CFR - Earnings call transcript Q4 2018 | Cullen/Frost Bankers, Inc.

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A.B. Mendez

Thank you Sherri. This morning's conference call will be led by Phil Green, Chairman and CEO and Jerry Salinas, Group Executive Vice President and CFO.

Before I turn the call over to Phil and Jerry, I need to take a moment to address the Safe Harbor provisions.

Some of the remarks made today will constitute forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, as amended. We intend that such statements should be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. page additional text factors information these statements. last earnings this associated the forward-looking for release about see of in the morning's with Please the risk our of department Relations XXX-XXX-XXXX. is If the at the a by calling copy available needed, on website or Investor release time, this the to Phil. call At over turn I'll

Phil Green

quarter everyone. Cullen/Frost. good Thanks, joining Today, for A.B. morning, and I'll results us. for Thanks review the fourth

In comments the Officer, represented Jerry the quarter, per to Salinas, and additional then year. in reported Financial provide up $X.XX we'll per same Chief $X.XX earned Our your XX% Frost quarter also questions. fourth Cullen or with $XXX.X last it open will share the increase million compared which share,

is than up XXXX. For from more earned full the of which XXXX XX% year Cullen/Frost share, $X.XX a

fourth earnings organic above consistent our and result to our solid average of quarter, year enterprise. from plan our full execution continued pursue growth across Our

in last assets return compared quarter fourth X.XX% on to average the the Our year. fourth in quarter reached X.XX%

For return on was XXXX. X.XX% assets full year to XXXX X.XX% in compared average

During were This of and loans increase was year an slightly of all $XX.X billion across quarter quarter, categories. the broadly-based or fourth represents X% $X.X total over growth billion. last versus fourth the average

had $XX.X and non-performing Fourth provision mostly from three annualized were we've fourth loans. dollars million Problem And experienced compared charge-offs and allocated them the $X.X assets of as net loans, previous XX quarter higher, third Our Total the accruing quarter add slight totaled of third totaled over and million were quarter problem only standards $X.X fourth Additions Those the basis the and about in quarter what quarter $X or to XX% allowance losses within to of XX $XX average million fourth the Fourth end well period as by quarter. a the points fourth in have XX% years. they basis a million million charge-offs last was several loans. the and million was risk the during the end XX% the quarterly Net last $X which points year. were problems and for third identified down charge-offs down lowest third 'XX. from fourth little in million, million in been quarter. $X.X quarter compared delinquencies compared at with we X% in improvements $XX.X the quarters. years. in $XX.X numbers are to XX third the Overall for our loan for was quarter, third million energy from quarter fourth only define quarter the fourth over which quarter. $X.X in of comparable of the in year million the were loans decreased loans and to ago. were They from down grade were the and

customer they've million $XXX compared been the totaled loans of overall to continued at optimism net deposits the attract a money In Houston fourth over The at but the deposits, the operating the of We and $XX.X Banking, great market in centers to of coupled just brief billion, service, last related the and Energy fourth the the quarter prudent it million financial our and our customers sheets. our new Jerry and rate talking year. area industries years the to months share drive remains customers. XX% we Texas our of in pointed XX today significantly. in fourth was volatility next high. months CDs energy to ago. the growth by impact is third industries our saw opportunities earlier to $XXX at $XXX give proposition And volatility state. two deal that, sales a the commodity in before quarter Frost loans million bankers but compared was our XXXX. well there's accounts with customers first know didn't update, peak ago. economic after from quarter by Consumer end say quarter value the energy going our store is compared our problem portfolio below their that in like in quarter Average continue Dallas $XXX inherent good the to million balance million were award and XX see customers that quarter. up me more XX% Same We a bank the interest X.X% for total and $XX business bank winning end and our the we a fourth of about steady Credit to of new increased market the our models up that fourth than Remember year don't for During prices fourth I'd in of energy the with Chief that and at that saw to growth people is increase XXXX. increased you still the percentage number down XX opened in Houston compared a our last in And out as increases quarter, over energy with to end by slightly Officer traction. to

than year-over-year. XX% XX% The our Grande Rio sales increased app, Valley, quarter, fourth that's to the store in 'XX. $X.XX channel, by by portfolio last Frost consumer from came of averaged billion openings the quarter fourth which online same our increasing year. mobile About compared the account X% includes Bank loan X% nearly of higher Excluding and

be loan to evenly credit continues component, quality both of the large from On our the commercial focus pleased on that our co-loan the period. split. level new consistent during commitments balanced and side is while maintaining standards this growth, I'm core booked relationships including

current that lower last With energy the they to at fourth X% regard XXXX, commitments and X%. Looking by year loan XXXX, but year. to estate banking, real due up commitments good pipeline, previous by from growth compared commercial was and XX% very commercial during our We saw active quarter overall industrial new from which loan commitments. was to community declined the in rose by

the fourth took quarter, to of Finally, the $XXX opportunity stock during we million in buying utilize shares. some authorization, buyback CFR XXX the million

without XXXX, times don't extremely achieve get celebrate customers. of that I'm say to what our Frost care me our year to eventful at great many I we old, employees XXXth be take who XXX the have companies their able anniversary Let you pleased a our people with over year said very of been outstanding founding. years

measures brand likely As we happy recommend own it our also seen would that third from in significantly. that to people our began promoter or to is how market We've XXXX, increases research net we're key friend colleague up healthy learn markets. and party awareness company's Frost score, which is in our services

Frost We thought continue our optimism to consideration initiative, discuss as which a in resulted leader. of has

value presence San course, already base San with agreements allowed winning a initiative are optimistic positive our to relationships and markets. has on year customer only new along of building, Houston And in normal expansion our remains And social Antonio true more sponsorship of our we'll providing this has move for NBA, that today. with great Spurs an kind award Our build attractive XXX and sustained with the attitude of we'll than Houston, our that in with a toward service proposition not the Rockets but long also headquarters have our Having term us opportunities, special into years. other the of fan to which brand. expand Frost Antonio media. continue exposure Later

the turn over some call our I Jerry Chief for Financial Now Salinas comments. additional to Officer,

Jerry Salinas

before provide financial make the performance and some additional Texas Thank our comments guidance the I'll economy, for a close you, in I our information general Bill. year I'll full with quarter about few about XXXX.

but to continued slower economy a in slightly Texas previous grow in at quarter, the economy, the the than quarters. pace fourth Regarding

While the pace. statistics the at industry added expanded utility decrease XXXX. X.X% four to recent end Dallas manufacturing employment during record rate growth decades. market labor sectors to plateau Federal most energy, fell trade financial lows. the also had of begun to Texas to the The sector has employment unemployment and According level by growth X.X% That's the quarter, to strong the are unemployment branch, jobs to Reserve's led and year-to-date toward continued constraints, and available. that month Texas fourth transportation November, while a in The in the construction lowest due

taxable kept fourth up basis fourth percentage the by offset higher Fed X.XX% effect reported repos partly Now at favorable performance, points loans for both loan primarily equivalent These of was and and last the moving and the in yield net margins, X the net in driven the quarter, XX was higher from increase costs our volumes. increase variances reported The margin for quarter. customer interest quarter X.XX%, fourth was interest X.XX%, interest during balances and higher the by Driving basis the to deposits the loan favorable X.XX% on from the at looking were third funding up our yields the on rates. our quarter. points quarter financial

the $XX.X billion. million quarter. investment basis fourth total Looking down up averaged from third X average was about at from the fourth portfolio the the of the our yield $XX.X quarter, in billion The X.XX% equivalent portfolio, third investment $XXX during investment the portfolio quarter on quarter, taxable points

portfolio the up quarter, municipal $XXX X.X Our of the X.XX%, for investment the of $X.X from fourth about end from The about quarter years of the At quarter. of quarter PSF had down previous from the was slightly during X years, fourth portfolio the ensured. the million quarter, taxable previous or basis the about duration municipal was points of portfolio the municipal quarter. portfolio two-thirds X.X end quarter. a third pre-refunded the equivalent yield averaged billion fourth The at the down

for was basis for funds funding our basis We billion tiered quarter, the quarter for which quarter, rate in purchased the but $XXX exception the bit we the during third points Fed our in from quarter. cost The basis and primarily X product. pricing deposits quarter. combined of of million X.XX% up fourth seeing about XX repos, balances points of a the of previous the total during fourth at the up previous fourth continue increased a averaged third consists quarter. repos about the to points, $X.X Those agreements, from customer sources quarter, quite Looking repurchase customer cost XX from this instituted

that, that mean of Regarding estimates call $X.XX full currently XXXX year we Phil for the With the over questions. estimates of to is earnings, believe for turn reasonable. I'll now analysts' back

Phil Green

open now up for call Jerry. Thanks, questions. the I

Operator

question Thank you. [Operator comes Instructions] with Our Gailey from KBW. Brady first

Brady Gailey

Hi. It's morning, guys. Brady. Good

Phil Green

Brady. morning, Good

Brady Gailey

your forward, I price What of was at? do buyback. repurchase additional you quarter. fourth in Phil, TC you just here? level. just the you kind as average with Maybe is that start X% think from the How $XXX you the look heard million the say that And about buybacks around

Phil Green

Brady, did price we program million buyback our $XXX outstanding. you, $XXX million. was do $XX.XX. purchase to average just And currently have We remind

So authorized. do $XX we have still million

Brady Gailey

Right, and we thoughts to forward, buyback the be active on can then Frost going to front? expect continue

Phil Green

see always a We will be opportunity. opportunistic will don't want we I as we to have to that. But said schedule. do think continue we've specific and

Brady Gailey

Houston in have share as then think have And changed earnings. your that those a the financial gotten we of any of talked kind of the you per it, around burden is to into open know $X.XX or that way Houston. I last impact - you about still of the metrics about that one all being quarter expansion? to new Is locations

Phil Green

Yes. guidance Brady, we stand think it's that gave continue this so I I still to what on the on. I is at early think point,

Brady Gailey

there you that is out Okay. giving and for improve continues concern Right. anything I bigger very on credit And picture, credit point? Is guys clean. front it's you this at there or pause then mean, to just the

Phil Green

We mean, about right? and we're be going bankers worry are to we concerned, always Frost I everything.

lot seeing competition of You're today. a just

are think in you moved versus last I look quarter we've - XX% we at I lost the if to what price. up structure think structure pricing we XX%

lower prepayment amortizations. no penalties, terms, longer levels, collateral longer seeing You're

competition in of regard. lot a seeing you're that So

the mentioned in we performed. had got just based I how comments there. in volatility our business. energy good a the maintain commodity really my about to markets. the it's I feel We've discipline So But that portfolio

good of really the so And always been to - watch I what on and of putting you and - have have nature But watch we've the business. that's you it's that, feel that's to that that and structures that. about

I'd the as say know, economy pointed strong is Jerry You out.

in supply watch You know get you to some markets.

think in But you've segments. good. got certain I it's some slowing

worried but I'm For markets more example any slowing in a about. housing things. Not that thing general There's some is one bit. particular slowing, bad, not just

and principles stay our Just making to we credit close sure our maintain that underwriting customers.

Brady Gailey

All Thanks the for right color guys. great.

Operator

you. Thank

with question comes next Demba Our from Jennifer SunTrust.

Jennifer Demba

the variety net on one outlook of for Jerry, in this two. Good - areas or a what's rate morning. rates interest hikes maybe zero year, Jerry or margin, Question the

Jerry Salinas

that project that you rate push we we Jennifer interest in the us got scenarios hike Obviously forward. net fourth do year mentioned helps the percentage. last in all those an margin quarter increasing of

So hikes we that scenario, trends be But in projecting rate scenario would that are us two margin percentage. still a positive a us. flat even behind increasing net win in the of or one course for in interest that given

Jennifer Demba

you talk deposit in months now, the right six Can three, if are competition maybe any? about you you've the seeing last seen changes

Jerry Salinas

about and I good and still we at I know a the you that from where mean today - competitors nationally think rates locally think look pretty price it's still the consistent. I I took a feel I pricing are. standpoint against

saying. I we've think been what that's

So well yeah, perform there. to continue we

the accounts. I the think on you be DDA to know pressure continues

that's seeing the about last kind goes to couple the We're on rates side, scenarios when to up. move in more quarters. and back of we've what started think seen previous that we've diminishment commercial of talked I what

believe be stabilization rates to of on may increasing some think looking having I there And we we are trying me, - stop find is increasing. interest just some at start excuse said rates lot rates I deposits. or better think what a CFOs those commercial the and we once

big this to changes mind real compared quarter any my not So in from last.

Jennifer Demba

much. so Thanks

Phil Green

increased traction rates, I I to on that gone think the in 'XX traction now Hey, are has we areas basis, cash we Jennifer, said July and those back good where - feel and seeing I [ph] getting about good we're the like CD. Mas

giving that. we that feel and a square about customers are think think are we I get place good a does So to deal are for what known I we paying, going our I

it. I think we from seeing benefit some are

Jennifer Demba

Thank you.

Operator

you. Thank

Securities. with Our next question Wedbush Peter Winter comes from

Peter Winter

And Good outlook there was nonrecurring just the expense I'm just what year morning. next was expense. I curious the of curious, in out the the for with anything growth build other non-interest is branches.

Phil Green

like there's you to if are anything this me the try see in quarter about unusual, Let fourth year? talking

Peter Winter

jumped. Yes, it so

Phil Green

standpoint. the so linked-quarter I about that on - are a you Well, think talking you I if - think

Peter Winter

That's right.

Jerry Salinas

to have direct some did some advertising We about a - in also related on $X.X and write-offs higher $XXX,XXX mail. million about assets,

to the those linked there So things are probably quarter. the big compared

What we build our addition opportunity, our in we expenses service expenses, expense continue explicit far increase continue going any And for talked we going is see in grow as about excited business of As I and that we've not noted given expenses And place that front-end provide of but the say expansion be also loaded, continue in to are sponsorships will to and for our we'll to where as we're give outlook are awareness. increases out. sort marketing to putting nature growth expenses. Phil Houston that are about brand that guidance. we customer excellent to to

of those in will rate 'XX. all think higher things growth I So push the

Peter Winter

it's And to where I no would and in it's adding concerns. is, mentioned And you expect given wondering loan the XXXX? am just formula-driven, on big know thank Obviously reserve to start you that, ratio you. to Okay, credit. but outstanding. reserves just I

Phil Green

we think I happens said, with I mean and you still think And depends [indiscernible]. energy can credits classifications rate, formula the see, thing. some you risk just primary and the to I it's what moving on is it driven. got

are depends But one it some to So of on with any think those. comments. number. don't particular Jerry, I happens what tied any we

Jerry Salinas

improvement as the quality, had mean a what were I credit excellent levels would XXXX side. noted we we provision the had you on guess really lot energy low. unusually is I there No, of I during say

So factors. on loss historical risk-rating improvements improvements,

lot So in credits, to much we to of those there. had provide that having momentum resulted given reserves we off, That a as not positive already with credits. those as charged allocated associated

would that be So in are provision levels, the from in talking certainly and 'XX expect improvement levels 'XX, the you 'XX about standpoint, 'XX. provision if great a credit just given I provision higher quality versus

Phil Green

normal of go a portfolio, that with consistent well. growth. that grow to been the of to And provisions we've be that nice there's some along as this going job And is be doing going we as

Peter Winter

appreciate Thanks it. it. Got

Operator

you. Thank

Lynch. Our Bank Merrill of next question America comes from Ebrahim with Poonawala

Ebrahim Poonawala

Good morning, guys.

question, a we positive guidance XX ratio? to XX - that operating expect would about a Like you together expansion, appreciate the a efficiency kind this you do this even though of don't around to you But on Just so year helpful. put leverage that about while around invest still expenses, want that give see I you Houston any expenses. you you talked for be and staying process if or do specific margin how how do the think

Jerry Salinas

with got what Yeah, say. of based there's where on is to think I the be up ratio guess certainly the that kind I Houston would expansion, I ended year efficiency pressure that we some on

I that think it's pressures those put as be I but books. on additional think we that it'll - envision the Houston going I don't branches under to change significantly

Phil Green

Jerry. I'd with Yeah, agree

we've talked that about One we of about improving Houston our on much operating of talk one the Ebrahim, business. of whole the was core as the leverage were started spending that in we early on to things, we initiative was decisions are making growing this how

And organically and a average rates. can continue have that so business we'll above grow to

I or direction that does think be continuing to of it's the company, the spend some leverage, it's kind our changes I nature don't positive. something of of that but So investment think operating momentum

Ebrahim Poonawala

in to or worse things for bit happen little happen? very of the - you to go all you back to kind is between backdrop better, where like first over cannot the that that when need a there point expenses the materially macro very, because this know or just now discussed place what a think And is deteriorates, pull term the October. market's you get long from I obviously strategy the and been What's manage

Phil Green

the is let's a great bad, the would really growing. business we years. the energy said I - don't over tends really - but operate That few is have the term, I as you last expect in a downturn not I mean through say one. to happen. I to downturn. nation, Texas that Houston argue, It's the grew I long strategy higher Texas it market than the levels could at and mean bad

that materially economy prosecute. not would is strategy term I want turmoil in to long to we don't alter had us continue expect to and the that So some if that we the

Ebrahim Poonawala

on Jerry like repricing the should it on feeling last margin so just there That helps, with pressure point and higher - one hikes. without tipping margin go Is big there margin question you or the cost a starts changes where the higher? sounds drift and curve the so rate about and should or feel continue it yield without deposit to you doing the fed and that is anything much good just the where in

Jerry Salinas

it. do I good about Yeah, feel

the will one $X set But it yield that week own. a rate our to affect duration you'll next in next see expect it's do on obviously late have which help the but it those is compared think we file year billion year. obviously so to thing move are at mature of their treasuries I XX-K will about this in $X.XX that are we to redeployment proceeds as would forward over we

Ebrahim Poonawala

my thanks for questions. taking Understood,

Operator

Thank you.

Our with Brett next comes Piper question from Jaffray. Rabatin

Brett Rabatin

interest maybe quarter just funds you quarter Hi you securities you happen and for to issues can? then did what and in morning. average guys talk first then about to housekeeping have the this bearing securities ending guess when two good if book the period Wanted I

Phil Green

just a on second. hold Sure

like the size. during it's $XX of portfolio nothing the billion investment activity looks then about December quarter. our So to And end close pretty at much

gravity front in - So me. here of

about of bought at yield about municipal quarter in here during see purchased million at municipals the at rate also we in million we think X.XX a $XXX a about and key $XX agencies of I X.XX. a

Brett Rabatin

bearing and Jerry funds. happen then the interest would Okay you to average have

Jerry Salinas

Sure bearing were deposits for interest the quarter XX.XXX. average

Brett Rabatin

and year things some expenses I of maybe doing back if wanted around a the things be talk you're in would then the Houston of just that know besides little 'XX about last build part the color also and 'XX about to you impactful. the and in plan growth and is doing Okay AI and out franchise more investment. that impact just to circle some besides around Is Houston that say further expenses other might

Jerry Salinas

around decisions. example as of We the line and go technologies look ago about about a I where decisions future, generation own conversation are that were class, go And there's types back bankers this web we - that, thing but think YouTube, the on warehouse technological time, forward Yeah, with more and same like crypto-currency it us Brett, were that data that and is weight remembering on We've punch lot far XX and our industry. and little decisions technology our AI I'm website different today. those really, than XX a there down today, when do more company this and we said customer the our that years years all my conversations have make as to waves there whether we with decisions I service it's XX our that as true kinds an to for has as get just I because the made us benefited if to technology we future complicated ago development And of those ago, I since the and say ago just years back really swim and in two decisions, made as were with, mentioned. a allowed is the I market. projecting think, move are that brand. point that forward, is just Those got that's and there to great lanes will various that above think the is on thing or hosting coming we -

help the the I a What the think decisions one probability that's those we're it us invest But some large make - of and that of the for how those. help do them. that back is us what in AI utilize on can we of investment if that's at not one that to we trying going to might on personally I have has understand impact it, at that it advantage something will believe that so how to and business look right industry in technologies material affecting as at we're being on not any be where did I think our landscape, to And that and ourselves that is look help doing something I I to really one as and us margin to the forward. position is the take It's now. XXXX. of business. will We opportunities have right move that is us we way think

Brett Rabatin

Okay. but income you 'XX. insurance 'XX, income and Are would maybe spots they thinking opportunities trust little a an fee slower then relative guys were bright one to be? last in what one, was in about And aggregate and fee and just

Phil Green

until point, long good fourth I pretty good they that you're I I I this anybody, Well, help the plan good we But and those really on headwinds. think think, business the businesses that a had doing quarter, term feel this market up for know. year. those the good about didn't so if - And year feel without about in we'd think I what are you had two us. a business,

XX% pretax well. great they is business. our insurance doing margin think managed - year, think which I It's I a profit for last is businesses that

And good they momentum. so had some they've

contributors. be both they'll think I So

Brett Rabatin

color. the all appreciate I Okay,

Operator

[Operator Instructions]. Thank you

comes next from JPMorgan. Steven with Alexopoulos question Our

Unidentified Analyst

first during How one Hey, Steve. quarter increase was much guys, expenses. is [ph] the on on the the opened for of particularly My salaries in the another this branch as question by driven in well one that line? Anthony expenses as is upcoming openings the

Phil Green

excuse I they think quarter. had a fourth they had the I - I on significant don't Anthony. think don't Steven, a impact had think don't - they me,

Unidentified Analyst

seeing got second Okay, into you're non-interest you it. turning increase And It's bearing on to bearing good quarter. another straight the of out small comment interest for bearing then any Can non-interest accounts? see to deposits. migration

Phil Green

some obviously that we're sweep I think the going We but really primarily bigger to see commercial changes do I what big on think that the saying large it is that. of account. accounts really

of really kind we're that's think seeing I of recently more here So what

Unidentified Analyst

last still growth it. be you growth. expect outperformed? segments on broad question got pace good or high then to loan to growth expect for XXXX? digit do And single base Okay just And my this a Is any then particular rate

Phil Green

expectations consistent continue growth. to will Our be our with

I to be expect yeah, think target. yeah, so it broader And that's our based. And we

Unidentified Analyst

Got Thank you. it

Operator

have we a from Thank you. RBC And Jon Arfstrom Markets. with Capital question do

Jon Arfstrom

Good Hey morning. Thanks.

Phil Green

Hey Jon.

Jon Arfstrom

all think of any I optimistic assessment been when terms an numbers going curious branch and in update have but it's or how handled, the in far the Houston. it's on so just and early open And how maybe the less on more outlook?

Jerry Salinas

I that. these with said, early. six And early. It's it days been it's Look, implementation the Well, think team, meeting a us first I'll sound one think have I our been open going? like opened ask, we they reported very of growing - that's And company that have kind feel we weekly you And we've have be term A people, Jon, well, decided was corn. anecdotally, call. it XX% that expand. in it of about are the hiring our week we I a picked about response want we had Frost, and And how's we've We're our out I at so understand are able good we - and we team, on plus thing just hired - markets? place feel these And as planting when heard trees and the looking response hire have think, people because wasn't getting from people, long we've we that work. strategies. that markets, in from to is growing it. got far. good say, represents to I we about someone been the planting posted I we that really culture right know great that to We're and the I not important been right everything the how people I I that's heard gratifying, we're we're it hear of XXX really planning market. anything, they'll a positions think think good. has answer put hope great that is market to I think I've folks I And people almost hire the but to that

And So little bit a to when at, been hope that of they've good I And able we've it create on, managers really I look there. bring relationship the feel hiring been experienced. the momentum will so about far.

And so I'm encouraged.

Jon Arfstrom

brand bit the that spending And maybe Houston is a to targeted point? this or awareness allocated at Okay. more

Phil Green

we in There Houston, in increase that we net brand - but sponsorship markets. four are to wanted did think The were Rockets we is our I some. move by also our motivated

think it the us them in to excitement Rockets. I lot was great around I an they're franchise So markets. Houston for and a of leverage mean opportunity

we're So visible more there.

And say And I market, develop is the that. that because that we to in spend increased Houston one to our market. was so related would market also want we're

Jon Arfstrom

All right. Thank you. Okay.

Operator

I now to and back call closing over in for session. gentlemen, for participating thank the Ladies the management any remarks. to you question-and-answer would like turn

Phil Green

Well in we'll thank And And you. be the participation appreciate call. your we with that adjourned.

Operator

gentlemen, and you today's for in the This conclude Ladies thank conference. program. does participating

a disconnect You have wonderful day. and may all

Cullen/Frost Bankers (CFR) 31 Jan 192018 Q4 Earnings call transcript