Good morning, and welcome to the Prosperity Bancshares Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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' fourth quarter 2024 earnings conference call. This call is being broadcast live on our website and will be available for replay 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, Senior Chairman and Chief Executive Officer; H.E. Tim Timanus Jr., Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Mays Davenport, Director of Corporate Strategy; and Bob Dowdell, Executive Vice President. Randy Hester, our Chief Lending Officer, is unable to join us today. 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. 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 or performance of Prosperity Bancshares to be materially different from future results or performance 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 our 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 would like to welcome and thank everyone listening to our fourth quarter 2024 conference call. Our net income was $130 million for the three months ending December 31, 2024, compared with $95 million for the same period in 2023, an increase of $34 million or 36%. The net income per diluted common share was $1.37 for the three months ended December 31, 2024, compared with $1.02 for the same period in 2023 and an increase of 34%. The changes were primarily due to an increase in net interest income and a decrease in the FDIC special assessment. Excluding the merger-related expenses and the FDIC special assessment, each net of tax, net income was $111 million or $1.19 per diluted common share for the three months ending December 31, 2023. So when comparing earnings for the fourth quarter of 2024 with the fourth quarter of 2023 excluding the merger-related expenses and the FDIC special assessment, the net income increased $18.7 million or 16.8% and diluted earnings per share increased $0.18 or 15.1% for 2024. As previously mentioned, as our assets continue to reprice earnings and return on assets have increased. We expect this trend to continue in 2025. Our annualized return on average assets and average tangible common equity for the three months ending December 31, 2024, were 1.31% and 13.5%, respectively. Prosperity's efficiency ratio, excluding the net gains and losses on the sale write-downs or write-up of assets and securities was 46% for the three months ending December 31, 2024. The net interest margin increased 30 basis points to 3.05%, and compared to 2.75% for the fourth quarter of 2023. As previously mentioned, we expect a higher net interest margin for 2025 as our assets reprice subject to certain assumptions. On January 21, 2025, Prosperity Bancshares announced a stock repurchase program under which up to 5% or approximately 4.8 million shares of our outstanding common stock may be acquired over a 1-year period, expiring on January 21, 2026, at the discretion of management. With regard to loans, the loans were $22.2 billion at December 31, '24, an increase of $968 million or 4.6% compared with $21.2 billion at December 31, 2023, primarily due to the merger with Lone Star Bank. Excluding the loans acquired in the merger and new production at the acquired banking centers since April 1, 2024, loans at December 31, 2024 decreased $88 million compared with December 31, 2023. Overall, when excluding the increase in loans due to the merger, loan growth was essentially flat in 2024. However, we did hear positive comments from our customers after the election. Time will tell, but we should experience organic loan growth in 2025 if our customers follow through with their positive momentum. We also disposed of or worked through a number of problem loans from the FirstCapital acquisition, which reduced total loans. With regard to deposits, deposits were $28.4 billion at December 31, 2024, an increase of $1.2 billion or 4.4% compared with $27.2 billion at December 31, 2023, primarily due to the merger. Linked quarter deposits increased $293 million or 1%, 4.2% annualized from $28.1 billion at September 30, 2024. Excluding the deposits assumed in the merger and new deposits generated at the acquired banking centers since April 1, 2024, deposits at December 31, 2024 increased by $108 million compared with December 31, 2023. Deposits started to normalize in 2024 with more deposits coming in than leaving the bank. Prosperity has a strong core deposit base with a low cost of deposits of 1.44% for the fourth quarter of 2024 compared with 1.53% for the third quarter of 2024, a decrease of 9 basis points. Additionally, we have non-interest-bearing deposits of $9.8 billion representing 34.5% of our total deposits. With regard to asset quality, our non-performing assets totaled $81.5 million or 23 basis points of quarterly average interest-earning assets at December 31, 2024, compared with $72 million or 21 basis points of quarterly average interest-earning assets at December 31, 2023 and $89 million or 25 basis points of quarterly average interest-earning assets at September 30, 2024. The allowance for credit losses on loans and off-balance sheet credit exposure was $389 million at December 31, 2024. Prosperity continues to be interested in merger and acquisitions, and we'll pursue a partnership when a transaction makes sense for the shareholders and associates of both institutions. Early indications show that banks are more open to merger transactions with the new administration as it appears that the agencies responsible for transaction approval will be more favorable for entertaining merger proposals. We're excited about the growth and future of our company. The Texas and Oklahoma economies are some of the best in the country. Texas has no state income tax, and both Texas and Oklahoma have a business-friendly political climate. The Texas population grew more than any other state in 2024 with the addition of 563,000 people, bringing the total population to $31.3 million. Further, according to Forbes in their July 2024 issue, there have been 209 corporate relocations to Texas since 2018. All of this bodes well for our future growth. Prosperity has a strong capital position that provides opportunities to participate in mergers and acquisitions, repurchase stock or fund organic growth without the need for additional capital. We believe that our net interest margin should continue to expand to a more normal ratio as our assets continue to reprice, thereby increasing our earnings per share. We also have strong core deposits with 34.5% of our deposits in non-interest-bearing accounts. I would like to thank all our customers, associates, directors and shareholders for helping build such a strong successful bank. Thanks again for your support of our company. Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financial results we achieved.

Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for the three months ended December 31, 2024, was $267.8 million, an increase of $6.1 million compared to $261.7 million for the quarter ended September 30, 2024, an increase of $30.8 million compared to $237 million for the same period in 2023. For the full year 2024, net interest income increased $70.1 million from $956.4 million in 2023 to $1.026 billion in 2024. Fair value loan income for the fourth quarter of 2024 was $3.6 million compared to $4.8 million for the third quarter of 2024. The fair value income for the first quarter of 2025 is expected to be in the range of $2 million to $3 million. The net interest margin on a tax equivalent basis was 3.05% for the three months ended December 31, 2024. This was a 10 basis point increase compared to 2.95% for the quarter ended September 30, 2024, and a 30 basis point increase compared to 2.75% for the same period in 2023. Excluding purchase accounting adjustments, the net interest margin for the three months ended December 31, 2024, was 3% compared to 2.89% for the quarter ended September 30, 2024, and 2.71% for the same period in 2023. Non-interest income was $39.8 million for the three months ended December 31, 2024, compared to $41.1 million for the quarter ended September 30, 2024 and $36.6 million for the same period in 2023. Non-interest expense for the three months ended December 31, 2024, was $141.5 million, compared to $140.3 million for the quarter ended September 30, 2024 and $152.2 million for the same period in 2023. Higher non-interest expense during the fourth quarter of 2023 was primarily due to FDIC special assessment of $19.9 million. For the first quarter of 2025, we expect non-interest expense to remain flat and be in the range of $141 million to $143 million. The efficiency ratio was 46.1% for the three months ended December 31, 2024, compared to 46.9% for the quarter ended September 30, 2024 and 55.6% for the same period in 2023. The bond portfolio metrics at 12/31/2024 have a modified duration of four and projected annual cash flows of approximately $1.9 billion. And 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 December 31, 2024 totalled $81,541,000 or 37 basis points of loans and other real estate compared to $89,923,000 or 40 basis points at September 30, 2024. This is a 9% reduction in non-performing assets. Since December 31, 2024, $2,825,000 of non-performing assets have been put under contract for sale. The December 31, 2024 non-performing asset total was comprised of $75,836,000 in loans, $4,000 in repossessed assets and $5,701,000 in other real estate. Net charge-offs for the three months ended December 31, 2024, were $2,592,000 compared to net charge-offs of $5,455,000 for the quarter ended September 30, 2024. This is a $2,863,000 decrease on a linked quarter basis. There was no addition to the allowance for credit losses during the quarter ended December 31, 2024. No dollars were taken into income from the allowance during the quarter ended December 31, 2024. The average monthly new loan production for the quarter ended December 31, 2024, was $333 million compared to $259 million for the quarter ended September 30, 2024. Loans outstanding at December 31, 2024, were approximately $22.149 billion compared to $22.381 billion at September 30, 2024. The December 31, 2024 loan total is made up of 39% fixed-rate loans, 31% floating rate loans and 30% variable rate loans. I will now turn it over to Charlotte Rasche.

Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator, Gary, will assist us with questions.

We will now begin the question-and-answer session. Our first question today comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Hi. Good morning.

Good morning.

Good morning.

I wanted to touch on the NIM trajectory from here. Can you update us on what your models are telling you? I know we've had a couple of cuts taken out of the forward curve, long end is higher, so any thoughts on how you're feeling about NIM relative to last quarter?

Hi, thanks. I think we're still on track to what we said last quarter. I don't remember exactly what I said here, but I think we said somewhere between year-end, we should be around 3.25%, 3.35%, is that right, Asylbek?

Yeah. 3.25%, 3.30% on average for 2025, and it will be a little bit higher at the exit in 2025.

I think we feel optimistic as long as nothing unexpected happens. I would borrow a line from Jon Arfstrom’s email this morning, where he mentioned that things are improving and we are about to make significant progress, so we're feeling positive about it.

And then maybe to talk about loan growth a little bit, can you expand on your comments that you're hearing more positive sentiment from clients? And maybe what that means for loan growth over the next few quarters? I asked because your comments on the Texas market were fairly bullish and at the same time, rates are down, credit is doing well. So what's stopping you from really leaning in here?

I'm going to let Kevin join us shortly. The main point is that when we acquire banks, the quality of the loans we inherit may not match our standards. It takes time to address this, as we did in our last acquisition where we had to replace about $400 million in loans, which may not be reflected in the small loan increase you observed. Additionally, while there's been notable population growth in Texas, we haven't seen significant loan growth across the board. We've historically not aimed for double-digit loan growth, and our loan-to-deposit ratio is around 78% to 80%. We wouldn't want to reach a 100% loan-to-deposit ratio. Those are some of the factors involved. Kevin, would you like to add anything?

Certainly, David. Thank you. I can revise the question considering the slight decrease in earning asset growth during the fourth quarter. As David mentioned, regarding the FirstCapital acquisition, if we look back at the timing of that deal, the bank had around $1.640 billion in loans when it was finalized. As David would put it, we have either outsourced, let go of, or failed to renew about $400 million of that portfolio, possibly a little more. The situation with Lone Star will not be as severe, as it has better credit quality and a smaller footprint. At the time we closed, it was around $1.80 billion. I believe we are nearing the completion of that phase for both acquisitions, which allows us a bit more flexibility to generate some growth that will be retained on the balance sheet. I still don't expect it to be strong, but I anticipate low to mid-single-digit growth. Conditions are improving, customer sentiment is quite positive, and while it hasn't yet shown in our results, I sense it's on the horizon.

I think all those points are valid. Even though there was a lot of growth last year, business leaders were still uncomfortable with the administration and the regulatory pressures they faced, which affected their outlook. We're already observing some pickup in loan demand, and Tim might add to this. There seems to be positive momentum, and people are eager to grow and take action. We appear to be in a favorable position at this time.

Tim, I wanted to add to that. I've had a preview of what's on the agenda for the loan committee tomorrow. Typically, I get to see what's incoming on Tuesdays. We have some promising opportunities lined up, especially since they are not solely construction loans that take longer to finalize. We do engage in construction loans, and we focus on securing equity upfront. This means we can approve a deal but might not fund it for six to nine months while the equity is put in place. However, we do have a few promising revolvers expected to receive significant funding coming in tomorrow, which is quite encouraging.

Yeah. I think all of that is accurate. It's obviously very early in the year. We're not even to the end of January yet. So the positive sentiment has plenty of time to manifest itself as we go into the year. So we have a lot of conversations with existing borrowers that might want to do more and potential borrowers, so I'm optimistic that we should have pretty decent growth.

That’s all very helpful color. So maybe just to round out the discussion there between NIM and loan growth, to get to that 3.25%, 3.35% NIM that you have in your model, what kind of loan growth do you need to get there?

In our model, we maintained a mostly stable balance. However, there are several factors contributing positively to our net interest income and net interest margin. First, we have approximately $5 billion in loans, with principal paydowns of about 60% at a fixed rate. The average rate is around 5.25%. If we adjust that rate to between 7.25% and 7.50% based on current rates, we could see an increase of over 200 basis points just from that loan. Secondly, regarding our securities, we expect around $1.9 billion in cash flow, with a yield of 2.06% for the fourth quarter. By paying down our borrowing at approximately 4.5%, we have a potential increase of 2.5%, or we could reinvest in bonds yielding 5%. These aspects will have a favorable impact on our net interest income and margin.

But the bottom line is that the numbers we're providing are based on static conditions with no growth at all.

Yeah. There's a reduction as we are reducing our debt as planned. We aim to lower our borrowing to $2 billion by the end of the year.

Great. Thank you so much.

The next question is from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Thanks. Good morning.

Good morning, Jon.

I appreciate the shout out, David.

You're the only guy at 5:30 that emails me in the morning. I have one eye open anyway.

Yeah. All right. Asylbek, just to follow up on the comments on the securities portfolio yield. That 2.06%, what do you think that looks like in a year? It's kind of been stubborn and stuck around the low 2s. Do you expect that to climb over the next year with some of these reinvestments that you're making?

Yeah. I think for right now, at least on our projection, we want to continue to pay down, continue to pay down the borrowing a little bit this year. So from $1.9 billion, I think we're going to want to use about $900 million to pay down the borrowing to get the borrowing around $2 billion. So we're going to be reinvesting another $1 billion or we're going to put that money to loan growth. So either way, it's going to be positive for us. I know what we did purchase a little bit in the Q4, we purchased about $150 million of security because we could get pretty good yield on it. I think we've got about 5%, so you can do the math. If you put $1 billion back at around 4% or around 5%, that would definitely benefit our yield on the securities.

Good. Fair enough. David, any thoughts on the repurchase appetite? Are you inclined to sit on capital and see what happens on M&A? Or do you want to be more active on the repurchase?

I would prefer to wait as we've been anticipating this for a long time. I want to conserve funds for potential mergers and acquisitions right now. It appears that there are banks out there that have also been waiting, and they seem interested given our stock is priced attractively. I believe there are more deals to be pursued, and there are regulators who may be more willing to approve transactions. However, if our stock price were to decline, we would certainly consider taking action. Overall, I aim to reserve resources for mergers and acquisitions as well as increased dividends.

Yeah. Okay. And you're saying the sellers are now coming to the table. I know the buyers are pretty excited, probably including you, but you're saying the sellers seem to be a bit more willing to come to the table now?

Right after the election, I had three phone calls. So stuff that we had worked on previously in some cases and in some cases, new stuff. So again, you don't know that it's ever going to just jump out there but it does seem like there's people on both sides that want to do something.

Okay. All right. Thank you. Appreciate it.

Thanks, Jon.

The next question is from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Good morning, Catherine.

Good morning.

You've enjoyed a zero provision for the past two years. Just is there a level where your reserve gets to where you feel like you need to start provisioning for growth or your credit outlook has been so strong. Is this another year where it's feasible to still expect zero provision in '25?

We have $389 million in the provision and $81 million in non-performing loans, with over half of that being in 1-4 family residential loans. Therefore, if conditions remain the same, we are likely to maintain a cautious approach for the foreseeable future unless there are significant changes or unforeseen events occur.

Okay. Great. And then on the margin, just back to deposit costs, is there a way to think about where you ended the quarter in deposit costs just as a gauge for where we may start the first quarter of '25?

Yeah. Our spot rate, I call it, for the deposit was 140. So it's 4 basis points less than our average for the quarter.

Okay. That’s great. All right. Thank you. Nice quarter, guys.

Thank you.

The next question is from Peter Winter with D.A. Davidson. Please go ahead.

Thanks. I was wondering, Kevin, you always provide good guidance for the mortgage warehouse. So I was just wondering where do you think it comes in, in the first quarter and then just how you're thinking about the outlook for the year versus the industry outlook, which is kind of assuming mid-teen growth?

We have been fortunate, and I hope to continue the trend with the warehouse. In the fourth quarter, we averaged $1.137 billion. We mentioned on the call that we expected to see somewhere between $1.50 billion and $1.01 billion, so it was slightly better than our upper estimate. Looking at the numbers as of last night, the current quarter's average is down to $952 million from the previous quarter's $1.137 billion, and last night we closed at $805 million. January has been weak, particularly in the last week or so. I anticipate that the $805 million will decrease before it increases, so for the quarter, we may average around $825 million, and possibly $850 million if everything goes well. We have a couple of new clients in the pipeline, and I reviewed one of them on Tuesday. We're hopeful about bringing on new clients this year due to some market dislocations and exits by other businesses. Independent Bank, with their recent merger, has exited the business, creating some growth opportunities. It's challenging for me to project beyond a quarter. We monitor our application volume closely, which offers a good reflection of future performance; from application to closing generally takes about six to seven weeks, which allows for some reliable forecasting. However, moving further out depends on mortgage rates, which are currently high. Overall, reviewing our mortgage portfolio, it's been tougher lately. I expect this quarter to be relatively weak, which is typical for Q1, as weaker performance is more common during this period. Overall, the business has shown some weakness.

Eddie, would you like to say anything?

No. I agree with what Kevin says, the mortgage rates have stayed higher for longer than some people had assumed. I think anticipation of refinancing has been pushed out a bit more, but what we actually do see is a little bit of an increase in the cash-out refi, which seems a little counterintuitive. But as people are looking to consolidate debt, it's cheaper to go into the new mortgage than continue paying the credit card rates and the like. So I think this is the slow season, of course, and we'll have a better gauge of what's happening towards the end of the first quarter.

Yeah. In general, I've always said in this business, and I've been around it for a really long time. Things are generally weak between Thanksgiving and the Super Bowl. And then after the Super Bowl, it starts picking up again. So that's why I think it's going to continue to be weak for the next couple of weeks. And then we'll see if we get a little pickup in March, which should be pretty typical of the way the business has operated forever.

I appreciate all the color. As a follow-up question. Can you just talk about the outlook for deposit growth this year? And then secondly, if the Fed were to stop lowering rates, is there much more room to lower deposit costs? I mean, you guys did a very good job managing deposit costs on the way up. Thanks.

To begin with the deposit cost, we did not follow the trend of other banks that significantly increased rates. We maintained competitive rates without exceeding the market. As a result, we effectively controlled our costs and likely have one of the lowest funding costs among banks based on our core deposits. While other banks were purchasing broker deposits and even offering up to 5% for funds, we did not engage in that practice. Consequently, we may have missed out on some deposits that could have remained with us. However, we currently possess a strong core portfolio and loyal customers. It’s possible we won’t have the flexibility to reduce rates as much as others. Nonetheless, if interest rates decrease, we do have some leeway with the money market account, and we've introduced a special 4-month CD at 4%. So, there are some areas where we can reduce rates, though perhaps not as drastically as others. Historically, we’ve seen an organic deposit growth rate between 2% and 4%. We’re pleased to report that deposits are not leaving the bank as they did before and have actually returned to a positive trend. For this year, we're budgeting for around 2% to 2.5% growth.

2.5%.

So again, I'm hoping that we'll get there. We should get back to a more normalized deposit growth rate. That's what we're looking for.

Just to add on that, even though we don't have a rate cut coming, we did make some adjustments to our special CD rates. We effectively implemented a 100 basis point decrease for each 100 basis point cut by the Fed. These adjustments will reprice over time, and we saw some changes happen in the fourth quarter, which will continue into the first quarter. For context, about 77% of our CDs will mature within six months, and 92% will mature within 12 months. This indicates that there is still an opportunity to reprice these special CDs at a lower rate due to our decrease, which will benefit our net interest income, even in the absence of Fed rate cuts.

We kept the CD product short. We've not really offered rates on the real long term, so that should help us.

Got it. Thanks for taking the questions.

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

Hey. Thanks for taking the question, guys.

Hey, Matt.

On the investment securities portfolio, David or Asylbek, I think you mentioned earlier that the bank has been buying or is close to buying some newer investment securities. Just any more color on those products that you're looking at with respect to yields and duration?

Historically, in our portfolio, we have focused primarily on buying 15-year fully amortized mortgage-backed securities, which have typically had a life of about 3.5 years that has now extended to five years due to rising interest rates. We generally stick with this product, although we occasionally purchase other products for CRA purposes to diversify our offerings. The bulk of our investments has always been in this area. We don't attempt to predict interest rates; instead, we invest the excess funds that we haven't allocated to loans into our portfolio. We've seen gains as rates decreased when we held these mortgages, but we've faced challenges over the past couple of years as rates increased. However, we are seeing positive changes now. We intend to maintain our existing strategy, even though it didn’t look favorable during the periods of rising rates and losses in the portfolio. We've navigated a few of these cycles before, and it's reassuring to see that our approach yields results over time. By adhering to this strategy, while you may not achieve extraordinary results, you can consistently position yourself well.

That's right, Matt. So we did buy $150 million in the fourth quarter. I think the yield end up being average about 5.05%.

Okay. That’s helpful. Thank you for that color. And then going back to the expense commentary, I think, Asylbek, you gave us a number for the first quarter to expect just beyond the first quarter, are there any other initiatives, technology upgrades or any other projects that could add some incremental pressure to that beyond the first quarter or should we just continue to assume that, that low single-digit range we've seen now for a while?

I believe that looking beyond the first quarter into the second quarter, we typically have our annual merit increase, which contributes to a rise in expenses. We continue to work on a variety of projects, and as technology evolves and improves, it incurs costs. Therefore, I expect an increase in expenses starting in the second quarter and potentially into the second half of the year. Based on our analysis, I anticipate that expenses in the second half will rise by about 1% to 2%, possibly 1% to 1.5%. This estimate aligns with the range I provided of 141 to 143, suggesting you could see a quarterly increase of 1% or 1.5%, up to 2% in the second half of the year.

Understood. Okay. All right. Thank you, guys.

The next question is from Jared Shaw with Barclays. Please go ahead.

Hi. This is Jon Rau on for Jared. Good morning.

Good morning.

Just digging into loan growth a little bit more, seeing some pickup in demand and activity. What buckets of loan growth is that in? Is that commercial customers? Are there any pickup in CRE activity? And then just resi mortgage too, how is that doing with rates are moving higher?

Kevin, do you want to take that?

I believe a significant portion of the current funding where you can expect improvements in loans and obtaining funding is typically in the commercial and industrial or mortgage areas. In contrast, funding for construction takes longer. Overall, the activity level is broad-based, but we've been more cautious about increasing our single-family loan portfolio, which has grown quite large relative to our balance sheet. Strategically, we've decided to slow that growth down. It has exceeded $8 billion, and while I didn't check last night's figure, it is likely around $8.2 billion or $8.3 billion. We've intentionally moderated that growth; while we wouldn't completely stop it, this isn't a business where you can easily turn the volume on or off. Consequently, I anticipate that the volume we add this year will focus less on single-family loans. I'm not sure if Tim or Eddie would like to add anything further to that.

You're exactly correct. At least that's our attitude and our forecast at this point in time, and I don't see that changing.

Okay, that’s good information. Regarding M&A, what are the key characteristics you’re looking for in potential targets, such as size, location, or balance sheet metrics like capital levels or loan-to-deposit ratios?

I could provide you with an email containing a list. However, we don't really assess it in that manner. Our approach to evaluating potential acquisitions, including banks, starts with considering whether the bank is a core institution. We also assess the team—will they remain with us? Additionally, we want to ensure that any deal we make is accretive, focusing not just on increasing size but also on benefiting both us and the incoming team. I've always mentioned that we have a strong preference for Texas, but we are open to exploring other regions. That being said, we are unlikely to acquire a $1 billion bank in another state unless it commands one of the top five market shares, as that is crucial for advertising and other factors. Ultimately, we prioritize the bank's stability, the people involved, and the core deposits above all else. It’s essential to partner with a bank that has a long-standing presence and a solid foundation. Did we lose you, Jon?

I'm sorry. Just one other quick one for me.

Sure.

The fee income guidance for the $38 million to $38 million range recently, is that any upside to that in 2025? Or should we expect a similar level?

Yeah. I think it's going to stay the same. There might be one-off stuff happen during the quarter that we don't know. But what we try to continue to grow our trust and brokerage fee, as you saw in the past couple of quarters, a couple of years, you saw an increase there. So we are focused on trust fees like our trust business. So hopefully, we'll continue to grow our trust department and the fee on that.

Okay. Good. Thank you so much.

The next question is from Bill Carcache with Wolfe Research.

Hi, there. Thank you for taking my questions. First, I wanted to follow up on your loan growth comments. Some of the bigger banks have suggested that tight credit spreads have been a constraint to loan growth as many borrowers have been accessing funding via debt capital markets. And I think there's a suggestion that loan growth could remain a little bit soft as long as capital markets remain this open. Can you give some color around what percentage of your customer base has been able to tap debt capital markets for funding versus those that are largely reliant on bank lending and really have simply just not been borrowing?

I'll take this one. It's quite uncommon for our customer base to consider accessing debt funds or similar options. There is, however, a segment in the upper end of what I would describe as our middle market group—this includes some larger credits, classified as BBB- and some smaller ones—that does have access to debt funds. But this represents a relatively small portion of our overall business. These clients are indeed active, and we hear about their activity, especially from our larger clients. However, it is not typical for the majority of our customers.

I would also say, Kevin, I mean a lot of people talk about capital markets and non-traditional banks getting into lending. But I don't think that we've ever lost a customer to non-bank lender that we didn't want to, I may be wrong with that.

We've lost a few that we wanted to.

That's really helpful. So essentially, they haven't been borrowing. Could you characterize how much is pent-up? You mentioned the optimism you feel and expectations for some growth after the Super Bowl later in the year. How much of that would you attribute to deferred or delayed borrowing?

No, I don't think it's pent up. And just to be clear, the Super Bowl was related just to single-family mortgage and the mortgage warehouse business, not to other lines of business. But what we're seeing is people buying out partners of their own business or expanding within their own business where they've been kind of on the sidelines themselves. And if anything, really ever since COVID been more paying down than advancing up on lines of credit. And I think that's starting to shift around where we're seeing some inventory builds and some receivable builds. And so I think it's just good old blocking and tackling businesses coming back.

All right. Got it. That’s helpful.

That kind of turn is better, blocking and tackling business. That's what we're looking at.

Yeah. No. That’s helpful color. And then finally, if I can squeeze in one last one. Given the debt pay down and other moving parts that impact NIM. And make it harder to kind of tell exactly what's happening from a revenue perspective. Could you frame how to think about that 3.25% to 3.35% NIM range that you're expecting in terms of NII?

Yeah. I think we continue to see an increase in NII in the coming quarters. And I think the variables which I was describing earlier on repricing our securities from 2.06% to around 4.5% to 5%. Our fixed loans that we're going to be maturing this year for prepayment, which is mature today, they're going to be repriced 200 basis points, so all of those are going to continue to help us with NII standpoint, even our margin, including margin, but that's a tailwind. And I think the last piece is CD repricing. We talked about special CD that 77% of this maturing in six months, they're going to be repricing lower on the CDs. So all of those are going to help with NII specifically.

Got it. Very helpful. Thank you for your thoughts. Appreciate it.

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, ladies and gentlemen, for taking the time to participate in our call today. We appreciate your support of 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.