Q1 2025 Cullen/Frost Bankers Inc Earnings Call
Operator: Greetings and welcome to Cullen Frost Bankers Incorporated first quarter 2025 earnings conference call. At this time, all participants are in a listen only mode.
Greetings and welcome to call them Frost bankers incorporated first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce Amy Mendez Senior Vice President and director of Investor Relations. Please go ahead.
Amy Mendez: It is now my pleasure to introduce Amy Mendez, Senior Vice President and Director of Investment Relations. Please go ahead.
Amy Mendez: Amy Mendez, Senior Vice President and Director of Investment Relationships, Cullen Frost Bankers Incorporated Thanks, Sherry.
Speaker Change: Thanks Jerry.
Amy Mendez: This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO.
Speaker Change: Afternoons conference call will be led by Phil Green, Chairman, and CEO and Dan get US group Executive Vice President and CFO.
Phil Green: Before I turn the call over to Phil and Dan, I need to take a moment to address the Safe Harbor provision. 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 Change: Before I turn the call over to Phil and Dan I need to take a moment to address the safe Harbor provisions.
Speaker Change: Some of the remarks made today will constitute forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as amended.
Speaker Change: We intend such statements to be covered by the safe Harbor provisions.
Speaker Change: Forward looking statements contained in the private Securities Litigation Reform Act of 1995 as amended.
Phil Green: Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements.
Speaker Change: Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward looking statements.
Phil Green: If needed, a copy of the release is available on our website or by calling the Investor Relations Department at 210-220-5234.
Speaker Change: If needed a copy of the release is available on our website or by calling the Investor Relations Department at 2102205234.
Phil Green: At this time, I'll turn the call over to Phil. Thank you, AB. Good afternoon, everyone, and thanks for joining us.
Speaker Change: At this time I will turn the call over to Phil.
Speaker Change: Yeah.
David: Hey, David.
David: Good afternoon, everyone and thanks for joining us.
Phil Green: Excuse me. Today we'll review the first quarter 2025 results for Cullen Frost. Chief Financial Officer Dan Geddes will provide additional commentary and guidance before we take your questions. First quarter of 2025, Cullen Frost earned $149.3 million or $2.30 a share. prepared with earnings of $134,002,066, a share reported in the same quarter last year. Our return on average assets and average common equity in the first quarter were 1.19% and 15.54% respectively. And that compared with 1.09% in 2015.
David: Excuse me.
David: Today, We will review the first quarter 2025 results for Kohl's Ross.
David: Chief Financial Officer, Dan <unk> will provide additional commentary and guidance before we take your questions.
David: In the first quarter of 2025, calling false churn of 149 and $43 million or $2 36 a share.
David: Paired with earnings of $134 million or $2.06 a share reported in the same quarter last year.
David: Our return on average assets and average common equity in the first quarter for one for one 9% and 15, 454% respectively.
David: That compared with one 9%.
David: <unk> for two 2% in the same quarter last year.
Phil Green: in the same quarter last year. Average deposits in the first quarter were $41.7 billion, an increase of 2.3% over the $40.7 billion. Average loans grew to $20.8 billion in the first quarter, an increase of 8.8% compared with $19.1 billion in the first quarter last year. We continue to see solid results driven by the hard work of our frost bankers and the extension of our organic growth strategy. In just a couple of weeks, we'll open another new financial center in the Austin region, and that will be our 200th location. We've increased that number by more than 50% since that time.
David: Average deposits for the first quarter were 41 7 billion an increase of two 3% over the 47 billion in the first quarter last year.
Average loans grew 28 billion in the first quarter, an increase of eight 8% compared with $19 1 billion in the first quarter last year.
David: We continue to see solid results driven by the hard work of our Frost bankers and the extension of our organic growth strategy.
David: Just a couple of weeks, we'll open another new financial center in the Austin region and that will be our 200 location.
David: At the time, we started this strategy in late 2018, we had around 130 financial centers, which means we've increased that number by more than 50% since that time.
David: And we continue to identify Texas locations for extending our value proposition to more customers.
Phil Green: We continue to identify Texas locations for extending our value proposition to more customers.
David: At the end of the first quarter. Our overall expansion efforts had generated $2 6 billion in deposits $1 $9 billion in loans and 64000 new households.
Phil Green: At the end of the first quarter, our overall expansion efforts had generated... $1.9 billion in loans. The deposits were within 1% of gold, while loans and households exceeded As we've mentioned, the successes of the earlier expansion locations are now funding the current expansion.
David: Deposits were within 1% of coal.
David: Loans and households exceeded go by 40% in 2007% respectively.
David: As we've mentioned the successes of the earlier expansion locations are now funding the current expansion effort.
Phil Green: We expect the overall effort will be accretive to earnings beginning in 2026. And as I've said many times, Strategy continues to drive outstanding growth in our consumer banking business. Average consumer deposits, which make up 47% of our deposit base, grew 3.8% compared with the first quarter last year. The average consumer loan balance has grew by 20.5% over a decade.
And we expect the overall effort will be accretive to earnings beginning in 2026.
David: And as I've said many times this strategy is both durable and scale.
David: Our strategy continues to drive outstanding growth in our consumer banking business.
David: Average consumer deposits, which make up 47% of our deposit base grew three 8% compared with the first quarter last year.
David: And the average consumer loan balances grew by 25% over a year ago.
David: Okay.
Phil Green: in our consumer bank. Continue to be driven by delivering a level of customer experience. that is unexpected in today's We're not just words, this is part of our culture. Please see the evidence in the back that J.D. Power recently named Frost No. 1 in Texas. for Banking Satisfaction. This customer experience excellence underlies our ability to deliver consistently strong organic growth that is balanced and durable.
David: In our consumer bank.
David: We continue to be driven by delivering a level of customer experience that.
David: That is unexpected in today's world.
David: These are not just words as part of our culture.
David: And you can see the evidence in the fact that J D. Power recently named for US number one in Texas, where consumer banking satisfaction for the 16th year in a row.
David: Yeah.
David: This customer experience excellence underlies our ability to deliver consistently strong organic growth that is balanced and durable.
David: Your year over year consumer checking customer growth.
Phil Green: year-over-year consumer checking customer growth. continues to be extremely competitive for low cost deposits. The positive growth in the quarter showed good balance across categories.
David: Continued to be industry, leading at 547% and an environment that continues to be extremely competitive for low cost deposits.
David: The deposit growth in the quarter showed good balance across product categories.
David: Yeah.
Phil Green: after several quarters of being weighted towards certificate of deposit. average balances in the consumer. We're up $611 million year-over-year, making this the 11th consecutive quarter where our consumer loan growth hit 20%. This excellent growth was driven by consumer real estate lending. 2nd Lane Home Equity Loans, as well as our new mortgage program. Our second lien home equity products grew $61 million in the first quarter, while our mortgage fundings were $39 million and ended the quarter at $297 million. People are choosing Frost based on our reputation for outstanding service. Our investments in our organic expansion in Houston, Dallas, and Austin.
David: After several quarters of being weighted towards certificate of deposits.
David: Average balances in the consumer loan.
David: We're up $611 million year over year, making this the 11th consecutive quarter, where our consumer loan growth hit 28%.
David: This excellent growth was driven by our consumer real estate lending, which is comprised of both second lien home equity loans as well as our new mortgage products.
David: Our second lien home equity products grew $61 million in the first quarter.
David: Our mortgage fundings were $39 million and ended the quarter at $297 million.
David: People are choosing products based on our reputation for outstanding service.
David: Our investments in our organic expansion in Houston, Dallas and Austin.
Phil Green: as well as our investments in marketing and technology.
David: As well as our investments in marketing and technology.
Phil Green: All these are helping fund.
David: All of these are helping fund.
David: Fuel stellar results in our consumer bank and I expect to see this continue.
Phil Green: Looking at our commercial business. Average loan balances grew by $1.1 billion or 6.6% year over year. CRE balances grew at 8.9%. energy balances increased 19.8% C&I balances increased by 1%. New loan commitments totaled $1.28 billion in the first quarter. up one and a half percent from the 1.26 billion in the first quarter of 2024. I think it's interesting and frankly encouraging to look deeper into the dynamics of our commercial The first quarter represented an all-time record for calls made by officers during a quarter at over 54,000. with almost two-thirds of those to customers. That helped us identify a record number for any quarter.
David: Looking at our commercial business average loan balances grew by $1 1 billion or six.
David: Six 6% year over year.
David: CRE balances grew at eight nine.
Percent.
David: Energy balances increased 19, 8%.
David: And C&I balances increased by 1%.
David: New loan commitments totaled $1 8 billion in the first quarter.
David: One 5% from the 126 billion in the first quarter of 2024.
David: I think it's interesting and frankly encouraging to look deeper into the dynamics of our commercial business.
David: The first quarter represented an all time record for calls made by our officers during a quarter at over 54000.
David: With almost two thirds of those to customers.
David: That helped us identify a record number for any quarter of new opportunities into our gross pipeline during the first quarter almost $6 2 billion.
Phil Green: new opportunities into our gross pipeline during the first quarter, almost $6.2 billion.
Phil Green: That helped our 90-day waited pipe.
David: That helped our 90 day weighted pipeline increased 27% over the fourth quarter.
Phil Green: Increased 27% A verdict was ordered. Customer opportunities were up 38%.
David: Customer opportunities were up 38%.
Phil Green: vs. Prospects, 9%. Of that activity, CRE opportunities, over 10 million, showed the highest growth.
David: Versus prospects.
David: 10%.
David: Of that activity CRE opportunities over 10 million showed the highest growth.
Phil Green: What all this says to me... are successfully executing the skill set. of a high-performing sales organization. And that makes me optimistic.
David: What all this says to me is that our organization and our people are successfully executing the skill sets of our high performing sales organization.
And that makes me optimistic as we move forward.
Phil Green: We move forward. We recorded 972 new commercial relationships in the first quarter. An 18% increase over the first quarter last year and our largest first quarter total ever. Half of the new commercial relationships in the first quarter of this year continue to come from what we call the too-big-to-fail business. Our overall credit quality remains good by historical standards. that charge-offs and non-accrual loans, both at healthy levels. Non-performing assets declined to $85 million at the end of the first quarter, compared to $93 million at year-end. Order in figure represents 41 basis points of period loans and 16 basis points of total assets.
David: We recorded 972, new commercial relationships in the first quarter.
David: An 18% increase over the first quarter last year, and our largest first quarter total ever.
David: Half of the new commercial relationships in the first quarter. This year continue to come from what we call the too big to fail banks.
David: Our overall credit quality remains good by historical standards with net charge offs and non accrual loans both at healthy levels.
David: Nonperforming assets declined to $85 million at the end of the first quarter compared to $93 million at year end.
David: The quarter end figure represents 41 basis points of period end loans 16 basis points of total assets.
Phil Green: The charge-offs for the first quarter were $9.7 billion compared to $14 billion last quarter.
David: Net charge offs for the first quarter were nine 7 million compared to $14 million last quarter, and $7 3 million a year ago.
Phil Green: 7.3 million a year. Annualized net chargeoffs for the first quarter represent 19 basis points of average. Total Problem Loans, which we define as Risk Grade 10. OAEM or higher. 890,000,000 at the end of the first down from $943 million at the end of the year. Our overall commercial real estate lending portfolio remains stable. with steady operating performance across all asset types and acceptable debt service coverage ratios. Our loan to value levels are similar to what we've reported in prior quarters.
David: Annualized net charge offs for the first quarter, representing 19 basis points of average loans.
David: Total problem loans, which we define as risk grade 10, some people call that.
David: Or higher.
David: $890 million at the end of the first quarter down from $943 million at the end of the year.
David: Our overall commercial real estate lending portfolio remains stable with steady operating performance across all asset types and.
David: Acceptable debt service coverage ratios.
David: Our loan to value levels are similar to what we've reported in prior quarters.
Phil Green: Finally, I'd like to thank our Frost employees for helping us win that 16th consecutive J.D. Power Retail Banking Satisfaction Study in Texas. And I also remember that they've only conducted that survey for 16 years and Frost has been on top. We're all 16 of them, thanks to our...
David: Finally, I'd like to thank our frost employees for helping us win that 16th consecutive J D power retail banking satisfaction study in Texas.
David: And I also remember that they won't be conducted that survey for 16 years and Frost has been on top.
David: For all 16 of them, thanks to our great staff.
Phil Green: Those awards.
David: Those awards.
David: These quarterly results.
Phil Green: © The Bulletproof Executive 2013 50% increase in frost locations from our expansion. Strong Deposit Loan Growth Combined with the continued strength and stability of our balance sheet. and our 32 consecutive years of dividend increases. demonstrate that Frost is built solidly. is well positioned to succeed in a variety of business environments. When I talk with customers around the state, I often remark that one of the advantages of being at a 157-year-old institution is that we have been through all kinds of things. Whether it's high or low interest rates, high or low unemployment, recessions, expansions, pandemics, or changes in economic policy.
David: A 50% increase in frost locations from our expansion efforts and.
David: And the strong deposit and loan growth.
David: Combined with the continued strength and stability of our balance sheet.
David: And our 32 consecutive years of dividend increases demonstrate.
David: Demonstrate that frost is built so.
David: And is well positioned to succeed in a variety of business environments.
David: When I talk with customers around the state I, often remark that one of the advantages.
David: Adding 157 year old institution.
David: Is that we have been through all kinds of things.
David: Whether its high or low interest rates.
Or low unemployment recessions expansions pandemics or changes in the economic policy for us has grown and prospered through it all we.
Phil Green: Frost has grown and prospered through it all.
Phil Green: Take That Serious. This is why we also focus on our core values of integrity, caring, and excellence. We always strive to provide top-quality customer service from the best bankers anywhere, all the while committing to holding safe, sound and secure.
David: Take that seriously.
David: Which is why we also focus on our core values of integrity caring and exxon's.
David: We always strive to provide top quality customer service from the best bankers in of where all the while committing to holding safe sound assets.
Phil Green: With that, I'll turn it over.
David: Ed I'll turn it over to Dan.
Dan Geddes: Thank you, Phil. Let me start off by giving some additional color on our expansion results. As Phil mentioned, we continue to be pleased with the volumes we've been able to achieve. Looking at year-over-year growth, expansion average loans and deposits increased $511 million and $586 million, respectively, representing growth of 38% and 30%. The expansion now represents 9% and 6% of total loans and deposits using average March month-to-date balance. This compares to 7% of loans and 5% of total deposits at March 2024.
Dan: Thank you Phil.
Dan: Let me start off by giving some additional color on our expansion results as Phil mentioned, we continue to be pleased with the volumes, we've been able to achieve looking at year over year growth expansion in average loans and deposits increased $511 million and $586 million, respectively representing growth.
Dan: <unk> of 38% and 30%.
Dan: The expansion now represents 9% and 6% of total loans and deposits using average March month to date balances. This compares to 7% of loans and 5% of total deposits at March 2000 22024.
Dan Geddes: Now moving to first quarter financial performance for the company regarding net interest margin. Our net interest margin percentage was up 7 basis points to 3.60% from 3.53% reported last quarter. Our net interest margin percentage was positively impacted by increased volumes of higher-yielding taxable securities and loans, combined with lower cost of interest-bearing deposits. These positives were offset somewhat by lower volumes and yields of balances held at the Fed. Looking at our investment portfolio, the total investment portfolio averaged $19.4 billion during the first quarter, up $743 million from the prior quarter. During the first quarter, investment purchases totaled $2.1 billion with $1.7 billion being agency MBS securities yielding 5.82% and $414 million being municipals with taxable equivalent yield of 5.55%.
Now moving to first quarter financial performance for the company.
Dan: <unk> net interest margin.
Dan: Our net interest margin percentage was up seven basis points to 360% from 353% reported last quarter.
Dan: Our net interest margin percentage was positively impacted by increased volumes of higher yielding taxable securities and loans combined with lower cost of interest bearing deposits. These positives were offset somewhat by lower volumes and yields our balances held at the fed.
Dan: Looking at our investment portfolio.
Dan: The total investment portfolio averaged 19 4 billion during the first quarter up $743 million from the prior quarter.
Dan: During the first quarter investment purchases totaled $2 1 billion with $1 7 billion being agency MBS securities, yielding 582% and $414 million being municipals with taxable equivalent yield of 555%.
Dan Geddes: During the quarter, we had $299 million of municipal roll-off at an average tax equivalent yield of 3.86%. The net unrealized loss on the available-for-sale portfolio at the end of the quarter was $1.4 billion, a decrease of $156 million from the $1.56 billion reported at the end of the fourth quarter. The taxable equivalent yield on the total investment portfolio during the quarter was 3.63%, up 19 basis points from the fourth quarter. The taxable portfolio, which averaged $12.9 billion, up approximately $754 million from the prior quarter, had a yield of 3.29%, up 30 basis points from the prior quarter.
Dan: During the quarter, we had $299 million of municipals roll off at an average tax equivalent yield of three point exit eight 6%.
Dan: The net unrealized loss on the available for sale portfolio at the end of the quarter was $1 4 billion a decrease of $156 million from the $1 $5 6 billion reported at the end of the fourth quarter.
Dan: Taxable equivalent yield on the total investment portfolio during the quarter was 363% up 19.
Dan: 19 basis points from the fourth quarter, the taxable portfolio, which averaged $12 9 billion.
Dan: Approximately $754 million from the prior quarter had a yield of 329% up 30 basis points from the prior quarter.
Dan Geddes: Our tax-exempt municipal portfolio averaged $6.5 billion during the first quarter, flat with the fourth quarter, and had a taxable equivalent yield of 4.38%, up five basis points from the prior quarter. At the end of the first quarter, approximately 69% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the first quarter was 5.5 years, down from 5.7 years in the fourth quarter.
Dan: Our tax exempt municipal portfolio averaged $6 5 billion during the first quarter flat with the fourth quarter and had a taxable equivalent yield of four 3% up five basis points from the prior quarter at the end of the first quarter approximately 69% of the municipal portfolio was pre refunded or <unk>.
Dan: S F ensured the duration of the investment portfolio at the end of the first quarter with five and a half years down from five seven years in the fourth quarter.
Dan Geddes: Looking at funding sources, on a linked quarter basis, average total deposits of $41.7 billion were down $228 million from the previous quarter. The linked quarter decrease was driven primarily by lower non-interest bearing accounts. This decrease is in line with normal seasonal trends. The cost of interest bearing deposits in the first quarter was 1.94%, down 20 basis points from 2.14% in the fourth quarter. Thus far in April, month-to-date average deposit balances have rebounded and are up to approximately $41.9 billion. Most of the increase in April came from interest-bearing deposits, which again, is in line with normal seasonality for this time of year.
Dan: Looking at funding sources on a linked quarter basis average total deposits of $41 7 billion were down $228 million from the previous quarter. The linked quarter decrease was driven primarily by lower noninterest bearing accounts. This decrease is in line with normal seasonal trends.
Dan: The cost of interest bearing deposits in the first quarter was 194% down 20 basis points from 2.14% in the fourth quarter.
Dan: Thus far in April month to date average deposit balances have rebounded and are up to approximately $41 9 billion.
Dan: Most of the increase in April came from interest bearing deposits, which again is in line with normal seasonality for this time of year.
Dan Geddes: As a reminder, we tend to see weaker deposit flows in the first half of the year and stronger flows in the back half of the year, and the majority of that seasonality is driven by commercial non-interest-bearing deposits. Customer repos for the fourth quarter averaged $4.1 billion, up $201 million from the fourth quarter. The cost of customer repos for the quarter was 3.13%, down 21 basis points from the fourth quarter.
Dan: As a reminder, we tend to see weaker deposit flows in the first half of the year and stronger flows in the back half of the year and the majority of that seasonality is driven by commercial noninterest bearing deposits.
Dan: Customer repos for the fourth quarter averaged $4 1 billion up $201 million from the fourth quarter. The cost of course customer repos for the quarter was three 1% down 21 basis points from the fourth quarter.
Dan Geddes: Looking at non-interest income and expense, I'll point out a couple of seasonal items impacting the linked quarter results. Regarding non-interest income, insurance commissions and fees were up $6.8 million. Remember, the first quarter is typically our strongest quarter for group benefit renewals and annual bonus payments received.
Dan: Looking at noninterest income and expense I'll point out a couple of seasonal items impacting the linked quarter results regarding non interest income insurance commissions and fees were up $6 8 million remember the first quarter is typically our strongest quarter for group benefit renewals and annual bonus payments received on the expense side.
Dan Geddes: On the expense side... Employee benefits were up $13.5 million and were impacted primarily by increased payroll taxes and 401k matching expense. These were impacted by our annual incentive payments that are paid during the first quarter.
Dan: Employee benefits were up $13 5 million and were impacted primarily by increased payroll taxes and 401K matching expense. These were impacted by our annual incentive payments that are paid during the first quarter.
Dan Geddes: Regarding our guidance for full year 2025, our current outlook includes four 25 basis point cuts for the Fed funds rate in 2025, with cuts in June, July, September and October. We have added the July and October cuts from our prior guidance. Despite the updated expectation of four rate cuts, we are seeing benefits of our Q4 and Q1 securities purchases, as well as a decrease in our cost of deposits, and now expect net interest income growth for the full year to fall in the range of 5 to 7 percent, compared to our prior guidance of 4 to 6 percent growth.
Dan: Regarding our guidance for full year 2025.
Dan: Our current outlook includes 425 basis point cuts for the fed funds rate in 2025 with cuts in June July September and October we have added the July and October cuts from our prior guidance.
Despite the updated expectation of four rate cuts, we are seeing benefits of our Q4 and Q1 securities purchases as well as a decrease in our cost of deposits and now expect net interest income growth for the full year to fall in the range of 5% to 7% compared to our prior guidance of 4% to 6% growth for.
Dan Geddes: For net interest margin, we expect an improvement of about 12 to 15 basis points over our net interest margin of 3.53% for 2024, up from our prior guidance of a 10 basis point improvement. Looking at loans and deposits, we expect full-year average loan growth to be in the mid to high single digits and expect full-year average deposits to be up between 2 and 3 percent. Based on our current projections, we are projecting growth in non-interest income in the range of 2-3%, which is an increase from our prior guidance range of 1-2% growth. And we expect non-interest expense growth to be in the high single digits.
Dan: Our net interest margin, we expect an improvement of about 12 to 15 basis points over our net interest margin of 353% for 2024.
Dan: Up from our prior guidance of a 10 basis point improvement.
Dan: Looking at loans and deposits, we expect full year average loan growth to be in the mid to high single digits and expect full year average deposits to be up between two and 3% base.
Dan: Based on our current projections, we are projecting growth in noninterest income in the range of 2% to 3%, which is an increase from our prior guidance range of 1% to 2% growth.
Dan: And we expect noninterest expense growth to be in the high single digits regarding net charge offs. We expect full year 2025 to be similar to 2024 and in a range of 20 to 25 basis points of average loans.
Dan Geddes: Regarding net charge-offs, we expect full year 2025 to be similar to 2024 and in a range of 20-25 basis points of average loans. Regarding taxes, we currently expect the full year 2025 to be between 16 and 17 percent, up from our prior guidance of between 15 and 16 percent.
Regarding taxes, we currently expect the full year 2025 to be between 16 and 17% from our prior guidance of between 15, and 16% with that I'll turn the call back over to Phil for questions.
Phil Green: With that, I'll turn the call back over to Phil for questions. Thank you, Dan.
Thank you Dan we'll now open up the call for questions.
Phil Green: We'll now open up the call for questions. Thank you.
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Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
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Jared Shaw: Our first question is from Jared Shaw with Barclays. Please proceed. Hey, good afternoon, everybody. Maybe starting on the deposit side, you had good benefits from lower deposit pricing this quarter. How should we think about the deposit beta on interest-bearing deposits as we move through your rate cut assumptions? Jared, right now our cumulative beta is about 47%. Spot beta is around 50% ish. If that helps, as the rate cuts, if they occur, depending on how quickly they go down, we should expect to see that hold up until they get, if they just continue to go further than what we have as our guidance.
Speaker Change: First question is from Jared Shaw with Barclays. Please proceed.
Speaker Change: Hey, good afternoon everybody.
Speaker Change: Hey, Eric.
Speaker Change: Maybe starting on the deposit side you had.
Speaker Change: Good benefits from from lower deposit pricing.
Speaker Change: Pricing this quarter, how should we think about the deposit beta on interest bearing deposits as we sort of.
Speaker Change: Move through your your rate cut assumptions.
Speaker Change: Right now our cumulative beta is about 47% a spot beta is around 50% ish.
Speaker Change: If that helps and you know as the rate cuts if they occur and yes, depending on how quickly. They go down we should expect to see that hold yes up.
Speaker Change: Up until they get if they just continue to go further than what we have as our guidance.
Dan Geddes: Okay. All right. So, so that that level of data should should be able to be sustainable as we see the extra two cuts. Yes, I mean, we're going to look on a competitive basis, but we expect it to and you know, we kind of have tried to keep the same beta on the way down as we did on the way up. Okay, great. Thanks.
Speaker Change: Okay, alright, so so.
Speaker Change: At that level of beta should.
Speaker Change: It should be able to be sustainable as we as we see the extra two cuts.
Speaker Change: Yes, I mean, we're going to look on a competitive basis, but.
Speaker Change: But we expect it to and if we.
Speaker Change: We kind of tried to keep the same beta on the way down as we did on the way up.
Speaker Change: Okay, great. Thanks, and then on the expenses you know as we look at the guide for the full year, how should we think about sort of the trajectory through the year and are there any.
Dan Geddes: And then on the expenses, you know, as we look at the the guide for the full year, how should we think about sort of the trajectory through the year? And are there any Additional tech initiatives, technology initiatives that that are going to be coming on or how should we think about sort of the the investment in technology with that backdrop? I think just overall, you're going to see, you know, this quarter was somewhat impacted by the first quarter of 24 having that FDIC special assessment. So if you took that out, it would be in the high single digits, and that's kind of where I would kind of land for the next three quarters.
Speaker Change:
Speaker Change: Additional tech initiatives technology initiatives that are going to be coming on or how should we think about sort of the investment in technology.
Speaker Change: That backdrop.
Speaker Change: I think just overall and youre going to see yes. This quarter was somewhat impacted by the first quarter of 'twenty for having that FDIC.
Speaker Change: Special assessment. So if you took that out it would be in the high single digits, and that's kind of where I would kind of land for the next three quarters.
Speaker Change: And youre not sitting with technology.
Dan Geddes: You're not seeing with technology, I mean, there's not a A big increase for anything specific. You know, technology costs have been going up. are really large, what we call sort of a generation. investment there. The numbers are still high, and they'll continue to be high, but they have come down from that. What we're hoping is that as we continue to move through some of these foundational things that we're doing. We'll be able to see that begin to move down. Still, technology expenses are the new, you know, used to be health care, right? Health care expenses were out of control.
Speaker Change: Not a.
A big increase for anything specific.
Technology costs have been going up.
Speaker Change: You'd really for everyone, it's becoming a higher percentage of our.
Speaker Change: Our noninterest expenses.
Speaker Change: We track that over time, and I think we sort of repeat in 2020 threes fours and our.
Speaker Change: Our really large what we call sort of a generational.
Speaker Change: Investments there.
Speaker Change: Numbers are still high and will continue to be high but they have come down from that level and what we're hoping is that as we continue to move through some of these foundational things that we're doing.
Speaker Change: For all kinds of things, whether or not its cyber security, whether or not as you know.
Speaker Change: Legacy systems with its growth initiatives.
Speaker Change: That will be able to see that begin to move beyond I'm hopeful so.
Speaker Change: 26.
Speaker Change: We still technology expenses or the new used to be health care, REIT and healthcare expenses around controlling controllable.
Speaker Change: For some time now it's been.
Speaker Change: Technology expenses that has been the largest.
Dan Geddes: Biggest growth area. Thanks. Take care. Thanks.
Speaker Change: Biggest group grow theory, our expense base in your voice.
Speaker Change: Okay. Thanks.
Dan Geddes: Just to clarify, that beta is on interest-bearing deposits. Yeah, okay. Okay, thanks.
Just to clarify that that betas on interest bearing deposits yep. Okay. Okay. Thanks, and if I could just sneak the last one and then just.
Phil Green: If I could just see the last one and just what's sort of the conversations like with commercial customers over the last month or so? You know, with the with the economic backdrop? Are you seeing any of those customers waiting to defer any investments? Or what's the what's sort of the broader sentiment? say some are waiting. What they're really looking for in most cases is clarity so they can make decisions. I think they're looking forward to getting some trade deals done so they know what the tariffs will be. and we'll know the impact on their cost structure and supply chain.
Speaker Change: What's sort of the conversations like with commercial customers over the last.
Speaker Change: Or so you know.
Speaker Change: With the with the economic backdrop are.
Speaker Change: Are you seeing any of those customers waiting to defer any investments or what's the what's sort of the broader sense Matt.
Speaker Change: Uh-huh.
Matt: I would say some are waiting.
Matt: What they're really looking forward most cases is clarity.
Matt: So they can make decisions I think there'll be.
Matt: We're looking forward to getting some trade deals done so they know what the tariffs will be in.
Matt: And we will know the impact on their cost structure and supply chain.
Phil Green: I'll say one thing that was interesting to me looking at the response. from our various regions, from our. various loan officers who talk to customers and they provide synopses of those conversations to us. Preparations for these calls. is There was no apoplexy in the customer base about the tariff situation. I would say the thing that I've learned in reading, and this is admittedly about 30 days Other cases, there was anecdotal examples of where there was a sharing of whatever that cost was and working that out. In other cases, there are buyers that are saying, no, it's too early, you're not going to pass that on, so they're fighting to not have those costs passed on.
Matt: I'll say one thing that was interesting to me looking at the responses.
Matt: From our various regions from our.
Matt: Various loan officers, who talk to customers and they provide a synopsis of those conversations to us and.
Matt: And preparations for these calls and other things.
Matt: <unk>.
Matt: There was no apoplexy.
Matt: In the customer base about the tariff situation I would say the thing that I've learned in reading and this is admittedly about 30 days ago was that.
Matt: Fairly high level of confidence from a lot of people and their ability to do pass the costs along.
Matt: We had pricing.
Matt: Capacity with customers in the market.
Matt: Other cases USSA in Manhattan, some greedy.
Matt: Anecdotal examples of where there was there was a sharing of whatever that cost was and working that out and in other cases there.
Matt: Buyers that are seeing it's too early you're not going to pass it on so.
Matt: Fighting to him.
Matt: I don't have those cost pass along to them, so they're not having to deal with Iran.
Phil Green: So they're not having to deal with it right now, although they know they will. So, that's just to say there's a lot of different variation. I don't think there's a lot of... I think there's some concern. because they don't have clarity on what that answer is right now. But I think there's What I've seen, a high degree of confidence that businesses will be able to move through it, similar to what they did back with the tariffs in 1.0, you know, we're sort of in the 2.0 now. But that's what I've heard from customers.
Matt: It will.
Matt: So.
Matt: Let's just assume there's a lot of different variation.
Matt: I don't think there was a lot of.
Matt: I think there is there is.
Matt: Some concern.
Matt: Because we don't have clarity on what that answer is right now, but I think there is a.
Matt: What I've seen degree.
Matt: A degree of confidence.
Matt: Businesses will be able to move through it.
Similar to what they did back with the tariffs is one.
I'll go into <unk>.
Matt: That's what I've heard from customers.
Matt: Yes.
Matt: Thank you.
Casey Harrow: Our next question is from Casey Harrow with Autonomous Research. Please proceed. Thanks. Good afternoon, guys. Question on the loan growth outlook. If I heard you right, it sounds like the pipeline's up almost 30%, quarter to quarter. You guys kept the loan growth guide in place, which implies there's not a lot of growth. Just wondering why we didn't see the loan growth go up given a strong pipeline? I think what we're seeing is some headwind from CRE payoffs. That's giving us just, I think we're just looking at what we expect to get paid off and what we received in payoffs in the first quarter.
Speaker Change: Our next question is from Casey Haire with Autonomous research. Please proceed.
Casey Haire: Yeah. Thanks, Good afternoon, guys a question on the on the loan growth outlook.
I heard you right it sounds like the pipeline is up.
Casey Haire: Almost 30% quarter to quarter, you guys kept the loan growth guide in place, which implies there is not a lot of growth just wondering why by the way.
Casey Haire: Why we didn't see the loan growth for a while.
Speaker Change: Hi, Bob.
Speaker Change: I think what we're seeing is some headwind from CRE payoffs.
Speaker Change: That's giving us a just I think we're just looking at it looking at and what we expect to get paid off and what we are what we received in payoffs in the first quarter related to large multifamily.
Phil Green: Related to large multifamily projects that are just ready to move on to either be sold or refinanced. Some of them may be behind in terms of there was construction delays during the pandemic and then lease up has been slower than anticipated. So we've had several that have paid off through, I would say private credit has stepped in and provided some bridge financing. So that's probably the biggest piece that keeps loan growth where we have it in terms of guidance. Because we are seeing, because when I look at the weighted pipeline and it all starts, as Phil mentioned, with the calling efforts that our officers are making.
Speaker Change: Projects that we are that are just ready to move on to either be sold or refinanced some of them may be behind in terms of there was construction delays during the pandemic and then a lease up has been slower than anticipated. So we've had.
Speaker Change: Several that have paid off through.
Speaker Change: I would say private credit has stepped in and.
Speaker Change: And provided some bridge financing so that's probably the the biggest piece that keeps the loan growth.
Speaker Change: We have it in terms of guidance because we are seeing a because when I look at the weighted pipeline and you know it all starts as Phil mentioned with the calling efforts that are officers are making and to me. That's a that's us doing our jobs and getting out in front.
Phil Green: And to me that's us doing our jobs and getting out in front. And looking through the numbers, you see a lot of them are those large CRE opportunities. But we've lost more than what we typically experience. I think our loss to pricing and structure is up 65%. And what that tells me is we're maintaining our discipline in terms of structure and pricing as well.
Speaker Change: Two thirds of those calls are to customers and so that means that during this time of a little bit of uncertainty, we're out and where we're hearing from our customers understanding their needs. How do we help them navigate through it and so that's I think that's helped generate that top of the funnel those new opportunities.
Speaker Change: And looking through the numbers you see a lot of them are those large CRE opportunities, but yeah. We've.
Speaker Change: We've lost or.
Speaker Change: More than or more than when we typically experience I think are lost to pricing and structure is up 65% and what that tells me is we're maintaining.
Speaker Change: Our our discipline in terms of structure and pricing as well and.
Phil Green: But with large CRE, those are developers and we'll continue to see opportunities and feel like we'll get our fair share of those throughout the year. Okay, great.
Speaker Change: But with large with with large CRE than those are developers and we'll see we'll continue to see opportunities in and feel like we will get our fair share of those throughout the year.
Speaker Change: Okay, great. Thank you can you quantify what the what the CRE payoffs this quarter and how they've been trending relative to the past.
Phil Green: Thank you.
Casey Harrow: Can you quantify what the what the CRE payoffs were this quarter and how they've been trending relative to the past? Let me, I don't have that number off the top of my head. Let me try to get that number and I'll get back to you.
Speaker Change: Let me I don't have that number off the top of my head, but let me, let me try to get that number and I'll get back to you.
Phil Green: Okay, just last one for me switching to capital management. Just wondering, you guys were active last year and share prices lower than where it is today. Just wondering some updated thoughts on share buyback appetite. We continue to be opportunistic. We're mainly focused on The dividend, as we said many times, you know, we did increase the dividend in this quarter. was just three quarters from the previous increase, so we were a little more aggressive with the dividend. I think that will be one of the areas that we continue to focus on.
Speaker Change: Okay, and just last one for me switching to capital management I was just wondering.
Speaker Change: You guys were active.
Speaker Change: Last year at share prices lower than where it is today just wondering some updated thoughts on share buyback appetite.
Speaker Change: And we continue to be opportunistic.
Speaker Change: We are mainly focused on.
Speaker Change: The dividend as we said many times, we did increase the dividend this quarter, which was.
Speaker Change: Which was just three quarters from the previous increase though we were little more aggressive with the dividend I think that's that will be one of the areas that we continue to focus on.
Catherine Mealor: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Catherine Mealor: Our next question is from Catherine Mealor with KBW. Please proceed. Thanks. Good afternoon. Heather.
Speaker Change: Our next question is from Katherine.
Speaker Change: Yeah, Laura with <unk>. Please proceed.
Katherine: Thanks, Good afternoon.
Speaker Change: Catherine.
Catherine Mealor: I just want to follow up back into the margin on just the bond book. Can you can you give us a little bit of color as to how you're thinking about the size of the bond book and then further reinvestment in your cash flows, especially as we have more cuts? I'd be happy to Catherine. So we're, we're looking at either maturities, or expected pay pay downs of just under 2 billion for the rest of the year. That is going to roll off, and I'm just pulling up the... The exact numbers here. at around a 340 yield.
Speaker Change: Maybe just one follow up back into the margin on just the bond book.
Speaker Change: Can you give us a little bit of color as to how youre thinking about the size of the bond book and then further reinvestment in your cash flows, especially as we have more cuts throughout the back half of the year.
Speaker Change: I'd be happy to Catherine So where we're looking at either maturities or expected pay pay downs are just under $2 billion for the rest of the year.
Speaker Change: And.
Speaker Change: That is kind of roll off and I'm, just pulling up the.
Speaker Change: The exact numbers here.
Speaker Change:
Speaker Change: At around a 340 <unk> yield.
Catherine Mealor: And, you know, we've, we've already, we've already purchased We've increased our total for the year from about $2 billion in purchases to $4 billion. We're going to now our purchase so far. But we plan on, you know, I would I would just say for the rest of the year, you know, we're gonna we're gonna look to reinvest. Reinvest, I'm not going to get the exact number, so I don't know. We have about $850 million yet to be purchased this year, so we'll reinvest some of that, but also build some of our liquidity and fund loan growth.
Speaker Change: And yeah, we've we've already we've already purchased.
Speaker Change: We've increased our total for the year from about $2 billion in purchases to $4 billion and.
Speaker Change: I'm going to now are.
Speaker Change: What we've purchased so far.
Speaker Change: But we plan on I would I would just say for the rest of the year you know, we're going to we're going to look to reinvest <unk>.
Speaker Change: Reinvest.
Speaker Change: Let me get the exact numbers I don't.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: We have.
Speaker Change: $850 million yet to be purchased this year, so well well well reinvest some of that.
Speaker Change: But also build build some of our liquidity and fund loan growth.
Catherine Mealor: Got it.
Speaker Change: Got it okay. So then most of the purchases you're saying you have mostly already happened and yeah. Yeah. That's it.
Catherine Mealor: Okay, so most of the purchases, you're saying have mostly already happened. And so, yeah, that should kind of trail off in the back half of the year. Okay. And then, and then this quarter, since so much of it was And so because so much of that happened this quarter. Uh, what would you say the full impact of that was on Bonnie? like the whole quarter was a 363 bond deal. But I'm assuming that. likely moving higher, you know, when you get the Yeah, let me... Yeah, we had we had about one point 1.7 at about a 582 yield, and then our munis were about a 555 yield tax equivalent.
Speaker Change: Kind of trail off in the back half of the year, Okay, and then and there.
Speaker Change: This quarter since the downturn.
Speaker Change: Yeah.
Speaker Change: Got it got it and so because so much of that happened this quarter.
Speaker Change: What would you say the full impact of that was on bond yields.
The whole quarter was at $3 63 bond yield, but I'm assuming that.
Speaker Change: We are moving higher.
Speaker Change: You get the full quarters impact for it.
Speaker Change: Yeah.
Speaker Change: Yeah, let me.
Speaker Change: Yeah, we had we had about one point.
Speaker Change: One seven at about a 582 yield and then our munis, we're about a $5 55 yield a tax equivalent.
Catherine Mealor: And, you know, so it is, you know, going to drive some of that net interest margin growth. And as you kind of pull that forward through the second quarter, third quarter, and in addition we have some treasuries out of that $2 billion that's maturing, a little over half is going to be in treasuries, of which $675 million is in May. If that helps. Yeah, no, it does. So it feels like the increase in your NII outlook is really more what's happening in the bond portfolio more than really anything else. Is that a fair? Between that and the lower, lower deposit costs.
Speaker Change: And yeah. So it is going to drive some of that net interest margin growth.
Speaker Change:
And as you kind of pull that forward through the through the second quarter third quarter and then in addition, we have some treasuries out of that 2 billion. That's that's maturing a little over half is going to be in treasuries of which 675 million is in may.
Speaker Change: Okay.
Speaker Change: If that helps.
Speaker Change: Yeah no. It does it it seems like the increase in your NII outlook, its really more what's happening in the bond portfolio more than really anything else is that a fair.
Speaker Change: Between that and the lower lower deposit costs.
Catherine Mealor: Those are the two bigger drivers and then just, you know, some Lone Growth in there. Great. Okay.
Speaker Change: Those are the two bigger drivers and then just some.
The loan growth in there.
Speaker Change: Great, Okay, and maybe just one follow on just on the new loan growth pricing, where what are you seeing there I know, it's it's gotten more competitive just curious where new loan productions coming on today.
Catherine Mealor: And maybe just one follow-up on the new loan growth pricing. What are you seeing there? I know it's gotten more competitive. Just curious where new loan production is coming on today. So the loan production, you know, we're certainly seeing it in consumer, as we mentioned. You know, we got 20% loan growth there kind of for the 11th consecutive quarter. You know, we're seeing some better, some slightly better usage in C&I this last month. It's not, I wouldn't call it anything related to tariffs, it's just a little bit of a bump. But we are seeing good volumes on C&I, and then you also saw some energy growth that will be opportunistic.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: So the loan production yeah, we're certainly seeing it in our consumer as we mentioned you know, we got a 20% loan growth.
Speaker Change: They are kind of for the 11th consecutive quarter, we're seeing some some better some slightly better usage and C&I. This last month, it's not I wouldn't call. It anything related to tariffs is just a little bit of a bump, but we are seeing good volumes on on C&I and then.
Speaker Change: You also saw some some energy growth that we will be opportunistic we're going to watch that.
Manan Gosalia: We're going to watch that percentage to loans in our energy book. But I would say it's primarily going to be driven by consumer and C&I. Great. Thank you. Appreciate it.
Speaker Change: At percentage to loans in our energy book.
Speaker Change: But it's I would say, it's primarily going to be driven by consumer and C&I.
Speaker Change: Okay, great. Thank you appreciate it.
Phil Green: Our next question is from Manan Gosalia with Morgan Stanley. Please proceed. Hey, good afternoon. Phil, you noted that many commercial clients are confident in their ability to pass on some of the higher costs to their customers. And I know that part of your long-run success has also come on the consumer side in addition to commercial.
Sylvia: Our next question is from my name is Sylvia with Morgan Stanley. Please proceed.
Speaker Change: Hey, good afternoon.
Speaker Change: Good afternoon.
Speaker Change: So you noted that many commercial clients are confident in their ability to pass on some of the higher costs to their customers.
And I know that part of your long run success has also come on the consumer side. In addition in addition to commercial so how sensitive is the consumer client base in your footprint to inflation and the broader macroeconomic trends.
Phil Green: So how sensitive is the consumer-client base in your footprint to inflation and the broader macroeconomic trends? You know, I don't think any more... then you'd see other places. I mean, I think that we continue to see the consumer spending money. I think that the They continue to borrow money on the home equity side, you know, our mortgage numbers have been good. I would say there's, on the margin, probably a little bit of slowing because there's some uncertainty. It's interesting to me that some of the... Confidence Numbers that I see published. Don't really seem to match up exactly with the spending numbers or you know what you're seeing in other areas So I don't think we've seen a big slowdown in the consumer at this point I think the big reason is because people have jobs and jobs growing.
Speaker Change: Yeah.
Speaker Change: You know I don't think anymore.
Speaker Change: Then you'd see other places.
Speaker Change: Thank you.
Speaker Change: Two new to see the consumer spending money I think that the.
Speaker Change: Yeah.
Speaker Change: We continue to borrow money on the home equity side.
Speaker Change: Our mortgage numbers have been good I would say there is there is on the margin probably be a little bit of slowing because of some uncertainty but.
Speaker Change: Switching to me that some of the.
The confidence numbers that I see published.
Speaker Change: Really seem to match up exactly with the spending numbers or what you've seen in other areas. So I don't think we've seen.
Speaker Change: A big slowdown in the consumer at this point I think the big reason is because people have jobs and job.
Phil Green: You know, you look in Texas, the amount of the unemployment rate is less, job growth is higher.
Speaker Change: Growing you look in Texas the mountain.
Speaker Change: <unk> rates less job growth was higher so as long as long as we have jobs I think youre going to continue to be reasonably stable.
Phil Green: So as long as they have jobs, I think you can, they're going to continue to be re Got it.
Speaker Change: Got it.
Dan Geddes: And then maybe on the NII outlook, 5% to 7%, I think you noted four cuts are baked into that guide. So, if we get fewer rate cuts this year, how are you thinking about that NII outlook from here? And also, like, what portion of the curve are you most sensitive to? So, if we get the belly of the curve maybe staying where it is, but the short end of the curve moving down, does that change where you come in that in your NII range? So, in terms of the cuts, it's around 1.7, 1.8 million a month impact, and so that would be, if it didn't happen, that would be just a positive on each cut, and then that might increase closer to 2 million if we get closer to 4 by the end of the year, but you think about it in that range, and then in terms of just thinking through the yield curve.
Speaker Change: And then maybe on the NII outlook, 5% to 7% I think you'd noted for costs are baked into that guide them. So if you if we get few or rate cuts to see or how are you thinking about that NII outlook from here and also like what portion of that Oh, you're more sensitive to it so if we get.
Speaker Change: The belly of the curve, maybe staying where it is but the short end of the curve moving down does that change where you come in that are in your NII ranch.
Speaker Change: So in terms of the cuts are it's around 1.7 $1.8 million a month impact if and so that would be if it didn't happen that would be to the positive.
Speaker Change: Uh huh.
Speaker Change: On an each cut and then it might that might increase a closer to $2 million as we get if we get closer to four by the end of the year, but if you think about it in that range and then in terms and just thinking through the the yield curve.
Dan Geddes: You know, if, if, if on the, on the short end, if, if we get, you know, If you were cuts there, the rates kind of stay elevated on the short end, I mean, that's going to help a big portion of our portfolio. On the long end, you know, that's... I would say it's going to be more impactful on the short end, just in terms of our asset sensitivity is how I would answer that.
Speaker Change: You know if if.
Speaker Change: If on the on the short end, if if we get.
Speaker Change: Fewer cuts there the rates kind of stay elevated on the short end I mean, that's going to that's going to help or a big portion of our portfolio.
Speaker Change: Yeah.
Speaker Change: On the on the long end you know that.
Speaker Change: I would say, it's going to be more impactful on the short end just in terms of our asset sensitive sensitivity as to what how I would answer that.
Dan Geddes: Got it. Thank you.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Peter Winter: Our next question is from Peter Winter with D.A. Davidson. Please proceed. Ah, thanks. Phil, just given this increased uncertainty, are there any loan portfolios maybe you're watching more closely and or maybe any portfolios that are causing you to tighten underwriting standards a little bit more? Peter, I don't think we're, we're timing anything. As a result of uncertainty, really, we tend to be middle of the fairway. We're a little bit more of a conservative underwriter. You know, if you looked at say energy, for example, we changed the price deck recently, we now got a five panel on that price deck, I think it starts at 58.
Speaker Change: Our next question is from Peter Winter with D. A Davidson. Please proceed.
Speaker Change: Thanks.
Speaker Change: So.
Just given this increased uncertainty are there any loan portfolios, maybe youre watching more closely and or maybe any portfolios that are causing you to tighten underwriting.
Speaker Change: Underwriting standards, a little bit more.
Speaker Change: [laughter].
Speaker Change: I don't think we're tightening anything.
Speaker Change: As a result of uncertainty really we tend to be middle of the fairway, where a little bit more of a conservative underwriter.
If you looked at say energy for example, we changed the price deck recently, we now got a five handle on that price deck I think it starts at 58.
Speaker Change: For several years I think we lowered our price deck on gas I think it was 325 instead of three now.
Speaker Change: So you could argue that's tightening things up.
Speaker Change: Normally how that goes but I really feel though that where we stand.
Phil Green: But I really feel, though, that where we stand Yeah, it's good. You know, our credit, we had some really large improvements. Last quarter, a couple of years ago, we talked had some serious problems, but they paid that off in its entirety, that was $70 million. Problem credit, you know, we saw that this time we this time we sold an office building that we had foreclosed. We talked about one in the Houston area that we'd taken on. It was that one that, you know, we did that deal right before COVID, literally the month before COVID. You know, we We had it on the books for 12, we sold it for 14 and change, you know, so.
Speaker Change: It is good.
Speaker Change: We had some really large improvements last quarter, we have a couple of years ago, we talked about it.
Speaker Change: Trailer manufacturer that had had a inventory probably many R&M system and some serious problems, but they paid that off in its entirety that $70 million.
Speaker Change: Our problem credits.
Speaker Change: At this time, we this time, we sold an office building that we had for close we've talked about one of the Houston area that we've taken on and it was in one that we did the deal right before could literally the multifocal.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: We had it on the books it will be seen 14 change so.
Speaker Change:
Phil Green: And then if you look at the energy portfolio, we were just talking about that recently. You know, I think we're at our lowest level in history with regard to you know, leverage for cash flow, I think our debt pivot axis under under You know, that number was, what was it, 3%? The regulators didn't want to see you over that. I remember back what it was back in 2016. Those periods are a lot higher, so that's historically low. Our advance rates against collateral, really, are historically low. And if you look at, say, hedging, we require 50% of production be hedged in anywhere between one and two years.
Speaker Change: And then if you look at the energy portfolio, we were just talking about that recently.
Speaker Change: I think we're at our lowest level in history with regard to.
You know leverage free cash flow I think our debt to EBITDAX is under under one number was what was it 3%. The regulators didn't you didn't see you over there.
Speaker Change: Remember back what it was back in 2016.
Speaker Change: Those periods a lot higher so they would do that.
Speaker Change: Meanwhile, our advance rates against collateral really or historically low and if you look at.
Speaker Change: See our hedging we require 50% of its production.
Speaker Change: Hedge.
Speaker Change: Anywhere between one and two year or so.
Phil Green: You know, so I was, and then I looked at problems, you know, because you're seeing problems and get solved and seeing problems. The problems that are coming in are just the same things that we've been seeing. You know, they might be a construction firm, might be an equipment dealer, it might be an office building, but they're just, they're one-off deals that is, to me, is just banking. It's really not any wave of anything in particular. At this point, no. Got it. That's helpful. And then...
Speaker Change: So.
Speaker Change: And then I looked at problems.
Speaker Change: Because you always seem promising gets solvency problems coming in.
Speaker Change: The problems are coming in or just the same things and see.
Speaker Change: It might be a construction firm, albeit equipment dealer.
Speaker Change: Might be an office building, but they're just they're one off deals that.
Is to me is just banking, it's really not any wave at me anything in particular.
Speaker Change: That we see.
Speaker Change: So at this point no.
Speaker Change: Got it that's helpful and then.
Right.
Dan Geddes: You know, just with the insurance commissions, which Dan, you talked about, I know there's the seasonal increase in the first quarter, but year-over-year was incredibly strong also of 15%. I'm just wondering, what's driving the growth year-over-year and how are you maybe thinking about the growth rate going forward? We were really encouraged by that growth as well. You know, one quarter doesn't make it a trend, but it sure could be the start of one. And, you know, we had a change where the insurance is now aligned with our commercial banking group. And we've seen an increase in the amount of commercial bankers who have gotten their insurance license.
Speaker Change: Just with the insurance commissions.
Speaker Change: Which Dan you talked about I know there was the seasonal increase.
Speaker Change: In the first quarter.
Speaker Change: But year over year was incredibly strong also up 15% I'm just wondering what's driving the growth year over year, and how you may be thinking about the growth rate going forward.
Speaker Change: We were really encouraged by that.
Speaker Change: That growth as well you know one quarter doesn't make a trend, but it's sure could be the start of one and yeah. We had a we.
Speaker Change: We have a change.
Speaker Change: Where the insurance is now aligned with our commercial banking group and we've seen an increase in the amount of commercial bankers, who have gotten their insurance license and so that there is an increase in referral activity into our insurance agency and I, just think theres better allow.
Dan Geddes: And so there's an increase in referral activity into our insurance agency. And I just think there's better alignment. And I ask the question, how much of this 15% increase is just due to increased policy rates? If you've gotten your homeowner's insurance or car insurance or if you have a teenager driver you get some prize with that. But we looked into it and 80% of that growth is net new business or us picking up market share. So it's an encouraging start and we hope it continues. That's great. Thank you.
Speaker Change: And it's and I asked the question how.
Speaker Change: How much of this 15% increase is just due to increased policy rates, because if you've gotten your homeowners insurance or car insurance and or if you have a teenager driver you get some surprised with that but it's if we looked into it and 80% of that growth is net new business.
Speaker Change: Our us picking up market share. So it's a it's an encouraging start and we will hope it hope it continues.
Speaker Change: That's great. Thank you.
Dan Geddes: And I did want to, Casey, I think you had that question on payoffs. In the first quarter of 2025. There was over 430 million in payoffs. And that compares to the first quarter last year when we just had a little over 150.
Casey Haire: And I didn't want to Casey I think you had that question on pay offs in the first quarter of 2025, there was over 430 million in payoffs and that compares to the first quarter of last year. When we just had a little over $150 million.
Michael Rose: Our next question is from Michael Rose with Raymond James. Please proceed. Hey, good afternoon. Thanks for taking my questions. Just wanted to get a better sense for what drove the reduction in problem loans this quarter looks like they were down about five and a half percent. But you did build the reserve, I think, two basis points. So just trying to kind of reconcile that. Thanks. I think the You know, if you look at. If you look at problem loan payoffs and resolutions for the quarter 10 million and higher. Okay, well Two of them I talked about, one was that manufacturer trail.
Our next question is from Michael Rose with Raymond James. Please proceed.
Michael Rose: Hey, good afternoon, thanks for taking my questions.
Michael Rose: Just wanted to get a better sense for what drove the reduction in problem loans. This quarter looks like they were down about five 5%.
Michael Rose: But you did build the reserve I think two basis points. So just trying to kind of reconcile that thanks.
Michael Rose: Yeah, I think the.
Michael Rose: If you look at.
Michael Rose: If you look at problem loan payoffs and resolutions for quarter.
Michael Rose: And you look at say the deals that were <unk> 2 million in higher okay well.
Michael Rose: Two of them I talked about one was a manufacturer of trailers and one of them.
Michael Rose: It was an office building.
Michael Rose: Within another it was almost.
Phil Green: Please see the complete disclaimer at https://sites.google.com Private Credit Facility on a bridge. That would be what I would say would be the most. interesting of that. We're always working problem credits to get them better and rehabilitate it. So that's never going to You know, you did see new things coming out, but as I mentioned... They were really just what we've seen before.
Michael Rose: Almost $100 million apartment project that was.
Michael Rose: It was refinanced and paid off the road.
Michael Rose: Great.
Michael Rose: On our bridge.
Michael Rose: Rich arrangements so.
Michael Rose: You know, it's just people.
Michael Rose: You can do the student business.
Michael Rose: We are.
Michael Rose: That would be what I would say it would be the most.
Michael Rose: Interesting.
Michael Rose: We're always working problem credits to get them better rehabilitated. So that's where we're going to change I don't like I see you did see new things coming on but as I mentioned.
Michael Rose: They were really just what.
Michael Rose: <unk>.
Michael Rose: Okay.
Phil Green: © The Ultimate Parody Site-Limited Editions, LLC And we did build our allowance, and that's driven by, you know, we made some tweaks to really account for tariffs, risk of recession, and so that, we just felt like that was prudent. Great. Yeah, there's gonna be my follow up. Okay, great. And then maybe just on The pay down assumptions, if we don't get, you know, four cuts, let's say we get one or two. I assume that would be a positive to the loan growth outlook. But, but, you know, what was the sensitivity there in terms of your assumptions around pay downs?
Michael Rose: One trend.
Speaker Change: So anyways, Michael that's really what we're seeing and we did build our allowance and Thats and Thats driven by.
Speaker Change: We made some tweaks to really account for tariffs risk of recession.
Speaker Change: And so that's we just felt like that was prudent to do.
Speaker Change: Great Yeah, there's going to be my follow up okay, Great and then maybe just on.
Speaker Change: The paydown assumptions, if we don't get.
Speaker Change: Four cuts, let's say, we get one or two.
Speaker Change: I would assume that would be a positive to the loan growth outlook.
Speaker Change: But.
Speaker Change: What what's the sensitivity there in terms of your assumptions around pay downs. Thanks.
Phil Green: Thanks. Well, I think part of it is if we do get four cuts versus two, I think two cuts, it likely means the economy is doing better. So I think you can make the assumption that we could see stronger loan growth if we get two cuts versus four, just thinking through what the implications of two versus four means. So I think that's, you know, I think that's, you might see if you, if we do get four cuts, the flip side of that might be some of the CRE opportunities. You know, all of a sudden, you know, on the, we may end up, those all of a sudden look a lot better than the ones on our books.
Speaker Change: Yeah.
Speaker Change: I think part of it is if we do get four cuts versus two I think two pets.
Speaker Change: Likely means the economy is doing better. So I think you can make the assumption that.
Speaker Change: We could see stronger stronger loan growth, if we get two cuts versus for just if just thinking through what the implications of of two versus four means.
Speaker Change: So I think that's I think that's it.
Speaker Change: You might see if you if we do get.
Speaker Change: Four cuts.
Speaker Change: The flip side of that might be some of the CRE opportunities.
Speaker Change: All of a sudden.
Speaker Change: On the we May end up those all of a sudden look a lot better than the ones on our books.
Speaker Change: But also we could see just if that's going to be kind of the expectation of rates going forward.
Phil Green: But also, we could see just if that's going to be kind of the expectation of rates going forward, you could see just some more activity in new CRE, but you probably wouldn't see fundings until 26 or 27 on those. Got it. Okay, helpful.
You could see some more activity and new CRE, but he would probably wouldn't see fundings until 'twenty six 'twenty seven on this.
Speaker Change: Got it okay helpful. Maybe just one last one for me just on the on the mortgage business.
Michael Rose: Maybe just one last one for me just on the mortgage business. Looks like balances are up about 15%, you know, queue on queue, but some of the more recent industry mortgage numbers haven't been great. I know it's a new business for you guys.
Speaker Change: It looks like balances are up about 15% Q on Q, but some of the more recent industry mortgage numbers haven't been great I know, it's a new business for you guys.
Phil Green: Does the backdrop, you know, change any of the assumptions, kind of in the intermediate term as it relates to the business? Or is it just you're growing from a small base and don't, you know, won't be subject to, you know, the same headwinds that, you know, the larger, more established players will be? Thanks. Yeah, you know, I think that some of it is a small base. It really relates, in our case, to referrals that we get through our system. and a lot of it relates to internal referrals and we've really been focused on that. I'd argue it's the best in the market if you look at pricing and experience, etc.
Speaker Change: Does the backdrop changed any assumptions kind of in the in the intermediate term as it relates to the business or is it just you're growing from a small base.
Won't be subject to you know.
Speaker Change: The same headwinds that the larger more established players wobig. Thanks.
Speaker Change: Yeah, you know I think that some of it is a small base.
Speaker Change: But.
Speaker Change: It really relates in our case of referrals.
Speaker Change: Maybe get through our system either.
A lot of it relates to internal referrals and we've really been focused on behalf.
Speaker Change: And making sure that we're getting.
Speaker Change: Really good response from our bankers because our product is really.
Speaker Change: I would argue it's the best in the market.
Speaker Change: Reising experience etcetera, so I think that if we can just get people in.
Phil Green: So I think that we can just get people in. I think that's partly what's happening. I think that there, I am aware that there have been some slowdown very recently we heard where one of the builders I think had had some layoffs in some of their mortgage operations. In fact, they were wondering if we were looking. And I thought that was interesting. In our case we're really just trying to put people in homes, it doesn't have a lot of refinance activity. It's been pretty stable and as long as we get referrals from our bankers. Of course, we're developing our network of realtors.
Speaker Change: We can sell them so I think that's.
Speaker Change: Partly what's happening.
Speaker Change:
Speaker Change: No I think that there are.
Speaker Change: There've been some slowdown and very recently, we heard were one of the one of the builders I think could have some layoffs and some of their mortgage operation. In fact, they were wondering if we were looking to hire people and.
Speaker Change: Thought that was interesting but.
But in our case, we're really just trying to put people in homes. It doesn't have a lot of refinance activity.
Speaker Change: So.
Speaker Change: It's been pretty stable and as long as we get referrals from our bankers and of course, we are developing our network of Realtors as we're doing that business.
Phil Green: We're new in that business.
Speaker Change: We.
Speaker Change: I think we're going to be fine.
Phil Green: we're going to be I really believe that we can meet our goal for the year, which is by... End of the year ban.
Speaker Change: I really believe we can meet our goal for the year, which is by the end of the European had half a billion dollars.
We'll see.
Phil Green: Just a reminder on those, 30% of those mortgage loans so far have been to brand new customers of the bank, so it's also been a nice lead-in product as over half a million people are moving to Texas in the last year, so it gives us this opportunity to deliver a great experience to somebody that may be new to one of our cities here in Texas. Great. I appreciate it. Thanks for taking my question.
Speaker Change: Just a reminder, on those 30% of those mortgage loans, so far have been to brand new customers of the bank. So that's also been a nice lead in product as you know over a half a million people or move into Texas or in the last year. So it gives us this opportunity to deliver a great experience to somebody that may be a new.
Speaker Change: It is two.
Speaker Change: One of our cities here in Texas.
Speaker Change: Great I appreciate it thanks for taking my questions.
John Arfstrom: Our final question is from John Arfstrom with RBC Capital Markets. Please proceed. Hey, thanks. Good afternoon. Good afternoon, a few cleanup questions.
Speaker Change: Our final question is from John Armstrong with RBC capital markets. Please proceed.
Speaker Change: Thanks, Good afternoon.
Speaker Change: Good afternoon.
Speaker Change: Q2 cleanup questions.
Dan Geddes: What's the reason you guys are adding the two more cuts to your guidance? Is that is it yield curve driven? Or do you think the economy needs four cuts? It doesn't feel like it. But is it just the forward curve? It's we're really trying to stay a little bit more conservative than the market or the curve. So I don't, I don't think we want to get out ahead of ourselves one way or the other. And that's, that's kind of where we see it right now.
Speaker Change: But what's the reason you guys are adding two more cuts to your guidance does that is it yield curve driven or do you think the economy needs for cuts it doesn't feel like it but is it just.
Speaker Change: The forward curve.
Speaker Change: It's it's we're really trying to stay a little bit more.
Speaker Change: Conservative than the market or the curve. So I don't I don't think we want to get.
Speaker Change: Get out ahead of ourselves one way or the other and yeah. That's that's kind of where do we see it right now I think.
Dan Geddes: I think Your guess is probably as good as mine as to where we'll be in 60 days or 90 days.
Your guess is probably as good as mine as to where we'll be in 60 days or 90 days.
Speaker Change: Yep Okay.
Phil Green: Phil, maybe for you... You guys didn't change your loan growth guide. And I understand that. But do you feel better about the loan growth outlook now than maybe you did a month or six weeks ago, when a lot of the tariff noise was higher? I don't feel a lot different, John. think there's two things that are working. One is You know, as long as there's uncertainty, businesses tend to, you know... I still think we have some of that. We need to work through that. So that's a little bit on the negative side, but... Positive side, going back.
Phil: Phil maybe for you.
Speaker Change: You guys didn't change your loan growth guide I understand that but do you feel better.
Speaker Change: How about the loan growth outlook now than maybe you did a month or six weeks ago. When a lot of the tariff noise it was higher.
Speaker Change: I don't feel a lot different John I think there's two things.
Speaker Change: Our working.
Speaker Change: One is.
Speaker Change: You know as long as there's uncertainty businesses team.
Speaker Change: Stay away from things that are kind of they don't tend to lean into uncertainty very hard.
Speaker Change: I still think we have something that we need to work through that so that's a little bit on the negative side, but on the positive side going back to Q1 I pointed out in my comments.
Phil Green: I pointed out in my comment People are just doing a great job. And, you know, our expansion efforts are adding more and more bankers in these communities that are, that are working hard as well. So, you know, we've got a lot of stuff. It's still a great market in Texas, right? There's still a ton of market share that we don't have. And as long as we do our job, Going through the work, going through the steps of developing this. As long as our value proposition is as good as what it is, I think I'm pretty optimistic about it.
Speaker Change: We're just doing a great job.
Speaker Change: Back in the market.
Speaker Change: And our expansion.
Speaker Change: Ancient efforts or adding more and more bankers in these communities that are.
Speaker Change: That are.
Speaker Change: We are working hard.
Well, so we've had a lot of stuff.
Speaker Change: It's still a great marketing, Texas right, there's still a ton of market share that we don't have as long as we do our job.
Speaker Change: Oh yeah.
Speaker Change: Going through the work going through the steps of developing business and as long as our value proposition is as good as what it is.
Speaker Change: I think I'm pretty optimistic.
Speaker Change: Mr.
Speaker Change: Okay.
Speaker Change: Okay.
Dan Geddes: Thank you for that and then maybe one more for you, Dan. You talked a little bit about insurance and mortgage, but anything else holding back your expectations on non interest income growth? I know you bumped it up, but it feels like you're doing a little bit better than the guy.
Speaker Change: Thank you for that and then maybe one more for you Dan.
Speaker Change: You talked a little bit about insurance and mortgage but anything else.
Speaker Change: Back to your expectations on noninterest income growth I know you bumped it up but it just feels like youre doing a little bit better than the guide.
Dan Geddes: You know, uh... I think one is just volume of our driven, it's, you know, through interchange or some service charges that I would expect maybe to the upside as we just continue to build new relationships across the state, whether that's commercial or consumer, I mean, you heard Industry-leading consumer growth, most new relationships in the first quarter. So those would pretend, for some optimistic... Non-interest income growth, you know, there's... I think, I think it's just. Doing what we do every day and going into new communities with our organic growth strategy or taking care of our customers, listening to their needs, and so I just think it's just the blocking and tackling of what we do.
Speaker Change: You know.
Speaker Change: I think one is just volume of our driven it's through interchange or some service charges.
Speaker Change: I would expect maybe up to the upside as we just continue to build new relationships across the state.
Speaker Change: That's commercial or consumer Ya man you heard some.
Speaker Change: <unk> industry, leading consumer growth.
Speaker Change: Most new relationships in the first quarter, so those would pretend.
Speaker Change: For some optimistic.
Noninterest income growth yeah, there is.
Speaker Change: I think I think it's just doing what we do every day and going into <unk>.
Speaker Change: On new communities with our organic growth strategy are taking care of our customers are listening to their needs and and I. So I just think it's just the blocking and tackling of what we do.
Dan Geddes: And, you know, I will say, you know, we've added in the expansion over 90. Relationship managers are calling officers into these 70, almost 70 locations that we've added. You know, that's going to make a difference.
Speaker Change: And you know it all I.
Speaker Change: I will say you know we've added and the expansion over 90.
Speaker Change: Relationship managers are calling officers and of these 70 now almost 70 locations that we've added yeah. That's that's that's going to make a difference.
Dan Geddes: Okay.
Speaker Change: Okay, Alright, thanks, guys.
Dan Geddes: All right.
Operator: Thanks, guys.
John Armstrong: Thanks, John.
Operator: There are no further questions at this time.
Speaker Change: There are no further questions at this time I would like to turn the conference back over to Phil Green for closing remarks.
Phil Green: I would like to turn the conference back over to Phil Green for closing remarks. Thank you everyone, we appreciate your continued interest and we will adjourn. Thank you. This will conclude today's conference.
Phil Green: Well. Thank you everyone. We appreciate your continued interest and we will be a journey.
Speaker Change: Okay.
Speaker Change: Thank you. This will conclude today's conference you may disconnect at this time and thank you for your participation.
Operator: You may disconnect at this time and thank you for your participation.