Cullen/Frost Bankers Inc. Q1 2023 Earnings Call

April 27, 2023

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Speaker 8: When rates were at or near zero. That was not a big deal But as rates started to go up we had seen some reduction in our DA balances. That began in the September October time frame and we mentioned those balances were the most at risk and we suspected that those balances would continue to decrease, which they have.

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.

Ladies and gentlemen, thank you for your patience and please remain on the line today is Cullen Frost bankers conference, we'll be starting shortly once again, we do thank you for your patience and ask that you. Please remain on the line today's conference will be beginning in a few minutes.

<unk> director of Investor Relations. Thank you. Please go ahead.

Thanks Donna.

Speaker 9: These decreases did not accelerate after the bank failures in March.

Conference call on this afternoons conference call will be led by Phil Green, Chairman and CEO and Jerry Salinas Group Executive Vice President and CFO.

[music].

Speaker 9: The decrease in the monthly average balance from January to February was 538 million. The average balance then decrease 301 million between February and March and into April the average balanceces down 492 million from the March average. These decreases have not been unusual and were not unexpected.

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 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.

Speaker 8: Looking at total interest bearing deposits, they've been pretty stable during the period. At the end of December they stood at 26.4 billion and decreased 167 billion to end the quarter at 26.2 billion. The average balance for both a month of March and April month to date is 26.1 billion, So basically flat during this time period.

Please see the last page of text in this mornings 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 at 2102205234.

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

Okay.

Speaker 8: Customer repost for the first quarter averaged four point two billion, up 636 billion from the three point six billion average in the fourth quarter, as we saw some deposit lows into our repo product during the quarter.

Thanks, Avi and good afternoon, everyone. Thanks for joining us.

Today I'll review first quarter results for Cullen Frost, and our Chief Financial Officer, Jerry Salinas will provide additional comments and then we're going to open up for your questions.

Speaker 8: The cost of interest bearing deposits for the quarter was 2%, up 36 basis points from the fourth quarter.

In the first quarter Cullen Frost earned $176 million or $2 70 per share compared with earnings of $97 4 million or $1 50 per share reported in the same quarter last year at.

Speaker 8: Looking at noninterest income on a linked quarter basis. I just wanted to point out a couple of items. Trust and investment management fees were down three point six million or 9%, driven by decreases in estate fees of two point one million, real estate fees of 667 thousand and oil and gas fees down 449 thousand. A estate fees and real estate fees can fluctuate based on the number of estate settled or propertity sold respectively.

That represents an increase of 80% that's a zero percent over last year's level.

Our return on average assets and average common equity in the first quarter were $1, three 9% and $22 five 9%, respectively and that compares with 79% and point excuse me a nine 5% to 8% for the same period last year.

Speaker 8: Insurance commissions and fees were up seven point three million, or 62% from the fourth quarter, driven by higher property and casualty contingent bonuses up three point one million, benefits commissions up two point eight million and live commissions up one point two million, which those live commissions contend to be kind of choppy.

I'm extremely proud of this performance and I believe that it helps demonstrate the value of Frost culture.

The excellence of our people and the soundness of our institution.

These results are a product of our commitment to our philosophy, which are late former chairman Tom Frost captured years ago, and our 21 word mission statement, which reads.

Speaker 8: As a reminder, the first quarter is typically our strongest quarter for insurance revenues, given we typically recognize contingent income in that quarter and also impacted by our natural business cycle. The second quarter is typically our weakest quarter for insurance revenues, again impacted by our normal renewal business volumes.

We'll grow and prosper building long term relationships.

Based on top quality service high ethical standards and safe sound assets.

Never have those words wrong truer.

Speaker 8: Other income was down four point nine million from the fourth quarter, primarily due to a five point one million distribution received from an atbic investment in the fourth quarter last year.

Our commitment to this mission produces tangible results like we just reported and it is reflected in factors such as.

Our commitment to sound liquidity, which resulted in our going into March with 20% of our deposit base held in a checking account at the federal reserve.

Speaker 8: Regarding twent y-three 2023 expenses. Looking at our full year projection of expenses for 2023, as we mentioned last quarter, we currently expect total noninterest expense for the full year 2023 to increase at a percentage rate in the mid-teens over our twent thousand and 22 reported levels.

Okay.

Greetings and welcome to the Cullen Frost Bankers, Inc. First quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Just not only served to protect depositors. It also allowed us to take direct benefit from federal reserve interest rate increases as they continued to fight inflation.

Speaker 8: The effective tax rate for the first quarter was 16% or about 16%, excluding discrete items. Our current expectation is that our full year effective tax rate for 20 per 23 should be in the range of about 15% to 16%, but that can be affected by discrete items during the year.

By sharing these benefits with our depositors throughout this upward rate cycle I am convinced we built not only balances, but also trust with our deposit customers.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host a b Mendez senior Vice President and debate it director of Investor Relations. Thank you. Please go ahead.

They have a level of bank deposits generally been impacted by these higher rates than the feds quantitative tightening of course they have.

Thanks Donna.

Speaker 8: Regarding the estimates for full year 2023 earnings, our current projections include a 2: 25 basis point Fed rate increase in May, followed by a 2: 25 basis point decrease in September , November and December . Given those rate assumptions and our expectation of 2023 noninterest expense growth, we currently believe that the current mean of analysts estimates of $9 in 79 cents is reasonable with that.

Earnings Conference call on this afternoon's conference call will be led by Phil Green, Chairman and CEO and Jerry Salinas Group Executive Vice President and CFO .

Remember our deposits peaked in August of last year.

Most banks see movement by some nervous depositors last month in the wake of the failure of some specialized banks of course he did.

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

But keep this in mind.

Some of the remarks made today will constitute forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as amended.

For us did not take on any federal home loan bank advances, we did not participate in any special liquidity facility or government borrowing we did not access any wholesale funding and we did not utilize any reciprocal insurance arrangements to build insured.

We intend 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.

Speaker 9: I'll now turn the call back over to Phil for questions.

Speaker 4: Thank jry, and we we'll open it up questions now.

Please see the last page of text in this mornings 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 at 2102205234.

Speaker 1: Thank you, Ladies and gentlemen. The floor is no open for questions. If you would like to ask a question, please press star one on your telephone key pad at this time. A confirmation tone will indicate your line as in the question queue. 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 the handset before pressing the starkeys once again.

Positive percentages.

And while lending out only 41, 5% of our deposit base at quarter end, we continued to provide consistent capital to our customers and communities by growing our average loan portfolio over the year.

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

Seven 5% in line with our high single digits target.

Thanks, Avi and good afternoon, everyone. Thanks for joining us.

Speaker 1: That Star once your register a question at this time. Today's first question is coming from Stephen alexais of JP Morgan. Please go ahead.

Today I'll review first quarter results for calling for Austin, Our Chief Financial Officer, Jerry Salinas will provide additional comments and then we're going to open up for your questions.

We also continued to successfully execute our focus on organic expansion and major Texas markets.

Speaker 10: Everybody the same point: shape, aftersol start.

In the first quarter Cullen Frost earned $176 million or $2.70 per share compared with earnings of 97 4 million or $1 50 per share reported in the same quarter last year.

Example.

Speaker 11: Afternoon.

Our Houston expansion, including the original 25 location build out plus the partial completion of three additional locations in what we call Houston two dot O <unk>.

Speaker 12: To dig a bit deeper into the decline in non-interest-bearing period than.

Speaker 8: It's. Can you help us understand how those trended? It sounds like it was pretty normal, but I just want tod.

Speaker 12: A little bit more into this how those trended through. What we saw from Silicon Valley backet thingssh, and what did you guys see?

That represents an increase of 80% that's a zero percent over last year's level.

Continue to mature and exceed pro forma.

With 115% of our household goal.

Speaker 12: In that aftermath where most banks saw a fairly substantial reduction in the uninsured deposit.

Our return on average assets and average common equity in the first quarter were $1, three 9% and 22.59%, respectively and that compares with 47, 9% and point excuse me a 9.58% for the same period last year.

169% of our logo.

And 102% of our deposit goal.

I'll add that in a moment Gerry will share some insights into the financial impact from the maturing Houston expansion.

Speaker 8: Really from a fluctuation standpoint those balances as you would expect and as I talked about we've kind of seen a downward trend starting back in September October and yet I don't think that during those days with.

I'm extremely proud of this performance and I believe that it helps demonstrate the value of Frost culture.

In addition, our Dallas expansion just reached the halfway Mark this week and currently stands.

The excellence of our people and the soundness of our institution.

Speaker 9: With's B B that that I would have said Hey, it really looks more unusual that it had know. The week before, let's say, we were already on that downward sort of trend, viously. We were paying a lot of attention to it and you can tell by the averages they were down. But Yeah, I'm not going to say I'm sure there was some concerns, So it's not like we have our- you know our- head in the sand But I don't think it's been anything significant.

At 228% of our new household goal.

282% of our loan goal.

These results are a product of our commitment to our philosophy, which are late former chairman Tom Frost captured years ago, and our 21 word mission statement, which reads, we will grow and prosper building long term relationships.

And 318% of our deposit goal.

Now taking a closer look at the quarter.

Our consumer business continues to perform extremely well.

In fact, the first quarter represented an all time high for net new customers.

Speaker 9: Like I said when I mentioned the, the average balances's really what I was trying to give a little bit of color, that in march- And as you would expect, that was pretty early on the 10, but say so, that was the first third of the month, and the balances between February and March weren't that that much lower. You knowwe've seen them continue to decrease in April , like I said, and someof that obviously can get affected by tax payments as well.

Based on top quality service high ethical standards and safe sound assets.

Up 26% from the first quarter of last year.

Never have those words rung truer.

Our commitment to this mission produces tangible results like we've just reported and it is reflected in factors such as our.

Even more impressive to me was the fact that for the month of March.

We exceeded our previous all time monthly record for net new consumer customers by 33%.

Our commitment to sound liquidity, which resulted in our going into March with 20% of our deposit base held in a checking account at the federal reserve.

Speaker 8: And I'll take a little step back and say: you know, pretty cobit for us. You know, typically what would happen is that our deposits would tend to peak in December . You, a lot of the corporate customers would do a window dressing, as we called, and so those balances would tend to decrease- excuse me, increase in December . But then as we went into the first quarter those balances would begin to decrease into the first quarter and through April and you know, with tax payments in suchction, and then would pick up in the, the tail end of the year.

That's over 1000 more customers than our previous record.

Yes, not only serves to protect depositors. It also allowed us to take direct benefit from federal reserve interest rate increases as they continued to fight inflation.

Our bankers are busy.

Okay.

Looking at this increase in new customer growth. It was led by Dallas and Houston are two expansion markets, which accounted for 75% of this household growth.

[laughter].

By sharing these benefits with our depositors throughout this upward rate cycle I'm convinced we built not only balances, but also trust with our deposit customers.

Houston was up 33%.

And Dallas was up 133%.

Speaker 9: So some of it is natural trend based on what some of the corporate customers have done historically. But I wouldn't say that we saw significant. I' sure there was some downward movements But just quoting the numbers I on mentioned regarding average balances, I don't think was really anything. They CA a lot of our attention. Obviously we were paying attention.

And even our headquarters market of San Antonio saw net new household growth in March of 14%.

They have a level of bank deposits generally been impacted by these higher rates than the feds quantitative tightening of course they have.

Remember our deposits peaked in August of last year.

Average consumer deposit balances for the first quarter declined one 4% from the fourth quarter of last year as customers continued to spend excess balances and take advantage of significantly higher rate opportunities.

Did most banks see movement by some nervous depositors last month in the wake of the failure of some specialized banks of course he did.

Speaker 9: There were a lot of conversations going on between our customers in our bankers know custom were reaching out to them and and we were having good conversations, but I don't think it was anything that that I would say Gosh. On day X, you know, those deposits were down $3 billion or something like that, something like that. We never saw any sort of of the decrease that I would say was beyond a reasonable band.

But keep this in mind.

Frost did not take on any federal home loan bank advances, we did not participate in any special liquidity facility or government borrowing we did not access any wholesale funding and we did not utilize any reciprocal insurance arrangement to build insured.

Most of that decline was in our consumer checking balances, which was partially offset by increases in consumer CD balances as customers took advantage of our highest available rates.

But I think it's important to note that looking at the period March 10.

Speaker 5: Yes because I might just add it.

Speaker 13: Really the.

To April 14th consumer checking balances were actually up one 3%.

Posit percentages.

Speaker 5: Seeing anybody that looked like they were concerned, of any size.

And while lending out only 41.5% of our deposit base at quarter end, we continued to provide consistent capital to our customers and communities by growing our average loan portfolio over the year, a 7.5% inline with our high single digits target.

Okay.

Speaker 4: Was notable and it there were So little of it you know I'd say less than one hand that you know that I heard about and UH and I think our experience was that.

Consumer loan growth ended the quarter at $2 $45 billion or 28% higher than the first quarter of last year.

Driven by our consumer real estate as our home improvement and home equity products continue to be the right product at the right time for customers with low rate first mortgages.

Speaker 4: You know, when you talk to people, they were okay they, I think.

We also continued to successfully execute our focus on organic expansion of major Texas markets.

Speaker 4: I think it's indicative of our relationship model and that our customers didn't really consult social media. They consulted our bankers and we had lots of, lots of calls. I think early on we were, you know, we were, we were calling customers more than we were getting calls. So I agree that Jerry, it was, you know, was certainly a time everyone was paying attention and you were wanting to make sure you're communicating, that people had the best information and that, if you saw anything, that was.

Credit continues to be excellent with average credit scores exceeding 750.

Sample.

Our Houston expansion, including the original twenty-five location build out plus the partial completion of three additional locations in what we call Houston two dot O.

Our new mortgage pilot program continued to originate loans for employees.

And we're very pleased with the experience we've been able to provide.

Continue to mature and exceed pro forma <unk> was 115% of our household go.

We look forward to rolling the product out to the market. When we began offering it initially in our Dallas region later in the second quarter.

169% of our loan goal.

Speaker 4: Sort of not quite right reported that you you could address it and everybody be aquiitt but.

102% of our deposit go.

Looking at our commercial business, it's clear that even his arms.

I'll add that in a moment Gerry will share some insights into the financial impact from the maturing Houston expansion.

Speaker 3: I'm really proud of our customer base. I think it was really indicative of the relationships and really trust that people had in Frost.

Volumes increased four 1% from the same quarter a year ago.

The increases in interest rates by the fed are having their intended effect of slowing the rate of growth for commercial activity, particularly in the commercial real estate sector.

Speaker 12: You're one of the few banks that didn't see substantial outflows on that.

In addition, our Dallas expansion just reached the halfway Mark This week and currently stands at 228% of our new household goal.

Speaker 12: Day Tuesday, wednesday- after sbe. So the kudos to you guys on that front. On the Deb interest, March and Jerry thought you said last quarter it was also assuming that rates went up- I think one more. And then there were several cuts who said you thought that net would.

I am pleased with our prospecting efforts in the market as we increased our number of calls by 24% over the fourth quarter.

282% of our loan goal.

And 318% of our deposit goal.

Speaker 12: He in the third quarter. I'm curious if the Fed goes one or two more times but then holds rates at that level through the end of the year. Has a.

Now taking a closer look at the quarter.

That resulted in a linked quarter, 25% increase in the dollar amount of prospect deals we looked at.

Our consumer business continues to perform extremely well.

Speaker 12: Change the trajectory of NIM that you would expect.

In fact, the first quarter represented an all time high for net new customers.

And we actually booked 50% more prospect dollars for the same period.

Speaker 9: Yes I think some of it some of the moving pieces as we continue to talk about is what happens to this commercial DA I think our expectations there let me start with that is that I mentioned that the April volume is down from March and so we expect based on what we're seeing and conversations with those customers.

However.

Up 26% from the first quarter of last year.

We saw the dollars of customer deals, we looked at and booked both fall by around 35% for the same period.

Even more impressive to me was the fact that for the month of March.

We exceeded our previous all time monthly record for net new consumer customers by 33%.

And this was reflected particularly in a 52% decline in the dollar value of customers CRE deals we looked at.

Speaker 9: That we'll begin to really settle into the low point in the second quarter and, you know, start to see, you know, in the going forward, an increase. You know- and I'm not, I'm not talking about a significant increasees- maybe stabilization might be a better word than that- increases starting in the second half of the year. So if, in your scenario, I guess I'll stop it in the second and say so, one thing that it's not affecting us today is much is that we have, for modeling purposes, have assume that we won't make any more investment purchposes this year and the reason we took that out of the model is more again, given all the noise and concerns about liquidity and all the questions that we're coming up, we just appreciated the flexibility we could give ourselves if we took that out of the assumptions.

And a 66% decline.

That's over 1000 more customers than our previous record.

And the dollar value of customers CRE deals booked.

Our bankers are busy.

It shouldn't be a surprise that commercial real estate activity is moderating in this rate environment.

Looking at this increase in new customer growth. It was led by Dallas and Houston are two expansion markets, which accounted for 75% of this household growth.

Looking forward.

Our dollar volume of total new opportunities in our pipeline is up 26% from the end of 2022.

Houston was up 33%.

And Dallas was up 133%.

And looking out at just the next 90 days the gross pipeline is up 17% from year end.

And even our headquarters market of San Antonio saw net new household growth in March of 14%.

But win probability weighted by our loan officers it looks pretty flat.

So I'd have to say I am seeing some mixed signals in the tea leaves and we'll just have to see how it turns out.

What I can say definitively is that between March and April.

Speaker 9: Now I'm not saying we won't buy anything, but it's good to have that into built into our base. Should we see something opportunistically, we can take advantage. So we're going to be under in a higher rate environment. We're going to bein a little bit of a of a lower sort of operating performance standpoint because we're not going tobe investing at what you might expect might be higher, might be higher rates again.

Average loans are up $192 million. So to this point, we're still seeing decent growth.

Most of that decline was in our consumer checking balances, which was partially offset by increases in consumer CD balances as customers took advantage of our highest available rates.

Credit quality continues to be strong by historical standards.

Problem loans, which we define as risk grade 10, or higher were $347 billion at quarter end down $100 million of 22, 4% from the first quarter of last year and up $25 million from our year end level.

But I think it's important to note that looking at the period March 10.

To April 14th consumer checking balances were actually up one 3%.

Speaker 8: Some of's going to be dependent also on deit base is. I think we right now feel feel pretty good on our, on our deposit costs, what we're paying our deposittors. We're being a little bit more aggressive on our C DS. It's something that we really want to make sure that we're helping our customers, you to make one decision and the decision being that they want to bank with frrost and and so being a little bit more aggressive there.

Okay.

Consumer loan growth ended the quarter at $245 billion or 28% higher than the first quarter of last year.

Nonperforming loans were $39 1 million at quarter end down 22, 9% from a year ago and flat from the previous quarter.

Driven by consumer real estate as our home improvement and home equity products continue to be the right product at the right time for customers with low rate first mortgages.

Charge offs for the quarter were $8 8 million up $2 5 million from the first quarter of last year and represented an annualized 21 basis points of average loans.

Speaker 9: So I think those are the two things that that potentially could have, you know, an impact on on the net interest margin. So in our scenario we project one a NIM that's relatively flat for the rest of the year. alot of it'sgoingto be dependent on what happens with those demand deposits. But in a scenario where you know I've got one rate increase- I think you said no cuts- but maybe another increase after that.

Credit continues to be excellent with average credit scores exceeding 750.

Now regarding commercial real estate as we noted last quarter overall, our commercial real estate portfolio metrics continue to indicate good operating performance across all asset types with acceptable debt service coverage ratios and loan to values.

Our new mortgage pilot program continued to originate loans for employees.

And we're very pleased with the experience we've been able to provide.

We look forward to rolling the product out to the market. When we began offering it initially in our Dallas region later in the second quarter.

Total CRE commitments.

Speaker 9: I think what we, what we project, is for any 25 basis point increase roughly, we would expect about a million, three pretax improvement in net interest income.

Were $10 9 billion at quarter end with eight 3 billion funded and outstanding.

Looking at our commercial business, it's clear that even as our commercial loan volumes increased four 1% from the same quarter a year ago. The.

Speaker 8: Is that kind of helps you out there? That's very helpful.

Within this portfolio of what we would consider to be the major categories of Investor CRE things like office multifamily retail and industrial as examples.

Speaker 12: I could sneak one last one in just on liquidity. Where did cash level then on a period end basis?

The increases in interest rates by the fed are having their intended effect of slowing the rate of growth for commercial activity, particularly in the commercial real estate sector.

Speaker 12: And how do you think about that balance moving forward?

<unk> totaled $4 7 billion or 43% of CRE commitments.

Speaker 9: Yes we were. I think Phil may have said in his comments. At the end of the quarter we were. 20% of deposits is kind of where we ended up and the number at I'll give it to you as of today. I think we were at little shy of a six point nine million.

I am pleased with our prospecting efforts in the market as we increased our number of calls by 24% over the fourth quarter.

Our investor CRE portfolio has held up well.

Exhibiting an overall average loan to value of about 55%.

That resulted in a linked quarter, 25% increase in the dollar amount of prospect deals we looked at and.

And loan to cost of about 61%.

Speaker 9: Billion excuse gets six point nine billion.

And acceptable reported debt service coverage ratios.

Speaker 12: And you think you'll see further reductions at that level?

And we actually booked 50% more prospect dollars for the same period.

Speaker 14: Forward.

Speaker 9: You know I guess it's going to he. That's the. The big question is you deposit flows? You know right now we don't have any assumptions for investment purchases. We'll certainly expect that we D get some cash flow. You know, from the investment portfolio, which is maturities in such, and you know, I think loan growth is fils, that we expect you know loan growth to to be at that high single digit, So that's not going to have a big impact on on cash balances.

Higher interest rates have certainly led to some decline in coverage ratios and will probably lead to some valuation declines.

However.

We saw the dollars of customer deals, we looked at and booked both fall by around 35% for the same period.

But we're starting from a strong position with good cushion.

Specifically in the office building portfolio, which is top of mind in the current environment and including medical office we.

And this was reflected particularly in a 52% decline in the dollar value of customers CRE deals we looked at.

We have about $2 $4 billion committed and $2 $2 billion outstanding with about half of that being owner occupied buildings.

And a 66% decline.

Speaker 9: So youknow, we know, I think, all big things being equal, we could be, you know, in this ballpark.

And the dollar value of customer CRE deals booked.

We consider owner occupied properties to have a lower risk profile due reliance on our CNI borrowers operating cash flow rather than income generated from underlying real estate and.

It shouldn't be a surprise that commercial real estate activity is moderating in this rate environment.

Speaker 9: For the rest of the year.

Speaker 12: I appreciate all the color sure.

Speaker 1: Thank you. The next question is coming from Peter Winter of DA Davidson. Please go ahead.

Looking forward.

Our dollar volume of total new opportunities in our pipeline is up 26% from the end of 2022.

And borrowers in our C&I portfolio have held up very well as we operate in some of the strongest markets in the United States.

Speaker 15: I was wondering: can you talk about some of the strategies to reduce some of the asset sensitivity in light of the boward curve and your outlook for some rate cuts?

The Investor office portfolio exhibited an average loan to value of 55% and an average debt service coverage ratio of 135 at current interest rates.

And looking out at just the next 90 days the gross pipeline is up 17% from year end.

But win probability weighted by our loan officers it looks pretty flat.

Speaker 16: Well.

Speaker 4: I think before, if we just talk about asset sensitivity in reducing it, we said for some time: but there are really three things.

Again, starting from a strong position with cushion for potential valuation declines.

So I'd have to say I'm seeing some mixed signals in the tea leaves and we'll just have to see how it turns out well.

What I can say definitively is that between March and April .

Our comfort level with our office portfolio continues to be based on the character and experience of our borrowers and sponsors.

Speaker 4: That we look at as providing some measure of.

Average loans are up $192 million. So to this point, we're still seeing decent growth.

Speaker 3: Protection now we are asset sensitive and so you know that's we CAn't you know obviate that totally but the three things are if we were willing to lock in some of the rates by extending only yield curve out from the you know the daily fifth balance that we're maintaining So that's one thing and the second thing is that because we've done so much work increasing our deposit rates over time really beginning with the cycle of rate increases.

But predominantly class a nature of our office building projects.

And the fact that 83% of the exposure is associated with stabilized projects that are 87% leased.

Credit quality continues to be strong by historical standards.

Problem loans, which we define as risk grade 10, or higher were $347 billion at quarter end down $100 million or 22, 4% from the first quarter of last year and up $25 million from our year end level.

It also helps to be operating in Texas.

Finally, I'm happy to report we learned in the first quarter that for the seventh year in a row Frost had received the highest number of Greenwich Excellence and Best brand Awards of any bank in the nation.

Nonperforming loans were $39 $1 million at quarter end down 22, 9% from a year ago and flat from the previous quarter.

The Greenwich Awards are given for providing superior service advice and performance to small business and middle market banking clients.

Speaker 4: We've got built in capacity to respond to rate reductions in the event they happen, and we can lower those down. So that helps. And then the third thing that we've got really in our business is what our business volumme, is going to do and are way able to continue to grow organically and post good numbers there. You know, the outlook looks good, but we's have to see what happens there and so So that's the third piece of it.

In addition, we learned that for the 14th year in a row Frost received the highest ranking in customer satisfaction in the J D power U S retail banking satisfaction study for Texas.

Charge offs for the quarter were $8 $8 million up two and a half million dollars from the first quarter of last year and represented an annualized 21 basis points of average loans.

None of these accomplishments would be possible without our outstanding staff always striving to go above and beyond to make People's lives better.

Speaker 4: And there I will say that with regard to hedging program that type of thing where we continue to look at those for opportunities it's been our.

Made it all happen and I'm immensely proud of them and our great company now.

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

Speaker 5: Physician that those had been ittted to see value in their piece of E, cash markets or other things, and so we really haven't bailed ourselves that we continue to look at that and they may be a part of what we do if we feel like there's opportunity there for the company, for shareholders. So that's really our perspective on it.

Total CRE commitments.

Thank you Phil.

I wanted to start off first by talking a little bit about our Houston expansion results. As a reminder, we announced our planned initial 25 branch expansion in Houston in 2018.

Were $10 9 billion at quarter end with $8 3 billion funded and outstanding.

Within this portfolio, what we would consider to be the major categories of Investor CRE things like office multifamily retail and industrial as examples.

The last of those branches, which we refer to as Houston. One was opened in 2021. So these branches are still in what I would call the development stage.

Speaker 17: Kind ofit, and you know you mentioned that you're still comfortable with the high single digit loan growth. But I'm just wondering: in this environment we've been hearing that certain lenders are are pulling back or tiightening underwriting standards. Are you think there's going to be opportunities for you guys to take market share, just given the strength of your balance sheet and strong capital?

<unk> totaled $4 7 billion or 43% of CRE commitments.

We've been very pleased with the volumes, we've been able to achieve as we've mentioned previously in some of these calls.

Our investor CRE portfolio has held up well.

Looking at the first quarter linked quarter annualized growth and average balances for these locations was 29% for deposits and 30% for loans.

Exhibiting an overall average loan to value of about 55%.

And loan to cost of about 61%.

Speaker 3: You Peter's a great question we were actually talking about this morning that's a little bit of a wild card I would say well I don't see it definitively in our in our pipeline numbers yet I hear about it anecdotally and I'm aware of some deals where banks.

And acceptable reported debt service coverage ratios.

Also I'm happy to say that Houston won't know is now profitable as those branches earned approximately $1 4 million pretax in the month of March or <unk> <unk> a share after tax and we would expect that their performance will continue to improve.

Higher interest rates have certainly led to some decline in coverage ratios and will probably lead to some valuation declines.

But we're starting from a strong position with good cushion.

Specifically in the office building portfolio, which is top of mind in the current environment and including medical office, we have about $2 $4 billion committed and $2 $2 billion outstanding with about half of that being owner occupied buildings.

Speaker 4: We're not able to complete.

Now moving to our net interest margin our net interest margin percentage for the first quarter was 347% up 16 basis points from the 331% reported last quarter.

Speaker 4: You know a transaction that they had that they had offered on the same terms, and we ended up you getting some of those. My gut tells me that's going to happen more. What we're going to have to do though, is we're going to have to be prudent and careful, and the deals that we're seeing, particularly in the commercial ring of state space- because you know the developers, you know our customers- tell us that it's easier to get equity, and it is get Deb capital these days, and so you can imagine, cell phone during a lot, and we don't do transactions, we bank people and we have long term relationships, So we got to be really prudent and, taking advantage of that, I think they'll probably be a little, maybe a little bit less that in the C and I space.

Yields on both balances held at the fed and loans had the largest positive impact on our net interest margin percentage.

We consider owner occupied properties to have a lower risk profile due reliance on our CNI borrowers operating cash flow rather than income generated from underlying real estate.

The increase was also positively impacted to a much lesser extent by a higher yield on investment securities.

These positive impacts were partially offset by higher costs on both deposits and repurchase agreements and the impact of lower balances held at the fed.

And borrowers in our C&I portfolio have held up very well as we operate in some of the strongest markets in the United States.

The Investor office portfolio exhibited an average loan to value of 55% and an average debt service coverage ratio of 1.35 at current interest rates.

Looking at our investment portfolio, the total investment portfolio averaged $21 $7 billion. During the first quarter up $1 6 billion from the fourth quarter average as we continue to deploy some of our excess liquidity during the quarter, we made investment purchases during the quarter of approximately $2 1 billion, which is.

Speaker 4: I hope not. I really would love to expand CY in our business, because it's it's So long term, it's it's a long sales cycle, but it's very profitable, and so let's hope now. I think that is. That is the wild card right now as we move through the rest of this year. If we see banks that are are pull it in their horns, you know, because of liquidity issues, we could see a little bit of a little bit of growth there.

Again, starting from a strong position with cushion for potential valuation declines.

<unk> $1 7 billion in agency MBS securities with a yield of five 2% and $390 million in municipal securities with a taxable equivalent yield of about five 1%.

Our comfort level with our office portfolio continues to be based on the character and experience of our borrowers and sponsors the predominantly class a nature of our office building projects.

During the first quarter, we sold about $1 2 billion in investment Securities about 900 million in municipal and about $300 million in agency MBS Securities. As we took advantage of market dislocations, which allowed us to improve interest income going forward, we recognized a net gain of about 21.

And the fact that 83% of the exposure is associated with stabilized projects that are 87% leased.

Speaker 9: Great thanks, Phil.

Speaker 18: B.

It also helps to be operating in Texas.

Speaker 1: Thank you. The next question is coming from Brady gaalily of KBW. Please go ahead.

Finally.

I'm happy to report we learned in the first quarter that for the seventh year in a row Frost had received the highest number of Greenwich Excellence and Best brand Awards of any bank in the nation.

Speaker 19: Thanks to afternoon ghoes.

Speaker 14: Right everybody.

Speaker 3: So expense growth has been mid-teens for the last.

And on those transactions.

The net unrealized loss on the available for sale portfolio at the end of the quarter was $1 4 billion, an improvement of $260 million from the $1 7 billion reported at year end.

Speaker 19: What was last year, you're expecting it to be this year. I know summer that is driven by what has happened in Dallas and in Houston. When do you think about longer term expense growth? What is the right level there? But I'm guessing it's somewhere back in the middi single-digit level.

Granted your awards are given for providing superior service advice and performance to small business and middle market banking clients.

In addition, we learned that for the 14th year in a row Frost received the highest ranking in customer satisfaction in the J D power U S retail banking satisfaction study for Texas.

The net unrealized loss on the held to maturity portfolio at the end of the quarter was $110 million down $61 million from year end.

The taxable equivalent yield on the total investment portfolio in the first quarter was $3 two 4% up 15 basis points from the fourth quarter.

Speaker 9: Yes just as a reminder. I think it was driven primarily by what you mentioned. We're obviously introducing our new mortgage product in the impact of the expansions, but in addition, we talked last quarter about the fact that we were making significant investment in it this year. So, just as a reminder on kind of what'sdriving the expense growth yes, I would say that in a more normalized environment, as we're expecting for next year, I would think that it's your comment about a high single digits is what I would expect at this point.

None of these accomplishments would be possible without our outstanding staff always striving to go above and beyond to make People's lives better.

The taxable portfolio, which averaged $13 3 billion up approximately $1 3 billion from the prior quarter had a yield of 267% up 26 basis points from the prior quarter impacted by the higher yields on richest recently purchased agency MBS Securities are tax exempt municipal portfolio.

They made it all happen and I'm immensely proud of them and our great company.

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

Thank you Phil.

I wanted to start off first by talking a little bit about our Houston expansion results. As a reminder, we announced our planned initial twenty-five branch expansion in Houston in 2018, the last of those branches, which we referred to as Houston 1.0 was opened in 2021. So these branches.

About $8 $4 billion during the first quarter up about $293 million for the fourth quarter and had a taxable equivalent yield of 423% up six basis points from the prior quarter.

Speaker 3: Okay and then Jerry, just to clarify your comment about a kind of flat net interest margin from here, that's based off the first quarter level, that that 347 N.

At the end of the first quarter approximately 73% of the municipal portfolio was pre refunded or psf insured.

We're still in what I would call the development stage.

The duration of the investment portfolio at the end of the first quarter was five five years down from five eight years at the end of the fourth quarter.

Speaker 20: Right.

We've been very pleased with the volumes, we've been able to achieve as we've mentioned previously in some of these calls looking.

Speaker 21: ok.

Speaker 19: All right great, Thank you guys.

Speaker 9: Jo Thank you.

Looking at the first quarter linked quarter annualized growth and average balances for these locations was 29% for deposits and 30% for loans.

Speaker 1: Thank you. The next question is coming from abbrham P walla of Bank of America. Please go ahead.

Looking at deposits on a linked quarter basis average deposits were down $2 billion of four 5% with about two thirds of the decrease coming from noninterest bearing deposits and one third coming from interest bearing deposits.

Speaker 22: Like good afternofood.

Speaker 23: Because he agree.

Speaker 22: J may be missed. Did you give a number for where DA for Non-interest-bearing deposits ended the quarter and?

Also I'm happy to say that Houston, one point, though is now profitable as those branches earned approximately $1 4 million pretax in the month of March or two cents a share after tax and we would expect that their performance will continue to improve.

I want to talk a little bit more about our noninterest bearing deposits, which totaled $16 billion at the end of the quarter with 96% of that amount being commercial demand deposits.

Speaker 22: Give us sense of your expectations around that makes given as, as you said, you expected these customers to move excess funds out?

Speaker 24: If.

<unk> to these commercial DDA I had mentioned previously that this category was the most at risk given the high interest rate as commercial treasurers and Cfos, we're beginning to focus on those balances as any balances above amounts needed for normal transactional operational amounts were not earning any interest.

Speaker 22: We get the last rate hike next week. Is it fair to assume that a lot of these customers who had to reprice and move out of that deposit bucket have already done so? So par at a point where your noninterest bearing balances should begin to stabilize, or is that not the right way to think about it?

Are you also on both balances held at the fed and loans had the largest positive impact on our net interest margin percentage.

Speaker 9: No I think that's kind of where we're at. We kind of expect that those balances- you know, I think the people that had excess balances in those D a have really put a time and a lot of and effort in getting those balances moved out of their being more efficient in their managing their cash positions- But I do expect that we'll still see some of that in the second quarter and, as I mentioned, you know, I think this hopefully is the it's a low point for us, the second quarter.

<unk>.

When rates were at or near zero that was not a big deal, but as rates started to go up we had seen some reduction in our DDA balances that began in the September October timeframe, and we mentioned those balances were the most at risk and we suspected that those balances will continue to decrease which they have.

The increase was also positively impacted to a much lesser extent by a higher yield on investment securities.

These positive impacts were partially offset by higher costs on both deposits and repurchase agreements and the impact of lower balances held at the fed.

Looking at our investment portfolio. The total investment portfolio averaged $21 7 billion during the first quarter up $1 6 billion from the fourth quarter average as we continue to deploy some of our excess liquidity during the quarter, we made investment purchases during the quarter of approximately $2 1 billion, which <unk>.

These decreases did not accelerate after the bank failures in March.

The decrease in the monthly average balance from January to February was $538 million. The average balance Dan decreased $301 million between February and March and into April the average balances down $492 million from the March average these decreases have not been unusual.

Speaker 9: We're not projecting currently that we see, you know, huge increase, but we are expecting stabilization and slight movements up through the rest of the year. I think, when I look at the percentage here, we were down below 40. we've been, you know, about 40, one percent, but I think we're at the end of the arter. I think it was in 39 or thir 39%, something like that.

<unk>, one 7 billion in agency MBS securities with a yield of 5.02% and $390 million in municipal securities with the taxable equivalent yield of about five point or 1%.

And were not unexpected.

Looking at total interest bearing deposits they have been pretty stable during the period at the end of December they stood at $26 4 billion and decreased 167 million to end the quarter at $26 2 billion. The average balance for both the month of March and April.

Speaker 9: I don't expect it. It'll change a whole lot at this point. We're going to, we're feeling down with pressure through the second quarter and hopefully after that we begin to see stabilization to the extent we see increases in interest bearing, which you know we're going to be happy to see, we could see some decline. Obviously, the percentage that we had of non interest bearing to interest bearing, we whatwas'sinflated at the last few years, starting with COVID-19, as those commercial balances really really increase significantly, starting with some of those P P P balances in 2020.

During the first quarter, we sold about $1 2 billion in investment Securities about 900 million in municipal and about 300 million in agency MBS Securities. As we took advantage of market dislocations, which allowed us to improve interest income going forward, we recognized a net gain of about 21.

Month to date is $26 1 billion, so basically flat during this time period.

And on those transactions.

Customer repos for the first quarter averaged $4 2 billion up $636 million from the $3 6 billion average in the fourth quarter as we saw some deposit flows into our repo product during the quarter.

The net unrealized loss on the available for sale portfolio at the end of the quarter was $1 4 billion, an improvement of $260 million from the $1 7 billion reported at year end.

Speaker 9: So I think we're getting back to somewhat of a more normalized percentage between noninterest-bearing and interest-bearing.

The net unrealized loss on the held to maturity portfolio at the end of the quarter was $110 million down $61 million from year end.

Speaker 22: Got it and this is a separate question. I think Phil, you mentioned, based on surveys, internally mixed signals and tea leaves. How are youlike?

The cost of interest bearing deposits for the quarter was 152% up 36 basis points from the fourth quarter.

The taxable equivalent yield on the total investment portfolio in the first quarter was $3 two 4% up 15 basis points from the fourth quarter.

Speaker 22: How do you think this shakes out in terms of whether or not?

Looking at noninterest income on a linked quarter basis I just wanted to point out a couple of items.

Speaker 22: We see a deeper downturn over the next few months and quarters, as opposed to skirting a meaningful deccusion, just gives us a sense of what you think will be the driving factors in terms of which way the economy plays out. And is that, is any of that changing your outlook around investments, expansion into dialverscessary of those plans?

In investment management fees were down $3 6 million or eight 9% driven by decreases in estate fees of $2 1 million real estate fees of 667000, and oil and gas fees down 449000.

State fees and real estate fees can fluctuate based on the number of our states settled or property sold respectively.

Speaker 4: abbrhim, I wish, no wish I, I knew. Wish that's more to know what done. But the view with be, I mean I really think things are still good in the areas that we operate. Now I realize we operate only in Texas, but it's pretty good environment. Certainly, commercial real estate is is slow and I don't. It's really not because we're not getting people coming in.

It about $8 4 billion during the first quarter up about 293 million for the fourth quarter and had a taxable equivalent yield of 4.23% up six basis points from the prior quarter.

Insurance commissions and fees were up $7 3 million or 62% from the fourth quarter, driven by higher property and casualty contingent bonuses up $3 1 million benefits commissions up $2 8 million and life commissions up $1 2 million, which those life commissions contend to be kind of choppy.

At the end of the first quarter approximately 73% of the municipal portfolio was pre refunded or psf insured.

The duration of the investment portfolio at the end of the first quarter was five five years down from five eight years at the end of the fourth quarter.

Speaker 4: I was talking not long ago a meeting with the governor, with the group and actually I think also heard later from the stateate control. There's a thousand people a day moving into the stateate. So it', S it's not that you know we aren't having growth. It's been to do the R me TIC of the of the commercial real estate transactions just don't work for the, for the returns, and so that's's really whats happened.

As a reminder, the first quarter is typically our strongest quarter for insurance revenues, given we typically recognize contingent income in that quarter and also impacted by our natural business cycle. The second quarter is typically our weakest quarter for insurance revenues again impacted by our normal renewal business.

Looking at deposits on a linked quarter basis average deposits were down $2 billion or four 5% with about two thirds of the decrease coming from noninterest bearing deposits and one third coming from interest bearing deposits.

<unk>.

Other income was down $4 9 million from the fourth quarter, primarily due to a $5 $1 million distribution received from an SAIC investment in the fourth quarter last year.

I wanted to talk a little bit more about our noninterest bearing deposits, which totaled $16 billion at the end of the quarter with 96% of that amount being commercial demand deposits.

Speaker 4: That's, that's the thing that's slowest. Everything else seems to be.

Speaker 25: Free.

Speaker 4: Pretty good. You know the. The biggest complaint I still here is lack of availability of skilled labor. You know it's not so much all labor, it's now kind of shift at the skilled labor. So there's still, you know, a great job marking looking to hire people. So I I don't think you know.

Regarding 23 2023 expenses looking at our full year projection of expenses for 2023, as we mentioned last quarter. We currently expect total noninterest expense for the full year 2023 to increase at a percentage rate in the mid teens over our 2012.

<unk> to these commercial D D. As I had mentioned previously that this category was the most at risk given the high interest rate as commercial treasurers and Cfos, we're beginning to focus on those balances as any balances above amounts needed for normal transactional operational amounts were not earning any intra.

Two reported levels.

<unk>.

Speaker 4: It's worth what you pay for it. But I don't think we're to see much of a recession. If one in in Texas, in terms of where we operate, as far as what it means for us, as far as expanding, that it's not going to impact us at all. You know, you saw those numbers. I mean.

The effective tax rate for the first quarter was 15, 7% or about 15, 9% excluding discrete items. Our current expectation is that our full year effective tax rate for 2023 should be in the range of about 15% to 16%, but that can be affected by discrete items during the year.

Speaker 4: It's not it's not hurting our growth and as far as.

These decreases did not accelerate after the bank failures in March.

Regarding the estimates for full year 2023 earnings. Our current projections include a 25 basis point fed rate increase in May followed by a 25 basis point decrease in September November and December <unk>.

The decrease in the monthly average balance from January to February was $538 million, the average balance and decreased $301 million between February and March and into April the average balances down $492 million from the March average these decreases have not been unusual.

Speaker 4: one thing I think is interesting if you look at the the expansion numbers and we don't get every source of new customer right I mean but we do collect like where you come from where were you banking before and.

Given those rate assumptions in our expectation of 2023 noninterest expense growth. We currently believe that the current mean of analyst estimates of $9 79 is reasonable with that I'll now turn the call back over to Phil for questions.

Speaker 4: I saw about a 20% sample size of new accounts we're getting. two thirds of our business is coming from the what I' call the two big fail. I'm not going name names. You ess who they are and so you know it tells me that you know you're a lot of narrative that well you know. Can regionals compete with them? Et CA, we can and we have been, and remember marchwas our biggest month by far.

And were not unexpected.

Looking at total interest bearing deposits they've been pretty stable during the period at the end of December they stood at $26 4 billion and decreased 167 million to end the quarter at $26 2 billion. The average balance for both the month of March and April .

Thank you Terry and.

We'll open it up for questions.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. 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 the hill.

Speaker 4: So I think that dynamics are all good and I think that we just continue to look at other places that makes sense for us to employ this strategy, you know, within the Stage. So no, it would not. It would not impact our expansion plans.

Month to date is $26 1 billion, so basically flat during this time period.

Before pressing the star keys once again Thats Star one to register a question at this time.

Customer repos for the first quarter averaged $4 2 billion up $636 million from the $3 6 billion average in the fourth quarter as we saw some deposit flows into our repo product during the quarter.

Today's first question is coming from Steven Alexopoulos of Jpmorgan. Please go ahead.

Speaker 22: And how many branches willill do we have planned for the rest of the year in Dallas.

Hi, everybody.

Good morning, Steve.

The cost of interest bearing deposits for the quarter was 152% up 36 basis points from the fourth quarter.

Yes, good afternoon.

I wanted to dig a bit deeper into the decline in noninterest bearing and period end deposits can you help us understand how those trended I. It sounds like it was pretty normal, but I just want to dive a little bit more into this how those trended through what we saw from Silicon Valley Bank and signature what have you.

Speaker 4: Let let me see what is it? April , I think we were going to do.

Looking at noninterest income on a linked quarter basis I just wanted to point out a couple of items.

Speaker 4: I would say: Oh, Manan.

Speaker 3: I'm going to guess six more, and so I'm we'll get them 25% of right either way on that.

In investment management fees were down $3 6 million or eight 9% driven by decreases in estate fees of $2 1 million real estate fees of 667000, and oil and gas fees down 449000.

And that after math, where most banks saw a fairly substantial reduction in the uninsured deposits.

Speaker 14: Juring my. Let me do what I think what we were saying was. Through April we'd opened 6: three in Dallas and.

Speaker 9: And then two and three in Dallas in the first quarter and then two in April and one in Houston in the quarter, and I think we're expecting to open another four locations in Dallas, two in Houston, by the end of the yearokay.

Really from a fluctuation standpoint.

State fees and real estate fees can fluctuate based on the number of our states settled or property sold respectively.

Those balances as you would expect and as I've talked about we've kind of seen a downward trend starting back in <unk>.

September October and yet I don't think that during those days with.

Speaker 22: And then will that be it, or was that relative to the end point you want to be, at least for now?

With SBB that I would have said hey, it really looks more unusual that it had the week before let's say we were already on that downward sort of trend. Obviously, we were paying a lot of attention to it and you can tell by the averages.

Speaker 3: Well Dallas was going to be 30 to 30 a months. I think we're pretty much on. Yeah, I think they'll still take us into into next year. So I think that's the current planish that we would right around mid year. I think it's kind of the original thought that we'd be done with with the Dallas expansion, if I remember correct.

They were down, but I'm not going to say I'm sure. There was some concerns so it's not like we have our head in the sand.

I don't think its been anything significant like I said when I mentioned the.

Speaker 22: But thank you.

The average balances that's really what I was trying to give a little bit of color that really in March and as you would expect that was pretty early on at the <unk>, Let's say so that was the first third of the month and the balances between February and March weren't that that much lower we've seen them continue to decrease in April like I said some of that obviously you can get affected by tax payments.

Speaker 26: Welcome.

Speaker 1: Thank you. The next question is coming from Menon gossia of Morgan Stanley . Please go ahead.

<unk> other.

Other income was down $4 9 million from the fourth quarter, primarily due to a $5 1 million distribution received from an SP I see investment in the fourth quarter last year.

Speaker 5: Hi good afternoon.

Speaker 22: I wanted to ask around the office and you know any thoughts about the, your your' comment earlier on some of the metrics in the, the portfolio, were helpful But I was wondering if you know some of the. What are the majorities that are coming up in twotwentthousandtwenty, three and 24? And you know, just given the, the pressure on the repricing, any thoughts on?

Well I will take a little step back and say.

Covid for us.

Typically what would happen is is that our deposits would tend to peak in December a lot of the corporate.

Customers would do a window dressing as we call it and so as those balances would tend to decrease excuse me increased in December and then as we went into the first quarter. Those balances would begin to decrease into the first quarter and through April and with tax payments and section then would pickup into the tail end of the year. So some of it is <unk>.

22 reported levels.

Speaker 22: You know where T V's are coming out at after reapprisal?

Speaker 4: Oh ok, it's smounthful, it's see.

Natural trend based on what some of the corporate customers have done historically, but I wouldn't say that we saw a significant I'm sure. There were some downward movement, but just quoting the numbers I.

Speaker 4: Let me give me just a minute to look here.

I mentioned regarding average balances I don't think it was really anything that caught a lot of our attention. Obviously, we were paying attention there were a lot of conversations going on between our customers and our bankers.

Speaker 27: ok of.

Speaker 28: Investor.

Speaker 28: This is Investor office.

Customers were reaching out to them and we were having good conversations but I don't think it was anything that I would say gosh on day X those deposits were down $3 billion or something like that nothing like that we never saw any sort of.

Speaker 28: I'm some soorreums ininststru here, but I want to try and keep if I can find it.

Speaker 29: pub.

Speaker 14: We have two 36%.

A decrease that I would say it was beyond a reasonable band.

Thank you Terry and we'll open it up for questions now.

Speaker 5: Of the office.

Yes, I might just add that.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

Really the.

Speaker 28: maturess in less than a year.

Seeing anybody that looked like they were concerned of any size.

Speaker 30: ok.

A confirmation tone will indicate your line is in the question queue. 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 the handset before pressing the star keys once again Thats Star One to register a question at this time.

Notable there was so little of it I'd.

Speaker 31: So.

I'd say less than one hand debt.

Speaker 28: You know, there's.

But I heard about and.

And I think our experience was that.

Speaker 5: I might be able to pull something out as we continue to talk. Apologize, I don't have anything more than that, But right now that's a number that I'm able to see.

When you talk to people they were okay.

Today's first question is coming from Steven Alexopoulos of Jpmorgan. Please go ahead.

I think yes.

I think it's indicative of our relationship model that our customers didn't really consult social media. They consulted our bankers and we had lots of lots of calls and I think early on we were.

Speaker 5: I I think everything.

Speaker 32: Yeah.

Hi, everybody.

Morning, David.

Speaker 22: Again se question just give me your comments earlier on competitors pulling back is that helping spread on new laans at all and how do you expect those spreads to trend as we go to the.

Yes, good afternoon.

We recall and customers more than we were getting calls so I agree with Jerry.

It was certainly a time everyone was paying attention and you wanted to make sure you're communicating people had the best information in that if you saw anything that was.

Speaker 14: I I think it's, it think it's helping some on spreads, I think it's helping on structure, I think it's add about, you know, let's say round number 5%.

C and that aftermath, where most banks saw a fairly substantial reduction in the uninsured deposits.

Sort of not quite right reported that you could you could address <unk>.

Speaker 28: On average, more equity into deals.

I know everybody would be equipped but.

Really from a fluctuation standpoint.

Speaker 28: And it's probably helping with guarantees and support that type of thing.

I'm really proud of our customer base I think it was really indicative of the relationships and really trust that people have for us.

The those balances as you would expect and as I talked about we've kind of seen a downward trend starting back in <unk>.

Speaker 14: I I would say the really good projects. So it's still competitive, you know, and UH.

You're one of the few banks that didn't see substantial outflows on that Monday Tuesday Wednesday after therapy. So kudos to you guys on that front.

September October and yet I don't think that during those days with <unk> with.

Speaker 14: And we tend to, you know, we tend to not be looking at institutional deals there. You know called smaller and it's still, you know, fair amount of money, but but less institutional and and that means that there are a lot of banks, you know, trying to get that and so I would. I've seen less spread relief than I've seen structured relief recent.

Thank you.

With SBB that I would've said, hey, it really looks more unusual than it had the week before let's say we were already on that downward sort of trend. Obviously, we were paying a lot of attention to it and you can tell by the averages they were down.

Interest margin Jerry I thought you said last quarter. It was also assuming that rates went up I think one more and then there were several cuts you said you thought the NIM would peak in the third quarter I'm curious if the fed goes one or two more times, but then to hold rates at that level through the end of the year, how does that change the trajectory of NIM that you would.

But yeah, I'm not going to say I'm sure. There was some concern so it's not like we have our our you know our head in the sand.

Speaker 3: But I think there's probably been a little bit of spread relief.

Speaker 5: Yes I think just look at at the new you UN renewed business, just linked quarters, the best I've got. But you know, on the loans that are prime based, we can see some nice improvement there and and the same on a merorboard, and I'm going to say the silver price loans look to be relatively flat, maybe down a little bit. So Yeah, I think overall the spread looks better.

I don't think it's been anything significant like I said, when I mentioned that the average.

<unk>.

Yes, I think some of it some of the moving pieces as we continue to talk about is what happens to this commercial DDA I think our expectations. There let me start with that is that.

<unk> balances, that's really what I was trying to give a little bit of color that really in March and as you would expect that was pretty early on at the 10, let's say so that was the first third of the month and the balances between February and March weren't that are that much lower we've seen them continue to decrease in April like I said some of that obviously you can get affected by tax payments as well.

I mentioned that the April volume is down from March and so we expect based on what we're seeing in conversations with those customers.

Speaker 22: ok great, Thank you.

I'll take a little step back and say you know pre COVID-19 for us.

That will begin to really settle into the low point in the second quarter and start to see.

Speaker 1: Thank you. The next question is coming from Verde Preston of ubbs. Please go ahead.

Typically what would happen is is that our deposits would tend to peak in December you know a lot of the corporate.

Speaker 2: Hey good afternoon everyone. Thanks for taking my questions.

Going forward.

An increase.

And I'm not I'm not talking about significant increases maybe stabilization might be a better word than increases.

Speaker 33: I want. I wanted to just follow up on the.

Customers would do a window dressing as we call it and so as those balances would tend to decrease excuse me increased in December and then as we went into the first quarter. Those balances would begin to decrease into the first quarter and through April and with tax payments and such and then it would pick up into the tail end of the year. So some of it is <unk>.

Speaker 28: Which is I think you told Steve the cashcash balces earlier. I just wanted to clarify. Did you say the cash balances a quarter end were six point nine billion?

Starting in the second half of the year.

So if in your scenario I guess I'll stop in a second and say so one thing that it's not affecting us today as much is that we have for modeling purposes have assume that we won't make any more investment purchases.

Speaker 8: And that was a today's bound.

Speaker 34: Oh ok.

Speaker 9: Yes at the end of the quarter, at the end of the quarter, we were eight point six.

Natural trend based on what some of the corporate customers have done historically, but I wouldn't say that we saw a significant I'm sure. There was some downward movement, but just quoting the numbers I I mentioned regarding average balances I don't think it was really anything that caught a lot of our attention. Obviously, we were we were paying attention there were a lot of converse.

This year and the reason we took that out of the model was more given all the noise and concerns about liquidity and all of the questions that were coming up we just appreciate the flexibility we could give ourselves. If we took that out of the assumptions now I'm not saying, we won't buy anything but it's good to have that built in.

Speaker 35: 0.6. okay, and that's very helpful. And then could you give us a sense around the cadence of a borrowing utilization for the first quarter? How did it move?

Speaker 8: Throughout the quarter, particularly in February and March. And then where did total borrowing stand at quarter end?

Patients going on between our customers and our bankers.

Customers, who are reaching out to them and we were having good conversations but I don't think it was anything that I would say gosh on day X. You know those deposits were down $3 billion or something like that nothing like that we never saw any sort of of.

Speaker 9: Ta can I come back? I'm sorry, I'm' second guessing myself what answer I gave you. So we're at about right under six point nine a day and we were at eight point six at March.

Through our base at that should we see something Opportunistically, we can take advantage. So we're going to be under in a higher rate environment, we're going to be in a little bit of a lower sort of operating performance standpoint, because we're not going to be investing at what you might expect might be higher might be higher rates.

Speaker 5: Yes I want to make sure I get those numbers. Okay perfect sorry, go ahead.

The decrease that I would say it was beyond a reasonable band.

Speaker 9: No you, you had it rightite the first time, but I I appreciate you, I appreciate you following up. And then the second question that I had was just, could you give us a sense around the cadence of borrowing utilization in the first quarter? How did it move in the last you know month of the quarter? And then, where did you wind up a quarter end for period and borrowing balances?

Yes, I might just add that.

Really the.

And again some of it's going to be dependent also on deposit betas I think we right now feel feel pretty good on our on our.

You're seeing anybody that looked like they were concerned of any size.

Deposit costs, what we're paying our depositors were being a little bit more aggressive on our Cds.

What was notable in it there was so little of it I'd say less than one hand.

You know that I heard about it.

Something that we really want to make sure that we're helping our customers make one decision and the decision being that they want to bank with Frost.

And I think our experience was that.

Speaker 9: You're talking on on commercial loans or helping me with your question. I'm sorry.

You know when you talk to people they were okay.

I think yes.

So being a little bit more aggressive there and so I think those are the two things that potentially could have.

I think it's indicative of our relationship model that our customers didn't really a consult social media. They consulted our bankers and we had lots of lots of calls and I think early on we were.

Speaker 9: No your usage of repurchase agreements is really well. So those certain, I'm sorry, So the repo balances are really yet repo balances with our customers where they put de deposits with us that are fully collateralized.

On impact on the net interest margin so in our scenario we project one.

NIM, that's relatively flat for the rest of the year.

You know, we recall and customers more than we were getting calls so I agree with Jerry It was.

Again, a lot of it's going to be dependent on what happens with those demand deposits.

Speaker 8: That's what we were talking about and it's really at the, at the custommer's discretion. Are you asking how those moved? I'm sorry, I want know how. No, it's okay, I wanted. I wanted to ask how those moved and where you ended the corner on those balances.

In a scenario, where I've got one rate increase I think you said no cuts, but maybe another increase after that.

And I was certainly a time everyone was paying attention and you were wanting to make sure you're communicating people had the best information in that if you saw anything that was.

I think what we what we project is for any 25 basis point increase roughly we would expect about 1 million three pretax.

Sort of not quite right reported that you could you could address it and everybody would be equipped but.

Speaker 8: I'm sure at the end of the quarter.

Speaker 8: You see hereum.

Improvement in net interest income.

Speaker 9: We were at four point two billion. We started the quarter at the end of the year. We were four point seven billion.

I'm really proud of our customer base I think it was really indicative of the relationships and really trust that people have.

Is that kind of helps you out there. Okay. That's very helpful. If I could sneak one last one in just on liquidity, we ended cash level than on a period end basis, and how do you think about that balance moving forward. Thank you.

Ross.

You're one of the few banks that didn't see substantial outflows on a Monday Tuesday Wednesday after the peak so kudos to you guys on that front.

Speaker 9: I think if I look at it today, just to give you an idea of that balance, today's month-to-date balance would be around- looks like four billion.

Thank you.

Yes, we were.

Phil May have said in his comments at the end of the quarter. We were 20% of deposits is kind of where we ended up in the number but I'll give it to you as of today I think we were at little shy of $6 9 million.

Speaker 9: Okay got it and within your, within your NIM guidance that you gave, could you give us a sense for what the interest-bearing deposit beta you're that you're using is?

Okay billion excuse me $6 9 billion.

Speaker 8: Yes we Re. I think we've kind of stuff with a cumulative beta, I think, a little north of 31. I'm going to say it's about a 32%, pretty consistent with where we've been.

And do you think youll see further reductions at that level moving forward.

Specced.

Yes, I think some of it some of the moving pieces as we continue to talk about is what happens to this commercial DDA.

Yes, I guess, it's going to.

The Big question is.

Deposit flows.

Speaker 11: That's kind of the valation.

Right now we don't have any assumptions for investment purchases, we will certainly expect that we'd get some cash flow.

I think our expectations there let me start with that is that you know.

Speaker 28: Got an. The last question I had was just around the securities purchases and I'm sorry if I sorry if I missed it, but did you happen to give what what the new yields are that you're putting on? And then did, did you restate with the expected maturities are going forward.

Mentioned that the April volume is down from March and so we we expect based on what we're seeing and conversations with those customers.

From the investment portfolio with just maturities and such.

<unk>.

I think loan growth as Phil said, we expect loan growth to be at that high single digits. So that's not going to have a big impact on on cash balances. So we yes.

That will begin to really settle into the low point in the second quarter and start to see.

Speaker 8: Well our duration went from five point eight years for the total portfolio is the only thing we give down- to five point five years, and we bought about nine million in municipals.

Going forward.

Yes, I think all things being equal we could be in this ballpark.

An increase.

And I'm not I'm not talking about significant increases maybe stabilization might be a better word than that increases.

For the rest of the year.

I appreciate all the color.

Speaker 9: Hold on a second. I'm sorry.

Sure.

Starting in the second half of the year.

Thank you. The next question is coming from Peter Winter of D. A Davidson. Please go ahead.

Speaker 8: So we bought one point seven agency at a 502, three and nety in municipals at a 501. So basically putting stuff on in the hundred one a TE yield to putting stuff on, basically a 5%.

Thanks, I was wondering can you talk about some of the strategies to reduce some of the asset sensitivity.

In light of the forward curve and your outlook for some rate cuts.

Speaker 28: You gotTA. Thank you very much taking a questions, I mean, and I appreciate, no problem, no problem.

This year and the reason we took that out of the model was more given all the noise and concerns about liquidity and all the questions that were coming up we just appreciate the flexibility we could give ourselves. If we took that out of the assumptions now I'm not saying, we won't buy anything but it's good to have that built in.

Speaker 3: So did this feelill, So I wanted to respond. A question about the office terms.

Well.

I think before if we can.

Just talk about asset sensitivity and reducing it.

Speaker 14: Just took me a while to find that, as I said, the off Investor office, that is, a term of within 12 months, is 27%. 12 to 36 months is 19%.

We said for some time, but there are really three things that.

But we look at is providing some measure of.

Through our base at that should we see something Opportunistically, we can take advantage. So we're going to be under in a higher rate environment, we're going to be in a little bit of a of a lower sort of operating performance standpoint, because we're not going to be investing at what you might expect might be higher might be higher rates.

Protection, we are asset sensitive.

And so that's.

Speaker 3: 36 months to 59 months is 21% and greater than 60 months is 33%.

Yes, we can.

Can't obviate that totally.

But the three things or if we were willing to.

Lock in some of the rates, but extending out on the yield curve out the daily fed balance sheet, we're maintaining so that's one thing and the second thing is that because we've done so much work increasing our deposit rates over time really beginning with the cycle of rate increases.

Speaker 14: So sorry, it was enable it.

Speaker 13: puhold that up earlier.

And again some of it is going to be dependent also on deposit betas I think we right now feel feel pretty good on our on our.

Speaker 1: Thank you. The next question is coming from John arstram of R B C capital. Please go ahead.

Speaker 36: Pray thanks, good afternoon.

Deposit costs, what we're paying our depositors were being a little bit more aggressive on our Cds.

Speaker 11: John a jhnum.

Speaker 36: Jerry on the provision this quarter, would you? Was that growth driven or was it just driven by the charge-off?

We've got built in capacity to responder rate reductions in the event. They happen we can lower those down so that helps and then the third thing that we've got really in our business is order business volume is going to do and are we able to continue to grow organically and post good numbers there.

It's something that we really want to make sure that we're helping our customers make one decision and the decision being that they want to bank with for Austin.

Speaker 9: How the charge-off really where we saw most of that tight.

Speaker 37: Okay So So the? What is the message on the provision? How do you want us to think about that?

And so being a little bit more aggressive there and so I think those are the two things that potentially could have.

Speaker 8: Yeah I think that really, as it turned out, I would expect, know that that that's not going to be too far off. Our current expectations, based on the sort of loan guidance that you've heard from Phil and based on some know relative, based on really good good credit quality, but also making sure you know considerations about what we're seeing in the economy, in the possibility of a recession, even if it's mild.

Sure.

Look looks good but whatsapp see what happens there and so that's the third piece of it.

NIM, that's relatively flat for the rest of the year.

Again, a lot of it is going to be dependent on what happens with those demand deposits.

And there.

I will say that with regard to hedging program that type of thing, where we continue to look at those.

But in a scenario, where you know Ive got one rate increase I think you said no cuts, but maybe another increase after that I think what we what we project is for any 25 basis point increase roughly we would expect about 1 million three pretax.

For opportunities it's been our.

Physician that those have been really didn't see value in there vis vis cash markets or other things and so we really haven't availed ourselves of that but we continue to look at that and they may be.

Speaker 9: I would exsume that that that's not too bad of a run rate going forward for the next couple of quarters.

Speaker 37: Okay good, that helps. Just a couple other clarifications. You guys talked a little bit about the- I think it was the dollar. Volume of new opportunities in the pipeline was up something like 20% year to date, but the probability weight and was flat.

Improvement in net interest income.

Part of what we do if we feel like there is there is opportunity there for the company and for shareholders. So that's really our perspective on it.

Is that kind of helps you out there.

That's very helpful. If I could sneak one last one in just on liquidity, where cash levels and on a period end basis and how do you think about that AR balance moving forward. Thank you.

Got it.

And.

You mentioned that Youre still comfortable with the high single digit.

Speaker 36: What drives that difference? What drives that lower probabilities? Is just saying that these opportunities won't meet your standard, S? Or why that gap?

Yes, we were I think Phil May have said in his comments at the end of the quarter. We were 20% of deposits is kind of where we ended up in the number but I'll give it to you as of today I think we were at little shy of $6 9 million.

Loan growth, but I'm just wondering.

In this environment, we've been hearing that certain lenders are pulling back or tightening underwriting standards.

Speaker 14: No it's mainly a.

Do you think theres going to be opportunities for you guys to take market share just given the strength of your balance sheet and strong.

Speaker 14: You know an opportunity ISS just you know, you're aware of a deal, you know you're you're sort of engaged on it, but you know customer may not decide to go forward. It could be that you don't think that. Know the current structure of meet your standard, you could be, you could be a lot of things meant might be competitively, that they're just locked in to, you know, to another institution, and so our Officer just feels like his odds, or I mean as good as what they should be it some it's definitely are not, and not science, and you know I.

Okay got it billion excuse me $6 9 billion.

Capital.

So Peter asked a great question, we were actually talking about this morning.

And do you think you will see further reductions in that level moving forward.

That's a little bit of a wildcard I would say well I don't see it definitively in our in our pipeline numbers yet.

Yeah, I guess, it's going to you know that's the big question is deposit flows.

Right now we don't have any assumptions for investment purchases, we will certainly expect that we'd get some cash flow.

Here about it anecdotally and I'm aware of some deals where banks.

From the investment portfolio with just maturities and such and you.

We're not able to complete.

A transaction that they had.

You know I think loan growth as Phil said, we expect loan growth to be at that high single digits. So that's not going to have a big impact on on cash balances.

Speaker 14: That's UE, it's really. It's whenever you, whenever you have- again, we're talking about it this morning- when you have a pretty good increase in opportunities, like I mentioned and you mentioned just now, whenthere are a lot of them that go in, the lenders tend to not.

Offered on the same terms and we ended up getting some of those.

<unk>.

My gut tells me that's going to happen more what we're going to have to do though is we're going to have to be prudent and careful in the deals that we're seeing particularly in the commercial real estate space because.

Yeah, I think all things being equal we could be you know in this ballpark.

For the rest of the year.

I appreciate all the color.

Sure.

Speaker 3: notho have its higher probability, could you just? You just got a lot of deals in. You're sort now.

Developers and our customers tell us that it's easier to get equity than it is to get that capital. These days.

Speaker 4: But it doesn't sound very scientific. But you know, if it makes an impact, I tend to look at you know what the, what the weighted pipeline is, and I think it it tells a little bit of a story on on how our people see things.

Thanks.

Wondering can you talk about some of the strategies to reduce some of the asset sensitivity.

And so you can imagine cell phones ringing a lot and we don't do transactions, we think people and we have long term relationships. So.

In light of the forward curve and your outlook for some rate cuts.

We got to be really prudent and taken advantage of that I think youll, probably be a little maybe a little bit less of that in the C&I space I hope not I really would love to expand the C&I business because it's so long term, it's got a long sales cycle, but it's very profitable and.

Speaker 35: Okay all right and then just last one as well or last one here you talked about the record new consumer account activity and you flagged.

Well.

I think before.

Speaker 36: Houston and Dallas and any idea.

If we just talk about asset sensitivity and reducing it.

Speaker 36: What percentage of these?

We said for some time, but there are really three things.

Speaker 36: Would be like a what you would call primary household relationship with primary banking relationship.

We look at is providing some measure of.

So let's hope that I think that is that is the wildcard right now as we move through the rest of this year. If we see banks that are pulling in their horns because of liquidity issues.

Speaker 36: Do you track that?

Protection now.

We are asset sensitive.

Speaker 14: I don't think we do in the consumer side of that.

So you know that.

We can obviate that totally.

We could see a little bit of a little bit of growth there.

What are the three things or if we were willing to.

Speaker 36: What is your God tell you on that?

Great. Thanks, Phil.

The lock in some of the rates, but extending out on the yield curve out for them, but you know the daily a fib palace, we're maintaining so that's one thing and the second thing is that because we've done so much work increasing our deposit rates over time really beginning with the cycle of rate increases.

You bet.

Speaker 3: I'd tell you I would tell you that we are mostly primary there are numbers which we on the commercial side.

Thank you. The next question is coming from Brady Gailey of <unk>. Please go ahead.

Thanks, Good afternoon guys.

Hey, Brady.

Expense growth has been mid teens for the last.

Speaker 3: Which compare the top.

What it was last year, you were expecting it to be this year.

Speaker 14: It compares market share, or I ve seen it by market share segment.

We've got built in capacity to responder rate reductions in the event. They happen we can lower those down so that helps and then the third thing that we've got really in our business is our water business volume is going to do and are we're able to continue to grow organically and post good numbers there.

Some of that is driven by what has happened in Dallas and in Houston, where do you think about longer term expense growth what is the right.

Speaker 3: And so let's look at customers with sales under a hundred million.

Speaker 3: Okay in the markets we serve.

Level, there im guessing its somewhere back in the mid.

Speaker 3: And if you look at which of the banks see the top, to see the top 6, seven banks, which of the banks as the highest percentage of?

Mid single digit level.

Yes, just as a reminder, I think it was driven.

You know the outlook looks good but we'll just have to see what happens there and so that's the third piece of it.

Primarily.

By what you mentioned, we're obviously, introducing our new mortgage product and the impact of the expansions, but in addition, we talked last quarter about the fact that we were making.

Speaker 3: Primary relationship, it's us.

And you know there.

Speaker 3: All So and that's just because of our relationship model I mean we're going to bank you we're going to want to have what we call your funnel account your core account and so we don't even count it as a relationship unless we get that that account So.

I will say that with regard to you know a hedging program that type of thing where we continue to look at those for opportunities it's been our.

Our significant investment in it this year.

A physician that those had been really didn't see value in their piece of the cash markets or other things and so we really haven't availed ourselves of battle, we continue to look at that and they may be.

So just as a reminder, on kind of what's driving the expense growth, yes, I would say that in a in a more normalized environment as we're expecting for next year I would think that your comment about a high single digits is what I would expect at this point.

Speaker 4: So my good confirm can be pretty high. Maybe you- Yeah, I think that you know I was. I was here trying to get some information and talking to our Head of retail, you know, I think that he thinks that it's about 70% of it is really that we're picking up this primary household.

A part of what we do if we feel like there is there's opportunity there for the company and for shareholders. So that's really our perspective on it.

Okay, and then Jerry just to clarify your comment about the.

And a flat net interest margin from here.

Got it.

Based off the.

And you mentioned that Youre still comfortable with the high single digit.

The first quarter level that $3 47.

Loan growth, but I'm just wondering.

Right.

Speaker 37: So it's moving market share.

In this environment, we've been hearing that certain lenders are pulling back or tightening underwriting standards or you think theres going to be opportunities for you guys to take market share just given the strength of your balance sheet and strong.

Okay.

Speaker 37: All right guys. That's all I had, Thank you okay, have you.

Alright, great. Thank you guys.

Sure. Thank you.

Speaker 1: Thank you, Ladies and gentlemen. Unfortunately we have run out of time for questions. I would like to turn the floor back over to MR green for closing comments.

Thank you. The next question is coming from Ebrahim <unk> of Bank of America. Please go ahead.

Hi, good afternoon.

Speaker 4: Well I'll just say: anybody won't ask a question, we're here, it's our job. Are there any more voices in the queue?

Capital.

Hey, Ebrahim.

So Peter asked a great question, we were actually talking about this morning.

Hey, Jay maybe I missed it did you give a number for their DDA noninterest bearing deposits ended the quarter and.

That's a little bit of a wildcard I would say well I don't see it definitively in our in our pipeline our numbers yet.

Speaker 38: So.

Speaker 1: umlet me check one moment, Please.

Give a sense of your expectations around that mix given as you said you expected these customers to move excess funds out.

Speaker 1: I'm not showing any questions at this time.

Here about it anecdotally and I'm aware of some deals where banks.

Speaker 3: I but FA enough okay well we thank everybody for their interests in their support and will be adjourned Thank.

Let me get the larceny take next week.

We're not able to complete.

You know a transaction that they had.

Is it fair to assume that a lot of these kind of someone who had to replace and move out of that.

Speaker 1: Ladies and gentlemen, Thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.

But they had offered on the same terms and we ended up getting some of those up my gut tells me that's going to happen more what we're gonna have to do though is we're gonna have to be prudent and careful and the deals that we're seeing particularly in the commercial arena.

Positive bucket have already done social data point noninterest bearing balances should begin to stabilize or is that not the right way to think about it.

I think ebrahim, that's kind of where we're at we kind of expect that those balances.

I think the people that had excess balances in those DDA.

State space, because you know developers you know and our customers tell us that it's easier to get equity than it is to get that capital. These days and so you can imagine cell phones ringing a lot and we don't do transactions, we bank people and we have long term relationships. So.

We have really put a time and a lot of time and effort in getting those balances moved out of there being more efficient and they are managing their cash positions.

But I do expect that we'll still see some of that in the second quarter and as I mentioned I think this hopefully is the is the low point for us in the second quarter. We're not projecting currently that we see a huge increase but we are expecting stabilization and slight movements up through the rest of the year.

We got to be really prudent and taken advantage of that I think there'll probably be a little maybe a little bit less of that in the C&I space I hope not I really would love to expand the C&I business because it's so long term, it's got a long sales cycle, but it's very profitable and.

I think when I looked at the percentage here, we were down below 40, we'd been.

Above 41%, but I think we're at the ended the quarter I think it was $39 30.

So let's hope that I think that is that is the wildcard right now as we move through the rest of this year, we see banks that are pulling in their horns because of liquidity issues.

<unk>, 39% something like that I don't expect data it'll change a whole lot at this point.

We're feeling downward pressure through the second quarter and hopefully after that we began to see stabilization to the extent, we see increases in interest bearing which.

We could see a little bit of a little bit of growth there.

Great. Thanks, Phil.

You bet.

We're going to be happy to see we could see some decline obviously the percentage that we had of noninterest bearing to interest bearing was inflated the last few years, starting with Covid as those.

Thank you. The next question is coming from Brady Gailey of <unk>. Please go ahead.

Thanks, Good afternoon guys.

Hey, Brady.

So expense growth has been mid teens for the last.

<unk> balances.

Really really increased significantly starting with some of those PPP balances in 2020.

Well it was last year, you were expecting it to be this year.

Some of that is driven by what has happened in Dallas and in Houston, where do you think about longer term expense growth what is the right.

So I think we're getting back to somewhat of a more normalized percentage between noninterest bearing and interest bearing.

Got it and just as a separate question I think Phil you mentioned based on so these internally mixed signals and tea leaves how are you.

Level, there I'm guessing its somewhere back in the mid.

Mid to high single digit level.

Why do you think this shakes out in terms of whether or not.

Yeah, just as a reminder, I think you know it was driven.

Primarily.

We see a deeper downturn over the next few months and quarters as opposed to <unk>.

By what you mentioned, where obviously, introducing our new mortgage product and the impact of the expansions, but in addition, we talked last quarter about the fact that we were making a.

Clothing or meaningful recession, just give us a sense of what do you think will be the driving factors in terms of between the economy plays out and if that is any of that changing your outlook around investments.

Our significant investment in it this year.

Pension into data if any of those plans.

We'll have rahim.

I wish I knew I wish I had this morning.

What the view would be I mean.

I really think things are still good in the areas that we operate in are realized we operate only in Texas, but it's a pretty good environment.

Okay, and then Jerry just to clarify your comment about the kind of flat net interest margin from here that that's based off the first quarter level that that $3 47.

Certainly commercial real estate is slowing.

Not because we're not getting people coming in and I was talking.

Right.

Not long ago meeting with the governor.

Okay.

Alright, great. Thank you guys.

With the group and actually I think also heard it later from the state comparable Theres a thousand people a day moving into the state. So it's it's not that.

Sure. Thank you.

Thank you. The next question is coming from Ebrahim <unk> of Bank of America. Please go ahead.

Hey, good afternoon.

We arent having growth it's been.

Hey, Ryan.

Hey, Jay you, maybe I missed it did you give a number for their DDA noninterest bearing deposits ended the quarter end.

Risks, but tick of the of the commercial real estate transactions just don't work.

For the for the returns and so that's that's really what's happening that's the thing that slowest.

Give a sense of your expectations around that mix given as you said you expected are these customers to move excess funds out.

Everything else seems to be pretty pretty good.

The biggest complaint are still here is lack of availability of skilled labor.

Let me get the last one you take next week.

Is it fair to assume that a lot of these kind of someone who had to replace and move out of that deposit bucket have already done. So so be it at a point. They are non interest bearing balances should begin to stabilize or is that they're not not the right way to think about it.

Not so much all labor, it's now kind of shifted the skilled labor. So there is still great job market looking to hire people.

So.

I don't think.

No I think Ebrahim, that's kind of where we're at we kind of expect that those balances.

<unk>.

It's worth what you pay for it but I don't think we're going to see much of a recession if one.

You know I think that the people that had excess balances in those days.

In Texas in terms of where we operate as far as what it means for us as far as expanding that it's not going to impact us at all.

We have really put a time and a lot of time and effort in getting those are balances moved out of there being more efficient and there are managing their cash positions.

You saw those numbers I mean.

It's not it's not hurting our.

Our growth and as far as well.

One thing I think is interesting if you look at the expansion numbers and we don't get every source of new customer right I mean, but we do collect like would you come from where you're banking before.

I think when I looked at the percentage here, we were down below 40, we'd been.

And.

Above 41%, but I think we're at the ended the quarter I think it was <unk> 39 or 30.

Oh, sorry.

20% sample size of new accounts, we're getting two thirds of our business is coming from what I'll call the too big to fail I'm not going to name names you can guess who they are.

<unk>, 39% something like that I don't expect it will it'll change a whole lot at this point.

We're feeling downward pressure through the second quarter and hopefully after that we began to see stabilization to the extent, we see increases in interest bearing which.

And so.

It tells me that you hear a lot of narratives that well can regionals compete with them et cetera, we can and we have been and remember March was our biggest month by far.

We're gonna be happy to see we could see some decline obviously the percentage that we had of noninterest bearing to interest bearing was inflated. The last few years, starting with Covid as those commercial balances are real.

So I think the dynamics are all good.

Thanks.

We just continue to look at other places that make sense for us to employ this strategy.

Really increased significantly starting with some of those PPP balances in 2020. So I think we're getting back to somewhat of a more normalized percentage between noninterest bearing and interest bearing.

Within the stage so no it would not it would not impact our expansion plans and how many branches.

Got it and just as a separate question I think Phil you mentioned.

Do we have planned for the rest of the year and Dennis Yes.

Based on so these internally mixed signals and tea leaves how are you.

Okay.

Well, let me see what does it is April.

We were going to do.

How do you think this shakes out in terms of whether or not.

I would say Oh man.

We see a deeper downturn over the next few months and quarters as opposed to skirting a meaningful recession does it give us a sense of what do you think will be the driving factors in terms of between the economy plays out and if that is any of that changing your outlook around investments.

I'm going to guess six more.

25% right either way on that.

Jeremy Yes, let me see what I think what we were saying was through April we'd opened six.

Three in Dallas and.

And then two and three in Dallas in the first quarter and then two in April and one in Houston in the quarter and I think we're expecting to open another four locations.

Pension into data if any of those plans.

Well if rahim.

I wish I knew I wish I had this morning.

In Dallas and two in Houston by the end of the year.

What's the view would be I mean, I really think things are still good in the areas that we operate and I realize we operate only in Texas, but it's a pretty good environment.

Okay.

And then will that be it or.

With that as additive to the endpoint do you want to be at least for now.

Certainly commercial real estate is a slow and it's really not because we're not getting people come in and I was talking.

Well Dallas was going to be 30, and 30 months I think we're pretty much on yes, I think it will still take us into into next year, yes.

Not long ago, a meeting with the governor.

With the group and actually I think also heard it later from the state comfortable there's a thousand people a day moving into the state. So it's it's not that you know we arent having growth it's been to do the arithmetic of the of the commercial real estate transactions just don't.

I think thats. The current plan is that we would right around mid year I think it's kind of the original thought that we'd be done with with the Dallas expansion, if I remember correctly okay.

Got it thank you.

Welcome.

Thank you. The next question is coming from <unk> <unk> of Morgan Stanley. Please go ahead.

Work.

For the for the returns and so that's that's really what's happening that's the thing that slowest.

Hi, good afternoon.

I wanted to ask around.

Sorry office.

Everything else seems to be pretty pretty good you know the the biggest complaint are still here is lack of availability of skilled labor. It's not so much all labor. It's now kind of shifted skilled labor. So there's still you know great job market looking to hire people.

Any thoughts about that.

Your comments earlier on on.

Some of the metrics in the CRE portfolio were helpful. But I was wondering if.

Some of the what are the majority of that is coming up in 'twenty, three and 'twenty four.

Yes.

Just given the.

So.

The pressure on CRE pricing any thoughts on that.

I don't think.

<unk>.

It's worth what you pay for it but I don't think we're going to see much of a recession if one.

Tvs are coming out of that after reappraisal.

In Texas in terms of where we operate as far as what it means for us as far as expanding that it's not going to impact us at all.

Oh, Okay, that's mouthful, let's see.

You know you saw those numbers I mean.

Yes.

It's not it's not hurting our hour.

Yes give me.

Our growth and as far as.

A minute to look here.

One thing I think is interesting if you look at the ft expansion numbers and we don't get every source of new customer right.

Okay.

Investor.

We do collect like where did you come from or where your banking before.

This is investor office.

And.

So oh.

I'm, sorry, I'm struggling here, but I wanted to try and see if I can.

About 20% sample size of new accounts, we're getting two thirds of our business is coming from the what I'll call the too big to fail I'm not going to name names you can guess who they are.

Yeah.

We have 236%.

So it tells me that you know you hear a lot of narratives that well you know can regionals compete with them et cetera, we can and we have been and remember March was our biggest month by far. So I think the dynamics are all good and I think that we just continue to look at other.

Of the.

Office.

Matures in less than a year.

Okay.

So.

There is.

Places that make sense for us to employ this strategy.

I might be able to pull something out.

As we continue to talk I apologize I don't have anything more than that but right now that's a number that I'm able to see.

Within the states so no it would not it would not impact our expansion plans and how many branches are Phil do we have a plan for the rest of the year in Dallas.

Yes.

Okay.

Separate question.

Just given your comments earlier on competitors pulling back is that helping spreads on new loans at all and how do you expect those spreads to trend as we go through the year.

Okay.

Well, let me see.

It does it is April I think we were going to do.

I would say Oh man.

I'm gonna guests six more.

Okay.

25% right either way on that.

I think it's I think it's helping some on spreads I think it is helping on structure I think it's adding about.

Hi, Jeremy Yes, let me see what I think what we were saying was through April we'd opened six three.

Let's say in round numbers, 5%.

Three in Dallas and.

On average more equity into deals.

And then two and three.

Three in Dallas in the first quarter and then two in April and one in Houston in the quarter and I think we're expecting to open another four locations in.

And it's probably helping with with guarantees and support that type of thing.

I would say the really good projects, though it is still competitive.

In Dallas in two and Houston by the end of the year.

And.

Okay.

And we tend to.

And then will that be it or.

We tend to not be looking at institutional deals there.

Whereas that's additive to the endpoint do you want to be at least for now.

Called smaller I mean, there's still a fair amount of money, but.

Well Dallas was gonna be 30, and 30 of months I think we're pretty much on yeah, I think it'll still take us into <unk> into next year. Yeah. So I think thats. The current plan is that we would right around midyear I think is kind of the original thought that we'd be done with with the Dallas expansion, if I remember correctly okay.

But less institutional and that means that there is a lot of banks trying to get that in.

So.

I've seen less spread relief that ive seen structure really recently, but I think there's probably been a little bit of spread relief.

Yes, I think just looking at the new on new and renewed business just linked quarter as the best I've got but on the loans that are prime based yes, we can see some nice improvement there and the same on <unk> and I'm going to say the sulfur price allows loans look to be relatively flat, maybe down a little bit. So yeah, I think overall the.

Got it thank you.

Welcome.

Thank you. The next question is coming from non gasoline out of Morgan Stanley . Please go ahead.

Hi, good afternoon.

I wanted to ask around.

E E office and any thoughts about your comments on Iran. On.

Spread looks better.

Okay, great. Thank you.

Sure.

Some of the metrics in the CRE portfolio were helpful. But I was wondering if some of the what are the majority that are coming up in 'twenty, three and 'twenty four.

Thank you. The next question is coming from Brody Preston of UBS. Please go ahead.

Hey, good afternoon, everyone. Thanks for taking my questions.

I want I wanted to just.

And.

Just given the.

Follow up on the on what I think you told Steve the cash.

The pressure on CRE pricing any thoughts on you know where.

Cash balances earlier I just wanted to clarify did you say that the cash balances at quarter end was $6 9 billion.

The visa coming out at after reappraisal.

And that was the today's balance.

Oh, Okay, I smell well, let's see.

Okay.

At the end of the quarter at the end of the quarter, we were eight six.

Okay.

Yeah.

Alright, Thats very helpful and then.

Yeah give me just a minute to look here.

Could you give us a sense around the cadence of borrowing utilization through the first quarter how did it move.

Okay.

Investor.

Throughout the quarter, particularly in February and March and then where did total borrowings stand at quarter end.

This investor office.

Hey can I come back on sorry.

Second guessing myself what answer I gave you. So we're at about right under six nine today and we were at $8 six at March.

I'm, sorry, I'm sorry.

I'm on here, but I wanted to try and feedback.

Yeah.

Yes.

We have 236%.

I wanted to make sure I didn't get those numbers, okay. Perfect. Sorry go ahead.

Of the.

You had it right the first time, but I appreciate that I appreciate you following up.

Office.

[noise] matures and less than a year.

And then the second question that I had was just can you give us a sense around the cadence of barge utilization in the first quarter how did it move in the last month of the quarter and then where did you wind up at quarter end for period and borrowing balances.

Okay.

So.

You know there is.

I might be able to pull something out.

Youre talking on.

As we continue to talk I apologize I don't have anything more than that but right now that's a number that I'm able to see.

On commercial loans or help me with your question I'm sorry.

No.

Thanks.

You know your usage of repurchase agreements.

Yes.

So those are and then on Im sorry, so the repo balances are really yet.

Again, yes.

Separate question.

Given your comments out of there on competitors pulling back is that helping spreads on new loans at all and how would you expect those spreads to trend as we go through the year.

Our repo balances with our customers, where they put the pilot deposits with us that are <unk>.

Fully collateralized.

That's what we were talking about and it's really at the at the customers discretion are you asking how those move.

I think its I think its helping some on spreads I think it's helping on structure I think it's adding about you know, let's say in round numbers, 5%.

I'm sorry.

No. That's okay I wanted to I wanted to ask how those moved and where you ended the quarter on those balances.

Sure at the end of the quarter.

On average more equity into deals.

Let me see here.

We were at.

And you know its probably helping with the with guarantees and support that type of thing.

$4 2 billion, we started the quarter at the end of the year, we were at $4 7 billion.

I would say the really good projects, though it is still competitive.

Yes.

I think if I look at it today.

Uh huh.

And we tend to we tend to not be looking at institutional deals there.

Just to give you an idea of that balance.

Today's.

To date balance would be around it looks like $4 billion.

Smaller I mean, there's still a fair amount of money, but.

But less institutional and then that means that there are a lot of banks trying to get that and.

Okay got it alright within your within your NIM guidance that you gave.

So I would I have seen less spread relief that ive seen structure really recently, but I think there's probably been a little bit of spread relief.

Could you give us a sense for what the interest bearing deposit beta that you're that you're using is.

Yes.

We've kind of stuck with a cumulative.

Beta I think a little north of <unk>.

Yes, I think if we just looking at the new on new and renewed business just linked quarters. The best I've got but you know on the loans that are prime based yeah. Yeah. We can see some nice improvement there and the same on a mere board and I'm going to say the sulfur price allows loans look to be relatively flat, maybe down a little bit. So yeah I think overall.

31, I'm going to say, it's about a 32% pretty consistent with where we've been.

That's kind of the expectation.

Got it and the last question I had was just around the securities purchases and I'm, sorry, if I sorry, if I missed it but did you happen to give what the what the new yields are that you're putting on and then did you did you restate what the expected maturities are going forward.

The spread looks better.

Okay, great. Thank you.

Thank you. The next question is coming from Brody Preston of UBS. Please go ahead.

Well our duration went from five eight years for the total portfolio is the only thing we get down to five five years, and we bought about $900 million in municipals.

Hey, good afternoon, everyone. Thanks for taking my questions.

I want I wanted to just follow up on the on what you told Steve the cash.

Hold on a second I'm sorry.

Cash balances earlier I just wanted to clarify did you say that the cash balances at quarter end was $6 9 billion.

So we bought a $1 seven and agency at a 502 and 390 and municipals that are 501, so basically putting stuff on in the 500 once a day.

And that was the today's balance.

Okay.

Yield so putting stuff on basically at 5%.

Yeah at the end of the quarter at the end of the quarter, we were at eight six.

Got it. Thank you very much for taking my questions I appreciate it no problem no problem.

Okay.

Alright, that's very helpful and then.

This is Phil so I wanted to.

Could you give us a sense around the cadence of our borrowing our utilization for the first quarter how did it move.

Respond to the question about the office.

<unk>.

We are well funded.

As I said.

Throughout the quarter, particularly in February and March and then where did total borrowings stand at quarter end.

<unk> Investor office that has a term of within 12 months to 27%.

Hey can I come back on sorry, I'm second guessing myself what answer I gave you. So we're at about right under a $6 nine today and we were at $8 six at March.

12 to 36 months is 19%.

36 months to 59 months is 21% and greater than 60 months is 33%.

Yep.

I wanted to make sure I didn't get those numbers, okay. Perfect. Sorry go ahead.

So sorry, it was enabler.

A little bit up earlier.

No you you you had it right the first time, but I appreciate that I appreciate you following up.

Thank you. The next question is coming from Jon <unk> of RBC capital. Please go ahead great.

And then the second question that I had was just can you give us a sense around the cadence of bar your utilization in the first quarter how did it move in the last month of the quarter and then where did you wind up at quarter end for period and borrowing balances.

Thanks, Good afternoon.

John Hi, John.

Jerry on the provision.

This quarter was that growth driven or was it just driven by the charge off.

The charge offs really where we saw most of that tied to.

You're talking on a on a commercial loans or help me with your question I'm sorry.

So.

What is the message on the provision how long do you want us to think about that.

No.

You know your usage of repurchase agreements Ah is really well. So those are yeah I'm sorry, so the repo balances are really yet.

Yes, I think that really as it turned out I would expect that thats not going to be too far off our current expectations based on the sort of loan guidance that you heard from Phil and based on some.

Our repo balances with our customers, where they are putting a pallet deposits with us that are fully collateralized.

Relatively based on really good good credit quality, but also making sure considerations about what we're seeing in the economy and the possibility of a recession, even if it's mild I would assume that that's not too bad of a run rate going forward for the next couple of quarters.

That's what we were talking about and it's really at the at the customers discretion are you asking how those move to I'm sorry.

No. That's okay I wanted to I wanted to ask how those moved and where you ended the quarter on those balances.

Sure at the end of the quarter.

Okay. Good that helps.

Just a couple of clarifications.

Let me see here.

We were at.

You guys.

$4 2 billion, we started the quarter at the end of the year, we were at $4 7 billion.

Talked a little bit about the I think it was the dollar volume of new opportunities in the pipeline was up something like 20% year to date.

Yes.

Probability weight.

I think if I look at it today.

It was flat.

To give you an idea of that balance.

What drives that difference what drives that lower probabilities as just just saying that these opportunities won't meet your standards of what why that gap.

Todays month to date balance would be around it looks like 4 billion.

Yeah.

Okay got it alright, and within your within your NIM guidance that you gave.

No it's mainly.

Yeah.

Could you give us a sense for what the interest bearing deposit beta that you're that you're using is.

And opportunity is just you are aware of a deal youre sort of engaged on it but customers may have decided to go forward.

Yeah, where I think we've kind of stuck with a cumulative.

Beta I think a little north of 31, I'm going to say, it's about a 32%.

It could be that you don't think that the current structure of meet your standards could be it could be a lot of things that might be competitively that they are just locked in to to another institution and so our officers feels like his ards or maybe not.

Pretty consistent with where we've been.

That's kind of the expectation.

Good is what they should be.

Definitely art and not science and.

Yes.

It's really it's whenever you whenever you have again, we're talking about this morning, when you have a pretty good increase in opportunities like I mentioned.

Well, our our duration went from five eight years for the total portfolio is the only thing we get down to five five years, and we bought about 900 million in municipals.

And you mentioned just now.

When there are a lot of them that go in the lenders Tim did not.

Hold on a second I'm sorry.

Uh-huh have as high a probability could you just you just got a lot of deals.

So we bought a $1 seven and agency at a 502 and 390 and municipals that are 501, so basically putting stuff on in the 500 one's a T E L. So putting stuff on basically at 5%.

You're sorting out but.

It doesn't sound very scientific but it makes an impact of tend to look at what the what the weighted pipeline is I think it tells a little bit of a story of how our people see things.

Got it. Thank you very much for taking my questions I appreciate it no problem no problem.

Alright.

Then just last one as well our last one here you talked about the record new consumer account activity and you flagged.

This is Phil so I wanted to respond to that question about the the office terms just took me a well funded.

And in Dallas any idea.

What percentage of these would be what you would call primary household relationship with primary banking relationship do you track that.

As I said the off Investor office that has a term of within 12 months to 27%.

12 to 36 months is 19%.

I don't think we do on the consumer side.

36 months to 59 months was 21% and greater than 60 months is 33%.

What does your gut tell you on that.

So sorry, I wasn't able to.

I would tell you I would tell you that we are mostly primary.

All that up earlier.

Thank you. The next question is coming from Jon <unk> of RBC capital. Please go ahead. Okay. Thanks, good afternoon.

There are numbers, which we on the commercial side.

Which compare the top.

Hey, John .

Jerry on the provision.

Okay.

It compares market share, okay, I've seen it by market share segment.

This quarter would you was that growth driven or was it just driven by the charge off.

The charge offs really where we saw most of that tight.

So, let's look at customers with sales under $100 million.

Okay. So so what is the message on the provision and Hunter you want us to think about that.

Okay and the markets we serve.

And if you look at.

Yeah, I think that I'm really as it turned out I would expect that that that's not going to be too far off our current expectations based on the sort of loan guidance that you heard from Phil and based on some you know.

Each of the banks, obviously, the top let's say the top six seven banks, which are the banks as the highest percentage.

Yeah.

Primary relationship Okay.

Relatively based on really good a good credit quality, but also making sure our considerations about what we're seeing in the economy and the possibility of a recession, even if it's mild.

Yes.

Alright, so and that's just because of our relationship model I mean, we're going to bank, we're going to want to have your all your funnel account your core account and so and we don't even count it as a relationship unless we get that.

Would assume that that that's not too bad of a run rate going forward for the next couple of quarters.

That account so.

Okay. Good that helps.

In us.

Just a couple of other clarifications.

You guys.

So my guess can families can be pretty high maybe.

Talked a little bit about the I think it was the dollar volume of new opportunities in the pipeline was up something like 20% year to date, but the probability weight was.

Yes, I think that.

With here trying to get some information and talking to our head of retail I think that he thinks that it's about 70% of it is really that we're picking up his primary household yeah. That's great. So it's moving market share okay.

It was flat.

What drives that difference what drives that lower probabilities. It's just just saying that these opportunities won't meet your standards or what why that gap.

Alright, guys Thats all I had thank you.

No it's mainly.

Okay. Thank you.

Thank you, ladies and gentlemen, Unfortunately, we have run out of time for questions I would like to turn the floor back over to Mr. Green for closing comments.

You know an opportunity is just you're aware of deal youre sort of engaged on it but you know customer decided to go forward.

Well I'll, just say if anybody wants to ask a question here.

Our jobs are.

It could be that you don't think that the current structure of meet your standards could be it could be a lot of things that might be competitively that theyre just locked in to you know to another institution and so our officer just feels like his ards or maybe not as good as what they should be it's a it's definitely art and not science and.

Are there any more questions in the queue.

No.

Let me check one moment please.

I'm not showing any questions at this time.

Fair enough, okay, well, we thank everybody for their interest and their support and we will be a journey. Thank you.

You know I am.

It's really it's really it so whenever you whenever you have again, we're talking about this morning, when you have a pretty good increase in opportunities like like I mentioned.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.

And you mentioned just now.

When there are a lot of them that go in the lenders Tim did not.

Uh-huh have as high a probability could you just you just got a lot of deals in there you're sorting out.

It doesn't sound very scientific but you know it makes an impact I tend to look at what the what the weighted pipeline is.

I think it tells a little bit of a story of how our people see things okay.

Okay, Alright, and then just last one as well our last one here you talked about the record new consumer account activity and you flagged.

Houston and Dallas any idea.

What percentage of these would be like what you would call primary household relationship with primary banking relationship do you track that.

I don't I don't think we'd do on the consumer side.

What does your gut tell you on that.

I'd tell you I would tell you that we are mostly primary.

There are numbers, which we on the commercial side.

Which compare the top.

You know it compares market share okay, I've seen it by market share segment.

So let's look at customers was sales under 100 million.

Okay and the markets we serve.

And if you look at <unk>.

Thanks Sue.

Let's say the top six seven banks, which are the banks as the highest percentage of.

Primary relationship Okay.

Yes.

Alright, so and that's just because of our relationship model I mean, we're gonna bank, we're going to want to have your what we'd call. Your formal account your core account and so and we don't even count it as a relationship unless we get that.

That account so.

You know us.

Oh.

So my guess can families can be pretty hot maybe yeah.

I think that you know I was.

I was trying to get some information and talking to our head of retail you know I think that he thinks that it's about 70% of it is really that we're picking up his primary household yeah. That's great.

Moving market share okay.

Alright, guys Thats all I had thank you.

Thank you.

Thank you, ladies and gentlemen, Unfortunately, we have run out of time for questions I would like to turn the floor back over to Mr. Green for closing comments.

Well I'll just say if anybody wants to ask a question we're here sorry.

Our jobs are there any more questions in the queue.

Hum.

Check one moment please.

Okay.

I'm not showing any questions at this time, alright fair enough, okay, well, we thank everybody for their interest and their support and will be a journey. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.

[music].

Okay.

Yeah.

Hum.

Yeah.

Okay.

Yeah.

Hum.

Okay.

[music].

Yeah.

[music].

Okay.

[music].

Yeah.

[music].

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