CFR - Earnings call 3 2023 | Cullen/Frost Bankers, Inc.

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Operator

Greetings. Welcome to Cullen/Frost Bankers Incorporated Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to A.B. Mendez, Senior Vice President, Director of Investor Relations. you. Thank

begin. may You

A. Mendez

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

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

in for Some the text remarks to safe amended. contained as for We will such Please morning's statements made constitute defined the statements as forward-looking Act XXXX risk of the Securities of XXXX Reform statements. statements forward-looking Act the release Private provisions the Litigation last of covered factors the Private as earnings be harbor these associated by additional about amended. in Securities in see information today forward-looking of Litigation Reform with page this intend

of copy at Relations Investor release the calling on is department by or our a needed, If website the (XXX) XXX-XXXX. available

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

Phillip Green

quarter review it additional Cullen/Frost. then Good your make joining some going third comments, for afternoon, everyone, questions. is for to Jerry open to the thanks Thanks, we're A.B. and going Today, results up and us. I'll for

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

and average for return Our X.XX% and last on the third X.XX% in compares same the that quarter XX.XX% common were year. with equity assets and average respectively, and period XX.XX%,

our all staff. develops execution customer this And be Bank the the commitment growth attributed of can world-class our and This dedication work to provides and of because customer relationships to deep sustainable performance that of hard our the Frost solid happens strategy and culture service. organic

levels sheet in and balance our our As remain past, strong. liquidity the

percentages. Loan Also brokered access liquidity the Home at example, our deposits on end, advances, utilize any base. reciprocal special liquidity government Cullen/Frost XX% equals an borrowing, build participate any As deposit or arrangements of facility any any quarter, did our deposit Federal deposit Bank take in to at the not during cash insured Fed or quarter

available-for-sale portfolio say XX% end. me our represents portfolio Let of also quarter our at

short, So you is our get. sheet, you see in what basically what with balance

Our third of quarter. grew billion, billion quarter from loans X.X%. the to change in $XX.X and in billion rate were average quarter, quarter X% compared than previous Average the less in $XX the $XX.X deposits annualized to the second stable growth third at

As results. our mentioned, our efforts growth achieve I'm on we're laser-focused to organic and pleased very I with

long expansion our goal, example, Houston For deposit to physical you XXX% XXX% of our household expansions, new of our XXX% on goal of combined efforts, for stand and at update we goal.

quarter of deposits loans of XX% end, presence. As expansion market our XX% and total Houston represented represented

goal, market, Dallas the household of at XXX% of XXX% new of and XXX% For deposit goal, we stand goal. loan our

the approximately And wanted effort, character into relatively is the of totals. little these X%, market excited represent of you and early Austin in Dallas first still about in planned expansion deposits deeper overall we're to XX loans business. While market. But beyond presence to effort, that double our which opened the locations take our of new numbers, expansion I a this respectively, expansion

billion we For $X.X stand Houston, example, in $X in loans. and in at billion deposits

in million, deposit XX% commercial, mirroring X/X are relationships consumer, XX% Loans Our X $XX essentially Similarly, profile. were of no versus XX% million. consumer, million. under and are million. in deposits, $XX $XXX commercial, commercial. consumer those $XX of over the over have under customers million company $X XX% relationships XX% over is our XX% deposits of are And mix deposit are Dallas, our million, $X X only XX% and and only

expansion been believe which is pleased The I show reason strategy very these is value with and is will the through doing you the we've results of consumer, remarkable. stable XX% XX% this time. for tremendous which business, I generating think and durable, is Our extended kind to core, that and that I grassroots of both business $XXX million in I'm efforts, labored long loans our over I are commercial, an time. detail of this I'm we'll be that a believe period and and convinced generate successful scalable

quarter, of and we consumer to XXXX customer believe new let to me at experience these of business, year-to-date new means point our improvement tangible just to us our in grew competitive. Looking the the numbers consumer durability on are we a our net a organic households banking that outstanding organic we've We past in total year-to-date net XX,XXX base To continue checking added households. give added XX,XXX, customer the we growth. evidence see power XX% checking XX% and the X,XXX perspective the and growth, out set the industry-leading offer, that up built, months, core reputation results. This in by successfully be years. We XX we've X bringing represent

quality look households, active. healthy the are the the that growth growth also the factors see percentage and all is are are we high accounts growth we across of balanced segments evidence A the the new These at balances serve. of these that is As high. and sustainable beneficial. The is we

growth fix In families growing in services XX% balances home relationships the Consumer driven to the and products. million home, and where $XXX becoming deciding This quarter the increased In got end products at X% expensive and second alone, or $X.X robust loan our stay quarter. increasingly we've help are by the billion were was year-over-year. at many buy, this market outstanding balances and of right a up equity to their time. the third it's quarter, to

bank the just and its new credit opened to for up product, XX a prospects XX stable commercial Charge-offs to markets in weighted low also Delinquencies to about in we've similar the our and credit you're of at basis are about XXX. the used hearing excited the side the consumer state. basis long on points. on all is points but Also, at low our were mortgage history the in is quality as stable and what about for stages, early have we're We score noted, average portfolio recently which the year. very

looking business, commercial an think I story. Now it's our interesting at

Our were quarter down new second strong, the quarter. they the from XX% opportunities for but were

that an the opportunities X.Xx also all-time quarter high was new by were However, our quarterly almost brought were you average. SVB our expect, after because we're as would on dislocations for our second And deals the high, and situation. declines

on that and XX% billion. it's looking at our time quarter, the and at of last highest up pipeline focusing $X.XXX quarter, pipeline, from all weighted Now is weighted third our

standards nonaccrual CRE third totaled by second Nonaccrual from up assets all of XX% charge-offs net second flat The comes classified categories, of prospects at $XX previous the C&I, of the which was million Our up the and quarter $XX customers XX%. up for $XX loans and and up during up both billion. quarter. million quarter flat compared as quarter, be high at large both XX% to and define up down at Credit large and core, and core historical XX%, with both XXXX under good XX%, the XX% -- million, relationships with end quality $X.XXX continues quarter-over-quarter. increase the we end the essentially

in the totaled represents points end the at up we total the all and year-to-date charge-offs just the growth were quarter the and average quarter OAEM risk time for third figure XX. Net charge-offs third million quarter points XX basis XX basis second category the loans, net Virtually, of linked Grade third quarter, risk and which $X.X Problem million Annualized of was from total assets. basis $XXX million, are historic $XXX or XX basis as net and at million The charge-offs they second averages. is million represent year. from points rate XX $XXX third points end the the define below annualized loans loans, of that's higher quarter or average of quarter. the which quarter loans XX this of were $X last in of of for down

with we'd and real ratios be outstanding totaled consider service categories and commercial values. types or and CRE, our are acceptable investor industrial major loans XX% retail all to multifamily, to Within loan of $X.X for overall flat billion this the remained is across operating Regarding performance stable office, steady what portfolio, that CRE debt estate, quarter-over-quarter. coverage and of portfolio example,

metrics loan-to-cost of XX%, CRE well up the held Our has about quarter-over-quarter debt with acceptable XX%, unchanged performance essentially and of and portfolio remaining average about reported investor overall ratios. loan-to-value an coverage exhibiting service

be pro formas. Higher a performance compared to for interest have rates continue of original and to borrowers projects CRE some impacted challenge as our

the However, quality on we're comfortable with of portfolio. average, the

and of X.XX, up XX% top average XX% of being an this quarter portfolio, with good a coverage and submarkets end, office slightly million an healthy example, average strong debt which of of less of in from and loan-to-value exhibited X% it mind the leasing projects with the As an with last has is few ratio spec at the $XXX is quarter. developers. considered had dynamics portfolio portfolio than coverage strong even investor service of and experienced stabilized pandemic these levels balance been since

and comfort be our portfolio building the Our level nature the in again, Texas. our based borrowers experience be our of of on A projects, to operating and glad and office with office Class continues predominantly per we're to sponsors

our accomplish in capitalizing across what of ahead. all communities. proud So I'm they all closing, We're our as optimistic and this for opportunities, on remain all we lies bankers of

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

Jerry Salinas

bit -- I you, about talking more our wanted Phil. Houston, to expansion start now first by a about Thank results. off little X.X

pleased to we've Phil we've very As been able been with volumes mentioned, the achieve.

-- in at EPS. that's on our for quarter, Looking growth was growth deposits. growth loans these And for average sorry, million locations $XXX for for $XXX third million I'm the linked quarter the of to Houston contributed for $X.XX quarterly and XX% quarter, linked XX% or annualized X.X quarter-over-quarter third million annualized balances loans the quarter, $XX was deposits,

Now net moving to interest our margin.

was interest reported for the point X.XX% percentage margin down net third basis last X only quarter X.X%, the quarter. from Our

Some These the positives positives to were the primarily customer with for compared quarter yields deposits higher by the volumes. combined loans loan on quarter. balances at cost repos and and higher higher second offset Fed, include

portfolio. investment Looking from The portfolio quarter, during at down our third quarter. $XXX million $XX.X averaged billion the second investment the

During an us up X.XX%, with the the sold million was which of dislocations, advantage down in not from yield available-for-sale $XXX end securities prior was from which municipal $XXX investment million quarter unrealized end to portfolio basis income X.XX%, loss quarter. improve gain yield $XX.X the took small approximately quarter net material the going $X.X allowed quarter, net market and the any X at billion, forward. a the the third portfolio, of second of billion, the of at did portfolio about equivalent $X.X flat quarter in averaged on interest taxable on we increase prior from The quarter. as we total purchases a the at $XXX the The of second at quarter. The the the points billion reported investment taxable make million

averaged tax-exempt second about basis X Our yield $XXX $X billion point of portfolio quarter taxable the quarter. third during the down municipal a and had from from prior quarter, the X.XX%, equivalent million down

end duration the quarter end of approximately the The extension portfolio of pre-refunded quarter, end of second both up at years insured. the XX% years investment the municipal duration our impacted quarter, of the PSF MBS of portfolios. third by municipal X.X the at At or was Agency the from third in X.X the was and portfolio

down or quarter interest-bearing billion did as deposits. compared previous demand during quarter at with to X.X% of while shift a million deposits they to million average or deposits $XXX $XX.X flat or X.X%. basis, On quarter. We see continue decreased linked-quarter increased mix the $XXX deposits were when million X.X%, noninterest-bearing previous as Looking the the only $XXX a were basically

average the were at on $XX.X with Based the second as end the that totaled quarter quarter. total to third of balances, Noninterest-bearing commercial deposits. a XX.X% quarter of percentage demand XX.X% compared XX% deposits of deposits noninterest-bearing in deposits being amount billion

of During noninterest-bearing begin the the accounts quarter, we in balances the individual third stabilize. average the to months did see

for only month full from call, the down July's $XXX average balance noted date from I average was down million quarter's million June $XX.XX billion, July average. June last average, During was to the the that $XXX

Our August September and average was the was down July, billion. only average flat to $XX.XX $XX with million

yesterday, through average deposit $XX.XX is billion, average. down balance million from month-to-date September October, For noninterest-bearing the the $XXX

the relatively Average second the million deposits, or interest-bearing billion been interest-bearing X.X% total during at during deposits $XXX from stable $XX.X Looking period. were quarter, up the quarter. they've

balance the yesterday million September $XX.X average in was October up For deposits through $XXX average. our month-to-date from interest-bearing billion,

was the MMA. We The points cost the continue up third the the quarter. $X.X the repos The a billion do deposits quarter billion, in and XX deposits second see the CDs third interest-bearing mix quarter. X.XX% customer quarter. cost up in quarter cost million repos to from XX averaged to quarter interest-bearing shift average $X.X was of in down in basis IOC the $XXX from points for of X.XX%, for from savings, second higher-cost from in Customer second the lower X.XX%, basis

their second fluctuate are the Looking fees settled partly linked or in just fees management second estate to of and at real to properties increase a of million, quarter respectively, wanted estate our an X.X% fees investment quarter. million on in by estate number higher compared and out tax nature, $XXX,XXX, estates or point couple investment on $XXX,XXX. items. by tax $X.X $X.X of $XXX,XXX, the by Estate down in Trust were offset basis, of and income noninterest real I a typically can quarter, decreases fees sold, fees of fees, fees of while based a driven fees

Other charges, of higher or up was income and $X.X to or various $X.X impacted increases million. up public and higher fees quarter, XX% compared were annuity up the fees, market accounts, exchange credit and money Other foreign to income, combined second second fees X.X% million up $XXX,XXX commissions million $XXX,XXX, $X.X up quarter, letter finance up in $X.X underwriting compared by impacted income and $XXX,XXX. income by including derivative when up million the

special rate full the year our The mid-teens projection continue reported the 'XX the at been total to increase FDIC does our noninterest in year which finalized. potential Looking noninterest has for expense assessment, for levels. not was rate expenses, not include of a to the the percentage first impact tax yet full months XXXX the This at over effective XX.X%. of we expect total X XXXX of year

year but by XXXX effective Our full XX%, approximate rate XX.X% items that for should quarter. be that can our current during fourth expectation is to affected discrete tax this

-- our estimates include Fed current the year full year changes the funds earnings, the of of any rest through XXXX for rest the to Regarding projections rate XXXX. through additional the don't

quarter, and given of and of Given growth our of impact include FDIC of XXXX the we assumption assessment mid-teens, does that low. special need that analyst rate expectation not estimates $X.XX expense strong the the believe our too which of noninterest current this performance is

over back call Phil to questions. the turn I'll for that, With

Phillip Green

open we'll it questions Thanks, for now. Jerry, and up

Operator

with first Alexopoulos [Operator question Instructions] Steven Our is from JPMorgan.

Steven Alexopoulos

the companies we I Jerry, In fourth billion from left a quarter, deposit typically want up up off that we're picks bit. for $XX.X you deposits? to the safely dressing, to just start with -- see follow so that bottom on we at noninterest-bearing -- a it the window noninterest-bearing Can now side, the that where billion $XX.X some stable. right, it's say pretty

Jerry Salinas

in seen with X commentary. it, my Steven, I you've I and a I color to when look give Obviously, think of certainly, at of that versus feel that today more kind feel months lot comfortable I sort they're ago, tried at. where

it's We decreases been quarter, million, we've my that you've to stable. In that have and dressing. are mind, $XXX seeing best stable, is try window historically $XXX do been little quarter the fourth million some said, as really right, as downward those small relatively the ticks, companies seen but

than I don't lot the today certainly can I that whole feel better I quarter we're say So but a know ago. did confidently at I that bottom, a

Steven Alexopoulos

it. Got

-- able it markets and pretty gave didn't like piece you quarter. just doubt us at when but up it the drill And all optimistic. loan to commercial, look you And Can you growth. new why? the -- coming loan Is give you're this sounds color together down on picked the online I I these consumer no side, Okay. then haven't growth there's been on

think seeing. this you're improvement it's sustainable, You

Phillip Green

all Steven, high kind what number. of still, for And has digits it's think, target a been sustainable I with that's single that, of our while.

we the structure in really want stuff. And I realize we the have it and was it is, bad go we're on So our must and down. at it's would ] with what's think got got from. place is. I taking X the We lot of to looked said, Like a like hope not big goal because of that and We've lot And mentioned large, where happening. liquidity. to growth, and people's we're a that to just some where times, area. structure hard want that. what a be good came that by out and I to know do spike seeing would good our not people opportunity. quarter. it -- do. Maybe lot talked oh, And lot it thinking we laggiest from, where about loan be And of Cullen/Frost I phone second people, -- we declined a coming it People the I and a to who just consistent think talking our calls a put lot just opportunities always that, reach were problems. but get a look, wanted we didn't at I deal, full well, times of particular how just in think of that people I that in just their didn't banks we're credits, [ through many to that didn't category they good meet people And pencils other it That's

calling we've because consistent. pin I been well, a any held ours, and on a think When these. But particular think stability in it's of to seeing. been it's They've for like and of pretty I thing advantage place It's and good one it what accountable at sheet in take puts the it. down a they're to develop have to you It's our great hard a reputation think are balance that's people and you I part doing opportunities like is, good job. times of our relationships, it lot things. strength sales been

And businesses. But of long-term businesses, in communities diverse. really we've core so had I tried are might are the of so be had what deals building that in. mainly it owner slowed you expansion give business-to-consumer They're to And we're but I to when coming result someone to sense, on, a the rates just a gone bit feel right? a we -- good kind business community for It's rent but good, I high, they -- we real it's because really want recent I really a of what's estate -- about are more And I but -- is just model. a how how speak kind That lot that, is of not little have stable, feel of it's is sexy I some, gave wheelhouse, that anymore, yes. very our right? not think, stable There's about still going own their hear down They makes seeing? business. for. see because own it conversation, to businesses commercial some about the that's and wants bankers but is doing. a because they're just it there hiring of these their granular growth, pay a terms that's in me it pretty it art, the conversation because you in

Steven Alexopoulos

final If one. ask, I could but

all be are because flattish this probably, don't season, assets. are A the So right? many right? frank, [indiscernible], you're a a for you going most They're to I XXXX. And lot be which right? how want hearing but They're Because for Cullen/Frost of the as about everybody think through on RWA mean, like mentioned. And tightening expenses, industry, is to I'm just larger what looking to of to sidelines, to the great regionals, not expenses XXXX. about bankers, X/X how on know them this particularly we're for ways, as take I quite I know, thinking it. we're sort market you for is on in I of guiding number, almost them earnings from know to shrinking don't

stays continue that do environment is tighten you're, we're year don't this CEOs is the hey, at think maybe going know, that? How just other and to challenging. expand, growth rate? expense to do about, your year-over-year. you So like, XX% is some you of to you about number Are Or more think I that we share thinking I need because the also a no, a little

Phillip Green

opportunities. we started way, Well, got to what we've these middle in place, getting in process great are the doubling. let these that Dallas. is or that plans of it applicant We good put have me markets. we're tripling a We doubling. we great And in thinking And we're the flow, think opportunity Austin expand. are

oh, a we've hiring because of I mean we're we need position And bankers So plenty hire that. an it's around like there. -- there's more of got work are to of this as we not opportunity going, tons to to bankers go to expansion. that's part

hiring, are there. a our good success put having we in So it's that of part already, strategy place but we've we're

not are time We're off know need I'll backing the I is forward. don't We to whatever. expenses us because and look, say because now saying, it. moving now to And we keep just for winning oh, cut competitively,

to and all Jerry time, be this limit and can not is, all. what in mode we do be next are the with talk retrenchment to spending stuff. year want But over at a there's we you and just want lower to do about prudent what the Now, because a it we about folks what no, they're and trend I

Steven Alexopoulos

Jerry, you about talk want to expenses. some

Jerry Salinas

our sort we've said on expenses improve might team obviously, the not year, this that -- the we've be to grow from target as And of giving No. we about January, when business, our guidance all expand product think things us, I we've but a technology. we those and you all of you selection mid-teens you would we're very has -- And our have our things have the to been our for But someone he you that's in doing said, may think marketing. Like sort that guidance look roll grow really standpoint. and their talked Those it, the eyes. been percentage and I growth focus that Steven, certainly mean know when continues. been our that, at smart Phil we are said. growth focused, Certainly, doing. talk been we're this we'll of kind expect that given as

Operator

Dave Compass next from with Our Rochester Point. question is

David Rochester

your NIM given EPS bottom now versus a On your NII, in outlook. quarter. you assuming and Nice rate higher consensus, guys reached outlook are for you've

You've stable a been then quarters that Are pretty here could for get to growth? now. of And do when continues? back think trend couple NII thinking you you you

Jerry Salinas

Yes.

-- The that been think not guidance I pretty The were that we consistent. I last I it's fourth quarter point these flattish, don't downward be gave still was think be I've even with to and going say for you bias. quarter basis mean think it's I I a down and -- us, a weaker. quarters. they'd between could significant. thought X I is I think, bit little and I

So I'm of that kind pressure. feeling same

coming pretty in talked would that reinvestment it XXXX on portfolio. just Fed of think early to investment a some us in-balances be place, plan at we And decided But look color haven't in what have think investment to couple though out as from of our and we we'll improvement. with that put I that I our significant in some even maturities as in into putting a we've sort an I proceeds the I be going of times really said. we'll January, 'XX, some opportunities are give more

first million XX. say, bought treasury December billion $XXX mature, that we $X think in I the on is the first fact securities think no made we've tranche, of that I secret

So and I they're really it's in 'XX, at X%. basically, say all early

lower that the case we get our 'XX right of quarter that's do that's kind is for will of that bit kind about think So a kind -- a as to guidance this a But I get that lot last flattish little period the of we're gave in of for of downward on sort bias it assumptions same I'm forecasting most be projecting to those January. XXXX quarter. in at we dependent fourth to of for pickup where if be what securities are when rates, reinvested. And now, I

David Rochester

I on was from average. And then October if isolated million-ish was I the were heard It I pickup about just to September $XXX the right, month. the this like Okay. will this you appreciate bounce going runoff wondering sounded in the stats if that. down, that had noninterest-bearing. what around. you back know I maybe that there drove talking

Jerry Salinas

seen those deposits the side. pretty that And on. new the it's we to relationships think we're we many with a get certainly goes and in flattish. accounts of the in few a to with month, To us there, lots that and commercial that Phil a from negatives, hope positives there's takes It talked we've tend and on months like to in a be No. about of my from end, the to accounts. drop so as you, those are bottom said, volatility typically adding I see be with I that honest you, movement lot commercial months honest there X months when X And

to worst and pretty So hope the we it continue is behind be us. optimistic about

David Rochester

expenses. last one just Maybe one on Good.

and more in little at in range, step-up X midpoint this it growth little the little a bit a you a expense the of seems of I guide. at bit growth this thinking that And lower XQ. you bottom end of have quarter? mid-teens Are only range mentioned You came point, maybe less, bit imply quarter the implies a would since in guess, we like since a that wider

Jerry Salinas

lower. coming had be we and of lot beat plans and we do than some quarter, one We and Because my today it bit I could earlier, right? that's mean, your look that to and mind, David, settlements a kind And for side earlier on incentives my where expectation number is we say, -- it was a number be all does come lower in joking will quarter versus joking a we in. the see different little bit expense -- case. what incentive mid-teens was will a the that yes, on a ago Yes. of a was had in in really were I little expected. where of I we Yes, those

in Some incentive and or fourth issued quarter. our invest -- of all payments to test the

at So today, you're was a uncertainty of there's than little But quarter be. thought there. where a we I bit I lighter will feel would if looking like a I be little where certainly yes, it am I versus ago bit

David Rochester

at rate quarter a figured Yes. we the slower growth When I expected, that what be this I was response. going saw to versus the

Operator

of Our is next from Ebrahim Bank with question Poonawala America.

Ebrahim Poonawala

So talked about year. look into first, as somewhat growth, maybe we slowing you next

effect down a are just think Just demand maybe your of consumer lagged we give or markets, customers in how when but a give happening slowing up whether this bit, the of perspective. may sure sense us you're be I'm not us a about the that's book, holding rate And hikes, not seeing place softness. Fed softness but within resiliency you're in any from customer the where not of market sense just it base the then seeing quality Frost of loan where where a if some credit

Phillip Green

I in the up. a strong. sense is have honestly, well And floating other that have our costs There tremendous mean, glad the don't I know that are we don't banks, we're of think And seen -- -- problem they're the operating on get a rates. basis deals in to state. operating we've attention are we I I higher really but credit here said are Ebrahim, credit lot underwritten we're known, really that had I mean seen numbers are. were It's I pretty right? pay a that Texas,

see things. a huge I think I difference. it don't makes

don't economy embarrassed customers, said to remember construction looked lower. like a think see to going I think next not talk here I'm I there's, each how business, I we said than saying too canceled problems about it, with When supposed much I get go that as Pollyanna that's people you to bad. we and was and don't and problems actual be like watch bad, because really And much you to in more slower feel almost their it's is I think, don't there is it's it just it's mentioned going trying to be that I guy or that. there. said, be You about funny. out always me, kind I so most other I too. of TV, how talked you and them, like But yes, and me, that he there's and well, looked the I it's talk you interested said, at there embarrassed And it. I when I'm to felt was he you at think we've today. worry we're he year. for if something,

some We've you okay, If pressure I you to me issues increase I I bad. our risk cars, in got not say it's TAMs, here, so say, business. probably about mean, so but had pick, let buy, because got some we -- would you some pay there's it's let's rate talked use sensitive see, rate, they're

in, which right building And the the to work, refi-ing and could issues. cost you've rate issues. willingness dicey, or government so then I've office one-off business cost could went had size bid and We've be say, they experience, issues now, bit is just capacity things some right but you probably thing let's contractor, prior if didn't seen I got right an you shift. some but that's a mean some have if a electrical But hard that big little there a some got way a deal, up, that's working There is we there. And fixed that fixed don't it. always was that the to there's you deal, they're be There contractors. see. just

to multifamily, they're underwritten years take of they And prepared were are you're seeing, years the but rates those have in and them we're I'll we've been So I business we it's say, who it there. X about talking that. And you're If our like your in ago. with look, construction, ago, do to on -- that, that kind don't stuff holding rightsize some doing comments, are. and go it's they matters of X.X let's going who have said to things to the know down, if sponsors --

'XX worried it's North that's, most and at okay? that yes. And to not give that of with and the was I in to very whistling There's that there's past And borrower. customer, deal has of something this it at graveyard, think you matures in write you aware thing a I'll Xx again so that And thing sold maybe because we're or little a 'XX, in and be really cap, coverage, other And it, XX% point, one 'XX. about. was Texas, I'm multifamily think I of a at dealt think we're the X.X% there stuff

me So tell demand there. for out that mean, of there's -- I lot just a because still

you've And so even though service the demand coverage still in ratio got. you debt might right there's class, some not be if making a for somewhere that asset what you're

long things as got say, very thing answer consumer, there hanging I a the spend their but right good. there, I'll to know in as savings. unemployment well numbers they as job, able Texas, still though are now. And And I pretty think relates hang specifically, job. you it So Are maybe spending pretty They got still final even down I they've didn't is money. to the it in a in -- look

Ebrahim Poonawala

you next Thanks, missed in in I Got over branch remind Dallas. year, the Austin openings but new Phil. was terms beat it. And in good apologies pipeline That color. it, if or the or of what's us can store like

Phillip Green

a question. That's want so little going have I'm guess don't to good bit or to XX-ish a but to here, guess locations. I

Jerry Salinas

Yes.

some think is of dependent. be it to I going

we're -- We week. different when the Especially like such. we've with some Austin, different where a you We're earlier is conversations market got about to different. municipalities permitting are this a -- having having deal and process talk

combined of last 'XX X saw, it kind But all can think, that the markets. talking that across So I around we're in the number I affect number XX%, about. was I certainly think

Phillip Green

sense. I think Yes, it makes

Ebrahim Poonawala

combined. And would compare, how that XX to what year did 'XX. in it. Got Jerry, we this

Jerry Salinas

a we little bit 'XX. be in it I were where would lower now think -- than right it's

Operator

Manan from is with Stanley. question next Gosalia Morgan Our

Manan Gosalia

deposit check I in wanted to on data.

from lower this -- you're mix in Can color cost spoke betas us give peak shift about also through help some cost longer, deposits deposit a given and for the to just on rates you higher think again seeing? higher that competition You quarter. seeing XXXX stay as

Jerry Salinas

Yes.

about guess, little I now, bit a 'XX. right I'll So talk

at expect were XX% think at think at XX% quarter. I'd We We're for up cumulatively, we're the we flip increased same of this eye standpoint, and eye, third and third the we keep quarter. same end deposits, from X%. on the to don't that competitive, the and we're weekly. we and competitors end were at of I but So keep competitive cycle, a interest-bearing we the between on sort the quarter, from third quarter really the total little on to be all to I movement rates really at our the an levels. XX% feel top -- sort XX% of on do at second through Right need a fourth we be on the of quarter. interest-bearing, now, on like we want look to We an in we do try third

seen we've the on recent side. more today has competitive in of think it couple the been I last But more weeks, CD pressure

and for CD I it think are what our that's customers to really looking what large commercial kind is consumers the bank. rates at the are keep of

to tend And there. where comparable we pressure. what of so the eye determine on is an our that's seeing doing pricing the most we're treasury to And we -- price keep security

at. competitive, pretty and So where really I feel think about we're good we're

Manan Gosalia

next the you guided And think down couple were at a this mid-teens be year. I growth, several in the of And maybe XXXX. expense But the expense some noted year, coinciding you cyber large projects, think it. mentioned know you you'd when of just had expenses. rate growth a Got core would on also likely investing projects come to start IT the upgrading systems. follow-up I of you I and timing in noted that

should coming next Or you're of are costs these making think some business? in we out that year? these So onetime multiyear about investments the

Jerry Salinas

Yes.

investments. or be positions the will that get we're are we about capitalized. from these things talking think Most hired staff I that are projects of going of most multiyear that to either new IT

into some is this a what we've of bit. think of moved 'XX later has little I that, parts seen

And the a so bit to the about talked that that little originally bit I than being a where of probably bit little we upside some a feeling guidance, when had are of thought, with seeing expense we we timing. do some of lighter earnings little

really onetime year. immediately not we're that thinking were that, of not that sort to anything mind this a -- expense growth comes I'm So that driving expenses

have Does that But as this And projects. expect like I've year. the said, people and capitalized that's Phil digits bit growth more at I we a don't said, expense was year for the into been that next little next discussing mid-teens double that our be will help? we It in year. certainly moving for

Manan Gosalia

moving delayed year. It of year and this a doesn't sound to are there's getting from like chunk large investments that next

Jerry Salinas

good Yes, conclusion. I think be that a would

Operator

with from is Gailey question Brady KBW. next Our

Brady Gailey

But question the maybe ask just a little to expense differently.

investment Austin. you know, piece over look I in big big in that X the years, don't X a I expense high investment the big a abnormally in was know I a As or big last, growth. now of Houston, investment made Dallas,

to investment? big of there going it Texas. you these the a out do spots there kind in with you're As X Or think still new about markets want in where substantial are forward, there you make X think -- you

With kind market? new you a in these of making are these investments X, large done

Phillip Green

that going time. look, a be -- to are But I we're be we're branches got work be doing we've there do, when in. of we through in. In just starting Dallas. Austin. down we've okay? were lot road. look, I'm got just to to all, Brady, Out left to up a I don't finish looking got anything And we mean for think business said get grow I a I earlier, normal there's the doing right? like of mean, continue be to out saying the markets this to going a have lot pretty So way -- deal first to business, course we great in And model of XX Austin. are -- state, mean, going the great of the markets don't far be to to big network that in ends of want continue I I too with there I'm in we're of that. to and long state front our but about We --

new company maybe is believe expansion think we've growth to of another the higher a is as element the have that expansion nature very kind our operates has of that there's of piece, average we're expansion about this right? probably control -- kind terms those to maybe efficiently that combination bit And way, long piece, of is part of business. and it's lot is this got thing. And probably of answer we of and what X so and things, growth kind than There's your that just X, And rates, that others. higher company do and of be we'll very question And our got And little way of company we this that and legacy on the profitably. a then legacy expenses in they as component. always a our doing different a

to of the it, expansion way expansions, of are revenue going the and to too, lot too. think is these a to money be another creating assets future But fund

So about that's we not business answer, right of a very the it's how specific think but now. sort

Brady Gailey

do Yes, seen some that bond restructuring. a peers we've partial around helps. I all know And yield of your yours X.XX. then bond is

you does all couple a yield, basis a bond mark-to-market TCE about TCE is mid-X% probably equity X of your lot So matter? Like bond range. higher. up at And in you piece know a if when bond hundred How restructuring? you'd consider the that does least picking matter of restructuring you a common be I the But do Tier book? possible that points. the think is

Jerry Salinas

Brady, restructuring. I'll any sort we say bond that have discussed not of a

obviously, it. of -- available got lot the for about it. the sale. aware the it transparency capital flexibility. a it don't we've standpoint, we've And I we us equity. that think thinking of from like time a We provides most and think that We obviously through gives I got We're think securities, of spend tangible amount

As we purchases said year. investment haven't we earlier, this any made

implications program that are put will out certainly the the put that's in place, capital would we there of program that include we -- regime a $XXX certainly potential we for whatever if consider OCI. have we'll do think banks new place, I in to billion,

more really not it's not of up, we're of. this talked about something I'd conversation. point, really at that of make not we've I it's going that It's nothing that's it part aware would it's that kind our but -- else not we're say, forward. been So something that Anything been

Brady Gailey

amount share went the the third quarter Okay. share it looks to the And so me, like count for then maybe second quarter, in modest down buybacks. of finally a relative just modestly

low. year. I still up all you today, where have at it's was been versus know but nicely this earlier stock cheap relatively Your year-to-date trading it's pretty a

at a about stock you buyback how level? think with the share So this do

Jerry Salinas

Yes.

I we of got retrospect. we we liked spent think -- spend money, earlier in than I but lot a have and didn't would

don't something but in I that in the the of we is one me, have it I numbers just front million spent right -- side, think quarter. talk I talking $XX how It's that before around conversation think about. today, people And stock was on our like we'll I'm much the are about said you on bargain paying about the side, other to a having we're what attention tangible is before especially. even great capital. today There

It to a just won't we'll have it's conversation implications. big have it. continue So

January. we're in point, We've correctly. utilized this $XXX got at $XX -- we've that million probably I expires it, program if remember think million I a of probably

but to it continue we discuss. impact. have Again, have impacts, So something it's a going huge not that it's to big But won't

Operator

Our next James. Michael is question from with Raymond Rose

Michael Rose

-- this equity. quarter the quarter, around excuse, average couple like comments don't balances, the Phil, about just loan I optimism that's quarters, just growth. that, average but for your noticed at home not past of over we seems the looking half have them And it over

the out wanted to kind as opportunity of move mortgage forward and the Just roll seize particularly as you we product.

Phillip Green

mean the you numbers, me ask you were with what outlook for but your did I Michael, asking. that? what say? agree sorry, I would Or you I'm

Michael Rose

going the you're get not you to the XX.X% home in opportunity mortgage, you could as seize opportunity And portfolio. Texas, I growth great. line is just about a is. the consumer trying for think in But of equity sense that forward. mortgage, layer you as did optimistic consumer if fairly And then is know I market forward because sound we Just the move what

Just where over time? could do you get to think that

Phillip Green

asset us. Well, Yes. portfolio mortgage class has great for a -- the is

the we hey, that by be I that, it consumer talking I over was time, just we can't over the wanted we year could a exactly estate give you said, to ago portfolio time started impression think when itself what I time, be mortgage is itself. was remember what at said, but it, about we this think back this could real

good. And relationships. it's still is product. long-term so we This long-term -- A a that's think

we So about good really feel it.

And to that we that remember, love don't doing down don't over so it infrastructure professionals not to we're year. market XX us people I last the great, that great to allowed refi refi the in care program, what, bring were I because it's mortgage so able a get, back, know, I build or is

to -- in So the homes going and we're to chance all putting for we're time. a about think have that's do long that people I

I if I that it, over -- it's it number, the think is looked XX XX-something mortgages. people what people think you like percentage [ like of ], saw I mortgage under, Michael, was that amazing. the that XX% a percent had a -- And of was that had X% the at was

but want I home So if of I fills the So law think it of products, are mid-XXs, to mean of gap sometimes, percentage, go that its in has think so this volume There high a -- numbers, that terms down The nature, I should be you pretty people think improvement just home people the has it because now. legs has been for it's got I need rate still right? the that good, to right moving, growth legs. that just not equity by while. is XXs, product got

Michael Rose

final one me. And appreciate for just I the color. Great.

loans read -- base. low normalization Or in XX% credit And in is kind of anything very of a about the problem were more there? of the potential up So notable I to off that? Any just guess, trends Q-on-Q.

Phillip Green

of think it's the were looked at were in There something that the thing. just this They there energy X different trading a and find real company was the was other about and is they change here, smaller credits to. the things, there I we were that, it we I've -- up but a classification. But -- we think where there oh had idiosyncratic were bad then were there this don't take office here -- remember, out are were and like kind OAEM vast majority businesses. estate numbers feel them, kind got, that. lighter They properties. actually, of midstream I what of And couple buildings. felt are at thing, we I TAMs rate saw really, the The one, think -- mean, about of is risk a made business I then was a I buy that a the of

was. what I that that's think

we've And so the of an of That business, seen was some kind that. kind of thing. interest-sensitive

heartburn. me You of of lot a reflective give things. think in, It's about it how just but the didn't anything didn't environment we're we're doing said in particular I

shows customers, I good every really comfortable how pretty I it. about we've of with the we performed good I and have. done them really things, want, were it not that beginning hiccups we a business, course, doing risk we we here since will. it's some pretty or of offset the In fact, well. And and this, has again, of there, see I business like feel about think most one feel them our But feel but of

Operator

from is final our question with Preston UBS. And Broderick

Broderick Preston

their given just I you is against up office. about are was larger that follow I portfolio some hefty think happen on how moving portfolios. wondering against pretty -- what have wanted up Just if wondering forward? I office to putting to reserve banks you the the was of reserves the and office

Jerry Salinas

at, estate. Yes, Brody, number, I'm looking can detail. I'm group. certainly, real got in don't have that certainly, if looking with here at if I don't but get real all we I think estate commercial as don't certainly it here, I And commercial at got. office, you front. looking you I'm I've only AV, is -- I on got this correctly X.XX provide what a think what that I've I

Broderick Preston

follow Great. up... Okay. I'll

Phillip Green

so I'm know. not banks because I are -- something, doing to anything will you the large say going just do just

Broderick Preston

also to did I'm back and... sorry -- I it. Got to Jerry, expenses go

Jerry Salinas

our on Sure. And Brody, X.X% so I'm It's getting saying quick. that a real reserve chat is office.

Broderick Preston

will want to kind of quarters ask like, couple did say expense to wanted when I to of rate on on Austin of touch expenses. kind would about be for long-term to that growth you fair just next that bank as think planning digits. I mildly the rate you high said for be year? the like single build-out growth you the is A Great. ago, additive it thought just long-term Okay.

Jerry Salinas

really sort be expansion to typically that dependent it's what think -- look tend be I was it way I at inclusive, doing. were would But on that originate. is again, when going and of would we how we of an we that gave the to guidance, big inclusive

Broderick Preston

the sorry it. that if That's the was Got had that last you portion Okay. helpful. it happen over missed one be? it. for And and the fixed I'm to the portfolio, -- rate earlier what's XX coming months? then you pickup what I loan Do I And due on of said would yield the have next

Jerry Salinas

that's that don't get to I No, me I've think handy, we Brody. again, with it and something certainly, got can you. I think But

Broderick Preston

could Okay. one just Maybe more. ask if I

Jerry Salinas

Sure, of course.

Broderick Preston

the what SNC Do you happen of the is? portfolio to that have percent

Jerry Salinas

Yes, I it's X%. think

was sec. or just Let portfolio Hold me on $XXX at loans. portfolio recollection. million SNC but that, period-end the my -- double of Yes, X.X% that September, check was end that's a of the the

Operator

of conference the over reached question-and-answer I our like We Phil end have back would turn the to closing for session. remarks. to

Phillip Green

interest. We'll participation be your your appreciate We and everyone. adjourned. today Thanks,

Operator

will Thank you. conference. conclude This today's

at participation. this you for disconnect may your your You thank lines time, and

Cullen/Frost Bankers (CFR) 26 Oct 232023 Q3 Earnings call transcript