the rest of the United States. We're seeing population growth, people coming in, and we're seeing job growth. Again, these aren't exact numbers, but you know we have probably in the Houston area 70,000, 80,000 new jobs created; probably in Dallas-Fort Worth this next year 70,000, 80,000 new jobs. These aren't exact numbers -- 20,000 in Austin.

The unemployment rate in Midland is around a little over 5%. So I think there's just a lot of activity and so there's just a lot happening right now.

Maybe it's all those radio commercials driving it.

Maybe so. (laughter)

Another question on American State, just maybe following up on your comments, but where do you expect that loan portfolio to bottom? And what's a good way for us to gauge what really happening there? Because you do have obviously some of the pay downs that runoff and that's probably helping some of your purchase accounting accretion. But I guess what I'm trying to get to is how do we gauge what's really happening in those markets?

Again, I'll start off with it, John. This is David. I think we have seen some pay downs over there. Again, whenever you merge with a bank there's certain loans that you like or don't like, and make fit or not fit. So that's really something I'd say for the most part that West Texas should be bottoming out, should stabilize. In fact, I think we should see growth.

When you see loan growth, I think a lot of growth will come from the Midland-Odessa-Permian Basin area, basically. I mean I'd say if loan committing is any kind of an indication, yesterday I think we saw more from their area than we did some of the other areas.

Okay, thank you.

Scott Valentin, FBR.

Good morning, guys, thanks for taking my question. Just with regard to M&A in terms of [EBIT], you guys have done a pretty fast pace of M&A. Are there any infrastructure limitations you have in terms of -- is it IT, is it infrastructure, is it people?

I think that -- I'm glad you asked that question because nobody else has. But you know, everybody does know that we are -- from our beginnings we've always done a lot of M&A. But I think everybody has to realize we've grown over 40-something-percent in one year, from around [9-point-something] billion to $14.5 billion, not even including the Coppermark deal and some others.

So I think that we spent a lot of time at the end of last year with the operational integration in West Texas which is over $3 billion, a very big deal. Although we did the operational integration, when you're doing something that large, you still want to make sure it's done right. We're still fine-tuning that. Probably more so with the lending officers, getting them used to the closings and the clerical part that we have to close loans.

We just got through doing operational integration in December of the bank here in town, which wasn't that big. It's not a -- you know it's [a hundred-and-something] million -- $160 million in size, so we are doing the operational integration.

Then we're getting ready to do the operational integration for the Tyler this fiscal quarter. And we're getting ready to do the operational integration in the second quarter for Coppermark. So, all of that in, I think that no matter what anybody says, growing that size does put stress on your infrastructure.

But having said that, I think for the most part everybody's feeling good. But again, we're very cognizant of the fact -- I know people want us to grow at rapid speeds, but again, we also recognize and realize that probably our operational integration of what we have already is our first and foremost and we're centered on that.

That doesn't mean we won't look at new deals, but that we do take into consideration to make sure that what we have, we're getting it right before we move onto the next. (multiple speakers) I don't know if that helps or not.

No, it does. It does; just a follow-up question kind of down the same path. You mentioned regulatory pressures, tough operating environment, so it seems like more and more banks are realizing it's going to be not so fun to be a bank of a small size. But you mentioned the pace of deals and integration challenges.

Does that push your average deal size up, then? Are you still interested in the $300 million, $400 million, $500 million bank? Or now does it have to be, call it $1 billion or $3 billion?

Well, you know, I always like bigger deals, I would have. Having said that, probably what it limits for us, maybe not the $500 million in size. That's still a pretty decent size bank for us, especially if it's in a market that we are currently in.

It is probably diminishing some of the real smaller banks that are $100 million to $200 million in size. I mean that's really making it harder on them, and harder for us to jump in. Having said that, again, if it's next door and it's something that we can consolidate, we would certainly consider that.

But what -- your general thesis is right. As the regulatory burden is getting bigger and bigger, it does make more sense for us to do larger deals sometimes.

Okay, thanks very much.

[Patrick O'Brien], Fox Assets.

Guys, a question -- what were organic revenues year-to-year -- quarter to quarter and year to year?

Organic revenues, you mean outside of the ASB transaction?

Yes, yes, so obviously asking a question related to organic loan growth and diminishing NIM.

Yes, I don't know that we can give you -- we don't have that specific number as to what ASB is generating, you know, for a specific net income number. But I think you could probably back into it if you just look at -- you know, we do break out the loans and deposits, so.

I mean that's a hard question -- I mean it's not hard. I think the answer is obvious with interest rates going down and down, organically, even though you have loan growth, the revenues are going to go down.

Now having said that, Dave may have a better feel for this, you may have -- that may be different for service charges. And we've taken on other new income with regard to trust income with American State Bank in West Texas. We've taken on -- have a mortgage company, service charges were a little bit better than ours.

So, on the fee income standpoint, you probably are experiencing revenue growth. I'd say from loan side, there is a lot of pressure just simply because of -- even if you grow there, because of the net interest margin.

I mean the point to be made they do bring a lot to the bottom line. It was 30% of our size, so, again a lot of it gets intertwined. To try to identify specific net income numbers for them is a little difficult.

Okay, thanks.

Gary Tenner, D.A. Davidson.

Thanks guys, good morning. I just had a question regarding the loan discount accretion this quarter $14 million and change. I think it was $11 million in change in the third quarter and you suggested expectations somewhere in the $6 million to $8 million range for the fourth quarter.

So, I'm curious are you seeing more of those acquired loans being refi'd away from Prosperity as you've gone through the first couple of quarters following that acquisition, just to a greater degree than you expected?

Two-part question, the first part -- again, I just want to say it can be lumpy. You know, it could have gone up or down in the fourth quarter, just for that part of it. Then for the specific question, you know, where would infer these loans are being touched. And I think your specific question, so you're seeing refi out of the bank or is this something else going on. And I don't know if somebody else would want to John jump in on the loan side.

Well, I think it is two parts, Dave, and Tim may want to jump in too. But probably, he said the loans are being touched as they migrate from the portfolio with American State Bank to the portfolio of ours, if we touch them, that makes a transaction. And again, that's going to increase.

It doesn't necessarily mean that we've lost a loaned or it's gone somewhere else. It's just whenever you do touch it, whether you renew it or something else, again, that changes the (multiple speakers) within certain parameters, right.

Okay, so there's some element of those loans that stay within the system, but just maybe were rewritten or refi'd? (multiple speakers)

Absolutely.

I think that's the case, that's the majority of it.

All right, that's helpful. And then just a question on the service charge line item. It was higher in the third quarter, came back down the fourth quarter. Any kind of waivers or anything, any change in how you're kind of managing that line item post-deal?

Yes, I think the one specific thing I could comment to provide color on, I think this one line item that says service charges, deposit accounts or something like that. You see a change from quarter -- from third quarter, fourth quarter.

And it's interesting, because when you get down in the weeds a little bit on this, but in all these transactions that we do, when we do the data processing conversion, if you just step back and think about it, one day the customers on one system and it's calculating their monthly service charges based on average balances, whatever it is. And then the next day it's on a new system and it's calculating again.

So what happens here, when we're doing these data processing conversions midmonth, and in this case not only midmonth, end of quarter, and it's a sizable transaction, what happens is -- kind of how we do it -- we look at this and we see where customers are being affected by a bank's data processing conversion. They didn't convert the bank. The banks are selling and buying.

And what happens is they're getting doubled dipped. They get two -- in a lot of cases they may get a second charge on their account. So just as a customer service thing, we've done this for 20 years, we'll go back in and we'll see the impact of some of this and we go back and reverse those charges that first time out, and that's exactly what happened here.

The reason we can see it is, it's at the end of the quarter as a sizable transaction. And that number, if you were looking at that specific line item, I would draw your guys' attention to it, that was about $180,000 of duplicate -- what we would call double charges to the customer. And as a service we always go back and reverse those, because we came over the quarter, there's about $180,000 extra charge in the third quarter that came back out in the fourth quarter.

So if you're looking at that one specific line item, what I can say specifically, that run rate on that line item should be about $3 million.

Okay, that's helpful, thanks.

Jennifer Demba, SunTrust Robinson Humphrey.

Good morning. I apologize if this has may have been asked or covered already. I had to jump on the call late, there's a lot of overlapping calls.

It's okay, you're excused.

Thank you. David, can you just talk about how you've reallocated Dan Rollins' duties since he departed in December?

Well Dan, let me say first that everybody here at the Bank liked and respected Dan and we miss him. But again, a big part of what Dan did, a big portion of is he dealt with the investment bankers and the analysts and stuff like that. So, David Holloway and I are taking probably a lot of the calls from you guys and dealing with the analysts.

Charlotte has really jumped in a lot, and really on some of the acquisitions we have Tim Timanus and Chris Bagley, who is our Chief Credit Officer, and also Randy Hester. So we've had a lot of people jump in and really help. We've even seen, on the Coppermark deals for example, one of Dan's big deals he helped us with, was -- when we did a transaction he would be kind of the warm and fuzzy guy between us and the people we were merging with.

And Mike Epps out of West Texas, who did a great job with their own bank in putting our two banks together, has really helped us a lot on the Coppermark deal. So I can go on and on, but we've had just -- we have a very deep bench and a lot of people here that are really -- that jumped in really.

Okay, all right. Thank you very much.

Bryce Rowe, Robert W. Baird.

Thanks, and good morning. My questions were actually asked and answered. Thanks for the opportunity.

Sure.

David Bishop, Stifel Nicolaus.

Like Jenny, I apologize if this question was asked before, so bear with me. David, a question for you. I talked to some of our management teams and they've sort of been stunned at the deterioration in structure, in terms and underwriting there this early into the recovery, so to speak, of the commercial real estate cycle. Are you seeing any instances of that or glimmers of that, you know, especially given how heated the Texas market is?

That we're stunned at what? The deterioration in what?

In just in terms and structure on the underwriting side. (multiple speakers)

It's not stunning to me. I have seen it before. I mean it looks like when everything becomes extremely competitive, you know, people just pull their pants down sometimes. I mean it's just one of those things.

I don't think it's abnormal, it's just -- at this part of the cycle when everybody's been extremely competitive, you're seeing some banks are just going out and, again, terms and conditions and rates -- all of that, they're doing that work. It does put pressure on the other banks that are trying to hold those positions. But at the same time, I would say that you have to be cognizant of it, but again we're not -- I would say, and Tim, you can jump in; we're not changing the way we do things. Do you see it any different?

I don't. It is extremely competitive. But I would say my personal opinion is I have seen it much worse many times before.

Right.

So this is not a new game. It cycles in, it cycles out.

I don't think it's as bad as it's ever been (laughter).

It's not anywhere near as bad as it has been, and probably will get to be in the future at some point in time.

Right.

So, do we believe that there are some lending institutions that are making mistakes? The answer is yes, we believe that. Is it across the board and rampant? I don't see it quite that way yet.

I would say just making a general overall comment, from what [we've] seen in loan [committing], I would say the banks have been around that are publicly traded, that deployment have to respond to shareholders and the Street, I think for the most part they're trying to do things in the right manner. I think if we're seeing pressure sometimes, it's really a little bit more from mom-and-pop shop banks that are so desperate for the loans they're almost willing to go down to any type of rate to get it. Again those are probably smaller loans, $1 million or less I would say.

I agree with that, yes.

Great, thank you for the color.

Christopher Marinac, FIG Partners.

Thanks, David, you were mentioning a couple of callers ago about the deal size and how small deals may not fit. As you look at Oklahoma, do you have to depart from that just because a lot of the remaining banks there are smaller, or is there a scenario where you do nothing other than Coppermark to keep in this market?

No. You know, Chris, we would never have gone into Oklahoma if we thought that we were just going to do the Coppermark deal. We do intend to grow there.

There's several banks in Oklahoma that are, you know, $1 billion-plus that are opportunities perhaps. But there's also -- again if there's stuff -- Coppermark really is primarily located in Oklahoma City. It's got four or five locations there, and then they've got a location in Edmond and one in Norman.

So, you know, whenever we could improve our position we probably would. And we probably would go down to a smaller size if it were filling in, in a situation like that.

Okay, very good. And do you expect pricing to be any different than it has been in terms of the deals you've looked at, even the ones you haven't done? Is that changing at all this year?

You know, I would say pricing is all over the board, depending who you're dealing with. There's some people that are completely unrealistic. And then the deal that we enter into, the people are reasonable and those are the kind of deals that were entering into.

There's still -- I guess in every type of market you'll find this. But there's some that are just living somewhere in the past, and it's unreasonable what their expectations are. And so -- but on the other hand, I would tell you there's a lot of banks that are reasonable and it's probably a good time to grow bank and put a deal together like this.

Great, and then last question, just more mechanical -- as you look at new loans that are going on the books, how different is the new loan yield compared to what the average loan yield is on this last quarter?

Tim, can you --

Well, as far as if you look at the total yield, there's some accretion in there. So if you back that out -- I would say that the average yield is stressed a little bit right now, but not significantly. It's not materially different, if that answers your question.

Yes, I would say -- I would go a step farther and say even the loans we have on the books, if they were higher than what the market is, they've already repriced or asked us to reprice them to begin with.

Right.

Okay, great. Thank you very much.

Michael Rose, Raymond James.

Hey guys, actually Chris just actually asked two of my questions, so thanks.

Thanks, Mike.

We'll go next to Jefferson Harralson, KBW.

Thanks. With the $11.5 million of loan accretion that happened last quarter and the $14.5 million this quarter, how much does that leave for loan accretion to come through over time?

Yes, again, we've got that in the press release, but again, if you look on the press release, there's about $55 million of what we would call -- we use the old terminology FAS 91 accretion related to these deals. So, you take that number and you can kind of back into it.

That doesn't include the 03 marks, though, does it?

It does not, because the 03 do not generally make that huge accretion that you can see on the (multiple speakers) FAS.

Unless you would collect more than you anticipated (multiple speakers)

That's right. So the answer to the question is, if you go back and look, it's $55 million and you can go from there.

Okay, and on the securities amortization, that should be about $3.5 million negative going forward, roughly?

You know, again, trying to predict going forward, that amortization on that part of the business is going to be a reflection of the cash flows coming back to us. But I guess what we can tell you is $3.5 million last quarter, roughly $3.5 million this quarter, so I mean your cause is as good as ours as to what number you want to use going forward.

I think you have to consider what the rates are doing. The 10 year continues to increase, I think you will see it slow down, I really do.

You certainly should (multiple speakers)

You should, and how long it takes I don't know.

All right, thanks guys.

John Moran, Macquarie Capital.

So, hey, two quick ones. First, deposit flows have been real strong. Wondering if you guys saw any benefit from, or if you perceive any benefit from TAG expiration? And on the flip side of that is, did anything flow out kind of early in the year?

I'd have to start. You know, I was concerned because the first time when I read the article in the Wall Street Journal, where they said -- I forgot how many billion dollars left the first month with the TAG disappearing. But we didn't find that to be the case over here at our Company. We looked at it, but we did not see an outflow deposits. If anything, we had an inflow of deposits.

Yes, I mean, just specific to the TAG program, we've had a few customers. But it's not been -- as of today we have yet to see any kind of material movement on that. And what David said is right, actually seen inflow of deposits rather than an outflow. But I would think that there would be some of that as we move forward.

Thanks, that's helpful. And the second one that I had for you is just, for the year, if we look over 2012, you guys averaged over $10 billion in assets. Any kind of impact on -- and forgive me if you guys have disclosed this before, and I just maybe missed it. But maybe you can just remind us if there's anything we ought to be thinking about either on the fee side, or maybe some additional OpEx to kind of deal with any additional sort of regulatory burden. If there's anything like that, that would be helpful.

Yes, we have talked about before -- this is Dave Hollaway -- a couple of points in there to address. But again, just a reminder on the fee income side again, you know, we will be under the Durbin Amendment or law or whatever that's called. It's effective July 1.

And as we said in the past, on an annualized basis that's about $9 million of lost fee income for us. Of course this will be half a year on that, so before tax call it somewhere in the $4.5 million range impact to us. And this is also probably another good place to point out again and repeat.

With the ASB transaction brought a lot of these other fee income potential possibilities for us, and one of them being credit cards, which we're not significantly in as of today. But if we could take the credit card program that they have and introduce that to our customer base, we believe that will be one of the most significant ways to offset some of this lost income from Durbin.

You had a second point and David might want to jump on this. But the regulatory -- all the new regulatory rules and the cost that that is adding to us you might want to --.

I've got to be nice. There's too many listening on the other line (laughter). There's no question as you get to this size, the regulatory burden, it's -- we probably have regulators here full-time. We have FDIC, state, Federal Reserve; now Consumer Federal Protection Bureau. Our accountants Deloitte & Touche have their own offices. I could go on and on if you want. We've had to really increase staff.

Right now one of the big pushes for -- from the regulatory side is BSA Bank Secrecy Act and Anti-Money Laundering. And that in itself, I mean we really beefed up this last year to probably have 12 people in just that one little department. So I think it will continue. I don't think it's going to get any better.

It's just that's one of the mantras that's coming down from Washington, actually, and I think at the size that we are at, they probably watch us -- I noticed when we went over $10 million in size they seemed to pay a lot more attention to us.

Got you. Thanks very much, that's helpful.

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