Prosperity Bancshares Inc (PB) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Prosperity Bancshares Inc. First Quarter 2017 Earnings Conference Call. (Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares First Quarter 2017 Earnings 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 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; Eddie Safady, President; Randy Hester, Chief Lending Officer; Mike Epps, EVP for Financial Operations and Administration; Merle Karnes, Chief Credit Officer; and Bob Benter, Executive Vice President.

David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by David Hollaway, who will review some of our recent financial statistics and Tim Timanus, who will discuss our lending activity, 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, Anita.

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 achievement 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 the David Zalman.

Thank you, Charlotte. I'd like to welcome and thank everyone for listening to our first quarter 2017 earnings conference call.

During the first quarter, we had impressive returns on average tangible common equity of 15.82% annualized and on average assets returned of 1.23%. Our earnings were $68.5 million for the first quarter of 2017 compared with $68.9 million for that same period in 2016.

Net income, excluding the purchase accounting adjustments, was $65.8 million for the quarter ended March 31, 2017, compared with $60.2 million for the same quarter in 2016. It should be noted, however, that we had a larger-than-normal loan-loss provision in the first quarter of 2016 due to an agricultural credit and 2 energy credits.

Diluted earnings per share were $0.99 for the first quarter of 2017 compared to $0.98 for the same period in 2016.

Our loans at March 31, 2017, were $9.7 billion, an increase of $117 million or 4.9% annualized compared with $9.6 billion at December 31, 2016. Historically, loan growth in the first quarter of our -- a year is slower but we are seeing optimism in our customer base as businesses seem more willing to expand purchasing and capital expenditures compared with the last several years.

At March 31, 2017, oil and gas loans totaled $267 million or 2.8% of total loans compared with oil and gas loans of $362 million or 3.8% of total loans at March 31, 2016. The $95 million decrease represented a 26.3% decrease in oil and gas loans when comparing their level at March 2017 to 2016 -- March 2016.

Our nonperforming assets totaled $41.1 million or 21 basis points of quarterly average interest-earning assets at March 31, 2017, and as compared with $56.9 million or 29 basis points of quarterly average interest-earning assets at March 31, 2016. A 27.7% decrease and $48.3 million or 25 basis points of quarterly average-earning assets at December 31, '16, representing a 14.7% decrease in nonperforming assets on a linked-quarter basis.

Excluding deposits assumed in the Tradition acquisition and new deposits generated at the acquired banking centers since the January 1, 2016, acquisition date, deposits at March 31, 2017, decreased $772 million or 4.4% compared with March 31, 2016, on a linked-quarter basis -- I'm sorry, on a linked-quarter basis, they decreased $265 million or 1.6%.

Our bank has approximately 500 municipal accounts spread throughout the communities where we have banking locations in Texas and Oklahoma. These include accounts for cities, school districts, county governments, water district, among others. Because rates have been so low for so long and the rate of the public funds received from us was not much different than in investment rate they could get elsewhere, these entities kept all of their funds and their transaction accounts with us. Since interest rates have increased, the public funds are now able to obtain higher rates on their investment funds outside the bank and they are moving some of their money to take advantage of those higher rates. This is normal in a period of higher interest rates and also some seasonality as well in there.

With regard to acquisitions, as we've indicated in prior quarters, we continue to have active conversations with other bankers regarding potential acquisition opportunities. We remain ready to enter into a deal when it's right for all parties and is appropriately accretive to our existing shareholders.

The Texas and Oklahoma economies are improving with rising oil and gas prices. Based on data provided by the Federal Reserve Bank of Dallas, Texas grew 203,000 jobs in 2016 and it's expected to grow 280,000 jobs in 2017, a 37.9% increase. Job growth in Texas in 2016 was 2.7%, that's above the 2% job growth for the U.S. We continue to see single-family home construction strengthen and robust sales of higher-end homes. We expect that the increase in interest rates will help our net interest margin over time, and we are hopeful of regulatory reform and reduced corporate tax rates that should increase earnings. Reduced regulation will also allow us to concentrate more on building deposits and loans. With a better economy and loans not contracting at the same pace we've seen historically, we expect more normalized organic growth for loans. Overall, we are very excited with our first quarter results and look forward to a solid year in 2017. 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 Hollaway, our Chief Financial Officer, to discuss some specific financial results we achieved. David?

Thanks, David. Net interest income before provision for credit losses for the 3 months ended March 31, 2017, was $152.4 million compared to $166.3 million for the 3 months ended March 31, 2016. The change was primarily due to a decrease in loan discount accretion of $9.7 million.

The net interest margin on a tax-equivalent basis was 3.20% for the quarter ended March 31, 2017, compared to 3.48% for the same period in 2016 and 3.26% for the quarter ended December 31, 2016. Excluding the purchase-accounting adjustments, the net interest margin on a tax-equivalent basis for the quarter ended March 31, 2017, was 3.11% compared to 3.12% for the quarter ended December 31, 2016.

Noninterest income was $30.824 million for the 3 months ended March 31, 2017, compared to $30.793 million for the same period in 2016. Noninterest expense for the 3 months ended March 31, 2017, was $78.1 million compared to $80.5 million for the same period in 2016, a decrease of $2.4 million or 3.1%.

The efficiency ratio was 43% for the 3 months ended March 31, 2017, compared to 41.1% for the same period last year and 43.3% for the 3 months ended December 31, 2016.

The bond portfolio metrics at 3/31 showed a weighted average life of 4.2 years and inflected duration of 3.8. The net premium amortization was $9.9 million for the first quarter of 2017 compared to $11.5 million for the fourth quarter of 2016.

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

Thank you, Dave. I'm going to emphasize some of the information that David Zalman has already given as well as provide some additional information in detail.

Nonperforming assets at quarter ended March 31, 2017, totaled $41,199,000 or 42 basis points of loans and other real estate compared to $48,302,000 or 50 basis points at December 31, 2016. This represents a 14.7% decrease from December 31, 2016. The March 31, 2017, nonperforming assets total was comprised of $25,240,000 in loans, $261,000 in repossessed assets and $15,698,000 in other real estate. Of the $25,240,000 in loans, $17,250,000 or 68% are energy credits. This is broken down between $10,877,000 exploration and production credits and $6,376,000 in service company credits.

Since March 31, 2017, $2,715,000 of the nonperforming assets have been removed or have gone under contract for sale, but there can be no assurance that those under contract will close.

Net charge-offs for the 3 months ended March 31, 2017, were $3,906,000 compared to net charge-offs of $2,259,000 for the 3 months ended December 31, 2016. Net charge-offs for the year ended December 31, 2016, averaged $5,015,000 per quarter. $2,675,000 was added to the allowance for credit losses during the quarter ended March 31, 2017. $2 million was added for the fourth quarter of 2016. The average monthly new loan production for the quarter ended March 31, 2017, was $279 million compared to $286 million for the fourth quarter ended December 31, 2016, and $247 million for the year ended December 31, 2016.

Loans outstanding at March 31, 2017, were $9,739,000,000 compared to $9,622,000,000 at December 31, 2016, representing 4.9% annualized growth. The March 31, 2017, loan total is made up of 41% fixed-rate loans, 35% floating rate and 24% variable rate. This is unchanged from December 31, 2016.

Charlotte, I'll now turn it over to you.

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

(Operator Instructions) Our first question comes from Dave Rochester with Deutsche Bank.

Just a quick one on the NIM. If I back up the loan accretion income from the quarter, it looked like the loan yield actually maybe declined a little bit this quarter. Can you just talk about what the driver for that was?

David, do you want to...

Well, I can just speak to -- you're correct. When the you back out the -- when you look at the core margin, it went, on a linked-quarter basis, I guess that's what we were talking about, it went from 4.51% to 4.50%. Is that what you're referring to?

That's right, yes. I just expected that to maybe get up a little bit just with the rate hike and everything.

Yes, I mean, I can -- I'll answer that in brief and either Tim or David would want to fill in. But as you've heard us on prior calls, it takes a while -- and we say this in a kind of different way. When we when rates are moving, it takes us a while. We're not like a commercial bank that's 100% wound up of variable-rate loans. I think Tim easily quotes what the breakdown is, X amount fixed and some flow at a certain level, there's a certain percentage and variable. So in our world, as rates begin to move up, we'll certainly take advantage of that, and the loan yields will improve, but you don't see that in the initial first quarter. I mean, this takes us -- it would probably take us a good, what is a day to 12 months plus the growth. You'll see the full -- yes, you'll start seeing an increase,but again, as I mentioned in prior calls, with essentially big portfolio for us to get the full benefit of increases. Sometimes, it takes 24 months or (inaudible) but you'll start seeing the increases but again, it's down the road. It won't -- you won't see us as fast as somebody else that has a 89% loan-to-deposit ratio with a bunch of floating rates.

Got you. So that, I guess that's roughly 1/3 of the portfolio that's floating rate that reprice is up within 1 month or 2, and then everything else obviously takes a little bit longer, spending out what those -- the medium term rates are at.

I think that's right. Our -- that's right. CMD might add more numbers on it.

Well, the 35% that is floating changes daily if the index changes. So that changes right away. The 204% is variable. That can change annually. It can change every 3 years. It can change every 5 years. So those changes take place so we're a little bit more time, if that makes sense to you.

Absolutely, yes. I appreciate that. And where is most of that product coming on at the books right now? Where are the new loan yields versus this 4.50% core loan yield?

Randy, you might want to answer. Tim, I think it's not a whole lot different, do you think?

We're still at about 4.50%. There's some maybe 4.25% in, but mostly, it's at 4.50%.

I think the rate is into them. I mean, we're still looking about 4.50%. We -- there are some loans that we're starting to see where competition is starting to raise rates. But still, I think it's more than that and where we're at today than 10-and 5-, for sure.

I think that's right. The competition -- I guess, you could argue, is relaxed somewhat but it's still out there and still very difficult. So it's just not possible on our marketplace to increase rates significantly right now. We just don't see it after right now.

Okay, appreciate the color there. And then just switching to expenses real quick. Those came in below expectations yet again this quarter. I was just wondering what your thoughts were going forward?

I think -- this is Dave Holloway. I think you know steady -- expense is steady from quarter-to-quarter. I mean, I don't know that you can take -- I think I've joked about this on prior quarters but I don't -- any number I get, we seem to not quite hit there. But if you look back on the last 4 quarters, 5 quarters, we're bouncing between $78 million and $80 million per quarter. So I mean, I think that, that's a good range to live with.

Okay. And then just one last one. How would you characterize your feel of the M&A conversations in chatter out there right now from a standpoint of a bid ad spread? Does it seem like the spread is narrowing at all with higher stock price as we have today? Or some are still looking for big premiums they're achieving that's been as wide.

I think it's a mix. I mean, if you're dealing with a bank that's publicly traded, all prices are up more than we've seen in a long time. If you're dealing with a bank that's not publicly traded, depending on the bank, I mean, if you're talking about a smaller bank that's not -- not that it's unattractive but maybe not as attractive as something in a major Metropolitan area and it's smaller, those net pricing is different than maybe another one that's really private. So it's really all over the board right now, I think. I think that sellers -- I think sellers, for the most part, are seeing increase in -- seeing the higher prices on publicly traded banks. I think they really want to take advantage of that. But again, all banks are different depending on where they're located, their sizes and the makeup of them. If there are banks that have started over the last few years, 10 years or so when compared to a bank that's been around for 50 years. So there is a lot of difference -- there's a lot of different factors to go into it. I know I'm probably jumping around here a lot, but the bottom line is, there's so many different factors that go into what the process of a bank is, depending on that bank.

Our next question comes from Jennifer Demba with SunTrust.

Two questions. You mentioned the 500-or-so muni accounts that you have and that some of those deposits had moved to higher-rate products outside the bank. Can you give us -- can you kind of quantify that, how much of that has left the bank, and how much you anticipate is still at risk in future periods?

Jennifer, I don't know that there's more -- that much more at risk, really. As I mentioned in the conference call, we -- we're in so many different communities throughout the state of Texas and Oklahoma. I mean, probably in every town that we're in, we either have a school district account or an account with the county or the city or something like that. So for the most part, the -- when interest rates were high, they have places that they can go to, things like, I'll say TexPool, where they can get higher rates than what we can pay them, I'd say that. If I'd say any day that we wanted to match rates that were -- these higher rates that they can get it in these investment pools and stuff like that, they would stay with us. We've just elected not to participate in the higher cost of funds basically. So again, I think most of those funds -- what we've tried to always do is really -- we try to be their bank, the place where they write checks to their employees and have their main operating accounts. In the past, we never really tried to be an investment bank where their excess funds could be invested. So we're just kind of where we're at right today and, I don't think -- in fact, really, to be more specific, I think those funds were like $837 million when you compare March 31, 2016, to March 31, '17. So the -- but when you look on a quarterly basis, actually, our core deposits, and we're -- there was about $343 million that was part of that. But our core deposits grew over $72 million. So making the net effect $271 million. We don't want to make it real complicated. But I guess the good news is our core deposits continue to grow. It's just a public -- I wouldn't say core, but those public funds that have investment funds moved out. But I feel for the most part, unless somebody feels differently in the room, if that is what -- that is our exposure. I don't see a lot more moving. And probably toward -- again, even to our year-end as I need more money and stuff like that to operate on, some of that money will move back into the bank also.

Yes, and I would just emphasize that, some of it they move for higher rate, but let's also remember, this is the -- this is seasonality.

Seasonality and...

(inaudible) out and say, hey, taxes come in (inaudible) rising.

That's right. That's probably a combination of both.

Yes, because we do have some more price adjustments, and they certainly slowed back down in this first quarter.

Right. I think it's important to emphasize that virtually all of these municipalities are public entities, they're not all municipalities. But all of these public entities have bid agreements with us. So just because they moved some investment funds out for a period of time to get a higher yield doesn't mean they've left us and we're not still "their bank". All of their transactions of business still goes through us. And as David pointed out earlier, this is very normal. Hey, right now, they can get 70 basis points on a daily basis from some of these funds that they can invest in. And if we want to match that, the money will stay with us. If we don't, it won't. So it's not complicated.

Yes. When our loan-to-deposit ratio gets to 90%, we'll pay them the extra money.

Our next question comes from Brady Gailey with KBW.

Maybe a following up on the M&A questions. Your TC grew another 25 basis points this quarter. You're now 8.5%, and that's higher, because I know you'd historically run -- ideally, where would you like to see that TC ratio in a more fully levered position?

The 8%? Just kidding. In the old days, the capital ratios have been growing pretty dramatically, and I don't think it's because bankers really -- I think that they wanted the capital ratio to grow on the other hand. I think that the ratios have gotten a lot higher primarily because of regulators. I mean, if you look before this new administration came in, they really -- they had goals really at 10% leverage ratio. I think that has changed now. So 8.25% is probably higher as you said that we've ever been, but we can drop lower than that, and I think that as a bright acquisition came along, we're not opposed to dropping it probably in the 7% range or so. And again, we create so much earnings that really we actually grow our capital ratio almost by 1% a year. So it maybe even drop lower than that if we needed the money and in getting back to a ratio that's higher than that in 1 year.

Okay, all right. That's helpful. And then on the net accretable yield. On a net basis, it was $4 million this quarter. How do you think about that for the balance, of 2017?

Yes, I think that, that -- what you've seen this past quarter, that's where we need to be in a projection basis. You can see it's coming down as each quarter clicks off. So yes, it's going to be in that $4.5 million to $5 million range basically in the next few quarters.

Okay. And then, I know you all have remaining loan marks on your acquired book of around $55 million. How much of that do you think we'll see flow through as your accretion?

Well, I think when you break it down, and you can see it on one of the pages of our press release, that $32 million of it is what you would call that 91 is the actual amortize -- the stuff that actually accretes back to us. So that $32 million over the next year, in a few months, next year and a half will come back to us. The other $22 million is related to marks -- credit marks on loans. You can roll the dice on whether it might get any of that money coming back, income or not.

Yes, I think, Randy, you may want to comment on it but we've always said that a lot of that depends on the economy. If the economy is good, you make it, you make a lot of it back. If the economy is bad, you may not get any of it back. I think we've always given you guys the position. It will probably get half of it back to send it to you.

(inaudible) when you need oil prices to go up a little bit.

Right. I don't know if you heard that Randy said you will need a little oil prices to go up a little bit but the -- he probably feels comfortable and saying around half probably also.

Okay, great. So maybe $43 million of the $55 million.

The next question comes from Steve Moss with FBR & Co.

This is actually De'von Jones on for Steve Moss. Could -- I mean, I know your loan-loss ratio went down this quarter. Could you just give us some insight on what we could expect for Q2 and going forward for the year?

Well, yes. The 16 basis points -- the net charge-offs of average loans, I don't see it being a whole lot different going forward absent nothing just very unusual. As David said in his remarks, the economies that we operate would then seem to be stable -- even growing a bit in some locales. So there's just nothing that we see right now that would indicate that, that should be much different.

Okay. And then I noticed you guys said a good loan growth this quarter. Well, how should we think about loan growth going forward in 2Q and then for the year?

I think that we had kind of commented to say everybody on the home conference call last quarter that we thought we would be around the 5% loan growth and I think that we hit it. It did start off kind of slow, we got a little bit scared as one of the analysts have probably -- by February, we said, "well you know you might not as been as positive but it really did come on." And again, I think if the economy continues to grow and the job growth that we continue to see and population growth that we're having in Texas continues, I think we should do -- we should hit what we're saying at the same amount around 5%.

And particularly in the construction, where -- what markets drove that construction growth?

Well, that -- it's primarily spread out between -- and I'm not listing these in any particular order. But the Houston market, it's what you would expect. The Houston market, the Dallas market, the Austin market, the Bryan/College Station market. That's where the bulk of it is.

The next question comes from Jon Arfstrom of RBC.

Just maybe another loan growth question. But give us an idea of the mood of the C&I borrowers. It looks a lot of your competitors have had some tougher growth in C&I and maybe it's been paydowns or lack of optimism. Just give us an assessment of what you're seeing from the commercial borrowers.

Jon, I'll start. I mean, I did -- I've read most of the analyst reviews on different banks and different banks seem to have mixed results. But for us, our borrowers are very optimistic, I mean -- it's kind of like bankers. We feel like a foot has been taken off our neck. So I think that if you're running a business, you -- our customers feel really good. And I guess oil and gas coming back really helps us too in the service industry. For the last couple of years, they weren't allowed to really make any money when working for some of the majors. Now because the business has picked up, they're starting to be successful and make money again. But overall, I would tell you that we had said that Texas and Oklahoma, Texas especially was more diversified than what -- we have a lot of diversity compared to what -- it was just an oil and gas region. And I think over the last few years, we saw that. Even with oil and gas being down, we still saw so much growth -- and population growth and business growth. And so right now, I think for the most part, if the administration can pull off the tax deal, it could pull off the health care deal, I think you're going to see things were really don't -- were really good. I mean, we're really excited about it and our customers are really excited also.

Okay, good, good. And then a question back on the NIM. Just the core margin at 3.11%. Maybe this is sort of a Hollaway question. But it's been under a little bit of pressure just each quarter, slight erosion. And as what you're saying that the impact that the December and the March hikes, we can reverse that trend and we can start to see that core margin rise again as soon as Q2?

I think that's a definite possibility. One of those reasons you've seen that kind of static is remember, that's just our mix of money. The bond portfolio -- the loan portfolio. That has some dampening effect on. But I think your assumption is absolutely right. We continue to see the loan growth going forward. That will bring a positive bias to us, and at some point, it will begin to see this expand. But we need that to happen.

I don't think there's any question about it, Jon. It will expand. It's just the timing issue when it will expand. Our numbers -- we have the projections and the modeling and it shows it expanding over a period of time. It just doesn't happen as quickly as somebody else with a really high loan to deposit ratio with a lot of variable rate loans.

(Operator Instructions) Our next question comes from Peter Winter with Wedbush Securities.

I just wanted to follow up on the question on the core margin. I'm just wondering, what -- would you have an outlook for the full-year margin for '17?

Yes. I mean, again, if we're looking over the next couple of quarters, but I mean, I do the next couple of quarters, but I mean it's probably withhold in the second of the 12 months. But over the next few months, I mean, we -- again, this is based on what we see on our -- in your balance sheet today, a pretty stable margin going forward. Maybe it go down a point because of the mixed money, it could go up a point because loans are sticking. But over time, there's always cash flow comes back to us that we'll definitely begin to see an improving margin. But this takes time. I mean, you've heard David say this. Given all these cash reinvested, it takes time. So we get out 12 months, we'll begin to really start seeing some -- a much more plausible, maybe 1 basis point or 2. I mean, David, do you have anything?

Yes, I figure -- I know you're trying to look for an exact number. If I were on the analyst's side, I want an exact number, too. But...

I'd even take a range.

You'll take a range? Well, I don't have the model in front of me. But I can just assure you that our models do show an increasing net interest margin over time and as interest rates rise and again, I'm going way out there in saying -- these are models. You've got to remember this is just modeling, and so the inputs effect models. And so 300 basis points up 3 or 400. I mean over 2 -- over 3 years, you're looking at a lot more income. I mean, net income is a lot more. It's just -- but again, it takes time to get there.

Okay. And just on the premium amortization expense. I'm just wondering if the 10-year keeps moving up, how much more room is there to reduce the premium amortization expense?

I think there is room. If we can make the assumption rates, we'll continue to go up. That kind of flattened out over the last short period. But yes, if they continue to go up, that will come down a lot more.

One caveat is that just last month, interest rates actually went down the other way. And so you actually -- you have to keep in mind that when interest rates went down and you have refinancing prior months, that, that probably increased our amortization expense a little bit. Not that I think that's a lot.

Yes, a little bit. But again, if you want to make the assumption rates continue to rise, that will be a good thing in terms of amortization. And in fact, again, it's -- it changes weekly. But if we're also sort of buying bonds going forward. You're not buying them out of premium anymore. You're starting to buy them at par or a little bit of a discount, which will also help this number.

Okay. And just one last question on the loans. I guess, you had a very good start to the first quarter. Clearly, the borrowers are optimistic and you're well positioned. I'm just surprised you wouldn't raise the loan guidance for the year just given -- you started off slow and the outlook is positive and the first quarter tends to be slow.

So what's the question, Peter?

Why not raise the loan guidance for the year?

I think it's just our style, and you've been with us long enough to know that we always try to -- really try to do better than what we say we would do. So a lot of other good people put numbers out there and usually don't do as good. We try to put numbers out there and try to beat those numbers, so...

The next question comes from Matt Olney with Stephens.

Going back to the expense discussion. Salaries and benefits line item was down pretty considerably both linked-quarter and year-over-year. Anything else to call out from that big move on the salaries and the benefits?

When you say call out, what do you mean? Just some color behind that move? Or...

Yes, if it was headcount or anything else?

Yes, I think it's -- and there was no one specific thing that we could point to. Just a lot of little things. It's just our constant reengineering of how we look at things. Some of that will come back as we continue to hire lenders and revenue generators that kind of thing. So the only thing I could point to is you can notice our headcount when you look at last quarter compared to this quarter, it's down like a hundred FTEs. That wasn't the only reason too but, of course, when you have less headcount, that's going to drive that number a little bit. But that just constantly working on everything to be as efficient as we can.

Yes, I don't see a whole lot have changed. I think what you've said a while ago, David, that the difference between the $78 million and the $80 million, that's pretty much going to be...

That should be standard.

That's going to be standard for us, I think.

And then on the fee income side, I think you referenced a gain on the sale of other asset. What was the amount of that gain?

The gain -- that line item was a $1.7 million. And if you look at that same line on the prior quarter, fourth quarter is probably about $500,000. So it's just selling -- so those are just gains we -- when we have all of these acquisitions over time and we're buying banks that have big visions and they always had banks with lots of land in it, we constantly sell some of that excess land because we'll never build bigger buildings on these pieces of land. So that's what you see when you see those numbers coming through.

The next question comes from Geoffrey Elliott with Autonomous.

I wondered if you could give a bit more color around the $492 million of shopping center and retail exposure within normally underoccupied CRE?

I'm sorry, I didn't. You sound of broke up, we're not very clear.

Shopping center exposure? Retail exposure.

Oh, I can give you some information on that. First, let me say that our portfolio, as it is today, is very stable in that regard. We are not seeing any significant problems in that portion of what we do at all. We have very few big-box loans on our books, -- almost none. There are a couple but they're very few. Most of ours are small to medium-sized shopping centers that have a variety of tenants. They're spread out over all of our geographies and we just haven't seen any weakness in that area. I know nationally, there are some concerns especially about the big box products. But that's just not our loan portfolio, and we haven't seen any negative issues.

I think it's pretty spread out to you, Tim. I think it's been our biggest with about 215 million, and Dallas/Fort Worth about 15 million. Central Texas 16 million. It goes on and on. I think our biggest -- like you said, I think it's really spread out. It's not real big box, where I think we have one bigger development that tinkered with the ATB store and a hospital and something else but completely full. So We feel extremely good with our commercial real estate retail portfolio.

Yes, we have very few properties that are significantly anchored by national retail chains. I'm not telling you we have none of that but it's really very, very little.

I would say this, I think the big difference is there's a number of banks that, and again, nothing wrong with it. Just the difference in modeling. They have a lot of loans that are brokered in, that are basically anchored by national chains. Us, for the most part, do not -- we don't participate in the brokerage part of big-box stores and based on some cap rate and the investors getting out of it. Our loans are linked to our customers. It's customers that have relationships with the banks and not just broker deals. So I think that's a big difference also.

That's correct.

The next question comes from John Rodis with FIG Partners.

David Holloway, just a question for you on the tax rate. So it should sort of stay around this 33%, 33.5% rate going forward?

Yes, sir.

Okay. And then, David Zalman, just a follow-up question for you on M&A. If you want to -- if you think about what your next deal could potentially be, do you think it's most likely to be in Texas? Or do you think it will be outside of Texas?

I think it could be in or out of Texas. I mean, I'm not trying to just say that. I mean, we've talked with people more -- as we've gotten bigger, we're talking with -- we've talked with banks out-of-state and we've talked with banks in-state. So I think it could be either or. We have continual conversations with some larger banks in-state and out-of-state and we also have some conversations with smaller banks within the state, too.

This concludes our question-and-answer session. I would like to turn the conference backer -- back over to Charlotte Rasche for any closing remarks.

Thank you, Anita. 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.

This conference has now concluded. Thank you for attending today's presentation, you may now disconnect.