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Prosperity Bancshares Inc (PB 3.80%)
Q2Â 2020 Earnings Call
Jul 29, 2020, 11:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the Prosperity Bancshares Second Quarter 2020 Earnings Conference Call. [Operator Instructions]
At this time, I'd like to turn the conference call over to Charlotte Rasche. Ma'am, please go ahead.
Charlotte Rasche -- Executive Vice President/General Counsel
Thank you.
Good morning, ladies and gentlemen, and welcome to Prosperity Bancshares' second quarter 2020 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, 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; Randy Hester, Chief Lending Officer; Merle Karnes, Chief Credit Officer; Mays Davenport, Director of Corporate Strategy; 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 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. During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Jamie.
Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares' filings with the Securities and Exchange Commission, including forms 10-Q and 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.
Now let me turn the call over to David Zalman.
David Zalman -- Senior Chairman & Chief Executive Officer
Thank you, Charlotte, and good morning to everyone.
I would like to welcome and thank everyone listening to our second quarter 2020 conference call. We are pleased with our second quarter 2020 results and with completing the operational integration of Legacy on schedule in early June. The team members from Legacy, now Prosperity, have been excellent and we could not have achieved such a smooth integration without their commitment and efforts. I want to thank all of our team members who worked many hours to make this happen. We remain excited about the combination and look forward to continuing to build the best bank anywhere.
For the second quarter of 2020, we showed impressive returns on average tangible common equity of 19.98% annualized and on average assets of 1.61%. Our earnings were $130.9 million in the second quarter of 2020 compared with $82 million for the same period in 2019, an increase of $48.6 million or 59.1%. Our diluted earnings per share were $1.41 for the second quarter of 2020 compared with the $1.18 for the same period in 2019, an increase of 19.5%. The second quarter 2020 earnings per share of $1.41 includes a $0.22 income tax benefit, a $0.06 charge for merger related expenses and a $0.03 charge for the writedown of fixed assets related to the merger and some CRA funds. In summary, it was $0.22 in benefit to earnings and $0.09 in inductions mostly related to the merger.
Loans at June 30, 2020 were $21.025 billion, an increase of $10.4 billion or 98.6% compared with $10.587 billion at June 30, 2019. Our linked quarter loans increased $1.898 billion or 9.9% from the $19.127 billion at 31, 2020, of which $1.392 billion were SBA Paycheck Protection Program, sometimes referred to as PPP loans. Mortgage warehouse loans also increased $843 million in the second quarter 2020 compared to the first quarter. Our core loans, excluding held for sale and the warehouse purchase program and the PPP loans, decreased $311 million. However, a portion of this decrease resulted from loans that were intentionally removed that were identified in our due diligence of Legacy. We saw strong loan growth in the first part of the second quarter but that slowed as business shut down or reduced operations in response to various government orders.
Our deposits at June 30, 2020 were $26.153 billion, an increase of $9.265 billion or 54.9% compared with $16.888 billion at June 30, 2019. Our linked quarter deposits increased $2.326 billion or 9.8% from the $23.826 billion at March 31, 2020. Historically, our deposits are lower in the second quarter of the year compared with the first quarter and then begin to increase in the third and fourth quarters for us. But this year, second quarter deposits are higher. A large portion is from the PPP loans as well as reduction in customer spending and customer saving [Phonetic] right now.
With regard to asset quality, it's always been one of the primary focuses of our bank and always will be. I have always said you will like us in the good times but love us in the bad times, and this is playing out to be true again during this pandemic and oil price downturn. Nonperforming assets totaled $77.9 million or 28 basis points of quarterly average interest earning assets at June 30, 2020. We continue to provide relief to our loan customers through loan extensions and deferrals when possible. For the second quarter of 2020, net charge-offs were $13 million. Of these charge-offs, $12.4 million were related to PCD loans with specific reserves of $28.5 million that we acquired in the merger. So far, $16.1 million in specific reserves were released to the general reserve in addition to the $10 million provision for loan losses for the second quarter.
M&A activity has subsided during this pandemic. Although there are -- there are some conversations and probably a few deals working, we believe that the M&A activity will start to pick up as businesses reopen and economic activity increases. Size does seem to matter now, especially with lower net interest margins, the need for increased technology and the potential for additional regulatory burden if there is a change in the administration. An example is the increased volume at our customer call center, with many older customers wanting to set up online and mobile banking that have previously not been interested in doing so.
The economy. The Blue Chip consensus forecast estimates that fourth quarter 2020 GDP will end at a negative 5.6% compared with the fourth quarter of 2019. However, they're forecasting a positive 4.8% GDP for the fourth quarter of 2021 compared with the fourth quarter of 2020. They are also forecasting an unemployment rate of 9.4% for the fourth quarter of 2020 compared with unemployment rate of 6.9% for the fourth quarter of 2021.
Based on these estimates, 2021 looks bright. We are positive about our Company's future. While our operating environment and economy are changing frequently, we remain focused on addressing whatever comes our way and taking care of our customers and associates. Prosperity continues to focus on building core relationships, maintaining sound asset quality and operating the bank in efficient manner while investing in ever-changing technology and product distribution channels. We intend to continue to grow the Company both organically and through mergers and acquisitions. We want to develop people to be the next generation of leaders, make every customer experience easy and enjoyable and operate in a safe and sound manner.
I want to thank everyone involved in our Company for helping to make it the success it has become. Thanks again for your support of our Company. Let me turn over our discussion to Asylbek, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Asylbek?
Asylbek Osmonov -- Chief Financial Officer
Thank you, Mr. Zalman. Good morning, everyone.
Net interest income before provision for credit losses for the three months ended June 30, 2020 was $259 million compared to $154.8 million for the same period in 2019, an increase of $104.1 million or 67.2%. The increase was primarily due to the merger with LegacyTexas in November 2019 and loan discount accretion of $24.3 million in the second quarter 2020.
The net interest margin on a tax equivalent basis was 3.69% for the three months ended June 30, 2020 compared to 3.16% for the same period in 2019 and 3.81% for the quarter ended March 31, 2020. Excluding purchase accounting adjustments, the core net interest margin for the quarter ended June 30, 2020 was 3.33% compared to 3.14% for the same period in 2019 and 3.36% for the quarter ended March 31, 2020. Non-interest income was $25.7 million for the three months ended June 30, 2020 compared to $30 million for the same period in 2019. The current quarter non-interest income was affected by $3.9 million in writedown of certain assets and general impacts of COVID-19 pandemic.
Non-interest expense for the three months ended June 30, 2020 was $134.4 million compared to $80.8 million for the same period in 2019. The increase was primarily due to the merger with LegacyTexas and one-time merger related expenses of $7.5 million due to the core system conversion that occurred in June. In addition to this merger-related expenses, the second quarter results reflected elevated expenses related to increased mortgage activities. With the core system conversion and operational integration process behind us, we do not anticipate any significant merger related expenses going forward, and we expect to start realizing the remaining cost savings beginning in the third quarter of 2020. We expect this additional savings to be about $7 million to $9 million per quarter. This, combined with the savings realized in the first and second quarter, will be in line with our previously stated 25% cost savings in non-interest expense.
The efficiency ratio was 46.56% for the three months ended June 30, 2020 compared to 43.74% for the same period in 2019 and 42.9% for the three months ended March 31, 2020. Excluding merger related expenses of $7.5 million, the efficiency ratio was 43.97% for the three months ended June 30, 2020. The bond portfolio metrics at 6/30/2020 showed a weighted average life of 2.69 years and projected annual cash flows of approximately $2.3 billion.
And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?
H.E. (Tim) Timanus -- Chairman
Thank you, Asylbek.
Our nonperforming assets at quarter-end June 30, 2020 totaled $77,942,000 or 37 basis points of loans and other real estate. The June 30, 2020 non-performing assets total was made up of $71,595,000 in loans, $187,000 in repossessed assets and $6,160,000 in other real estate. Of the $77,942,000 in nonperforming assets, $12,173,000 or 16% are energy credits, $12,73,000 of which are service company credits and $100,000 are production company credits.
Since June 30, 2020, $15,786,000 has been removed from the nonperforming assets list through the sale of collateral. This represents 20% of the nonperforming assets dollars. Net charge-offs for the three months ended June 30, 2020 were $13,01,000. $10 million was added to the allowance for credit losses during the quarter ended June 30, 2020.
The average monthly new loan production for the quarter ended June 30, 2020 was $871 million. This includes a total of $1.430 billion in PPP loans booked during the quarter. Loans outstanding at June 30, 2020 were $21.025 billion. The June 30, 2020 loan total is made up of 39% fixed rate loans, 36% floating rate loans and 25% loans resetting at specific intervals. The fixed rate percentage increased somewhat due to the inclusion of the PPP loans.
I'll now turn it over to Charlotte Rasche.
Charlotte Rasche -- Executive Vice President/General Counsel
Thank you, Tim.
At this time, we are prepared to answer your questions. Jamie, can you please assist us with questions?
Questions and Answers:
Operator
[Operator Instructions] And our first question today comes from Dave Rochester from Compass Point. Please go ahead with your question.
David Rochester -- Compass Point -- Analyst
Hey, good morning, guys.
David Zalman -- Senior Chairman & Chief Executive Officer
Good morning.
Charlotte Rasche -- Executive Vice President/General Counsel
Good morning.
David Rochester -- Compass Point -- Analyst
I guess [Indecipherable] hitting the NIM range this quarter ex accretion. So I was just wondering what your thoughts were on that going forward as well as the accretion trends in the back half of the year, if you can. It seems like you guys have a lot of room to move costs -- deposit costs lower. Just looking at where you were with your [Phonetic] rate cycle. So just curious to get your thoughts there too.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. I'll probably let Asylbek take it, but I think our accretion was higher than we normally gave guidance for. I think, Asylbek, we're looking what about $11 million to $13 million?
Asylbek Osmonov -- Chief Financial Officer
That's right. So for the -- going forward, I think next quarter, we're looking at the $11 million to $13 million is a little bit elevated because some of those PCD loans we're working out which they had a discounts in them, and so those being paying off bringing additional fair value income this quarter. But if you're looking going forward, we're projecting $11 million to $13 million based on what our model shows right now.
David Zalman -- Senior Chairman & Chief Executive Officer
And I think on the second part of the question, David, we -- we have kept our rates a little bit higher than we really had to. I've always said that sometimes in really good times people pay more than we do and then when times get a little tougher we've kept our rates a little higher than everybody else. But we are looking at it right now to reduce our rates a little bit, and we should probably do that this week probably sometime.
Asylbek Osmonov -- Chief Financial Officer
Yeah. So we did reduce the rates -- and so we reduced rates in the second quarter, but we're looking at managing further in the third quarter, reducing it. And if you look at our deposits, I mean, our CD is at a higher rate right now, but we're waiting for them to be repriced I think based what we see, we should have about $2 billion being repriced next 12 months.
David Zalman -- Senior Chairman & Chief Executive Officer
Right. And I think the biggest -- but we still have a lot of money like in our premier money market account that we're still paying 40 basis points, so $1 million plus. So we have some room to come down a little bit.
Asylbek Osmonov -- Chief Financial Officer
And additional, there are some broker deposits we still have about $100 million to get repriced.
David Zalman -- Senior Chairman & Chief Executive Officer
About $100 million.
Asylbek Osmonov -- Chief Financial Officer
Yes, next 12 months. So there will be some movements in the deposit cost.
David Rochester -- Compass Point -- Analyst
Great. I appreciate that color. And so just given all those opportunities, where do you think the NIM goes from here ex the accretion?
Asylbek Osmonov -- Chief Financial Officer
For the next quarter, our models show that our core margin to be a relatively stable, I mean, given the current economic conditions. But however we do expect to see some additional pressure on NIM because of loan repricing. And if you look at for next quarter, we could see a decline in the amount somewhere in mid-single digit, I would say, but I mean there is a lot of moving pieces. It's how the PPP forgiveness going to work and we have, as every bank, experienced right now quite a lot of liquidity coming into the bank because of the PPP program we had and the stimulus -- government stimulus.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. I don't think -- we never like to give evasive answer but there are so many moving parts. Now, I mean, there's $2.3 billion in extra deposits that came in. A lot of people thought $1 billion of that was probably from the PPP loans. But you'd have to think -- or I have to think that if that money we put out on PPP, they should have used half of that or more [Indecipherable] they didn't spend it because we're waiting to see if -- I don't know what the reason is.
But I think there is -- I think there is more -- going to be more liquidity than we anticipate. So you have that. You have the PPP loans. We do have some room on the deposit side. I would still say to be careful, you still see some -- probably mark getting [Phonetic] some decline of maybe mid to single digits, probably, just to be careful on everything I think.
David Rochester -- Compass Point -- Analyst
Okay. And then I guess some of that pressure, to your point, is from the just higher liquidity levels?
David Zalman -- Senior Chairman & Chief Executive Officer
Higher liquidity levels and repricing of loans [Speech Overlap]
David Rochester -- Compass Point -- Analyst
Yeah.
David Zalman -- Senior Chairman & Chief Executive Officer
And again, when we -- when we give you that, we're not showing any increase in loans. If we -- if we increased loans, that changes things and if we buy some securities, which we've been reluctant to do because they have been so low, that changes things. So there is a lot of moving parts on this this time -- there are probably more [Indecipherable] this time than ever before for us, I think.
Asylbek Osmonov -- Chief Financial Officer
That's right.
David Rochester -- Compass Point -- Analyst
Understandable. Appreciate all that. And then just switching to expenses. Just based on your comments on the cost savings, are you guys still feeling good about that previous expense guidance for -- I think it was $115 million to $116 million for 4Q. Are you thinking you may come in a little bit higher than that?
Asylbek Osmonov -- Chief Financial Officer
Yeah. I think we still believe that we're going to get $7 million to $9 million cost savings next few quarters. But remember, like in my notes I said that we have elevated mortgage activities, which have some expenses related to that. So with the current environment, with the rate being so low, we see a lot of -- giving new loans or mortgage loans. So that could keep up the volume which would increase the expenses. But if you look at our current expense for the second quarter, if you take out the one-time expenses and reduce that amount by $7 million to $9 million, that's what we believe is going to be on the next quarter.
David Zalman -- Senior Chairman & Chief Executive Officer
What do you think, about $118 million plus another $2 million in [Speech Overlap]
Asylbek Osmonov -- Chief Financial Officer
No, I think will be $118 million -- around $118 million and $119 million, including the mortgages.
David Zalman -- Senior Chairman & Chief Executive Officer
That's closer to [Speech Overlap]
Asylbek Osmonov -- Chief Financial Officer
Including mortgage activity, yes, sir.
David Rochester -- Compass Point -- Analyst
Okay. And that's for 3Q, the $118 million to $119 million, all in?
Asylbek Osmonov -- Chief Financial Officer
Yeah, assuming the mortgage level is going to continue as we see -- we saw in the second quarter.
David Rochester -- Compass Point -- Analyst
Yeah. Got you. Perfect. And then maybe one last one on credit or on capital. You guys obviously had a lot of it. And I was just curious how you're thinking about the buyback here, if you're hearing anything from the regulators on that front and if there is any willingness to reengage there at all.
David Zalman -- Senior Chairman & Chief Executive Officer
I think right now we do have a lot of capital. We're making a lot of money. We like the milk money. No question about it. But I think that regulators at this point in time -- I think if we bought back stock, there is, we have no agreement with them, but I would think they would look at negatively if you're buying back stock right now until we see further -- what the pandemic is doing. So I don't see us -- I don't see us buying stock back unless there's some really downturn in the stock. really strong or something like that. But for the -- for the immediate future, I think it wouldn't be looked at. It would be frowned upon as I would say I think by the regulators if we bought some stock back right now probably.
David Rochester -- Compass Point -- Analyst
Got you. All right. Great. Thanks, guys. Appreciate it.
Operator
Our next call comes from Jennifer Demba from SunTrust. Please go ahead with your question.
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Thank you. Good morning.
David Zalman -- Senior Chairman & Chief Executive Officer
Good morning, Demba.
Charlotte Rasche -- Executive Vice President/General Counsel
Good morning.
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
A question for David. David, what do you see as the most stressed borrowers in your portfolio right now and what kind of business trends are they seeing right now and what kind of loss content do you think could potentially arise in the next year or so?
David Zalman -- Senior Chairman & Chief Executive Officer
Well, those are all hard questions. Probably, if you had asked me some time ago, we would have said the oil and gas department was the toughest. I think oil and gas -- we're used to right now. I think the prices we're at were a lot better. So I don't -- I think we've learned to live with that, although having said that, from what they tell me at some of the meetings I'm at, they still say that oil and gas companies are still a large amount of bankruptcies to come from that. I feel pretty good where we're at. I think the most stressed that I would see -- looking -- looking at our portfolios we have, again, I'm talking off the top of my head, we're about $300 million in motel loans.
Asylbek Osmonov -- Chief Financial Officer
$380 million.
David Zalman -- Senior Chairman & Chief Executive Officer
I think -- I think the businesses that are most affected by this pandemic are really the hotel/ motel loans, which we have about $380 million in that. And then restaurant loans were about a little over $200 million. But again, we feel pretty good where we're at with most of our customers. I don't want to -- I don't want to be Mr. Happy but I don't want to be a downer either. I think that we have given some extensions. I think that we've extended our -- at forbearance -- again, I will give you some numbers. I'm going to let somebody else jump in this in a minute, but if we're extending about 6,700 loans, it's about 9.5% of our loans outstanding. On the other hand, at 6,700, approximately 4,800 of those have already started to pay and repay. So don't take those were exact numbers. I'll let somebody give you the exact numbers. I'm talking off the top of my head.
But we really feel pretty good where we're at. Those loans that we charged off this quarter were probably -- the $12.4 million were loans that came over through the Legacy merger and we fully -- we fully are reserved on those. In fact, we had $28 million reserved on that. So we were able to put another $16 million into the general reserve plus $10 million that we put. So I feel like we have a real good quarter. Again, I don't want to be a Pollyanna, say things are great. But I feel we're probably one of the best banks to be with in these kind of times.
Kevin, you may want to jump in on some of the oil and gas -- what's your feelings on that too.
Kevin Hanigan -- President & Chief Operating Officer
Yeah. I agree with David. If we look at stressed areas, things that would be on your top of mind is probably hotels, although I don't think we have any of them pass-through at the moment. And I don't think we have any office buildings or retail centers past due, either now. Some of those are in deferral periods, and we can talk about that as a separate issue.
On the oil and gas front, obviously the stress is less now with prices closer to $40 bucks than it was when we saw know single-digit and worst kind of oil and gas numbers. Our portfolio continues to work its way down. If you just look quarter-over-quarter, the portfolio shrunk $80 million over the quarter. Unused commitments shrunk from, I don't know, $390 million to $277 million and that's largely due to redetermination time. So it was us cutting commitments at redetermination time and putting everybody on MCRs. $54 million, a little over $54 million of that $80 million decline in oil and gas was from former Legacy clients that had marks on them and that's where a lot of the loss content we reported came from.
Just in terms of loss content on that $54 million, it was about 18%, but we had close to 48% reserves up against that. So if you think about the reserve level prior, call the mark, that was put on this 18 months ago was pretty prescient of the Prosperity seem to put big marks on that portfolio, because we had over $28 million of that $54 million was marked and we have loss content of about $12.5 million.
So, overall, I think the portfolio, energy-wise, is in good shape, a, because of the marks, b, because of the hedging and c, because we continue to strike it down and we were pretty aggressive during the redetermination time about putting monthly commitment productions [Phonetic] in every deal. So I think we're managing the risks around that portfolio as good as could be expected.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. And I would just say that they -- again, we have almost 1.9% in reserves when you exclude the PPP, I'm talking off the top of my head, and the mortgage warehouse --so we never really ever had that [Technical Issues] in reserve before. So I mean, I feel really good where we're at. And Tim, you wanted to comment too, didn't you?
H.E. (Tim) Timanus -- Chairman
I think I can maybe give a little help on the hotel and the restaurant question.
David Zalman -- Senior Chairman & Chief Executive Officer
Go ahead.
H.E. (Tim) Timanus -- Chairman
Obviously, none of us can firmly predict the future. We can only talk about with certainty where we are today. But it's a lot better than one would probably think it would be. As of June 30, on the nonperforming assets list, we only had two hotels. H1 had a balance of about $7 billion. So we had a total of about $14 million. One of them has already sold. So $7 million has come off the list and it's part of that number that I gave, that total number that's come off the list since the end of June. So there is only one remaining hotel in the nonperforming asset list, and it's got a balance of about $7 million, and it's actually current right now. They've resumed payments and they've kept it current for a while. To be conservative, we left it on the list, at the end of the quarter, and we're going to watch it month by month going forward.
But the good news is it's current right now. There was only one restaurant on the nonperforming asset list at the end of the quarter and it had a relatively moderate balance of about $43,000, it happens to be SBA guaranteed and we've already filed a claim with the SBA to get them to honor their obligation as it relates to that loan. If you look at the total hotel portfolio, about $52 million of that portfolio carries an SBA guarantee, and on the restaurant side about little over $10 million of the portfolio carries an SBA guarantee. So, right now, things are reasonably stable as it relates to our hotel-motel and restaurant loans that we'll just have to see how the future plays out.
David Zalman -- Senior Chairman & Chief Executive Officer
And I would think that that's [Indecipherable] and I would say the restaurant loans -- we really aren't doing a bunch of mom and pop restaurant loans. These are customers that have maybe 30 stores or franchises or something, they're usually bigger customers. So did we give you too much color, Jennifer?
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Not at all. It was great. I have one more question on credit. And on one of your slides in your deck, it says it just calls out medical loans. I'm just curious, are you seeing any stress there or you just decide to strip that out for us?
David Zalman -- Senior Chairman & Chief Executive Officer
I would have to ask [Indecipherable] but I didn't know. I didn't look at -- but no, we're not seeing any stress in the medical side. I think it is something people have asked us, foreign investors have asked us for the breakout, and I just recently broke it out primarily.
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Okay. Terrific. Thank you.
David Zalman -- Senior Chairman & Chief Executive Officer
Thank you.
Asylbek Osmonov -- Chief Financial Officer
Thank you.
Operator
Our next question comes from Brad Milsaps from Piper Sandler. Please go ahead with your question.
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Hey, good morning.
David Zalman -- Senior Chairman & Chief Executive Officer
Good morning.
Charlotte Rasche -- Executive Vice President/General Counsel
Good morning.
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Thanks for taking my questions. Just curious trying to figure out the impact of the PPP loans in the quarter. I was curious if you might be able to disclose the average balance and then the level of interest income that you, including fees and the coupon you recognized in the quarter, and any benefit maybe from FAS 91, deferred loan origination cost that might have been on expenses in the quarter.
Asylbek Osmonov -- Chief Financial Officer
Yeah. This is Asylbek. I'll give you a little bit color. So we -- we recognized about $4 million on the fee income during the second quarter with about $2 million per month and we deferred all the fees and -- including fees and -- and deferred some direct expenses over 24 months. As you know, once those loans going to get forgiven and pay up we can recognize that income at that time. But for time being, it's on the deferral for the 24 months. I think on average, we -- the average balance I believe for the second quarter was about $750 million or so on PPP loans. And if you calculate, including the 1% interest income, we're generating about 2.5% yield on those loans right now. I think overall, we, Brad, we brought in around $50 million in fee income and the -- and probably had about $5 million or $6 million in expenses. So, again, we'll amortize that over a 24-month period. But as those get forgiven, we'll probably -- we'll bring it back into [Indecipherable]. I think the average loan, you may be wrong on that $750 million. What's the average loan size about? $350 million?
H.E. (Tim) Timanus -- Chairman
Well, we booked 12,000 loans in round numbers.
David Zalman -- Senior Chairman & Chief Executive Officer
How many do you think, Eddie?
Edward Z. Safady -- Vice-Chairman
The average loan size is below $200,000.
David Zalman -- Senior Chairman & Chief Executive Officer
Below $200,000. So our average fee was -- I would say our average fee was probably closer to around 3% probably or not?
Edward Z. Safady -- Vice-Chairman
[Speech Overlap]
David Zalman -- Senior Chairman & Chief Executive Officer
I think that's, if you're trying to get [Speech Overlap]
Asylbek Osmonov -- Chief Financial Officer
Yeah, sorry, I wasn't giving the average balance for the quarter, but total PPP loans.
David Zalman -- Senior Chairman & Chief Executive Officer
Well, he may be right. I was just -- sorry I missed [Indecipherable].
Asylbek Osmonov -- Chief Financial Officer
Yeah, we booked essentially a total of $1.430 billion and that was spread out over 12,000 loans in round numbers.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. That's right. Did we get you what you need, Brad?
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Yeah, yeah. That was great. But just to be clear, Asylbek, the FAS 91 adjustment wasn't a huge number in the quarter and you still feel comfortable getting down to that kind of expense numbers you talked about earlier, even with that adjustment?
Asylbek Osmonov -- Chief Financial Officer
Yeah. So those fee, the PPP fee, yeah we deferred it. All the direct expenses were also deferred. But it's part of the interest income part of it, the way how GAAP is done. So it's not going to be impacting our non-interest expense, Brad.
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Got it. Okay. Thank you. And then just as a follow-up maybe for Kevin. Obviously a great warehouse quarter. Kind of what's your crystal ball say kind of over the next 90 days in terms of -- in terms of average? And also, there is the yield -- was down there, maybe more than some of your peers. Just kind of curious, kind of thoughts on that competitive landscape and ability to hold on to pricing.
Kevin Hanigan -- President & Chief Operating Officer
This is Kevin, Brad. I'll take that one. But obviously, the quarter was -- was really strong, averaging $1.843 billion I think and ending at much higher numbers, almost $2.6 billion. So that -- that ending June month end balance gives us a great running start going into July for those balances, carried on for much of the month. Based upon what we're hearing from our clients, we expect the end of this month to be really strong again and that comes to us by virtue of them asking for over lines or extending the facilities at larger levels to get them through this really robust period of time.
What's particularly interesting to me is that the turn days, despite all that volume, the turn days which typically run for us and the industry at about 17 days were only around 14 days this quarter. So when you think of that in terms of the amount of activity that have those level of balances with that quicker turn days, it's pretty remarkable. I've been around this business a long time, and typically, we would average in a month 20 -- or the quarter -- 23,000 to 25,000 files and Q1 was a new record. We did 41,000 files and we did almost 82,000 files in Q2. So the amount of volume going through there is pretty high. And that volume does produce still healthy levels of fee income. We're collecting, I calculated this morning about $37 a file that we touch in fee income. So I think Q3 -- and again, who knows beyond where we sit today, but a great stay, reasonably stable where they are. I think Q3 is going to be even stronger than Q2 was by -- if we averaged $1.8 billion, I wouldn't be surprised if we average $2 billion or $2.1 billion for the quarter. We'll just see how it plays out from here. But all pretty strong.
Finally, on rates, I think rate pressure has kind of subsided I think finally, and I would tell you that all of our loans have LIBOR floors in them. So everyone that we have -- and we have 39 [Phonetic] customers now has a LIBOR floor of LIBOR being 1%. So any moves in LIBOR from where we are now would impact pricing like it has in the past.
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Great. That's helpful. Thank you, guys.
David Zalman -- Senior Chairman & Chief Executive Officer
Thanks.
Operator
And our next question comes from Brady Gailey from KBW. Please go ahead with your question.
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
Hey. Thanks. Good morning, guys.
David Zalman -- Senior Chairman & Chief Executive Officer
Good morning, Brady.
Charlotte Rasche -- Executive Vice President/General Counsel
Good morning.
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
I wanted to ask about the need or lack thereof of future provisioning. I mean, you had a zero provision last quarter, $10 million this quarter, but David, as you said your reserves are almost 2%. I know you guys are known as having one of the cleanest loan books in the industry. So do you think that there will be a need for future credit provisioning just given how clean your book is and how strong the reserves are currently?
David Zalman -- Senior Chairman & Chief Executive Officer
Well, this time, again, when I say this, something may go wrong, but even the $10 million provision that we made this time -- these, under CECL or any other type of calculation that you have, you have a -- you can go -- you can either be at the high end, the mid end or the low end and even to get the $10 million that we had this time we had to really try to be on the high end of our provisioning. So, my gut feeling is unless something changes I don't see us provisioning. I just don't see it right now. I'm sure -- I'm looking at Merle and the credit guys [Indecipherable] they would always like to have everything in the world in there, but the bottom line is, again -- I just, I see us highly provisioned. When we do these stress tests, I remember where we had the DFAST test and even under a stress test, the most that you would lose over a two year period -- I mean compared to what the stress test say, if they're right, I don't see it.
Now, the question is, what do regulators going forward through this pandemic or till we get some guidance to see what we have. But I think the 1.9% in our reserve for loan loss is too high for a bank like ours. Having said that, I think the regulators want to see that, I think our Chief Credit Officer wants to see that. But I think that $354 million that we have in there, I don't think we've lost that since I've been in banking. If you add all the years together, I'd bet we haven't lost $100 million or $80 million and that's what some of the banks we've bought. So god help us, I hope we don't get there, but in my lifetime, I have never seen us giving close to what we -- what we had in it in, what we would use. That's just me. But having said that, I know we have to be careful. We don't know when this will all end and when everything will open back up. But I don't know -- I throw it out there, I don't see it. I think it's too much, but it is what it is and we have these calculations that we have to go with the calculations and it's not just me running the Bank. There is the credit people and the regulators and everybody else. But I think it's extremely high really.
H.E. (Tim) Timanus -- Chairman
Well, where we are as an individual bank right now is relatively stable. Things are arguably a lot better than a lot of people would assume they would have been. But clearly there is a lot of instability in the economy out there. And our reserve is based on a lot of things. Obviously, very important part of it is where we are as a bank, but also there are economic factors that go in there, and a lot of those are not trending well right now for obvious reasons.
So it's just very hard to -- very hard to say. I am inclined to agree with you, David. It's hard to imagine that our portfolio is going to fall apart overnight. But world is what it is, and anything can happen.
David Zalman -- Senior Chairman & Chief Executive Officer
Kevin, I don't know if you want to add to that at all.
Kevin Hanigan -- President & Chief Operating Officer
No, I think you've got it covered pretty well.
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
Okay.
David Zalman -- Senior Chairman & Chief Executive Officer
Brady, I don't know if I answered it, but that's just our -- with my, the overall feelings about that.
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
Yeah, no, that was great. And my second question is, the 9.5% of loans that were modified, what is that -- what is that as of today? I mean, I'm guessing that's come down some. Any idea how much of those initial modifications will need a second modification?
H.E. (Tim) Timanus -- Chairman
Well, I can give a little more certainty to that.
David Zalman -- Senior Chairman & Chief Executive Officer
Go ahead.
H.E. (Tim) Timanus -- Chairman
Obviously we can't give 100% certainty. As has been previously mentioned, we extended some payments on -- it was, to be precise, it was 6,727 loans, and the total aggregate outstanding balance of those loans together was $3.626 billion, and that's extending at least one month, most of them were two or three months. There have been a few -- not many -- that is going as far as four months being extended. But really the vast majority of those were two or three month extensions.
Out of that 6,727,000 [Phonetic] 4,864 of those loans have already resumed making normal payments. And the aggregate total balance of those 4,864 that have resumed payments and are still paying, that balance is $2.283 billion. So how long those that have resumed payments continue to do so, obviously we can't say with certainty. But those customers are implying to us that they have reasonable stability in their business right now. We still continue to extend a payment here or there for a few customers, but not near as many as we did in April and May. So everything seems to have stabilized a bit, but obviously there are just no guarantees.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. I mean, I think 4,800 loans resuming payments out of 6,727 loans that we extend is pretty good. I think that shows some pretty good -- it shows that our customers, the customers that we have are really good customers.
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
Great. Thanks, guys.
Operator
Our next question comes from Ken Zerbe from Morgan Stanley. Please go ahead with your question.
Kenneth Zerbe -- Morgan Stanley -- Analyst
Thanks. Were the PCD loans you guys took charge-offs on this quarter, were they sold in the quarter? I mean, I'm just trying to figure out like how you also were able to release the $16 million of other reserves on those back into the general portfolio for general reserves.
Asylbek Osmonov -- Chief Financial Officer
The loans were moved out of the bank -- were paid off.
Kenneth Zerbe -- Morgan Stanley -- Analyst
Got it, OK. And you took we charge on those as they...
Asylbek Osmonov -- Chief Financial Officer
I'm sorry.
Kenneth Zerbe -- Morgan Stanley -- Analyst
Got it. Okay. And then just -- I just want to make sure I got the math right on this. I understand, David, you certainly think the reserves are very high and you struggle to get the $10 million of provision. If you move to the $16 million of specific reserves into general reserves, is it a fair way of looking at it that your provision expense this quarter based on what your CECL model says, your CECL model says you should have booked a $26 million provision, but yeah, $16 million coming from the specific and the $10 million coming from regular provisions?
David Zalman -- Senior Chairman & Chief Executive Officer
You are hitting the nail on the head I think. We actually put $26 million into the general reserve this month, basically.
Asylbek Osmonov -- Chief Financial Officer
But you have a wide range in there and we were at the upper end of that range. If he is asking would we have been required to put $26 million in there if we hadn't got that.
David Zalman -- Senior Chairman & Chief Executive Officer
No, I mean [Indecipherable]. No, we took -- we took the upper range of what we could be in and so basically -- but the net -- but the bottom line is, technically, we increased the general reserve by $26 million this quarter, basically. Because if...
Kenneth Zerbe -- Morgan Stanley -- Analyst
Got it.
David Zalman -- Senior Chairman & Chief Executive Officer
[Speech Overlap] $28 we had in reserve and what we collected, we've -- actually there were $16 million in more specific reserve that in the old days, that $16 million -- before you had this new accounting, that $16 million would have come through the income statement. Now it doesn't. it used to be called SOP 303 or something like that. In today's world, it doesn't come through the income statement. It goes directly -- well, I guess -- we wouldn't -- I guess if we wouldn't have added to the other reserve it might have, but we put it to the reserves, of general reserves.
Asylbek Osmonov -- Chief Financial Officer
But it doesn't automatically go into income the way it used to.
David Zalman -- Senior Chairman & Chief Executive Officer
No. I guess if I -- I guess [Speech Overlap] I'm trying to put it from a technical standpoint. I'm learning something myself. I guess if we were to just said also that we couldn't put that $16 million into the general reserve, I guess that might have been pulled back into the income statement, I guess.
Asylbek Osmonov -- Chief Financial Officer
Yeah. Technically in the old ways, you would take that $16 million as SOP 03 fair value income and technically it's a model we decided not to go with the upper end. You could technically take it as a provision income because once it is released, you could take a provision income but based on the model and our discussion we believe that just leaving as a general reserve was more appropriate.
David Zalman -- Senior Chairman & Chief Executive Officer
It wouldn't be prudent in today's world to bring something back into income, I don't think with the pandemic and not knowing where everything is going to eventually settle out at, I don't think.
Asylbek Osmonov -- Chief Financial Officer
Yeah. But in a perfect world, you technically should have taken [Speech Overlap]
David Zalman -- Senior Chairman & Chief Executive Officer
In a perfect world, if weren't in a pandemic and all that, we probably wouldn't have even put the $10 million in and we might even take the $16 million back into [Speech Overlap]
Asylbek Osmonov -- Chief Financial Officer
As provision income.
Kenneth Zerbe -- Morgan Stanley -- Analyst
Okay. And then just last question, just in terms of fee income, are you seeing any rebound in deposit service charges? And also just more broadly, like how do you see fee income trending over the next quarter or two?
David Zalman -- Senior Chairman & Chief Executive Officer
Go ahead. You can jump in. I have seen this last month, our finally our service charges picked up over $1 million this last month, just general overall service charges. What you were going to say?
Edward Z. Safady -- Vice-Chairman
No, that's exactly, because those fee income, we saw down in the April and May month and we saw some bounce back in June. So if we continue that way, I believe the fee income will go up. So you are right on Mr. Zalman.
David Zalman -- Senior Chairman & Chief Executive Officer
I think as the economy opens up, I mean really the service charge income -- and people really just weren't spending money. I mean they're saving money and they're not -- they're not doing things but I think we did see this last month -- I saw that service charge income did grow pretty good, $1 [Phonetic] million or so.
Edward Z. Safady -- Vice-Chairman
Just one wildcard I would just throw out there. We just have to be conscious that there is a second stimulus package they talking about passing it. So if they're going to give the stimulus money to people they will have excess liquidity there to -- that could impact, but it's just a wildcard.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah. I think you could see another round of big deposits come in, probably increase this quarter with the stimulus package and all that you probably could.
H.E. (Tim) Timanus -- Chairman
You also have to take into consideration that during the worst of it for us, which were the months of April and May, we specifically waived a number of service charges for customers to help them out.
Edward Z. Safady -- Vice-Chairman
That's a good point, Mr. Tim.
H.E. (Tim) Timanus -- Chairman
And we're not seeing the necessity right now to do as much of that.
David Zalman -- Senior Chairman & Chief Executive Officer
I'd forgotten, but that's a good point. A lot of -- some of that decrease was because we waived service charges...
H.E. (Tim) Timanus -- Chairman
We purposely waived the service charges for a number of customers to help them out. And you know, the necessity for that of course could come back, but right now we're not seeing it.
David Zalman -- Senior Chairman & Chief Executive Officer
Right.
H.E. (Tim) Timanus -- Chairman
So I think that itself is going to create some additional [Speech Overlap] compared to where we were during this last quarter.
Kenneth Zerbe -- Morgan Stanley -- Analyst
All right. Perfect. Thank you.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah.
H.E. (Tim) Timanus -- Chairman
Thank you.
Operator
And our next question comes from Peter Winter from Wedbush. Please go ahead with your question.
Peter Winter -- Wedbush Securities -- Analyst
Good morning. I wanted to ask about the loan trends -- the core loan trends. I was just curious how much is left in terms of the run-off of Legacy. And then secondarily what's the loan demand like in the core portfolio ex the mortgage warehouse?
David Zalman -- Senior Chairman & Chief Executive Officer
Okay. Let me help -- I'm trying to read my notes here that they wrote for me. But I think we started off with about $400 million in loans. I think you started at around $400 million in loans from Legacy that we decided that we thought that we would try to outsource out of the banks. I think so far, we've moved out in the first quarter and the second quarter about $131 million of those loans.
So, still about -- still about $283 [Phonetic] million left there. So we'll have to -- we'll get have to get through that, but as far as loans go, again, we had tremendous growth in the PPP, we had tremendous growth in the mortgage warehouse. We actually saw a decrease. I think if you looked at our core loans this quarter, I think I've said -- I'm talking off the top of my head again, so forgive me if I'm wrong, but around $311 million, $312 million less in core loans. And out of those core loans, I would say that about $65 million of that was really made up of these loans that we talked about earlier that we got -- we got out of them. We had some recoveries on them. So that was about $65 million. And I would say probably just some of the other loans from Legacy, the merger in the CRE product we're not putting on as many of those particular loans. Naturally, in this type of economy, doing commercial real estate on the retail side, it's not something we would jump in.
So having said that, if you look just at core loans, I think you were down about -- if you take out the $65 million, I think that was about 1.6% and of course you would have to annualize that. The 1.6% for the quarter, we were down. Really, when I look at everybody else, that was considered pretty good. I think going forward, to give -- to give a number of loan growth going forward, I think it's hard, like I said before, the shutdowns we were having great growth both in the first quarter and the first part of the second quarter. As the shutdowns came, we saw things contract. So with us having to get out of still $200 million in loans, $280 million in loans at Legacy and looking at the pandemic [Indecipherable] I would have to forecast that probably the best you could help for us would probably be anywhere from a 0% to 3% growth rate this time I think. That's just me. If somebody else may want to jump in. Kevin, do you want to jump in on that?
Kevin Hanigan -- President & Chief Operating Officer
No, David, I agree with you across the board. We're still seeing deals and loan committee every Thursday. Some new things are getting approved, but I think we all understand -- it's a really tough time to underwrite a loan. I mean, the retail center comes in and what -- what do you do? How many of these people are paying and how many of these people are going to be able to continue to pay and how many are being deferred. Say no to commercial office building. What's the future of commercial office buildings. I don't think we -- would have to be a pretty spectacular amount of equity and a really strong guarantor to do a retail deal or a commercial office building deal. That's already constructed office building. Forget new construction for the most part unless it's again a really, really unusual situation.
It's just [Indecipherable] it's a really tough time for underwriting. On the other hand, like I tell you, it's really easy. There is a lot of things we're just not going to touch during this period of time. So a lot -- so while [Indecipherable] I guess the $312 million number, a good portion of that, it was running off of some stuff that out of the Legacy portfolio we didn't want to keep. It's going to be tough in this environment, and I'm not worried about not producing loan growth right now. I'd like to see a little more clarity as to what underwriting looks like across the board. I think we all would before we feel better about producing a whole lot of loan growth.
David Zalman -- Senior Chairman & Chief Executive Officer
I think that's right. And I think also you could say the loans that we're looking at now, I mean if you are coming to us for a multifamily project or an office building where we might have been willing to get 40% down -- 35% or 40% down in the past and go with somebody to lease it, we're probably going to ask for some guarantor support other global support more than just a project itself. So I think your underwriting were toughening up right now. We'll lose it if things turn around, but right now we're able to get a little bit better comfort if we're doing stuff we're able to get a little bit better collateral support and guarantor support I think.
H.E. (Tim) Timanus -- Chairman
The only sector really that doesn't appear to slow down a bit is homebuilding. Most of our homebuilders are still selling their houses and building their houses. We haven't seen a big drop in demand from our homebuilders.
David Zalman -- Senior Chairman & Chief Executive Officer
Good point.
H.E. (Tim) Timanus -- Chairman
But everything else has slowed a bit. Not, not a screeching halt. But has slowed a bit. And we had already slowed our approach to apartments and office buildings before the virus -- anybody ever knew anything about it.
David Zalman -- Senior Chairman & Chief Executive Officer
I think that's right. So there should be an opportunity for us where other banks that are having loan issues, they're not going to be willing to do anything. I don't think where I think that we can be more optimistic on something and maybe we can get better terms, we might be able to do it, where some of the other banks can't, at least we have in the past.
H.E. (Tim) Timanus -- Chairman
In the past, that's exactly been the case when things have gotten bad, especially really bad and other banks have been crippled and found themselves in a position of really being unable to loan, we've been able to get some customers in that are good customers, because they can't find financing the way they have wanted it in the past, and our conservative terms become more acceptable to them. So it has worked that way, almost every time.
David Zalman -- Senior Chairman & Chief Executive Officer
Have we answered, Peter?
Peter Winter -- Wedbush Securities -- Analyst
Yeah. Above and beyond. That's very helpful. Could I -- just a follow-up question on earning asset yields. Can you talk about how much is cash flowing in the securities portfolio in which you're reinvesting that [Indecipherable]?. And then secondarily, the yield is still fairly high on the loans held for investment. I'm just wondering what the new loans or reinvestments are going on on the loan portfolio as well.
David Zalman -- Senior Chairman & Chief Executive Officer
I'm going to start from the top of my head. Again, I'm not reading from anything but, again, we haven't been buying any securities. Most of -- we've let all of our borrowings run out and we can make in that money in and really just funded the mortgage warehouse deal now. We're having some liquidity right now. We still haven't bought anything, probably $400 million, $500 million. We'll probably go in and buy some security that will probably be a mixture of some floating rate stuff with some 15 year -- and mortgage-backed security. It will be somewhere in between.
But as Kevin mentioned earlier, we hope that some of the liquidity is going to be taken up by the mortgage warehouse financing toward the -- toward the end of the quarter here or in the next few months. We'll probably still have to buy some, but again we've let -- we've just -- we've been letting it run off. I think [Indecipherable] off the top of my head, but we have probably what, over $1 billion a year, what that rolls off...
Edward Z. Safady -- Vice-Chairman
Yeah. Our annual cash flow right now, it's the projected about $2.3 billion.
David Zalman -- Senior Chairman & Chief Executive Officer
It's going up.
Edward Z. Safady -- Vice-Chairman
Yeah. It's going up significantly because all the refinances and a new mortgage, but yeah, for the second quarter, we didn't buy any of those securities. We used all the money for toward the warehouse and paying down the borrowings. So, but now we'll be looking into the...
David Zalman -- Senior Chairman & Chief Executive Officer
I think -- I think we'll be forced to buy some securities this quarter probably. Again, I don't know if that will be $300 million or $500 million, but we'll probably be forced to do something like that.
H.E. (Tim) Timanus -- Chairman
And on the yield question, on the average, I'd say most of the new loans we're booking now are about 4%. That's about where we are.
David Zalman -- Senior Chairman & Chief Executive Officer
I think the fixed rate will probably get a little bit better.
H.E. (Tim) Timanus -- Chairman
Yeah, I'm just saying across the board.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah, across the board.
H.E. (Tim) Timanus -- Chairman
Across the board. That's pretty close to being what it would be.
Peter Winter -- Wedbush Securities -- Analyst
Okay. Great. Thanks for taking my questions.
David Zalman -- Senior Chairman & Chief Executive Officer
Sure.
Operator
And our next question comes from Michael Rose from Raymond James. Please go ahead with your question.
Michael Rose -- Raymond James & Associates -- Analyst
Hey, guys. The two loans that were the PCD loans, were they -- I'm sorry if I missed it, were they energy loans?
Asylbek Osmonov -- Chief Financial Officer
It's more than two loans. Yes, they were energy loans.
H.E. (Tim) Timanus -- Chairman
Yeah, Michael, I think it was four loans totaling $54 million, roughly.
David Zalman -- Senior Chairman & Chief Executive Officer
That's correct.
Michael Rose -- Raymond James & Associates -- Analyst
Okay. So what was the -- what was the haircut and what you guys [Indecipherable]?
Asylbek Osmonov -- Chief Financial Officer
I'm sorry, it was 18% discount off the principal balance, whereas we had about 48% or 40% specific reserves up against them.
Michael Rose -- Raymond James & Associates -- Analyst
Okay. Thank you. Kevin, what's the go forward outlook for the energy business for you guys? I know it's obviously a bigger piece at Legacy but given that things have changed, I mean, is it still a business that Prosperity has a real interest in being in any sort of size or capacity?
Kevin Hanigan -- President & Chief Operating Officer
Yeah, I mean I should take that to David. But I would say our position is cautious. We're in Texas. So I think our intention is to remain in the business to be -- to stick to our knitting in terms of underwriting. And now that we've gone through a redetermination period under the Prosperity loan policy, all of the Legacy loans are now more conforming with Prosperity loan policy in terms of advance rates and how we do engineering and things like that. The portfolio will probably continue to shrink, Michael, before it gets any bigger because we're being particularly cautious right now, and I think we'll remain that way. But I don't see us as a Texas bank [Indecipherable] the business. But you know, we've got a -- a little over 3% -- between 3% and 4% of our total loan assets and that's probably not a bad place to be, maybe a shade lower than that in the near term.
Michael Rose -- Raymond James & Associates -- Analyst
Okay. And maybe just one for...
Kevin Hanigan -- President & Chief Operating Officer
And David, weigh in on that.
David Zalman -- Senior Chairman & Chief Executive Officer
Yeah, I agree with everything you're saying. I think when Kevin and I first off put these deals together I think Kevin said didn't care [Indecipherable] oil and gas business again. And I said, well, we are in Texas and we will be in the oil and gas business. I think it will just be difference that will be a difference in underwriting and again I think probably not as many deals with shared credits and private equity and stuff like that. It will be to the oil and gas [Indecipherable] will be primarily more to core customers that can show them the underwriting whatever they buy that that particular that -- that particular deal can pay itself back in and four or five years. And that's the way we would structure it basically.
Michael Rose -- Raymond James & Associates -- Analyst
Okay. That's helpful. Maybe one final one for you, David. We're 90 days past the last earnings call, we're past the conversion for the Legacy deal. What have you learned at this point and has your views on potential M&A partners changed just given what you've learned maybe in the past 90 days? Thanks.
David Zalman -- Senior Chairman & Chief Executive Officer
Yes, I'm back in love again with M&A after our bromance with Kevin. After the last -- he might not be in bromance with me, I don't know, his back's hurting right now [Indecipherable]
Kevin Hanigan -- President & Chief Operating Officer
I still love you, David.
David Zalman -- Senior Chairman & Chief Executive Officer
Okay, good. It has been great. I lost some of the love of M&A after one of the deals that we did. It just -- everything that was said was just kind of the opposite. But this has been really good. And not only Kevin, his team, when I talk with the team, I really couldn't tell what do we really be interested in this mortgage warehouse, it's really turned out, it's really felt a great need with interest rates going as low as they have. I mean, having the option of doing this -- and I feel better with it -- because I feel good with their team, their team, the mortgage warehouse team really knows what they're doing and have a lot of confidence in them. So I really feel good with that piece of the business, and really almost everybody that I've worked with at Legacy, all the people are very professional, very astute. I think they are -- I couldn't be more pleased, let me just say that.
Michael Rose -- Raymond James & Associates -- Analyst
And going forward, any updated views on M&A for you guys?
David Zalman -- Senior Chairman & Chief Executive Officer
Yes. I mean, I think I mentioned that M&A probably right now where we've had a lot of call into the past where things are good. Everybody's calls -- not everybody, but usually we have two or three deals working at any given time. That's probably not the case right now. But having said that, generally what happens in times like this is, generally we get a deal that we would never have been counting on. If the deal that somebody has been in -- have some issues and I have to get out of it, and I wouldn't be surprised if we get --a lot of it depends on this pandemic and how long it lasts, but I wouldn't be surprised if something like that comes to us. And we've had deals, even some really good deals come to us right now. But again, the price that they want right now would be -- and where they're located wouldn't be what we want to do exactly right now.
Michael Rose -- Raymond James & Associates -- Analyst
Great. Thanks for taking my question.
David Zalman -- Senior Chairman & Chief Executive Officer
Sure.
Operator
And ladies and gentlemen, at this time we will end today's question-and-answer session. I'd like to turn the conference call back over for any closing remarks.
Charlotte Rasche -- Executive Vice President/General Counsel
Thank you, Jamie. 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.
Operator
[Operator Closing Remarks]
Duration: 68 minutes
Call participants:
Charlotte Rasche -- Executive Vice President/General Counsel
David Zalman -- Senior Chairman & Chief Executive Officer
Asylbek Osmonov -- Chief Financial Officer
H.E. (Tim) Timanus -- Chairman
Kevin Hanigan -- President & Chief Operating Officer
Edward Z. Safady -- Vice-Chairman
David Rochester -- Compass Point -- Analyst
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Bradley Milsaps -- Piper Sandler & Co. -- Analyst
Brady Gailey -- Keefe, Bruyette, & Woods -- Analyst
Kenneth Zerbe -- Morgan Stanley -- Analyst
Peter Winter -- Wedbush Securities -- Analyst
Michael Rose -- Raymond James & Associates -- Analyst
