CFR - Earnings call transcript Q1 2021 | Cullen/Frost Bankers, Inc.

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Operator

Good day and thank you for standing by. Welcome to the Cullen/Frost Q1 Earnings Results 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 host, Mr. A.B. of Director Cullen/Frost, of Investor Relations. Mendez go please ahead. Sir,

A. B. Mendez

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

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

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

Phil Green

afternoon, $XX.X go Good for open questions. accomplishments last call. discuss $XX.X of not first loans compared Overall, Cullen/Frost quarter I'll X% compared of quarter achieved or $XX billion detail execute in $X.XX first affect $XX.X the million Financial team everyone, Economic of the first XX% an of were also in thanks times A.B. last billion safe pandemic in Obviously, the that extraordinary first over quarter over and of to up first been our provide we to the decline first additional your of year. the $XX.X just macroeconomic $X.XX PPP experience earnings in of first quarter compared quarter Thanks, year earned environment, Cullen/Frost it XX% the the or quarter, we represented for million a $X.XX In they Today, in But the in comments to with but that the XXXX. an quarter on were impacts that increase Average same of very Officer, quarter excluding and a deposits billion, average loans the billion uncertainty. for we're continued our I'll also to our were as share Chief share increase a loan loans quarter some over first fourth billion before XXXX. the quarter of reported growth and challenging some impacted of deposit Salinas, to demand. past last In through continue in joining review $XX.X compared only $XXX.X strategies, with our frost our customers have a a year. it's will but results $XX.X economic us. of Jerry and and our share history factors our haven or million year average

a credit common related Our credit of in XX.XX%, quarter the in fourth after did to in quarter. loss return and and million X.XX% a expense first loans the were recording quarter average record not assets on We loss the average respectively. first expense $XX.X equity

the end define the to end in X.X% at in compared of falling several dropped million first $XXX years. Our points and basis and to asset deferment at year the loans, $XX.X higher for XXXX. of remain sharply past were our continued first fourth early just loans million grade risk Overall, end end or quarter loans $XXX energy in To for decline percentage first the million net as we which quarter end XXXX experienced and about of dropped the stable the general, quarter, first XX-day of for when portfolio end stood deferrals the million Of and fourth of to of problem $X.X comparable the the the the the are loans. $XXX as million Nonperforming billion charge-offs, quarter. the Energy-related Annualized with continued significantly delinquencies portfolio decline nearly the million total have down problem are the at fourth assets what declining improvement quarter million were the a the quarter million first first the accruing the of quarter. to new $X.X stable problem in quality In from to at loans end quarter. assets charge-offs a the were from the to put and the of general, basis on In pre-pandemic $XX.X to to quarter. at only we average And in outlook were million. energy $XX quarter. XX Total experienced at for at the X a at that million problems quarter. end at of quarter. previous is meaningful we've that the Net levels. at previous at first of perspective, peaked XX% problem discussed quarter, our compared first nonperformers $XXX end granted in borrowers during first were calls, number of loans have and non-PPP loans $XXX.X million ago, in period-end compared the $XX.X $XXX.X XX million of $XX.X at of points

quarter X.X% peak the that As back a was XXXX. XX% the and at was reminder, fourth the end in of figure

year, where these included total loss levels. stable mostly compared improving. these we or loan the segments, for restaurants, segments find individual quality reserve to energy And the segment just and the segments teams segments most at at represented digest. We sports retail. continue the hotels, appropriate pandemic was quality The portfolio When which started rationalize to outlook our we fully loans, at that category. our is to risk credits to analyze considered trends Hotel PPP the work is $XXX is credit to last assembled portfolio hard we impacting The excluding that $X.X better credit these risk non-energy most exposure end take first quarter. the company's Overall, the The quarter, billion entertainment, and to will of to outstanding end of some X.X%. although the the in of we our segment, time million fourth have remains macroeconomic improving segments of

to significant so small customers PPP get helping our minimal. business we Particularly with to of much existing any very put I'm new is However, believe ability in relationships into team's challenging our customers when exposure times. was proud effort build loans. loss

even in that commercial of year. last we of to of the added quarter did PPP the provide. XX% good of hard them relationships more we is service than by reason the new the just first level from During the first frost, quarter, our work and we A portion we're came continued mentioned more bankers they but those

booked were was commitments excluding impact PPP the New of first the pandemic first compared economic felt. loan the of been XX% XXXX, had down during quarter, which by the before loans, quarter to

demand. comparison this So clearly the loan of impact pandemic shows the on

Regarding core larger the even these quarter. was of nearly new the XX% at relationships the commitments loan first balance end and with XX% between booked,

mind. last was year. and in We In XX% will structure this was XX%, balance it consistent deals lost this to fairly keep the we to percentage total, time continue of with the saw

it underwriting. in the illustrates However, mind, number, high we there a that's keep and out competition through believe

active in was of current first X% the quarter Our pipeline with weighted fourth compared loan the about the up quarter. end

first expansion. first first compared the when the the new Houston quarter of industry. the the XX previously opened be first Consumer the will growth of it of our $X.X customer weeks. compared Overall, was banking on for financial account our two We at We're up the measured of by rate that our compared So our the a remaining consumer to quarter account XXXX, of up X.X% to expectations. mentioned of improvement. the came the opened and of quarter of quarter, quarter also a new earlier. mobile and including Same-store non-annualized though first our the quarter, by believe first some XX% see was well outstanding our were linked-quarter modest, XX% openings planned quarter I the to the up in XXX%. nearing up are of openings through see portfolio end Overall, net XX% XXrd is this and exceeding good XXX% was app. sales, from XX% In billion centers openings announced Online extraordinary first new to end were completion online We Frost basis. the growth. accomplishments XXXX. one XXXX, year. centers account to in last coming the April, compares the channels, Consumer financial continues of compared to to higher as by quarter This first when the very the loan

and the we the Our of staff. performance team's pandemic to is PPP all despite momentum the in keeping work outstanding put true going our credit a into Houston

Now with loans. you PPP of let XX it with expansion the and for we had stand that opened we at where locations March me as the excludes share time

XXX% and individuals and of numbers Our over businesses. of new households target were represent new X,XXX

represented and outstandings. in volumes of XXX% loan were million $XXX Our target

mix investor nonprofit under finance. consumer XX% about around the They XX% this real XX% C&I X/X consumer. XX% of look Let's loans, estate, About public just at with about commercial portfolio. credits represent half and represent in

over over XX% loans Finally, with $XX three only loans. are core million,

I add deposits. the profitability see is I It's taking you number we at represent is years I'm market million, to in similar path come. put and year be lessons businesses. generating understand a the $XXX consumer. of that and learned built XXX% have value midsized be over what's At us why increasing They you will has with very locations us last company. just opportunity in were extremely and important share believe the a on about about will of the they our over in XX-month its been before We've This look we will able represent target. a can proud will what Houston XX% dynamic we driven to What momentum in next the through XX the I'm be, platform And We've market time. we've target. And that commercial new demonstrates that consistent for Houston, Now two-third that the to skills period. shareholder over triple we do. business a seen our we that let's one-third very locations to and of that should and to early that's of what our this small year character hope with when do to happy of organization to Dallas expansion by too. are overall

PPP. to now Turning

applications been loan and vital to we've ready the forgiveness, XX,XXX the working date, new To $X.X borrowers of about forgiven. loans our borrowers, SBA respond was over help and loans in team we're we've already. first We've doing to bankers. SBA, more submitted to Combined all second just January. $X.X in-house XX% total received amazing. loan to those borrowers round XX% get work when round the the Because frost balances to taken with funded. we forgiveness in funded this the the invited one last reopened all or those we've billion for Our on is billion, of with with about apply round in than hard of PPP also our We've process from application year, XX,XXX process

bank for we've launched investment We're XX, outsourced to overdraft on in organic sets consumer at a these customers feature neo clearly our It it of and excited banks. called is believe we And competitors us in This efforts. haven't an apart a will any our announce time, We feature customers' our $XXX strategy. April from same difference new grace. traditional the both lives. that growth make

frost middle to service. customer already and market further Also four our awards of bank. The clients superior service, we small performance As new Excellence month, some good received this Greenwich consecutive banking a and our years. growth had growing the and news from we third-party it result, the expect increase to that for customer or has assess for organizations business consumer rate advice highest scores

efforts, proud year be the hasn't outlook. results, I'm high been the have just consecutive And accolades I'm that work. about company highest easy week ranking and new to work I been When satisfaction better up. scores mean in banking highest to appreciate in PPP And all our far, people care relationships, our in the a that rewarded. recognize Power of retail times, will over And looking customer it the of for satisfaction and than you customer that satisfaction the study. the XXth the their these put scores already everything pleased when we're lives received Texas was and Houston frost. we shows That's proud the their even up our in at our important I once about due goodwill from but know doing in are and our rewarded announced in all very the very customers Frost many be overall the Promoter good optimistic numbers customers J.D. that's us declines. Associates, mean force so financial them, deposits our sense. just we've just to else. service I'm in and don't be and together, And solid you had again employees that XXXX expansion at hard went it our healthy loans, competitors difficult doing the we're higher a XXXX, this in all that let tough and it I'm know things anyone for sense while doing year that Let something Texas. about Net a financial I saw everyday XXXX, and and to and

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

Jerry Salinas

Phil. Thank you,

Looking first margin. interest at our net

quarter, partially prior $X.X quarter, billion Fed assets earning XX margin compared averaged the earning the was reported of interest loan X.XX%, billion impacted basis quarter being first positive the first as the at of XX% was to the deposits by impact assets the down of first quarter. invested The for earning at earning proportion the balances or $X.X a XX% from XX Fed portfolio. PPP basis up assets higher percentage X.XX% net the offset Our lower-yielding fourth last in in by quarter points Interest-bearing of or in in the quarter. decrease from our points the

first the an Excluding been XX the the have points X.XX% loans, PPP for from the first yield impact percentage fourth was would net the equivalent taxable for in X.XX% up basis The quarter. adjusted our quarter previous of interest quarter. X.XX%, margin down from quarter, loan

flat loan the basically down billion. taxable would average quarter the have the been impact PPP of X.XX%, of with yield equivalent Average fourth of prior billion in were XXX the loan Excluding XX.X first volumes the from XX.X loans, quarter quarter. million

recognized given from about net average Excluding some of quarter to PPP quarters in million, decrease first with the round the about first add XXX one on be about quarter, loans with approximately fourth total loans, related that three this the energy to down portfolio loans payments of related the during have and bringing were PPP over Phil portfolio. was to To billion the At forgiveness as loans our or PPP the X.X% third loans. to smaller X.X process, additional forgiveness to approximately quarter. the first payments quarter had this two changes loans, mentioned, life in billion. of by million on forgiveness shorter funded one round we end one quarter XX in million our respect approximately dollar With the and and to loans one during round average round the fees X.X we round loan, two XXX expect one of remaining we deferred This the round of a color offset loans. size

be As remaining recognized a of result, fees the we this currently net expect about defer XX% to year.

faster portfolio, higher our points the X taxable to the X the the averaged The mortgage investment and the average equivalent recent Looking billion. about associated quarter, lower first from result a the was X.XX% basis quarter billion purchases. on yields portfolio million flat quarter, X.XX% amortization with investment with XXX on down was extent, given fourth yield lesser The XX.X portfolio, of down XX.X taxable at speed, backed as billion yield portfolio agency fourth from in quarter. quarter investment the which the of our fourth averaged premium total associated during prepayment first a with security

of municipal quarter. with from flat billion averaged portfolio quarter, first X.XX% quarter XXX municipal end a million down pre-refunded, approximately XX% the the prior X.X Our first the treasuries equivalent portfolio the and of PSF taxable being quarter XXX the yield about quarter with Investment the during At fourth insured. first or million securities backed the each in purchases were was remainder and XXX consistent municipal. of the respectively about during mortgage with million

the a us current of help only investment to billion year, X.X make which for prepayments projections about and of calls. Our assumed offset that maturities portion our and expected will we purchases

those something our currently to our non-interest given of XXXX the at of we first earnings, Regarding X.X% analysts' And in saw the from questions. for the that, the estimates is growth XXXX, estimates year to expense metrics in credit total our I'll expenses. looking current non-interest X% over an improving too currently around similar back full of call We to for results, expense reported quarter. the assumption annual regarding expect now the turn full first With to low. that we XXXX quarter believe year Phil range of $X.XX mean

Phil Green

We'll you, for Thank now Jerry. it open up questions.

Operator

[Operator Your Zerbe from is question Morgan from Instructions] Stanley. first Ken

Ken Zerbe

you looks terms guess so in I the are I press up? up mean, it talk points, of just you. ex-PPP. to materially went credit most think your given for Thank believe context that first losses release X question reserves? like it basis went releasing It banks said you in allowance about I X.XX%. the of the why Can

Jerry Salinas

very time, you follow Ken. Obviously, us you know, Sure, long Frost, conservative. a for obviously

of associated related employees what with to lodging. that whether on variant, be back and certain to be hotels what's commercial example. could and we buildings given for and issues whether come that's whether just still estate, work, office going that expectation to about And continue be whether industries, concerned come real We the in are where

we was felt think release like to the I too just early in it reserves. process

have actually you them, we in COVID of impacted just results our will, out evaluation, in really we have given modeling challenges see some real have, would there would but category if overlays, from the those commercial required a management industries. a potentially reserve we Our that in lower that standpoint, created with associated estate modeling the we

mentioned associated Phil X.X there reserve a think industries there, at impacted I still they so, at And out COVID billion. got We've X.X. them are with the

don't out and not think just, So part the feel woods the I is woods. we're of out of like it we're of

was for again, we way go what and our feeling, we just what where But of we in what now quality from And were they're seeing we've felt the our on allowance thought didn't reserve, we you a doing to people given given $XXX expense like our same on basically the people at the to million year, what what provision depends assuming the the felt in on solid like so a need. be. of with for special seeing be obviously, that could I marketplace. to book sort didn't at and feel of And the continue substantiate we to were and metrics flat books, is credit it'll to point, saw certainly a it good this seeing that, our today. quarter, million lot the place basically, we'll quite expect first credit credit really we I us look looked doing, assets at honest I that have don't a got But first are rest we're the to quarter. are through $XXX the keeping

the actually were recoveries in had strong charge-offs $X recovery. You did that $X We million. pretty We helped we a only during by million had of note quarter. net

year continue go certainly rest to think are hoping we with again, the comfortable evaluate allowance towards improve. the and each react where we're So that I and of things and through we'll to as of our quarters, we're accordingly. the And looking continue at

Ken Zerbe

of just we're consensus in expenses it a noticeably in my Certainly came probably sort looks like expenses, of question. guess, And in I lower makes then us sense. expecting. two-part than terms questions follow-up

you the So just the first Dallas your they start? expenses you estimate? gave? this already incremental the expansion? quarter? And lower your there expenses of part do XX talk question is, about is guidance they related the that when Are to can Or drove part second what is But

Jerry Salinas

Sure.

and think of guidance Regarding I the give Dallas really until we don't that start wouldn't on that next year sort Phil expansion, any 'XX. noted we

an back If kind go what what about you the we impact, you're of looking I for Houston would do expansion. is suggest any sort to said of

a I extended I if think talking think do on $X.XX years. first the XX the at given point, impact said talking case, bit a branches longer put year in color XXXX start This before But expenses operations. like would your about I two we talked sort about months. estimates. to had into we over for And period, that if in we work the fact XX of some end, think that I I that results were was one, trying were we're about a think little a you dollars that's and I was that your negative

some deferred As expenses quarter, did reminder, the far a for with origination PPP the the of have associated as loans. fees we just

that was accreted here. fees I actually capitalized million. think -- correctly, it number gets I I get interest. remember like was If into was the and netted to and it against That trying $X.X was

had processes place to we expenses having that, program in we So addition our year. impact last our in that's in continue -- an to but obviously reduce and place

the did team job. a I think good

heard You talking about us that.

of I seeing as in quarter. we're impact that So think well some the first

to our eyes expenses. And so, continue we'll focused on keep

I'd guess third have how there? part I remember Do -- the say. really that's I question you another it. can't So of

Ken Zerbe

parts expense both question. I am of my okay. addressed you No,

you thank So much. very

Operator

from Jennifer Truist Demba is next Securities. question from The coming

is line open. Your

Jennifer Demba

it materially same? from the Would Houston loan-to-deposit you In from roughly terms the expansion those kind be different or expansion, Dallas would of the branch what of expect growth offices?

Phil Green

to to now. our view roughly Jennifer, in be right I it's say want same going the

now our competitive our would are, let I Houston Dallas there. them markets imagine cohorts Houston how Given can't and Dallas shot

I business, same. for Dallas to really think great be small market So I us. a is think the really midsized much particularly and expansion it it's tremendous pretty and for be business, will going a

will at I I expansion. my Houston will it I opinion, good mentioned. as -- our our be think it as think least mean Dallas in be

Jennifer Demba

in Any lessons for little bring has world that learned from of as bit? years, the picked over Dallas forward a you up the Houston shifted the last expansion couple that you'll the

Phil Green

Yes.

think to that thing it's you of that basic like you lesson are you people if who want with right be in people. one about I hire the consistent ours. your -- onboard they hiring can it's And we learn. an an everything these about are to the excited successful being part organization That's do bring with And job the really people submarkets, table supporting them. culture

I to think the that's learn. been best thing

come know that and you you be get well, that thing is organization, that in good not our pretty We're other also hey, on. begin on The we're talking it that really that that what finding thought and be. them not time of over people be from emphasize when to And the at I learned getting person a to we've out we I And to individuals bringing with great want people And these this. believe it. or follow-on teams. said, lifting we're this we're in doing have in in to what we're that part is do bringing who'd putting them we're -- and person every teams would want and organizations this

got Houston. the I expand we we've strategy, you certainty in to And -- that's we'll not And what didn't you on and we've think I through along about there, bit going more in up through little to in continue you're as There the that bringing are good I and to about so regular the Houston. got -- a continue business, who want we've be pick first a there you're to move think some that want talked submarkets seen fit just to have time. we're market. expand And just growing momentum that we and like on that good follow-on, our in

early skip need important months through Don't be to six going it's We we we community what thing is, one the successful. Jennifer know But steps. that's learned. be go develop like So And to We with steps. to do we've a early. leader, know that to really feel need I there market. the I thing, like that's think, that I to see those

Before if market in we a close branch, open earlier. them couldn't you branch we bringing our on get you I on had for in up leader you have We with one one a it of involved, suffered was and think that surround them team. community a do someone Houston, really the we where and you steps to the able because needed. all leave We early weren't that early

the it's There's So, excited there'll we're January while the whole won't there I those be actually what much next on really Dallas. this happen to effort effort focused that bringing mentioned want looking year going for open on. And this sub understand our do about us. though. an right stuff. forward about hope has to as the and correctly, Jerry, of people first that we people be we even of And really to expansion, to of lot for to on spade execute impact in markets we've I'm in lot really year a that a of and of location that to been be markets. bringing for, it more there's so doing before you in work am undertaking

Operator

Your next Steven from JPMorgan. question Alexopoulos is from

Steven Alexopoulos

the first from on all new there in up cited commercial quarter. for of sizes? is relationships first that the Are I to one customers Or these the wanted you point that include your banks can are increase follow response, over than retain maybe customers they're is now friction struggling these what when and you citing customers cohort others to to more moving in coming Frost?

Jerry Salinas

in not three, to not it's afraid three any accident. but with is much to an the those to them, them. a too of the providing with can be -- call I greater hesitate big that only, these source we competing main compete that of share And and we we're market, banks other. against well not than the compete source and We what Texas main the Well, I choose any one say. honest, the very the there's let's relationships, And is say fail, big

so that, your of it And to your makes second see our sorry, -- question, we'd And that's most then where new part relationships. Steven? of me that's sense I'm

Steven Alexopoulos

straw such the to a It increase than more deal the commercial just bigger they're what's to -- a was it's And over of the -- point? seeing it's that they they terms it, moving big what citing in -- curious, a Why are back? you move Like -- moving move I'm the consumer you are broke move so what now seeing now? customers candles friction sort in of when the that year. you're relationship

Jerry Salinas

say I more mean, it's PPP, anything else. I'd than

it could PPP. know we're You she business a that like open realize for her existential needed biggest where is, in whether ago account decision would check bank. on think, the didn't you it an XX how many a she an outsized really it. she relationships It's woman reason she here somewhere that years were number that only get about the got be seeing. I And PPP when were of these I've a matters

Jerry Salinas

Yes. in bit. a just Phil, can chime if I

customers some bank way. thing and two referring cases, in some them that some also that mentioned, the with we've really, is easy was cases, PPP some had moving over that I've call to of really heard heard Phil thing us, the the it in their heard centers. and done of in case and other some a and come in are get we've big them experience such seen of with in is as as of had as people the us de PPP fail cases, And more how these bad it's it had those successful PPP some far referring loans to that at of mention other we've friends The that experiences customers their prospects with successes other have our

that necessarily don't some manager have size, they of relationship So their they more they're thing go call hands the in at could We've call that with and cases, because same so lunch with well. centers. deferred that to look up being sort shake heard come and of as her to eye,

Steven Alexopoulos

shift helpful. That's gears. To

you as overdraft, deposit to that soon is a but does that when So you that be? looking couple as program soon hours, possible? the that gives that that which new peers say overdraft, What for XX The at have of say customers as need the does program your possible? mean interesting, exactly launched as make with after what

Phil Green

Well, all, first that's not of program. our

deposits $XXX direct that with got month. won't Our gives We'll pay deposit $XXX is that if the your overdraft least we of at fee. a you've a program charge us, less, a or

Steven Alexopoulos

Okay.

Okay. But been have might that referencing making there else. deposit a I something saw

Phil Green

I was... think that

Jerry Salinas

Yes, direct that deposit. was

Phil Green

deposit. Yes. That direct was

Jerry Salinas

You have qualify to deposit direct in have to order a

Steven Alexopoulos

deposit You as as have direct to soon possible.

Jerry Salinas

direct qualify program. for Yes, as to the deposits

Phil Green

Yes.

that qualify you once program. And for the that got so would a you've a we a right? get -- define the how you direct establish And benefit. And you that's deposit, way, make got deposit, you relationship. reason, a relationship once direct you've If

Steven Alexopoulos

And service revenue then Got anticipated reduction you. in charge on from just finally, the program, the what's program? this

Jerry Salinas

Yes.

number the that this consumer I that fees think we saw quarter, would down our million. think I looked we NSFOD at $X we're projecting about be is and first

going will Obviously, quarter. in what quarter. quarter. saw be It what on we So the I the would in dependent the that's have about activity of in it the but lot of impact first forward, of we the first saw we a that's have, sort think XX% been

Steven Alexopoulos

Okay.

So revenue Jerry, what's year impact, impact? just full year the the full

Jerry Salinas

that it's quarter I on if yes, $X guess the to depending the less say on million would more, could on be for I -- potentially volumes, dependent just be So than or less that, right? it's depending activity. then, going a Well, it

Steven Alexopoulos

Not material, okay.

Phil Green

to I be don't think it's going significant.

anyway. at you've pick that things overdraft the overdraft two going look the line, activity going think you picks to I -- you're as see up got activity When on. up,

And to versus graph on we're would sort of -- increase of think XXXX fees. investing We'll But have really We'll how and new be it's think it It's I it so we could flattish but a see we'll good differentiate what that what be I goes how doing see been. ourselves. over some really happens. we're a is program. opportunity

Operator

is Your from from next KWB. question Brad Gailey

Brady Gailey

to with that sitting you wanted just of all I start the cash on. amount are

pull start that's is still sewell, the you if it's cash all I lot just that's think lever. for to off, book, the point those of talk on it's the seeing how you yield lever basically $XX funds And today, bond into about where but look mean yield billion pull to a to you not about some right at a that earning to the Maybe time is curve at higher. great. obviously, move You're and when huge

for little to that wait you start a go we do Or So higher? do see today? rates to

Phil Green

a me just bit talk let Brady, about it.

be in I decision monetary when with bond just that's We're the the impact, just increase. think to stimulus. amount that in we rates basis was we're believe mean, could about that I to we're the going We the August smart made our sense I economy seeing this would up just shareholders' answer going but year short in we could it's we we're there, XX-year year. We it. we're or wrong, but be money. not is to that for don't guide is this it's off makes so. to see paid later us. It opening going longer. it going later. this would think we're third not to bet be later wait a I little doing with the traders. employing believe fiscal to quarter, maybe XX want be And stimulus points last be that guess great I and of want

million in really talked $XX one in million that's the about worth expenses to so going quarter, -- to accept that proud with we things as for of basically of expenses. going $XX gave just follow-on we XXXX, I rate, really of the I XXXX's the And Brady, some doing think maintain optimistic our we're us to lean. rates wait really We've I'm frankly I'm outlook. to see, the for this increase I leverage really -- about and things we're feel the the off some take that it and our it's to operating I'd say, that we're provided willing is we're way It $XXX that I up last Fed in reduction to and organization run about the is And us. optionality. that. is that's going think, paying And million where I open think had bet things got see increased improve. ability, us

the George on that's us you everyone's Jerry, It got mouth. what's wait view until hit the we said, liquidity Forman get But liquidity I and I -- could in lifting gave this ability build got years business, with build. said, the wrong. this our We've we the there. think was did for expenses. got there's be the some heavy I for to the plan next a several think have that might And we've like it

Jerry Salinas

at Phil. billion, We're $XX

Phil Green

rest see I tons and could I'd I could I'm some, but on this us I very in loan Around I That $XX also later it. -- on this year, the later billion we will some us into and But to think help help we I'm of going now business some, in employ Through we move don't not the the I think of XXXX. got liquidity, Fed, mean, to it. love going to as bet optimistic year. not but think but this has it's see see year, growth. we this year,

in has momentum And that that let's I going think Fed build we'll begin think say maybe And in can I XXXX. into they they increasing said could see but XXXX, XXXX long, wait rates we're some in to XXXX. it. going that The do.

that's far And think XXXX. as we'll 'XX, as 'XX, tailwinds some move be to past in tremendous the that give us I develops. then now as we going that,

market that see some balance And be beginning we've will investments. maturity at so be point. that we've that the made mature some investments of And in to got the these we'll in Houston

I I'm we really for that's hoping well we'll and if in see. opinion, up things feel, my that's us So the that get, what scenario set very

Brad Gailey

to XX%. as that like assets would longer average the Does even you assets? pre-COVID more cash X% first sounds was higher term, look about where that you think in running a makes assets. earning earning it's that of Yes, But It term? if of longer earning to keep average today. mean, to than sense. like like of And I X% feel quarter, was that to I normalized that level cash

Jerry Salinas

weren't we've Yes. digits. running think Brady, bit just a the I that. above double in We little been

thing So typically. X% range would -- The I I'm ask thought I were would have the you -- say in if I'll me, sorry? we

Brady Gailey

ahead. Go

Jerry Salinas

where something And I mid- term, is high -- where longer really up be. No, in I different, us, typically would bit we've always we way But say, a right and we're liquidity yes, We was it's going yes, have more that to think expect something there. digits, than been most. we'd not is have little it's at yes, to the to for just right? now, single

Brady Gailey

to Okay. Dallas. expansion, congrats exciting then hear And on the and Phil, it's about Houston

game you and bought Frost novo people A but didn't. You fairly didn't of pursuing Houston, but a of M&A. de are could in active here lot a about have out? Dallas, could bought have you in Texas out you the of talking point bank more a and geography Is kind from being M&A strategy this at bank for organic

Phil Green

yes. answer that I think short the is to

acquisition of example And to on small that never an that now no like Overton. ability was You with Texas would weren't never example place, And gives 'XX And kind a platform North execute there's a I've times banking only the that strategy said ours can I do is one than an before. for that all. you that you market think a in on and that I've organic in economically. a a -- of acquisition. many with make the creating think what better say the that would always I of given company right acquisition sense great business, for the Texas business from But standpoint we market that

new an I'm right? talk this it's you organic -- on growth, I going example, households. checking we've to know Brady, about about growth. give Well, so net talking was is I'll I and And consumer

XXXX, we three look okay, in you -- a at X,XXX at back a one-time September basically to three go years paper, month, over years, okay? net XXXX, looking households quarter, I'm I'm If we one of -- January So of September checking a in from looking XXXX, little so X,XXX you if of piece onetime. hit new checking hit a net prior households XXXX, to new

on one And the XXXX, four that hit you times. got one, October, I've digital January marketing. things that's $XXX we're of And we're -- it help has October the to -- March attention. Houston overdraft, going freeze, that we've down. catch people's three, If through December But good doing we shut that so look didn't two, so the focused February overdraft got that that do a X,XXX. and why We've March, regard growth. X,XXX, everything that -- at you We to growth. in organic And XX like X,XXX, had That there. is gotten at That's with grace. been for

good a of why that's want throw shareholders' to to money don't what hope and I really prospects. spent -- excited don't our our and why long ball something I I'm the confident we're and And happens. of I that's lot be so doing am about

Brady Gailey

clearly you it's makes and color. That working it sense for thanks the guys. Yes. Keep for and up

Phil Green

you. Thank

Operator

your next is from Poonawala America. of question And Bank Ebrahim from

Ebrahim Poonawala

good of it's yes, those First, organically and being see proud to a bank investing investments.

season. the to I guess Phil, earnings question, one So to it's see that. good of do we you as come end

of optimistic a driven sitting heard what is you're little contrast a which You XX%, are we've your just I conservative growth in that on, growth in a little said by businesses be terms about pickup in Or peers from, say, who've when that of to your this? of of loan expecting talked XX% of up loan ahead not this themselves you year, liquidity would think the some the picking of do of in the to being peers summer? overly year. the a you're a rebound middle Talk us you in messaging might are in bit

Phil Green

But will I haven't we we in Frost C&I be a seen -- it. but a so I'm some that I'm still really going conservative. estate. pickup real commercial the seeing little bankers, Ebrahim, are say to

we had a getting? are they've lot XX% declines really call in of but terms what great we -- couple we something about had banking in we on in we large energy, a had of decline of we last X% public that's looks was to XX% booking on and finance -- our And booked. community A look year-over-year purpose. have because many deals, are How and What I about down XX% a year a decline booking? had year Our book. well,

So we're just our to there. trying position rationalize

are so -- businesses some like being chain we're So some be I It to they energy. finance. supply it's would from I the I careful issues might with expansion still otherwise have say, real. and think doing done. much are that keeping think of something public of it people is

the I'm year, in way so that come rest end And percentage it not seeing C&I bullish just if I'm And people. -- the of be we it I'm I of we on since for now, most the haven't By that's of that higher right loans a could have the seen the just could that be back now. right wrong. but year. better,

Ebrahim Poonawala

Understood. like expenses. it. guidance on million And $XXX million, one expenses Got back Jerry, I then the follow-up, range. $XXX a just to in guess your implies ramp-up

that's drive higher of us from we -- expenses the levels? XQ remind to drivers that Just going

Jerry Salinas

Sure.

impacting One is here. some one thing information I will grab say the me course, expansion. the Houston growth, Let is that things of of is

Houston expansion $XX is expenses, by the So noninterest growing itself million. about

is of part that So it.

forward. expected. just than the things bit we going branch on I But forward, we little came that mentioned, openings us could affect As guess the slower looking a

course, is marketing. revenue softest pieces certain that commission businesses revenues, are where with it -- on of associated Some our of of the intentionally and advertising that quarter revenues

growth. as burn even customer wanted slash our continue that to extremely area we So of marketing really it up. continue think we about to We we'll an been go the managing budget. It's to pick grow and some it's see wasn't important an and we've that that area expenses, cautious were

to quarter, quarter, built first see we're it's that increases going increase and would the continued spend continue we're technology, on areas our to those first and probably continue something are saw to I think into two that's and you'll big just -- in, I'm see an there. the equipment, furniture out. So point you I in to numbers. going And And sorry, that expand the some increases

Ebrahim Poonawala

Was like Jerry, mind PPP don't a the a talked expense about that expense that's you line, if And related. through it. PPP you Got $X.X running million earlier, clarifying that?

Jerry Salinas

those the guidance, are accounting capitalize costs. under Sure. so origination -- you No,

origination that fee the into costs And expenses were million so of gets against netted in that out come and and get accreted $X.X income. there basically

if things equal, expenses been have would million been you if those PPP not would higher. have did expenses being -- loans, we -- $X.X So other have

Operator

Compass Your next Dave question Point. from Rochester from is

Your line is open.

David Rochester

the If high to that's on -- of on back annual was expecting Would number. trying guide to digits. growth, you ballpark real to at pin back think mid- of point quick, this look exact expense at just the you it single what in you to go Dallas we without take the down you around are XXXX, generally a piece. guys an Just XXXX, like expense kind

Jerry Salinas

the of policy we're to giving I the -- kind current it's not guidance. sort really really I mean, into our -- guidance beyond of year. on anything hesitant any give

guess really just give going of trying I forward was So consider into guidance some of back might thoughts you you kind if look to that of you I kind Houston.

Phil Green

then pointed right that Jerry doing now piece, got really, when starting is we talked and in a out, the piece you things other invest about, confused to burn business, the Yes. capital, kind we've thought that rate together it business grow have business our of kind It's is to very and it's we company, investing close operating like we're any investors a kind we're of markets too. about it's technology you the expansion Because almost to we've runs of that, or companies. got of -- it's profitable. talk one of the we've about investing you're running bit. of at one core something leverage piece the into very and but well. what us it associated and piece And with new, the are call two what we where for it. And whether a expansion in little It's whether culture, the if which core business, is any one an very sort efficient, I'll

basis both intend business helpful to core to to the do. we doing us it on are it's a what and Sometimes look them basis on then I exactly at for the at because look expansion think

better maybe bring out, In together, it the what's we on really pointed a them operations when with going intended you do. company. confuses to originally But than as we fact, all as

of we For the when example, XXXX, that expenses, was increase, when Jerry amount but fair in mentioned of XX% in rate a started had XX% the what beginning we growth was at expansion. a

to want a we're about good loose don't we with be, wrong will so, over time, around give of that this spending we're And pretty impression here, that money but part tight the it expansion. actually

Ebrahim Poonawala

Yes.

sort your on on Okay. of back cash year. later It question I appreciate expecting around that. securities. Appreciated sounds or you're there thoughts like this the maybe maybe after putting rates to And on more some that. work higher XQ

I right level tenure you to can is look work? rates, of Any at? it certain plus? you're Is starting So a to curious, it parameters money there there know just to X% meeting kind of at? looking are it at the Is any higher that look put was guys other and we to benchmark

Phil Green

type like substantial improvement that words substantial Powell -- thing. yesterday, of talk to of listened he's kind I talked and about

think it know we'll we I when see it.

think X in, but timing over in directionally, just months. XXX the I expect I mean, right we I I wrong, us that to in see we'll I move later personally to be think year. think And will that be dead next up. see it range for the something have several the

we ourselves so we pin wood. And down. we move to to way. pull worked, And that market. begin our it's maybe fourth to so into don't sometime, it's continue knock expect will But it the I hate won't. the moving But I probably Late third will quarter, have on far, think -- but if trigger, I quarter conviction, that

Ebrahim Poonawala

yield last loan this are ex all Have parity the coming in yields on PPPs And you and maybe one whatnot? where on versus is general new one guys where at Okay. point the just hit loan pricing. book

Jerry Salinas

the No. was been strong quarter was third our to I and a points But that would looking down at that the go overall pretty has -- about able seems ways. lower XX It few even with back book consistent the stayed say continues I to book, I'll What of like I'm LIBOR I fairly do and, back. still points. when fourth new really basis fact, was in quarter, pricing two it basis the versus in seeing on impressed quarter. every the answer really the to from been versus book couple the as current

Operator

Markets. from RBC Next question Capital Arfstrom is from Jon

Jon Arfstrom

or in say you your would branch company like of size a what deposits? median terms average Jerry, is for

Jerry Salinas

let gosh, -- see me anything if got to going I'm I've here.

be We typically Jon, than are, tend on to most. average, bigger

me hear let So it, on. hold

Jon Arfstrom

Houston corporate to thinking you're average? Any can't to As this reason how me get does get take Dallas the let ask And and your why there? question. it, branches it long through

Phil Green

what there's these I and we that, ourselves to do in any the our okay? when time. for And branches $XXX then we with over look we Jon, the this average if be of our I locations be you that, sort branch you wouldn't a why any do that million locations normalized with any why at in take as you are a look -- tend any there's say, or do what that branches, marketplace, should large -- because out I we're where more, what line that's yes, and effects. not think at database we And city outsized we to don't reason look whenever competitor of at I ones would including really are be so there doing I headquarters the think mean, headquarters other would that probably tends is can FDIC in reason

Jon Arfstrom

way for kind just that a was get of I a to is like number? of Okay. median to type looking maybe

Jerry Salinas

Yes.

A. you, any kind Let with with maybe to stuff at -- average really in quickly, B. ask out -- do, saying, the yes, of $XXX A.B. that We'll But going then that an typically with looks tableau pretty that's is you. in I'll what here what I'm anything I'll verify we with But on the kind Phil again, exercise through here. take at I'm to looking sure of find you, but like kind my we'll if We'll make I'm it's downtown that I and we the up report big and but. way. me but what verify come see can confirm think It if based mentioned I tableau looking we're get million. comparison. that sort of centers the of something a

Jon Arfstrom

quickly, mean, have the don't put that are put that in And is about you all in places are growing faster is strategy the tremendous just outside, that to Texas. to we strategy from hear I the this But where presence? general growing, branches the growth branches areas in is

Phil Green

too that. for And at big to we're compete places located. where, not obviously, look consistent like a because We lot it's think are the depends. secret different at in to with I'd tend of that's with. There we say me may the growth I okay value there that We there's that let growth go all out are of markets. there are it who some us, we But tremendous if just but in that certainly growing, too levels for look we We there look sauce. areas without are. I fail to competitors look guess be shouldn't say

like the things that. look lot so And those but are a of at. There more, we are things some

Jon Arfstrom

you here. Two in more be over need as well Austin questions time? Do to larger

Phil Green

Yes.

so think so. think I -- I

rooftops I strategy. -- to or see Indeed profitability estate payoff Austin really. explosive like -- with Facebook a And continue the We for we're real mid-sized some that or of harder a of small in be you've is just expanding there the What strategy in need Google where to the a profitable do business I I lot don't business consumer really is or a Dallas. think us, centric, going going those numbers what Houston there strategy and employing or there. follow-on centers time, what Austin of we'll to the small there's be want in last we in to mentioned Tesla. migration lot -- what's right? There's there's and decide like businesses, we've That's the strategy. we're with but is Or driven. with confident whatever, of strategy. we're market a But remember, is already market, will us think AWS. It's expansion strategy, is intriguing to this just given happening vast that And consumer just just growth. to the go that it's I'm just going see confident if more a It's a just got have say, just it. just we're to locations of branch in are something, done to Dallas. I'm with that

I one. out little that think on bit still is Jerry a

Jon Arfstrom

you say, Okay. How does in Antonio Dallas of How against, compare it question. would growth Last San Houston? or stack terms up?

Phil Green

faster. growing Austin is Dallas that say would I faster. is And growing

or say would high some about that's is doesn't to lows. Antonio the on comparable we're energy the low seem have for with But going to San a different I the what's have slowdown it great thing Houston. Jerry while, highs Given and might the Houston thoughts.

Jerry Salinas

I not going exactly. see yes, That's to was all

Phil Green

It's very of stable. don't be share here, intend the always It's a market we give other creates us It great market up. It's flow markets. to have it capital. that It and cash we in. having lots has lots in to and great of for to expand

bit little stable more lot if it benefits and it in slower, is of has regard. even that were it So a a

Jerry Salinas

kind economists, strong current fed, But Dallas The was San data, there conversation this April We surprising just the performed were with popped And out looking had had relatively speaking. and more we information. -- bit. little thing right? Antonio San we at a is Antonio of March how the

hearing a Houston of But than making that I were that, little was kind let's bit road. low, that a that a we quicker. along the was he performed what recently, to Dallas say, of rebounded think or more or he typically was thought we Antonio tends I expected. better Antonio high chug just a the But had doesn't San comment said, the San Phil yes, have as

Jon Arfstrom

All right. Thanks for all the appreciated. fun. I

Jerry Salinas

that $XXX,XXX you on branch thing thing, gets the gave million me, last one close. And Yes. I number $XXX -- pretty the you around excuse

Jon Arfstrom

Yes, thank you.

Jerry Salinas

All right.

Operator

Phil now at time. I'm to Green this call the following Mr. I'll back no for further questions closing. turn

Phil Green

on participation your we and everybody your today your Well, Okay. thank for all questions. the and interest call

that So we'll and for adjourned. thanks be

Operator

today's concludes and call. conference gentlemen, this Ladies

You now disconnect. may

Cullen/Frost Bankers (CFR) 29 Apr 212021 Q1 Earnings call transcript