Charlotte Rasche – Executive Vice President and General Counsel David Zalman – Chairman and Chief Executive Officer David Hollaway – Chief Financial Officer H.E. Tim Timanus, Jr. – Vice Chairman Randy Hester – Chief Lending Officer.

Dave Rochester – Deutsche Bank Jennifer Demba – SunTrust Brady Gailey – KBW De’Von Jones – FBR & Company Jon Arfstrom – RBC Peter Winter – Wedbush Securities Matt Olney – Stephens Geoffrey Elliott – Autonomous John Rodis – FIG Partners.

Good morning and welcome to the Prosperity Bancshares Inc. First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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 us 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 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, 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 achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares’ filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K and other reports and statements we have filed with the SEC.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now, let me turn the call over to David Zalman..

Thank you, Charlotte. I’d like to welcome and thank everyone for listening to our first quarter 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 return of 1.23%.

Our earnings were $68.5 million for the first quarter of 2017, compared with $68.9 million for the same period in 2016. Net income excluding the purchased 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 one agricultural credit and two the 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 a year is slower, but we are seeing optimism in our customer base and the business is seeing 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 our 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 comparing our 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 that’s 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 averaged earnings assets at December 31, 2016 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 that decreased $265 million or 1.6%.

Our bank has approximately $500 million for accounts spread throughout the communities where we have banking locations in Texas and Oklahoma.

We had included accounts for cities, school districts, county governments, water district among others, because rates have been so low for so long and the rate that public funds received from us was not much difference than an investment rate that you can get elsewhere. These entities kept all of their funds in their transaction accounts with us.

Since the interest rates have increased the public funds are now able to obtain higher rates on their investment funds outside the bank and they’re 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 senior [indiscernible] 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 is expected to jobs in 2017, a 37.9% increase. Job growth in Texas in 2016 was 2.7%, as 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 of the specific financial results we achieved.

David?.

Thank you, David. Net interest income before provision for credit losses for the three months ended March 31, 2017 was $152.4 million, compared to $166.3 million for the three 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 three months ended March 31, 2017, compared to $30.793 million for the same period in 2016.

Noninterest expense for the three 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 three months ended March 31, 2017, compared to 41.1% for the same period last year and 43.3% for the three months ended December 31, 2016.

The bond portfolio metrics at 30/31 showed a weighted average life of 4.2 years and an effective 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 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 million or 42 basis points of loans and other real estate, compared to $48.302 million 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 million in loans, $261,000 in repossessed assets and $15.698 million in other real estate. Of the $25.240 million in loans, $17.250 million or 38% are energy credits.

This is broken down between $10.877 million exploration and production credits and $6.376 million in service company credits. Since March 31, 2017 $2.715 million 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 three months ended March 31, 2017 were $3.906 million compared to net charge-offs of $2.259 million for the three months ended December 31, 2016. Net charge-offs for the year ended December 31, 2016 averaged $5.15 million per quarter.

$2.675 million 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 billion, compared to $9.622 billion 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..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Dave Rochester with Deutsche Bank. Please go ahead..

Hey, good morning, guys..

Good morning..

Good morning..

Just a quick one on the loan, if I back out the loan accretion income from the quarter, it looks like the loan yield actually – maybe declined a little bit this quarter.

Can you just talk about what the driver for that was?.

David, you want it..

Where I committed to speak to that, you’re correct when you back out the – if you look at the core margin, we went on a link quarter basis, I guess that’s what we’re talking about.

They went from 451 to 460 is that what you’re referring to?.

That’s right, yes. I just expected that to maybe go up a little bit just sort of rate hike and everything..

Yes. I’ll answer that in brief, Tim or David in. As you heard us on prior calls, it takes a while – we say this in a – it’s kind of a different way. And we’re saying, when rates are moving, it takes us a while we’re not like a commercial bank that’s 100% loan of a variable rate loans.

I think Tim easily quotes what the breakdown is X amount fixed and some flow at a certain level and then there’s a certain percentage in variable. So in our world as the 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 it just takes us – that probably takes us to good – 12 months plus….

You will start to see an increase but again, as I mentioned in prior calls, it looks such a big bound portfolio for us to get the full benefit of the increases sometime it takes 24 months or – but you are start seeing increases, but again it’s down the road, you won’t see us as fast as somebody has that have 80% or 90% loans to deposit ratio, with a bunch of building rates..

Got it.

So that, I gets it roughly third the portfolio that’s floating rate that re-price up within a month or two and then everything else, obviously it takes little bit longer spending out what those the medium term rates, right?.

I think that’s right, that’s right. Tim, he might have more numbers on it..

Well the 35% that is floating it changes daily at the index changes. So that change is right away. Between the 4% it’s variable that can change annually – it can change every three years, it can change every five years. So those changes take place over a little bit more time.

Does that makes sense Dave?.

Absolutely. Yes, I appreciate that. And where is most of that product coming on – the books right now, where are your new loan yields versus that 450 core loan yield..

Randy you might want to answer or Tim. I think it’s not a whole lot difference, do you think it..

We’re still at about 450 – there’s maybe some 400 in the quarters and mostly it 450..

I think Randy said that mean, we’re still looking about 450, there are some loans that we’re starting to see where competition to starting to raise rates. But still I think it’s more in that and where we’re at today then [indiscernible] 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 in our marketplace to increase rates significantly right now. We just don’t see it out there right now..

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

I think – this is Dave Hollaway. I think steady – expenses are steady from quarter-to-quarter, I mean I don’t know that you can take I think, I’ve talked about this on prior quarters, remember I get we seem to math quit hit there.

But if you look back over the last four quarters, five quarter, we’re bouncing between $78 million and $80 million per quarter. So I mean, I think that’s a good range deliver..

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 standpoint of a bit as spread.

Does it seem like the spread is narrowing at all with higher stock prices we had today or so we are still looking for big premiums sort of achieving that that’s been as wide?.

I think it’s a mix. I mean if you’re dealing with a bank that’s probably traded – all prices are up more than we’ve seen in long time.

If you’re dealing with a bank that’s not publicly traded depending on the bank, I mean if your talking about smaller bank that’s not going to time factor but maybe none other factor that something in a major mid fall and the smaller, that pricing is different than maybe another that’s fit really private. So it’s really all over the board right now.

I think the sellers for the most part are seeing the increase – seeing higher prices on publicly traded banks, I think they maybe want to take advantage of that.

But again all banks are different depending on where their located, their size and the make – if their bank that are started over the last few years, 10 years or so when compared a bank that’s been around for 50 year. So there is a lot of different factors to go into it and I know I’m probably, jumping around with the bottom line.

And there are so many different factors that go into the price of the bankers to paying on that bank..

Okay. Great, thanks guys..

Our next question comes from Jennifer Demba with SunTrust. Please go ahead..

Thank you. Good morning..

Good morning..

Good morning..

Good morning..

Two questions. You mentioned the 500 or-so muni accounts that you have and that some of those deposits have 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 intent to pay that still at risk in future periods?.

Jennifer, I don’t know if there is 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, when the interest rates were high they have places that they can go to things like, I’ll say text pool where they can get higher rates that we can pay on loan. I’d say any day that we wanted to match right that we’re needs higher rates that they can get it in these investment pools or stuff like that, they would stay with us.

We just like that not to participate in a higher cost or down space. So I think most of those funds what we try 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 only tried to be an investment banks 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 just to be more specific, I think those funds were like $837 million when you compare March 31, 2016 to March 31, 2017.

So, but when you look on a quarterly basis actually our core deposits 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, I don’t make it real complicated.

But I guess the good news is our core deposits continue to grow, it 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 goes differently in the run that is our exposure. I don’t see a lot more moving.

And probably toward, again even towards year end, as I need more money and stuff like that to operate on some of that money will move back into the bank or so..

Yes. I would just emphasize that. Some of it if they move to higher rate, but let’s also remember this is the time – this seasonality..

Seasonality….

This moves out as pay taxes coming on this..

That’s probably a combination of both..

Yes. Because we do that with some repricing description, banks start to make slow back bound in this first quarter..

And I think it’s important to emphasize virtually all of these municipalities or public entities are now municipalities. But all of these public entities have date agreements with us. So just because they move some investment funds out, for a period of time to get a higher yield, it doesn’t mean they’ve left us.

And we’re not still quote their bank, all other transaction of business still goes through us. And as David pointed out earlier this is very normal. I mean right now they can get 70 basis points on a daily basis from some of these funds, if they can invest in and if we want to match that, the money will staying with us, if we don’t, it won’t.

So it’s not complicated..

When our loan to deposit ratios gets 90, we’ll pay on the extra money..

Thank you very much..

Our next question comes from Brady Gailey with KBW. Please go ahead..

Hey, good morning, guys..

Good morning..

Good morning..

Good morning..

Maybe following up on the M&A questions. And your TC grew another 25 basis points this quarter, you’re now 8.5% and that’s higher, but I know you historically wrong.

Ideally, where would you like to see that TC ratio in more fully levered position?.

3%, just kidding. In the old days, the capital rates have been growing and I don’t think it’s because bankers really – I think that they wanted to capital rates to grow on the other hand. I think that the rates 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 of really a 10% leverage ratio. I think that that has changed now. So 8% in the quarter is probably higher as you see that ever been – we can drop lower than that and I think that if the implied 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 about by 1% a year or so. That could maybe even drop lower than that if we needed the money and getting back to a ratio that’s higher than adding one year..

Okay. All right, that’s helpful. And then on the net accretive 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 – what you see this past quarter, that’s where we need to be in the projection basis on it. 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’ll have remaining loan marks on your acquired book of around $55 million.

How much of that do you think will see flow through as your accretion?.

Well. I think when you break it down, you can see on one of the pages of our press release but $32 million of it is what you would call that $91 million 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, and you can roll the dice and whether we might hear that money coming back in the coming month..

Yes, I think Randy, he might want comment on that. But we’ve always that a lot of that depends on the economy, the economy is good. You may get – you may get a lot in back, the economy is bad, you may not getting as a back. I think we always giving you guides to position it will probably get that half of that back just….

A half is the good number, we need the oil prices to go up a little bit..

Right. I know if you hear that Randy said, you need oil prices split a little bit but he probably feels comfortable and saying around half probably also..

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

The next question comes from Steve Moss with FBR & Company. Please go ahead..

Good morning. This is actually De’Von Jones on for Steve Moss. Could – I know your loan loss ratio went down this quarter.

Could you just give us some insight and what we could expect for 2Q and going forward for the year?.

Well, yes. The 16 basis points the net charge-offs of average loans I don’t see it they know a lot different going forward adds on something this very unusual. As David said in his remarks, the economies that we operate with then seeing to be stable, even growing a bit in some locals.

So there is just nothing that we see right now, that would indicate that should be much different..

Okay. And then, I know that you guys had a good loan growth this quarter.

Well, how should we think about loan growth going forward into 2Q and then for the year?.

I think that we had kind of commented to say everybody on the conference call, last quarter that we thought we would be around the 5% loan growth. And I think that we hit it this start off time is slow we got a little bit scared as long as the economy.

Like then we’re – we said well you might not has been as passed and it really get come on in – again, I think in the economy continues to grow and the job growth that we continue to see in population growth, that we are having in Texas continues. I think we should do – we shouldn’t what we’re saying at the same we’re now around 5%..

Particularly on the construction where – one market 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..

Okay. Perfect. Thank you for answering my question this morning..

The next question comes from Jon Arfstrom with RBC. Please go ahead..

Thanks, good morning..

Good morning..

Good morning..

Good morning..

Just maybe another loan growth question. Can you 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 paydown the 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 the foot has been taken off our neck. So I think that if business, our customers feel really good.

And I guess oil and gas coming back really helps us to this service industry. For the last couple of years, I really weren’t allowed to really make any money we’ve been 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’ve said that Texas and Oklahoma, Texas especially was more diversified than what we have a lot of diversity compared to what – it was just in oil and gas region.

And I think over the last few years, we’ve 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 can pull off the health care deal. I think you’re going to see things really good.

I mean, we’re really excited about it and our customers are really excited also..

Okay, good. And then a question back on the NIM.

Just the core margin at 3.11%, maybe this what Hollaway question, but it’s been under a little bit of pressure just each quarter slight erosion and it’s what you’re saying that the impact of the December and 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 the reasons we’ve seen it kind of static is remember that just our mix of money – the loan portfolio that has some dampening effect but their assumption is absolutely wide.

We continue to see the loan growth going forward, that will bring a positive bias to us and at some point it will – if you will begin to see this expand. But we need that happen..

But I don’t think that’s there any question about it Jon. It will expand – it’s just the timing issue wanted to expand. I mean our numbers, we have the projections in the modeling and it shows that expanding over a period of time, it just doesn’t happen as quickly as somebody else with real high loan deposit ratio with lot of variable rate loans..

Okay, okay. Good. All right, thanks for the help, appreciate it..

[Operator Instructions] Our next question comes from Peter Winter with Wedbush Securities. Please go ahead..

Good morning..

Good morning..

I just want to follow-up question on the core margin. I’m just wondering what – would you have an outlook for the full year margin for 2017..

Yes. I mean, again if you’re looking over the next couple – I will do it in the next couple of quarter. But I mean it probably will hold in the second half of the 12 months.

But over the next three months I mean we again this is based on what we see on our balance sheet today a pretty stable margin going forward, maybe if you go down a point because of the mixed money, it could go up a point because loans are sticking. But over time as always cash flow comes back to us.

We will definitely begin to see improving margins, but this takes time. I mean you’ve heard David say this, giving all this cash we invested it takes time. So once we get out 12 months, we’ll begin to really start seeing some a much more positive, maybe 1 basis point or 2.

I mean, David, do you have any?.

Yes. Peter, I know you’re trying to look for exact number. If I were on the analyst, I want an exact number too..

I even think a range..

The take range, well, I don’t have the model in front of me but I can just assure you that our models didn’t show an increasing net interest margin over time and as interest rates rising. Again, I’m go way out there and saying what the – these are models you got to remember these are – this is just modeling.

So the inputs of that model – and so 300 basis points, that’s 300 or 400 I mean over three 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 premier amortization expense..

I think there is room. We can make the assumptions rates will continue to go up. That kind of flat over the last years, a little less short period. But yes, that continue go up that will come down a lot more..

This last month that the interest rates actually went down the other way – and so you actually – you got keep in mind that when interest rates went down and you had refinancing prior month that probably increased our amortization expenses a little bit..

Yes. A little bit, but again, if you want make the assumption rates continues to raise, that will be a good thing in terms of the amortization in fact. Again, because it still seems as weekly.

But we’re also sort of buying bonds going forward, you’re not up buying a premium any more, you just trying to buying par a little bit of a discount which allow us to 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 – sorry why not raise the loan guidance for the year?.

I think it just our styling, 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 you don’t do this good. We try to put numbers out there and try to beat those numbers..

Okay. Thanks for taking my questions..

You’re welcome..

The next question comes from Matt Olney with Stephens. Please go ahead..

Hey, thanks. Good morning, guys..

Good morning..

Going back to the expense discussion. Salaries and benefits line item was down pretty considerably both linked quarter and year-over-year.

Any been else to call out from that big move on the salaries and the benefits?.

When you say call out, what 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 constants 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 was down look like 100 FTE’s but 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 does it constantly working on everything to be as sufficient as we can..

Yes, I don’t see a lot of change. I think what you said lot of the other bank within the difference between the $78 million and the $80 million, that’s pretty much going to….

It should be standard..

That’s going to be standard….

And then on the fee income 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 play about $5,000.

So those are just gains we -- when we have all of these acquisitions over time and we’re buying banks that had 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..

Okay. Got it. Thank you..

The next question comes from Geoffrey Elliott with Autonomous. Please go ahead..

Thank you for taking the question.

I wondered if you could give a bit more color around the $493 million of shopping center and retail exposure within normal underoccupied CRE?.

I’m sorry – I couldn’t – just kind of broke up….

Shopping center exposure? Retail exposure..

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 are very few.

Most of ours are small to medium size 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 $50 million, Central Texas $60 million. It goes on and on. I think our biggest – frankly you said, I think it’s really spread out.

It’s not really a big box sort of I think we have one bigger development that’s tinkered with the ATB store and a big hospital and something else, but completely bull. So we feel extremely good with our commercial with in-state retail portfolio..

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

Great. Thank you very much..

I would say this – I think 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 brokerage in, that are basically anchored by national chains us for the most part, we don’t participate in a brokerage part of big box stores and based on some cap rates and the investors getting out of that. Our loans are relates 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..

Great. Thank you very much..

The next question comes from John Rodis with FIG Partners. Please go ahead..

Good morning, guys..

Good morning..

Good morning..

David Hollaway, just a question for you on the tax rate. So it’s just sort of stay around 33%, 33.5% of 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 would 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 talked with more as we’ve got endeavored we talked with banks out of state and we’ve talked with banks in-state. I think it could be either or.

We have continual conversations with some larger banks in-state and out of state, we also have some conversations with smaller banks within the state too..

Okay, makes sense. Thanks guys..

You’re welcome..

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

Thank you, Anita. Thank you ladies and gentleman 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 values..

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