Q3 2021 Cullen/Frost Bankers Inc Earnings Call
[music].
Greetings and welcome to Cullen Frost Bankers, Inc. Third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host.
A b Mendez senior Vice President and director of Investor Relations. Thank you you may begin.
Thanks, Rob Our conference call today will be led by Phil Green, Chairman and CEO and Jerry Salinas Group Executive Vice President and CFO.
Before I turn the call over to Phil and Jerry I need to take a moment to address the safe Harbor provisions.
Some of the remarks made today will constitute forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as amended.
We intend to such statements to be covered by the safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 1995 as amended.
See the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward looking statements.
If needed a copy of the release is available on our website or by calling the Investor Relations Department.
210220523, or four at this time I'll turn the call over to Phil.
Thanks Avi.
Good afternoon, everyone and thanks for joining US today I'll review third quarter results for Cullen Frost, and our Chief Financial Officer, Jerry Salinas will also provide additional comments before we open it up to your questions.
In the third quarter, calling for all stern $106 $3 million or $1.65 per share compared with earnings of $95 1 million or $1 50 per share reported in the same quarter of last year and this compared with 116 4 million or $1 80 per share in the second quarter.
We continue to focus on our organic strategy, while the economy works and move past supply chain issues and other lingering effects of the pandemic.
Average deposits continued their strong increase in the third quarter and were $39 1 billion, an increase of 19% compared with $32 9 billion in the third quarter of last year.
Overall average loans in the third quarter was $16 2 billion compared with $18 1 billion in the third quarter of 2020, but this included the impact of PPP loans, excluding PPP loans third quarter average loans of $14 8 billion were essentially flat.
From a year ago, but up an annualized 6% on a linked quarter basis and looking forward.
We're encouraged about the outlook for loan growth.
New loan commitments booked through the third quarter, excluding PPP loans were up by 11% compared to the first nine months of last year.
For the quarter, new loan commitments were up by 6% on a linked quarter basis.
We were especially pleased that the linked quarter increase was due primarily to C&I commitments, which were up 30%.
Our current weighted pipeline is 41% higher than one year ago, and 22% higher than last quarter.
The increases are in both C&I.
Up 22% and CRE up 28%.
The market continues to be very competitive in the third quarter, 69% of the deals we lost were due to structure compared to 50% in the quarter before.
We also continue to add to our commercial customer base and we recorded 619, new commercial relationships during the quarter.
While this was down from the same quarter a year ago, when we were experiencing incredible PPP success.
It is two thirds higher than the quarter immediately before the PPP program.
As with the second quarter, we did not report a credit loss expense in the third quarter.
Asset quality outlook is stable and in general problem assets are declining a number.
New problems have dropped to pre pandemic levels.
Net charge offs for the third quarter totaled $2 $1 million compared with $1 $6 million in the second quarter.
Annualized net charge offs for the third quarter were five basis points of average loans.
Nonaccrual loans were $57 1 million at the end of the third quarter, a slight decrease from the $57 3 million at the end of the second quarter.
Overall delinquencies for accruing loans at the end of the third quarter were $95 3 million or 60 basis points of period in loans. These are manageable pre pandemic levels.
What started out as $2 2 billion and 90 day deferrals granted to borrowers early in the pandemic. We are completely gone as of the end of the third quarter.
Total problem loans, which we define as risk grade 10, and higher were down slightly to $635 million at the end of the third quarter compared with $666 million at the end of the second quarter.
In the third quarter, we continued making progress toward our goal of mid single digit concentration level on the energy portfolio over time.
With energy loans falling to six 5% of our non PPP portfolio at the end of the quarter.
Our teams continue to analyze the non energy portfolio segments that we considered the most at risk from pandemic impacts as of the third quarter. Those segments are represented by restaurants hotels and entertainment and sports.
The total of these portfolio segments, excluding PPP loans represented $695 million at the end of the third quarter and our loan loss reserve for these segments was eight 8%.
The credit quality of individual credits in these segments is currently most stable, mostly stable or better compared to the end of the second quarter.
We reported in the second quarter that we had completed our 25 branch Houston expansion initiative.
And we're very pleased with the results.
We've identified eight more locations to open in the coming months and that process is underway.
Let me update you, where we stand through the third quarter with the Houston expansion, excluding PPP loans.
Our numbers new households were 134% of target and represented more than 12000.
200, new individuals and businesses.
Our loan volumes were 177% of target and represented 371 4 million in Outstandings.
And about 80% of this represents commercial credits with about 20% consumer.
Deposits surpassed half a billion dollars.
<unk>, 111% of target.
Commercial deposits accounted for two thirds of the total.
In the meantime, we're also preparing for our upcoming 28 branch expansion project and the Dallas region, which will kick off with the first new financial Center opening early next year and continuing into 2024.
The Dallas expansion will follow our Houston model, and we will employ the lessons learned during our team's successful rollout.
I'll continue to emphasize that the business we are generating through our expansion strategy is consistent with the overall company.
Its profitability is weighted towards small and midsized businesses, but it also has complemented our wealth management insurance.
And of course, consumer banking, which continues to see tremendous growth.
For example.
Through the first six months of this year.
Had already surpassed consumer banking's, all time annual growth for new customer relationships, which was 12700 2019.
At the end of the third quarter of this year. This had risen to 19974 net new checking customers.
That's already more than 150% of our previous annual record.
We've worked hard to lower barriers to entry for potential customers with improved product offerings.
And physical distribution for.
For example.
Besides overdraft Grace, which we introduced in April and early pay day, which we announced in July.
We also recently established an ATM branding partnership with Cardtronics that resulting resulted in us having by far the largest ATM network in the state.
In addition.
After over two years of study we've begun the process of putting in place the infrastructure to add residential mortgages to our suite of consumer real estate products in late 2022.
This will complement our portfolio currently consisting of home equity HELOC home improvement and purchase money second loans, which has steadily grown to in excess of $1 $3 billion.
Utilizing best in class technology will allow us to provide frost level of world class customer service as we build this portfolio over time in response to customer demand.
Finally, I want to commend our team working on PPP loans, nearly 90% of the 32500 loans for $4 $7 billion have already been helped through the loan forgiveness process.
That includes upwards of 97% of the first round loans from 2020.
Our team continues to put an outstanding work to execute our strategies, whether its PPP or expansion projects or the enhancements we've made to our customer experience.
I'd like to thank everyone at Frost.
I believe we've got the best team in the financial services industry there.
While I continue to be optimistic about our company and our prospects for success.
Now I'll turn the call over to our Chief Financial Officer, Jerry Salinas for some additional comments thank.
Thank you Phil.
Looking first at our net interest margin our net interest margin percentage for the third quarter was 247% down 18 basis points from 265% reported last quarter. The decrease was primarily the result of a higher proportion of earning assets being invested in lower yielding balances at the fed in the third quarter as.
Compared to the second quarter and to a lesser extent the impact of a lower PPP loan volumes and their related yields compared to the prior quarter.
Interest bearing deposits at the fed averaged $15 3 billion or about 35% of our average earning assets in the third quarter.
Up from $13 3 billion or 31% of average earning assets in the prior quarter.
Excluding the impact of PPP loans, our net interest margin percentage would have been two 7% in the third quarter down from an adjusted to three 7% for the second quarter with all of the decrease resulting from the higher level of balances at the fed in the third quarter.
The taxable equivalent loan yield for the third quarter was $4, one 6% down 12 basis points from the previous quarter.
Excluding the impact of PPP loans, the taxable equivalent loan yield would have been 374% down six basis points from the prior quarter.
To add some additional color on our PPP loans total PPP loans at the end of September were $828 million down from $1 9 billion at the end of June.
Forgiveness payments received during the third quarter were higher than we had projected resulting in an acceleration in the recognition of the net deferred fees during the quarter.
At the end of the third quarter, we had only about $11 5 million in net deferred fees remaining to be recognized and we currently expect about 75% of that to be recognized in the fourth quarter.
Looking at our investment portfolio. The total investment portfolio averaged $12 5 billion during the third quarter up about $209 million from the second quarter.
The taxable equivalent yield on the investment portfolio was 335% in the third quarter down one basis point from the second quarter.
The yield on the taxable portfolio, which averaged $4 1 billion was 2.03% up two basis points from the second quarter.
Our municipal portfolio averaged about $8 $4 billion during the third quarter up $230 million from the second quarter with a taxable equivalent yield of four 4% down five basis points from the prior quarter.
At the end of the third quarter, 78% of the municipal portfolio was pre refunded or psf insured.
The duration of the investment portfolio at the end of the third quarter was $4 five years up slightly from four four years in the second quarter.
We've made investments.
<unk> purchased this towards the end of September of approximately one 5 billion consisting of about $900 million and MBS agency securities with a yield of about 2% about $500 million in treasuries, yielding one point <unk>, 7% with the remainder of municipal securities.
Regarding noninterest expense looking at the full year 2021, we currently expect an annual expense growth rate of around 3% over our 2020 total reported noninterest expenses, which is consistent with our previous guidance.
Regarding the estimates for full year 2021 earnings given our third quarter results and the recognition of lower PPP fee accretion for the fourth quarter. We currently believe that the current mean of analyst estimates of $6 48 is reasonable with that I'll turn the call back over to Phil for questions. Thank you Jerry Okay, We'll open it up.
For questions now.
Thank you.
At this time, we'll be conducting a question and answer.
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One moment, please while we poll for questions.
Our first question comes from Brady Gailey with <unk>. Please proceed with your question.
Hey, Thanks, good afternoon guys.
Hey, Barry and Randy.
But I just wanted to start with mortgage I remember you guys got out of the mortgage business. So I think it's been a couple of decades ago.
And now Youre now youre getting back yet and maybe just two things here is this is this an originate and sell model or is this an originate and keep it at cost model and then you're able to originate and sell.
How big of an investment do you think youre going to make.
We have meaningful fee income.
<unk>.
Actually this is going to be a.
It will not be a cell model.
I wanted to do this to.
To expand relationships and it's our intention to keep all of these books on the keep all of these loans on the balance sheet. So it won't be really a fee based model, it's going to be more of a portfolio model.
We will be.
In charge of the XP.
Experience from beginning to end, including servicing and as I said, it's our objective to make this a world class customer experience that people have with.
With our general products and in addition, which is what we have with our.
Our current consumer real estate products that I mentioned in my in my comments earlier, which include.
Home equity home equity line of credit purchase money.
Home improvement.
So.
I am really excited about this opportunity and I think it's important.
Because I realize we were the poster child for getting out of the mortgage business before the meltdown I think it's important to realize what we're doing and what we're not doing well.
What we're not doing is going back into essentially the model that we had utilized before which was very consistent with what was out there which was.
A commission based sales structure.
And one where technology.
Size is so important in order to achieve scale with the technology at that time.
What we're doing today is.
This will be frost bankers, providing this service and really to in response to customer demand.
It'll be.
It'll be done through our branch network, which as you know is expanding significantly these days into major significant markets in the state and we're going to and I think really importantly, and this is a differentiator between where we were 20 years ago is.
Is the technology that's available today is.
Is much more accessible it's much more scalable at an appropriate level. There is a lower cost of entry and a lower cost to support as we use cloud and SaaS technology providers.
So it's.
It's mainly about providing a great customer experience in this sector.
And I believe we've got a great opportunity.
And Phil how big would you like resi mortgage to be over time like as a percent of total loans at frost.
No.
<unk>.
Our consumer real estate today runs about one 3 billion.
So it's a little below 10% of the portfolio.
Uh huh.
I think pound for pound residential mortgage could be at least that size in the next five years and.
I would think it has a chance to be bigger than that.
Don't take a tremendous amount of.
<unk>.
A volume frankly, I think if we got.
Less than a.
A little bit less than two.
Loans per month for our branches that would be a good target for us to shoot for and in the markets that we're in that will give us some pretty good volume overtime.
Alright, and then my second question.
It's just more about deploying cash into the bond book I mean, the pilot cash you guys are sitting on just keeps keeps grow and it is now 35% of average earning assets.
We've seen the long end of the curve move a little bit from 90 days ago, and the 10 year bond yields now at almost $1 62.
How do you think about the timing on when you start putting more of this cash to use in the bond portfolio.
Well Brady just for some perspective right now really as we look out into the fourth quarter I only see projections for say another three quarters of a $1 billion being spent this year. So we did 1 billion and a half in September Ics, maybe doing another three quarters of $1 billion, we're not going to get rushed into it obviously.
Yes.
Sure.
Spent a lot of time looking at what's out in the marketplace looking at those yields just that you've discussed and we really like the optionality that we have.
We're not going to be rushed into something.
No.
I don't think we've got a timeframe in mind to.
To do that obviously, if the yields turn our way we will jump in but we're not in a rush to do that.
I think that we feel like when the right time comms will jump and we're not afraid to make purchases. We just don't feel like it's the right time right now given the current environment.
Okay, Alright, great. Thanks, guys.
Sure.
Our next question comes from the line of Abraham point of Waller with Bank of America. Please proceed with your question.
Good afternoon.
Hey, Brian.
Just one follow up Jay on them.
So BBB fees, sorry, if I missed it what was the BBB fees in the third quarter.
The fee itself are you on all of the interest income.
The theater.
Yes, so the total interest income associated with PPP loans with $30 million.
How do you manage that was down from 45 and a half in the second quarter.
What are your favorite and a half and you mentioned the debt limit.
So that's what it was a 1% on the desk.
On the loan balances.
Correct.
Understood. So if I ex out the 30 million.
And I would be about whatever for the.
Third quarter around 240 is that a good base like do you think NII should grow from there.
You are talking about help me Ebrahim are you talking about net interest income or net interest income.
You look at it from an ex PPP basis.
Sure.
Yes, let me get that let me kind of look at my <unk>.
Information here, yes, so I think on a non PPP basis.
In the third quarter.
I think that if you take that.
Okay.
I'd say that really again with the purchases. We made we made late in the third quarter. So you would need to take that into account.
Yes that run rate I would say is really kind of the bottom. If you will will get a little bit of that PPP in the fourth quarter, but if you pull that out I think from here on.
You heard Bill talk about the loan growth that we've had in the in the fourth in the third quarter.
The pipeline looks good and then we mentioned I mentioned that we made some purchases in September that we really didn't feel the impact of it in the third quarter. So yes from the way I look at it hopefully with the bottom as far as the net interest income dollars.
That's helpful and I guess, just going back to the mortgage consolidation earlier, Phil <unk>.
You announced a partnership with Glenn dating in Middle of October just talk to us one.
Is there more to it beyond mortgage in terms of what do you think that partnership does for you in on the consumer side and what else are you looking at like you've been a little bit ahead of the back in terms of either reacting with Spain, a foot on overdraft fees on.
Early payment for Hep C.
No.
Florida employment checks just give us a sense of what to make what we should make of the blend partnership and what else are you looking at when you think about Fintech partnerships.
Well blend has been a product that we have been utilizing.
For.
I know, it's been well over a year and it was pre COVID-19.
This is an expansion of that.
<unk>.
I would say also ebrahim as we look at the other segments.
<unk> got the application and the Decisioning and then the servicing fees.
We're looking at best in class software for all three of those segments and it could be that those last two could be one provider it could be two providers and.
So it's.
I think it's exciting because it's not often in this business that you get to really choose the technology you want for a strategy and.
Where you don't have a legacy system involved that you've got to work off of so it gives us the ability.
Along with the work we're doing with emphasis.
To create the best workflow and the best customer experience with the best software.
I think we're going to see happen is it will take the software that we've utilized for the mortgage experience in the mortgage product and we will see that re engineered into our workflow that we currently do for that large portfolio of consumer <unk>.
State. So I think there's some real advantages that we can look forward to getting in this.
Understood and just.
One more if I could you sounded pretty upbeat on the outlook for loan growth.
Give us a sense of.
Is that growth based on optimism that kingscott easing on the supply chain and customer sentiment improve.
You're seeing tangible signs of activity levels picking up for you.
Do you feel like.
Fourth quarter and at least first half of next year should be pretty good loan growth wise.
You know in talking with the people they they're optimistic I mean, a couple of additional things in our look to book.
Ratio has been I think pretty good versus a year ago are our numbers on looks.
Up 33% and our bookings are up 33%. So it's good to see that those are consistent with each other.
One thing to keep in mind is.
As we continue to ingest adjust the energy portfolio and you look at that linked quarter.
Increase which was 6% not annualized for new commitments booked and that included a 58% reduction and energy commitments booked so a little still a little headway there as we rationalize that portfolio, where we want to be still in this thing in the mid single digit is still an important portfolio but.
As you know we've been working down our concentration there and then I think another thing is that I look at is if you look at our.
And I've mentioned this in our pipeline.
Essentially it was cooler.
Let's call it 90 day.
90 day outlook and the weighted pipeline as I said it was about 41% over last year, a 22% up on a linked quarter basis at a weighted pipeline is what are people expect to happen. So it tells me that there.
That they are somewhat optimistic on our.
On what we're going to actually be able to execute there. So.
I will say another thing.
As I've looked at.
<unk>.
Just utilization under lines of credit we've seen that pick up.
Particularly in the commercial business I think it hit a low point in May.
Utilization of working capital lines. This is for C&I.
Was about 28, 7%.
At the end of the third quarter, I think that was 31% pretty much 31%, even so we've seen that contribute to some volumes and I think we will because we've had some good.
<unk>.
Good execution on.
Commercial real estate recently, we're sort of early in the game on those projects and as they mature I think we will see some funding up on that so.
Just a sense since we get is thats really.
Indicative, what we've been experiencing over the last several months.
As opposed to.
People expecting supply chains to get better at that type of thing because frankly, I don't think the supply chains are getting any better.
And labor is not any better so.
So to see this in that environment was encouraging.
Okay. That's helpful color. Thanks for taking my questions.
Mhm.
Our next question comes from Jennifer Denver with True Securities. Please proceed with your question.
Okay.
Thank you.
Okay.
Yeah.
From lessons learned.
Expansion.
The future of branch.
Rest of World Houston can you just talk about what you have learned.
Q3 years.
Great.
Well.
Don't want don't want to give <unk> secret sauce.
But how about this it's all about people, it's all about getting the right people and getting them early enough.
Before you open up these these locations to to.
To get them engaged with the market and make sure that your.
You are bringing in people that.
Really believe in the culture of the company and what we're trying to do as I've said before we haven't done.
And don't do teams of people, we do individuals who are making a decision that crosses the right place for them to be and I think it's really the success of our of our Houston strategy is river related to having great focus.
And commitment of resources on our part of really talented individuals to lead that effort and then selecting the right people that.
Yes.
That have really executed.
Create these results and Thats and Thats, what its got to be so.
I will say, it's a little probably a little tougher market.
Then it was when we started Houston three years ago.
Because some of the supply chain stuff some of the cost stuff.
People are not getting any easier to hire but I think we've had pretty good results.
Thus far.
So.
Yes.
But I think we can and we are utilizing the same procedures in the company and the same focus that we did in Houston.
Let's just say that.
Im very confident of our ability to execute that plan.
And.
<unk> talked about.
Yes.
Yeah.
Thank you.
Wei.
Colin.
Excellent.
It has a lot more.
Okay.
Yeah.
Yes, what I would say Jennifer is number one.
We typically have more liquidity than most and obviously, we're not going to carry 35.
2022 to make a major data yet.
Yes.
Jennifer.
With the loan to deposit ratio, where it is hovering around 40%.
That's kind of where we were at the last low point historically for our company.
<unk>.
When you look at what it took to get to.
Let's say an 80% high.
70%, 80% I mean that was a.
Extended period of time, I think whenever we saw the last decline in loan to deposit ratio was into the <unk> and that was great.
Great recession, I think it took us five years to get back to it.
For us a more normalized number I think it's I mean.
Honestly I think it's going to be at least that.
For us because one thing is.
And as I've always said business is a high class problem, because if youre doing youre doing your job growing deposits, you've got plenty of liquidity plenty of dry powder and you are able to generate funding.
At a really good.
Competitive.
Cost because you can generate so much demand deposits, which are.
Very low cost so.
No.
I'm not so much worried about utilization of liquidity per se as I am just about making sure that our loan growth.
Is solid our new relationship growth is solid.
Our strategies for organic growth or being successful I think.
The earnings will take care of itself and then we will be opportunistic.
As you've seen us be on when we employ that liquidity.
And to the bond market or frankly, if we don't.
Employer enter the bond market.
Frankly.
The optionality.
Optionality that Gerry talks about I think becomes increasingly important as we see what happens with inflation.
And not just supply chain, but what we're seeing with labor costs.
<unk>.
I tend to think that the short end.
<unk> is going to have more volatility than the long end over the next year or so just my opinion, but we've got that we got the opportunity to take a look and see on that.
Thank you.
Hmm.
Our next question comes from the line of Steven Alexopoulos with Jpmorgan. Please proceed with your question.
Hi, Good afternoon. This is Anthony Elian on for Steve.
Bill you mentioned that you have had close to 20000 net new checking accounts added. So far this year are you able to parse out how much of these new customers are choosing for us because of services you offer including early payday and overdraft Grace that not many banks offer.
No.
I can't tell you.
I can't tell you that because they don't tell us.
While they're joining us I can tell you though that.
Early pay day was.
Let's see July.
I think overdraft rates in April.
And so we broke the record for our all time annual number in June. So you would have basically seen no impact there for early pay day and pretty limited impact from overdraft rates I think one of the things that's really helping us.
Aside from just reputation really what.
Our service and net promoter scores tells us about how people think about us as the.
The Houston expansion strategy has been a really big.
Tributary to.
Growth and so there's that.
And they are really helping us.
See increases there and then secondly, we've done a great job.
<unk>.
Developing our capability of and marketing for online.
I think 41% of the accounts that we've opened this year have been opened online.
So.
Doing a good job in both those areas in the digital side, and then expanding on the physical side and the <unk>.
Geographic distribution both of those things I think have really helped us.
To a new level in terms of consumer growth.
Okay, Great and then my follow up you mentioned in the prepared remarks, we plan to open eight more Houston locations in the coming months any more details you can provide on this in terms of the expense run rate beyond <unk> as you build these branches. Thank you.
Yes.
What I'd say to that is I think we've kind of given a little bit of this guidance before we do have our planned Dallas expansion that Phil talked about and then also our <unk>.
Expanding on the locations in Houston that we have already opened.
The guidance that we gave originally when we announced the Houston plan with it it was going to cost us about 19.
In the first year and Thats really based on what I'm looking at I think you'd be pretty close to that right now given given what we're looking at obviously some of that will be dependent on the timing of the locations.
The hiring of the people et cetera, but I think you'd be pretty close.
Something a 1919.
In 2022.
Thank you.
And also I guess I'll mention.
I think your comments mentioned that we do Houston, all I know a year and those will come over a two year period in Dallas will be a two and a half year period. So those will be coming in over a period of time.
Our next question comes from John Armstrong with RBC Capital markets. Please proceed with your question.
Great. Thanks, good afternoon.
Hey, John John.
Phil one of your comments earlier about the competitive environment.
69% loss to structure versus 50 in the prior quarter Whats changed and do you expect.
Competition to get even tougher from here.
No.
I was talking to our people last week about what Theyre seeing.
Yeah.
This is I'd say largely the same thing burned down rates guarantees.
Terms loan to cost et cetera. The one thing that was a little different that they had seen on the permanent side was was it a trend towards again. These are permanent deals interest only deals for five and 10 years.
Which is sort of new.
Haven't seen as much of it so I think that around the margins around the edges. It continues to be.
No no.
Or more competitive.
There was one I remember they told me about one person who is putting together a deal I guess they were a broker for a permanent deal.
Our customer and they have said.
I don't know what else I can ask for they said, yes to everything so I mean that just tells you how our COO.
Dominated the market Serbian.
All that said, though.
Sure.
Our people are optimistic about.
Our ability to get deals and we have great relationships with with key customers and so.
You'd think that there'd be more pessimism.
As you see this thing get more competitive but.
Thanks.
And we will.
We want to compete and win and yet still keep our disciplines, but.
We seem to be doing okay.
Yeah.
The new commercial.
The relationship numbers are certainly good.
And same with consumer as well and I guess, that's you know that's what you control Act.
Activity.
Exactly yes.
Yes.
And I guess back on the loan to deposit question I know, it's not the most critical ratio.
Out there but.
But it seems to me that maybe the excessive deposit growth.
Starting to abate a bit.
And youre seeing a bottoming of loans.
Perhaps over the next couple of quarters that starts to reverse itself and climbed back up again is that a fair way to think about it.
I think that certainly.
Deposit growth was a little bit softer in the third quarter.
It was still 9% on an annualized basis so.
It's still strong, but it's not the double digits that we'd been seeing the high teens. So from that standpoint, you are right I mean, if anything at that level with loan growth continuing or starting to improve now that that number could get better but at the end of the day.
We're all about relationships as Phil said in both deposits keep coming in we Wanna right and so to the extent that that those deposits picked up again.
We'd certainly be happy about that so I think theoretically you are right if deposit growth slows down in loan picks up that will kind of take care of itself, but.
We're still we're still adding new locations. We continue all for top quality service, we're still interested in opening new accounts.
I look at a 12 month roll back looking backwards about where our growth came from.
On a rolling 12 months on the deposit side.
70% of it was augmentation from our existing customers and 30% of it was was from new customers and Thats a little bit higher that we've seen we've been seeing like a 70 525. So it is good to see that so yes, I think youre right, but we'd love to continue to see deposit growth.
Okay, Yes that was one of my next question I guess that's.
That 70 30 split.
I was curious on that and I guess the last one so you touched on it.
In your very early comments about Houston, when you were given some of the numbers.
But you touched on the fee businesses can you talk a little bit about what youre seeing from the new branches in terms of the fees and fee generation.
Yeah.
Jon honestly I don't have that breakdown with me in terms of terms of that.
For the for the expansion branches I can tell you and I'll ask Gerry you talked a little bit about.
About fee income, we've really had a nice year at this point in wealth management.
And wealth advisors, a little bit tougher in the insurance would still still holding our own there Jeremy will talk a little bit about the.
Non interest yes.
Yes, I think Phil mentioned, we thought I thought we had a pretty solid quarter on the noninterest income side. The <unk> side of the business had some good growth there in.
With the investment fees growing I think 13%.
And then good oil and gas revenues, there, obviously with the higher commodity prices thats, helping us compared to where we were say in the third quarter last year and they continue to have new account growth. There. So good growth there I think on the deposit service charges, even with overdraft Grace.
I think NSF OD combined commercial and consumer might've been down 100000, compared to the third quarter a year ago.
But we did see good growth on the commercial service charges with with higher billable services.
Interchange fee I thought was really strong we were up almost $1 million and we have introduced a new commercial account that is responsible for about half of that but it's also interesting that we're seeing the numbers of transactions debit card usage is is obviously going up significantly and the dollar size of the transactions that are running through were also up so that's all.
We had a good solid quarter all the way around a lot of customer derivative activity also in the other category. So yes, I think overall it was a good quarter a little bit of softer on the insurance side as Bill said, we've been fighting a little bit of an uphill battle there.
The net new customer business there.
Okay. Okay, great. Thanks for all the help.
Thank you.
Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.
Alright, great. Thank you.
Just a couple of questions on expenses.
What kind of range are you putting around that 3%.
Fashion, you put in 3% exactly it does imply alright, it does imply.
The sizable increase in fourth quarter expenses.
$230 million, that's why it makes sure I'm thinking about that right.
No I think it's a fair question, Ken I was looking at it this morning, but the one thing I'd point you to is our historical growth between third and fourth quarters. When you go back and look last year, it's not too different than that but we do have some incentives that some incentive awards that get awarded in the fourth quarter some of them because of the nature of.
The award in the age of the recipient.
Recognized immediately and so that's going to have those awards will happen in October and so that's going to affect.
Salaries in the fourth quarter, and then also marketing historically, we've been strong in marketing expense in the fourth quarter and I expected that we'll see that as well so yes, I agree with you.
The numbers do look high but if you look at our history and look at what what are where our projections are at I think we're right in there what I love for it to be.
For it to be lower than that sure, but I think right now based on what I'm, saying that that's really where we're at and I think those two things, it's really that salaries category and the other expense category, where I'm seeing most of the pressure.
Got it understood. Okay. Thanks, and then just sort of a follow up back to 2022 expenses I appreciate the 19th totally makes sense.
But what is the base I mean should we assume.
Let's say the through whatever 3% growth happens in 'twenty, one and then we grow another 3% on top of that and then we add 19 sense.
I'm just trying to make sure I know.
Sure.
Talking about <unk>.
Obviously, we don't were not giving any sort of 'twenty two guidance, we're still in that planning process. There's a lot of work going on there I will say that Phil alluded to a little bit about the inflation that we're seeing out there. We are starting to see continue to see wage inflation I was looking at something from the Dallas Fed. This morning, if I could put my.
Hands on it it was just interesting a couple of the comments that they were making about the Texas economy and it said.
Lack of applicant still top hiring constraint, but pay demand or an increasing concern and then there was another bullet point that average hourly wages now rising faster in Texas than the U S. So we are.
Are dealing with that environment, but we are in the planning stages. So don't don't hear me, saying anything about what our guidance is for 'twenty two expenses that youre right, yes, whatever base level. You believe you would start off with on 2022 im suggesting that.
Houston expansion 2.0, if you will plus our Dallas expansion, it's going to cost us something around 19 over our more normalized run rate if you will.
Alright, perfect. Thank you.
We've reached the end of the question and answer session. At this time I would like to turn the call over to Phil Green for closing comments.
Okay, well thanks, everyone for your continued interest and your great questions and with that we will be a journey. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.