CFR - Earnings call transcript Q3 2019 | Cullen/Frost Bankers, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Cullen/Frost Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker for today, Director of Investor Relations, A.B. Mendez. you. Thank ahead. go Please

A.B. Mendez

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

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

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

this the At call Phil. time, over to turn I'll

Phil Green

A.B. thanks it the everyone, before Financial provide open us. comments Jerry Cullen/Frost, your of for Salinas, joining and our Officer, and additional for morning quarter results review will third we I'll also Today, up questions. Thanks, Good Chief

last per of Cullen/Frost year. $XXX.X quarter, the a $X.XX third of the In $XXX.X or quarter share, million diluted or earned compared $X.XX common million earning in with share same reported

billion, in from the last $XX.X in billion quarter quarter of last X.X% $XX.X on was third Average billion quarter quarter quarter assets to X.XX% were third third average third year. quarter of with return third X.XX% year. the in compared Our to $XX.X the in loans Average up for last up of the were the year. deposits compared

C&I, We continue to growth our CRE, and segments. in consumer see

third provision of and loan million the quarter the in was million second for the $X.X compared quarter XXXX. of in XXXX, losses $X.X quarter, to in million $X Our third

for the $XX.X third $X.X third year. Net million quarter quarter the compared last were charge-offs of million with for

quarter million energy in period-end last of of XX were net $XX.X in third third end Overall within several basis The assets, problem Nonperforming million XXXX, $XXX the credit year. annualized of included or third quarter at related which of had the in the our XX to the to loans $XX.X quarter were years. charge-offs of past single a energy we or loans. and the comparable early been points what remain the Third in second quarter in compared quarter numbers $XXX third only at increase Those end million loans average experienced loans. well to points since standards have million of the the basis XXXX. accruing delinquencies and quarter,

our last the quarter portfolio second the loans to of and at end million the quarter XXXX. represented the of well third quarter, in the million the the end at our of compared of at than year. quarter, million problem general $XXX.X good. end the $XXX higher Our declined compared of third Total problem at which related last quarter, million XX quarter this Energy we the overall credit million loans, quality year, of grade in were to and and third of loans risk quarter year. $XXX to XX.X% of of third third in in for $XX.X $XX.X the more XX% below million Energy as define second peak remains $XXX end the

relationships as the on we including size, continues quality balanced consistent, component, Our million under relationships both our core well as define maintaining larger growth, commercial focus standards. as $XX to be for while loans in which lending

commitments. by a the loan XX% with C&I, and finance, quarter New but relationships in prior decreases dropped versus third commitments the dollar third increased to amount in both year CRE new X% energy, during compared a year, public The the ago. quarter slight of increase

booking in what increase to the in we're Overall, lost the we but XX% CRE the prior commercial our third quarter, discussed quarter at estate. real XX% from to our down activity. year. expecting ago. saw deals our percentage in XX% was was we for In quarter, the compared second particularly of weighted loan current growth of looking to booking lots last ratio ratio by deals, was pleased our Similar the quarter versus structure so C&I levels in seeing current to quarter XX% opportunities, in of see of versus fourth active some higher quarter. about year a good the to And XX% pipeline up I'm third we're due the good with I was end

we've by ago. already award-winning to the next a XX% fifth, fourth, the two net centers year. with In consumer opened this Houston Overall, so the and compared proposition value the up our quarter in technology far continue The the opened seventh sixth customer And financial of quarter, XX come over year fourth more years planned and in service for and quarter. growth third banking, to attract in customers. third the the of end was with before consumer new new

by year, increased compared as to by XX%, account So a measured this sales far same-store openings year ago.

just quarter, our XX% came of under account our online openings channel, mobile Frost This which continues to our from channel third the app. Bank grow. includes In

the to of increasing I quality standards. our grown focus executing of higher third third The The quarter wealth line proud with with the lines fundamentals our continue X.X% our business were environment and industry, of billion $X.X quarter, challenges compared our year. extremely openings last loan to rate culture. account consistent by our strategy in the interest continue online insurance, averaged organic to banking, growth previous staff compared consumer fact, presents be XX% the during portfolio in to our of the advisory and we in In to strong quarter year. on but

satisfaction the has XX J.D. Frost in in up, years ranking customer U.S. Texas Study sum To Satisfaction Banking a in Power's in received Retail highest for row.

again banking named than and Best The other any nationwide And consecutive Texas in Magazine. market Bank Excellence more for received middle by we've Awards Greenwich small Brand have for three We and Best bank Money been once business years.

don't people dedicated to peoples' You lives without that do better. of the kind service makes great providing that

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

Jerry Salinas

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

job the August in full-year coming X.X% September, Texas currently for Texas decelerated at healthy Fed unemployment to at X.X% third the year. XXXX. historically but Regarding at X% July, of in seen six X.X% a for of economy growth Texas remained X.X% growth at row month the September. fifth continued months Dallas growth X.X% the pace, compared and low during quarter first the in the in in The the in levels a in estimates job

X% growing at strong at In terms by of now X.X% industry, job construction growth year-to-date, is has been manufacturing Energy by followed employment growth year-to-date. and Industry stands job X.X%. especially at weakened growth

third job in negative the growth energy the was However, quarter.

at at up slightly cycle economic is employment growth X.X%. sector its growth the economy. in cycle a slowed individual remains X.X% Looking the growth Fort quarter. rate index quarter through markets, historical to Dallas annual but cycle Houston the with ahead Houston Fed September, trends The Houston months X.X% a nine in in slightly historical the of X.X%. September, X.X% a quarter, business rate better rate fell sector of in was Worth X% September. third in expanded slightly unemployment annual the expanded X.X% of Houston's construction business rate. in third growth job to Year-to-date, third X.X% Houston index The the average strongest at while any business growth saw The index above

remaining Austin X% to In September. Permian the San in September, September, X.X%. the X.X% trend rate accelerated and of job year-to-date as stood growth saw cycle of through September, period of since Basin creation its healthy the and overall pace also X.X% Austin by Worth. Austin's San August. at prior in business information annualized year fell Antonio X.X% job The XX% far period. at at The long-term index cycle business a X.X% over a below above September, Dallas fastest state's Antonio's growing rate. economy its decreased with of fastest in San with the well in Austin The unemployment unemployment rate rate in of economy unemployment Fort In to index X.X% Growth year-to-date X.X%. the The well XXXX, growth grew remained sector X.X%. in showed unemployment expanded rate job slightly in economy the Antonio the X.X%

last net down the Looking was second offset yield quarter margin at at were our equivalent percentage decrease quarter. X.XX% on points The basis the balances interest primarily points from interest the lower yields from down XX X.XX%, costs. by and Fed the third to taxable loans quarter. for margin, net lower partially resulted quarter our loan reported The X third the basis from X.XX%, funding

quarter, investment the Looking billion, third second at on quarter, portfolio equivalent during million about with up the the averaged one $XX.X third yield second from up up $XXX quarter. the from portfolio, $XX.X billion basis investment the investment our portfolio quarter taxable in total X.XX% the average, point the

billion about during second quarter third the flat Our the $X.X averaged municipal portfolio floor. with

the The the The quarter. we quarter, third two At yield of TE of two-thirds quarter. previous at securities basis at previous for XXX PSF the portfolio was taxable at quarter $XXX with the million had municipal the the duration points up municipal years about end million third X.X yielding a of the in was the flat quarter agency ensure. X.XX%. securities, mortgage-backed purchased end the investment the of During yield about from X.XX% X.XX% quarter portfolio municipal with equivalent about and and portfolio third a

during the XX consists Fed the our quarter, second to in points from cost from quarter X at of quarter. which for decrease XX -- The million the repose balances the about Looking purchased previous for primarily repurchase and previous Funds third averaged from basis sources, total X.XX% was funding down about third combined customer X.XX of of sec deposits the agreements, quarter. quarter X.XX% cost the in billion points, the XX quarter. points the up basis Those third basis

the year. non-interest third or total compared to quarter X.X% expenses, last the XX.X for non-interest to Moving approximately million increased expense quarter

cost the the downtown operating increased Houston headquarters Antonio, approximately have San the Excluding impact X.X%. been expense of our non-interest and moving would with associated growth expansion

the analyst is reasonable. Regarding XXXX $X.XX earnings, of estimates the estimates believe reported we of for mean that currently full-year

I will over the call Phil to turn that, for With back questions. now

Phil Green

Jerry. Thanks,

open up call questions. Now I will to the

Operator

line the Gailey first of Our from Instructions] comes with question KBW. Brady [Operator

Brady Gailey

Hey, good guys. morning,

Jerry Salinas

Brady. Hey,

Phil Green

Good morning.

Brady Gailey

start just can we with growth. loan Maybe

it You peer are to like or banks, your are losing CRE lenders? some the non-bank to going they are they going, deals, are these going where structure, feels of more deals

Phil Green

was, with there I competition deal last think those, going to time, equity, seen of seen I this could is large of all mentioned there you to have banks, I we the it CRE. have think on seen it be still to small know, banks. it go will, private depending we a it combination we go In smaller a is have communities, it lot --

Brady Gailey

Okay. hear Phil. it's And driving heard fourth had upbeat to tone on What in the think C&I, I driving great little optimism? more is quarter, loan I you what's there? positive say that about something more you the growth a

Phil Green

anomaly little like bit we more just side, It hard the quarter that seems on the quarter. to like to We talk C&I strongly our and in looks were C&I customer a growth up of folks prospect of say. terms was there as commitments, -- picked with the disappointed it's a -- with side, in little book the and an Yes. on pause on it I maybe the the in in It's fourth side, third was that it timing. had around,

as So, it's anything the it specifically look I was weighted sure our in can third am it it's there's not better relate if increased, really but I definitely pipeline, than to, and quarter. at we

Brady Gailey

know average first for the are net one I from Jerry, XXX finally a three of on All about about this full-year then year. seems right. margin running like you quarters. me XXX last It And talked for quarter, interest you for

that the have at, how NIM last got reacts your of rate on just what's we Now, from the updated kind thoughts cut here?

Jerry Salinas

and at XXX of our at are quarter cuts what Brady, assumption in kind include I and and I was you a right kind this the XXX of full-year last that point, gave did full-year, we is for thinking. guidance comfortable are with we October, still July the NIM think rate

Brady Gailey

All right, great. Thanks, guys.

Phil Green

Thank you.

Operator

line of Evercore the Your question from comes with ISI. Patil Rahul next

Rahul Patil

you. Thank

pricing XXXX downward NIM pricing benefit anticipate that do you of or to are the from on you kind yields, seeing assuming question, inflate Just to do yesterday's the going to pressures cuts pressure of as see quarter, beyond some expect offset wondering at following actions? the asset any point deposits, you additional back benefit the on cut, more fourth the NIM looking than deposit competitive you in no given just

Jerry Salinas

I is think will NIM. happens our what portfolio right? cuts, point, the dependent it on going an lot be. aren't rate the to any projecting at are on So, -- this pressure a what NIM, obviously, be continued there to be pressure further what standpoint, on a think investment of they is we From I yields the used and

struggling are little a we bit So, there.

We duration and help deposits the portfolio, standpoint, are of some there the talking we've up, adding kind of from but deposit raised we going done coming were kind we which potentially about will a same down. thing as

are very think on about our deposit our the me to competitive let see XX% We we our and on -- here, related still total I have pricing, October but been beta deposit deposits, betas, cut. was

with competitive There's points, or more a with given more portfolio, think happening on environment. be relationship. can't before going are pressure us So, We're that deal we're pricing lower the for to NIM. in there's basis definitely on loan the here reason sit that say rate we and Phil what's happening XX a no has lose said pricing. going what's in to long-term I even to I given competitive so be going this rates, with to be five

a if So into look and NIM pressure at is of forward continued that still I I'm what trend this seeing XXXX. on kind point downward

Rahul Patil

particularly the sort there And this of on to was quarter? that strong quarter, flow that then you quarter fourth to end-of-period expect this it. Was deposit basis. Got in anything unique pretty out growth seasonal was an

Jerry Salinas

at we was on It see sort the We had to the keep are cost us especially basically their had, we fourth think pressures was quarter after I in that there quite rates point is early I checking for on basis account. that part a quarter was quarters. average and that the annualized DDA, strongest on the of even high growth treasurers think of rates to in were the good Historically talked and up the we lean move just the year, third opportunity so that the out, December fed CFOs raised were seen interest about X.X%. an it some

some to in growth deposits be we was commercial outflows caught We're MMA started to so deposit And We've so obviously, the growing some our yes, our good to accounts. doing things in competitive. some there. I more demand see settling those seeing on think started that And attention. CD unusual I anything and demand don't the was We've it had see. good also. see categories think to there's the that it good in end but

Rahul Patil

the exposure one that any residuals just loan you distressed is just materialized could And in the still it. working last, previous Got energy over quantify are through the credits now that new of you the kind of energy downturn right weeks? versus kind XXXX from sort which recent of energy distressed

Phil Green

been the problem mentioned, loans Hang that for on while. had Okay, what you. we a credit related I part a well let to -- see an as good can in do See, a me the for non-performers was second. increase energy on of

Let's see.

XX%. energy as we majority and reserves, at it moving anything numbers. problems, discount in as And was XX%, majority, the We've generate as it people just into to less to be that living on you they're need want rates classify said, is $XX time, used liquidity. be non-performers, long snake loans that moving for are is to a with vast with round of a XX%, third and those to the million the capital tougher used million. you've credits $XX through DB sometimes look those, about it's that markets end anything two of we environment, for quarter the is one got sell $XX a trying know, one sell who And credit You million been to a at all bit

reduced that's liquidation So values. collateral values and

really that's mean there. I So happened what's

our As there, we good have It far doesn't outlook I the portfolio. as any about mean risk. don't feel

optimistic the I sell I and that's a If a that. problem loan worry million, know to that's not you've assets, intending somebody do to not it's environment is assets, what We've got very looking who about they're about. I'm $XX to sell got but credit

So think average got, have got out. we how that's, far compared rate than as overall about see we'll one, X.XX. other outstanding I $X.X the energy. in feel about good that billion that risk just that we've works of The We it. But as to what portfolio X.XX is of weighted portfolio to

or the eye So, I that aside I've on the from through that a snake good working my credits few were out either snake, I think about portfolio. feel really been got larger

Rahul Patil

Thank you. Got it.

Operator

of SunTrust. the Your line next from question Jennifer Demba is with

Jennifer Demba

Thank you. morning. Good

Phil Green

Good morning.

Jennifer Demba

million you of and on loans reserve happen? just NPL, credits Phil, million and kind mentioned, could what energy those thinking two $XX loss of kind $XX you is the what On on are

Jerry Salinas

think that million I credits, each between with specific Yes, so those $XX associated of roughly million reserve, wise, we have total $XX reserve two. the

Jennifer Demba

Okay.

Phil Green

just it depends value or in will we gas it's with It's particularly know. the markets that be, it's until if out I regard fluid kind related think work don't of or same just, the still to it's Jennifer are of situation, And what on a of situation. ultimately assets outside Permian, things it the how if these what

Jennifer Demba

ago, expense we're the around you expect going bit Houston still expansion, a should seeing through we moved few X% new growth expenses, I been this more year On XXXX this next than headquarters mean year, year-to-date? into the year, just months in it's

Jerry Salinas

that's logical think I question. Yes, a

June if would say in think together yes, was a building I I been this I only what of year. since putting is, that, we've model, this

to this only year for year. partial it'll of next impact full a are, costs going additional be those year, be and So it's

as then originally, about which was XX far month on So running what talked our an We're months. said expansion that concerned, a the a behind one we XXXX year. is little for obviously bit as was about schedule this we And have Houston plan growth. will impact

just bit the we've schedule running up think opened locations. little the on open I October, the through six behind September, of opening those end so, got seventh a in of

the pretty I standpoint, everything hiring we're doing I think hear well. from that is

than been hiring so, And expected. has better

slower little probably on looked about were lot. of those forma, keeping think expenses, so, we model profitability maybe a are a I branches. but I on a of we really bit on first couple whole The if versus mean, you And weren't the $X.XX better pro at numbers, not pace. bit just but going just last a I slightly numbers hiring impact those the for aren't, little that talked significant, and the the about but we just quarters remember, talked XXXX still

even Well, a like had reminder, is on branches locations as was I it, XX. and just our we done had think we went we period, average, those over a and looked looked new what if to branches, performed, I on break think we remember correctly, said about what I year how month XX XX tended that at back average

for locations expense And so, a the really right, because open. really that $X.XX of have big was related, chunk guidance, to those

XXXX, of drag that point new be has month we got kind the from the it at but the cost the way kind really pretty that sort impact a and I of You've got would get loans, in until starting like they locations XXXX. so, but same we $X.XX look if and XX the you even, opened the that quickly, in is, and would opened us to open to was still locations XX call break don't a the going to get planning deposit, $X.XX start XXXX concept, my to of were from

drag is XXXX a on So, XXXX. on thought is that was going there yes, to there be then bigger correct process there your

Jennifer Demba

you. Thank

Operator

Jaffray. of Piper from Your next question is line Rabatin with the Brett

Brett Rabatin

morning. guys, Hey good

Jerry Salinas

Hey, Brett. morning. Good

Brett Rabatin

happen portfolio? the ending or to housekeeping and interest the one, have then Two items, for quarter securities expense period you issues would

Jerry Salinas

your Sure. first What sorry. question? was I'm

Brett Rabatin

total know guys have Interest interest expense, net income you expense. out the break you which the interest

Jerry Salinas

real just quick yes, sure Okay, here.

You for the it quarter? wanted

Brett Rabatin

Right.

Jerry Salinas

$XX.X million.

Brett Rabatin

And then Okay. ending size? securities period portfolio

Jerry Salinas

is go. that Grab for place my me XX-Q probably best the to

Brett Rabatin

Okay.

Jerry Salinas

today. filing we All later will right and be that

XX,XXX. and and maturity we to any available so $X.XXX a had securities held for billion sale, XX,XXX So, in

Brett Rabatin

then And and great. to to expenses Okay, want back go just

quarter third one guess I related personnel? was the incentive comp much to increase was how

Jerry Salinas

counts, some not well, Take with be some the that, there Obviously compared the - are seeing really but that increases a by typical there commissions promotions were impacted could do there. real increase is from a commissions increases but the be their impact. that -- we might might the year-over-year, merit higher Houston side primarily agency the Really incentive than have to income yes, a give, also big insurance the look and also information, head I'm additional it's commission brokers there some to third are up expansion. our some the comp from earn, market other on in

Brett Rabatin

is Okay. than XXXX you've that back to in And then the got just thinking reason about be to thinking now? growth picture, X branch build about out, bigger taking just range think X.X going would the on or any core expenses, there expense different

Phil Green

a my me it we've think what with also tells is it had to a positions so of that cybersecurity big last that making headway additional be I be on I quarter, we've category seen dealing gut and to filling I particularly and haven't some needed because are every and something cost we the we I too. always just is stars and with going operations in numbers business. was, then got be that to, in we might some detailed been mentioned that's sides, think technology debt technology in technical expense need to we spending on number IT we're It

for of us, going know, you be that. just stay just but to to on so, in a on outsize and to you good is a And And people, just have pay everyone. of bring I drive for have while. drive what number, think good is top keep cost of top think that not then that's providing. but it'll it for for getting is tougher, I labor just to Stay up And benefits the people you're I materially, in little going some. also bit just gut itself that the me telling my to don't

we're be So, with are dealing on run be to asleep those business, switch it. know things we can't and we as I just going the

So that's be tend you why higher. to bit I little may a think

Jerry Salinas

Yeah, previous Phil. the that you our And had area and technology mentioned - we call right, I that's our positions focus open that in the think what during the was.

the year. people fourth hire the only we part of those as for they'll and So third in run in be our quarter, rate

going So on to impact XXXX. full that's

Brett Rabatin

maybe Okay. give you're just thoughts one, a and And can your if one last number? give of then Cecil definitive guys any on [ph] you ready you us not to more some -- have range

Jerry Salinas

be disclosing end we Yes, in is our our at September the combined higher on we're going run, to a of and our impact XX% unfunded XX-Q that September. parallel that related to based loans about expect the the to than commitments allowance on currently XX%

Brett Rabatin

color. Okay, great. the all Appreciate

Jerry Salinas

we we of of we to What going And what on have models any it's we made of on that a say them. to and impact have the at like the our the Yes. be all there. refinements a looks end of portfolio sort dependent in lot do need But to Cecil, loan forecast course, economic have credit the of year. by disclosure

I think a good done has the team forward. us job moving really

Brett Rabatin

guys. Thanks, Okay, great.

Operator

Winter Your from next the line of Peter Wedbush question comes with Securities.

Peter Winter

morning. Good

Phil Green

morning. Good

Jerry Salinas

morning. Good

Peter Winter

looking specific for What directionally. know there's is lot does guidance? I some guys because you I'm just compete on pressure, Jerry, a margin, not XXXX, I longer-term initially do but your of I on be the there'll loan margin the a comments think margin guess, just looking assuming puts and that you as into for holds on pricing, fed out heard takes? the the

Jerry Salinas

been If the if of will positives loan our outlook growth are certainly for the he quarter. think Phil long to felt we've kind you got I a about we've and better where that fourth consistent with growth. going be mentioned

a a percentage. to as the just a our lot I going not a positive long a about opportunities interest talking unfortunately interest there a growth have So, far at net deposit obviously potentially I as think duration, there We'll so bit of is about there our sort have concerned, could have is net investment talk on portfolio, impact make of looking we is today impact income pause. told adding little what I From on a we've to and we've pricing. our going we the are treating to doing. to that, going eye aggressive we're from so there, coming Even we're have I what we our were standpoint been think keep want we're so deposit on well react We know you that decisions a margin that we're down, sure aggressive deposit is positive now standpoint, the on aggressive potentially our concerned though to used; deposit we're betas relationships, up continue accordingly. see pretty If our make we'll fairly. ratio but as customers any competitors loan about that to weaknesses enough we and

So, that upward, be I that upward that an there'd you push to right now think with say guidance. could I

now. right I tough that's think

I happen. think we right we that where are is now can't make miracles

a movement but So challenge that a have right forward. now at flattish, that's best stay I think we could we of do is really kind

Peter Winter

then at beat guidance little in and Okay. guidance bit XXX third quarter. the a full-year the you confirmed And you

So loan from growth. mean, for little better the does drop looking pressure wondering bit where and points I'm it earnings reconfirm I margin imply you're significant just a XQ in pretty to a coming. XQ. are you

Jerry Salinas

I of I would about be comfortable I we the downtown, is during the our Right, would I talk in operating the associated said last still call, on I additional the range. and net gave the the costs thing we of think there. guidance feel that move and with that expenses X.X% think Houston said, full-year expansion net X%

up that North million, typically. expenses adding And you fourth performance. the in hiring the trued at infers So just of themselves that then, area. last related expansion $X went of Phil here And Houston fourth look also there back a looking salaries if fourth of we're just in so incentive in up do the there. in gosh is quarter up by lot from there of And doing expect -- that A plans we're obviously mentioned I'm seeing quarter. we the what quarter historically, go little the also we'll people kind technology to a and I'm the higher quarter now ramp have year, third the to are based that if on salaries expense

come came quarter And in the quarter. so, that fourth would've those third that third in the people starting late in or quarter in either

some additional pressures we'll see So there.

probably and were are by that's the basis fourth will think expenses impacted the be the you I thing tow. quarter in -- said, of I impacted that that the kind expansion Houston needle a on moves reported that that like also if

Peter Winter

comments And bit. to about move the year? growth a just that just expense up back to mean, unreasonable last growth in growth going is expense could it I little -- I year, assume X% Jennifer's next next my mean then question, expense the question for like type core growth

Jerry Salinas

that -- core, are help me you reported? Is talking -- about

Peter Winter

don't be… it Report, just

Jerry Salinas

I think of north could it be Yes, that.

Peter Winter

give… Got it. Could you

Jerry Salinas

And thing ahead. go the --

Peter Winter

Could range? give a you

Jerry Salinas

any happen We give did if we -- don't wouldn't typically sorts ranges, about and anyway guidance call. really conversation we fourth until wouldn't that that any give our quarter

Peter Winter

it. Got

Jerry Salinas

on will as the the But was costs. quarter expenses, as far fourth say lied third advertising also I quarter

advertising fourth those and pretty have to that significantly during needle those quarter us the can some promotions projections seen So really increasing swing quarters compared of in and third. the they the and other I've have that

Peter Winter

Jerry. Thanks,

Jerry Salinas

Thanks.

Operator

Stanley. the line question with of Your Ken from next Morgan comes Zerbe

Ken Zerbe

morning. Good Thanks. Great.

Jerry Salinas

Good morning.

Ken Zerbe

question. I just - guess had I a

our structure. to to about were deals -- You talking deals losing lost

wrong, loan and in And that that is slower believe Are reasons for do impact? I'm material you I clarify, the still could October? if have continuing? like, of is question but Is but Siri having growth related you correct it XQ? [ph], one the seeing is only that me to the Thanks. to been a Just envision that also

Phil Green

real-estate I mountain, is the to portfolio. this me higher the be just it we relates comment front broken at call But example, area. you, more don't we can loans, which structure will on on lost have entire is in mainly number of in the real-estate tell what are because for at is the the number I looked what focus Well, deals. what this look I you book-to-book real-estate But, if year-to-date out. XX%

a full-year, year-to-date the more X% already booked X,XXX little up So a we year we over billion look XX or XX% billion. only X at more a million quarter, third quarter, from ago, as and

think XXXX I I see but was book-to-book number, with year-to-date you C&I, and ratio where going C&I, mentioned quarterly that, year, I number year this in for our the there see so it the it, XX% do advance burn badly mainly factor do to when a downs, don't you year-to-date I has number that's you just that. with a have related think I to on mean, year-to-date from So that some, was our rate it's what I lot success down to you increase really think but C&I relationship-based commercial, in rate on XX% it's that's success see to last Actually where guarantees, rates, do a then it's XX, only more everything. it our earlier, is really and really that's know, has it's lot you so I a a X% said real-estate on

Ken Zerbe

Okay. Did you more loan trend you that in Worth? slowing around quarter little in a it are fourth see because optimistic like sound growth Fort

Phil Green

increase. because I'm seen Yes, there our optimistic pipeline we've

driving pipeline a what's there. in and C&I the pipeline lot weighted to that is way of Our

that's my So most caused of for optimism. really

do be people it aggressive, see you now, Probably if bad any to be better slow bit don't in better. to or I now things expect rain it's Now might worse, I pretty but less right a worse? get but expect little

think spread. I opportunity. are -- there's curve people gets looking the less and less as There yield for

Ken Zerbe

Got it.

Okay, thank you.

Phil Green

you. Thank

A.B. Mendez

do we Stephanie, have you?

Operator

line Markets. of with question Jon from RBC the comes Capital Our Arfstrom next

Jon Arfstrom

guys. morning, good Hi,

Jerry Salinas

Good morning.

Jon Arfstrom

maybe but obvious, it's about, follow-ups it's numbers growth? Ken of driving an just that couple on economic can you slower idea a health, is think just a just us you or give Hi, job can put guys what growth maybe maybe what we job you that finger energy, on of the was asking but talked follow-up maybe about,

Jerry Salinas

but impact the one as talked it we've that think out the the energy, people gets, the much pointed have as got on rate that thing to so think of some the I I gets, it's consistently unemployment tighter to the us grow far ability it lower is to is bigger jobs.

to related And also but some reduction factor a employment. are energy so, I that's you seeing think

those those put So I are X I things, things think that my finger the on. would

Jon Arfstrom

energy. Bigger Okay. aside set you picture,

feel don't in slowly You're you're Texas all? just -- like at seeing you

Jerry Salinas

they Not out still the look the it's a you rates there business, the it's which really hotel gone Permian at in the and and economic and of I kind had still of year-over-year at and employment numbers number but still the think it's to and strong sales things slowing growth the year-over-year positive. the something rates is look growth highest is bad if not state, have all energy tax slowing down, in bit but those are

was maybe seeing. now. So, if it's hot but it it before But red what we're than that's quite and is it hot only was slower

Jon Arfstrom

XX% one growth Okay. assuming a a that's that's number. just year-over-year, big -- the and Net it's -- of that's customer new consumer, I'm

Jerry Salinas

is. It

Jon Arfstrom

Curious the some And XX% that loans driving the and X% think to for faster at then about consumer overall? company that you year-over-year. on what's do and growth leads consumer up point

Jerry Salinas

consumer Excuse are what loan growth, you asking? me, really is that

Jon Arfstrom

Yes.

Phil Green

consumer relationships. on this deposit measuring are We

last yes, if So business, the of in of been what so PLC, in growth still seeing reasonable it's slowing, that's, real been you pressure to things and that look but assume part estate the products. of at more the careful side estate you're kinds commercial, real unsecured good the think excuse one and our few there is, I quarters I over that it's seeing other the downward of me, sort we've we think consumer consumer

spending can the value we PLC, it. mean, that ones see corny, far of once I different sounds it's So that mention, proposition growth well-known the driving we we've composite money rate of get growth brand. I you'll to technology the is the just, our I tremendous a think mean, increase consumer as mention great rationalization we think us. and in a to good these I'm at mean, some awards got as more things loan on look out not of get, and which they're side, but some alone, get are that unusual not I and for but I some what's I been rate it can't on sure It's make good.

and interacting, number better one good mobile how at we and in apps getting and are so pretty getting category, we're the we're better up Our end engaging the prospects.

advertising If good And are on to stuff in online. can at the you less and look time maybe And of probably, is more course I of at that's XX% we you doing what guess pretty us get, research do. people look engaging the I'm awards the It's the we proper don't know, prospect this at really going broadcast than web. helping that the regard. and we their look

great So get just, And in great. and then of that service word level is you the mouth. here. just it's comes It's out that

over really We to new so mean, I and lot we year net at it's had, get willing number you net net third close. look a had refer say that's that are it I first we have a customers, think X,XXX it's about accounts you, this had I lot remember and but went number X,XXX longtime. work not the feel so just it's anyway not it hard thing I'm but that a new X,XXX, we of quarter, customers result we people customers I to the So last important it's of like good over of any time, a one quarter new really

Jon Arfstrom

because isn't around but those a timeline there it you're the good. any saying resolution other there on two new on just NPO fair? guess and new is with you they've us last they're identified and then the you're citing them been while, two follow-up more energy I think credits anything on for that then And one in Okay, on a the that for

Phil Green

working mean, them The The right on non-performer long work one there. type the really not were anything they're some of And for there. bar they early providing one that of that's -- capital, their the new still I'm to know came in change a growth some were two don't really is and specific game in that liquidity caused out. just that looking they resolution but going there. non-performers, quick There that in when trying thing. non-performer a is that changes to are strategy a for terms now. I of that a time, of go tough stages I of

for know, but You never I one. don't look

Permian thing takes oil, one it's in we've out large in this, learned work you're hard large it's about think hard cycle I time. problem to this of the is a credits not the to with just get, energy Basin

wants one aware problem, just, but that some of liquidity. mentioned, a it's that's know do. other that I I'm to it's The create not credit a to just I it's hard

got, actually they've yeah, of some rid that, assets. all. amount the the tough certain get it's that aware we but I love deal operators, I'm but good I showed just that, being so guess think is mean with these I'd time. I'm they're they million not they've $XX support we of energy down, mean guarantees, non-performers, me so, market, I to us. and I And it a all realistic, got And there about problem the point, other credit But to take really is other concerns of are anything at that loans that than just it's

Jon Arfstrom

Yes.

Okay. help. All it. the for Appreciate right, thanks

Phil Green

bet. You

Operator

Alexopoulos Your next question comes from Steven JP the of line Morgan. with

Steven Alexopoulos

Hi, everybody.

Phil Green

Steven… Hi,

Steven Alexopoulos

at the think do will slower follow by open the open Hi. branches least the at end in I How of think branch you'll in originally pace commentary end of wanted outlined. on many pace Houston how up coming and now of do XXXX? by to year have of many you regarding you a the and openings this

Phil Green

is open current and I to think think, trying we're are get all XXXX. through XX I shootings our XX projection -- and XX that still

Steven Alexopoulos

okay. Oh,

of So you it? plan the accelerate to pace

Phil Green

we've of then some landlords getting, under control. we're and on forth it, openings are exactly, could not such affect permits with in and that. right, to somewhat Right, go completely on a and documents, and If work working lease and a got location, the building back timing Houston those also our of also, leased

by but bit end this little are to a catch of year. up next really the So, slower year, working

Steven Alexopoulos

late these through be year in think come the on should to or most XXXX? relatively pretty even of we Do expect it'll you

Phil Green

of -- it's my of dependent don't was of me. I again, that what it think part accomplish. the think just My we information year. But in that recollection front skewed in latter on have lot the was a I any towards can more I

are like hired. the being people I think said I

of before bit managers predict kind given of think I I feel right the but but some hire, for to booking, little it's have think good we what units able we XXs in to saw book right us, that, easy obviously a relationships, to our a hire mentioned. get that places hard to that that's loans we've to to last goal difficult is try those, about XX the if and we we're we're now number really lenders because some if location even more that the and open is XX overall lumpy bit gauge little I relationship

Steven Alexopoulos

at And until outlined already, opened that assumption good cumulative branches a $X.X guys breakeven? still originally you've loss then, branch looking you million the per that is the

Phil Green

of me done number probably, that. I in anything XX we know. I I branches it's from we've say think for but have now, that I don't is don't done. representative mean, had different front dramatically a I'd I that such that was don't really that fairly mean

Steven Alexopoulos

Okay.

Phil Green

really don't I know surprisingly, I don't I but know, what's So worse even.

Steven Alexopoulos

at running I'm And would just like so you then be looking the costs color continuing in do XX% why think and finally, benefits year-over-year a up those see double of the some expense much? for helpful. I Thanks. digit Any are pace? details,

Jerry Salinas

Sure.

of of medical increase just related our an claims. in impacted XXXX there's some of numbers that to to third really benefits seeing obviously saw are yes, the On increase, really through the the we been case side, get had benefits an going quarter, employees. by the most

self-insured. we're So

there in So, medical if you the a will contributions third in good quarter. was reserve increase pretty

one we said, our doing be I is depending our what's on a self-insured, to like plan. hopefully, some there. a So happening swing lumpy. things to bit manage it have can there we loss we I that, negatives related limit, we're obviously, but but also stop content quite of do to We the retirement guess

about if this the XXX,XXX. to year, think the third I third year up quarter you last we're compare quarter

And down. rate, so, went have I discount performed think based return as to really if plant And year, those last pretty relates it well correctly, what the though assets. happened just remember even on that's I on

And actual so discount the to returns assumptions what that. rate and affecting our related is

having did. that to related XX versus XX as numbers some impact big but I've a don't So kind versus pension of XX plans, the they seen the XX, of see

The other it's to be to primarily contributions. normalized Those are with expect XXXk would going payroll things counts. taxes, employee like really things going be as are you more

last. But lumpier year than expense of year. then discount the higher expense have really shape what that benefit, from is some is think I would be seen, we I there 'XX retirement from And the think end be. medical know in good the is are So unusual otherwise the the should I for year third third this that keeping to compare last rate pretty in flat. gets the plan things, the until quarter at it -- them won't than determined the pretty We relatively quarter

Steven Alexopoulos

taking questions. for my Thanks Okay.

Phil Green

Sure.

Operator

Poonawala with Bank And from of your next Ebrahim question comes America.

Ebrahim Poonawala

Good morning.

Jerry Salinas

Ebrahim. Hey

Ebrahim Poonawala

make Jerry, expense we about just bunch quarters following been think up a growth on next the the sort expense growth, year? sure is of how first and or are good numbers reported reported around to from questions there excluding, we numbers three terms of there has should anything expense of be that in base a your in

Jerry Salinas

Gosh.

quarters. numbers, this also unusual that point have was material could year's what consider the I in in but in our location. to Ebrahim, this are rate Those comes will. that not head a costs a my –- out they associated I would don't number to are as move and downtown Corpus mind to significant think had. Antonio, that tough have I our off three cost had about that think top it, that's we then We may that recall I some San move were move of here don't the really anything I in think First we quarters, with I that you nothing during run if you one.

Ebrahim Poonawala

team love course how to higher if in about it with That's drift seems terms strategically, how step view, of that Phil your can operating you bank do get given a or around of of efficiency should where the you thinks that the to in if more, for you So can outlook about but I want from if management a longer see we just about helpful. thoughts would philosophically about making an standpoint I you leverage, guess terms I it. the term year that appreciate think -- just manage next like plans? investments think and back you investment because talk you talk over the just And take

Phil Green

am sit of be that was that discussion changed talk expensive about really want there activity $XX the roll of that that case, went think heard bill think Senate a going I doing happens, in we roll us lot strategy and it when and or going that didn't years who you financial $XXX are cut a and will about to back –- institution about balance on recognize of acquisitions. so. like I we sheet million position mean acquisition a from of down investing it it, we with our lot I line the that We our to We significant lot. to from to

because going growth. at to consistent invest rates leverage interest loan in higher time operating that are We improving more was that

more what are realized clear been is ostensibly has XXXX XXXX. money we if are know that we making in so, of are today view I pretty like is. And that do money. Houston some were and doing. and We we we it we not that's and could cost in to have was have investing And that our what the our impact like in we going plan

what about We open this $X.XX. it been have pretty year was

like through. year to I range [indiscernible] of go that think be or the Jerry twice more in just in that next going say I terms it's heard

that of had excess a some term. am I I I be going be interest Houston for trees us to going I they increasing. able different. are wish proud in am strategy it's was rates to really are long it are would if the And a doing about what and And absolutely to it's going how can What benefit term, don't I But grow. some nothing before, said that's to are I now. the And down, short-term of have those because just is in that's we could in the to we not invest know movements And, And don't rates thing strategy access think planting that confident rates we have. view able do. be but operating trees. to takes the to I to we execute market. we really So be are like planting higher there's to -- do wish because I that a instead positive it have really right just still also leverage, long going we it corn, I changing that. of we

in And are If what think you our -- market those just recognition of look are are new. it's not things it's market. we Houston and that creating because But I of there pretty better that we doing lot buzz related in some we the are to at around branches doing. the a volumes,

of So, thing. on efficiency oriented that that's we are a to have thinking about. I don't ratio we decimal point what will or number on go kind

of a strategic of do expenses more company we meantime, can are we on how It's that the move the forward. we today. want the view In to doing incur we best overall

been. shown And that We have expenses. have where we always I we been careful time think have on over that's

You got hired I a know to recognize do service that we have and you model.

ratio the block. lowest So not on we are going have the efficiency

really time. over good are to what focused profitable. And that's very are We we be growth going we to are have on And going doing.

So going it it's to I sorry us money paving think thing I forward. believe returns us do, has expand, am to the we right but really that the for good cost some and way for

Ebrahim Poonawala

not that It guess sorry. -- Thank sure Is margin reason in so, actually drop one going number, quarter. fourth no for to the terms be but thanks another you we that XX And for like in will is complete reasonable? there if that. get sounds the follow-up, and like Jerry, I But of And makes guidance, just through that. sense. points am I basis it gave sounds

Jerry Salinas

stick be Ebrahim. to We are our guidance, we XXX. year that full think will going I with think

obviously that we think see a I drop will there.

between saw loan the We But on be somewhat are wouldn't happens surprised You second of the point be will on some higher net interest on basis Again, dependent drop drop right. on I than was percentage. what and mark that -- it X a pricing. that third. that if

Ebrahim Poonawala

On Okay, got the percentage? it.

Jerry Salinas

Yes.

Ebrahim Poonawala

got taking it. for Okay, questions. my Thanks

Jerry Salinas

bet. you Sure,

Operator

this turn to for There I over are back it no time. management additional closing remarks. will at questions

Phil Green

us. appreciate We for support. our Well, joining that your of is Thanks the call. end

We are adjourned.

Operator

today's This you. Thank conference. concludes

You may disconnect. now

Cullen/Frost Bankers (CFR) 31 Oct 192019 Q3 Earnings call transcript