Good day, and welcome to the Prosperity Bancshares Incorporated Fourth Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. At this time, I'd 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 2018 earnings conference call. This call is being broadcast live over the internet at prosperitybankusa.com and will be available for replay at the same location for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. 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; Merle Karnes, Chief Credit Officer; Bob Benter, Executive Vice President; and Bob Dowdell, Executive Vice President. David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by David Hollaway, who will review some of our recent financial statistics, and Tim Timanus, who will discuss our lending activity, 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 operator, Alisson. Before we begin, let me make the usual disclaimer. Certain of the matters discussed in this presentation may constitute forward-looking statements for purposes of the Federal Securities laws, and as such may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares' filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K, and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. 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 2018 conference call. For the fourth quarter of 2018 we showed impressive annualized returns on average tangible common equity of 15.8%, and on average assets of 1.47%. Our net income was $83.3 million for the three months ending December 31, 2018, compared with $67.1 million or the same period in 2017, an increase of $16.1 million or 24%. Our net income per diluted common share was $1.19 cents or the three months ending December 31, 2018 compared with $0.97 for the same period in 2017, an increase of 22.7%. Our loans at December 31, 2018 were $10.370 billion, an increase of $349 million or 3.5% compared with 10,021,000 million at December 31, 2017, our lead quarter loans increased $77.4 million or 80 basis points, 3% annualized from the 10.293 million at September 30, 2018. Our Dallas Fortworth market saw double digit long road for 2018 followed closely by our central Texas and San Central Oklahoma markets. Although our Houston market have record low production in 2018, it also experienced sizeable pay downs and pay offs, much of which was recognized in the fourth quarter. Our non-performing assets totaled $18.956 million or 10 basis points of quarterly average interest-earning assets at December 31, 2018 compared with $37.4 million or 19 basis points of quarterly average interest-earning assets at December 31, 2017. Our asset quality continues to improve as the non-performing assets at December 31, 2018 reflected a 49.4% decrease compared with their level at December 31st, 2017. Prosperity's asset quality is one of the best in the nation. I always say you will like us in the good times, but you will love us in the bad times. Deposits at December 31, 2018 were $17.257…

Thank you, David. Net interest income before provision for credit losses for the three months ended December 31, 2018 was $157.2 million, compared to $156.05 million for the same period in 2017. For the full year 2018, net interest income before provision for credit losses was $629.6 million, compared to $616.9 million for 2017, an increase of $12.7 million or 2.1%. And I would note here going forward, we project our loan discount accretion should run about $1.5 million per quarter. The net interest margin on a tax equivalent basis was 3.15% for the quarter ended December 31, 2018, compared to 3.20% for the same period in 2017. Additionally the net interest margin on tax equivalent basis of 3.15% was unchanged on a linked-quarter basis. However, excluding the purchase accounting adjustments, the net interest margin on a tax equivalent basis for the quarter ended December 31, 2018 was 3.10% compared to 3.09% for the quarter ended, September 30, 2018. Noninterest income was $29.1 million for the three months ended December 31, 2018, compared to $29.2 million for the same period in 2017 and for the full year 2018 noninterest income was $116 million, compared to $116.6 million for the full year 2017. Noninterest expense for the three months ended December 31, 2018 was $80.8 million, compared to $81.1 million for the same period in 2017 and for the full year 2018, noninterest expense was $326.2 million, compared to $313.1 million for 2017, an increase of $13.1 million or 4.2%. The efficiency ratio was 43.2% for the three months ended December 31, 2018, compared to 43.8% for the same period last year, and 43.5% for the three months ended September 30, 2018. And for the full year 2018 the efficiency ratio stood at 43.7% compared to 42.8% in 2017. The bond portfolio metrics at 12/31/2018 showed a weighted average life of 4.05 years, an effective duration of 3.59 and projected annual cash flows of approximately $1.8 billion. And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?

Thank you, Mr. Holloway. Our nonperforming assets at quarter end December 31, 2018 totaled $18.956 million or 18 basis points of loans and other real estate, compared to $16.777 million or 16 basis points at September 30, 2018. This is a 13% increase from September 30, 2018, but as David Zalman previously indicated, it's a significant decrease from December 31, 2017. The December 31, 2018 nonperforming asset total was made up of $17.151 million in loans, $0 in repossessed assets and $1.805 million in other real estate. Of the $18.956 million in nonperforming assets, $2.249 million or 12% are energy credits all of which are service company credits. Since December 31, 2018 $1.817 million or 9.59% of the nonperforming assets have been removed from the list or under contract for sale. But as we always say, there can be no assurance that those under contract will close. Net charge-offs for the three months ended December 31, 2018 were $556,000 compared to net charge-offs of $1.318 million for the three months ended September 30, 2018. $1 million was added to the allowance for credit losses during the quarter ended December 31, 2018 compared to $2.350 million for the quarter ended September 30, 2018. The average monthly new loan production for the quarter ended December 31, 2018 was $248 million compared to $277 million for the quarter ended September 30, 2018. Loans outstanding at December 31, 2018 were $10.370 billion compared to $10.293 billion at September 30, 2018. The December 31, 2018 loan total is made up of 39% fixed-rate loans, 37% floating rate and 24% variable rate loans. I'll now turn it over to Charlotte Rasche.

Thank you, Tim. At this time we are prepared to answer your questions. Allison, can you please assist us with questions?

[Operator Instructions] Our first question today will come from Dave Rochester of Deutsche Bank. Please go ahead.

Your guidance on the NIM for this past quarter was in that 3.14% to 3.17% range. You guys came in right in line with that this quarter. Was just wondering how you're thinking about the progression of the NIM from here just given the flatter-rate environment, if you expect that range might drift a little bit lower overtime? And then if you happen to have the level of securities reinvestment rates now given this new rate backdrop that would be great.

Yes, you're right on the call we made last quarter, and I don't think we're going to change that much. Even with this flatter yield curve, we still looking forward on that margin. I think we'll have a little bit of pick-up as we move forward. And again, I'll just reiterate, it's the dynamics of our balance sheet. If we're able to continue to grow our loan portfolio with higher yields and on our security side to specific to your question, I think last time, we talked we were giving around 3.5% on the new stuff that we buy. With the yield curve flattening a little bit, we're still able to get about roughly 3.25% which is still pretty good for us. So if those two dynamics continue to play going forward, we're still pretty positive on the margin. And I always just add again and maybe there will further discussing as we get into it, if the wildcard's always the funding where would that be at the end of the day. And again, I would point out the positive we have, again, have being a core-funded bank where most of our money is in the lower-type interest rate accounts or non-interest bearing accounts. We should be able to manage that pretty well going forward. One of the things, we are working hard on is to try to mitigate the borrowings that you see on the balance sheet, where you saw peak in mid-last year we brought it down because of the deposit flows here and there is something we're going to try to concentrate as go forward. Because it's obviously when you look at the big picture, we don't want to borrow from the Federal Home Loan Bank which I guess if you went overnight it's 2.70%. We should be able to look at what we can do on the deposit side, a little bit better than that.

And I guess, you mentioned the higher loan yields were you seeing any new loan yields now with a new rate backdrop?

When we look at this past month just on average -- again, this is on average, so some higher, some lower. But it was about 5 in the 5.60, 5.65 range on average.

And then I guess just switching to expenses you guys came in a little bit better than I think guidance on this area as well. How are you thinking about the trend this year? And in terms of tax spend and organic expansion to the platform what are you thinking about?

Again, looking at all those things, the checklist you've heard us -- you've heard me say at least, we have been running in the $81 million to $82 million range per quarter. You saw what we came in little lighter this quarter. I would tell you and again with the tax spend and the things that we do also with the relief from the FDIC assessment and that surcharge in that, which was reduction. But when you put that all in, what I would tell you is I'll probably change that range where we'd say $80 million to $81 million. But what I would point out on that as we make that change is in this first quarter we'll probably be at the lower end of that range and then we get out to the quarters beyond that will probably be at the upper end of that range.

Our next question will come from Jennifer Demba of SunTrust. Please go ahead.

David, you had about 3% loan growth this year -- last year. Do you think there is any reason you can do better than that this year with pay downs maybe subside?

I do think -- I mean, we were headed to where we thought we would be the 5% or 6%. We had one loan that was $80 million in size just in the Houston market that paid-off in the fourth quarter. But I will say that, what we did see is a slower, I would say the first 15 or 20 days of January. I think really a lot of that has to do with all the political chaos going on in Washington and people to where they were. But having said that, we had a management meeting where we meet quarterly and most of the management community that represents all the different parts of the states of Texas and Oklahoma. I felt very positive, what they had in the pipeline. In fact Houston had probably more in the pipeline than they've ever had in a long time. So we can get that funded. I still feel pretty good that we should be in that 5% range.

And could you talk about the bond portfolio? What the loss on the bond health maturity and what the loss on that is? And would you think about restructuring the bond portfolio at this point?

I think the -- what I'm showing David I am looking at it wrong, but I'm showing a total loss of out of $9 billion -- $9.4 billion book value at $243 million. And historically, we've really not bought and traded the bond portfolio. We usually -- again we usually have a very short duration of around 3.6 years and so we usually -- I mean it would definitely make our numbers look better. I mean anybody can do the math if you're making 1% more on your portfolio of $9 million that's $9 million a year before taxes, so that would help. On the other hand, historically we've not done that but I put one caveat if we ever did a very large deal or something like that it may make sense that you have that opportunity for an adjustment when you have a big deal. So again historically and I was looking forward in my projecting as we wouldn't do that. But again I would never rule it out if there's some kind of big consolidation or we merge with somebody else or something.

One more question, the NIM guidance that David Hollaway just talked about. David what kind of rate environment does that assume? Were you assuming no rate hike or one or two rate hikes in 2019?

Yes, it's a two-part answer there. One that's assuming may be one more rate hike. But what I would tell you is if the rates more than once that's still beneficial to us. Our margin would even expand a little bit more than what I'm saying. We are in the unique position where rising rates help us. But the reason you don't see more of the margins sticking is and it's constantly raising these rates is resetting itself, but I would tell you if they don't raise rates in the next 12 months when they do it once that guidance holds. But if they want to raise rates onetime and hold that's still pretty good. What do you think David?

I just want to be clear I think what David -- and Dave has been very clear, but basically if there is no rate increase at all, we still see in my opinion significant increases in net interest margin over 12, 24 and 36 months with no rate increases. With rate increases we even see a bigger margin expansion.

It's in the dynamics of that cash flow coming in and that's why you look out over the 12 and 24 months.

I think the net interest margin also I mean -- when you look at what our cost of funds were just six months ago when we were paying 60 basis points for a CD and today you're paying may be 2% for a 12-month CD. I think the cost of funds really went up a lot faster than I think a lot of people even anticipated. So even though there were some interest rate increases on the loan side, again our balance sheet doesn't move as fast as the others do. But I still think the biggest plus and the biggest and best story of our company is the repricing that we have going forward over a period of time. I think that's the best story we have.

Our next question will come from Brady Gailey of KBW. Please go ahead.

So TCE and capital levels just continue to grow here given the profitability and the lower level of organic growth. David, maybe just update us on the buyback? Is that something you are considering? And then just a little more color on M&A. I know when we talked about in the past it's been more of an issue, the type of banks that you guys want to buy just aren't out there for sale. Is that still the case or -- and do you think you'll be able to active this year on M&A front?

Well, I don't think that everything you're saying is the case. I mean, I think there are banks out there that we would like to do deals with take. Sometimes it takes longer than people anticipate, but I mean I think looking forward, yes, couple of question. Let me start off on the first part you were talking about really the capital and would we really be looking at buying our own stock back? I think, historically we have not used our capital to buy our own stock back, unless the market has just fallen out at the bottom of it. I think that if the price went down significantly, we would be a buyer of our own stock but again for the most part we've used our capital for dividend increases. I think you've seen double-digit dividend increases every year and we also use the other part of the money for acquisitions, and I think that something that we will continue doing. And that will primarily be our focus. I really feel you should use the money to build assets not just by your own stock back and let's just really underpriced so that's that. Going forward on the margin an acquisition, we are out there and I think that we're looking -- we're talking with the larger banks and we're talking with smaller banks that may be $600 million or $700 million inside if it's in our own market. So I think that we're looking at all of that. The pricing definitely made a different last year. About mid-year in the third quarter, our price was probably $77 or $78 a share and all bank stocks were up dramatically. And in came the fourth quarter and bank stocks dropped 20% so or more. So some of the deals that you're talking about, you're talking about pricing specially on some of the large deals that really gives attention -- there was some cold water poured on it because the stock prices went down so much you couldn't expect to pay the same amount when your stock prices are not as high. But going forward, I don't think that there's any question, I've always said this and I still believe this that we'll run out of money before we run out of deals. It's just a matter of time that that's what we do, but again we're still looking, we'll continue to look and I think we'll find something when it fits everybody and it's accretive to the bottom line.

David, you talked about looking at some larger deals. I mean, Prosperity is now $23-ish billion in assets. And how big of a deal would you consider then from a geography point of view and obviously Texas and Oklahoma would make sense for you all. But outside of those home state, would you look to kind of the broader Southeast as a possibility?

We've looked at a number of different states where the banks have been larger in size at $10 billion or $10 billion-plus. So, I mean we're looking at all of that stuff. I mean, our focus is still primarily we would like to be -- obviously you'd like to build on the markets that you're in. You just have better cost savings. But again we're not opposed to looking at other markets but again if we go into another market, we really wanted to be -- I don't know that we would go into another state and necessarily buy a $1 billion or $2 billion bank. We would want to be -- we go if we knew that we would become at least fifth in size in that state within a reasonable period of time when we knew that we could, but we would look at that. And we've looked at banks in a number of different states this last year.

Our next question will come from Peter Winter of Wedbush Securities. Please go ahead.

I wanted to ask about the monthly loan production. It has moderated each quarter this year. And I'm just wondering what some of the drivers are? And how you think about that going forward?

Peter, this is Tim Timanus. The average for the whole year 2018 was $288 million a month and the average for the calendar year 2017 was $286 million a month. So we were a little bit higher on the average in 2018 than 2017, although not significantly so. I don't think there are significant economic issues that cause a moderation. I think primarily it's a result of competitive issues. Rightly or wrongly a lot of our competitors do non-recourse lending and we have not chosen to submit our shareholders to that in a significant way. I'm not saying we wouldn't ever due it on a particular transaction, if there's enough equity and there's good collateral. But it's not our way of doing things and we don't think it's in the best interest of our shareholders. So that has played a big role and the numbers that you see. For example we just recently lost a fairly sizable loan to construct an apartment project. We approved it with the type of recourses that we thought we needed to support the credit and it turned out that the developers found somebody to do it on a completely non-recourse basis. Well we hope it works out for all concerned but it's not prudent in our opinion. So it's just the way the market is right now. The fundamentals of the economy are still decent. So I don't think it's an overall economic issue I think it's primarily a competitive issue.

Yes. I would just jump in and say Tim I -- you hear all the media and everything. But really when you look fundamentals are still out there. I mean we still have a very strong economy when you look at 108,000 job growth in Houston and you have Dallas and Austin. I mean Houston is growing 300 jobs a day. Dallas is over 300 jobs a day Austin's probably 150. So the fundamentals in my opinion look good. I mean you may not have a 3% to 4% GDP and there may be some downward trend in that. But I think from a psychological standpoint fundamentals are good and this thing could turn around and still could be a good positive year for a lot of people really.

I am just curious if the thinking is that the competitive environment is going to persist. And I'm just wondering if it just makes it challenging to hit that loan growth target in 2019 of 5%?

Tim feels strongly competitive. I think competitive pressures are -- it does make a difference, but I think the economy in my opinion makes a bigger difference fundamentals -- if fundamentals are good and growing, there's plenty of business for everybody, I think. That's just me. Tim you want to?

I agree completely. And the competitive issue it comes and goes within sometimes a fairly short period of time. Some of these institutions that will make the kinds of loans that create an issue for us, typically only do that for a certain period of time and then their boat is loaded, so to speak, and they move on to more conventional types of lending. So I don't think it's reasonable to assume that the complication is going to continue just consistently to be such that we can't deal with it. But having said that, it hasn't gone away. It's not going to go away tomorrow, but we've always had competition. And as I say, the way the competition approves loans, it changes over time. It comes and it goes. We've dealt with it before and we'll deal with it again.

I don't know that I've ever been in banking where it hadn't been extremely competitive. I think it's always been like that and it will always be like that. As Tim said, you may have certain banks that are really trying to build a bucket or something. But for the most part, it's always been very competitive. And it's really -- loans are really based more on the fundamentals of the economy than anything else, I think, growing.

Can I ask you one more question on deposits. Obviously, you guys have a very good deposit franchise. And if I look at your interest-bearing deposit cost, you're the lower end of the Texas peers. I'm just wondering, are you seeing any pressure where there's more migration into interest-bearing or you need to increase deposit cost a little bit faster in 2019 to stay competitive?

Well, we really raised interest cost, I think, in the last quarter. I mean, really, I mentioned before. Because we don't have much in CDs left, 12% or something like that. But we again were -- I wouldn't say that -- you could open the paper and you can see some of the competitors paying. You'll see some outliers out there paying 3%, I don't even have to tell you who they are. You probably see them in your paper in New York City. They're everywhere. But for the most part, I think, that we're paying a very competitive rate on the CD side. Having said that, we still may be -- we could be 25 to 50 basis points up from somebody else, but again -- but we're not going to get every deal. I don't want to underestimate, it's very competitive out there. But again, we're trying to reach our customers and I think we're paying a very fair price. And even our money market accounts they -- we're now paying, what, 1.25% on 200,000-plus, where just not long ago we were paying, gosh…

90 or 80.

Well, before that, I mean, weren't even.

It was a year ago.

Six months ago maybe 30 or 40 basis points. So I think we really increased the interest rates that we pay. Probably more so at a bigger chunk than I've ever seen in loans.

But that's what happened a couple of quarters ago. I guess, it was in -- when we did this last quarter, you saw us raise our rates, because we were way -- we were lagging way behind the peer group. And so you can't be that far out and then expect your deposits to grow. So I think we normalized that somewhat when we did it. And so, yeah, when we look forward, direct answer to the question, we look forward, I think, we can just be naive and say we're not going to look at our pricing on deposits. But on the other hand, if you're core funded, you should be able to manage that. And if you got to move it, you're not moving it like you would if you're borrowing all your money that's all on CDs basically.

But again, I think, Peter's right. You're seeing a lot of people moving their money where they might have been. And they weren't watching as much and you start getting some rights out there where people were seeing, they can put their money back in time at 2% or 2.5% or something like that. They're definitely considering that. So I think you'll continue to see that.

I think it's important to point out that most of the upward pressure on deposit rates has come from dollars that are already earning interest not from the large non-interest-bearing deposits that we have. A lot of reasons for that, but primary reason is the loan relationships that we have with those noninterest-bearing dollars we are tied to. So up to point in time, the migration has not been that much from noninterest-bearing into interest-bearing. It's been from interest-bearing into higher rates. And it continues and we deal with it on a daily basis.

I think you'll continue to deal with that as rates rise. Because I don't know that rates or going to go up very much anymore for a while, but you certainly saw a big rise and it's something we have to deal with and I think we have.

Our next question will come from Brad Milsaps of Sandler O'Neill. Please go ahead.

All right. David, just wanted to follow-up a question on the bond portfolio. It looks like you did get about six basis points of yield expansion in that book this quarter, maybe about half that came from lower premium amortization expense. I know rates were kind of falling throughout the quarter, but a lot of the times you guys will pre-invest, use the borrowings to kind of get ahead of some of that. Maybe that didn't transpire. Just wanted to see if there is any additional color or maybe why you didn't pick up maybe more yield on the bond portfolio just kind of given where rates were maybe at the beginning of the fourth quarter?

I mean, I'll jump in, I mean, there was no premeditated plan. I think there was a little volatility in the -- early in the quarter. And I think our guys sat on the sideline and the other side of it was deposits. If you looked at our deposit growth coming in, I mean, what they were basically doing deposits coming in instead of putting that into the securities performing paying down our borrowings. That's why you saw the borrowings come down. You can look at -- it's a philosophical thing. You can look at from two perspectives. Keep the high borrowings on and invest in our bond portfolio or take those deposits and pay down the high borrowings. We chose the latter.

I think we did that. And this is David Zalman. But we also -- again, we don't try to call rates in the portfolio, but when the product that we buy we were getting 3.25% to 3.5% and it went back to 3% we just quit buying for a period of time. So again, it doesn't mean that can quit buying because we get a $1.8 billion rolling off all the time and we try to put part of that loans and part of it back in. But again, we weren't as aggressive at buying as rates were going down. We generally become more aggressive when rates are going up or yields were going up.

And then, I wanted to follow-up on the expenses. Well, Dave I appreciate the guidance that you guys do the best job in the business controlling cost. I did want to ask on the personnel side I guess, personnel cost were up about 8% year-over-year. Your headcount was up maybe 19, it's really all that just related to bonus as you gave coming out of the tax law change? That really doesn't seem indicative of kind of what you guys have done historically, but just kind of want to check on that growth rate in personnel?

Yeah. The answer is, yes. With the tax act that came into play of savings that saving we got from that we determined a year ago to pre-invest in our own people and that was reflected both ways. Annual salary increases I think it was 5% and plus the bonuses that we're in.

I mean, the bottom line is, we did see a lot of -- a number of other companies give onetime bonuses, but we reelected to give a right upfront 5% across-the-board plus other bonuses. So, we rightly or wrongly, we let our people enjoy the tax benefit they got to be part of it too. They got the benefit.

And I think that this won't be exact, but -- because -- it's a lot of moving parts during the year. But if we wouldn't have had that tax benefit and then couldn't have resulting deals, I think you would've seen these expenses year-over-year overall expenses and not focus on one, it probably would increase in around 2%, 2.5% which is kind of normal.

We would not have increased expenses like that for our associate's employees, if we wouldn't have gotten. We really wanted them to benefit from the tax deal law. So that's the only reason.

I think it's great you did it. I appreciate the extra color.

Our next question will come from Gary Tenner of D.A. Davidson. Please go ahead.

I don't think we've really discussed on income statement is non-interest income and it's been sort of flat-to-lower for a few years in a row now. I am just wondering are there any items there that you think could generate some upside in 2019? And I guess more broadly what's the outlook for trying to grow that side of your revenue stream?

I'll jump in first and then I'll let David talk about the lines business. But the core fee income that comes from the bank. I don't think there's anything major going on there. As we continue to grow our deposits and add accounts we will see some growth there. But I think you are spot on to say where you really could make some headway is in these lines of business whether it be trust mortgage or brokerage. And I'll let you kind of give your thoughts on that David.

I think that's right. If anything you probably saw non-interest income didn't grow, commodity went down. And Eddie may want to talk about this a little bit, but we completely reconfigured our mortgage lending where so much of it was based on individuals and individuals it was just more paid on a commission basis. We really reconfigured that and came to where we could have a more of a centralized credit underwriting and that eventually where people could actually get on our website and fill out an application automatically. So we spent a lot of time and I think and I'm letting Eddie talk about that a little bit. The other thing, I think that we could grow our trust income I think that's an area that we really like. Brokerage is really over the years has not done as well for us the brokers and I think that's for everybody. So that maybe something not as good. But I think two areas that can continue to grow and again we hope brokerage will grow, but again everybody's in that business and that's probably the mortgage and trust. So Eddie, you want to comment on what we did in the trust? And how it's completely been refigured and it taken us about a year to get done really -- on mortgage, I am sorry.

On the mortgage side, we have completely revamped our mortgage-lending platform and have added some tenured lenders and originators into that. We have been expanding. On the other hand we also portfolio a lot of the loans that we generate. So perhaps not so much on the non-interest income from the mortgage growth has shown us there, but we're also increasing our interest income by portfolio in a lot of those that we've elected to hold in-house. But on the plus side, we do feel that notwithstanding what you're seen in the market and a lot of people are seeing a decline in that business that with the talent that we recently added as well as the enhanced platforms that we should see an increase in our mortgage originations.

Can you tell us, what your -- what the mortgage originations were in 2018 versus 2017?

It's about flat 2018 over 2017 if you take a combination of portfolio and secondary which by and large considering all of that was going on in the transformation and the transitions and some of the disruption when you're putting in new systems. We felt pretty good about that. But we have some really strong talent that's joined us just in the last couple of months and we feel optimistic about how that will grow in this coming year.

Yes, Eddie, I think it's important to point out that even though the refinances are flat at best because of increased interest rates, mortgage lending always been a very core part of what we do. And our total loan portfolio is about 24% mortgage loans that we hold in-house at this point in time. And with a decent economy that we operate in, we're fairly optimistic that over time, we'll increase the revenue from mortgage.

[Operator Instructions] Our next question will come from Ebrahim Poonawala of Bank of America Merrill Lynch. Please go ahead.

Just had one follow-up question and sorry, if you gave or discussed this earlier, but in deposits I guess when you look at it this year in terms of across the Board deposit category saw a decline which makes sense given your balance sheet mix and loan-to-deposit ratio. Do we expect a similar level of decline in deposits in 2019? And what I'm trying to get to is how should we think about earning assets from here on? Should it be relatively flat given there's ongoing balance sheet mix or do we see growth in the overall balance sheet?

Ebrahim this is David Zalman and maybe you didn't hear in our past conference calls, but I think we said probably a number of different times that we had -- last year in 2017 with the tax law changes, we had an inordinate amount of municipal deposits that came in normally where we have about $500 million a year came in, we had probably closer to $1 billion and that probably happened because we feel that people thought well may be if the double pay their municipal taxes on their property that may be they can have -- get a double deduction and again that wasn't -- I don't know that that is the case, but that was the reason and I think -- so basically I think what you saw this year with the $500 million increase that really came in with seasonality and municipals is more reflective and that's historically if you followed us over the last 10 or 20 years, that's always been something that -- maybe not 10 or 20 years, but the last five years to 10 years, that's always been the amount of money that had -- the year that you saw in 2017 was a fluke and I think we pretty much told everybody that was a fluke in 2017.

Yes, I mean it's exactly right. The two things that you saw in this past year; one, the book of CDs kept going down until -- and again I would point this as public funds and the CDs what you saw, but the answer the question is we absolutely believe we'll grow our deposits coming into the next year. We've historically outside this past year in that 2% to 4% range and this is what I would tell you. So, as we track -- as we look at this all the time, when we normalize -- I like to use this term, when we normalize our rates back in third quarter, we saw that shrinking -- I've called that shrinking to CDs that you see, that stopped. Once we brought our rates up to more normal levels, the CDs aren't shrinking anymore; in fact, our money market accounts have actually begun to increase. So, it's -- that's a reflection of where you're at in rates. There's a fine line of what's the rate you're paying versus how fast you are going to grow your deposits. And so I think we'll get in a more normal environment next year.

Yes, and Dave, I mean don't know how deep you want to get into this, but like -- when you really extract what the money we lost in CDs over a year-to-year basis and take out the public funds, when you call core deposit growth, you saw a pretty good core deposit growth, 4%, 5%.

Well we saw some, but 0.4 that I think will be fine.

Absolutely. Yes.

2% to 4% deposit growth, fair to assume that the balance sheet or earning assets grow around in that range for the year? Fair?

Yes, that's right.

Yes.

Got it. Thank you.

Ladies and gentlemen at this time, we will conclude the question-and-answer session. I'd like to turn the conference back over to Charlotte Rasche for any closing remarks.

Thank you, Allison. Thank you ladies and gentlemen for taking the time to participate in our call today, we appreciate the support that we get for our company and we will continue to work on building shareholder value.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.