Q4 2021 Cullen/Frost Bankers Inc Earnings Call
Speaker 1: new relationships and expanding current ones. It reflects well on our expansion efforts, our value proposition enhancements, and our world-class level of innovation.
Expanding current ones.
It reflects well on our expansion efforts.
Our value proposition enhancements.
And a world class level of customer service.
Jerry will talk more about our deposit growth in a few moments.
Speaker 1: I was very pleased with our success in our commercial lending segment.
I was very pleased with our success in our commercial lending segment.
Speaker 1: where we booked $2.4 billion in new commitments in the fourth quarter.
Where we booked $2 $4 billion in new commitments in the fourth quarter.
Speaker 1: up 64% from the first quarter last year, and up an
Up 64% from the first quarter last year.
And up in an annualized 37% on a linked quarter basis.
Speaker 1: 37% on a link quarter based.
Speaker 1: I'm morally certain that's our highest level ever.
Morally certain that's our highest level ever.
The gross growth the growth was geographically diverse.
Speaker 1: The growth was geographically diverse.
Speaker 1: Compared to last year, fourth quarter C&I commitments were up seven.
Compared to last year.
Fourth quarter C&I commitments.
We were up 73%.
Speaker 1: while CRE was up 121%.
While CRE was up 121%.
Speaker 1: on a link order on annualized basis.
On a linked quarter on annualized basis.
Speaker 1: C&I commitments were up 27%.
Ni commitments were up 27%.
Speaker 1: while CRE commitments increased 55%.
While CRE commitments increased 55%.
Speaker 1: and Jerry will talk more about outstanding loan balances in his country.
Jerry will talk more about outstanding loan balances in his comments.
Speaker 1: As we book these commitments, our weighted pipeline declined 13% from the third quarter.
As we book these commitments our weighted pipeline declined 13% from the third quarter.
Speaker 1: I might point out that in Texas, the confluence in the fourth quarter of football season, hunting season,
I point out that in Texas, the confluence in the fourth quarter of football season hunting season.
Speaker 1: and the holidays combines so that it is rare that our year-end pipeline would exceed the third quarter.
In the holidays.
Bonds. So that it is rare that our year end pipeline would exceed the third quarter.
Just saying.
However.
Speaker 1: Our year-end weighted pipeline was 24% higher than last year's and was our highest fourth quarter ever.
Our year end weighted pipeline was 24% higher than last years and was our highest fourth quarter ever.
Speaker 1: Turning to our consumer business, I am extremely pleased with our progress.
Turning to our consumer business I am extremely pleased with our progress.
In 2021.
Speaker 1: We brought in almost 27,000 net new.
We brought in almost 27000 <unk>.
Net new checking households.
Speaker 1: That was 210% of our previous full year household growth record in 2019. Here's some additional context.
That was 210%.
Our previous full year household growth record in 2019.
Here's some additional context.
In 2016, we added <unk>.
Speaker 1: 1,897 net new consumer checking households.
1897, net new consumer checking households.
Speaker 1: Our compound annual growth and net household addition for that five-year period is $7.
Our compound annual growth and net household addition for that five year period.
Is 70%.
Speaker 1: Houston is not the only reason, but it's helping.
Houston is not the only reason, but it is helping.
Speaker 1: It added 413% more checking households in 2021.
It added 413% more checking households in 2021.
Speaker 1: than we did in 2018, right before our expansion began.
Then we did in 2018 right before our expansion began.
Speaker 1: We reported in our release good trust and wealth management numbers, but one other data point of growth I might offer.
We reported in our release, good trust and wealth management numbers, but one other data point of growth I might offer is that our number of customers for our community wealth advisors were up by 28% from a year ago.
Speaker 1: is that our number of customers for our community wealth advisors were up by 28% from a year ago.
As far as the Houston expansion is concerned.
Speaker 1: We see the momentum continuing to build as the branches mature.
We see the momentum continuing to build as the branches mature.
Speaker 1: The metrics we measure show bankers we hired and onboarded are executing our relationship banking strategy.
The metrics, we measure show bankers, we hired and on boarded are executing our relationship banking strategy.
Speaker 1: At year-end, we stood at 128% of our new household goal.
At year end.
We stood at 128%.
Of our new household goal.
Speaker 1: We were 178% of our loan goal.
We were 178%.
Of our loan goal.
And we were 113%.
Speaker 1: And we were 113% of our deposit goal.
Of our deposit goal.
For the for the year 2021.
Speaker 1: We added 6,858 new households.
We added 6858 new households.
Speaker 1: which was nearly the same amount of new households we added for the first two years of the expansion. Over the last six months.
Which was nearly the same amount of new households, we added for the first two years of the expansion.
Over the last six months.
New households grew.
Speaker 1: by 30% unannualized.
By 30% on annualized.
Speaker 1: demonstrating the ability to add new customers while the branches mature in these communities.
Demonstrating the ability to add new customers, while the branches mature in these communities.
Speaker 1: loan growth for the year was $218 million or 97% growth.
Loan growth for the year was $218 million or 97% growth.
Speaker 1: And for the last six months of 2021, loan growth was an unannualized 42%.
And for the last six months of 2021.
Loan growth was on an annualized 42%.
Speaker 1: Loan Portfolio is a mix of 80% commercial loans and 20% consumer loans.
Loan portfolio is a mix of 80% commercial loans and 20% consumer loans.
Our.
<unk> has been on core loan relationships or small businesses in the community communities that we are entering.
Speaker 1: or small businesses in the community communities that we are entering.
Speaker 1: There are only three loans over $10 million in balance.
There are only three loans over $10 million in balances.
Speaker 1: that represent less than 10% of the total loan portfolio.
That represent less than 10% of the total loan portfolio.
Speaker 1: The mix of loans is reflective of our overall loan portfolio with 40% CRE, 40% C&I, and 20% C&I.
The mix of loans is reflective of our overall loan portfolio.
With 40% CRE, 40% C&I and.
And 20% consumer.
Speaker 1: We're building a strong foundation of core relationship.
We're building a strong foundation of core relationships that will position us to grow with them as their businesses grow and we meet their needs.
Speaker 1: that will position us to grow with them as their businesses grow and we meet their needs.
Speaker 1: Deposit growth for the year was $390 million, or 167% from December of 2020. Over the past six months.
Deposit growth for the year was $390 million or 167% from December of 2020.
Over the past six months of 2021.
Speaker 1: growth continues to be strong at an unannualized 44% rate.
Growth continues to be strong at an annualized 44% right.
Speaker 1: Our deposit mix is two-thirds commercial and one-third consumer.
Our deposit mix is two thirds commercial.
And one third consumer.
Speaker 1: nearly identical to what we had projected to be the mix.
Nearly identical to what we had projected to be the mix three years ago.
Speaker 1: We continue to be optimistic about growth in this economy.
We continue to be optimistic about growth in this economy.
Speaker 1: Our 28th branch expansion project in the Dallas region officially got underway this month with the opening of our first new location, the Frost Medical District.
Our 28 branch expansion project and the Dallas region officially got underway. This month with the opening of our first new location.
Frost Medical District Financial Center.
Sure.
Speaker 1: We will continue the process, nearly tripling our size in Dallas, into 2024. The Dallas expansion will follow our Houston model.
We will continue the process nearly tripling our size and Dallas into 2020 for.
The Dallas expansion will follow our Houston model and.
Speaker 1: And we will employ the lessons learned during our team's successful rollout.
And we will employ the lessons learned during our team's successful rollout.
Speaker 1: Additionally, we will continue our expansion in Houston, adding another eight locations over the course of 2022 and into 2023.
Additionally, we will continue our expansion in Houston, adding another eight locations over the course of 2022 and.
And into 2023.
Credit continues to be good.
Speaker 1: We did not report a credit loss expense for the fourth quarter. Our asset quality outlook is stable. And in general, problem assets are declining in number. New problems have dropped to pre-pandemic levels.
We did not report a credit loss expense for the fourth quarter.
Asset quality outlook is stable and in general problem assets are declining a number new problems have dropped to pre pandemic levels.
Speaker 1: The net charge-offs for the fourth quarter were $2.8 million, compared with $2.1 million in the third quarter.
The net charge offs for the fourth quarter were $2 $8 million compared with $2 1 million in the third quarter.
Speaker 1: annualized net charge-offs for the fourth quarter for seven basis points of average loan.
Annualized net charge offs for the fourth quarter were seven basis points of average loans.
Non accrual loans were $53 7 million at the end of the fourth quarter, a decrease from $57 1 million at the end of the third.
Speaker 1: Not accrual loans are $53.7 million at the end of the fourth quarter, a decrease from $57.1 million at the end of the third.
Overall delinquencies for accruing loans at the end of the fourth quarter.
Speaker 1: overall delinquencies for accruing loans at the end of the fourth quarter.
Speaker 1: were only $121 million or 74 basis points.
We're only $121 million or 74 basis points.
But period end loans.
Speaker 1: Excluding PPP, delinquencies were only 97.
Excluding PPP delinquencies were only $97 million these.
Speaker 1: These are manageable pre-pandemic levels.
These are manageable pre pandemic levels.
Speaker 1: Total problem loans, which we define as risk grade 10 and higher, total $540 million at the end of the fourth quarter.
Total problem loans, which we define as risk grade 10, and higher totaled $540 million at the end of the fourth quarter.
Speaker 1: paired with $635 million at the end of the previous quarter.
Compared with $635 million at the end of the previous quarter.
Speaker 1: In the fourth quarter, we continue to make progress toward our goal of mid-single-digit concentration levels in the energy loan portfolio over time, with energy loans representing 6.6% of loans at the end of the quarter.
In the fourth quarter, we continued to make progress toward our goal of mid single digit concentration levels in the energy loan portfolio over time with energy loans, representing six 6% of loans at the end of the quarter.
Our teams continue to analyze the non energy portfolio of segments that we considered most at risk from the pandemic impacts and as of the end of the fourth quarter. The total problem loans from hotels and office buildings, representing a $178 million risk is moderate and stable in these areas in the asset quality outlook improves cigna.
Speaker 1: Our teams continue to analyze the non-energy portfolio segments that we considered most at risk from the pandemic impacts. And as of the end of the fourth quarter, the total problem loans from hotels and office buildings represented $178 million. Risk is moderate and stable in these areas, and the asset quality outlook improved significantly during 2021.
<unk> during.
During 2021.
Speaker 1: We've made good progress toward adding residential mortgages to our suite of consumer real estate products later this year.
We've made good progress toward adding residential mortgages to our suite of consumer real estate products later this year.
Speaker 1: This will complement our portfolio currently consisting of home equity, HELOC, home improvement, and purchase money second loans, which has steadily grown to more than $1.4 billion.
This will complement our portfolio of currently consisting of home equity HELOC home improvement and purchase money second loans, which has steadily grown to more than one $4 billion.
Speaker 1: Utilizing best-in-class technology will allow us to provide cross-level of world-class service as we build this portfolio over time in response to customer demand.
Utilizing best in class technology will allow us to provide frost level of World class service as we build this portfolio over time in response to customer demand.
Speaker 1: And after almost two years of working with business customers on PPP loans, we are finally nearing completion with a forgiveness process complete for more than 93% of our customers.
And after almost two years of working with business customers on PPP loans. We are finally nearing completion with the forgiveness process complete for more than 93% of our customers are.
Speaker 1: Our team continues to work to get the last of the borrowers through the process, and I want to commend everyone at Frost who's worked so hard on this.
Our team continues to work to get the last of the borrowers through the process and I want to commend everyone at Frost Who's worked so hard on this.
Speaker 1: Our team took a situation that in the beginning looked difficult, and maybe even impossible, and turned it into a huge.
Our team took a situation that in the beginning look to difficult.
And maybe even if possible.
And turned it into a huge success for our customers and for our company.
Speaker 1: At the same time, we're working to ensure that we're not only taking care of our customers, but our employees and our communities as well. In the fourth quarter, Ross was a founding member of the Corporate Partners for Racial Equity here in San Antonio.
At the same time.
We are working to ensure that we're not only taking care of our customers, but our employees and our communities as well.
The fourth quarter Frost was a founding member of the corporate partners for racial equity here in San Antonio.
Speaker 1: state and statewide, we announced that we had raised our minimum pay.
State and statewide we announced that we had raised our minimum pay.
Speaker 1: $20 per hour. Steps like these show our commitment to our communities and being a force for good in people's everyday lives.
To $20 per hour steps like these show our commitment to our communities and being a force for good in People's everyday lives.
Speaker 1: That's possible only because of our dedicated employees.
That's possible only because of our dedicated employees, whether they're asked to tackle historic and heroic task like handling more than 32000 PPP loans.
Speaker 1: whether they're asked to tackle historic and heroic tasks like handling more than 32,000 PPP loans.
Speaker 1: doubling or even tripling the number of locations we have in a region over a couple of years.
Doubling or even tripling the number of locations we have in our region over a couple of years.
Speaker 1: creating a mortgage lending process from scratch.
Creating a mortgage lending process from scratch.
Speaker 1: or simply being the best at serving customers around the clock, our team at Frost is our true competitive advantage.
We're simply being the best at serving customers around the clock our team at Frost is our true competitive advantage and I'm proud of them for all of their accomplishments. Despite the difficulties of the past two years and I'd like to thank them for contributing everyday to our company.
Speaker 1: And I'm proud of them for all of their accomplishments, despite the difficulties of the past two years. And I'd like to thank them for contributing every day to our company's success.
Access.
Speaker 1: Now, I'll turn the call over to our Chief Financial Officer, Jerry Salinas, for some additional comments.
Now I will turn the call over to our Chief Financial Officer, Jerry Salinas for some additional comments.
Thank you Phil.
Speaker 2: Looking first at our net interest margin, our net interest margin percentage for the fourth quarter was 2.31%, down 16 basis points from the 2.47% reported last quarter. The decrease was primarily the result of the impact of lower PPP loan volumes and their related yields compared to the previous quarter.
Looking first at our net interest margin our net interest margin percentage for the fourth quarter was $2 three 1% down 16 basis points from the 247% reported last quarter.
The decrease was primarily the result of the impact of lower PPP loan volumes.
And their related yields compared to the prior quarter.
Speaker 2: Excluding the impact of PPP loans, our net interest margin percentage would have been 2.25% in the fourth quarter, down two basis points from an adjusted 2.27% from the third quarter, with a decrease resulting primarily from lower yields in the investment portfolio, partially offset by higher volumes of investment securities and non-PPP loans.
Excluding the impact of PPP loans, our net interest margin percentage would have been $2 two 5% in the fourth quarter down two basis points from an adjusted two 7%.
From the third quarter with the decrease resulting primarily from lower yields in the investment portfolio, partially offset by higher volume of investment securities.
Non PPP loans.
Speaker 2: The taxable equivalent loan yield for the fourth quarter was 3.89 percent, down 27 basis points from the previous quarter.
The taxable equivalent loan yield for the fourth quarter was $3 eight 9% down 27 basis points from the previous quarter.
Speaker 2: But excluding the impact of PPP loans, the taxable equivalent loan yield would have been 3.79%, up five basis points from the prior quarter, with about three basis points of the increase resulting from non-recurring.
But excluding the impact of PPP loans, the taxable equivalent loan yield would have been 379% up five basis points from the prior quarter with about three basis points of the increase resulting from non recurring fees.
Speaker 2: To add some additional color on our PPP loans, our total PPP loans at the end of December were $429 million, down almost $400 million from the $828 million at the end of September .
To add some additional color on our PPP loans, our total PPP loans at the end of December were $429 million down almost $400 million from the $828 million at the end of September .
Speaker 2: At the end of the fourth quarter, we had only about $2.8 million in net deferred fees remaining to be recognized, and as such, we don't expect PPP to have any material impact on our 2022 results.
At the end of the fourth quarter, we had only about $2 8 million in net deferred fees remaining to be recognized and as such we don't expect PPP to have any material impact on our 2022 results.
Speaker 2: Looking at our investment portfolio, the total investment portfolio averaged $14.4 billion during the fourth quarter, up about $1.9 billion from the third quarter average as we deployed some of our excess liquidity during the fourth quarter.
Looking at our investment portfolio. The total investment portfolio averaged $14 4 billion during the fourth quarter up about $1 9 billion from the third quarter average as we deployed some of our excess liquidity during the fourth quarter.
Speaker 2: We made investment purchases during the quarter of approximately $2.9 billion, consisting of about $1.7 billion in agency MBS securities with a yield of about $2.05 billion.
We've made investment purchases during the quarter were approximately $2 9 billion consisting of about $1 7 billion in agency MBS securities with a yield of about two 5% about $1 billion in treasuries, yielding a 127% and about $150 million in municipal securities.
Speaker 2: about $1 billion in treasuries, yielding a 1.27%, and about $150 million in municipal securities, with a TE yield of about 2.34%.
With a te yield of about 234%.
Speaker 2: The taxable equivalent yield on the total investment portfolio was 3.08 percent in the fourth quarter, down 27 basis points from the third quarter.
The taxable equivalent yield on the total investment portfolio was three 8% in the fourth quarter down 27 basis points from the third quarter.
Speaker 2: The yield on the taxable portfolio, which averaged $6.1 billion, was 1.86 percent, down 17 basis points from the third quarter.
The yield on the taxable portfolio, which averaged $6 1 billion was 186% down 17 basis points from the third quarter.
Speaker 2: Our tax-exempt municipal portfolio averaged about $8.4 billion during the fourth quarter, flat with the third quarter with a taxable equivalent yield of 4.01%, down three basis points from the prior quarter.
Our tax exempt municipal portfolio averaged about $8 $4 billion during the fourth quarter flat with the third quarter with a taxable equivalent yield of four 1% down three basis points from the prior quarter.
Speaker 2: At the end of the fourth quarter, 78% of our municipal portfolio was pre-refunded or PSF insured, and the duration of the investment portfolio at the end of the fourth quarter was 4.4 years, down slightly from the 4.5 years at the end of the third quarter.
At the end of the fourth quarter, 78% of our municipal portfolio was pre refunded or psf psf insured and the duration of the investment portfolio at the end of the fourth quarter was $4 four years down slightly from the $4 five years at the end of the third quarter.
Speaker 2: Regarding our non-interest expense outlook for 2022.
Regarding our noninterest expense outlook for 2022.
Speaker 2: Our projected expense growth in 2022 over our 2021 full year reported non-interest expenses is in the high single digit.
Our projected expense growth in 2022 over our 2021 full year reported noninterest expenses.
In the high single digits impacted by our expansion efforts and salary pressures.
Speaker 2: impacted by our expansion efforts and salary pressure.
Speaker 2: The impact of our Houston and Dallas expansions is responsible for about 2% of the growth.
The impact of our Houston, and Dallas expansions is responsible for about 2% of the growth.
Speaker 2: Cost associated with reintroducing our residential mortgage product adds about 1.5%, and increasing our minimum wage from $15 per hour to $20 per hour in December as a result of salary pressures across the state is responsible for about 2% of the projected growth in non-interest expenses in 2022.
Costs associated with reintroducing, our residential mortgage product adds about one 5% and increasing our minimum wage from $15 per hour to $20 per hour in December as a result of salary pressures across the state is responsible for about 2% of the projected growth in noninterest expenses in 2000.
'twenty two.
Speaker 2: Just to talk a little bit about current loan and deposit volumes, as you've seen in our press release and as Phil mentioned, we saw really good, strong loan growth, excluding PPP in the fourth quarter, both on an average and period-end basis.
Just to talk a little bit about current loan and deposit volumes as you've seen in our press release and as Phil mentioned, we saw really good strong loan growth excluding PPP in the fourth quarter, both on an average and period end basis.
Speaker 2: As we've moved into January , I just want to confirm that that strong growth has continued, both on average and on a period end.
As we've moved into January I, just want to confirm that that strong growth has continued both on average and on a period end basis.
Speaker 2: On the deposit side, we also saw strong deposit growth in the fourth quarter on an average and period end basis, and the growth came both from demand deposits and interest bearing deposits. I was expecting that we might see a seasonal drop in deposits in January , but up to this point, that has not occurred.
On the deposit side, we also saw strong deposit growth in the fourth quarter on an average and period end basis and the growth came both from demand deposits and interest bearing deposits.
We are expecting that we might see a seasonal drop in deposits in January but up to this point that has not occurred.
Speaker 2: Regarding the estimates for full year 2022 earnings, our current projections assume three 25 basis point Fed rate increases this year, with one in May, one in July , and the last one in December , and thus having no material impact that last one on our projected net interest income in 2022.
Regarding the estimates for full year 2022 earnings our current projections assumed 325 basis point fed rate increases this year with one in May one in July and the last one in December and thus, having no material impact that last one on our projected net interest income.
In 2022.
Speaker 2: With those rate assumptions and the expected 2022 expense growth that I previously mentioned, we currently believe that the current mean of analyst estimates of $5.88 for 2022 is low. With that, I'll now turn the call back over to Phil for questions.
But those rate assumptions and the expected 'twenty to 2022 expense growth that I. Previously mentioned, we currently believe that the current mean of analyst estimates of $5 88 for 2022 is low.
With that I'll now turn the call back over to Phil for questions. Okay. Thanks, Jerry will now open the call up for questions.
Speaker 3: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question.
Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker 3: for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your question.
One moment, please while we poll for your questions.
Okay.
Okay.
Speaker 3: Our first questions come from the line of Brady Gailey with KBW. Please proceed with your question.
Our first question comes from the line of Brady Gailey with <unk>. Please proceed with your questions.
Speaker 4: Hey, thank you. Good afternoon, guys. Hey, Brady.
Hey, Thank you good afternoon guys.
Hey, Brian Hey, Barry.
Speaker 1: So if I back out the PPP loan shrinkage, you know, I see period end loan growth just in the fourth quarter of over 20 percent, link quarter annualized. So a very, very strong level, maybe just some commentary about where you saw a lot of that loan growth happen.
So if I back out the PPP loan shrinkage.
I see period end loan growth.
Just in the fourth quarter of over 20%.
Linked quarter annualized so a very very strong level, maybe just some commentary about where you saw a lot of that loan growth happen.
Speaker 2: Yeah, it's really, yeah, it's really across the board, Brady, to be quite honest.
Yes.
It's really yes, it's really across the board Brady to be quite honest with you.
Speaker 2: You know, it's, we're seeing good growth both in CNI, CRE's good.
<unk>.
We're seeing good growth both in C&I.
CRE is good.
Speaker 2: Really, all categories are good. We did see some increase in energy as well. That's impacting it. So if I looked at that annualized growth, energy added about 1%, but not material to that annualized number that you mentioned. But it's pretty good.
Really all categories are good we did see some increase in <unk>.
Energy as well that's impacting it so if I looked at that annualized growth energy added about 1%, but not materially mono materials to that annualized number that you mentioned, but it's pretty pretty much across the board.
Speaker 5: All right, and then I think last quarter you guys had about 13 million of PPP fees left. You're now saying it's three. So is it safe to assume that in the fourth quarter you realize PPP fees of about $10 million in 4Q?
Alright, and then I think last quarter, you guys had about $13 million of PPP fees left you're now saying, it's three so is it safe to assume that in the fourth quarter, you realize EQT pools of about $10 million in <unk>.
Yeah.
Yes, let me grab that real quick here.
Speaker 2: Yeah, it's it's about I'm seeing a number just on the fee side. It's about $8 million. So if you included the interest on it, it's probably in that 9 million range, but I'm showing about a 8,000,004 in the quarter related to those.
Yes, it's about him, saying a number just on the fee side, it's about $8 million. So if you included the interest on it it would probably be in that $9 million range, but I'm showing about $88 million four in the quarter related to those fees.
Okay.
Speaker 5: All right, and then, you know, we saw the bond portfolio expand in the fourth quarter. You know, if you look at the 10-year bond yield, it's now 180 basis points, so it's even higher than where it was then. How should we think about...
Alright, and then we saw the bond portfolio expand.
In the fourth quarter.
You look at the 10 year bond yield is now a 180 basis points. So it's even higher than where it was.
How should we think about.
Speaker 5: the possibility of frost continuing to grow the bond book this year in 2022.
The possibility of cross continuing to grow the bond book this year in 2022.
Speaker 2: Yeah, you know what we've said, Brady, all along is that, you know, it's our it was our intent, you know, to continue to invest. We like to be opportunistic. I'm going to be honest, you know, with the deposit growth that we saw, I mean, it's just really been incredible. You know, I kind of expected that the fourth quarter might be a little bit softer. I probably said that in the third quarter as well. And so we've been able to to make a lot of these investments.
Yes, what we've said Brady all along is that.
It was our intent.
To continue to invest we like to be opportunistic.
Going to be honest.
Deposit growth that we saw I mean, it's just really been incredible.
I kind of expected that the fourth quarter might be a little bit softer I, probably said that in the third quarter as well and so we've been able to make a lot of these investments purchases that we made in 2021 without really having a significant impact on our balances at the fed.
Speaker 2: purchases that we made in 2021 without really having a significant impact on our balances at the Fed. This morning, I think when I got an update, I think we're north of $14 billion still today after the purchases that I talked about. So, still pretty strong. I think from a projection standpoint, we're assuming that we probably have purchases in the neighborhood of half of that $14, if you will. Again, we're going to be opportunistic, but, but
This morning, I think when I got an update I think we're north of 14 1 billion still today.
After the purchases that I talked about so it's still pretty strong I think from a projection standpoint, we're assuming that we probably have purchases.
The neighborhood of half of that that 14, if you will.
Again, we're going to be opportunistic, but thats the current thought.
Speaker 5: All right. And those are just purchases. You'll have obviously bonds that are rolling off. So that's just on the purchase side is what you're saying. That's right.
Alright, and those are just purchases you'll have obviously bonds that are rolling off. So that's just on the purchase side is what you're saying.
That's right right.
Speaker 2: I was going to see if I had the maturities here. I think what I'm seeing is that we've got about $2 billion scheduled in maturities and assumptions on prepayments for the year.
Okay, Yes, I think on the.
Yes, I was going to see if I had the maturity is here I think what I'm, saying is.
Is that we've got about $2 billion scheduled.
Maturities in assumptions on prepayments for the year.
Okay.
Half of $14 billion.
Speaker 5: seven you take away two billion that's going to be rolling off so maybe think about you know the bond book growing roughly five billion in 2022. Does that seem fair?
Seven you takeaway 2 billion, that's going to be rolling off so that made me think about it.
The bond book grow around roughly 5 billion in 2022 does that seem fair.
Speaker 2: Yeah, I don't think you're off-base. Again, you know, what we've said is we're going to look at what's going on in the market and, you know, we'll take a look at what's going on in deposits. If these deposits continue to stick, you know, we could be more opportunistic. But that's kind of where I'm thinking right now. We're early in the year. Obviously, the ALCO group meets monthly. So we'll just decide from there. But I don't think you're too far off-base with that.
Yes, I don't think Youre off base again, what we've said is we're going to look at what's going on in the market and we will take a look at what's going on in deposits. These deposits continue to stick.
We could be more opportunistic, but that's kind of where I am thinking right now we're early in the year, obviously, the Alco group meets meets monthly. So we'll just decide from there, but I don't think youre too far off base with that.
Okay.
Great. Thank you guys.
Sure. Thank.
Thank you.
Speaker 3: Thank you. Our next question has come from the line of Jennifer Demba with Truist. Please proceed with your question.
Thank you. Our next question is coming from the line of Jennifer <unk> with Truest. Please proceed proceed with your questions.
Speaker 6: Jennifer. Hey, Jennifer. Hi, good afternoon. How much of your loan growth this year do you think is going to come from?
Hey, Jennifer Jennifer.
Hi, good afternoon.
Of your loan growth. This year do you think is going to come from.
Speaker 6: from the expansion in Houston and Dallas, and do you think the Dallas branch expansion could be, you know, you've raised the Houston branch count more than I think originally projected. Do you think you could do the same for Dallas at some point? I don't know. I don't know.
The expansion in Houston and Dallas.
And do you think the Dallas branch expansion could be.
Yes.
The Houston.
Branch count more than I think originally projected.
Do you think you could do the same for Dallas at some point.
Well, let's see.
Jeremy might have some.
Speaker 1: You know, I feel on the loan growth from the Houston, I mean, I think I gave the numbers and I may be able to pull up in a second, you know, where we stood at the end of the year. I think loans were...
I feel on the loan growth from the from.
From the Houston.
I think I gave the numbers and I may be able to pull up and second where we stood at the end of the at the end of the year I think loans were.
Just a little under $500 million deposits were a little under $700 million really round numbers, but.
Speaker 1: You know, I think I think Dallas is going to be, it's going to be solid. I don't have any reason to believe that it will perform worse than Houston. You know, we look it's it's early
I think I think Dallas is going to be it's going to be solid.
I don't have any reason to believe that.
Form worst in Houston.
Look it's early.
We opened our first branch there.
I should say we opened up.
Our location before that we had begun working on before we announced the strategy our redbird locations.
Speaker 1: in the southern sector of Dallas has been really successful. And so, you know, that's the first.
And the southern sector Dallas has been really successful and so that's the first.
Speaker 1: An example I have of boots on the ground there and how we do with the new location. So that's been really good. I just think the character of Dallas is such.
For example, I have.
Boots on the ground, there and how we do with the new location. So.
That's been really good.
Thank the character of Dallas as such.
Speaker 1: that it is a very much of a, you know, business-centric market. I think once upon a time someone told me there were 10,000 corporate headquarters there. It's not nearly as energy-centric as the Houston market. That can be a good thing and a bad thing. But it is, I think it is just a more diverse market in many ways. And so, you know, I've always been excited about the prospects for Frost Bank in Dallas.
That it is a very much of a business centric market I think once upon a time someone told me they were 10000 corporate headquarters there.
It's not nearly as energy centric as the Houston market that can be a good thing and a bad thing, but it is I think it is just a more diverse market in many ways and so.
I've always been excited about the prospects for Frost bank in Dallas because.
Speaker 1: You know, middle market, small business, commercial is our wheelhouse and man, that is a target rich environment. So if we just do the right things, learn the lessons that we learned from Houston, I have no reason to believe we won't be successful in the Dallas-Fort Worth.
Middle market small small business commercial.
As our wheelhouse and man that is a target rich environment. So if we just do the right things.
<unk> learned the lessons that we learned from Houston.
No reason to believe we won't be successful.
And the Dallas market.
Speaker 2: Jennifer, I can quantify some sort of numbers. Just to give you perspective, fourth quarter to fourth quarter, I don't have the link in front of me. So if we excluded PPP loans, loans were up about 2.4%. That was about $350 million. About a little north of 1% of that actually came from the Houston expansion. So again, they're starting from small numbers. But if they're contributing that sort of growth on the change, if you will, they were responsible for a significant part of the growth.
Jennifer I can quantify some sort of numbers just to give you perspective.
Quarter to fourth quarter I don't have the link in front of me, but so if we exclude the PPP loans loans were up about two 4%. So that was about $350 million about a little of north of 1% of that actually came from the Houston expansion. So again theyre starting from small numbers, but if they're contributing yet that sort of growth.
On the change if you will they were responsible for a significant part of the growth.
Thanks, so much.
Sure.
Thank you. Our next question comes from the line of Dave Rochester with Compass point. Please proceed with your questions.
Speaker 3: Thank you. Our next questions come from the line of Dave Rochester with CompassPoint. Please proceed with your questions.
Hey, good afternoon guys.
Speaker 7: Just wanted to start on NII, you talked about a lot of moving parts with rate hikes and you've got cash deployment and securities that you're expecting, and that sounds like that's going to be pretty meaningful this year. Can you just remind us first, maybe what is the impact on NIM or NII from each 25 basis point rate hike that you're looking at this year? And then just bigger picture, what you're thinking on the total NII trends versus 21, that'd be great.
Hey, Nick.
Just wanted to start on NII talks about a lot of moving parts with rate hikes, you've got cash deployment and securities that youre expecting of that sounds like that's going to be pretty meaningful this year.
Can you just remind us maybe what what is the impact on <unk>.
NIM or NII from each 25 basis point rate hike that you are looking at this year and then just bigger picture, what's your thinking on the the total NII trends versus 21 that'd be great.
Speaker 2: Sure. So maybe an easy way to say it is the impact of the net interest of the rate hike, each 25 basis point rate hike is about a million for a month.
Sure.
So maybe an easy way to say it is.
The impact of the.
Net interest of the rate hike, each 25 basis point rate hike is about $1 million for months.
Speaker 2: For the first 25 and so because of some of the floors, they'll come into play They don't come you know, they're they're impacting that growth in the first hike by the second hike That number most of them are eliminated. And so I would say that number is closer to a million seven say a month That's
For the first 25, and so because of some of the floors that will come into play. They don't they are impacting that growth in the first hike by the second hike.
That number most of them are eliminated and so I would say that number is closer to 1 million seven say a month.
That will give you some perspective there.
Speaker 7: And then just overall for NII growth in 22 versus 21.
And then just overall for NII growth in 'twenty two versus 21.
Yes.
Speaker 2: Yeah, I mean, you know, yeah, we're projecting obviously, we've got a lot of positive things going forth, you know, so if you you've got to take out PPP, of course, because if you include PPP, you know, we're gonna we're gonna find some pressure there. I'd say with let me hold on, grab my notes here real quick.
Yes, we're projecting obviously, we've got a lot of positive things going for us.
So if you you got to take out PPP of course, because if you include PPP.
We're going to we're going to find some pressure there.
Say with let me hold on grab my notes here real quick.
Speaker 2: It is going to be, it could be pretty substantial, just given, as you said, the assumptions that we're talking about. Some of it's going to be impacted by the timing. As you heard, I said our first assumption for a rate hike is in May. If it happens sooner, that'll help us. But we're talking for, you know, with a, you know, we're talking with certainly a double digit sort of mid-team potential growth for us on a T.E. basis year over year. Thank you.
Sure it is going to be it could be pretty substantial.
Given as you said the assumptions that we're talking about.
Some of it is going to be impacted by the timing.
As you heard I said, our first assumption for a rate hike is in may if it happens sooner that will help us, but we're talking with a we're.
Talking with.
Certainly a double digit sort of mid teen potential growth for us on a te basis year over year.
And that's factoring in again by net 5 billion in growth in Securities and then what Youre expecting.
Speaker 7: And that's factoring in, again, the net $5 billion in growth in securities and then what you're expecting on the loan side. That's everything. Yeah. Exactly. That's all in. Good. And what are you guys factoring in for deposit growth for this year? Because that, I guess, will drive. Well, maybe it won't drive that much because you've got enough cash to deploy in securities. I was just curious what you're thinking on the deposit growth side. Yeah. To be honest, we're...
Yes exactly.
All of that good and what are you guys factoring in for deposit growth for this year does that I guess will drive.
It won't drive that much because you've got enough cash to deploy and securities I was just curious what you're thinking on the deposit growth side.
To be honest.
Speaker 2: It's been interesting, you know, I've kind of expected that the deposits might slow down some of their growth, as I've said, it's been pretty solid in the, you know, last couple of quarters, you know, our growth assumptions are that that's somewhat soft.
It's been interesting.
<unk> kind of expected that deposits might slow down some of their growth as I've said, it's been pretty solid in the last couple of quarters.
Our growth assumptions are that that's somewhat softer in <unk>.
Speaker 2: in 2022. I can envision that, and again, I might be eating my words a year from now, but at this point I don't
And 2022.
Envision that and again might be eating my words here a year from now but at this point I don't envision that we will be seeing at 20% or we're not assuming we'll see a 20% year over year average growth in deposits and we do it will be great as Phil mentioned, we're doing a lot to enhance new customer relationships. The one thing I was really happy to see.
Speaker 2: that we'll be seeing a 20% or we're not assuming we'll see a 20% year-over-year average growth in deposits. If we do, it'll be great. As Phil mentioned, you know, we're doing a lot to enhance new customer relationships. The one thing I was really happy to see on the deposit side, continue to be happy to see, is we do our 12-month look back on deposit growth. And for the last 12 months, about one-third of our growth is coming from new relationships with two-thirds of that then coming from customer augmentation.
On the deposit side can you just continue to be happy to see as we do our 12 month look back on deposit growth and for the last 12 months about one third of our growth is coming from new relationships with two thirds of that then coming from customer augmentation that numbers really the split between new and <unk>.
Speaker 2: That number is really the split between new and existing augmentation is really skewing slowly more and more to the new relationship. So, you know, we continue to be happy about that and that could impact the growth, but at this point, you know, on a full year average, I'm thinking, you know, we're going to be much softer than where we were in 2020.
<unk> existing augmentation is really skewing slowly more and more to the new relationship. So we continue to be happy about that and that could that could impact the growth, but at this point on a full year average I'm thinking we're going to be much softer than where we were in 2022.
Speaker 7: Yeah, that makes sense. And maybe just one last one on the non-interest income side. You had some good growth in 21. I was just curious what your thoughts are, if you're expecting sort of a similar pace of growth on a core basis, or if it should accelerate for any reason.
Yeah that makes sense and maybe just one last one on the noninterest income side you had some good growth in 'twenty. One was just curious what your thoughts are if you're expecting sort of a similar pace.
Growth on a core basis or if it sort of acts.
Accelerate for any reason.
Speaker 2: Yeah, I think the pressure that I'll go through the pressures first the pressure we're having is on the deposit service charge you know, we put in the the
Yes, I think the pressure that I'll go through the pressures first the pressure, we're having is on the deposit service charge.
We put in the.
The overdraft Grace product as we've talked about quite a bit really happy with that product. There continues to be obviously things that we're doing to continue to look at <unk> and what makes sense and what doesn't make sense. So I don't expect that we will see a potential for a lot of growth. There. So some pressure there on the insurance side I think the <unk>.
Speaker 2: As we've talked about quite a bit, really happy with that product. There continues to be, obviously, things that we're doing to continue to look at OD fees and what makes sense.
Speaker 2: and what doesn't make sense, so I don't expect that we'll see a potential for a lot of growth there, so some pressure there. On the insurance side, I think the pressures that I see there are more on the contingent income side, so we have a pretty big, and you can see in our numbers, I don't have them in front of me, but a good piece of our business there is contingent income associated with how those...
Pressures that I see there are more on the contingent income side. So we have a pretty big and you can see in our numbers I don't have them in front of me, but.
A good piece of our business there is contingent income associated associated with how those.
Speaker 2: policies perform. Let me see if I can grab it in front of me. But I'm expecting that that's going to be softer.
Policies perform let me see if I can grab it here in front of me, but I am expecting that that's going to be softer. So we had about three it looks like $3 2 million in 2021. If you recall, we had a freeze here in Texas in February that were pretty much stopped the state for a few days. So there were quite a few claims there so I'm expecting.
Speaker 2: three, it looks like 3.2 million in 2021. If you recall, we had a freeze here in Texas in February that pretty much stopped the state for a few days. So there were quite a few claims there. So I'm expecting there'll be quite a bit of pressure on that contingent income line item in 2022.
There'll be quite a bit of pressure on that contingent income line item in 2022, but.
Speaker 2: But we are excited about our trust area. They had good growth there. Obviously, the markets have helped us. We had good growth in oil and gas fees, which, you know, are dependent on what happens in oil prices. But, you know, we're optimistic, especially, you know, as we add new customers. I think there's a good potential there. I don't think we, you know, it'd be great if the market expectations, or the market returns in 2022 look like 21. But, you know, that's kind of not making sense right now. So it might be a little bit of pressure there as well.
But we are excited about our trust area. They had good growth. There obviously the markets have helped US we had good growth in oil and gas fees, which are dependent on what happens in oil prices, but we are optimistic, especially as we add new customers I think there's a good potential there I don't think we.
It would be great if the market expectations are there.
A market returns in 2022, it looked like 'twenty one but.
That's kind of not making sense right now so it might be a little bit pressure there as well.
Speaker 8: Yeah. Okay. All right. Thanks guys. Appreciate it. Sure. Thank you.
Yeah, Okay, alright, thanks, guys appreciate it sure sure.
Speaker 3: Thank you. Our next questions come from the line of Peter Winter with Wedbush Securities. Please proceed with the
Thank you our next questions come from the line of Peter Winter with Wedbush Securities. Please proceed with your question.
Speaker 9: Great, thank you. I was curious, if the rates come in higher than what you're expecting, so for instance, if we get a rate hike in March,
Great. Thank you.
Curious.
If the rates come in.
Higher than what Youre expecting for <unk>.
And so if we get a rate hike in March.
Speaker 9: you know, and that would lead to higher net interest income. The question is, would you let most of the benefits fall to the bottom line, or would there be any type of plan to maybe accelerate some of your branch expansion investments as kind of like a partial offset?
And that would lead to higher net interest income. The question is would you let most of the benefit fall to the bottom line or would there be any type of plans to maybe accelerate some of your branch expansion.
Investments is kind of like a partial offset.
Speaker 2: No, not really. You know, the timing of the branches, there's a lot involved in that, right? Because we need to make sure that we find the location.
No not really.
Timing of the branches there is a lot involved in that right because we need to make sure that we find the locations.
Speaker 2: You've got to hire the right people. That's such an important part of the success, as we know. And so, in some ways, we really wouldn't be able to accelerate that expansion. What I would say is that regarding our deposit betas, you know, we're pretty conservative, I'll say, in our assumptions on deposit betas on the interest-bearing side. I think the last numbers I saw, we had deposit betas of, say, 50%.
You've got to hire the right people, that's such an important part of the success as we know and so in some ways, we really wouldn't be able to accelerate.
That expansion, what I would say is that regarding our deposit betas.
We're we're pretty conservative I'll say in our assumptions on deposit betas on the interest bearing side I think the last numbers I saw we had deposit betas.
Of say, 50% in our assumptions.
Speaker 2: in our assumptions. Historically, when we went back and looked at cycles in 17 to 19, for example, we were probably closer to 30, 35 percent.
Historically, when we went back and looked at.
Cycles and 17% to 19 for example, we were probably closer to 30%, 35%. So.
Speaker 2: You know, it'll be interesting to see what happens. What we've said is that we always want to make sure that we're offering a square deal to our customers. We'll be looking at market rates.
It'll be interesting to see what happens what we've said.
Is that we always want to make sure that we're offering a square deal to our customers will be looking at market rates.
Speaker 2: you know, not only against the too-big-to-fail, but who our competitors are. So we'll react on the deposit side. If the industry as a whole, you know, doesn't raise rates.
Not only against the too big to fail, but who our competitors are and so we will react on the deposit side of the industry as a whole.
Doesn't raise rates.
Speaker 10: You know, we could have bigger benefits then, you know, but over time, you know, we're going to see increases in deposits, you know, just given where the market takes.
We could have bigger benefits then.
But over time, we're going to see increases in deposits.
Just given where the market takes us deposit costs.
Speaker 11: You know, just on that point, if I think back to the last cycle, you guys actually moved ahead of peers in terms of raising deposit rates. I'm just curious, just given so much deposits that you have today, what's the thought of that type of strategy this time around?
Just on that point, if I think back to the last cycle you guys actually moved ahead of peers.
In terms.
Raising deposit rates I'm, just curious just given so much deposits that you have today whats the thought of that type of strategy. This time around.
Speaker 12: You know, Peter, I think you know us and you know us well. I mean, we're really all about the customer relationship. We want to make sure that we provide our customers with a square deal. So we want to make sure that the rates that we're offering are competitive. And to the extent that there are rates that we feel we need to move, even with a loan-to-deposit ratio under 40, we're going to raise those rates. Because we think it's important.
Peter I guess I think you know us and you know as well I mean, we're really all about the customer relationship we want to make sure that that we provide our customers with a square deal. So we want to make sure that the rates that we're offering are competitive and to the extent that that there are rates that we feel we need to move even with a loan.
The deposit ratio under 40.
We're going to raise those rates because we think it's fair to it's important for us to to try to continue to build those relationships and make sure that we're offering our customers a square deal.
Speaker 13: for us to try to continue to build those relationships and make sure that we're offering our customers a square deal.
Speaker 14: You know, Peter, last time in 17.
Peter last time in 17.
Speaker 15: You saw the Fed move up in rates 100 basis points, and the thing that happened to us is we focused so much on competing with the too-big-to-fail here in these markets that our eyes were squirrelly on what they were doing.
You saw the fed.
Move up in rates 100 basis points and the thing that happened to us as we focus so much on competing with the too big to fail here in this in these markets.
Our eyes squarely on what they were doing.
Speaker 16: competitively, and they really didn't move at all at that point. And so we sort of decided to break away from it at that time. I'll say this time around, we have learned from that, you know, experience. And Jerry and his team and our deposit teams have really been very diligent, I think, in paying attention to what rates are, irregardless of what.
<unk> and they really didn't move at all at that point and so we sort of started to break away from and at that time.
I will say this this time around we have learned from that.
Experience and Jerry and his team and our and our deposit teams have really been very diligent I think.
<unk>.
And paying attention to what rates are irregardless of what some of the larger competitors might be doing and I think we've done a nice job I know we have on the CD rates for example, and there really hasnt been much movement in the in.
Speaker 17: some of the larger competitors might be doing. And I think we've done a nice job. I know we have on the CD rates, for example. And there really has been much movement in the non-maturity portfolio rates. But we've moved some on that. I feel really good about where we are. I think we've got a much better start going into this rate cycle moving up than we had in 2017. So we're not really playing from behind the curve right now. And so I feel pretty good about it.
In the non maturity portfolio rates, but we've moved some of that I feel really good about where we are I think we've got a much better start.
Going into this rate cycle, moving up and we had in 2017, so we're not really plan.
From behind the curve right now and so I feel pretty good about it.
And all I can say I think we learned from our experience back in 2017.
Alright, okay.
Speaker 18: If I could just shoot just quick housekeeping questions, just other income, if I take out the branch sale gain, it was still pretty elevated.
If I could just two quick housekeeping questions. Just other income if I take out the branch sale gain it was still pretty elevated.
Speaker 19: Relative to the third quote, I'm just wondering, anything unusual in other income?
Relative to the third quarter I'm, just wondering anything unusual in other income.
Compared to which quarter Im sorry, Peter.
Speaker 20: The third quarter? Compared to the third quarter? Let me grab that.
The third quarter.
Compared to the third quarter.
Let me grab that.
Okay.
Yes, we did have.
Speaker 21: We did have some incentives related to our debit card that were paid to us in the fourth quarter and usually arrive in the fourth quarter and are recognized in the fourth quarter. That's really the only other major item affecting the link quarter.
We did have some incentives.
Related to our debt.
Debit card that were paid to us.
The fourth quarter and usually arrive in the fourth quarter and are recognized in the fourth quarter. That's really the only other major item affecting the linked quarter comparison.
Got it.
Speaker 22: it. And just the tax rate that we should use for 2022?
The tax rate that we should use for 2022.
Speaker 23: I think on a discrete basis, we're probably around 9% would be my guess at this point.
I think on a discrete basis, we're probably around 9% would be my guess at this point.
Okay. Thanks for taking my questions sure.
Speaker 24: Thank you. Our next questions come from the line of Stephen Alexopoulos with J.P. Morgan. Please proceed with your questions.
Thank you. Our next question is come from the line of Steven Alexopoulos with Jpmorgan. Please proceed with your questions.
Hi, everyone.
Speaker 25: David? I wanted to start, Jerry, to follow up on the high single-digit expense growth guide for 2022. Just given where wage pressure and inflation has been trending for everyone, do you think at least at this stage, it looks like that would be maybe at the upper end of a high single-digit range?
Thanks, David.
Wanted to start Jerry to follow up on the high single digit expense growth guide for 2022, just given where wage pressure and inflation has been trending for everyone. Do you think at least at this stage it looks like that would be maybe at the upper end of a high single digit range.
Speaker 26: Does it help if I say, I hope it is? No, let me say, I'm gonna say that.
Does it help if I say I hope it is now let.
Let me say I am going to say that that.
Speaker 27: Just to be clear we continue to to see salary pressure You know, we're out to get and keep
Just to be clear, we continue to see salary pressure.
We're out to get.
And keep.
Speaker 28: You know, and attract and keep the best people that we can. And so we're going to do what we need to do to be competitive. So it probably would be a little bit premature for me to say that. But I will say that I don't want to mislead you. We continue to feel salary pressure. We're having conversations all the time, to be quite honest with you. So yeah, I would be flippant of me to say, yeah, we've taken care of the problem. Because it's something that we're facing.
Attract and keep the best people that we can.
And so we're going to do what we need to do to be competitive. So it probably would be a little bit premature for me to say that but I will say that I don't want to mislead you. We are we continue to feel salary pressure, we are having conversations all the time to be quite honest with you.
So yes, I would be flip end of May to say, yes, we've taken care of the problem because it's something that we are facing every day.
Speaker 29: That's fair. And then on the loan side, with every bank, right, sitting on a ton of liquidity, just like you guys, everybody's focused on loans. Can you give us a sense how competitive is the lending environment today? Are you walking away from even more loan opportunities, over structure? And what is the loan outlook for 2020?
Okay, that's fair.
And then on the loan side with every bank right sitting on a ton of liquidity just like you guys everybody's focus on loans could you give us a sense how competitive is the lending environment today.
Are you walking away from even more loan opportunities over structure and what is the loan outlook for 2022.
Speaker 30: You know, I wouldn't say, Stephen, it's more competitive. It's really competitive and has been.
I wouldn't say Stephen it's more competitive.
Really competitive and has been.
Speaker 31: You know, I think that we, if you look at what was lost to structure.
I think that if you look at what was lost to.
To structure.
I'm trying to look here.
Speaker 32: Three months ago versus now, so we lost 64% of the deals.
Three months ago versus now.
So we lost 64% of the deals.
This quarter, the fourth quarter to structure, and the prior quarter we lost 68% of the deals to structure. So it's actually been fairly consistent. You know, if you look a year ago, though, we lost 56% of the deals.
This quarter, the fourth quarter to structure and the prior quarter, we lost 68% of the deals to structure. So it's actually been fairly consistent if you look a year ago, though.
We lost 56% of the deals.
uh, to structure 44% to rate. So, you know, we're
The structure of 44% to right. So.
We're competing aggressively on price, and I think that's the right thing for us to do.
Sure.
We're competing aggressively on price.
And I think Thats, the right thing for us to do.
By the time someone passes our credit, criteria, and relationship, and character, and all those elements that go into underwriting it, and given
By the time someone passes our credit criteria and relationship.
And character at all of those elements that go into underwriting it.
And given the.
cost of, you know, good soul-related deposits, which I'll argue for us are as low as anybody I know about, there's no reason for us to be losing business over a few basis points. So I want us to be competitive on that, and let's engage with somebody and have a long-term relationship. I think it works out for us very well. But it's – man, it's been competitive. It continues to be. You know, I
Cost of.
Good so related.
Deposits, which I'll argue for us or as low as anybody I don't know about.
There is no reason for us to be losing business over a few basis points. So I want us to be competitive on that.
Let's see.
Let's engage with somebody and have a long term relationship I think it works out for us very well.
But its man it's been competitive it continues to be.
I saw.
I was asking our people about, you know, the real estate markets, what what's going on, you see an interest rates go up some, you know, you look at cap rates, they haven't moved, in some cases, for some.
I was asking our people about the real estate markets whats going on you've seen interest rates go up some.
You know you look at cap rates haven't moved in some cases for some.
Credits, they've gone down. There's tons of capital still available, looking for high-quality, low-risk deals. And so, you know.
Credits have gone down others tons of capital still available looking for high quality low risk deals and so you know.
<unk>.
It has not been great.
But it's the same. I'm proud of the way that our people are competing and the kind of...
But it.
But it's the same I am proud of the way that our people are competing.
And the kind of.
customer relationships we have and the kind of, you know, deal flow that we're that we're bringing in.
Customer relationships, we have and the kind of.
Deal flow that we're bringing in.
Um, so I think we're doing a good job competing, but we're also, you know, I've said a million times.
So I think we're doing a good job competing but we're also.
Said a million times.
There's no green pasture on the other side of the fence.
There is no green pasture on the other side of the fence.
of great credit quality. It might look good, but it is a wasteland out there. And so we are still focused on maintaining our disciplines. And we'll be competitive, but we're not going to be, I can say we're not going to, we'll try not to.
Of great credit quality it might look good but it is a wasteland out there and so we are.
We're still focused on maintaining our disciplines and we.
It will be competitive.
We're not going to be.
I can say, we're not going to we will try not to be stupid about it how about that.
you think about 2022, is this a high single digit year for loan growth? Is that what you're thinking?
So when you think about 2022 is this a high single digit year for loan growth is that what youre thinking I don't want put words in your mouth.
No, I think those are my words. I feel good about how single-digit growth.
No I think those are my words I feel good about high single digit growth this year okay.
You know, we'll have everybody's fighting this thing, Steven, on on commercial real estate payoffs, right? Because, you know, with rates beginning to move up, you're seeing some people accessing, you know,
We will have everybody's fighting this thing Stephen on.
On commercial real estate pay offs right, because you know with rates beginning to move up youre seeing some people accessing.
The long term markets.
uh, maybe sooner than they would. I talked about cap rates. The people are worried about going up. They might be taking advantage of prices out there so you could see some deals. Um, you know, payoffs more than than you've seen. But the other thing is, you know, our advanced rates on
Maybe sooner than they would have talked about cap rates that people are worried about them going up and might be taken advantage of.
Prices out there so you could see some deals.
<unk>.
Payoffs more than than you've seen but the other thing is.
Our advance rates on.
you know, liquidity lines, working capital lines is up a little bit. It's up a little bit from the previous quarter. I think we were like around 32.5% this year, excuse me, this quarter. And, you know, it used to be around a little over 38. So, you know, there's room there if supply chain things clear up some and maybe that offsets some of that. But, you know, we're just competing well.
Liquidity lines working capital lines is up a little bit it was up a little bit from the previous quarter. I think we were like around 32, 5%. This year excuse me this quarter.
It used to be around a little over 38, so theres room, there if supply chain things clear up some and maybe that offset some of that so but we're just competing well.
seeing relationships grow and you know we've got what's going on in Houston and there are doubts to take a little while to move the needle but it's going to so I'm just optimistic about how it's going.
And we're seeing relationships grow.
And we've got what's going on in Houston.
Dallas will take a little while to move the needle, but it's going to.
So I'm just optimistic about how it's going.
Thanks. Maybe just one final question. Even though many in our industry think the branch is dead, how important has it been having a physical branch in your new markets to those growth metrics and consumer checking accounts you mentioned? And could you have pulled that off without a physical branch, just with direct, you know, digital advertising, et cetera? Thanks.
Thanks, maybe just one final question.
Even though many in our industry. Thank the branches did how important has it been having a physical branch in your new markets to those growth metrics in consumer checking accounts, you mentioned and could you have pulled that off without a physical branch just with direct digital advertising et cetera. Thanks.
Yeah, I'll give you a number. Steven. 87% of the account growth, we are the relationship growth we've had in Houston has come within five miles of a branch. I'd say it matters.
Yeah, I'll give you a number Steve is.
87% over the account growth.
Our relationship growth we've had in Houston has come within five miles of a branch.
I'd say it matters.
Perfect.
Thanks for all the color.
You bet.
Thank you. Our next questions come from the line of John Armstrong with RBC. Please proceed with your questions.
Thank you. Our next question is come from the line of Jon <unk> with RBC. Please proceed with your questions.
Thanks, and good afternoon, everyone.
Hey, John It's John .
Hey, John . Hey, John . Just one quick follow-up on expenses.
Just just one quick follow up on expenses.
You know, you gave us the components of Houston, Dallas, residential and then minimum wage.
You gave us the components of Houston, Dallas residential in the minimum wage.
Is the rest of it just compensation or is there anything else in there to call out in terms of the increase?
Is the rest of it just compensation.
Anything else in there to call out in terms of the increases.
I would say that really it's related to the base in 2021.
I would say that really it's related to the base in 2021, and some of the things that we're doing as it relates to starting to meet more with customers. So I'm seeing increases in things that you would expect like meals travel and entertainment as we start continuing to do some of that pre.
Some of the things that we're doing, you know, as it relates to starting to meet more with customers. So I'm seeing increases in things that you would expect, like meals, travel and entertainment as we start continuing to do some of that prospecting face to face. I saw some some good size increases in.
<unk> face to face I.
I saw some some good size increases in.
in advertising marketing as well, as we continue to make sure that we're doing what we need to be doing there. And then, yeah, we're obviously going to feel, as you're saying, some continued salary pressure. So I would say those, in my mind, are the major.
And advertising marketing as well as we continue to make sure that we're doing what we need to be doing there and then we're obviously going to feel that you are seeing some continued salary pressures. So I would say those in my mind are the major components.
And then kind of a follow-up on Peter's question. Are there areas where you would like to spend more?
Okay.
And then kind of a follow up on Peter's question are there areas, where you would like to spend more.
And the business.
Hum.
You know, you're talking to a couple of typewriters, I guess we don't like to spend more, but we do. We sure do. I'll tell you the things that we're doing.
Yes.
A couple of Tidewater as I guess, we don't like to spend more.
Okay great.
But we do we sure do I'll tell you the things that we're doing youre going to youre going to.
You know, as it relates to the legacy business, we were pretty careful on expenses. I mean, Jerry has pointed that out.
As it relates to the legacy business.
Pretty careful on expenses I mean, <unk> pointed that out and I think if you Peel back all the.
And I think if you peel back all the, you know, PPP and you peel back expansion, you peel back our mortgage expansion, our numbers pretty
PPP and you Peel back expansion you Peel back our mortgage expansion our number is pretty.
Pretty conservative there so no.
I wouldn't say, we'd like to spend money.
What you said, but I wouldn't say, we like to do that but we will spend money and we will invest we're going to continue to do this and everyone needs to know it will continue to invest in expanding our business. So if you look at things that will invest and we're going to continue expanding on this organic <unk>.
We're going to continue to do this, and everyone needs to know it. We'll continue to invest in expanding our
So if you look at things that we'll invest, and we're gonna continue expanding on this organic growth strategy.
Strategy.
great payoff in it and, you know, it comes closer and closer to that harvesting phase of these new locations every year, so we're going to do that, we're going to continue to invest in our people.
Great payoff in it.
And.
Yeah.
It comes closer and closer to that harvesting phase of these new locations every year. So we're going to do that we're going to continue to invest in our people.
Jerry talked about what we've been seeing there. I talked to you about how we went to a $20 minimum wage. We're investing our people. There's a lot of other things like that. We're paying a lot bigger share of our medical premiums than we were a year ago.
Jerry talked about what we've been seeing there I'll talk to you about how we went to a $20 minimum wage.
We are investing our people there's a lot of other things like that we're paying a lot bigger share of our of our medical premiums than we were a year ago.
We're going to continue to invest in technology, I really
And we're going to continue to invest in technology I'm really.
extremely proud of our technology and what we're able to do and our strategy that we're, you know, that we've employed there, you know.
Extremely proud of our technology and what we're able to do in our strategy that we are.
We've employed there.
You know, if you look at our, you know, look at our apps ratings.
And if you look at our look at our apps.
Ratings really high.
You know, as you know, we do our own web development. We do our own digital development. We have lots of flexibility and ability to have a great customer experience and a branded experience there. So I don't feel, because we've been willing to do this.
As you know, we do our own web development, we do our own digital development, we have lots of flexibility and ability to have a great customer experience and a branded experience. There. So I don't feel because we've been willing to do this.
I don't feel we're playing from behind the curve in technology. Yes, it's a ton of money, and we spend more there, it seems like, than we spend any other place.
Don't feel were planned from behind the curve in technology, yes, it's a ton of money we spend more there it seems like when we spin Iona place, but but we're not playing from behind the curve. The things that we're doing I think are moving us forward and it's really exciting to see.
but we're not playing from behind the curve. You know, the things that we're doing, I think, are moving us forward, and it's really exciting.
Okay, good. One more thing. You mentioned Houston and energy a couple of times. Can you just touch on your appetite for energy lending in general?
Okay.
One more thing.
I mentioned, Houston and energy a couple of times can you just touch on your appetite for for energy lending in general.
It's we've got an appetite for it. But it's kind of like that got going on keto diet, you know, you want to get down to that, that weight loss level. And then once you get there, you know, you
We've got an appetite for it but it's kind of like that going on keto diet.
Want to get down to that.
Weight loss level and then once you get there you can you can normalize that.
normalize your diet. But we said we want to get down to mid single digits. We're almost there. We're 6.6%. But what I want to point out is that's still a really big part of our portfolio. It's, you know, one of the top, you know, segments of the portfolio. So, you know, we're not moving out of that business, we're just getting to where, you know, we need to be on a prudent, on a prudent level.
But we said we want to get down to mid single digits. We're almost there were six 6%, but what I want to point out is that still.
A really big part of our portfolio, it's one of the top.
Segments of the portfolio. So we're not moving out of that business, we're just getting to where we need to be on a prudent unapproved.
The thing I'm really proud of our people for doing is that we're, you know, on the deals that we are
Level.
The thing I'm really proud of our people for doing.
We are on.
The deals that we are.
engaging in now and prospecting, we're doing it on the basis that we've always underwritten things, you know, and we're
Engaging in now and prospecting we're doing it on the basis that we've always underwritten things and we are.
We're being disciplined about it. And that's good. It doesn't work for everyone, but it works for the right kind of customer.
We are being disciplined about it.
And thats good.
It doesn't work for everyone, but it works for the right kind of customer.
You know, the way I think about that business is, I've always thought about it kind of like a multifamily construction business, right? I mean, we could do as much multifamily
I think about that business is.
I've always thought about it kind of like the multifamily.
Construction business right I mean.
We can do as much multifamily.
construction lending as we wanted to. We could take that loan to deposit ratio and get it where ever you want it over the next year, right? But that's not the right thing for us to do. It is an important asset class to us, but we do it a certain way and we do it with people that we are familiar with and have had great relationships with or have wanted to have great relationships with.
Construction lending as we wanted to we could take that loan to deposit ratio and get it were.
Ever you want it over the next year right, but thats not the right thing for us to do it as an important asset class to us, but we do it a certain way and we do it with people that we are familiar with and have had great relationships with or have wanted to have great relationships with them.
And.
And does it work for every deal, for everyone? No, it doesn't. But those customers that do business with us, they know what we'll do. And they know what works with us, and they like to do business with us. We're not going to do every deal for everybody, but we do a lot of deals for them. And I see that being the same thing and same approach we take in the energy business. Won't work for everyone the way we do it, but we're going to do it in such a way.
And does that does it work for every deal for everyone no. It doesn't but those customers that do business with us. They know what we will do and they know what works with us and they like to do business with US we're not going to do every deal for everybody, but we do a lot of deals for them and I see that as being the same thing in same approach we take in the <unk>.
<unk> business wont work for everyone. The way, we do it but we're going to do it in such a way.
that when energy prices move down, and they will, it's a commodity business.
When energy prices move down and they will it's a commodity business.
We don't want our shareholders losing sleep about it. I sure don't want to lose sleep about it. And we're going to be underwritten in a way that we feel good about it.
We don't want our shareholders, losing sleep about it I sure don't want to lose sleep about it and we're going to be underwritten in a way that we feel good about it.
There are ways you can do that well, and that's what we're focused on. And it's not gonna be such a large level that Cullen-Frost becomes the next easy short when energy prices start moving down.
There are ways, you can do that well and that's that's what we're focused on and it's not going to be such a large level that Cullen frost becomes the next easy short when energy prices start moving down.
Okay. Thank you Paul it makes sense.
Okay.
Thank you. There are no further questions at this time. I would like to turn the call back over to Phil Green for any closing.
Thank you there are no further questions at this time I would like to turn the call back over to Phil Green for any closing comments.
Okay, well thanks everyone for your interest and we will be adjourned.
Okay, well, thanks to everyone for your interest in <unk>.
We will be a journey. Thank you.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Yes.