Prosperity Bancshares, Inc. (NYSE:PB)
Q4 2015 Earnings Conference Call
January 27, 2016, 10:30 ET
Charlotte Rasche - EVP & General Counsel
David Zalman - Chairman & CEO
David Hollaway - CFO
Tim Timanus - Vice Chairman
Merle Karnes - Chief Credit Officer
Eddie Safady - President
Dave Rochester - Deutsche Bank
Bob Ramsey - FBR
Jennifer Demba - SunTrust Robinson Humphrey
Steve Moss - Evercore ISI
Brett Rabatin - Piper Jaffray
Jon Arfstrom - RBC Capital Markets
John Rodis - FIG Partners
Jefferson Harralson - KBW
Welcome to the Prosperity Bancshares Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions]. 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' fourth 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 few weeks.
I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me today is David Zalman, Chairman and Chief Executive Officer; H.E. Tim Timanus, Junior, Vice Chairman; David Hollaway, Chief Financial Officer; Eddie Safady, President; Randy Hester, Chief Lending Officer; Mike Epps, EVP for Financial Operations and Administration; and Merle Karnes, Chief Credit Officer.
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. Tim Timanus will discuss our lending activities, including asset quality; and Merle Karnes will discuss our oil and gas portfolio. 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, Carrie.
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 from 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 joining us for our fourth quarter 2015 earnings announcement. I'm excited to announce such positive results for the quarter. We posted earnings of $70.4 million for the three months ended December 31, 2015, compared to $78 million for the same period in 2014. Our earnings per share for the fourth quarter 2015 came in at $1.01 compared to $1.12 for the same period last year.
Results were obviously affected by fair value accounting. When comparing the net income, excluding the purchased accounting adjustments, we earned $66.1 million for the quarter ending December 31, 2015, compared with $58.4 million for the quarter ending December 31, 2014. That's an increase of 13.1%.
Our net income per diluted common share excluding purchase accounting [Technical Difficulty] was $0.94 for the three months ended December 31, 2015, compared with $0.84 for the three months ended December 31, 2014. And that was an increase of 11.9%.
Our return on average tangible common equity for the quarter ending December 31, 2015 was a whopping 18.56%. Our net interest margin was relatively stable comparing the quarter ending December 31, 2015 to the prior quarter. Excluding purchase accounting adjustments, the net interest margin on a tax-equivalent basis was up slightly to 3.11% for the three months ended December 31, 2015 compared to 3.1% for the three months ended September 30, 2015.
Our tier 1 leverage capital ratio stood at 7.97% at December 2015 compared to 7.65% at September 30, 2015. Our strong earnings continue to build capital rapidly. On loans we saw solid organic loan growth. Linked quarter loans increased $233.6 million or 2.5%, 10% annualized, from $9.2 billion at September 30, 2015 to $9.4 billion at December 31, 2015.
Our asset quality, we have strong asset quality, continues to be one of our core values of our bank. We saw improvement in asset quality in the fourth quarter. Nonperforming assets totaled $43.4 million or 23 basis points of quarterly average interest earning assets at December 31, 2015. And that's compared with $48.6 million or 26 basis points of earning assets as quarterly average earning assets of September 30, 2015. This represented a 10.6% reduction in nonperforming assets.
Our allowance for loan losses, excluding fair value marks, stood at $81.3 million compared to total nonperforming assets of $43.4 million, representing a 187% coverage ratio. Deposits on our linked quarter deposits increased $741 million or 4.4% from $16.9 billion at September 30, 2015. Our deposits tend to increase this time every year, as discussed in prior conference calls.
Although the Texas economy is challenged by the energy downturn, it is a much more diversified economy than it was in the 1980s. Texas grew over 166,000 new jobs in 2015, despite the job losses in the oil industry. The medical, petrochemicals, auto and technology companies increased jobs, taking up the slack. The Oklahoma and Texas unemployment rate is lower than the U.S. national average. The Dallas-Fort Worth and Houston ranked among the top five largest metro areas in terms of population and economic output in the United States.
We believe that Texas' central location, its oil and gas deposits, its proximity to Mexico, its fast-growing population, its low cost of doing business, no state income tax and its friendly legal climate to business will continue driving business and people to relocate in Texas. Texas ranks number two in the most Fortune 500 companies located in the state.
Obviously, we believe the Houston economy will be softer in 2016 if oil prices stay at current levels or decline. Although, based on Federal Reserve economic predictions, Texas overall should add approximately 130,000 to 160,000 jobs during 2016.
Historically, our Bank has performed at her than most of our peers during more challenged times. During such times, the terms and conditions on loans become more favorable for us, as we're in a position to make the loans. We believe that we're also in a position to take advantage of any opportunities and market disruptions in our industry.
We concluded the acquisition of Traditions Bank on January 1, 2016 and expect the operations integration to take place in mid February. We're very excited about this transaction and look forward to a great future and relationship with all the Associates of Traditions Bank. With regard to our share repurchase program, we announced today that our Board of Directors has authorized a share repurchase program under which the Company can purchase up to 5% of its outstanding common stock, approximately 3.54 million shares, over the next year. The Board's approval of this program reflects our continued confidence in Prosperity's future and our commitment to advancing shareholder value.
In closing I would like to acknowledge the loss of Dr. William Beatty, a longtime director of Prosperity Bancshares, who passed away Sunday. Dr. Beatty joined our Board years ago when Prosperity merged with his bank, Paradigm Bank. He was very loyal, supportive and loved by us all. We will miss him.
I would like to thank all of our Associates who represent customers for all their help in making our Company the success it is. Thanks, again, for your support of our Company.
Now let me turn over our discussion to Dave Holloway, our Chief Financial Officer.
Thank you, David. Net interest income before provision for credit losses for the three months ended December 31, 2015 was $153.3 million compared to $177.8 million for the three months ended December 31, 2014. This change was primarily due to a decrease in loan discount accretion of $20.7 million. For the full year 2015, net interest income was $630.5 million compared to $671.2 million for 2014. Again, the change was primarily due to the $43.8 million decrease in the loan discount accretion.
Non-interest income increased $900,000 or 3.1% to $30.3 million for the three months ended December 31, 2015, compared to $29.4 million for the same period in 2014. For the full year 2015 non-interest income was unchanged at $120.8 million compared to the full-year 2014. Non-interest expense for the three months ended December 31, 2015 was $77.9 million compared to $84 million for the same period in 2014, a decrease of $6.1 million or 7.3%. For the full year 2015 non-interest expense was $313.54 million compared to $327.96 million for 2014, a decrease of $14.42 million or 4.4%.
The efficiency ratio was 32.58% for the three months ended December 31, 2015, compared to 40.78% for the same period last year and 40.72% for the three months ended September 30, 2015. For the full year 2015 the efficiency ratio was 41.87% compared to 41.81% in 2014. The bond portfolio metrics of 12/31 showed a weighted average life of 4.1 years and [indiscernible] of 3.8 and projected annual cash flows of approximately $1.5 billion.
With that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?
Thank you, Dave. As David Zalman previously mentioned, our nonperforming assets at year-end December 31, 2015 totaled $43,459,000 or 46 basis points of loans and other real estate. This is compared to $48,628,000 or 53 basis points at September 30, 2015. This represents an approximate 11% decrease from September 30, 2015.
The December 31, 2015 nonperforming asset total was made up of $40,325,000 in loans, $171,000 in repossessed assets and $2,963,000 in other real estate. As of today, $637,000 of the December 31, 2015 nonperforming asset total had been liquidated or under contract for sale. But there can be no assurance that those under contract for sale will close.
Net charge-offs for the three months ended December 31, 2015 were $119,000 compared to net charge-offs of $5,279,000 for the three months ended September 30, 2015. Net charge-offs for the year ended December 31, 2015 were $6,938,000 compared to $4,795,000 for the year ended December 31, 2014. $500,000 were added to the allowance for credit losses during the quarter ended December 31, 2015 compared to $5,310,000 for the third quarter of 2015. And $7,560,000 was added during the year 2015, compared to $18,275,000 for 2014.
The average monthly new loan production for the fourth quarter, ended December 31, 2015, was $286 million compared to $320 million for the linked third quarter ended September 30, 2015. The average monthly new loan production for the year ended December 31, 2015 was $267,000 compared to $260,000 for the year ended 2014.
Loans outstanding at December 31, 2015 were $9.439 billion compared to $9.205 billion at September 30, 2015 and $9.244 billion at December 31, 2014. The December 31, 2015 loan total is made up of 41% fixed-rate loans, 36% floating-rate loans and 23% that reset at specific intervals.
I will now turn it over to Merle Karnes, who will provide additional information on our oil and gas loan portfolio.
Thank you, Tim. At December 31, 2015 total oil and gas loans were $399 million, 4.2% of total loans. Of the $399 million, approximately 45% is to producers and 55% is to service companies. Again, referencing the $399 million in total oil and gas loans, $353 million is subject to the ALLL methodology. The loss allowance of the ALLL on the $353 million is 2.71% for oil and gas loans. Again, for $353 million in the oil and gas loans subject to the ALLL, the reserve is 2.71%.
Of the $399 million, $46 million is subject to fair value accounting rather than being subject to the ALLL methodology. The $46 million in loans on the Bank's balance sheet have an aggregate contractual balance of $61 million. The difference is $15 million in remaining fair value discounts. In addition to the $15 million in fair value discounts, there are approximately $2.5 million in specific reserves on the $46 million, $19 million of the $399 million in total oil and gas loans is nonperforming. Again, $19 million is nonperforming. The $19 million is 4.8% of total oil and gas loans.
Charlotte, I will return the conversation to you.
Thank you, Merle. At this time we're prepared to answer your questions. Carrie, can you please assist us with questions?
[Operator Instructions]. Our first question comes from Dave Rochester of Deutsche Bank. Please go ahead.
You had strong results on credit this quarter and I appreciated that extra detail on the energy book. Can you just talk about the dynamics you saw on the launch list in the classified assets in the quarter as well? I noticed the reserve ratio on the originated book was down this quarter. Did you guys actually see a reduction in criticized assets this quarter?
It was flat to slightly down overall in both criticized and classified.
And then, do you have the stats for the energy book specifically?
There was no increase in criticized or classified for the energy book.
And then on the charge-off side, what recoveries did you have this quarter that helped contain that?
Are you asking the question as it relates generally to the portfolio or specifically to oil and gas loans?
Just generally in the portfolio.
Tim, do you have that? I've got the oil and gas number. Do you have the total number?
We gave the oil and gas number. We charged off approximately $2.8 million in oil and gas loans but then we were fortunate; we turned right around and recovered about $2.2 million of what we charged off, unexpectedly. So the net charge-off on the oil and gas side was only a little over $600,000.
You said, switching to expenses, you saw a little bit of uptick there on the cost side. Can you just talk about what drove that? I know you had the deal coming, you closed at the beginning of this month. If you could just talk about a rough level you expect for expenses in 1Q, that would be great.
Yes. I think in the fourth quarter that 16 we had been running sort of tight from prior quarters and we did think we were going to inevitably have to bring that up a little bit. So I don't know if there is much more color on the fourth quarter. But specific as we look ahead in guidance, you are right. Traditions Bank is coming our way and they will bring that expense carry. So I would use a good number, a good range per quarter on the non-operating expense of about $79 million.
And just one last one, on the loan growth -- it was great this quarter. Can you talk about how granular that was, if it included any larger credits in there? And if you could just update us on your loan growth outlook for 2016, it would be great.
As far as being granular, again, we saw it -- we probably -- it's balanced throughout the portfolio. I wouldn't say there's any one thing that stuck out. As far as the one next year, we really said our organic growth runs probably anywhere from 6% to 8% organically. I think, taking into consideration the oil and gas industry, we're probably focusing more on probably somewhere around 5% organic loan growth this year.
Our next question comes from Bob Ramsey of FBR. Please go ahead.
The first question I had, I just wanted to be sure I understood. The $46 million of energy loans that are subject to fair value accounting, is that because those were acquired through acquisition? Is that the differential there?
Okay, got it. And then can you talk about with the -- obviously, the credit looks really good in that book today. But I'm curious what the provisioning or what is the underlying oil price assumption. And to the extent that that were to stay around $30 a barrel through this year, what would that mean for provision expense? Just trying to gauge the sensitivity there.
A heightened probability that we would be increasing reserves through the year.
He's asking at $30 -- would we have more risk? The answer is yes.
Yes. I mean, I think that's the logical -- I just want to qualify it because sometimes people can get carried away one way. I know oil is the main dog that everybody wants to talk about. And I just think you do have to be careful with where we're at. I mean, sometimes -- I'll give an example, I think there has been some shuffle. Some of the other banks have provisioned $20 million or $30 million in provision for loan losses. And the question is, why wouldn't we do it?
And I said, the bottom line is a year ago or a little bit more than a year ago we had accountants and analysts and everybody asking us to reduce the amount of money that we had in our provision for loan loss because the amount of losses that we had compared to what we have didn't make sense. And we said no, we would just go with the nonqualified audit but we're not going to do something like that.
Well, today when somebody asks us if there may be this heightened deal or shouldn't you just put in $20 million or $30 million just to take care of it. Well, until we see that, that's just not something we're going to do. So we're trying to be more consistent. And you've seen this -- we've been through the 1980s, most of us. Again, we don't want to be naive and we don't want to be bold, but you have to see what's happening before you can just make provisions just arbitrarily like that. And we don't see that right now.
So I'm not saying that we won't and there wouldn't be a heightened sense of that if energy prices continue to go down. But again, we don't want to be knee-jerked from one to another. I can go back even a year ago or more. Some of the analysts were even questioning, well, why isn't your loan growth growing as fast as our peer group in the oil and gas industry and really pushing us? And we'd say, well, you know, we have some history in this. And based on the terms and conditions, it may not be a thing that we really want to get into.
And there was even questioning whether or not we were smart getting rid of a lot of some of the loans that we were acquired. And we suggested it is a smart thing to do. It didn't appear to the market to be the smart thing at the time we were doing it. But it was the right thing to do. So again, I just want to caution everybody.
I know that's the hot button right now. That's what everybody is jumping on. It's like all the penguins jumping in the water after the first one does. But let's just be careful and have some balance in this.
David, I might add that, for some time now, when we have run our calculations on our -- on the borrowing base for our producers, we have been using a $30 sensitivity case. So we have been addressing the current value in those calculations. And of course, if the price continues to soften even more, we will address that. So we have been focused on it. And up to this point in time the majority of our customers appear to be handling it.
And obviously, it's difficult. Their cushion is in liquidity they had going into this market and the unpledged assets that they had. So, they have some ability to pay their lines down to meet borrowing base requirements out of reserve and liquidity. And they have the ability to pledge additional assets to get us where we need to be.
Obviously not the case with 100% of the customers. But by and large, that has been the case up to this point in time. So I hope I give you some color on it.
Okay. No, that's fair. Shifting gears and thinking about net interest margin, I know you guys highlighted the decline in the accounting adjustments in the fourth quarter. Just wondering what the outlook is for the accounting adjustment impact as we head through 2016.
As you've heard us on prior calls, part of what creates this volatility is the loan to fair value accretion formulas. It has just ripsawed us from quarter to quarter. But reducing this into numbers that ultimately impact us, if you are looking at the press release you saw that the fair value accretion impact to us this past quarter was roughly $8 million, give or take. And as we look out into this New Year I think you -- again, if you look on past quarters you can see it's coming down. Eventually, it will run out here.
But having said all that, when you look out over the next year, I think and good guidance would say $7 million to $8 million per quarter is where we need to be. So when we talk in terms of the margin itself, $7 million to $8 million a quarter -- that will have some impact. And I think that ripsaw between what we state and what the adjusted number is, is going to start merging with each other.
Probably, Dave, a little more specific question, the net interest margin excluding the fair value adjustments, don't you say that the net interest margin stays pretty consistent?
Yes, once you take out the noise from the loans I think what we see over the next 12 months is a pretty stable margin.
Our next question comes from Jennifer Demba of SunTrust. Please go ahead.
David, a question on your thoughts on capital deployment, buyback versus M&A opportunities. Can you just talk about how you balance that over the near-term? Do you feel like your stock is a much better value than any potential M&A opportunity that might come down the pipe in the next three to six months?
Jennifer, as you know and I think most people that know us, we never really -- we want to use all our capital. We were never in favor, really, buying our own stock back. We were really looking more at the growth scenario and using our money for M&A and organic growth and on like that. Having said that, I think our stock is so ridiculously low right now we can't help but to buy back the amount that we said we would. This is the equivalent -- if we bought all the stock back based on what we said we would, that's better than buying a $2 billion or $3 billion bank. It's almost a 5% accretion for us in numbers.
So we will continue to do that. But I'd also say that I'm still wide open to M&A and that I think that when you have times like we're living in right now, there will be winners and losers. I certainly think we're going to be a winner and I think there will be opportunities for us to still do deals. I think doing deals and somebody asked the question, are we doing deals when the stock was down compared to when it's high. Sometimes that can be a mismatch. Sometimes there could be a lot of opportunities when different banks are all mismatched right now.
So there is as much opportunity right now as there ever was. We're very excited about the M&A. I want to buy it back. I like the price where it's at. If we could buy back half of our stock, we would do it or let me see what we can do. But I do think it's a good buy and we will continue to be both.
Our next question comes from Steve Moss of Evercore ISI. Please go ahead.
Just to sit back and look at the overall outlook for credit and the loan-loss provision in 2016, if you could give some color there? And what you guys are seeing in the Houston commercial real estate market.
First of all, I would say Houston is a very important market to us. Again, I think sometimes where we have a brush painted because we're one of the largest banks in Houston. But when you really look at our assets, our assets -- probably there's only about 25% to 30% of our assets in the immediate Houston market.
I saw an article in the Wall Street Journal just like you did and probably everybody else did yesterday in the energy corridor, where they saw -- I'm talking off the top of my head; this may not be exact -- about a 23% occupancy rate compared to a national occupancy rate of --
I'm sorry, 23% vacancy. I'm sorry. Yes, compared to 16-point-something back in 2000. So there was -- and obviously, the oil and gas industry has impacted that somewhat. Having said that, I think some of that would have been impacted by Exxon building the mass offices they did. That would have taken some office space, created some vacancies.
So there is some related to that. I will tell you there's other parts of Texas that are just booming. Again, not being repeat, some detail, but again, in existing -- and something we got from Central Texas that actually they took the results from the U.S. Bureau of Labor Statistics -- we still see a lot of growth. We see Austin -- seasonally adjusted unemployment rate is 3.2%, improving from 3.3% in November. They added 35,000 new net jobs or 3.8% in 12 months.
Also, the U.S. Bureau of Labor Statistics showed that -- and this was just put out in January -- that the fastest growing among the top 15 metro areas is that -- we have three of the top 10, Austin, Dallas and San Antonio. So we still see -- actually, we see in the Dallas market, we see office buildings downtown improving the positions there.
So I think we're very diverse. It's a mixed market. And yet we're very cognizant of where we're at in the Houston market at the same time. Again, not being 90 but also not going completely overboard in what some people are thinking.
So we think there will be challenges for Houston. No question it will be softer. I don't know that you will say recession or something like that. But it definitely will soften; to think anything different will be wrong. But I think we're well prepared in the properties that we have. We don't have any downtown buildings like some of the other people; most of our stuff is owner-occupied.
But Tim, you may want to jump in?
Well, yes. Let me clarify just a little bit. At this point in time what softness there is appears to be primarily in the non-owner-occupied office facilities and apartments. And our exposure to both of those is not material to our portfolio at all. We have done very few non-owner-occupied office buildings and very few apartment complexes in Houston. So the exposure just is not material right now.
Okay. And then in terms of the energy book here, wondering what percentage of pipe production is hedged for 2016.
We don't have a hard number on that. But I can tell you that the hedges started dropping off in 2015. They are continuing to drop off. There will be very few that carry over into 2017, although we do know we have a few customers that will have hedges in place that far. So we don't have an absolute hard number on that. But I think it's safe to assume that, by the end of this calendar year, there will be very few hedges left.
Okay. And also on the energy book, I was wondering if you would give us some color around the type of client you have. How much is loans to a large company versus a midsized or a small company in the energy space?
Steve, let's try to keep in mind we're talking about $350 million total oil and gas, okay, for the whole bank. But having said that, the majority of our customers, our customers that have been around in the business for back since the 1980s. So they are stronger customers. We feel good with them. I don't think we have any loans, shared national credits, to any major companies or anything like that. But Merle, you may want to give some more color like that? I think most everybody we've had has been in the business for a long time. And it was more recently described by Tim, the type of customers that we had earlier.
Everybody reads in the national papers about all the challenges some of the more highly leveraged companies have. That is not our customer profile. We typically are a small- to middle-market oil and gas lender.
Our next question comes from Brett Rabatin of Piper Jaffray. Please go ahead.
You talked a little bit about loan growth and margin expectations. David, can you maybe go over your thoughts? The 10 years pulled back here quite a bit. How are you guys going to manage the securities portfolio this year and forward? How are you managing the duration of that as you think about the next few quarters?
Which David do you want?
Either one is fine. But David Zalman, I know that's one of the things you do some work on.
Again, as you know, we've never tried to call rates. Fortunately, we always knew that we were going to -- we always get a lot of deposits at year-end; we always do. We generally go down starting in the second and third quarters and then recoup everything plus in the fourth quarter. But because of that, we were heavy purchasers of securities, dates, kind of the same thing. Our mortgage-backed securities.
Fortunately, we bought when interest rates were higher. So our yield has probably improved a little bit, quite frankly. Going forward will be the question. Again, if we can continue putting the money into the loans, we'd rather put the money into the loans and secure this portfolio.
But having said that, if you remember on the call rates I think that even in today's market, where they are, if our rates stay where they are today which I don't think -- I think that the Fed really does want to have a normalization of rates. Now, having said that, I don't think that they are going to -- again, I don't want to comment even on that right now. I'm not supposed to, because I'm a director of the Fed.
So I don't want to comment on that. But I think that the general raw feeling is that in the long term, net rates will continue to rise. But even if they don't, I would say that we're comfortable where they are at. And again, when we can incorporate [Technical Difficulty] return on assets, I think we can continue to do that.
Continuing with your stories, what you just said, we have never called rates. We will just take [Technical Difficulty] we will just take the opportunity to do what we have to do now.
That's right. We've always done what we've had to do. There is no question that the higher rates in the long term will be beneficial to us. But again, I think we're making -- we have a pretty good position where we're at right now.
And I don't think -- maybe the other part of the question is I don't reckon we'll be changing our philosophy. We're buying 10- to 15-year -- we're not going to change that.
No, none of that is changing. I think that our average duration, our duration right now is about 3.8 years. And I think our average life is around 4. So there's really nothing that has really changed. I think that, again, the purchase that we made in the earlier -- at the end of last year really helped us right now. Probably it will carry us through until we see some change.
Our next question comes from Jon Arfstrom of RBC Capital Markets. Please go ahead.
A couple questions here. You touched on Houston but maybe can you touch a little bit on Oklahoma and West Texas, what you are seeing there in terms of credit trends and loan growth?
Yes. To start off with, Oklahoma, we generally have a management meeting. Again, every state and every region is represented and we have representatives from Oklahoma City and we have representatives from Tulsa. Oklahoma City is a little bit different market than, say, Tulsa is. But from what everybody -- from what they are seeing and from what they are telling us, if you read the local Chamber of Commerce stuff, it's negative news.
At the same time, their housing still seems to be holding up, not houses between $500,000 and $1 million that might have been growing, but more of a market between $150,000 and $450,000. That market still seems to be good. They are starting -- they seem to be selling.
The thing that I've gotten most out of the Oklahoma City market is that even though there were tougher times and challenges, that people were still upbeat, that really if you didn't meet everything out in the community people were still reacting pretty normally right now.
There's no question the West Texas market, if you were there two years ago you couldn't get a hotel room or you would pay more than you would at the Ritz-Carlton for the kind you back your car up and unload your [Technical Difficulty], that's changed now. We have definitely seen more of a slowdown more of a slowdown over there.
Having said that, if you are -- and again, it was out of control. It was out of control, completely, at $100 a barrel. There was no question. Everybody in the world was there. Today ,it's not like that. People are definitely more cautious. But I would say this, that if you are going to be in the oil and gas industry, that the Permian Basin is the place that you want to be.
And so, the people that we're with have been there a long time. I think that, even not considering new wells drilled, considering wells that have been drilled, that have to be worked over, that have to -- the saltwater has to be hauled off and the continued support of those -- that's a good market for us, this industry at the same time.
So I think that it has been affected. Although the infrastructure, I think, is in place -- a significant rebound. I don't think it has destroyed the market over time.
Yes, that helps. And then just back on provision, I've covered your stock for a long time. In fact, the model goes back to $500 million in assets. You've never really had any big loss provision requirements. And I even go back and I look at 2009 and it was $6 million to $8 million a quarter. Granted, Texas was pretty strong through that downturn.
But, the reason your stock is at $37 is people are worried about credit costs and losses and non-performers. I guess my question is, how do you want us to think about credit costs? Is it too early to tell, for you? Can you grow earnings year over year? Is there a big shoe to come here on credit costs? Or how do you want us to think through that?
Well, I'm glad you asked the question, Jon. Again, you've known us forever and ever. And so when I commented, somebody wants us to make a $20 million provision when we don't see the $20 million provision yet, is not something we would do. And I will even tell you that, excluding the acquisitions, I don't know that we ever have much losses at all. But again, we have made acquisitions, I think, that we have accounted for those, clearly.
And I have to tell you I don't want to be so bold because I still have stitch marks in my back from the 1980s. So, things can change and something can happen. But I feel extremely confident with what we have. I feel very confident with our loan portfolio. I'm not saying we won't have losses. Use whatever numbers you want to use. And they are using 5% right now. 5% of $350 million is, what, is, what, [indiscernible] $15 million or so. If you want to use that, if you want to use 10%, use it.
I guess my point is, no matter -- whatever number they have, I think you are going to see extremely strong earnings from us going forward. I think our underwriting has been impeccable, the best there is. If we don't make it I always say the other guys will be eating beans under the bridge or so. I feel extremely confident. Again, that doesn't mean that we won't see a hiccup or something with the kind of deal that we're.
But I feel extremely confident. If I didn't, I wouldn't have recommended the -- if we thought we were going to have $50 million or $100 million in losses going forward over the next year, you would have never seen me recommend to our Board of Directors to go out and purchase the stock. I feel very good and I think it's an opportunity to come for us to get business. I said earlier in my comments that sometimes we don't grow as fast in the good times because the terms and conditions of other people are offering are not something we can live with, that we're sometimes we grow even better in these harder times because the terms and conditions and we have the ability to loan money and to acquire -- it has always been a positive.
So it is surprising to me, that our stock has taken the hit that it has because usually, in the past, in the tougher times our stock has actually outperformed everybody else's. So this is surprising. Again, I hope I'm not wrong in this. But I think you can see the confidence in my voice. I feel good about it. It doesn't mean that something can't happen, either.
I might add that we just don't play games with the provision. And when we look at our asset quality right now which obviously includes the oil and gas portion, there just isn't an obvious indication for a big provision right now. If that starts to change and we see clear deterioration, we will address it. And we will make sure that we have the proper provisions. So we look at it constantly. We're on top of it. And that's what we continue to do. But right now the numbers just don't justify. But that's today. Tomorrow is a new day and we recognize that. And we will take care of it.
And I know, Jon, that when we're talking like this that there are some people that say, especially in the East Coast, that are not down here. And we have been through this. And again, I don't think that we're being naive. I hope people don't think that. We do realize the challenges. But I don't think that we're being naive, also.
Our next question comes from John Rodis of FIG Partners. Please go ahead.
David Hollaway, just a follow-up question for you. I just wanted to make sure I heard you right on operating expenses. I think you said roughly $79 million going forward with Tradition Bancshares. Is that correct?
That is correct.
Okay. So that includes the acquisition. And then, David Zalman, not to beat a dead horse or just to talk about the share buyback, reading between the lines, it sounds like all things equal, with the stock where it is today, below $40, it sounds like you would be fairly aggressive buying back the stock. Is that how we should think about it for modeling purposes?
I did say at this price they will all be used.
And would you assume you would buy it all--
Let me qualify that. There are certain rules and restrictions. If this were my preference, I would take everything today and buy it all up in one day. And unfortunately, there's certain restrictions you may want to go into with Charlotte as to what we can buy and what's the timing on this.
Yes, we can purchase approximately 25% of our average daily trading volume per day. And right now that's running about 160,000 shares a day. And we can't purchase during any blackout periods or things like that. So it will take some time if we were to move forward with the program. And obviously, it just depends on where the stock price is and what other factors are in play at that time whether not we're going to purchase on any particular day.
[Operator Instructions]. Our next question comes from Jefferson Harralson of KBW. Please go ahead.
I was going to ask you a question, another one on M&A. Because you mentioned the opportunity is as big as it ever was, I would suppose a lot of these potential sellers are giving us some sort of energy portfolios. Maybe they are in Oklahoma or Louisiana or Mississippi or Texas.
How do you guys look and discount the bank portfolio as you might be looking at? Maybe I'll just look at it. Do you think that the fact that it's unclear about how many losses there are, why it hasn't been asked or it makes a deal less likely?
I'll start off, Jefferson. This is David. I think there are opportunities. I think that maybe some of the banks that you are discussing may be in some of those areas. But having said that, historically we have been able -- again, we don't hire our due diligence out to Deloitte & Touche or some third party; we do all of our own due diligence. And historically, even recently when oil was $100 a barrel and we made some acquisitions, I don't think our fair value accounting was off too much. We might have missed it a little bit, but only because oil was down to $30 from $100 when we looked at it.
So there might have been, I don't know, $3 million to $5 million margin we did. On the other hand, we might have made up more on other areas where the fair value accounting -- I have complete confidence that we delivered something, I think, in fact, especially if you are going into a bank right now and trying to do due diligence and do fair value accounting, I would hope that the price would go too much lower than -- if it's at $30 today, we probably -- we might use $20 or $15 to look at it, to make our assumption.
But I think that we have the people and the knowledge to really look at a deal and the fair value. And there may be an opportunity, maybe a better opportunity today than later on, than in the past, really.
And this concludes our question and answer session. I would now like to turn the conference back over to Charlotte Rasche for any closing remarks.
Thank you, Carrie. 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 has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.
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