Prosperity Bancshares Inc (PB) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Prosperity Bancshares first quarter 2015 earnings conference call. All participants will be in a listen only mode.

(Operator Instructions)

Please also note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead, ma'am.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares first quarter 2015 earnings conference call. This call is being broadcast live over the internet at www.prosperitybankUSA.com and will be available for replay at the same location for the next two -- 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; David Hollaway, Chief Financial Officer; Randy Hester, Chief Lending Officer; Mike Epps, Executive Vice President for Financial Operations and Administration; and Merle Karnes, Chief Credit Officer of Prosperity Bank.

David Zalman will lead off with a review of the highlights for the recent quarter, he will be followed by David Holloway who will review 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 Rocco. I assume you have all received a copy of the earnings announcement we released earlier this morning, if not please call Tracy Elkowitz at 281-269-7221 and she will send 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, Charlotte. I'd like to welcome and thank everyone for listening to our first quarter 2015 conference call. I'm excited to share with everyone the great results we had in the first quarter. I'm also much honored to announce Prosperity Bancshares? inclusion into the 2014 Keefe, Bruyette & Woods honor roll. To qualify for this honor, the company must maintain extraordinarily high quantitative metrics for the last 10 years. 25 banking institutions posted a 10-year record worthy of admission to this year's KBW honor roll.

Okay, some of our successes this quarter include; our quarterly earnings increased to $73.641 million in the first quarter compared to $67.137 million for the same period in the prior year, an increase of $6.5 million or 9.7%. The diluted earnings per share were $1.05 for the first quarter of 2015 compared to $1.01 for the same period in the prior year, and that's a 4% increase.

Loans at March 31, 2015 were $9.166 billion, an increase of $1.414 billion or 18.2% compared with the $7.752 billion at March 31, 2014, primarily due to the addition of the F&M. Our loan growth was impacted by the acquisition of F&M, but excluding loans acquired in the acquisition and new production at the acquired banking centers since the acquisition date, our legacy loans at March 31, 2015, increased $273 million or 3.5% compared with March 31, 2014 and increased $6.471 million, 30 basis points on annualized on a linked quarter basis.

Our loans decreased $85 million at F&M, some of these loans were identified too new based on risk appetite or pricing. As a point of interest and on a positive note, our use in region showed almost a 10% annualized growth rate with Austin and Dallas also showing good growth. Unfortunately other regions did not show the growth.

Our nonperforming assets at March 31, 2015, were $35.376 million or 19 basis points of quarterly average earnings assets, one of the lowest in the industry and a sign of strong asset quality. While nonperforming loans were up from March 2014, the majority of the increase is from recent bank acquisitions. Deposits at March 31, 2015 were $17.561 billion, an increase of $2.101 billion or 13.6% compared with $15.460 billion at March 31, 2014 primarily due to the addition of F&M.

Excluding deposits assumed in the acquisition and new deposits generated at the acquired banking centers since the acquisition date our legacy deposits at March 31, 2015 increased $396 million or 2.6% compared with March 31, 2014 and increased $226 million or 1.4%, 5.8% annualized on a linked quarter basis. F&M saw a decrease of $358 million from the prior quarter. During the fourth quarter of 2014, a large public fund deposit of approximately $300 million came in at year end, and then the funds were disbursed early in the first quarter.

Going over $10 billion in assets brought on new challenges from a regulatory standpoint with extra costs, policies, and procedures. We have taken on the challenges, succeeded and think we are now prepared to move forward with organic growth, mergers, and acquisitions.

We continue to hear from bankers about the added regulatory requirements that are impacting their profitability. We believe that these factors combined with management and board fatigue will continue to create opportunities for those that have the ability and the will to deal with these headwinds.

Despite a lot of press and articles concerning the demise of Texas and Oklahoma, we are not seeing that as evidenced by the loan growth we had in the Houston market and other major metro areas. Although jobs are being reduced in the oil-related fields, we still see good economics in other areas. People continue to move to Texas and Oklahoma, maybe not as many as the last couple of years, but still many because of the state's friendly business climate with no state income taxes and friendly regulatory and legal legislation favoring business. In Houston and other areas, during March we saw home sales climb after February sales decline.

Sales of family homes rose 3.8% year-over-year. Prices are still reaching record highs as well. Many forecasters are projecting Texas to double in size by the year 2050.

We do think that Texas is more diversified than it was in 1980 and the resiliency is showing. In 1980 the population in Texas was 14.2 million people, today it's 27 million people. In 1980 the work force was 7 million people, and today the work force is 13 million people.

In conclusion, we think the regions we are located in are and will be dynamic growth markets well into the future. Again, I would like to thank our whole team once again for a job well done. Thanks again for your support of our company.

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 before provision for credit losses for the three months ended March 31, 2015 was $162.9 million compared to $143.7 million for the three months ended March 31, 2014, an increase of $19.2 million or 13.4%. This increase was primarily due to a 14.5% increase in average interest earning assets for the same period.

The net interest margin on a tax equivalent basis was 3.57% for the quarter ended March 31, 2015 compared to 3.62% for the same period in 2014 and 3.89% for the quarter ended December 31, 2014. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis for the quarter ended March 31, 2015 was 3.17% compared to 3.25% for the quarter ended December 31, 2014.

Non-interest income decreased $243,000 or 0.8% to $28.4 million for the three months ended March 31, 2015 compared to $28.7 million for the same period in 2014. Non-interest expense for the three months ended March 31, 2015 was $79.5 million compared to $71.1 million for the same period in 2014, an increase of $8.4 million or 11.8%. This increase was primarily due to the F&M transaction.

The efficiency ratio was 41.8% for the three months ended March 31, 2015 compared to 42% for the same period last year and 40.8% for the three months ended December 31, 2014. The bond portfolio metrics at March 31 showed a weighted average life of 4.09 years, an effective duration of 3.85, and projected annual cash flows of approximately $1.5 billion.

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

Thank you, Dave. Nonperforming assets at March 31, 2015 totaled $35.376 million which is 39 basis points of loans and other real estate compared to $36.919 million or 40 basis points at December 31, 2014. The March 31, 2015 nonperforming asset total was made up of $32.220 million in loans, $146,000 in repossessed assets, and $3.010 million in other real estate.

As of today, $2.569 million or approximately 7% of the March 31, 2015 nonperforming assets total have been liquidated or are under contract for sale. But as we always say, there can be no assurance that those under contract for sale will close.

Net charge offs for the three months ended March 31, 2015 were $1.049 million compared to net charge offs of $3.201 million for the three months ended December 31, 2014. $1.25 million was added to the allowance for credit losses during the quarter ended March 31, 2015 compared to $6.35 million for the fourth quarter of 2014.

The average monthly new loan production for the quarter ended March 31, 2015 was $216 million compared to $292 million for the quarter ended December 31, 2014. This represents a 26% decrease.

Loans outstanding at March 31, 2015, were $9.166 billion compared to $9.244 billion at December 31, 2014. The March 31, 2015 loan total is made up of 42% fixed rate loans, 36% floating rate, and 22% variable rate.

Charlotte I will now turn it over to you to coordinate questions.

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

Yes, ma'am. We will now begin the question-and-answer session.

(Operator Instructions)

At this time, we will pause momentarily to assemble our roster. Our first question comes from Dave Rochester of Deutsche Bank. Please go ahead.

Hey, good morning guys.

Good morning.

David, I was just wondering, what is your outlook on expenses on 2Q? Because you had a big drop across the categories in the first quarter -- do you see these levels snapping back at all in 2Q?

It's a good question because in prior quarters we said we wanted to try to hold at these prior levels. But, again, we just [pry] this perfect storm in one sense that we had a lot of expenses in the fourth quarter, we were able to really be streamlining this first quarter. But I would not commit -- we just couldn't commit that we are going to run $79 million per quarter going forward.

What I would tell you is if we have to do better we will, and [find] a good run rate, 82 to 84. We might be able to split the difference and do it but there are a lot of things we have to remember. When we're running at these levels, it [can?t] be sustainable over the long haul because you have to incur expense to generate new revenues. I'll kind of say it that way if that helps.

Yes, understood. That does help. That other expense line was down a lot. Is there anything that was one time in that, that we should pull out or --?

It was multiple things. I'll give you examples -- things such as -- again, we've talked about all this consulting and professional fees we were incurring over the last 18 months as we grow. It seems like you have to hire a consultant for everything to validate this, to audit this. We?re in the process creating our internal -- transitioning our audit from outsource to insource. And they're not there, so they've had to outsource some of their things.

So it incurred quite a bit of dollar expense in the fourth quarter on that kind of thing. That was probably one of the major drivers that you see, as it drops from quarter to quarter, and that's why I have some optimism going forward that we won't have to incur all these consulting professional fees for the myriad of things coming our way from a regulatory perspective.

Got you. Appreciate that. Just on the accretion outlook, when do you think that is going to substantially roll off? Could you just update us on the timing there? And then, if you have the breakdown in the first quarter as to what part of that was scheduled versus credit recovery would be great.

And this is a good point to make here because this is where, you know, we've seen kind of a change here. I forgot what we've seen in prior quarters, we've kind of given a number -- I forget what it is, the guys will know -- 16 to 18, or 17 to 18, but we do to want revise this based on what we saw this past quarter.

We believe, going forward, a better run rate -- and this again is a best guess estimate, because it's not a science -- but we think $15 million is probably a better number, quarterly number going forward. And that breakdown in the first quarter, to kind of -- to give it perspective, there was total roughly $19.6 million total accretion. Of that, roughly $9 million of it came from the [03s].

And I would point out to you, as a point of interest, when you're looking at our press release -- I forget what page number it is -- but look at that change in the balances on the [SOPO3 or 320 30], whatever we call it. What's interesting, when you see it, is that balance changed from year end $20 million, and yet we only recognized the income ultimately half that.

So what is that telling you is kind of what we've been saying all along. You can't assume all that money is going to come back to us as income. That's kind of the point we've tried to make all along. Sometimes we get out of these credits and we're getting out at that mark, and that's a good thing.

All right, that is helpful. Does that $15 million you were talking about going forward, does that include an ongoing assumption about credit recoveries of the 03 accretion?

Yes, sir. We figure we can get -- we'll get something each quarter. It's just not going to be material.

Okay, got you. Then if you could just talk about your margin outlook going forward. It looks like you had invested some of the excess cash and securities. Was just wondering if that's going to help support the NIM or if you're still looking for maybe a little bit of pressure.

Yes, I think -- you know, the story on our NIM has been pretty similar quarter after quarter, and it's [right to]. When you look at this quarter, it dropped a little bit more. But you hit the nail on the head. You saw our average deposits just go up significantly this quarter. On average, they were up about $459 million, and that's absolutely right. We couldn't just sit in cash overnight and we didn't lend it out, so we did put it in securities. Obviously, if you're going into securities at 2% and not lending it out, that impacted the margin.

I call it mixing money. That probably had an effect of approximately 5 basis points impacted it to the NIM this quarter. But what I would say, it's the same story -- if we don't have this mix of money change and we're going forward again, I think you would see kind of a stable margin, and [I wouldn't stay] stable, but if there's no loan growth, a couple basis points change every quarter. And that's what you saw up to this quarter until we had this mix of money enter the picture.

Okay. Great, thanks a lot for the color, guys.

Thanks.

Our next question comes from Ken Zerbe of Morgan Stanley. Please go ahead.

Excellent, thanks.

Morning.

Just in terms of -- good morning. In terms of loan growth, just looking at end of period balances, if I remember right last quarter you mentioned sort of a -- I think it was 5% to 8% growth, including the runoff of F&M. Do you still think that's a reasonable estimate or do you need to revise that lower given the weaker loan growth this quarter?

Well, let me give you just a little bit of color, Ken, at least from my opinion. You know, January was a -- it started off extremely good. February came -- again, I don't like to make excuses -- but, you know, the weather got really bad and, probably more so than anything the [airy] article from the Wall Street Journal [to every] press as oil went down in the low 40s. It really just -- it put everything at a standstill, I think, in February.

We started coming back in March and we saw loan demand, at least at loan committee increasing, but, again, didn't get put on the books and probably won't until April. So, I'd like to stick -- I still feel good where we're at right now, I think the economy is still pretty good. Again, you have to take into consideration normally we do run about an 8% organic loan growth when we include F&M. We said, okay, if you take that into consideration we're probably have about a 5% loan growth overall when you consider the loans that were lost over there. I'd still like to stick with that and try to shoot for it -- I think it's real possible.

Okay. Great. That helps. And then just back on the margin, it looks like the loan yield ex PAA was down about 7 basis points. I totally get the fact that the higher cash balances -- or mix into securities would have pressured the margin on an all-in basis, but was that 7 basis points of loan yield compression kind of in line with your expectations, or was that a little bit worse? Because I think last quarter you mentioned that we shouldn't see a significant downward pressure on margin, but that seems like a big number on the loan side.

Yes, I don't know, if it's -- Ken, it is David Hollaway -- and I don't know if it met our expectation or not. You know, where we're at in the rate cycle, loans are not going on at 470 these days. On average, depending on what kind of loans you're doing, 420s, 430s, 440s, something like that. It's going to come down, whether it's 3 or 4, who knows, but the way to offset it is at some point we've got a fuel the net loan growth which would help us, right. Putting -- just that added pressure of reinvesting all this cash back into securities of 2 versus just use 4.25. You can see that's going to impact our margin.

I would mention, too, just to add some color again -- Ken, this David. You know, we -- the encouraging part, we saw almost a 10% organic loan growth rate in our use and metro market. And Dallas and Austin also had pretty good growth. What hurt us this time is west Texas, again, with -- which is natural. You had the oil and gas, and the thing that really propped up west Texas a lot was the midland area. And then we also had south Texas -- again, you had west Texas that was down, you had south Texas that was down, we had the Oklahoma markets that were down. But I still think it was very encouraging that the major metro markets are still showing growth. I think that's a good sign.

Ken, this is Tim. I might also mention just from, I guess, a global competitive perspective that it seems as though the first quarter of this year we've seen really more competitive pressure than we have in the last several quarters. It's certainly been there prior to this quarter, but the uptick in competitive pressure was pretty significant.

It seems as though most financial institutions have no concerns about loaning dollars out lower than prime, so almost every loan that we look at that's of any size, the reports we're getting from our people in the field are that the competition has just really become even more intense. We don't know where that's going to head.

Those things don't ever last forever because those banks that loan at those kind of margins end up not making any money and then bad things happen to them. But, those bad things don't happen overnight, and sometimes it takes a while to work its way through the system. So, just wanted you to know that, that's one issue with the loan yield pricing.

And, Ken, again, last piece of color I'll give you is that, again, when we talk about the major metro markets really having some good growth and I said maybe west Texas and south Texas didn't, bear in mind that west Texas and south Texas still has pretty big ag loan portfolios and, again, they really don't start drawing up until this first quarter.

All right. All that is very helpful. Thank you very much.

Our next question comes from Brad Milsaps of Sandler O'Neill. Please go ahead.

Hey, good morning. David, just wanted to follow up on the expense question. I think you alluded to, in the release, that part of the expense reduction was held by some finalized fair value adjustments. Just curious how large those were and are those sustainable? Or is that more sort of a one-time adjustment and it would snap back in future quarters as those reverse out?

Yes, I mean, specifically, I don't know if they were that large but they're one-time events. They were final one-time events on the F&M transaction. And the line items that you would see -- the fair value is on the depreciation line, and then I think there's an occupancy line, if I recall correctly. Those then flow through the others. They weren't as significant as some of the other things, but it did help and they were one-time events.

Got it. So, altogether, they weren't big numbers. Okay. All right. And then, secondly, David Zalman, you alluded to M&A activity in your opening remarks. Just curious if you could update us on what you're seeing in terms of pricing expectations, the probability of -- or the hope of you guys getting maybe something done this year; just any update on, or additional color on M&A environment would be greatly appreciated.

Sure. You know, the M&A, again, pricing in our deal is a little bit different than pricing just if you're just an M&A bank just trying to buy banks. Most of our -- I'd say the majority of our deals that we do are negotiated deals, and so we're talking with banks that are willing to stay with those, that their people are willing to stay with it and sign contracts.

And so sometimes the pricing isn't as significant as it may be if you're just trying to bid a bank and buy a bank. Having said that, we have seen opportunities in smaller banks that are $400 million and $500 million in size, and we've seen some bigger banks that we haven't done. We're still talking to a number of people, you know.

Of course, our hope would be that we could do one bigger one. If we can't do a bigger one, we may have to piece together three smaller deals -- $500 million to $800 million apiece or something like that. We're definitely looking, but, again, I want to reassure everybody we don't want to buy just to buy something.

Again, I mentioned this to everybody, we all own a lot of our own stock and just to be bigger and to put more work on everybody is not as important as trying to get earnings and increase in earnings per share, really building a great franchise. That's our focus. We'll continue to do that. Again, we're not going to just jump into anything. But, I would say that we're definitely interested in mergers and acquisitions.

Great, thank you.

Thanks.

Our next question comes from Ebrahim Poonawala of Bank of America Merrill Lynch. Please go ahead. Hello, Ebrahim, your line is live.

May be on another call.

All right, well, we will clear that question and our next question comes from Jennifer Demba of SunTrust Robertson Humphrey.

This is Michael Young on for Jennifer. Hey, guys, just wanted to get an update on sort of your asset sensitivity and what your thoughts were there. I know you were a little bit liability sensitive at the end of the year, but as we approach a potential rate rise are you trying to increase your asset sensitivity?

Again, we -- probably if you?ve even gone back the last 20 years our strategy really hasn't changed. We have probably $1.5 billion that rolls off, off of the bond portfolio every year. We probably have a like amount of loans that roll off every year or change in prices or just a pay down, and basically we've maintained -- Dave, I didn't bring this in front of me but I think we probably have about a 3.8-year duration. I don't know if that's still the same.

Yes.

3.9-year average life. And, again, we just roll down the curve. I don't think that -- we haven't changed what we buy and so the bottom line, the answer to your question is I don't think really much has changed.

Trying to keep everything short and not call rights and just --

Yes, I think that, you know, throughout this time, and it was probably the -- it was probably maybe not the right thing to do. We probably, three or four years ago, should have extended the average life and durations and again we didn't. And of course I don't think now's the time to extend those durations or average lives now. We're pretty much sticking with where we're at.

Try and stay closer to neutral -- just to reiterate, if we get a $1.5 billion and $2 billion plus cash flows coming off your asset, that's a lot of cash flows that you can really invest as rates start moving up, without taking on a lot of extension risk.

Right.

Okay. Great. And, on the other side, on fee income, you know, is a little bit lower obviously, seasonal factors there, but particularly with some of the service charges and NSF fees, are there any large shifts in terms of is it customer behavior or any pricing differences on your end, or is it just the seasonal factors that will abate throughout the rest of the year?

I will answer that just saying it's not anything that we've done. It looks like it's seasonal, and the only thing I could point to is if you look back to last year at the same time, when we came from fourth quarter to first quarter, you saw the exact same trend, so that would tell you that it's seasonal. Again, we haven't done anything to change pricing [or anything like that].

Yes, Dave and I talked about it earlier this morning. I said, well, is there a customer account that's been lowered or something like that? And the fact of the matter is there hasn't been any change like that. It's just it's either seasonal or people's change in attitude on service charges.

And you know, kind of it's too early in the quarter. I don't know if this means much of anything. But, we do see it trending up a little bit already. But, again, three weeks in doesn't really tell you much.

I think this quarter is always a seasonally lower quarter on fees really.

Okay. Thanks very much.

Thanks.

(Operator Instructions) Our next question comes from Scott Valentin of FBR & Company. Please go ahead.

Good morning, guys. Thanks for taking my question. I'm surprised it's been this long since someone asked the energy question, so I'll break the ice. In terms of the portfolio, clearly Houston is kind of considered the I guess ground zero for energy concerns, just wondering what the portfolio breakdown is for Houston between, if you can break it out, I don't know, by multifamily, or retail, or office.

This is Tim. I think Houston pretty much parallels the Company-wide numbers in that regard. If your question is more specific to the energy side, there are really not that many direct energy credits in the Houston market itself, if that answers your question.

Yes, it does. I guess -- I mean you've seen, I think, David Zalman, you referred to the journal articles you've seen about office space going up in Houston and the amount of capacity and the number of vacancies. Just curious if you see any activity, when you speak to borrowers, what they're thinking in terms of their future plans?

You know, it's probably changed I think once again, and I'm letting Merle really give you the numbers where we're at on E&P, production loans, and our service loans, and Ed will give you some color, too. But, you know, there were a couple of companies that, even as far as probably three months ago, that were planning on building new buildings.

I think they have put those plans on hold now, the oil companies. So when you look at office buildings -- again, this is just my gut, I don't have anything factual to back this up with -- I'd say that your, probably your office buildings are slowing down on building and I would say apartments have probably slowed down and probably you're seeing an increase in retail space.

Okay. Ed, any detail you have on the energy side, that'd be helpful. I assume you guys have done, to an extent you have E&P, you've done borrower base calculation, just wondering how those have shaped up if you've done those.

The overall portfolio for oil gas producers and services is about $500 million, roughly. It's about $200 million producers, that's down a little bit from where it was at the end of the year. Really, in terms of the apparent risk, it really has not seen any increase from last quarter. I mean, we actually have had -- we had I guess about 12 of our producers that were additionally over advanced, that's been reduced out significantly. And the ones that are over advanced today had plans in place to take care of those. We really don't have any significant issues, today, with either the services or the producers.

I would say a little bit of color, too, I talk sometimes to the service providers, the people that have the vacuum trucks and the work over rigs and so forth. We try to watch them to make sure that most of all of our stuff is not evolving on. A lot of stuff when we make a loan, we put it on a payback depending on what it is. Everybody seems to continue to make their payments. They're not running behind. On the other hand, they're not making as much money as they were previously, either. But still doing okay.

Okay. So, it'd be fair to say that kind of in that $500 million portfolio no change in the overall risk categories -- and any past dues in that $500 million or are they all current?

Well, to put it in maybe a little additional perspective for you, Merle mentioned the re-determinations on the borrowing bases. After all of that was addressed, there was, in round numbers, about $9 million that remained outside of the borrowing base requirements, which is only about 4% of the E&P loans. And those borrowers that make up that $9 million are all in what I would call constant communication with us. They've all assured us that they're going to rectify the problem.

Some of the -- some of the loan agreements we have with them actually give them six months to bring the borrowing base back into compliance. Some of them have already paid down against those dollars that were out of compliance. Some of them have already pledged additional producing properties to bring it closer into compliance.

So every one of them appears to be working with us. What they're telling us is logical. They're looking at their asset base to see what additional properties they can place to us. They're looking at their existing liquidity and their sources of liquidity to see what they could do in terms of pay downs. So, our sense right now is that all these borrowers are responding reasonably. And, at this point in time, I don't think we have any major concerns about them, but time will tell.

You asked about past dues. We have not seen an uptick in past dues relative to the oil and gas portfolio.

Okay. Thank you. And one follow-up question. Dave Zalman, you mentioned M&A -- would you look in an energy sensitive market or is that kind of off limits right now until things get better?

No, I think we would look at a market like that again. Again, it depends on the bank, it depends on what it -- the management of that bank, and it depends on earnings per share and if it's accretive or not accretive. I still think that Texas and Oklahoma and the surrounding states are good markets.

I mean, I wanted to wait -- if you listened to me maybe six or nine months ago when this first started before I wanted to jump in and say I think things are going to be okay, I wanted to see it. I think that we have seen it. I think that we're doing pretty good. We're surviving. I think Texas, overall, is -- we had probably 300,000 jobs last year. You're not going to see 300,000 new jobs this year.

I think the Federal Reserve just put out something the other day and said, for the first quarter, I think that we had 21,000 new jobs for the first quarter. You know what, we're probably going to still end up with 100,000 to 150,000 jobs created in the State of Texas. Again, I don't know that's going to outpace all the other states like we've had in the past, but it's still pretty good and still pretty dynamic. So, we feel pretty good about it right now.

Okay. Thanks very much.

Our next question comes from John Moran of Macquarie, please go ahead.

Hey, guys.

Hey, John.

Just a quick follow up on the energy book. I think if I'm remembering correctly it was about 6% of loans at the end of the year and -- if I'm doing the math right -- 5.5% or so here, so maybe the book was down a little bit presumably on pay downs. Just wondering if you had an outlook there for the full year. I know some of your competitors are saying it will shrink a bit, but others are seeing good opportunity to go out there and try to take share and write some business.

You're right on your percentages. Right now, the energy portfolio is about 5.5% of our total loan portfolio. One of the obvious reasons that new loan production was down for the quarter is that we're getting virtually no new loan production out of the energy sector. Our Midland Odessa offices are doing fine in terms of asset quality. We've had no payment defaults, but there just aren't any new projects really to speak of that are seeking funding. There's very little new equipment being purchased, so the quarter was certainly flat in that regard and I personally don't see it changing for awhile.

I think it's going to be awhile before we see new energy projects seeking funding and the requirement for new capital to buy equipment and those kinds of things. So, the energy market certainly hasn't fallen off the map, but it's not aggressively moving forward either for all the obvious reasons. I would personally think it's going to be flat for awhile.

I would also add to that, Tim, that the -- it's become more competitive, believe it or not. On the E&P loans we had a really good credit. It was a $20 million credit, and the Big Three banks -- I won't name which one, but one of them, we get a 60% margin on their -- on the value, and we usually maybe extend the loan for maybe a year to two years. The bigger bank came back and offered this company a little bit of credit and offered the company, gave them a 7% margin, loan-to-value, and extended the line to three years and reduced the rate to LIBOR plus.

You would think everybody wouldn't want to be in this business. But, some banks are taking a different position. I'm not saying they're wrong or right, if they're really good in it and they're big in it, they think now's the time to really jump into it. So, you're seeing some competition from the bigger banks, too.

I think all that's correct. It goes back to my comment earlier about the uptick in competitive pressure. That uptick is across the board. It doesn't exclude the energy market, so it's out there. You're right.

That's interesting, and I appreciate that color there. Maybe, I mean understanding that it sounds like west Texas, south Texas, maybe Oklahoma slowing down, going to be flattish. Is it fair to say that the existing loan book sort of parallels the deposit footprint? Or would it be more correct to assume that you guys drive a greater percentage of loans out of the metro markets?

No, I -- you all can jump in, but I think we are a relationship bank, and I think where the loans are is where our deposits are and they move hand in hand really.

I think for the most part that's 100% correct. That's right.

Okay. That's helpful. And then the last one that I had was just kind of a ticky-tack detail on premium amortization. Did you guys see that pick up this quarter, and do you have any kind of an outlook there just given what's gone on with some volatility in the tenure?

Yes, it did pick up, and based on what we see to that, I think that's probably a good runway based on the speeds we see today, but that seems to change every three weeks. Your crystal ball is probably as good as ours.

(Laughter) I doubt that. But, thanks for taking the questions guys.

Our next question comes from Jefferson Harralson of KBW. Please go ahead.

Hey, guys. Mine have been answered, but I appreciate the call. Thanks.

Thank you.

Thank you.

Our next question comes from Ebrahim Poonawala of Bank of America Merrill Lynch please go ahead.

Good morning, and sorry about before. Just a follow up question given, Dave, what you just talked about, the competitive pressures in terms of loan growth. In fact, if I got this correct, you still think you can get 5% to 6% year-over-year growth for the year. I'm just wondering what gives you that confidence and where you think that growth will come from in order to replace sort of the things that you outlined earlier.

I think my optimism comes from being in the loan committees and having a hand-on experience. And I see even yesterday where you start at 10:30 in the morning and we finish at 6:00 in the evening, 5:00 and 6:00 in the evening. We still see a lot of demand, and I -- again, I think we can still -- we can still do that.

Understood. And this on a separate topic. I know it's hard to predict M&A, but how likely do you think it is that we could go through this year without doing a deal?

That -- I think you answered your question to start with. I mean it's really hard to predict. Sometimes you think you work on a deal, and you think a deal is just at hand and it could fall apart. And then, other times you get a call on Sunday afternoon at 2:00 and say, hey, are you interested in talking with me. So, I really can't give you any color on that. I would just tell you that we are really open to it and we are working to try to do something.

All right. That's helpful. Thanks for taking my questions.

Sure.

And thank you everyone. This concludes our question-and-answer session. I'd like to turn the conference back over to Charlotte Rasche for any closing remarks.

Thank you, Rocco. Thank you, ladies and gentlemen. We appreciate you taking the time to participate in our call today. We also appreciate the support that we get for our Company, and we will continue to work on building shareholder value. Thank you.

And thank you, ma'am. And we that thank all of our speakers for today's presentation. Today's conference has now concluded. We thank you all for attending. You may now disconnect. Have a wonderful week.

Okay. Thank you.