Hilltop Holdings Inc. (HTH) Q1 2017 Earnings Report, Transcript and Summary

Good day and welcome to the Hilltop Holdings Q1 2017 Earnings Conference Call and Webcast. 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 Ms. Isabell Novakov, Senior Vice President and Investor Relations, please go ahead.

Good morning. Joining me on the call this morning are Jeremy Ford, President and co-CEO; Alan White, Vice Chairman and co-CEO, and Will Furr, CFO. Before we get started, please note that certain statements during today's presentation that are not statements of historical facts including statements concerning such items as our business strategy, future plans and financial condition are forward-looking statements. These statements are based on management's current expectations concerning future events that by their nature are subject to risks and uncertainty. Our actual results, capital and financial conditions may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our most recent annual report and quarterly report filed with the SEC. Except to the extent required by law; we expressly disclaim any obligation to update earlier statements as a result of new information. Additionally, this presentation includes certain non-GAAP measures including taxable equivalent net interest margin and taxable equivalent net interest margin before purchase accounting adjustments. A reconciliation of these measures to the nearest GAAP measure maybe found in the appendix of this presentation which is posted on our website at ir.hilltop-holdings.com. And now, I would like to hand the presentation over to Jeremy Ford.

Thank you, Isabell and good morning. For the first quarter of 2017 net income was $26.4 million or $0.27 per share. For the first quarter of 2016, net income was $27.6 million or $0.28 per share. The ROA was 90 basis points in the quarter versus 96 basis points in the prior year and our ROAE was 5.7% in the quarter versus 6.3% in the prior year. Hilltop’s core operating businesses were all profitable and reported $53 million in pretax income. PlainsCapital contributed 32 million, PrimeLending contributed 10 million, HilltopSecurities contributed 10 million and National Lloyds contributed 2 million. Hilltop common equity increased to 1.9 billion, up 15.5 million from the year end. Hilltop remains well capitalized with a 15% tier-1 leverage ratio and 19% common equity tier-1 capital ratio. Notably, we declared a quarterly cash dividend of $0.06 per share and repurchased 7.2 million of outstanding stocks in the quarter. Moving forward, I'll speak to the items not already mentioned. Our net interest margin in the quarter was 3.54%, down 28 basis points from the prior quarter though our core net interest margin was 3.05% which was relatively stable to the prior quarter and prior year. Our total assets declined by $400 million quarter-over-quarter to 12.3 billion. And our gross loans declined by 80 million quarter-over-quarter though we are up $340 million from the prior year. Our total deposits grew by 266 million to 7.3 billion. Our NPA ratio remained low at 28 basis points and our allowance held flat at 95 basis points. I’ll now turn the call over to Alan White.

Thank you Jeremy, let me report on operating report for core companies. The bank had an ROI of 0.94% driven by a stable core NIM of 3.56 pre-purchase accounting. It’s down just a little bit from the fourth quarter of 3.62 but certainly in the range that we expected. We have a very sound credit quality and we continue to be conservative on our underwriting and we especially in a real estate market that we think is very hot. Our loan to cost percentages are down and we certainly watch our structures, so I think that conservative underwriting is going to pay off for us going forward. Our non-covered held for investment loans remain relatively flat in the first quarter. What happened to us in the first quarter was what we thought would happen to us in the fourth or we had the play offs we thought would come down in the fourth that really came in the first quarter. So we had a lot of large pay downs but we were able to hold the quarter flat. We still believe that we're still lined up for an 8% to 10% organic growth for the year. Year-over-year we had a 9.2% growth. We have a very favorable pipeline of 1.9 billion of unfunded commitments, 700 million of that is real estate projects that will fund up and that are in process. And we have 250 million from loans that we have committed. 80% of those are going to be real estate, again referring back to the hot real estate market that we have committed to and in the process of closing. Our loan quality remains healthy, with 0.41% non-covered ratio which Jeremy mentioned. So we feel very good about that. Our energy exposure continues to the decline to 2.7%, down from 3.3% and our classified loans in the energy declined 2.2 million in the quarter to 26.5. We have a strong reserve of 7.1%, a little over $11 million. About 18% of our energy loans are classified. Our deposits continue to stay in a positive range at 31% non-interest bearing deposits. We are operating 62 as we speak. We have opened new branches in [indiscernible]. We opened our new headquarters branch and had our opening in Houston. We've opened a new branch at our Weill Medical here; office building was financed by the hospital. We have in process a new branch in Lubbock, a new branch in Arlington, a new branch in Corpus and also a new branch in Frisco at the start. So we're excited about that, all branches are working well and we had a new - we opened a new branch last night in Austin and that's our new headquarters that we moved to based in Colorado, so it’s excellent facility and we had a great attendance. PrimeLending for the quarter had an excellent quarter, income pretax increased by 9% for the quarter relative to quarter one in 2016. You've got to remember that last two years in the first quarter we had a lot of refinance which really drove a big bottom line for us. That refinance has virtually gone away and we're back to the normal course of business in the mortgage business, particularly slow. But however, we had very strong purchase activity and a very strong gain on sales. So first quarter appears to be, which was not appears to, it was an excellent quarter for mortgage company. Our purchase volume is 80.3% which is well above the industry average of 58.7. That leads to a good gain on sale primarily due to the increase in volume and total loans that were solved. So we feel good about that. We're getting some premium pricing on sale of our loans and things seem to go well there. Our overall market share is 0.78% for quarter one and purchase market share is 1.07. So very pleased with the operation at Prime, things look positive] for the second quarter as we go into our busy time of the year, signs look good. At HilltopSecurities, we had pretax income of 9.5 million compared to 3.8 million last year. The pretax margin increased to 10.5% quarter one versus 4.3% quarter one 2016. Our year-over-year improvement results primarily driven by an increase in revenue and from higher short-term interest rates, if rates go up we benefit from that, as well as the decrease in integration costs that we had. Net revenue increased 3.5% to 91 million in quarter one ’17 compared the same quarter a year ago. Moving to short-term interest rates provided for additional 2.6 million year-over-year increase from the money market and FDIC insured deposits. Non-interest expense decreased by 3.1% to 81.7 compared to the same quarter last year and it was primarily a decrease in the integration cost of approximately $4 million that are not with us anymore that we eliminated. Compensation ratio continues to come down from 65.8 to 62.9. We continue to manage that down and the people at HilltopSecurities have done a good job during that. And our non-compensation related experience non-interest experience declined 7.8% year-over-year. So everything is on track and moving in the right direction at HilltopSecurities and they had a good quarter. National Lloyds had a combined ratio of 98.4 which drove a pretax income of 1.8 million. Seasonally high frequency in storms resulted in an elevated loss and LAE ratio of 60% versus 55.3 % quarter one 2016. The decrease in premiums earned, decrease from 39.7 in ’16 to 36.1. Those are continuing to be a result of position in our portfolio and getting away from concentrations, but there's also a very competitive insurance in Texas which we're battling but I think we’re gaining on it and beginning to build momentum. So I think things are well there we just need to keep the weather away and we’re entering into the second quarter which is a tough quarter, but I think all things are in line and we should be okay. So that is the operating report of the subsidiaries and I will turn it over to Will Furr now to talk about the numbers.

Thanks Alan. I'll start on Page 7, net interest income for the first quarter equated to 92 million, a decrease of 12 million from the prior quarter and $2 million from the prior year. net interest income in the first quarter of 2017 included 12 million of purchase loan accretion. Purchase loan accretion declined versus the fourth quarter by approximately 6 million and 4.5 million from the first quarter of 2016. Core net interest income excluding purchase loan accretion improved by 2.5 or 3% including the impact of one fewer day in the first quarter of 2017. Reported taxable equivalent net interest margin for the first quarter was 3.54%, down 28 basis points from the prior quarter and 16 basis points from the same period prior year. Excluding the impact of purchase low accretion across all periods, Hilltop’s net interest margin in the fourth [ph] quarter was 3.05%, down 6 basis points versus the prior quarter and up 9 basis points from the prior year. Reported loan yields on gross loans declined 31 basis points from the first quarter of 2016, driven principally by the impact of lower purchase loan accretion. Loan yields at PlainsCapital Bank excluding the impact of purchase loan accretion have remained relatively stable from the first quarter of 2016 levels ending the first quarter of ’17 at 4.34%. At the bank, net interest margin excluding first loan accretion equated to 3.56%, down 7 basis points from the prior quarter, driven by lower recoveries from previously charged off loan interest. Interest bearing deposit cost increased 5 basis points versus the first quarter of 2016. This increase is driven by growth in money market deposit balances and our testing of new rates in terms across our deposit products as we focus on attracting new core relationship deposit. During the quarter, market interest rates remain volatile. The bank's investor portfolio which represented 990 million in total securities maintained its taxable equivalent book yield of 2.13%, up 6 basis points in the fourth quarter of ’16. Given the current market conditions and our securities redemption mix, the reinvestment rate in the portfolio is approximately 2%. Moving to Page 8. Hilltop reported total non-interest income of 271 million in the first quarter of 2017. Total non-interest income declined by 6 million or 2% versus the prior year. During the first quarter, mortgage related non-interest income declined by 2.4 million or 2% while loss mortgage volume declined 7%. Growth secondary mortgage gain on sale margins remained relatively stable versus the first quarter of 2016. The focus on purchase mortgage loan and best execution at our mortgage business continue to provide support and strong gain on sale levels. Insurance revenues declined versus the prior year by 3.6 million, driven by competition and the own going optimization of our book of business. The securities businesses remained relatively stable with the first quarter of 2016. Moving to Page 9. We reported first quarter non-interest expenses of 320 million, down 5 million or 2% from the first quarter of 2016. The first quarter of 2016 included 4.5 million of transaction and integration related costs related directly to the SWS acquisition and integration. They also included a significant write-down of a specific OREO property. The first quarter of 2017 non-interest expenses include $4 million of FDIC Indemnification Asset amortization. These expenses are reflected in the other non-interest expense bucket. Compensation and benefits expense increased from the first quarter of 2016 by $4 million. Annual compensation increases reflect strategic hiring, middle office support in our mortgage business to support higher volumes and normal inflationary increases including annual salary merit and healthcare related costs. Moving to Page 10. Total assets of $12.3 billion increased by 606 million or 5% for the first of 2016. The growth in assets is driven by an increase of 448 million or 8% in non-covered loans. Broker dearly clearing receivables increased by 204 million driven by stronger market activity in business and increase of similar impact as noted on the liability side of the balance sheet in broker dealer clearing payables. These balances while variable on a quarterly basis are being managed to a target of 1.5 billion level. During the quarter, Hilltop’s FDIC Indemnification Asset declined $23 million or 33%. This decline is driven by two items, a significant reimbursement related to a previously charged off loan and the $4 million of asset amortization. We do expect to continue amortizing the FDIC Indemnification Asset throughout 2017. Total deposits have grown 5% versus the prior year to 7.3 billion versus the fourth quarter of 2016, we experienced strong growth in money market deposits and a stabilization of CD balances. We are actively assessing the competitive environment and continue to test new rates and promotions to attract core relationship deposit. Capital levels grew in the first quarter as common equity increased by $15 million versus the prior quarter. Hilltop’s common equity tier-1 ratio acquitted to 19.03% at March 31 and PlainsCapital Bank’s common equity tier-one ratio equated to 15.5% for the current period. Moving to Page 11. PlainsCapital Bank’s pretax income increased to $31.8 million in the first quarter 2017 versus 31.2 million in the first quarter of 2016, primarily driven due to lower provision expense and lower non-interest expenses, partially offset by lower net interest income. Net interest income declined as a result of lower purchase loan accretion versus the first quarter of 2016. Non-interest income decreased compared to the first quarter of 2016, mainly as a result of year-over-year declines in interchange fees due to the impact of the Durbin Amendment. Non-interest expenses declined versus the prior year driven by lower losses related OREO properties somewhat offset by amortization of the FDIC Indemnification Asset. I’ll briefly touch on Pages 12 and 13. At PlainsCapital, our exposure to energy continues to moderate. As of March 31, our energy loans have fallen below 3% of total loans to 2.7%, while the reserves against our energy exposures has increased to 7.1%. Overall credit quality remains strong as non-covered NPAs to total loans is reported at 28 basis points for the period. I'm now Page 14. PrimeLending’s pretax income increased to 9.9 million in the first quarter of 2017 versus 9.1 million during the prior year. During the first quarter, the mortgage originated 2.8 billion in loans representing a decrease of approximately 105 million or 4% versus the prior year. The first quarter of 2017 included $555 million of loans originated to refinance existing mortgages versus the prior year, refinance volume declined 37% or 323 million consistent with expectations, while purchase mortgage volume increased by 218 million or 11% from the prior year. Consistent with our ongoing strategy, the mix of purchase volume increased to 80.3% in the first quarter of 2017 from 70% in the first quarter of 2016 and is in line with our expectations given current market conditions. Non-interest income declined 2.7 million or 1.8% from the first quarter 2016 to 144 million in the first quarter of 2017, due to a decline in value of interest rate lock commitments which was partially offset by higher net gains from sale of loans and higher mortgage loan origination fees. Non- interest expenses decreased 2.8 million or 2.1% from the first quarter 2016 to 132 million in the first quarter of 2017 due primarily to a decline in variable compensation expenses associated with lower total origination volume, partially offset by increased salaries and benefits related to office support. Moving to page 15. At HilltopSecurities, pretax income equated to 9.5 million in the first quarter of 2017, an increase of 5.7 million versus the prior year. Pretax margin improved to 10.5% versus the prior year, reflecting a $4 million decline in the integration related costs, directly attributable to the acquisition of Southwest securities and improving net revenues that benefited from the higher short-term interest rates. Securities compensation ratio was 62.9% in the first quarter compared to 65.8% in the first quarter of 2016. As has been the case, HilltopSecurities provided PlainsCapital Bank with approximately 1.1 billion of core deposits, representing 44% of the total available FDIC insured funds. Moving to page 16, National Lloyds’ earned pretax income of 1.8 million in the first quarter of 2017. Pretax income declined versus the prior year by 4.4 million. First quarter of 2017 results reflect an elevated frequency of storms above seasonal norms for the first quarter of the calendar year, including a sales storms that developed in the last week of March. The decline in net premiums earned is a reflection of management's continued efforts to produce concentrations in high risk areas as well as a moderate increase in pricing competition across the footprint. The increase in the expense ratio is primarily driven by the decline in net premiums earned and elevated compensation expense. With that, I'll now turn the call back over to the operator for the Q&A portion of the call.

Thank you. [Operator Instructions] And our first question comes from Brady Gailey with KBW. Please go ahead.

So maybe I missed it, but the increase in the expense base from the amortization of the FDIC asset, what were the -- I know it was up, but what were those dollars in the first quarter.

The FDIC indemnification was approximately $4 million in the first quarter.

Okay. And do you feel like that will be a good run rate going forward or will that amortization grow?

Well, as you know, it's contingent upon our quarterly reforecast process, but we expect it to be between $2 million and $4 million per quarter.

Okay. And is that just located in other expenses?

Yes, sir.

Okay. Then the core margin, it was 305. That's pretty consistent with where it was last year on a full year basis. Do you expect the core margin to grow at all over the course of ‘17 or is it going to be more stable?

I think we provided previous guidance of 305 plus or minus three basis points. We do expect it will continue to -- it will expand as market interest rates increase over time. As we've noted previously, we do -- our loan portfolio -- certain portions of the loan portfolio have floors and some interest rate floors and with each rate increase, we are moving more and more loans above their floor level. So they reset to overall higher yields. As we've noted, those floors have been extremely valuable through the cycle, but as we continue to work through, you'll see more of the interest rate increases pull through to our net interest margin.

Okay. Great. And then finally for me, Financial Advisory revenue was down linked quarter. I think some of that might be seasonality, but just any comment on the decrease there.

On that line item, I’d say that's probably going to be in the public finance business, which on linked quarter, the first quarter is usually slower for the public finance business, public bank.

Okay. Just seasonality, it should pop back in 2Q?

Yeah. I think I would look at it kind of year-over-year and we think it's going to be pretty similar.

Our next question comes from Michael Young, SunTrust. Please go ahead.

Wanted to start on the average loan volumes being down quarter-over-quarter pretty significantly. I assume that was mostly mortgage warehouse related, I apologize if I had missed that, but could you give me a feel for how much of it was driven by that?

Well, the big deal, yeah, it is mortgage warehouse and also the National where more of these warehouse we have because volumes were down. I think prime loan volume was 1.2 billion, down from about 1.4 billion. So it’s down a couple of hundred million dollars. The big thing and we handle that, the big thing was, we had a bunch of trials that happened to us in the first quarter that we really thought were going to happen in the last quarter and that -- and that's what drew that 13% growth figure and of course we got them in the first quarter. So we were flat, but we still feel like Michael, we can get to the 8% to 10% that we talked about. We’ve got a lot of things in the pipeline, a lot of things we’re trying to get close and I think second quarter will look a lot better.

And the 1.2 billion and 1.4 billion, those were average balances or is that period end?

No. I’d say average balances.

Okay. And then maybe just also could you talk about just what you're seeing in the pipeline thus far in the 2Q, not just on the mortgage side, kind of how originations are trending.

Well, as I told you, we have $250 million that we've committed on. 80% of that's real estate and it's a hot market real estate and it might be even too hot, which concerns us a little bit. That's why we stay conservative on our underwriting. You're seeing a little C&I, but not a whole lot, in which you do see, everything is very competitive and what you're seeing in a lot of this stuff is you're seeing a lot of deals on underwriting and crazy terms, we saw on the other day, it’s in here, interest only loan, I mean, these things, I wouldn't do that. But so the competition is tough, but we're hanging going in there with our customers and we've got $700 million worth of construction loans out there that are going to fund us. So we’re holding our own and doing okay. It was just those big paydowns that we’ve got. When you loan people money, you expect to buy back and we got to replace that and that's what we're doing. But the market is competitive, the real estate market is hot, there is a lot of growth. And we’ll see all these buildings fill up.

And one last one if I could, just you talked about the branch buildout and all the new branches you’re adding, is that because maybe the M&A environment isn’t sort of coming to fruition and?

This is normal course of business. We try to put branches in opportune places, one so that our brand can be seen and another is that we've got people that [indiscernible], some of those branches are -- might be close in loan or updating one like the one in Austin. We closed our original branch in eighth in Congress and we moved a fifth in Colorado and had a new branch. So some of it's an upgrade, some of it is a reduction like in Arlington. We're building the new branch out there, a really nice facility and this can replace two branches we have in Arlington. We will be consolidating. The one at the start in Frisco is the hot place out there, it’s a place where you want to be. So that’s why we went there. In Lubbock, Lubbock continues to grow west and so we’re putting a new branch in the further west in Lubbock to be able to control our market share. So I don't think it has anything to do with M&A. I think it has just continued to try to take care of our business and be in the right places at the right times. And we want to be sure we have the right people in those branches also. We don't just build branches in front of people. We get people new build branches.

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

Hey, Alan to start with you on the mortgage piece, any commentary on the gain on sale margins in the first quarter with softer industry volumes and as you look towards 2Q, would you expect gain on sale margins to improve?

Well, our gain on sale was excellent and we’ve been able to find some places at a premium price which are driving those gains on sales and so Matt, you all write about these things about the mortgage business not being very good in the first quarter. We had a great first quarter, far exceeded our expectations and you've got to realize we move from a refinance time to the last two years in the first quarter, we didn't have it, but we did have a gain, I mean the purchase side of it and we improved that a couple of hundred million dollars first quarter. So not only did we have a great quarter, we had a great quarter financially, a lot better than we expected. Second quarter, we're in a time of the year and how it plays out and I can tell you right now, it looks pretty good and I think we anticipate a good second quarter. I think we continue to have a gain on sale margins that we've had. I think the biggest concern that we have or anybody else has in this industry is a lack of inventory. We need more homes to sale, we’ve got guys out there, originators that have got 10 or 15 people looking for loans and they can’t find houses. So I think that's the thing we're up against, but we're getting our share of it, not more our share, but I was looking at the number this morning. They're excellent and I think second quarter is going to good. So I hope you all heard the report on the mortgage business, because the mortgage business is, it carries a lot of light in the first quarter.

Yeah. Understood. Thanks for the update, Alan. And then within HilltopSecurities, I think Jeremy mentioned the seasonality. Can you talk more specifically about which businesses were soft in the first quarter and remind me which segments within HilltopSecurities, can you just talk about how those segments react to higher interest rate environment now versus a year or two ago? Thanks.

Okay. Sure. I would say overall, net revenue increase year-over-year and so we are okay with the quarter. It’s just the first quarter of every year, public finance, which is such a big business for us there is just typically seasonally weaker. And then it builds throughout the year. And so in kind of trying to hit all your questions there Matt like, but the main businesses we have in the broker dealer, our public banking and overall, a significant rise in interest rates could slow down our issuance in refunding, but we think at these levels that we don't really foresee that to be the case this year. Our capital markets business would generally improve in a rising rate environment and our structured finance business is similar to the mortgage business. It could create headwinds, although this relates the first time homebuyer down payment assistance, so it's a little bit stickier. But the real benefit overall to the broker dealers and the retail and clearing business is a rise in short term interest rates. And as we stated, we had a $2.6 million year-over-year increase in income as a result of the rising short term interest rates in our retail and clearing business.

Okay. Got it. Thanks for the update. And then just lastly, as part of the outlook for purchase accounting accretion, any update you can give us in the next few quarters, expectation?

Yeah. I think purchase accounting, we've stated 10 million to 12 million. We've also stated that is the -- that is kind of the forecast level I would maintain within the 12 million per quarter understanding that any early payments or recoveries over and above our expectations can create volatility there as you all have seen over the quarter, but as a matter of kind of baseline, 10 million to 12 million per quarter for 2017.

Our next question comes from Scott Valentin with Compass Point. Please go ahead.

Hey, and it's Jesus Bueno for Scott. Thanks for taking my questions. Just quickly on the insurance unit, just curious on the underwriting expense ratio, it looks like it ticked up. Was that the result of the higher frequency and I guess going forward, can we expect that to kind of come back to that 33% to 34% range where you were running before.

Well, the expense ratio is your policy and underwriting expenses divided by your net premiums earned. So it really doesn’t have an impact from your losses. And it was elevated this past quarter to 38.5% and that's driven by two things. One is our premium, so the denominator has been declining. And second, we had an increase in compensation that we view to be kind of a one quarter item. If I was to look out or separate that, I think you're looking at an expense ratio of more like 35% to 37% with this kind of premium base.

That’s helpful. Thank you. And I guess turning over to the prime lending, I guess it looked like there was a small MSR sale there. So is that something that we can expect every year, I guess if you could provide any color around that would be helpful?

Jesus, this is Will. We kind of monitor our MSR very closely and given the valuation increases, given kind of where rates had gone through the market, we felt like it was prudent to execute a sale that accounted for about $17.5 million worth of asset value at execution. And I would tell you, as a matter of kind of maintenance, as a matter of kind of testing market pricing, we will be in the market I would say at least once per year from an MSR perspective, notwithstanding significant changes in kind of market values.

Great. I appreciate that. And I think I would just ask one more question on the repurchase this quarter, is it correct to assume that I guess a stock repurchase was mainly to offset comp or -- I guess going forward, should we expect that to be kind of a recurring theme quarter-to-quarter that you should be actively repurchasing shares?

Yes, sure. So we repurchased 7.2 million shares at an average price of 27.5. And the primary purpose of that is to offset equity award dilution. And so kind of to your point there, I mean I think that our goal would be to do probably some amount of it on a quarterly basis, so that we were not sensitive to the share price of any given quarter.

Our next question comes from Chris Nolan with FBR & Company. Please go ahead.

Hi. Thanks for taking my questions. On the broker dealer deposits, how those deposits react to rising interest rates. What's the deposit beta for that?

Yes. So the deposit beta for those interest rates are, as we sit here today on the client side, it’s in the 10% to 15% range. We'd expect that will go up, but again it's consistent with kind of market passthrough.

Great. And then on the energy book, why are you building up reserves?

Well, we’re not building up, we just kind of left on their where they were all along the cycles. So I guess we're being conservative if you want an answer to the question.

And then finally the capital ratios continue to grow. Do you expect them to grow through the year?

Well, I think until we deploy a meaningful amount of our excess capital in M&A deal that they will grow. I mean we're still looking at M&A. We've been actively looking at it and think that's a primary use of our excess capital. We feel like we're best in situation or situational opportunities and we've been active and knowledgeable of the deals going out in the market.

Jeremy, do you think -- are you guys more interested in a geographic footprint and acquisition or an asset generating franchise or a deposit generating franchise? What sort of characteristics are you looking for?

So we're looking at banks intact, this is what would be logical for us. The larger MSAs, Houston would be ideal in that we're not really there as much. Dallas, Fort Worth, Austin, San Antonio and Corpus are all good markets, but want to look for asset sizes of 1 billion to 5 billion we think with our excess capital today, we could do excess of $5 billion target and we're looking for commercial lending strategies, commercial, traditional banks. As far as asset generators or a deposit franchise, I mean it just kind of depends I think that and as a generator would be more immediately impactful to us, but we do think the positive values will increase with time.

And seeing no further questions, this will conclude today's conference call. We would like to thank the management team for their time today and we thank you all for attending today's presentation. You may now disconnect.