CFR - Earnings call transcript Q1 2022 | Cullen/Frost Bankers, Inc.

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Operator

Greetings and welcome to the Cullen/Frost Bankers First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you.

begin. may You

A.B. Mendez

Thanks, Daryl.

be Jerry CEO President Salinas, will by Green, and today Phil led Group and call and Chairman conference CFO. Our Executive Vice

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

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

Phil Green

$XX.X Cullen/Frost practice. in $X.XX reported or share of $X.XX per last In the of quarter we the it afternoon, million million $XX.X or and questions will quarter first going a today. us in same will I and quarter, A.B. the a and $X.XX for and joining share open year your $XXX.X normal everybody. the Thanks, for first comments then XXXX. or earned a additional CFO, to compared Jerry million review Cullen/Frost provide fourth up our with Salinas, for results Thanks are quarter as share good earnings

excluding a unannualized and XX% from up loan The to first Commercial with single-digits. expansion and strong long-term of employee quarter, last into as deposits also in quarter happy of in quarter commitment optimistic an booked time outstanding. year. also XX% $XX the is world success to propositions last activity rate year quarter and rising segments. X.X% new continues talk comments, average to first X.XX% service, loans, $X.XX core, the quarter and This we deal the our points and results for commitment year. strategy expectations growth a increase loans, excluding business prospects customer basis, of and first start Average in quarter our will year. ahead were X.X% new growth return about the all normal last $XX.X am move helping we a with more in quarter, organic customers, the I for PPP, Lending and growth quarter saw respectively. billion PPP the square of interest billion average its the at fourth compensation average was growth On very the billion. with our investments first basis first of our were relationship. And on return further sustainable than support over common That the am environment. of Jerry around basis equity were physical in in more or outstanding which am assets the increase and in billion commitments linked high average value and compared full in centered our I to We Average with year to features pleased for in in segment. loan these I XX into commitments first about but Our account a were I his $XX.X healthy Loan was any class the strong it both this our growth believe reflects business the gains is same the

first this well fourth the tend in level. record seasonally first was our quarter New commitments quarter fourth from the to be than true saw lower first as monster as booked and quarter XX% down we quarter quarter commitments that

activity. deals. the loan was end first XX% quarter. about which pipeline new few increased went A by from of quarter the X% opportunities were the found all quarter from interesting more at the driven looked quarter gross booked fourth at say rate And C&I our ago, our the continues XX% deals, loan of year the XX% However, first is compared growth up in things the compared more to to to end first and a quarter weighted I at quarter. to but other that first last we That lending good. our improvement In to the year outlook a by for by we the fourth component, this a XX% booking the XX% be

more are having we So success.

We more from they seeing their expanding activity businesses. begin customers are as

would higher we So, a of course rate there. expect success

a on capital end quarter, Our of more level. to year XX% at at XX.X% to end advance increased from rate below the first commercial working normalized lines the XX% still XX.X%

continues key. acquisition to customer be New

Our numbers customers quarter linked growth from XX outstanding over last loan came of balances show XX% and months. that the our added

becoming expansion more accretive to efforts growth. are Our

our loan the expansion been X.X% volume. example, of year-over-year without an growth X.X% As have and would

deposits the had XX% which business strong. to $X over loan on stage little set growth we XXXX. nearly grew we this aligns continue in see our the be year. Same-store expansion checking with business, we accounts And giving helping well. very grow and In billion by quarter, the end balances us increase of our to a build loan resonating in up region can at year-over-year picked value and grow have loan a and demand side of continuing year-over-year proposition we consumer deposit launch start continues this our first X% At XXX% consumer momentum a us our for households In we especially of the to goal, consumer there for Houston, newly new of over and quarter, X.X% Consumer helping to mature. XXX% in our the the of the XX%. to has total as compared Our grew last expansion saw the increased quarter, first checking sales goal, the year, our record stood our branches is markets. successful believe We to the household opened later product XXX% as mortgage goal. Dallas

For goal, macroeconomic our that we Redbird of year along Center with about that do opened in this our goal. far represent the to optimistic be economy. continue so opened the two locations growth and early, Despite deposit XXXX, goal Financial they but are loan XXX% the numbers challenges, of XXX% XXX% household of in this

XX is project branch The expansion third to the open our location scheduled in Dallas new second in quarter.

totaled course previous another million continues Credit over Total XX of define in and the which the expand be ‘XX. quarter, at X $XXX quarter. we the locations from as of adding the end ‘XX end of to continue will and we $XXX down at Additionally, to good. the grade first loans, Houston million risk higher, problem

identified first $XX the million. outstanding loans quarter, problem newly During totaled

wasn’t superior customer was our received again, PPP for Retail are borrowers across the the the recognition time, level learned thing long-term average made years. favorable charge-offs for the again, quarter, our After for performance once of along toward smallest in with the the we quarter row, and During totaled level. providing year wasn’t for were compared our is increased our year the almost best was that of awards by net middle-market And this received payments Then Frost progress our advice the of XX $XX in ranking with rate concentration clients. quarter, raise XX Putting we it quarter, are force decision continued for and quarter, do. that’s points but Greenwich first for loans the the million first once in those easy first several any brand highest at commitment to single-digit via story banking after decrease Texas. energy the of continued years million. the a March pass goal fourth of Again, million satisfaction same loans Annualized the XX%. receives. about our $XX everyday quarter. this months, Steps we finish in The Non-accrual of energy the depositors. years. in of our service, quarter were it right and only our effort at we short several the good thing the again making a pay quarter, J.D. and in and wasn’t average XXXX. X rates, a quarter first time total increase show The quarter on right bank one loans The do $XXX the Federal XXXX, line, loss and charge-offs million first of the learned not a hour. are Excellence report addition the in end resolution the for communities at here loans third-party We in at XXth to some expense the with customers. Reserve XX The to but given forgiveness sixth in Satisfaction the loans, representing help of Power the to we inexpensive, end year. quarter. in to The being of number the below first it did in people’s to to customers the earlier easy, business for awards in small of X.XX% net last Greenwich we for U.S. the the the end late minimum we was a million in the were in quarter problem reflected it XX% was that lives last of that $XX.X of $X.X PPP complete down quarter extra first over typical credit the to our first Banking the Once delinquency resolutions fourth for And highest like and our lowest over $X.X was was with month, through Study an the and these of the basis nation. of goes $XX million. in that energy increase row, business loans for first Also the from year and loans during mid interest borrowers. and problems a upgrades In last it to the it decision working of portfolio first payoffs,

extraordinary working have steps remotely biggest this talked ATM growth and Over were the the advantage, network. overdraft is grades, we to this proposition competitive our while of taken payday, enhance our can state’s taking a safe. but our people enough. company our I early the Frost’s I projects, many lot, so things value when of about our and past taking together. know expansion our all mind, can’t have the financial optimistic were pandemic and the I centers success what often place like about in say what years, organic to to few measures employees you so have Keep and everything our accomplished me we team proud during employees we am is makes it keep future. do I in in say

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

Jerry Salinas

you, Phil. Thank

at first our net Looking margin. interest

points margin quarter. interest for from was quarter basis X.XX%, X net percentage last the reported the X.XX% up Our first

adjusted quarter. of some of at at interest down result an X a negative prior fourth the end a X.XX% first up yield X some items of from percentage would with impact just the PPP the Excluding X.XX% positive the margin basis in points percentage, have offset was net for the was a $XXX of a assets we the down impact. the positive in the interest PPP, the A by from lower partially first increase and million equivalent have basis XX% in million been from The points taxable end loan our loans, up items impact for $XXX impact. finish down PPP securities fourth quarter, first down margin earning only loans relative our And as as points X.XX%, from basis previous investment the deployed XX quarter, Phil loan loans on impact $XXX million, to at had about, were impact. X.XX%, volumes held the on percentage the also of and quarter had loans talked our some lower positive net largest of on Higher into liquidity the equivalent the to March quarter yield securities quarter XX% Fed, portfolio December. yields of PPP from been excluding negative would the while had The quarter. loans, taxable total

any XXXX don’t on impact have our such, results. expect As we to material PPP

first the the agency averaged our about potential yielding fourth uncertainty treasuries MBS billion securities investment our implications. with $X.X during continue measure some about of in invasion the during X.XX%. quarter. We of the of we made to at a as purchased investment approximately securities, in by time in quarter liquidity a and yield $X.X during total January market market purchased Ukraine quarter, its at excess We those portfolio, the average is purchased Looking potential $X.X Included a given deploy quarter X.XX%. and $X investment billion that the yield defensive which of about we X-year the the billion up the $XX.X X.XX% included from about as short resulting first $X.X $X.X billion the in duration billion, purchases of first treasuries Russia late in quarter from billion billion a portfolio in treasury about in treasuries that with of purchase

up In of purchases addition we through $X.X an in billion liquidity billion and quarter, basis X.XX% up total on to into taxable quarter, the would The $X prior which in portfolio points excess $X purchases the on into quarter, X.XX%, X was taxable was the the equivalent we of our from is basis portfolio made quarter. in first the was from yield the the the The down fourth and – investment invest portfolio, investment fourth XX our the that expectation current the in additional averaged remainder quarter. points the the investment yield $X.X billion from year. first billion

the during $X.X $XXX last were up quarter, At XX% down was mortgage-backed first Our the quarter, X.X first or basis up the $X.X with from equivalent of $X.X yield end in from billion on extended end to taxable or Average the from tax municipal duration fourth for portfolio of the the the quarter XX%, XX%. prior X up the exempt growth pre-refunded was billion was about points of end up The fourth quarter quarter, averaged of or years, $XX XX% investment about first insured. the at duration X.XX%, municipal quarter. a portfolio PSF the the quarter, portfolio The million quarter billion lower deposits from securities. the of $X.X interest-bearing non-interest-bearing first billion X.X related at billion, years the the or year. grew while coupon deposits primarily deposits of

basis quarter deposits the quarter basis growth first linked growth look come XX-month our from deposit XX% the deposits. of a linked has up at primarily or in back quarter. interest-bearing up relationships. Looking growth, were in X.X% about the the a In basis, billion cost deposits comparison, new basis. has previous $X.X growth of interest-bearing year of The from a was the come X on non-annualized X points, point quarter from past over On

of out couple strong income or commissions of and quarter the million fees, in point insurance quarter regarding I a non-interest linked $X.X comparisons, growth will at Looking linked XX%. income statement

typically a for the is will always received commissions and Just that of insurance the the natural fees I cycle our renewals also that due our of second first quarter strongest reminder, in insurance that and higher note first weakest to commissions is typically as quarter. are quarter our quarter also the quarter contingent in impact quarter business commissions. for

ago. linked I one projections Looking expenses quarter from note expenses, the line total were quarter total right with in at will first that non-interest our quarter

increasing we the given total expected for environment, I in a reported non-interest this expense XXXX non-interest high for growth our Last single-digit at continued over for full to grow that growth quarter, increase pressures rate am expectation stated expense. year. expense salary current the However, in non-interest I XXXX

at in recent in full reported to over we than levels. salary rate low a the increase double-digits expect related to increases in given higher for competition year primarily this non-interest Given XXXX environment, the percentage for activity, previously talent levels, total now projected the expenses

Houston impact cost our about per pressures, our our continued responsible efforts. responsible is Dallas expenses in December of in for as to X% wage growth, associated hour increasing in state in minimum mortgage to $XX the of salary our the expansion the expansions expenses non-interest of addition result adds per $XX projected X%, by product from across impacted In and salary of hour about X% a non-interest The our and with reintroducing growth projected market pressures XXXX. for also growth about is is residential

Looking at rate, be quarter range but that XX%, effective tax of our tax should effective affected to can in year discrete our effective And expectation during current XX.X%. our tax rate by rate XX% was that year. first the full is items the be the the for

mean the XX December. Fed expected both basis mentioned, the point full June, rate Regarding estimates believe the to May back for that current we that currently rate basis and earnings, turn those of over and our now the is increases assume Fed growth With XX of will current estimates rate projections increases XXXX I XXXX and in I September that, in previously assumptions year With for call by followed for $X.XX point Phil low. analyst expense questions. ‘XX

Phil Green

Alright. Jerry. Thank you,

Okay.

We now. will up questions it for open

Operator

Thank you.

now conducting with [Operator come is Instructions] the Raymond proceed question Our session. a Rose be first your line from question-and-answer with James. We of will Please Michael questions.

Michael Rose

are How guys. afternoon, good you? Hi,

Phil Green

Thank Great. you.

Michael Rose

Good.

decision? that I that? kind amount and and intense becoming about obviously, about just is Or you a outside to it quicker you’re $X talked hikes than rates what things So is maybe just driving talk is bit that of securities quarter, higher little the expected. more of maybe appear like a than Can going you of faster that little like to that think repurchase the that looks last higher billion clearly rate the

Phil Green

really that we was that the billion short-term we really defensive in as more one things part a plan. that January. the of our X-year purchased wasn’t or I original did did Well, point I of was the guess in treasuries out That $X It measure. something

couple Given investable will in that a back it be here. years short duration, of

that that bit kind environment $X took we going billion And the really, expected. addition, of deposits billion, a so the given on I been And was again, say little I’d at than an in current what stronger $X just have was time.

the know softer, we mentioned I think some call of be history last but they a I that bit might past thought quarter’s little in given quarter quarter the perform Fed that continued balances the I I looked deposits our had had. were the that first when well. at have this to we at we’re morning I call, the and $XX.X billion. a $XX ago, billion.

a of you a we liquidity. we amount bit have good gives quite feel a that So spent significant and yet that already, still

So that’s I answering you needed. of a long-winded what I question. hope gave you your way

Michael Rose

looks broadly the Yes. next hitting and But like probably Yes, Thank growth the of just then I there strong. looks the at is of as a of puts very very but quarter, if couple exactly. kind conservative. on guys we Moody’s the speaking, half you expectations little you for Texas takes? for stride year. look seems growth so back reiterated years clearly, over through the strong. economy Texas, know you for some are kind the into you move Perfect. this loan the it concern the walk Can here, me, It To And for outlook year. much. the you obviously, of really our growth

puts takes outlook? that the So and can to talk just Thanks. if you about

Phil Green

as We’ve at good end of XX% all, really opportunity mentioned, I is end to do good. the it we quarter up the year. is outlook of right. and the be you’re from first do the see pipeline, We – a got just Michael, the expect

commercial you’ve estate I seen concerned are some but possibilities the Obviously, seeing higher real movement about some people rates. there much hearing there. yet, cap rates paydowns paydowns side about is we’ve don’t think cap rates. interest in as higher We are or in concern seen

think is. want next sometime biggest chance of our energy where to this during mid-single-digit really I probably And then also, we to with quarter, watch So a we’re number have that’s almost being that. the headwind. probably But to the could careful there. I real good handle that some And quarter down been portfolio, still we’re we I think have five there be on and continuing second a But get I that. guess, that. – get of

of had and it be conservative, say bit would year. a the the would that’s about more single we what feel talked headwind. make things earlier would So a more but that’s number that digits I And high more confident I about this that

Michael Rose

taking for my Thanks Great. questions. all

Phil Green

are You welcome.

Operator

Thank you.

questions with proceed the come Brady next Please from your KBW. with line Our questions. Gailey of

Brady Gailey

guys. afternoon, Good thanks. Hi,

Phil Green

Hi, Brady.

Brady Gailey

doing heard you comments how some depositors. And you your basis aggressively cycle your initial rates in you remarks did passed the last the hike But as Fed to Fed into along how as about guys are tightening you Fed have how I well. remember But XX guys I we pass to that increase the about much prepared the of already of then from thinking the points along? head continuing this here?

Phil Green

Yes, Brady.

interest-bearing, I’d first first the look if think that at So you were that XX% beta the in we in I hike. say about, hike,

as rest to again, we’re the from heard us need – standpoint. think through should and we about guess I market year what do I saying by to I do always that talking the the we going start a fact you’ve of we look

recall, current the were period little to in the of – to the assumptions we XXXX I’m So say, doing we a on saw there. are And based going these back slow. if I’m we – what you ‘XX what ‘XX were time going

and I so gone time. think we move we materially, said waited basis up in didn’t want do that until industry we an had XXX before as we points our – end, this waited to rates we

here I’m closer me at Beta to here. going from want XX% my is to – we’re of that where is I we’d where going are say, we here XX%. make be that think a kind be is something notes sure hold at probably with were first on let market that and again, to at So to we’re for that hike, about we consistent the I’m grab on looking we But to just to that going giving information. what point, do sure right Alright. you make want the talking

at interest-bearing really, quarter. did on looking with what that, the side, something the pretty in we’re looking we’re at consistent So we first

in, rest, on XX% be at most XX% a we’d hikes When beta through we for go to I’m what all the XXXX, looking back the pretty about did and at So it’s interest-bearing we year, that overall. XXXX of have I between and that. comparable this looked

see we but again, market what we’ve got that’s the does, our So in will what current expectations now. right

Brady Gailey

you new need loan right book like there seems you you Is done down it for And ways a is consecutive to Okay. that mean growth basis then I roughly I have reserve a your that it? number out. a think, Alright. be is, about having to just of quarter this or we years fifth provision. percentage points. be could that zero in bleed XXX it like provision think provision sixth line. still until still The much see Could reserves, as the

Phil Green

And disclosures at the that I see we’ve What really would is of we’re you we’re aren’t reflective been look standpoint, descriptive that XX-K finding say of what out doing. truly that the pretty what if our our is in there. from XX-Q we what models the and

models. a overlays the from based so is analysis, that reserve part those to our significant see And on you’ll need of

what changing we credit guess look better, This Keith allowance to it’s I at it concerns our there. can’t quarter, quoted continues we’ve in what was given going a calculation. loan be that our our recession, our and Credit what considerations about of was good. quality that I’d really finalized even and kind the say minds Chief growth discussion Officer, a Bill as it really potential projected on Parati, Phil sort that some is, I at saying when on I got any the was wood, be look but of of knock

are, of there’d now, it’s few forward it lot being or unreasonable. hard, that whole I kind to as growth, no of again, it’s changes and next at everything hard provision question where not quarters, good. a of we’re loan each our equal. thinking loan much isn’t for something quarter. talking I differently. operating Phil a lot have in is say single at be there seeing down environment think having provision for quality was you it’s said, basically is provision if of at like growth to of is high what standpoint, Loan of where the all lot XX% that things seeing looking the mind, end analysis quarters the a a answering as in I’d year, so digits, of figure probably couple a sit model not all sort a back be the look full come is the in, where But there But again, there. going the a that, our of So the out at Yes, growth of last outlook and projected provision. to kind my asset projections but or that from provision looking going that we be through minimal at we’re right the I’d what in it’s I says what looks whole projection But about

Brady Gailey

the for Thanks color. Great. Okay.

Operator

Thank you.

Bank questions with Our questions. Ebrahim line of next with of come Please America. from your Poonawala the proceed

Ebrahim Poonawala

about consumers ability afternoon. both good obviously and we customers, terms to and Hey, that. back their in that is guess implications the when the I what just of carries I the just in of for follow-up to Phil half absorb it on the concern outlook, businesses hikes year, think maybe growth Fed and wanted guess loan

talk really and to of hurt fed Would at you love Just your enough us to them customers deal as push terms the demand funds recession? X% to and of means your thoughts? with a what into what is economy you’re in hear hearing from it potentially

Phil Green

a of point. we’re this at Ebrahim, seeing not impact lot

have sensitize about We lot can inflation them impact with on are the businesses. officers doing a to really our that

any services meaningful Some us the was what down. in financial haven’t most inflation. older of like been people, things doing we through is back most say shutting But a of industry know I’d thing, lenders guys, period when Volcker his

so And to understand people how our we business of to questions the I the this contact direct help us real that of seen that point could estate said, and to our in in and and have the That ask we’re impact terms on to that. just understand projects. think doing impact commercial a job that haven’t most inflation probably understand impact be viability would for

at haven’t a are at rates, look big But pretty We that negative. seen real I on actual if still you impact point. think, this

to to given So things tighten a and other inflation Fed’s things up down. go, slow way got things and

seeing worry it, not of in as it relates the too except commercial now, area. real much right estate So to

Ebrahim Poonawala

it. process But outlined Got And one the deposit growth? any can assumptions sorry about just you, the perspective revenue look about the it, spread you expect betas just guess you outflows what rate think us I deposit thought growth do and higher? think know from for question Jerry. given missed And that any you growth the – share you – rates do but your talked in outlook you there. as what deposit move of for I’m I remind terms earlier? could you like in if your I

Jerry Salinas

To as it’s a softer. to whole points. and – say commercial you what’s first We It’s to that can XXX we you did back movement I previous sensitive that we’re the and say of pace Yes. growing still that the see going but can. as we be to cycle our not lot seen. much much DDA at if I’m still think see can look didn’t aware try we growing, the we’ve – on certainly going numbers, more reactive is more I’ll for really at a Sure. that’s basis positive. me, in

still forward. we’ve got we’ve projecting customers new a growth. high deposit to year-over-year, digits, our I deposits will from I current do a we’d we us I will that XX% year, heard projections, growth growth rates, still think you’ve this although think had on we’re opportunity I we said expect year. I see growth with seeing in I to at least getting the our it success don’t double are upside expansion, we with move last say. – that what as think good be we’re that that be project be going I that still that think as the to foolish single-digit and and but competitive I And we’re don’t on XX%. expect probably be we’re we some think based that had But the that

Ebrahim Poonawala

And it. Got revenue growth look any what spread like? sense on could

Jerry Salinas

financials. of the the Yes, – in range I on I higher in it’d think something not It help? based big basis, last our the I pretty I growth is We than to projections a full is – great guess quarter our a number. sensitive me we’re that year current December kind thinking, think But current a such be XX% kind that – I that mid-teens. me of right do such of be what the hike let what be the little I about getting Does hikes, booked PPP in team such obviously, quarter rate – did I’m on TE the our PPP loans doesn’t think bit with piece our now. thing we with sure that I’m don’t on for But – at that’s least it’d think – and Obviously, to of I sort that comfortable at seeing mid-teens but now high talked only a job think those betas, assumptions and would north year’s did want the was be current given of us all. have much our a forgiven. we no, let make something

Ebrahim Poonawala

thanks helpful. questions. taking that’s for No, And very my

Jerry Salinas

Sure.

Operator

Thank you.

the with Truist you are come questions on if mute. to have check proceed next Jennifer, your question. Please of with line Demba you Securities. Jennifer Our from

Jennifer Demba

you’re afternoon. thoughts could you or Hi, could Houston and do just Good go proceed about talk and us what to in Austin, if wondering expansion of future thinking after in you think any ‘XX. more Do on there? you Yes. to Dallas terms branch back

Phil Green

we really Dallas for one deposits is Jennifer, believe we thing Houston of on as keep see some state is of little on we like another now, where X.X could XX% of this that each ongoing in state will I of is activity develop we them these new the from years us think ‘XX, Three those for so Dallas saying and have so had be we follow going the amazing I two to larger Dallas, we do markets will that. I about the probably just an in – markets either and could or back new of than the in a be Colorado. there, Arizona locations to we expansion third branches like Houston with bit And do came some we will about left

massive these So are markets.

interesting. that Just is think I thing another

think If Southeast, between Northwest Austin. farther you look I further the our location, at San to it’s and Antonio Houston our same distances east

am will thing this city. that So might good that Obviously, is excited that little at got now But in we in over we we a market that Jennifer, I branch Antonio big be hadn’t looking seem been I this deal a to something growth one reasons. for in about. And opportunity is I yesterday opened that’s it a saw San really location but a And has like Austin think that just there. time. various you, that it’s some really

is lot on of of it’s market it’s and numbers of X In those we’ve up side XXX Thanksgiving, months, a market relationships. accounts, about X have So San but share. terms $XX months. we west okay? banking got and this A deposits, it’s got for the Alamo really Antonio, been in opened branch bad that XX% at X looking in those XX%, open months, and million in called we’ve opening around So months months – Ranch, new

growth, in knew and that me the successful. X what $X.X I’ll of the we Ranch Ranch engaging all ways the and pick to said, Mr. – in And that and me compares was our It to it’s perspective. you market, speed had the and we Cinco Ranch market, we tells hired be our I look, is million put we’re of of terms well, of to mean location. brought best million in that tell me I it’s value with months because Cinco compare XXX had recognition business. so Ranch right after in Antonio branch in Houston? San $XX Katy Cinco deposits. to That had Let well, got said, proposition what terms brand households to that going Antonio. Alamo San be compared XXX right And markets the in with not of that

hired it As Kansas the run I recall, we is to City. from person

was locations properly putting around So for the really of I value it’s think encouraging. Man, placed the managed us this properly new state. instructive about And

the long that I doing our organic it it’s believe and this growth two say that to for a really time words, that believe can really Jennifer, I I So we’re this, best about durable is is strategy. scalable. be going

Jennifer Demba

you, Phil. That’s helpful. Thank

Phil Green

Welcome.

Operator

Thank you.

next proceed question Steven line Please Alexopoulos come the questions. of your Our JPMorgan. with from is with

Steven Alexopoulos

everyone. Hi,

Phil Green

Hi, Steve.

Jerry Salinas

Hi, Steve.

Steven Alexopoulos

Jerry, I help could was you with this. out hoping

look we think coming those probably if the we you you higher? to securities, do of the at assuming taxable can part out that rates the as a should you look those both how resetting reinvestment X-year munis. probably how help about as or we of responsive about if will, beta, and tax-exempt how if responsive be? at for think securities for cash a rates, and be So those interest yields us flows off, interest longer looking you move the at rates X called should on rise, curve But it’s I’m should

Jerry Salinas

to you about XX% we’re have you’re billion going thinking And be – said $X right that is of in that it would right. we’re still about mean what treasuries. Well, what I now, and the that we’re bit let thinking with me kind to X of shorter that probably a little is with help thinking we’re purchase. doing. I what years be is And we’re we

XX% XX% at if X.XX%. leaves guess at we’re today, really that look only I in in munis. you X-year another another so the And mortgage backs and

we were mean, I’m trying rolling off. we’ve this think I look what here to morning. I got

because that liquidity is not year I increasing the or using that fact from kind really make for maturities. portfolio excess more is the significant of think our I of calls would the comparison muni the really projected we’re XXXX a standpoint

I we doing don’t so primarily mostly out our be think excess will will to be is – liquidity. we I And what of reinvesting

on make is assumption ways, significant investing to whatever So that pickup. of in you we’re a a what be lot going pretty

look kind some trying some with I of I’m me. here that of Now if at the see of information I calls, got if to

rate of And think I those kind maturities big time that really off we our I would think for they I – each see periods. out. million are For million lot we year, of first just what I the we significant of I of at to be really And think mean feel have most those on of $XX our didn’t portfolio. going in the and $XXX example, munis. had any are calls projections, rest was would those tended coming August I there see $XXX we’re in that February million blended the of And call look whole muni I a want $XXX don’t the through to to the current the less quarter, as million. both are than to

a there, little a little include looking forward, we’re of – it’s combined that’s of ‘XX I only in prepayments. billion But and maturities got I’m at bit maturity included mean, repayments bit just here. from not So ‘XX if I a $X.X again, XX-month a you so and both

good lot So at a of of up, lot ways, we’re in I is are going a Fed. out think that to of picking that upside the a it investing be balances

going anything against think environment a today’s going the near-term, I on, we’ve Now yield going in what we got to probably especially put are the it’s be, at security, in be it’s – replacing be if lower it’s on if to the books. to you

Steven Alexopoulos

where you’re rates sitting look we about to than a of if is and certain so the Or were cash terms to need you – in all to okay, from liquidity a at I be then you’re – to reason on we do like, third back And get guess, go some to do we structurally they today, the Yes. used can point ratio, which in now? liquidity more past? assets there hold was, like that

Jerry Salinas

we’ve than we’ve No, – funding have it, argue that in we think – in is access to if we There needed that had I don’t the so. ways, more past. would some I

see I that any no, sort want to would invest. structural reason of So don’t we

more doing as the averaging sort are and ‘XX ‘XX of the averaging, will rest what you expect if of much we through will not would We dollar go what a us – is you cost see through I purchases.

making going are significant to purchases. to any try avoid We

we are something reason and some do the we projecting that for But it’s what might saw if we projecting a we going are expecting go in jump I to are – to be right we up. in really we is might. rates market, now, unusual think are Now, happen going something,

to we each just let’s of next say, the next for going month, just rest to ratable able year, for going are to be X%. X But of we And months, if to we did we going that the remaining are some going nine purchases time balances expecting are the make the the years over in continue so – that there. never we during the market we kind the months, are we make bought to purchases case And good at of one catch we exactly. some like may to the miss

A So, of that’s as going would what get do we to deposits, into we going with would be is on what to lot expect happens it we just right. average XXXX. it dependent I and are

purchases, been we to really of seem move are have investment but time, balance said that when like a fortunate, the lot. lot at doesn’t the same balances at the making look We I really at we Fed, a

fortunate a invest we looking we we powder our if in that dry be find might have there. all to are But And obviously, to So, not invest position continues ourselves ‘XX. more. would in been we where willing

Steven Alexopoulos

thinking we fairly really to Thanks. stay deposit think you be growth. could through deposit growth the but XXXX, should growth? back at trends XXXX? Loan-to-deposit lower, faster than markets stable ratio or nice ratio deposit loan fairly new levels, and is then going that that So is Should Ebrahim’s driving we loan-to-deposit low, And final these Okay. say, always on question initiatives one, have growth.

Jerry Salinas

the giving. and quality think base Phil of to are fortunate such is we a the thoughts employees have challenge with so big able top I got to we I will that have let and base providing we service pricing our deposits his give be been grow fair The that are that that it. on that

We deposits a while a grew is come to twice high-single make our the than it’s ratio. our they are certainly we before lot And think that where loan that a the significant going if they X% at if on And are that of even grew we loans the be digits, when at funding. – core with at growing our that so book, size and of we them. love deposits, love dent the on relationships based success more

So, thoughts. that’s my

will I it to Phil. turn So,

Phil Green

Yes.

is that right. company problem. math And But think that’s that, the low be going loan-to-deposit going the is we some thing I say it a ratio growing, for of to would time. I are to I also think more high-class a have the important

while will I to that so think ratio. it a And eat into take

high of about thing have other say The we level business such a accounts deposits because is transaction of growing model. will relational our I

interest that rates two-thirds don’t example. you that at, XX%, nothing normalization think or what consumer Fed are and maybe accounts, sneeze I I a in fact, At point of deposits might checking any spread you your those make at X% old probably, say, kind you for some moving. make of almost on are some checking – liquidity being look the rate, if loans. mean to you – I is it’s is In let’s there on mean know, LIBOR-based transaction when when accounts commercial are at funds interest we rates, I accounts.

good have I lower comfortable for ratio than feeling about of a we certainly am loan-to-deposit to peer are that, going the a pretty probably yes, fairly time. low So, period very fact

Steven Alexopoulos

for my questions. Thanks Okay. taking

Phil Green

bet. You

Operator

you. Thank

questions from Our RBC with Markets. of proceed next Arfstrom your come Capital the Please Jon with question. line

Jon Arfstrom

Thanks. Good afternoon.

Phil Green

Jon. Hi

Jon Arfstrom

couple Alexopoulos do I of is had you, was the I smart Steve but That for a a guy. question have others.

loans that Just Phil, like? is on color Can some the usually and on competitive environment passed you us on view environment to XX,XXX-foot of structure due just what give pricing. in the give you you a us terms

Phil Green

gets worse environment the bit a quarter. little think every I is –

x rate. an to rent percent to underwrite. where an where increasing Those up so to most upon growth analyses It’s underwrite. That’s when cash based underwrite are harder struggling okay. to will these are percent like in it’s where are you interest flow Well, of are. hard show that in x project well, deals, us market are are it okay, your continues and they to going important prices prices think much – I commercial sensitized underwrite to people up a have real they how fast into harder are that, estate willing justify factor

out for at telling are I them. I end, the much not marketplace. all is am it really that’s asking there I ways think required was what’s terms. just front people And in mean And of extend you don’t stuff are not know. mean looking – and anything really this longer I the to they for

might some people backing to number. are little think seeing that they people’s you to are a debt maybe a a underwriting you I to yield see off whereas trend number maybe and bit yield have of we X% a underwritten would maybe are debt and an XX%

seeing. bring just we – creativity utilized I and example deals not being of are are am things but the an the line. underwriters exhausted, just that’s by they to think sure I in some justify of across to it’s the market

Jon Arfstrom

checking And change what Alamo contribution? growth and expectations just mortgage shot it. was seemed of just it, rifle on kind are the that your seeing, expectations I consumer in Question just more example for mortgage like couple a the Okay. you about of of expectations, Got your Ranch you ago, the and But – of there? talked I thinking know of quarters some it approach. your a are account any

Phil Green

Jon. we take about. it’s I things point, make just example. mean mean the excellent that think were talking an I you one of I

there don’t a whereas months, a more tend you – we where more it this at in loans I $X.X four of more top our typically not go million, think in you but a and case, this to which what location, like, look product is bad addition is have I house there concentration know, is think some to are consumer-oriented makes got state. the more these, it markets tons of around mortgage these the It more think of viable businesses But of I of product like one from into and more generation that’s since our lot a here of wheelhouse. into assets. I mix, that the

go us refinance think And approaching I remember, into. terms And this of strategy the we we locations in so can are viability not net-net helps on as a that mortgages. it of

to service where we where purchase money a provide looking lives. and deals can with are do We their help and in – financial transaction mortgages their customers are great you significant

have we think to I are to So, see. going

the experience, We that quality this with I I experience how are year, get going to optimistic are not to going can’t with think market course, are one until sometime. time. a customer wait prudent to we be offering this our be class give to we get great. going it’s but I am over just first after to successful say, and later And this would I fourth in really like But quarter asset of after be market way, that going on

Jon Arfstrom

Yes.

one solution that it’s question maybe as loan-to-deposit through some have portfolio clearly – you seen think and think peer some – your I But that do well. it’s Yes. Okay. and just to you I of yes. banks as if this, I

Phil Green

That’s point, a point. fair fair

Jerry Salinas

those plan our that currently would And that is portfolio mortgages. we

Jon Arfstrom

Okay.

feel you the this do we Is existing non-quantitative, from share Just brand other is brand like banks Texas, think moving one, new somebody in Texas taking that market residents? you part well? but people resonates are growth of the with California do from about as last how or with hear Frost to people, resonates from you Thanks. this

Phil Green

that or for from is Texas. or you tell Californians definitive have information can’t Illinois on I I Yes. what people our penetration into

our our are think research with but the I bank, if our good old the And success. going way kind – That what – are are going – mean to – to one that can look your number that’s look in if growth is think online have into pretty location and what own you side the shows I still good most are consumer to factor go numbers you things, numbers I having stay so mean shop, you our the going of branch And to though, say, it I going the are at market think you we reputation on then those that still you I to you and I are a considers. at just kind is look do says someone game. see Here been people that where are going – do we just research. of that, nearest research to is. your be

I be with fact, think obviously, our numbers, most In pack of service for of that ahead customer the the we time. will

in-migration do resonates with So people that get to good, our these and are of think we tells into that, – just and growth well. me are And so thing much we there our moving are the everyone. is We a we doing get that in. don’t to plus share on it what we have of will size. fair is and just We cities is really number are a I got –

Jon Arfstrom

Yes.

Okay. I it. Thanks guys. appreciate

Phil Green

Jon. Alright

Operator

with with the next [Operator proceed Please Instructions] of Carcache come Research. Wolfe your question. line from questions Our Bill

Bill Carcache

some of liquidity to of there franchise And particular, and outflow deposits Phil the Fed to sticky. concept on around sounds that like system. from that that’s you look Good perhaps as you deposits your bit are the your looks you. are how And that? on low, the and appreciate something growth would the some think I possibility some in could lastly, perhaps could perhaps deposit frame drain Does your worried Thank follow-up mentioned what just surge think I just consensus think not and could the that starts could about if It have deposit comments net in, your expectations. thoughts about, be squeeze And late? strength I was the base. you Thank raised afternoon I you you wanted that Jerry. share but income, the but also about consensus it’s if you you. you like a EPS hoping of thoughts. interest

Phil Green

say and hearing the you think are with Thank that mean you. Jerry I regard are that you and I deposits I are, careful say conservative. what us will is what we what to just levels and are hearing

right. these growth are slow, expect We to rates going

to XX% the been we years, We yes, deposit augmentation at gosh, in X probably, Do for last think augmentation? opposed as it our new they and have still slow. Jerry is I about what we think customers, will see balances growing

Jerry Salinas

XX%.

Phil Green

XX%. Yes,

growth of tells balances, the two-thirds is ‘XX at in push see call last we drop back see me, on bubble my gut quarter, the And But from account least and diminishment third So, Fed we of some we now, it that. reacted rates We could saw our drop. right if down new some this augmentation to could customers. whenever tech see too the low. and

that think call current for where still could they You customers what but probably But we they on flatten. do, deposit reporting showing see we on. and that reach deposits you equilibrium diminishing, you it, bringing are dynamic what maybe are once have will account are I got I growth balance

these We have got expansions.

you an billion reduction one not to have kinds a as is that So, of And you reason will But eventualities. of absolute than you think for part I there of provide I deposits, hope that them. of call tend tell it would flattening we surge because plan. be more $XX liquidity a those the

prepared regardless way we I let of So, to the speak which it goes. margin. will are Jerry

Jerry Salinas

Yes.

it’s a number TE a see Yes, the of that. not. what it’s number, I think concerned. I something say, it got we looks But just $X.XXX that look infer little to number, I gave the – consensus it’s number. that, out to have trying I say are the a go $X.XXX I of than is say the I’m that’s TE guidance yes, if ballpark, maybe a where would is – If whether non-TE would number. I sharing will a billion if one non-TE I in is AB would back a know that see higher that little number I I I kind billion at And I off at. number what shy mean that where – again, if going there that’s that don’t and will is or me with is like like is

TE on basis on higher than certainly a TE Our a but obviously, that, basis, still much range. non-TE on within projections a basis, both higher, the

Bill Carcache

That’s very Thank taking for you helpful. my question.

Phil Green

Sure.

Operator

you. Thank

question. Please Point. question line Rochester next from comes proceed Dave with Compass the with of your Our

Dave Rochester

Hey, guys. good afternoon

like your which back be you what in Just versus step back about of on a you in talk maybe stronger the prior NII I things thoughts And discussion, factoring now are and betas mid-teens. the on terms which only well, in especially in well. the point in basis I It update I is July as about is improved talking and than still bit are guess thoughts a January as you your seeing guide, in little updated when were seems conservative, think talked XQ your alone. a the guys message that deposit given prior consensus. just XX appreciated May, there hike and just XX guide take you January, we in and should December. Back XX just

looking are of conservatism or like ballpark updated more be seems plus this maybe might a here, Any like – it So, of you feels it you the little are there? in thoughts a just factoring what in XX% in at. case is

Jerry Salinas

Yes.

after in, this especially part I discussion the think hike. on going the is that hopefully, that the betas may to come of this hikes be

that’s it. of think I some

rates going gets make just big and I in the we you purchasing on the purchases lot on dependent to here. think will a of securities what driver those, part at is on right, think investment timing going forward, on going the that be to it I the of the be assumptions a timing assumed that’s assumption, also because what of be investment

we deposit probably do against to the we We we not are big competitive do, to fail. the on all what ensure say in is a to that want peers little sure going make are just as marketplace betas are We we that which well. conservative too

will There pressure of drop probably a going We some So, a I there see some be think on pricing well. as there is be that did as quarter linked as well. well. – loan to is on

can as that the think you of on assumptions. is I be some it feel lot of going will I give I color and your to we a dependent So, mean just all that give about you, But well. think I I

Dave Rochester

And that talking you that. securities the expecting appreciate billion $X are $X in in were the that growth, the of securities rest another I not maybe billion for you year. fair? is purchases purchase billion Okay. Is $X right? about or So, growth

Jerry Salinas

That is be that just Yes, would $X fair. billion purchases.

Dave Rochester

sneak that in now. and around on I I percentage I gave are goals curious some just Maybe while have curious a Houston just for you guys color one more. positive Alright. – you can of achieving Dallas. it. the been just in was I since was Got since pretty to you your

balances on in just guys. that of Thanks what terms us would look be dollars, could you If the like update loan-to-deposit great?

Phil Green

I that consumer. it’s it’s Dallas side, two-thirds thing will commercial of running One about on say though early, the deposit about even one-third

So, the it’s of uncanny Houston. the consistent Dallas market we business the with that is I are generating how in think character

Jerry Salinas

Yes.

looking so asking And the XX% at loan-to-deposit you a about ratio, were now. expansion. That’s the running for right

Dave Rochester

and amounts have deposits loans in the of In dollar terms you Houston? of

Jerry Salinas

Right.

been you sharing expansion all are what the asking? Just able to am have there. I with you branches is accomplish we Is what that kind of

Dave Rochester

I just how in Houston? deposits much curious and Well, way was you loans in of the have

Jerry Salinas

Sure. Yes.

X.XX. of million, shy and a little loans bit call of it had we of deposits So, $XXX

Dave Rochester

Alright. guys. Great. Thanks

Phil Green

Sure.

Operator

you. Thank

of Our Wedbush next Winter Peter Please question question. Securities. proceed with comes from your the with line

Peter Winter

beat it a Jerry, horse this that I interest more north reported the could of PPP XXXX, hate net that this basis dead mid-teens, you that income. try a Thanks. I to guidance If gave on of to or time. is one income? does exclude

Jerry Salinas

is full than got. – does more interest ‘XX. right, that’s PPP TE PPP, just guidance ‘XX income, year include the quite so over bit am ‘XX net we have are you year No, a I And full reported giving

are I would over north the growth bit what currently little we mid-teen projecting have So, we that XXXX. of is a am saying reported

Peter Winter

On basis. it. a Got reported

Jerry Salinas

Yes.

Peter Winter

thoughts are fees is fees. you overdraft that what curious Okay. much and basis and have I a for and quarterly number become have seen guys? That’s a on you helpful. And reduce topic banks am your of just NSF fees the how hot a for banks then NSF overdraft on their

Jerry Salinas

have current a at it I grace would be that that things is direct with Phil to may now no $XXX I allows incur of in deposit have all mentioned overdraft least overdraft in include to customers that having are last which fee. $XXX The we his consumer about The to comments, that basically we April, we talking customers. year, customers, Sure. able we think is implemented, that think are conversation in was expand all

didn’t So, trigger, year. if pull a that have some $X which probably a even direct that And million this be year you us about later deposit. will when time we cost

Peter Winter

Jerry. Thanks Okay.

Phil Green

the and continue we adjust other Peter, it. think thing, I to program is monitor that

We have it been for doing years.

And NSF you fees. the I us few in you Jerry, expect issue to that. think are systems is a we got place. to programming middle just elimination idea that on in I have the mainstream that months. an And in of towards next of what’s have are working thing that’s called becoming one? other to the And done give do put that It’s

Jerry Salinas

somewhere probably a $XXX,XXX $XXX,XXX that’s quarter. Yes, around to

Phil Green

Thank Okay. you.

Jerry Salinas

But my all in guidance. are considered those

Operator

turn at call I the to comments. to further time. back like closing this There are would you. over Thank no management for any questions

Phil Green

Well, Thank interest for you the everybody’s and adjourned you. Alright. and we thank will we now. today for be questions

Operator

conclude We Thank participation. does your teleconference. appreciate you. today’s This

lines time. disconnect your Enjoy of the rest your day. at this may You

Cullen/Frost Bankers (CFR) 28 Apr 222022 Q1 Earnings call transcript