Good day, and welcome to the Prosperity Bancshares third quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to now turn the conference over to Charlotte Rasche. Please go ahead.
Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares' third quarter 2019 earnings conference call. This call is being broadcast live over the internet at prosperitybankusa.com, and will be available for replay at the same location for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. Here with me today is David Zalman, Chairman and Chief Executive Officer. H.E. Tim Timanus Jr., Vice Chairman. Asylbek Osmonov, Chief Financial Officer. Eddie Safady, President. Randy Hester, Chief Lending Officer. Merle Karnes, Chief Credit Officer, and Bob Dowdell, Executive Vice President. David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics, and Tim Timanus, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions.
During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Jake. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for purposes of the federal securities laws, and as such, may involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance, or achievements of Prosperity Bancshares to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause 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. Let me turn the call over to David Zalman.
Thank you, Charlotte. I would like to welcome and thank everyone listening to our third quarter 2019 conference call. I'm excited to announce that our board of directors voted to increase the fourth quarter dividend of 2019 to $0.46 per share, a 12.2% increase from the $0.41 per share in the third quarter of 2019. Our company continues to do well, and we want to share that success with our shareholders. Prosperity Bancshares also repurchased 654,000 shares of its common stock at an average weighted price of $63.59 per share during the third quarter of 2019, and 1,473,000 shares of its common stock at an average weighted price of $64.10 per share during the first three quarters of 2019.
For the third quarter of 2019, we showed impressive returns on average tangible common equity of 14.77% annualized and on average assets of 1.47% annualized. Our earnings were $81,758,000 in the third quarter 2019, compared to $82,523,000 for the same period in 2018, a decrease of $765,000. In the third quarter of 2018, we had non-core loan discount accretion of $3,457,000, compared to only $1,283,000 of such income in the third quarter of 2019, a $2,174,000 decrease in non-core income. Our diluted earnings per share were $1.19 for the third quarter of 2019, compared to $1.18 for the same period in 2018, an increase of 80 basis points.
Our net income was $246,415,000 for the nine months ended September 30, 2019, compared with $238,481,000 for the same period in 2018, an increase of $7,937,000, or 3.3%. Our earnings per diluted common share were $3.55 for the nine months ended September 30, 2019, compared with $3.42 for the same period in 2018, an increase of 3.8%. It should be noted that during the nine months ended September 30, 2018, we had $5,329,000 more in net income than during the same period in 2019, again, due to non-core loan discount accretion income. Our loans at September 30, 2019, were $10,673,000,000, an increase of $380 million, or 3.7%, compared with $10,293,000 at September 30, 2018. Our linked quarter loans increased $85,970,000, or 80 basis points, 3.2% annualized from the $10,587,000,000 at June 30, 2019.
Our deposits at September 30, 2019, were $16,130,000,000, an increase of 196 million, or 1.2%, compared with the $16,734,000,000 at September 30, 2018. Our linked quarter deposits increased 42,291,000, or 30 basis points from $16,888,000,000 at June 30, 2019. As mentioned in previous calls, Prosperity generally experiences most of its deposit growth in the fourth and first quarters of the year, and we do not expect that to be different this year. Completion of our merger with LegacyTexas Financial Group remains on schedule, as we have received all required regulatory approvals, and shareholder meetings for each company are scheduled for next week. The management teams from both companies meet on a weekly basis and share many similar viewpoints. Both Legacy's and our goal is to develop people to be the next generation of leaders, make every customer's experience easy and enjoyable, and operate in a safe and sound manner.
We want to expand our use of technology and our digital products, making it easier for our customers to do business and continue to enhance shareholder value. We believe our customers remain positive about the economy. Consumers are still the most positive, while we see commercial customers pausing a bit due to geopolitical concerns. In Texas and Oklahoma, unemployment remains low and demand at business is good. In our opinion, the economy in our market areas remains sustainable. I want to thank everyone involved in our company for helping to make it the success it has become. Thanks again for your support of our company. Let me turn over our discussion to Asylbek, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Asylbek?
Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended September 30, 2019, was $154 million, compared to $157.3 million for the same period in 2018, a decrease of $3.3 million, or 2.1%. A lower loan discount accretion in the third quarter of 2019 partially contributed to the decrease. The net interest margin on a tax equivalent basis was 3.16% for the three months ended September 30th, 2019, compared to 3.15% for the same period in 2018, and 3.16% for the quarter ended June 30th, 2019. Excluding purchase accounting adjustments, the core net interest margin for the quarter ended September 30th, 2019, was 3.14%, compared to 3.09% for the same period in 2018, and 3.14% for the quarter ended June 30th, 2019.
Non-interest income was $30.7 million for the three months ended September 30th, 2019, compared to $30.6 million for the same period in 2018. Non-interest expense for the three months ended September 30th, 2019, was $80.7 million, compared to $81.8 million for the same period in 2018. The efficiency ratio was 43.7% for the three months ended September 30th, 2019, compared to 43.5% for the same period in 2018, and 43.74% for the three months ended June 30th, 2019. The bond portfolio metrics at 9/30/2019 showed a weighted average life of 3.62 years, an effective duration of 3.19, and projected annual cash flows of approximately $1.8 billion. With that, let me turn over the presentation to Tim Timanus for some details on loans and asset quality.
Thank you, Asylbek. Our non-performing assets at quarter end September 30th, 2019, totaled $51,157,000 or 48 basis points of loans and other real estate, compared to $41,558,000 or 39 basis points at June 30th, 2019. This is an increase of 23% from June 30th, 2019. The September 30th, 2019 non-performing asset total was made up of $50,314,000 in loans, $28,000 in repossessed assets, and $815,000 in other real estate. Of the $51,157,000 in non-performing assets, approximately $16 million or 31% are energy credits, all of which are service company credits. Since September 30th, 2019, $2,938,000 in non-performing assets are under contract to be sold or have already been removed from the non-performing asset list. Net charge-offs for the three months ended September 30th, 2019, were $1,046,000 compared to net recoveries of $115,000 for the three months ended June 30th, 2019.
$1,100,000 was added to the allowance for credit losses during the quarter ended September 30th, 2019, compared to $800,000 for the quarter ended June 30th, 2019. The average monthly new loan production for the quarter ended September 30th, 2019, was $289 million compared to $287 million for the quarter ended June 30th, 2019. Loans outstanding at September 30th, 2019, were $10,673,000,000 compared to $10,587,000,000 at June 30th, 2019. The September 30th, 2019 loan total is made up of 38% fixed rate loans, 38% floating rate, and 24% variable rate loans. I'll now turn it over to Charlotte Rasche.
Thank you, Tim. At this time, we are prepared to answer your questions. Jake, can you please assist us with questions?
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Brady Gailey with KBW. Please go ahead.
Thanks. Good morning, guys.
Good morning.
Morning.
I just want to start with loan growth, and with Legacy about to close. I know in the past when you all have done acquisitions, you've looked at a portfolio of the targets loans and decided to run them off. I think I remember either you guys or Kevin talking about that number being about $500 million for Legacy. I was just wondering, an update to that number, how much do you expect to move out of Legacy under the Prosperity umbrella? How does that impact net loan growth for 2020?
Well, again, the $500 million that Kevin had mentioned, and I think we had mentioned at the same time, is probably a close number in what we're talking about. The time frame that it takes to do that could take us up to two years to probably do that. I guess if you did some back-of-the-envelope math and said you're growing 5% a year on loans, five times our combined loans, again, I don't know if you want to count, a big portion of theirs are mortgage warehouse, so we have over $10 billion, so that's 5%, $500 million a year. You add their loans to it. Basically, it would affect the 5% organic growth, there's no question. I just have to put a pencil to it. I think you probably can do the same thing.
Take their $7 million or $8 million, if you exclude the mortgage warehouse, and just take 5% and then subtract out what we're running off. It would probably be a pretty easy calculation.
Got it. All right. That's helpful. Buybacks continued in the third quarter. You bought back about 1% of the company, and you bought it back a little under $64 a share. The stock now is well north of 70. Should we expect that buybacks kind of stop with the stock trading at this level?
Right now, I would say the answer to that is yes. We start buying when we think that the market is really completely out of kilter. We felt like the market was out of kilter at those prices we were buying it at. I think we'll be there to support. We still have a lot of capital. We're creating a lot of capital. We have a lot of earnings. If you add our earnings, what we have, and you add the earnings that Legacy brings to the table, it's $500 million or so a year. Even after dividends, we have a lot of money. We'll continue to buy if the stock ever goes disproportionately lower than we think it should be.
Okay. Last question for me is on the margin. It's great to see the margin flat linked quarter. That's a lot better than most of your peers out there this quarter. How do you expect the margin to trend towards the back part of the year and into 2020?
Well, the reason probably our net interest margin did better than our peers, we never went up. Our net interest margin never went up like the other guys did because we got a certain amount of fixed rates on our bond portfolio and our loan portfolio. As rates came down or are coming down, that helps us. At the same time, we have about a 3-year average life, both on the loan portfolio and in the bond portfolio. Going forward, it's a little bit harder question. If you look at our bank without Legacy and you look at our bank with Legacy, we run both models. Now again, these are models, and we're throwing a lot of information into them. I can't tell you that they're exactly accurate, especially when you combine Legacy's with ours, because, again, we're making a lot of assumptions.
From what we see, we don't think our combined bank is going to be much different than where our bank would have been uncombined. We think that if interest rates don't move, we would still see a net interest margin that would increase over 12, 24, and 36 months. If interest rates go down 50 basis points, we see probably a flat margin. If they go down more than 50 basis points, we would see a decline in net interest margin. I know that's a lot of information, but that's just kind of what we have right now.
No, that's helpful. Thanks, guys.
The next question comes from Peter Winter with Wedbush. Please go ahead.
Good morning.
Morning.
I was just wondering, as you guys have had more time to spend with LegacyTexas Bank and getting ready to close the deal, have you noticed or come across any positives or negatives as you've dug deeper in getting ready to combine the two banks?
I'll start off with the negative side. I don't think that we found anything negative. I think the loans that we did our due diligence on and the loans that you even seen some of their charge-offs this quarter, we completely identified those, and there wasn't any surprises in any of that. We also, I think our management committee have an Executive Management Committee, and we also meet with their Executive Management, which is Kevin and Maysel and Tom and Scott and Aron and Chuck. We meet with them and our guys, we meet every week. I would tell you it's been a pleasure to work with them. I think that we have to make decisions, but the more we work with them, I think they're more alike with us in the way we think. In my opinion, I know everything. I don't want to be naive.
Anything can happen, I think that it's been extremely favorable. Kevin and I still have a bromance going. We text almost every night.
Okay. You've assumed 25% cost saves and just given your history, that seems kind of conservative for you guys. You usually beat the expense saves. I guess my question is, how quickly do you start to realize the expense saves and get the full amount in the run rate?
Well, this, again, somebody else can jump in in just a minute, I'm sure, Asylbek or somebody. This is a little bit different in that even though we're closing the deal in the next few days or so, the operational integration doesn't really completely take effect until June of next year. Y'all have done some numbers and you're
Yeah.
Asylbek, you may want to jump in.
Yeah. I'll give a little bit color. We currently have a higher level estimates, but I think once we close the merger, we should have able to provide more clear guidance on the timing and the cost. As we look at it, the elements of the cost base changes from preliminary, but we still expect to get the 25% cost saves that we announced at the merger. From the timing perspective, I think we expect to take full advantage of the cost save in 2021. As you mentioned, probably half of the savings going to come in 2020 because since this integration has to take place in 2020.
Right. You'll probably even start consolidating some of the stuff even before the complete operational integration with the computers.
Absolutely right. I mean, we're working on a different project. I mean, we have a lot of streamlines that we're working through that. Some of them will be consolidated before even our midyear point.
I think a good number, the 50% of it, I think is a good way of looking at it.
Yeah, I would say 50% in 2020 and full advantage in 2021.
That's great. Thanks very much.
The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Thank you. Good morning.
Morning.
I just had another question around the deal closing. Obviously, it's closing fairly soon. Is there anything from a securities repositioning that you're doing on the asset side around closing that we should be mindful of? If you can just talk to where your expectations are for the pro forma margin for both banks combined, coming into fourth quarter or I guess once you will be the full quarter.
I probably would start with the pro forma. Again, this is just a pro forma, and these are putting these two models together that also we're looking at a 3.4% margin.
Yeah, based on the pro forma, yes.
Pro forma.
Combine those companies right now as we don't do much of a balance sheets remixing. We're sitting at 340 right now.
You're seeing that. You saw our balance sheet where we were borrowing money from the Federal Home Loan Bank, over $1 billion. We've cut that down dramatically because it didn't make sense anymore to do that. From LegacyTexas side, you may see us sell a small portion of their CMO portfolio. Not a whole lot, but you'll probably see a little bit of that. You'll probably see us taking money as our bonds mature. Instead of buying securities, then we'll use that money to probably fund their loans.
Understood. The 340, Dave, just relative to your comments earlier, you do expect that 340-ish margin to stay fairly stable, assuming rates don't go down more than 50 basis points?
The 340, if interest rates don't move at all, we should see a pretty good increase in 12, 24, and 36 months. If interest rates go down 50 basis points, it should be flattish. If it goes down more than 50 basis points, there will be some decline in the net interest margin.
Understood. Just separately in terms of just loan growth or business outlook, as you look into the fourth quarter into next year, are things looking better or worse as you think about the economy? Obviously, Texas is still doing very well, but would appreciate your thoughts just in terms of the feedback you're getting from clients and how you're thinking about next sort of on 2020.
The consumer is doing extremely well. Manufacturing has slowed a little bit. We've seen businesses that I think are still doing very well, but again, they're pausing, I guess I would say, a little bit because of the geopolitical. They're looking down the line. They're looking at the election. They're wondering if somebody really does get into office that would really raise taxes and start putting wealth taxes and stuff. I think it just bothers business people to make longer-term decisions when they see something like that. Overall, when you look at it, our unemployment rates in Oklahoma and Texas are the lowest they've ever been. Still harder to find employees to work. It's a very good market.
I would say that from a loan side, we continue to see a tremendous amount, a lot of payoffs. More so than that, the competition is very strong out there. We're seeing banks that are offering rates that we don't feel that we can offer sometimes. Where we put 5% organic growth for this year, I think I would change that to maybe 4% because we're just not going to play. I think as Johnny Allison said, we're not going to get the most stupidest award. We don't want to do that. We want to be there. I think that we'll be competitive. Again, we're just not going to do stupid things either. With that, I would say that we'll probably be more like about a 4% growth for this year.
Got it. All right. Thanks for taking my questions.
The next question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.
Hey, good morning.
Good morning.
Morning.
Just to follow up on Ebrahim's kind of balance sheet question. Just kind of curious if you had an update on how you plan to fund or how you plan to approach Legacy's warehouse business. As a part two of that, would you anticipate using some of your liquidity to fund it versus where Legacy has relied on wholesale funding to fund that business? Just trying to get a sense of kind of what the balance sheet kind of looks like pro forma.
Yeah, I don't know that we'd have the balance sheet exactly the way it is, but fundamentally, we intend to use our money to fund the mortgage warehouse loans. If I remember looking at their balance sheet this quarter, they were borrowing over $2 billion or so. I think that we may increase our borrowings a little bit, but for the most part, I think they'll probably be a middle-of-the-road. We'll probably try to fund most of their loans with our core deposits, basically. Having said that, it's not going to work overnight just that easy, and we'll have to see. Their mortgage warehouse loans were higher than they have been traditionally through the average of the year. They usually run about $1 billion, a little over $1 billion. I think in this last quarter, it was closer to $2 billion.
We need to really see what the average is going to be. Again, just going back fundamentally, we intend to use our deposits to fund most of their loans. Having said that, you may still see us having to borrow $1 billion or so through this transition period till our stuff runs off.
Got it. No, that's helpful. Yeah, their margin was down, I think, 17 basis points. A lot of that has to do with the warehouse. Your 340 NIM guide, does that obviously include the things you're talking about? Does it also include any accretion income that you would expect to get in 2020?
We didn't include any accretion income in that.
Okay.
We don't want to start that again, as.
I understand. We don't want to model it either.
Yeah.
In terms of CECL, I was just curious if you guys could provide any update. I know there'll be a lot of moving parts with LegacyTexas coming in. They've historically maybe provisioned at a higher rate than you guys have, you'll have the mark and everything else that goes with CECL. Just kind of curious how to think about sort of that aspect once the deal's closed.
Yeah, this is Asylbek Osmonov. Currently, we're both teams running the parallel on CECL models at a standalone basis. After the merger, we'll work on the consolidated model, aligning the qualitative and economic factor assumptions. I think once we go through that process, we'll have better clear picture on the consolidated basis. If it's standalone, our model's showing that we would have about $20 million-$30 million of additional provision related to CECL, which is about what? 23%-34%.
Got it. That's helpful. The charge-offs that Legacy had this quarter, obviously, I know you identified those, but does that change your mark at closing, or will you still stick with the same mark that you identified initially?
Yeah, that's a good question. We had $175 million. Let us look at it and see.
Okay, fair enough. All right, thank you, guys.
Again, if you have a question, please press star then one. The next question comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks. Good morning, guys.
Good morning, Matt.
Morning.
From a capital planning standpoint with Legacy, I believe you'll be absorbing some sub-debt and trust-preferred securities. Just remind us of your plans, what you expect to do with this capital, and how quickly you could do it.
Well.
Yeah. Once we merge, of course, we're planning to pay off when the maturity comes in. We're not going to keep it in our balance sheet going forward. I think one of the maturity comes in in 2020.
Yeah, the trust tend to pay off right away, though, right?
Yeah, in December.
Right.
December 15th.
It's about $15 million.
Yeah.
Got it. Trust-preferreds pay down almost immediately, and the sub-debt comes due, you said in 2020. Is that right?
Yeah. I think it's October 2020.
I thought it was. Yeah. It's that month.
Yeah. In next year.
Okay. Got it. Going back to the margin discussion and specifically on the core loan yields. Once I back out the creditable income, I believe the core loan yield is compressed about five basis points this quarter. Obviously, you have some variable rate loans that put some pressure on that, I was a little surprised to see five basis points of pressure this quarter. Any color you can provide on that?
Matt, I didn't see that. Asylbek, you might have gone into that. When I looked at it, again, when I compared income to income, we had probably more accretion last year than this year, I didn't see the lower income on the loans.
This is Asylbek. On the loans core base, yes, we went down about four basis points on the loan, it's because of the short-term and long-term rate environment we have. Some of those are variable and floating loans we have that increased. If you look at compared to last year, we were at core basis at 487 on loan yield, and we're at 5% this year. Compare year-over-year, we increased.
I kind of thought it was better, really, when you took out the additional accretion we had last year compared to the accretion this year. I thought it was actually better compared to last year.
Yeah. We went out 13 basis points compared-
Yeah. I thought it was positive.
Yes. Even in this rate environment, it's pretty positive in my mind.
Okay. Thank you for that. Just lastly, the premium amortization expense was about $400,000 higher in the third quarter than in 2Q. Obviously, the rate environment's influencing that. You look towards the fourth quarter, any color you can give us as far as your expectations on the premium amortization expense for 4Q?
You're referring to the securities portfolio basically, I guess?
Yes.
My general overall feeling as rates are rising, I think you should see it decrease maybe $300,000.
I would echo the same thing. Yeah. I expect a standalone basis, probably less than what we had $8 million, but just
If rates continue to stay where they're at. It's crazy. You're seeing the prime rate adjust in the overnight. There's been some good things which a big part of this is if you know our banking, I think you do. A lot of our yields dependent on the 10-year Treasury. That's been extremely positive over the last few weeks. It's gone from 1.5 to almost 1.8. That makes a big difference when we're buying securities or fixing rates for five years, it makes a big difference.
Yeah. I think there's additional seasonality too, because summertime, there's a lot of homes being bought. That, I think, is going to come down in the fourth quarter. That's going to help to slow down as well.
When your tenure went down so much, you saw a lot of refinancing. If we can truly have a yield curve and not have this inverted yield curve, you shouldn't see as much of a pay down, I wouldn't think, the refinancing, I guess I'll refer to.
Okay.
I doubt that it will be dramatic one way or the other.
Right.
Right.
Thank you, guys.
The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good morning, everyone.
Morning, Jon.
Good morning.
Maybe one for you, Tim. Credit looks fine, but give us an update on health and ag and energy, then maybe just, even though it's not a huge number, touch on the increase in NPLs.
Well, let me do the last part of the question first.
Okay.
The Non-performing list is really made up primarily of the bulk of it in 4 credits that total about $33 million-$34 million. One of them is a home mortgage credit, that we've got about $9 million in, and the appraisals that we have are in the $12 million-$13 million range. On paper, there isn't a loss there. We shall see. Another one is a well service company, and there's about $13 million-$14 million outstanding there. It's actually current. They're making the payments timely. On paper, once again, in terms of appraisals, there's enough equipment to pay it off. They also pledged additional real estate that has an appraised value of about $9 million. On paper, we don't think there's any loss there. The other 2 credits are commercial real estate credits. One about $7 million. It's actually current.
We think there's value there. We think if we had to foreclose, we probably wouldn't lose anything or wouldn't lose much. Once again, it's current, and it's actually performing at this moment. The second one is about $3 million, and we're going to be paid off, we think, by the end of this week. When you take the $33, $34 million that's in these four credits out, it makes our non-performing look pretty good. Agriculture, it's not the best, but it's not a dramatic problem either. You hear a lot of publicity about the tariffs and all that, and the government is covering a lot of these farmers with payments from the government in that regard. While I don't think agriculture is booming and doing as well as it could, I don't see any big problems there.
What was the third part of the question?
Energy, primarily energy service. Yeah.
Energy, in our opinion, is kind of in the doldrums. It's not getting significantly better. It's not getting significantly worse. Most of the people that we talk to think that the oil price is going to fluctuate between $45-$55 over the course of the next year. The majority of the people that we do business with now can handle that. Obviously, if those predictions are incorrect and it goes way down, then it's a problem for everybody. The service sector seems to be struggling more than the production side right now. I think because of what I just said, I think the forecasts are flat in terms of pricing of the commodity. There's not a whole lot of extra dollars being spent on service work.
We've said over time that most of the customers that we have are customers that have been in business for a long time, and have weathered the storms. They started the last downturn with strong balance sheets. Those balance sheets were hurt quite a bit in 2015, 2016, and into 2017, but they're still alive and are bouncing back a little bit. I don't see a whole lot of change right now. Now, the credits that Legacy is bringing to the table are more on the production side. I know that they have a focus on removing some of those out of the bank, so we'll see how that goes. I guess I have personally a little less confidence in where some of theirs are going to be. Having said that, we've looked at the credits.
We think they're going to be okay, and they're dealing with them, so we don't think there's any major issue there.
Okay.
All that being said.
Okay, that's all helpful. David, maybe one for you. I think we all understand the efficiency from the merger and the expected runoff, and we've seen you do that many times. As you look through this a little bit more and talk with the Legacy management team, any areas where you are a bit more optimistic in terms of opportunities for new business, whether it's a product line or just larger lending limits?
I think it's a combination of that, Jon. I'm really excited about it. mortgage warehouse, I would admit that we don't have the experience that they have in it, so we're there to learn in that. They have the commercial real estate portfolio that is a little bit different than ours. Again, I think that this gives us an opportunity to really dominate two of the largest markets in the state of Texas. We dominate Dallas, and we dominate Houston, and I think just the size that we have and what we can offer, the different products that we can offer, we're really beefing up right now on our new cash management system. You combine with the lenders that we have out there in both markets will become very prevalent, and I think it's a great opportunity. These guys really have been great to work with.
As Tim said, they do have some issues maybe on the oil and gas side. We've identified that. I think it's something we can work with. We've been through many of these things, and I just think it's going to be a great opportunity and we can move through it quick, and we'll go onto our next deal.
Okay. Just one last one. You talked earlier about expanded use of technology. Any area in specific, or you'd call out where you feel like you have to catch up the quickest, where you might be at a disadvantage?
I don't know that we have to catch up, but for me, I just think that if you're going to be in business, and I talked about this earlier before this meeting ever started, I just think almost everything has to be digital. In the past, things were digital just on your checking account, and you could look at your phone and all that. I think going forward, your checking account has to be digital, your mortgage application has to be digital. I think even small commercial loans are going to have to be more digital. I think everything that we offer, people are important. I think it's a combination, but I think you're going to have to have the digital platform for everything, and I think that's what we're moving to open up a new account to do just about anything.
Our goal is to really be digital in any product that we offer. That's my goal. That doesn't happen overnight, but that's really my goal, really.
Okay. All right, thanks. Good luck with the close.
Thanks.
The next question comes from Ryan Orian. Please go ahead.
Is that me, Brian Ferran?
It's closed.
Yeah. Okay. Ryan Orian. Ryan Orian with no firm. I'm unattached. Hi, everyone. Maybe just going back to what the pro forma financials are going to look like. As you kind of put the two balance sheets together, think about normalized mortgage warehouse, some of the funding efficiencies. Is kind of the earning assets land around $28 billion, and then it'll do whatever from there based on growth? Is it a little lower or higher than that? Can you help us think about just a point estimate or a range for where earning assets might be in, call it six months, once most of the dust is settled on the repositioning?
Again, Asylbek could give you better color. My gut feeling it's around $30 billion. Do you have it, Asylbek?
Yeah, I think it's going to be around between $28 billion-$30 billion.
Total assets.
No, these are earning assets.
Earning assets.
Yeah, total assets, if we stand as of nine-thirty, it's about $32 billion-$33 billion.
Right.
Yeah.
Then maybe just more broadly on the deal, you certainly referenced, David, you and Kevin have hit it off. At the time, there was a lot of concern and narrative that maybe the cultures didn't mesh and maybe some of the LegacyTexas lenders, higher than expected attrition could be a key risk for the deal. I know it hasn't even closed yet, it's early, but how are you feeling on that next level down? I don't know if you've had a chance to talk with those lenders or Kevin, but as you look at that next level down, do you feel better or worse or about the same on LegacyTexas commercial lending lender attrition?
I feel good where we're at. They've gotten over, was it 50 or 60?
Sixty-two.
62 signed contracts. Most of their people all signed contracts to stay with us. That means they're not endured to life with us, but they're giving us a chance. Every deal that has been successful in our history, and we've done 42 of them, and only two of them I would say I regret, they've been tough. Every deal that's been extremely successful is successful because of the management that stays with it. The success of this deal truly will be because of Kevin, Maysel, Aron, Chuck, the team that stayed, Tom. It would be those guys, if they're staying and they're going to be part of it, this deal's going to work fine. I'm looking at the table, around the table right now, I see Tim brought his company over and the majority of all his people stay.
I look at Eddie, and he brought his people over, and majority of his people say so. The success of any of this thing, of everything, is to really make it everybody has to work together and management has to be part of it. If management's not part of it, then it's a tougher deal.
Thank you very much.
This concludes our question and answer session. I would like to now turn the conference back over to Charlotte Rasche for any closing remarks.
Thank you, Jake. Thank you, ladies and gentlemen, for taking the time to participate in our call today. We appreciate the support that we get for our company, and we will continue to work on building shareholder value.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.