Cullen/Frost Bankers Q4 2025 Cullen/Frost Bankers Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Cullen/Frost Bankers Inc Earnings Call
Speaker #1: Ladies and gentlemen, thank you for your patience. The conference will be beginning in just a few minutes. Once again, thank you for your patience.
Operator: Ladies and gentlemen, thank you for your patience. The conference will be beginning in just a few minutes. Once again, thank you for your patience. We'll be beginning in a few minutes. Greetings. Welcome to Cullen/Frost Bankers, Incorporated, Fourth Quarter and Full Year 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 during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin.
Operator: Ladies and gentlemen, thank you for your patience. The conference will be beginning in just a few minutes. Once again, thank you for your patience. We'll be beginning in a few minutes. Greetings. Welcome to Cullen/Frost Bankers, Inc., Q4 and Full Year 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 during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin.
Speaker #1: We'll be beginning in a few minutes. Greetings. Welcome to Cullen/Frost Bankers, Incorporated, fourth quarter and full year 2025 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation.
Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to A. B. Mendez, Senior Vice President and Director of Investor Relations.
Speaker #1: Thank you. You may begin.
Speaker #2: Thanks, Juri. This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, I need to take a moment to address the safe harbor provisions.
A.B. Mendez: Thanks, Sherry. This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, 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. 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. If needed, a copy of the release is available on our website or by calling the Investor Relations Department at 210-220-5234.
A.B. Mendez: Thanks, Sherry. This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, 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. 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. If needed, a copy of the release is available on our website or by calling the Investor Relations Department at 210-220-5234.
Speaker #2: 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 #2: 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. If needed, a copy of the release is available on our website, or by calling the Investor Relations Department at (210) 220-5234.
Speaker #2: At this time, I'll turn the call over to
A.B. Mendez: At this time, I'll turn the call over to Phil.
At this time, I'll turn the call over to Phil.
Speaker #3: Thank you, AB. Good afternoon, everyone, and thanks for joining us. Today, we'll review fourth quarter and full-year 2025 results for Cullen/Frost, and our CFO, Dan Geddes.
Phil Green: Thank you, A.B. Good afternoon, everyone, and thanks for joining us. Today, we'll review Fourth Quarter and Full Year 2025 results for Cullen/Frost, and our CFO, Dan Geddes, will provide additional commentary and guidance before we take your questions. In the Fourth Quarter, Cullen/Frost earned $164.6 million, an increase of $11.4 million, or 7.4%, compared to the same period last year. For share earnings for the Fourth Quarter of 2025, we're $2.56, an increase of 8.5% from the previous year. For the Full Year 2025, the company's net income available to common shareholders was $641.9 million, an 11.5% increase over last year. On a per-share basis, 2025 Full Year earnings were $9.92 a share, compared with $8.87 a share for 2024.
Phil Green: Thank you, A.B. Good afternoon, everyone, and thanks for joining us. Today, we'll review Fourth Quarter and Full Year 2025 results for Cullen/Frost, and our CFO, Dan Geddes, will provide additional commentary and guidance before we take your questions. In the Fourth Quarter, Cullen/Frost earned $164.6 million, an increase of $11.4 million, or 7.4%, compared to the same period last year. For share earnings for the Fourth Quarter of 2025, we're $2.56, an increase of 8.5% from the previous year. For the Full Year 2025, the company's net income available to common shareholders was $641.9 million, an 11.5% increase over last year. On a per-share basis, 2025 Full Year earnings were $9.92 a share, compared with $8.87 a share for 2024.
Speaker #3: We'll provide additional commentary and guidance before we take your questions. In the fourth quarter, Cullen/Frost earned $164.6 million, an increase of $11.4 million, or 7.4%, compared to the same period last year.
Speaker #3: For share earnings for the fourth quarter of 2025 were $2.56, an increase of 8.5% from the previous year. For the full year 2025, the company's net income available to common shareholders was $641.9 million, an 11.5% increase over last year.
Speaker #3: On a per-share basis, 2025 full year earnings were $9.92 a share, compared with $8.87 a share for 2024. Our return on average assets and average common equity in the fourth quarter were 1.22% and 14.8%, respectively, and those compare with 1.19% and 15.58%, respectively, in the fourth quarter of last year.
Phil Green: Our return on average assets and average common equity in Q4 were 1.22% and 14.8%, respectively, and those compare with a 1.19% and 15.58%, respectively, in Q4 of last year. Average deposits in Q4 were $43.3 billion, an increase of 3.5% year-over-year. Average loans grew to $21.7 billion in Q4, an increase of 6.5% compared with Q4 last year. Our organic expansion strategy continues to generate positive results. As the quarter ended, expansion deposits exceeded $3 billion, while at the same time, expansion loans stood at $2.37 billion. In total, the expansion has added more than 78,000 new households. All this represents about 11% of company loans and 7% of company deposits. Dan will give insights into the overall accretion of the expansion effort in his comments, but I will say it continues to improve.
Our return on average assets and average common equity in Q4 were 1.22% and 14.8%, respectively, and those compare with a 1.19% and 15.58%, respectively, in Q4 of last year. Average deposits in Q4 were $43.3 billion, an increase of 3.5% year-over-year. Average loans grew to $21.7 billion in Q4, an increase of 6.5% compared with Q4 last year. Our organic expansion strategy continues to generate positive results. As the quarter ended, expansion deposits exceeded $3 billion, while at the same time, expansion loans stood at $2.37 billion. In total, the expansion has added more than 78,000 new households. All this represents about 11% of company loans and 7% of company deposits. Dan will give insights into the overall accretion of the expansion effort in his comments, but I will say it continues to improve.
Speaker #3: Average deposits in the fourth quarter were $43.3 billion, an increase of 3.5% year over year. Average loans grew to $21.7 billion in the fourth quarter, an increase of 6.5% compared with the fourth quarter last year.
Speaker #3: Our organic expansion strategy continues to generate positive results. As of quarter-end, expansion deposits exceeded $3 billion, while at the same time, expansion loans stood at $2.37 billion.
Speaker #3: In total, the expansion has added more than 78,000 new households. All this represents about 11% of company loans and 7% of company deposits. Dan will give insights into the overall accretion of the expansion effort in his comments, but I will say it continues to improve.
Speaker #3: Looking at our consumer business, we continue to see strong results driven by a consistent focus on an excellent customer experience across all of our channels.
Phil Green: Looking at our consumer business, we continue to see strong results driven by a consistent focus on an excellent customer experience across all of our channels. Our consumer bank is designed to make customers' lives better, and it marked its fifth consecutive year of what we believe is industry-leading checking household growth with a 5.8% growth rate for 2025. Our mortgage lending platform is two years old now, and we set a goal by year-end 2025 to hit $500 million in loans outstanding. Well, I'm happy to announce that we blew past that goal by the end of 2025, ending the year at $595 million, and we continue to see strong momentum in mortgages, delivering our best quarter to date with an increase of $173 million in outstanding loans during the Q4. Credit quality in this portfolio is outstanding, with an average credit score of 775 for approvals.
Looking at our consumer business, we continue to see strong results driven by a consistent focus on an excellent customer experience across all of our channels. Our consumer bank is designed to make customers' lives better, and it marked its fifth consecutive year of what we believe is industry-leading checking household growth with a 5.8% growth rate for 2025. Our mortgage lending platform is two years old now, and we set a goal by year-end 2025 to hit $500 million in loans outstanding. Well, I'm happy to announce that we blew past that goal by the end of 2025, ending the year at $595 million, and we continue to see strong momentum in mortgages, delivering our best quarter to date with an increase of $173 million in outstanding loans during the Q4. Credit quality in this portfolio is outstanding, with an average credit score of 775 for approvals.
Speaker #3: Our consumer bank is designed to make customers' lives better, and it marked its fifth consecutive year of what we believe is industry-leading checking household growth, with a 5.8% growth rate for 2025.
Speaker #3: Our mortgage lending platform is two years old now, and we set a goal by year-end 2025 to hit $500 million in loans outstanding. Well, I'm happy to announce that we blew past that goal by the end of 2025, ending the year at $595 million.
Speaker #3: And we continue to see strong momentum in mortgages, delivering our best quarter to date with an increase of $173 million in outstanding loans during the fourth quarter.
Speaker #3: Credit quality in this portfolio is outstanding, with an average credit score of 775 for approvals. Our average loan size is just under $1.5 million, at $495,000.
Phil Green: Our average loan size is just under $1.5 million at $495,000, and I should note that 40% of our mortgage borrowers are new customers to Frost. Our commercial business continued to perform well, and our people are working hard. For example, we closed out 2025 with the highest number of calls ever and an increase of 8% over the previous year. It was also a record year for new relationships, which at 4,091 were also up 8% from 2024. Here again, our expansion locations are making an impact, accounting for 20% of our overall new relationships. During the quarter, 41% of Houston's new relationships came from expansion, as well as 33% in Dallas, and 23% in Austin. New loan commitments booked in Q4 were up sharply on a link quarter basis, increasing 22% from Q3.
Our average loan size is just under $1.5 million at $495,000, and I should note that 40% of our mortgage borrowers are new customers to Frost. Our commercial business continued to perform well, and our people are working hard. For example, we closed out 2025 with the highest number of calls ever and an increase of 8% over the previous year. It was also a record year for new relationships, which at 4,091 were also up 8% from 2024. Here again, our expansion locations are making an impact, accounting for 20% of our overall new relationships. During the quarter, 41% of Houston's new relationships came from expansion, as well as 33% in Dallas, and 23% in Austin. New loan commitments booked in Q4 were up sharply on a link quarter basis, increasing 22% from Q3.
Speaker #3: And I should note that 40% of our mortgage borrowers are new customers to Frost. Our commercial business continued to perform well, and our people are working hard.
Speaker #3: For example, we closed out 2025 with the highest number of calls ever, and an increase of 8% over the previous year. It was also a record year for new relationships.
Speaker #3: Which, at 4,091, were also up 8% from 2024. Here again, our expansion locations are making an impact, accounting for 20% of our overall new relationships.
Speaker #3: During the quarter, 41% of Houston's new relationships came from expansion, as well as 33% in Dallas and 23% in Austin. New loan commitments booked in the fourth quarter were up sharply.
Speaker #3: On a late-quarter basis, increasing 22% from the third quarter. They were driven by increases in commercial real estate and energy. And Dan will talk more about our outlook for 2026 overall loan growth in his comments.
Phil Green: They were driven by increases in commercial real estate and energy, and Dan will talk more about our outlook for 2026 overall loan growth in his comments. Our overall credit quality remains good by historical standards, with net charge-offs and non-performing assets both at healthy levels. Non-performing assets were $72 million at the end of Q4, compared with $47 million last quarter and $93 million a year ago. Most of the increase in the quarter was related to one borrower, a shared national credit in the beverage distribution business that is working through a liquidation of some of its operations in various states. The year-end non-performing asset figure represented 33 basis points of period-end loans and 14 basis points of total assets. Net charge-offs for Q4 were $5.8 million, compared to $6.6 million last quarter and $14 million a year ago.
They were driven by increases in commercial real estate and energy, and Dan will talk more about our outlook for 2026 overall loan growth in his comments. Our overall credit quality remains good by historical standards, with net charge-offs and non-performing assets both at healthy levels. Non-performing assets were $72 million at the end of Q4, compared with $47 million last quarter and $93 million a year ago. Most of the increase in the quarter was related to one borrower, a shared national credit in the beverage distribution business that is working through a liquidation of some of its operations in various states. The year-end non-performing asset figure represented 33 basis points of period-end loans and 14 basis points of total assets. Net charge-offs for Q4 were $5.8 million, compared to $6.6 million last quarter and $14 million a year ago.
Speaker #3: Our overall credit quality remains good by historical standards, with net charge-offs and non-performing assets both at healthy levels. Non-performing assets were $72 million at the end of the fourth quarter, compared with $47 million last quarter and $93 million a year ago.
Speaker #3: Most of the increase in the quarter was related to one borrower, a shared national credit in the beverage distribution business that is working through a liquidation of some of its operations in various states.
Speaker #3: The year-end non-performing asset figure represented 33 basis points of period-end loans and 14 basis points of total assets. Net charge-offs for the fourth quarter were $5.8 million, compared to $6.6 million last quarter and $14 million a year ago.
Speaker #3: Annualized net charge-offs for the fourth quarter represented 11 basis points of loans, and full-year net charge-offs were 16 basis points of average loans.
Phil Green: Annualized net charge-offs for the Fourth Quarter represented 11 basis points of loans, and full-year net charge-offs were 16 basis points of average loans. Total problem loans, which we define as Risk grade 10, some people call that OAEM or higher, totaled $857 million at the end of the Fourth Quarter, and was up slightly from $828 million last quarter and down from the $943 million a year ago. 2025 was highlighted by the successful resolution of several challenged multifamily commercial real estate loans, as we communicated during prior quarterly calls, and we anticipate this progress to continue into the first half of 2026. In addition to our consumer and commercial success, we're also working hard expanding our wealth management business. We believe this is a business that makes people's lives better. In that regard, we've implemented a new organizational structure.
Annualized net charge-offs for the Fourth Quarter represented 11 basis points of loans, and full-year net charge-offs were 16 basis points of average loans. Total problem loans, which we define as Risk grade 10, some people call that OAEM or higher, totaled $857 million at the end of the Fourth Quarter, and was up slightly from $828 million last quarter and down from the $943 million a year ago. 2025 was highlighted by the successful resolution of several challenged multifamily commercial real estate loans, as we communicated during prior quarterly calls, and we anticipate this progress to continue into the first half of 2026. In addition to our consumer and commercial success, we're also working hard expanding our wealth management business. We believe this is a business that makes people's lives better. In that regard, we've implemented a new organizational structure.
Speaker #3: Total
Speaker #1: loans , which Problem we define as risk grade ten . Some people call that a or higher . the end of Total up 857 million .
Speaker #1: the At slightly from 828 million . Last total 857 million . At the end of the fourth quarter was up slightly from 828 million last quarter and down from the $943 million a year ago , 2025 was highlighted by the successful resolution of several challenged multifamily commercial real estate loans .
Speaker #1: As we communicated during prior quarterly calls and we anticipate this progress to continue into the first half of 2026 . In addition to our consumer and commercial success , we're also working hard , expanding our wealth management business .
Speaker #1: We believe this is a business that makes people's lives better . And in that regard , we've implemented a new organization structure . We've dedicated some of our best talent organizationally , and we're implementing the steps to move this business to a more effective sales culture .
Phil Green: We've dedicated some of our best talent organizationally, and we're implementing the steps to move this business to a more effective sales culture. All this with the goal to position Frost Wealth Management for long-term organic growth and success, and to strengthen our ability to compete and serve clients better. In a similar vein, we've also been working to create better alignment between our commercial banking and insurance brokerage businesses, which primarily focus on the commercial segment. All of us at Frost continue to be optimistic about our growth strategy. We've got the best bankers in the business working in the nation's best banking markets, and our teams work hard to build relationships in our existing locations and identify new locations to grow into. Our focus on building long-term relationships and our commitment to world-class service means we're well-positioned to grow and prosper.
We've dedicated some of our best talent organizationally, and we're implementing the steps to move this business to a more effective sales culture. All this with the goal to position Frost Wealth Management for long-term organic growth and success, and to strengthen our ability to compete and serve clients better. In a similar vein, we've also been working to create better alignment between our commercial banking and insurance brokerage businesses, which primarily focus on the commercial segment. All of us at Frost continue to be optimistic about our growth strategy. We've got the best bankers in the business working in the nation's best banking markets, and our teams work hard to build relationships in our existing locations and identify new locations to grow into. Our focus on building long-term relationships and our commitment to world-class service means we're well-positioned to grow and prosper.
Speaker #1: All this with the goal to position Frost Wealth Management for long term organic growth and success , and to strengthen our ability to compete and serve clients better in a similar vein , we've also been working to create better alignment between our commercial insurance banking and brokerage businesses , which primarily focus on the commercial segment .
Speaker #1: All of us at Frost continue to be optimistic about our growth strategy. We've got the best bankers in the business working in the nation's best banking markets, and our teams work hard to build relationships in our existing locations and identify new locations to grow into.
Speaker #1: Our focused on our focus on building long term relationships and our commitment to world class service means we're well positioned to grow and prosper .
Phil Green: With that, I'll turn it over to Dan.
With that, I'll turn it over to Dan.
Dan Geddes: Thank you, Phil. Let me start off by giving some additional color on our expansion efforts. During Q4, expansion locations delivered 12 cents of EPS accretion compared to 9 cents in Q3. This expansion EPS contribution for the quarter was driven by Houston 1.0, generating 15 cents per share, with Houston 2.0 and Dallas now at break-even, and Austin, the newest expansion region, costing 3 cents per share. We continue to be pleased with the volumes we've been able to achieve. On a year-over-year basis, the expansion represented 42% of total loan growth and 38% of total deposit growth. As we have said in the past, our expansion program is both durable and scalable. We opened three new locations in Q4, two in the Austin region and one in the Dallas region.
Dan Geddes: Thank you, Phil. Let me start off by giving some additional color on our expansion efforts. During Q4, expansion locations delivered 12 cents of EPS accretion compared to 9 cents in Q3. This expansion EPS contribution for the quarter was driven by Houston 1.0, generating 15 cents per share, with Houston 2.0 and Dallas now at break-even, and Austin, the newest expansion region, costing 3 cents per share. We continue to be pleased with the volumes we've been able to achieve. On a year-over-year basis, the expansion represented 42% of total loan growth and 38% of total deposit growth. As we have said in the past, our expansion program is both durable and scalable. We opened three new locations in Q4, two in the Austin region and one in the Dallas region.
Speaker #1: That's it over here. I'll turn to Dan and with that, I'll hand it over.
Speaker #2: Thank you, Phil. Let me start off by giving some additional color on our expansion efforts during the fourth quarter. Expansion locations delivered $0.12 of EPS accretion compared to $0.09 in the third quarter.
Speaker #2: This expansion EPs contribution for driven quarter was the by Houston , 1.0 , generating $0.15 per share , with Houston 2.0 and Dallas now at breakeven and Austin , the newest expansion region costing $0.03 per share .
Speaker #2: We continue to be pleased with the volumes we've been able to achieve on a year-over-year basis. The expansion represented 42% of total loan growth and 38% of total deposit growth.
Speaker #2: As we have said in the past , our expansion program has both durable and scalable . Scalable . We opened three new locations in the fourth quarter , two in the Austin region and one in the Dallas region .
Dan Geddes: Our current plan is to open additional 12 to 15 branches in 2026. Now moving to the Q4 financial performance for the company. Regarding our net interest margin, our net interest margin percentage was 3.66% for the quarter, down 3 basis points from the 3.69% reported last year. Higher interest-bearing deposits during the quarter, which positively impacts net interest income, had a negative impact on net interest margin due to a lower relative spread to overnight rates. Looking at our investment portfolio, the total investment portfolio averaged $19.9 billion during the Q4, down $284 million from the previous quarter. Investment purchases during the quarter totaled $103 million of municipal securities, with a taxable equivalent yield of 5.56%.
Our current plan is to open additional 12 to 15 branches in 2026. Now moving to the Q4 financial performance for the company. Regarding our net interest margin, our net interest margin percentage was 3.66% for the quarter, down 3 basis points from the 3.69% reported last year. Higher interest-bearing deposits during the quarter, which positively impacts net interest income, had a negative impact on net interest margin due to a lower relative spread to overnight rates. Looking at our investment portfolio, the total investment portfolio averaged $19.9 billion during the Q4, down $284 million from the previous quarter. Investment purchases during the quarter totaled $103 million of municipal securities, with a taxable equivalent yield of 5.56%.
Speaker #2: Our current plan is to open an additional 12 to 15 branches in 2026. Now, moving to the fourth quarter, financial performance for the company.
Speaker #2: Regarding our net interest margin, our net interest margin percentage was 3.66% for the quarter, down three basis points from the 3.69% reported last year.
Speaker #2: Higher interest-bearing deposits during the quarter, which positively impact net interest income, had a negative impact on net interest margin due to a lower relative spread to overnight rates.
Speaker #2: Looking at our investment portfolio, the total investment portfolio averaged $19.9 billion during the fourth quarter, down $284 million from the previous quarter.
Speaker #2: Investment purchases during the quarter totaled $103 million of municipal securities , with a taxable equivalent yield of 5.56% . We had 425 million of Treasury maturities at an average yield of 3% , 78 million of municipals roll off at an average tax equivalent yield of 4.88% , and 643 million of agency MBS , Paydowns .
Dan Geddes: We had $425 million of treasury maturities at an average yield of 3%, $78 million of municipal roll-off at an average tax equivalent yield of 4.88%, and $643 million of agency MBS paydowns. The net unrealized loss on available-for-sale portfolio at the end of the quarter was $1.04 billion, compared to $1.14 billion reported at the end of the Third Quarter. The taxable equivalent yield on the total investment portfolio during the quarter was 3.82%, down 3 basis points from the previous quarter. The taxable portfolio averaged $12.7 billion, down approximately $558 million from the prior quarter, and had a yield of 3.38%, down from 3.48% in the prior quarter. Our tax-exempt municipal portfolio averaged $7.2 billion during the Fourth Quarter, up $275 million from the Third Quarter, and had a taxable equivalent yield of 4.64%, up 4 basis points from the prior quarter.
We had $425 million of treasury maturities at an average yield of 3%, $78 million of municipal roll-off at an average tax equivalent yield of 4.88%, and $643 million of agency MBS paydowns. The net unrealized loss on available-for-sale portfolio at the end of the quarter was $1.04 billion, compared to $1.14 billion reported at the end of the Third Quarter. The taxable equivalent yield on the total investment portfolio during the quarter was 3.82%, down 3 basis points from the previous quarter. The taxable portfolio averaged $12.7 billion, down approximately $558 million from the prior quarter, and had a yield of 3.38%, down from 3.48% in the prior quarter. Our tax-exempt municipal portfolio averaged $7.2 billion during the Fourth Quarter, up $275 million from the Third Quarter, and had a taxable equivalent yield of 4.64%, up 4 basis points from the prior quarter.
Speaker #2: Unrealized loss, the net on available-for-sale portfolio at the end of the quarter, was $1.04 billion, compared to $1.14 billion reported at the end of the third quarter.
Speaker #2: The taxable equivalent yield on the total investment portfolio during the quarter was 3.82% , down three basis points from the previous quarter . The taxable portfolio averaged 12.7 billion , down approximately 558 million from the prior quarter , and had a yield of 3.38% , down from 3.48% in the prior quarter .
Speaker #2: Our tax exempt municipal portfolio averaged 7.2 billion during the fourth quarter , up 275 million from the third quarter , and had a taxable equivalent yield of 4.64% , up four basis points from the prior quarter .
Dan Geddes: At the end of Q4, approximately 70% of our municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of Q4 was 5.3 years, down from 5.4 years at the end of Q3. Looking at our funding sources, on a link quarter basis, average total deposits of $43.3 billion were up $1.27 billion from the previous quarter. The link quarter increase was balanced with each of non-interest-bearing, and interest-bearing deposits up about 3%. The cost of interest-bearing deposits in Q4 was 1.75%, down 19 basis points from 1.94% in Q3. Customer repos for Q4 averaged $4.6 billion, flat with Q3, and the cost of customer repos for the quarter was 2.87%, down 30 basis points from Q3.
At the end of Q4, approximately 70% of our municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of Q4 was 5.3 years, down from 5.4 years at the end of Q3. Looking at our funding sources, on a link quarter basis, average total deposits of $43.3 billion were up $1.27 billion from the previous quarter. The link quarter increase was balanced with each of non-interest-bearing, and interest-bearing deposits up about 3%. The cost of interest-bearing deposits in Q4 was 1.75%, down 19 basis points from 1.94% in Q3. Customer repos for Q4 averaged $4.6 billion, flat with Q3, and the cost of customer repos for the quarter was 2.87%, down 30 basis points from Q3.
Speaker #2: At the end of the fourth quarter , approximately 70% of our municipal portfolio was pre or CSF insured . The duration of the investment portfolio at the end of the was 5.3 quarter down from fourth years , 5.4 years at the end of the third quarter .
Speaker #2: Looking at our funding sources on a linked-quarter basis, average total deposits of $43.3 billion were up $1.27 billion from the previous quarter.
Speaker #2: The linked quarter increase was balanced with each of noninterest bearing and interest bearing deposits up about 3% . The cost of interest bearing deposits in the fourth quarter was 1.75% , down 19 basis points from 1.94% in the third quarter .
Speaker #2: Customer repos for the fourth quarter averaged $4.6 billion, flat with the third quarter. And the cost of customer repos for the quarter was 2.87%, down 30 basis points from the third quarter.
Dan Geddes: Looking at noninterest income and expense, I'll point out a couple of items impacting the link quarter results. Regarding noninterest income, as in years past, we received our normal annual Visa bonus during Q4, totaling $5.4 million. Salaries and wages included approximately $7.2 million in higher stock compensation compared to Q3. As a reminder, our stock awards are granted in October of each year, and some awards, by their nature, require immediate expense recognition. There are a few one-time items I would like to point out. FDIC insurance expense was impacted by a reversal of $8.5 million of special FDIC insurance assessments. This was a result of recent FDIC guidance on anticipated future collections related to the bank failures in 2023.
Looking at noninterest income and expense, I'll point out a couple of items impacting the link quarter results. Regarding noninterest income, as in years past, we received our normal annual Visa bonus during Q4, totaling $5.4 million. Salaries and wages included approximately $7.2 million in higher stock compensation compared to Q3. As a reminder, our stock awards are granted in October of each year, and some awards, by their nature, require immediate expense recognition. There are a few one-time items I would like to point out. FDIC insurance expense was impacted by a reversal of $8.5 million of special FDIC insurance assessments. This was a result of recent FDIC guidance on anticipated future collections related to the bank failures in 2023.
Speaker #2: Looking at non-interest income and expense, I'll point out a couple of items impacting the linked quarter results regarding non-interest income. As in years past, we received our normal annual Visa fourth quarter bonus during the quarter, which was $5.4 million.
Speaker #2: Salaries and wages included approximately 7.2 million in higher stock compensation compared to the third quarter . As a reminder , our stock awards are granted in October of each year and some awards , by their nature , require immediate expense recognition .
Speaker #2: There are a few one-time items I would like to point out. FDIC insurance expense was impacted by a reversal of $8.5 million of special FDIC insurance assessments.
Speaker #2: This was a result of recent FDIC guidance on anticipated future collections related to the bank failures in 2023. This was offset somewhat by a one-time salary expense of approximately $4.2 million.
Dan Geddes: This was offset somewhat by a one-time salary expense of approximately $4.2 million during the quarter related to transitioning our payroll from twice per month to every other week, and a $4 million write-off of technology related to our data platform as we continue the journey of modernizing key aspects of our core platforms. In addition, we had elevated link quarter expense variances for donations related to the Frost Charitable Foundation of $3.5 million and increased funding of medical reserves of $1.9 million due to higher claims. Regarding our guidance for full year 2026, our current outlook includes three 25 basis point cuts for Fed funds rate in April, July, and October. We expect net interest income growth for the full year to fall in the range of 3% to 5%.
This was offset somewhat by a one-time salary expense of approximately $4.2 million during the quarter related to transitioning our payroll from twice per month to every other week, and a $4 million write-off of technology related to our data platform as we continue the journey of modernizing key aspects of our core platforms. In addition, we had elevated link quarter expense variances for donations related to the Frost Charitable Foundation of $3.5 million and increased funding of medical reserves of $1.9 million due to higher claims. Regarding our guidance for full year 2026, our current outlook includes three 25 basis point cuts for Fed funds rate in April, July, and October. We expect net interest income growth for the full year to fall in the range of 3% to 5%.
Speaker #2: During the quarter, related to transitioning our payroll from twice per month to every other week, and a $4 million write-off of technology related to our data platform.
Speaker #2: As we continue the journey of modernizing key aspects of our . core platforms In addition , we had elevated linked quarter expense variances for donations related to the Frost Charitable Foundation of 3.5 million and increased funding of medical reserves of 1.9 million due to higher claims regarding our guidance for full year 2026 , our current outlook outlook includes 325 basis point cuts for fed Funds rate in April , July and October .
Dan Geddes: For net interest margin, we expect an improvement of about 5 to 10 basis points compared to our full year 2025 net interest margin of 3.66%. Looking at loans and deposits, we expect full year average loan growth to be in the range of 5 to 7% and expect full year average deposits to be up between 2 and 3%. Based on current projections, we expect noninterest income growth of 4 to 5% and expect noninterest expense growth to be in the 5 to 6%. The expectation for full year 2026 is to be in the range of 15 to 16%. Regarding stock repurchases, I want to mention that during the Q4, we utilized the remaining $80.7 million of our $150 million approved share repurchase plan to buy back approximately 654,000 shares. Additionally, yesterday, our board approved a new one-year $300 million share repurchase program.
For net interest margin, we expect an improvement of about 5 to 10 basis points compared to our full year 2025 net interest margin of 3.66%. Looking at loans and deposits, we expect full year average loan growth to be in the range of 5 to 7% and expect full year average deposits to be up between 2 and 3%. Based on current projections, we expect noninterest income growth of 4 to 5% and expect noninterest expense growth to be in the 5 to 6%. The expectation for full year 2026 is to be in the range of 15 to 16%. Regarding stock repurchases, I want to mention that during the Q4, we utilized the remaining $80.7 million of our $150 million approved share repurchase plan to buy back approximately 654,000 shares. Additionally, yesterday, our board approved a new one-year $300 million share repurchase program.
Speaker #2: We expect net interest income growth for the full year to fall in the range of 3% to 5%. For net interest margin, we expect an improvement of about 5 to 10 basis points compared to our full year 2025.
Speaker #2: Net interest margin of 3.66%. Looking at loans and deposits, we expect full-year average loan growth to be in the range of 5% to 7%, and expect full-year average deposits to be up between 2% and 3%. Based on current projections, we expect noninterest income growth of 4% to 5% and expect non-interest expense growth to be in the 5% to 6% range.
Speaker #2: Expectation for full year 2026 is to be in the range of 15% to 16%. Regarding stock repurchases, I want to mention that during the fourth quarter, we utilized the remaining $80.7 million of our $150 million approved share repurchase plan to buy back approximately 654,000 shares.
Dan Geddes: With that, I'll turn the call back over to Phil for questions.
With that, I'll turn the call back over to Phil for questions.
Speaker #2: Additionally , yesterday , our board approved a new one year , $300 million share repurchase program . And with that , I'll turn the call back Phil for over to questions .
Phil Green: Thank you, Dan. Okay, we'll open it up for questions now.
Phil Green: Thank you, Dan. Okay, we'll open it up for questions now.
Operator: Thank you. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment while we pull for questions. Our first question is from Jared Shaw with Barclays. Please proceed.
Operator: Thank you. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment while we pull for questions. Our first question is from Jared Shaw with Barclays. Please proceed.
Speaker #1: Thank you, Dan. Okay, we'll open it up for questions now.
Speaker #3: 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 queue.
Speaker #3: You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker #3: One moment while we pull for questions. Our first question is from Jared Shore with Barclays. Please proceed.
Jared Shaw: Thanks for the questions. I guess maybe starting off with credit, thanks for the color on that one loan that you highlighted. Was there any component of that in charge-offs? And then was there any color you could give us on the risk grade 10 loan migrations? You said that the multifamily was improving in the backdrop. I guess what was driving the rest of that deterioration?
Jared Shaw: Thanks for the questions. I guess maybe starting off with credit, thanks for the color on that one loan that you highlighted. Was there any component of that in charge-offs? And then was there any color you could give us on the risk grade 10 loan migrations? You said that the multifamily was improving in the backdrop. I guess what was driving the rest of that deterioration?
Speaker #4: Thanks for the questions . I guess maybe starting off with with credit . Thanks for the color on the that one loan that you highlighted .
Speaker #4: Was there any component of that in charge offs ? And then , you know , was there any color you could give us on the risk rated ten loan migrations .
Speaker #4: You said that the multifamily was improving in the backdrop. I guess, what was driving the rest of that deterioration?
Phil Green: Yeah. First of all, no, there was no charge-off on the shared national credit. We did add a specific reserve of $10 million, as I recall. So there's something set aside for it. And that's just really not based on anything definitive. I mean, it's pretty early on in what they're trying to—they're trying to work that out, and we're optimistic that they'll have some success. It's a long-time relationship. They've got some good deposits. And it's just an unfortunate situation, but I'm not really that worried about it. As far as migration to 10s, probably multifamily continues this process of where these loans get stabilized after 12 months. And then we will tend, through that process, to move these into risk grade 10s. And then what they've been doing is they've been selling, either selling the project or refinancing with private credit.
Phil Green: Yeah. First of all, no, there was no charge-off on the shared national credit. We did add a specific reserve of $10 million, as I recall. So there's something set aside for it. And that's just really not based on anything definitive. I mean, it's pretty early on in what they're trying to—they're trying to work that out, and we're optimistic that they'll have some success. It's a long-time relationship. They've got some good deposits. And it's just an unfortunate situation, but I'm not really that worried about it. As far as migration to 10s, probably multifamily continues this process of where these loans get stabilized after 12 months. And then we will tend, through that process, to move these into risk grade 10s. And then what they've been doing is they've been selling, either selling the project or refinancing with private credit.
Speaker #1: Yeah . You know , first of all , no , there was no charge off on the shared national credit . We did add a specific reserve of 10 million on it .
Speaker #1: As I recall . So there's there's something set aside for it . And that's just , you know , that's really not based on anything definitive .
Speaker #1: I mean , it's pretty early on what they're trying to they're trying to work that out . And we're optimistic . You know , that they'll have some success .
Speaker #1: It's it's a long time relationship . They've got some good deposits . And , you know , just an unfortunate situation . But I'm not really that worried about it .
Speaker #1: As far as the migration to tens, probably multifamily, you know, it continues this process of where these loans get stabilized after 12 months.
Speaker #1: And then , you know , we will tend through that process to move these into risk grade tens . And then they what they've been doing is they've been selling either sell the project or refinancing with private credit for example , last year , I think we had I think it was $428 million of these multifamily deals , which were paid off .
Phil Green: For example, last year, I think we had, I think it was $428 million of these multifamily deals, which were paid off. $284 million were risk grade 10 and 11. We're expecting that same trend to continue. Some of those ones that were moved into the risk grade 10s, etc., we'll expect them to pay off or refi. I think my notes here show that we have $255 million in multifamily that we're anticipating in Q1 or Q2 to pay off. So I think a lot of it's that process. If it's anything else, I don't recall anything specifically. I think it's just general stuff, just banking and more one-off to businesses.
For example, last year, I think we had, I think it was $428 million of these multifamily deals, which were paid off. $284 million were risk grade 10 and 11. We're expecting that same trend to continue. Some of those ones that were moved into the risk grade 10s, etc., we'll expect them to pay off or refi. I think my notes here show that we have $255 million in multifamily that we're anticipating in Q1 or Q2 to pay off. So I think a lot of it's that process. If it's anything else, I don't recall anything specifically. I think it's just general stuff, just banking and more one-off to businesses.
Speaker #1: 284 million were risk grade ten and 11 . And we're expecting that same trend to continue . Some of those ones that were moved into the to the risk grade tens , etc.
Speaker #1: we'll expect them to to pay off or refi . I think my notes here show that we have $255 million in multifamily , that we're anticipating in the first or second quarter to to pay off .
Speaker #1: So I think a lot of it's that process , if it's anything else , I just don't I don't recall anything specifically . I think it's just general stuff , you know , just just banking and , you know , more , more one off to businesses .
Dan Geddes: Yeah, Jared. And we had a relatively flat Risk grade 10. Essentially, what went in there was basically replacing about $220 million in resolution. So just, I think, kind of a nice churn.
Dan Geddes: Yeah, Jared. And we had a relatively flat Risk grade 10. Essentially, what went in there was basically replacing about $220 million in resolution. So just, I think, kind of a nice churn.
Speaker #2: Jared: And like we had a relatively flat risk rate. Then essentially what went in there was basically replacing about $220 million in resolution.
Jared Shaw: Okay. Thanks. And maybe following up on the margin discussion and outlook with some of the benefits you're looking for in 2026, what do you think your deposit beta is going to be with those three cuts? Do you think that we see that move higher as we go through the year or stay at least where it is?
Jared Shaw: Okay. Thanks. And maybe following up on the margin discussion and outlook with some of the benefits you're looking for in 2026, what do you think your deposit beta is going to be with those three cuts? Do you think that we see that move higher as we go through the year or stay at least where it is?
Speaker #2: So just, I think, kind of a nice churn.
Speaker #4: Okay, thanks. Then maybe a follow-up on the margin discussion and outlook, with some of the benefits you're looking for in '26.
Speaker #4: What do you think your deposit data is going to be with with those three cuts ? Do you think that we see that move move higher as we go through the year or stay stay at least where it is .
Dan Geddes: I think it's stay where it is is what we're kind of anticipating. It's around that 43% of interest-bearing costs. The only other thing I would mention is competition. We look at rates every week, and we also recognize there's decisions that need to be made out in the field as well to retain or grow a new relationship.
Dan Geddes: I think it's stay where it is is what we're kind of anticipating. It's around that 43% of interest-bearing costs. The only other thing I would mention is competition. We look at rates every week, and we also recognize there's decisions that need to be made out in the field as well to retain or grow a new relationship.
Speaker #2: I'd think it'd stay where it is . Is what what we're kind of anticipating . It's around that 43% of interest bearing costs and , you know , the only other thing I would mention is competition .
Speaker #2: We look at rates every week, and we also recognize there's decisions that need to be made out in the field as well to retain or to grow a new relationship.
Jared Shaw: Great. Thanks very much.
Jared Shaw: Great. Thanks very much.
Dan Geddes: Thank you.
Dan Geddes: Thank you.
Operator: Our next question is from Ebrahim Poonawala from Bank of America. Please proceed.
Operator: Our next question is from Ebrahim Poonawala from Bank of America. Please proceed.
Speaker #4: Very much great. Thanks.
Speaker #5: you Thank .
Speaker #3: Our next question is from Abraham Poonawala from Bank of America. Please proceed.
Ebrahim Poonawala: Good afternoon. I guess just a question in terms of the guidance on loan and deposit growth. As we think, I mean, it feels like the macro outlook should be somewhat better, 2026 versus 2025. I would also think that the branches are becoming more productive. So when we look at that, shouldn't growth on both ends, deposits and loans, be strengthening and getting better versus what we've seen in 2025? So maybe just give us a sense of what's underpinning, what assumptions are driving that. And maybe it looks that the guidance is conservative, but is that not the right way to think about it?
Ebrahim Poonawala: Good afternoon. I guess just a question in terms of the guidance on loan and deposit growth. As we think, I mean, it feels like the macro outlook should be somewhat better, 2026 versus 2025. I would also think that the branches are becoming more productive. So when we look at that, shouldn't growth on both ends, deposits and loans, be strengthening and getting better versus what we've seen in 2025? So maybe just give us a sense of what's underpinning, what assumptions are driving that. And maybe it looks that the guidance is conservative, but is that not the right way to think about it?
Speaker #6: Good afternoon. I guess just a question in terms of the guidance on loan and deposit growth, as we think— I mean, it feels like the macro outlook should be somewhat better.
Speaker #6: 26 versus 25 . I would also think that the branches are becoming more productive . So when we look at that , shouldn't growth on both ends deposits and loans be strengthening and getting better versus what we've seen in 2025 ?
Speaker #6: So maybe just give us a sense of, like, what's underpinning, what assumptions are driving that. And maybe it looks that the guidance is...
Speaker #6: So maybe just give us a sense of like , what's underpinning , what assumptions are driving that . And maybe it looks that the guidance is . conservative But is that not the right way to think about it ?
Dan Geddes: Well, I'll kind of address them both. So here on loans, we've mentioned kind of these resolutions to multifamily loans. And so we'll continue to see that. I would say primarily in the first half is what we're seeing. Now, some of those resolutions may go into the third quarter of 2026, but at least it's early. But what we would anticipate is accelerated payoffs in the first half of the year, but stronger loan growth in the second half of the year. So that's not knowing the timing of the payoffs. That's where some of that guidance is coming from. But we know we're likely going to see an elevated level of payoffs in the first half of the year relative to the second half of 2026. On deposits, I would just say that it's a competitive environment.
Dan Geddes: Well, I'll kind of address them both. So here on loans, we've mentioned kind of these resolutions to multifamily loans. And so we'll continue to see that. I would say primarily in the first half is what we're seeing. Now, some of those resolutions may go into the third quarter of 2026, but at least it's early. But what we would anticipate is accelerated payoffs in the first half of the year, but stronger loan growth in the second half of the year. So that's not knowing the timing of the payoffs. That's where some of that guidance is coming from. But we know we're likely going to see an elevated level of payoffs in the first half of the year relative to the second half of 2026. On deposits, I would just say that it's a competitive environment.
Speaker #2: Well , to I'll kind of address them both . So here on the loans , you know , we've mentioned kind of these to resolutions multifamily loans .
Speaker #2: And so we'll continue to see that . I would say primarily in the first half is what we're seeing now . Some some of those resolutions may go into the third quarter of 26 , but you know , the at least the it's early , but what we would anticipate is accelerated payoffs in the first half of the year .
Speaker #2: But stronger loan growth in the second half of the year . So that's not knowing the timing of of the payoffs . That's that's where some of that guidance is coming from .
Speaker #2: But we know we're likely going to see, you know, an elevated level of payoffs in the first half of the year relative to the second half of '26.
Dan Geddes: And there's still, depending on how many rate cuts we get, there's still options out there off balance sheet. And then banks are just very competitive on some of their time accounts, that the yield play is still out there. And so that's kind of the backdrop of that guidance on loans and deposits.
And there's still, depending on how many rate cuts we get, there's still options out there off balance sheet. And then banks are just very competitive on some of their time accounts, that the yield play is still out there. And so that's kind of the backdrop of that guidance on loans and deposits.
Speaker #2: On on deposits . It's , you know , I would just say that it's it's a competitive environment . And there's still with depending on how many rate cuts we get , there's still options out there off balance sheet .
Speaker #2: then And banks are just , you know very competitive on some of their time accounts that , you know , the yield play is still out there .
Speaker #2: And so, that's kind of the backdrop of that guidance on loans and deposits.
Ebrahim Poonawala: Got it, Dan. Thank you. And I guess if you think about the expense growth outlook, I think you mentioned 4% to 5% or 5% to 6%. Is there a certain cadence? Does the expense growth slow down as we move through the year? And what's the outlook in terms of new branch openings for the year? And is that something that we should view as steady state, even looking beyond 2026, of the run rate with which you may look to open branches or make the investments? We'll talk about the wealth management on the wealth management side. Yeah.
Ebrahim Poonawala: Got it, Dan. Thank you. And I guess if you think about the expense growth outlook, I think you mentioned 4% to 5% or 5% to 6%. Is there a certain cadence? Does the expense growth slow down as we move through the year? And what's the outlook in terms of new branch openings for the year? And is that something that we should view as steady state, even looking beyond 2026, of the run rate with which you may look to open branches or make the investments? We'll talk about the wealth management on the wealth management side. Yeah.
Speaker #6: Dan, thank you. Got it. And I guess, if you think about the expense growth outlook, I think you mentioned 4% to 5%, or 5% to 6%.
Speaker #6: Is there a certain cadence—like, does the expense growth slow down as they move through the year? And what's the outlook in terms of new branch openings for the year?
Speaker #6: And is that something that we should view as a steady state, even looking beyond 2026—the run rate with which you may look to open branches or make the investments?
Dan Geddes: So on the branch expansion, yeah, 12 to 15 is what we're projecting. I think that's a good run rate for the foreseeable future. This year, we opened 10. Next year, or 2026, it might be 15. But in that range, I think, is reasonable to project in the coming years. And I think that's a good run rate for us in terms of staffing and executing. And then just in terms of expense growth throughout the year, I mean, you're going to have just certain things, like I mentioned, with stock incentive plans that you might see in October, November, and kind of that Q4 that would cause some elevated expenses in the Q4. But other than just the usual, I would say, just link quarter changes that we've mentioned, that it's going to be pretty much steady.
Dan Geddes: So on the branch expansion, yeah, 12 to 15 is what we're projecting. I think that's a good run rate for the foreseeable future. This year, we opened 10. Next year, or 2026, it might be 15. But in that range, I think, is reasonable to project in the coming years. And I think that's a good run rate for us in terms of staffing and executing. And then just in terms of expense growth throughout the year, I mean, you're going to have just certain things, like I mentioned, with stock incentive plans that you might see in October, November, and kind of that Q4 that would cause some elevated expenses in the Q4. But other than just the usual, I would say, just link quarter changes that we've mentioned, that it's going to be pretty much steady.
Speaker #6: Talk about the wealth management on the wealth management side. Yeah.
Speaker #2: on So on the branch expansion . Yeah . 12 to 15 is what we're we're projecting . I think that's a good run rate for the foreseeable future .
Speaker #2: You know some this year we opened ten . Next year we or 2026 it might be 15 . But in that in that range I think is is reasonable to project in the in the coming years .
Speaker #2: And I think that's a good run rate for us in terms of staffing and executing . And then in just in terms of , of expense growth throughout the year , I mean , you're going to have , you know , just certain things , like I mentioned with stock incentive plans that you might see in in October , in November , and kind of that fourth quarter that would cause some elevated expenses in the fourth quarter .
Speaker #2: But but other than just the the usual , I would say just , you know , linked quarter changes that we've mentioned that it's going to be pretty much steady .
Dan Geddes: There's nothing that I see that's going to be too much heavy in the first half or second half of the year.
There's nothing that I see that's going to be too much heavy in the first half or second half of the year.
Speaker #2: There's nothing that I see that's going to be too, too much heavy in the first half or second half of the year.
Ebrahim Poonawala: Got it. Thank you.
Ebrahim Poonawala: Got it. Thank you.
Operator: Our next question is from Catherine Mealor with KBW. Please proceed.
Operator: Our next question is from Catherine Mealor with KBW. Please proceed.
Speaker #6: Got it. Thank you.
Catherine Mealor: Thanks. I had one follow-up just on the growth question. It seems like the 5 to 7 loan growth and the 2 to 3 deposit growth is conservative just given the paydowns that we've got early in the year. And so is it fair to think about as we get past those paydowns and we get in the second half of the year and then kind of looking out to 2027, that that kind of rate of growth for our revenue and kind of balance sheet and revenue will start to accelerate relative to the expense growth that we've had? We haven't seen 5 to 6% expense growth from you in a while, so it feels like that's moderating, and maybe we're getting some lift in the back half of the year from the revenue.
Catherine Mealor [Managing Director: Thanks. I had one follow-up just on the growth question. It seems like the 5 to 7 loan growth and the 2 to 3 deposit growth is conservative just given the paydowns that we've got early in the year. And so is it fair to think about as we get past those paydowns and we get in the second half of the year and then kind of looking out to 2027, that that kind of rate of growth for our revenue and kind of balance sheet and revenue will start to accelerate relative to the expense growth that we've had? We haven't seen 5 to 6% expense growth from you in a while, so it feels like that's moderating, and maybe we're getting some lift in the back half of the year from the revenue.
Speaker #3: Our next question is from Catherine Miller with KB. Please proceed.
Speaker #7: Thanks . I had one follow up the just on growth question . It seems like the the 5 to 7 loan growth and the 2 to 3 deposit growth is is conservative .
Speaker #7: Just given the paydowns that we've got early in the year . And so is it fair to think about as we as we get past those paydowns when we get into the second half of the year and then kind of looking out to 27 that that kind of rate of growth for our , for our revenue and kind of balance sheet and revenue will start to relative to the accelerate expense growth that we've had .
Speaker #7: You know, we haven't seen 5% to 6% expense growth from you in a while. So it feels like that's moderating, and maybe we're getting some lift in the back half of the year from the revenue.
Catherine Mealor: Just kind of thinking about timing or inflection in operating leverage and how we should think about that in the second half of the year. Thanks.
Just kind of thinking about timing or inflection in operating leverage and how we should think about that in the second half of the year. Thanks.
Speaker #7: So, just kind of thinking about IMing or inflection and operating leverage, and how we should think about that in the second half of the year.
Dan Geddes: On a couple of things that when we look at it, our payoffs have been replaced by commitments, especially in the commercial real estate realm, but they generally take a while to fund up. And so, for instance, when I look at kind of link quarter construction line usage, it was down almost 5%, which equates to about $200 million in fundings for the quarter. And so you would see over time just more usage as construction projects get further along. And so we've had this period of time where you've had these primarily multifamily projects. There could be other commercial real estate projects that may have been on the books maybe longer than we anticipated that now are being paid off, and it gives us a chance to replace them.
Dan Geddes: On a couple of things that when we look at it, our payoffs have been replaced by commitments, especially in the commercial real estate realm, but they generally take a while to fund up. And so, for instance, when I look at kind of link quarter construction line usage, it was down almost 5%, which equates to about $200 million in fundings for the quarter. And so you would see over time just more usage as construction projects get further along. And so we've had this period of time where you've had these primarily multifamily projects. There could be other commercial real estate projects that may have been on the books maybe longer than we anticipated that now are being paid off, and it gives us a chance to replace them.
Speaker #7: Thanks .
Speaker #2: On a couple of things that that when we look at it , our our payoffs have been replaced by commitments , especially in the commercial real estate realm .
Speaker #2: But they generally take a while fund to up . And so , for instance , when I look at kind of linked quarter construction , line usage , it was down almost 5% , which equates to about 200 million in funding for the quarter .
Speaker #2: And so you would you would see over time just more usage as construction projects get further along . And so we've had this period of time where you've had these primarily multifamily projects , but it could be other commercial real estate projects that may have been on the books maybe longer than we anticipated , that now are being paid off .
Dan Geddes: But the timing of those outstandings is likely going to be more in the back half of the year and into 2027. So that's, I think, the opportunity. Our consumer loan growth, we've mentioned how well mortgage has done. I think we still expect high teens growth for that consumer real estate in 2026. So that's another positive trend. So I think that's on the loan front. And then it's just we think there is a great amount of opportunity right now with a lot of market disruption with mergers and acquisitions that have occurred in Texas.
But the timing of those outstandings is likely going to be more in the back half of the year and into 2027. So that's, I think, the opportunity. Our consumer loan growth, we've mentioned how well mortgage has done. I think we still expect high teens growth for that consumer real estate in 2026. So that's another positive trend. So I think that's on the loan front. And then it's just we think there is a great amount of opportunity right now with a lot of market disruption with mergers and acquisitions that have occurred in Texas.
Speaker #2: And it gives us a chance to replace them. But the timing of those outstandings is likely going to be more in the back half of the year and into '27.
Speaker #2: So that's I think the , the opportunity our consumer loan growth , we've mentioned how well mortgage has done . I think , you know , we still expect , you know , high you know , high teens growth for that for that consumer real estate in 26 .
Speaker #2: So that's another positive trend . So I think that's on the loan front . And then it's just you know we think there's a there is a great amount of opportunity right now with a lot of market disruption with mergers and acquisitions that have occurred in Texas .
Dan Geddes: So I think our opportunity in 2026 and into 2027 is going to be really taking advantage of this disruption with a lot of prospects that we've been calling on that all of a sudden they have new bankers, they have a new bank that they're dealing with, and it may be an opportunity for us to jump in and take over that relationship.
So I think our opportunity in 2026 and into 2027 is going to be really taking advantage of this disruption with a lot of prospects that we've been calling on that all of a sudden they have new bankers, they have a new bank that they're dealing with, and it may be an opportunity for us to jump in and take over that relationship.
Speaker #2: And so I think our opportunity in 26 and in going to really 27 is be taking advantage of this disruption with , you know , a lot of prospects that we've been calling on that all of a sudden they have new they have a new bankers , bank that they're dealing with .
Phil Green: I think Dan makes a good point on the disruption thing. I was looking at something just a few days ago, and I thought it was interesting. You may find it that way also. I was looking at I talked about what our growth was overall in consumer households. I really believe it's industry-leading. It's almost 6%, 5.8%. If you look at some of the regions, well, Dallas was 12.5%. You'd expect that. That's great. Houston, great. 7.5%. Austin, we're expanding there 6%. But I thought it was interesting that the Permian Basin, which is not a huge market for us, and we haven't done any branch expansion out there, but the Permian Basin growth rate was 8%. So it was larger for this quarter that I'm looking at than Austin or Houston by a little bit. Both of those are great. But Permian Basin's 8%.
Phil Green: I think Dan makes a good point on the disruption thing. I was looking at something just a few days ago, and I thought it was interesting. You may find it that way also. I was looking at I talked about what our growth was overall in consumer households. I really believe it's industry-leading. It's almost 6%, 5.8%. If you look at some of the regions, well, Dallas was 12.5%. You'd expect that. That's great. Houston, great. 7.5%. Austin, we're expanding there 6%. But I thought it was interesting that the Permian Basin, which is not a huge market for us, and we haven't done any branch expansion out there, but the Permian Basin growth rate was 8%. So it was larger for this quarter that I'm looking at than Austin or Houston by a little bit. Both of those are great. But Permian Basin's 8%.
Speaker #2: And it may be an opportunity for us to jump in and take over that, that relationship.
Speaker #1: You know, I think Dan makes a good point on the disruption thing. And I was looking at something just a few days ago, and I thought it was interesting.
Speaker #1: You may find it that that way . Also , I was looking at , you know , I talked about what our , our growth was overall in consumer households .
Speaker #1: I really believe it's industry leading . It's almost 6% , 5.8% . And if you look at some of the the regions , well , you know , Dallas was 12.5% , you'd expect that .
Speaker #1: That's great . Houston great . 7.5% . Austin . You know we're expanding there 6% . But I thought it was interesting that the Permian Basin , which is not a huge market for us , but , you know , we haven't done any branch expansion out there .
Speaker #1: But the Permian Basin growth rate was 8%, so it was larger, you know, for this quarter that I'm looking at than Austin or Houston by a little bit.
Phil Green: Well, one thing that's happened in that market is acquisitions. So there is disruption because of acquisitions in that market. And so really steady state, same source sales really is what you're seeing there. It's up 8%. I think that is a microcosm to me of what we may see as we see the M&A that's happening in the marketplace. I think it's a good time to be a Frost Banker. And another stat that I thought was interesting that I saw recently is you hear us talk about how usually about 50% of our new relationships, new households come from who I call the what I call the too big to fail. You know, the just use their name, Chase, Wells, B of A. Okay. But that was down. That was down this quarter, I think it was.
Well, one thing that's happened in that market is acquisitions. So there is disruption because of acquisitions in that market. And so really steady state, same source sales really is what you're seeing there. It's up 8%. I think that is a microcosm to me of what we may see as we see the M&A that's happening in the marketplace. I think it's a good time to be a Frost Banker. And another stat that I thought was interesting that I saw recently is you hear us talk about how usually about 50% of our new relationships, new households come from who I call the what I call the too big to fail. You know, the just use their name, Chase, Wells, B of A. Okay. But that was down. That was down this quarter, I think it was.
Speaker #1: Both of those are great . But you Permian basins 8% . And well , one thing that's happened in that market is , is acquisitions , right .
Speaker #1: So there's there is disruption because of acquisitions in that market . And so it really steady store state , same sales really is what you're seeing there .
Speaker #1: It's up 8% . I think that is a microcosm to me of what we may see as we as we see the the M&A .
Speaker #1: That's happening in the marketplace . I think it's a good time to be a Frost banker and another stat that I thought was interesting that I saw recently is , you know , you hear us talk about how usually about 50% of our new relationships , new households come from who I call the what I call the too big to fail .
Speaker #1: You know , the , you know , just use their names . You know , Chase Wells B of A okay . But that was down .
Phil Green: It was down this quarter, and I think it was like 42%. It's not really because we're being less successful there, but what I think it showed was we're seeing more disruption at some of these mid-level banks that are combining. So we're seeing more of the relationships come in from some of those entities that have had some of this disruption, and they're dealing with that. It's just a natural part of the M&A process. We used to do a lot of M&A, so I know a fair amount about it. I think that's interesting. I think that's a positive thing for us in our outlook as we go forward. We're working hard to take advantage of it. We'll just see how successful we are as we go through this year and 2027.
It was down this quarter, and I think it was like 42%. It's not really because we're being less successful there, but what I think it showed was we're seeing more disruption at some of these mid-level banks that are combining. So we're seeing more of the relationships come in from some of those entities that have had some of this disruption, and they're dealing with that. It's just a natural part of the M&A process. We used to do a lot of M&A, so I know a fair amount about it. I think that's interesting. I think that's a positive thing for us in our outlook as we go forward. We're working hard to take advantage of it. We'll just see how successful we are as we go through this year and 2027.
Speaker #1: That was down . This quarter . I think it was down . It's down this quarter . And I think it was like 42% .
Speaker #1: And it's not really because we're being less successful there. But what I think it showed was we're seeing more disruption at some of these mid-level banks that are combining.
Speaker #1: And so we're seeing more of the relationships come in from some of those entities that have had some of this disruption, and they're dealing with that as just a natural part of the M&A process.
Speaker #1: You know, we used to do a lot of M&A, so I know a fair amount about it. But, so I think that's interesting.
Speaker #1: And I think a positive thing for us in our outlook is, as we go forward, we're working hard to take advantage of it.
Dan Geddes: Phil, to piggyback on that, we were looking at relationships really from the banks that have been acquired. For the Q4 and even the trend going into January is we're picking up roughly twice as many new relationships from those banks than we have had in prior quarters. So we are starting to see it's early, starting to see some opportunities there. Then the other thing I just would mention is Phil mentioned a lot of the volume that occurred for the bank. New commitments for the Q4 were $2.1 billion. That was the highest quarterly level since the Q4 of 2022. So to see that and again, we had a large weighted pipeline in the Q3 that we reported on. You got to see the execution of that pipeline and the new commitments in the Q4.
Dan Geddes: Phil, to piggyback on that, we were looking at relationships really from the banks that have been acquired. For the Q4 and even the trend going into January is we're picking up roughly twice as many new relationships from those banks than we have had in prior quarters. So we are starting to see it's early, starting to see some opportunities there. Then the other thing I just would mention is Phil mentioned a lot of the volume that occurred for the bank. New commitments for the Q4 were $2.1 billion. That was the highest quarterly level since the Q4 of 2022. So to see that and again, we had a large weighted pipeline in the Q3 that we reported on. You got to see the execution of that pipeline and the new commitments in the Q4.
Speaker #1: And just—we'll just see how successful we are as we go through this year in 2027.
Speaker #2: Phil, to piggyback on that, you know, we were looking at relationships really from those, the banks that have been acquired.
Speaker #2: And for the fourth quarter, and even the trend going into January, we're picking up roughly twice as many new relationships from those banks than we have had in prior quarters.
Speaker #2: And so we we are starting to see it's early , starting to see some opportunities there . And then the other thing I just would mention is , you know , Phil mentioned a lot of the volume that that occurred for the bank .
Speaker #2: And new commitments for the fourth quarter were $2.1 billion. And that was the highest quarterly level since the fourth quarter of 2022.
Speaker #2: And so, to see that—and again, we had a large, weighted pipeline in the third quarter that we reported on. And so you've got to see the execution of that pipeline in the new commitments in the fourth quarter.
Dan Geddes: And our quarterly pipeline is down, but it's at a higher level. That's relative to link quarter, but it's actually higher than it was at the same time last year. And last year, there was a lot of exuberance and confidence coming out of the election. So I think those are two data points that we feel good about just starting to kind of prime the pump and to get some fundings from these commitments, likely more so in the back half of the year, though, Catherine.
And our quarterly pipeline is down, but it's at a higher level. That's relative to link quarter, but it's actually higher than it was at the same time last year. And last year, there was a lot of exuberance and confidence coming out of the election. So I think those are two data points that we feel good about just starting to kind of prime the pump and to get some fundings from these commitments, likely more so in the back half of the year, though, Catherine.
Speaker #2: And it's it's our quarterly pipeline . Is is down , but it's at a higher level . That's a relative to linked quarter , but it's actually higher than it was at the same time last year .
Speaker #2: And last year there was a lot of of exuberance and confidence coming out of the election . So I think those are two data points that we feel we feel good about .
Speaker #2: Just starting to kind of prime the pump and to get some funding from these commitments, likely more so in the back half of the year, though, Katherine.
Phil Green: Yeah.
Phil Green: Yeah.
Catherine Mealor: Great. Okay. That's all really helpful. And then maybe just one follow-up on the branch EPS impact that's moved from $0.09 to $0.12. Any range you can give us and where you hope that is exiting the year in 2026?
Catherine Mealor [Managing Director: Great. Okay. That's all really helpful. And then maybe just one follow-up on the branch EPS impact that's moved from $0.09 to $0.12. Any range you can give us and where you hope that is exiting the year in 2026?
Speaker #2: Yeah , great .
Speaker #7: Okay . That's all really helpful . And then maybe just one follow up on on the branch EPs impact that's moved from $0.09 to $0.12 .
Dan Geddes: Yeah. So I think you'll see, depending on rate cuts, that you'll see quarterly what we may come out and report may bounce around kind of where we are in this $0.12, maybe a little more, a little less. And so I'm going to just kind of say for the full year, you're going to look for a range of between $0.35 and $0.45.
Dan Geddes: Yeah. So I think you'll see, depending on rate cuts, that you'll see quarterly what we may come out and report may bounce around kind of where we are in this $0.12, maybe a little more, a little less. And so I'm going to just kind of say for the full year, you're going to look for a range of between $0.35 and $0.45.
Speaker #7: Any, any range you can give us, and where you hope that is the year exiting in '26.
Speaker #2: On rate, depending—yeah. So, see, I think you'll see cuts, you know, I think that you'll see quarterly what we may come out and report may bounce around, kind of where we are in this $0.12.
Speaker #2: Maybe a little more , a little less . And so I'm going to just kind of say for the full year , you know , you're going to look for a range of between 35 and $0.45 .
Catherine Mealor: Great. All right. Very helpful. Thank you.
Catherine Mealor [Managing Director: Great. All right. Very helpful. Thank you.
Dan Geddes: You're welcome.
Dan Geddes: You're welcome.
Phil Green: Thanks.
Phil Green: Thanks.
Operator: Our next question is from Casey Haire with Autonomous Research. Please proceed.
Operator: Our next question is from Casey Haire with Autonomous Research. Please proceed.
Speaker #7: Great. All right. Very helpful. Thank you.
Speaker #2: You're welcome .
Speaker #5: Thanks .
Casey Haire: Yeah. Thanks. Good morning, everyone, or good afternoon. So I wanted to touch on the fee guide. It seems if I annualize this Q4 here, I know you guys got some strong results on the capital market side of things and the derivatives, but it just seems a little conservative because it annualizes to about what you're guiding to. And obviously, things are growing. So just wondering anything we're missing that is a headwind going forward?
Casey Haire: Yeah. Thanks. Good morning, everyone, or good afternoon. So I wanted to touch on the fee guide. It seems if I annualize this Q4 here, I know you guys got some strong results on the capital market side of things and the derivatives, but it just seems a little conservative because it annualizes to about what you're guiding to. And obviously, things are growing. So just wondering anything we're missing that is a headwind going forward?
Speaker #3: Our next question is from Casey Hare with Autonomous Research. Please proceed.
Speaker #8: Yeah . Thanks . Good morning everyone . Or good afternoon . So I wanted to touch on the fee guide . It seems , you know , if I annualize this fourth quarter here .
Speaker #8: I know you guys got some strong results in the capital markets side of things on the derivatives. But it just seems a little conservative because it analyzes to about what you're guiding to.
Speaker #8: And obviously, things are growing. So just wondering, is there anything we're missing that is a headwind going forward?
Dan Geddes: We did have some. One, we had a sale of some real estate where we took a gain on. So there's just some. The other income, like you mentioned, the derivatives, FX had a really strong year, and capital markets as well. The other one I'd mention is just, with rates going down, one of the components is money market fund and annuity income from our trust business. We have that not growing for next year and not certainly growing at 4% or 5%. So those are the drags on other income.
Dan Geddes: We did have some. One, we had a sale of some real estate where we took a gain on. So there's just some. The other income, like you mentioned, the derivatives, FX had a really strong year, and capital markets as well. The other one I'd mention is just, with rates going down, one of the components is money market fund and annuity income from our trust business. We have that not growing for next year and not certainly growing at 4% or 5%. So those are the drags on other income.
Speaker #2: You know we have we do we did have some one . You know we had a sale of some some real estate that where we took a gain on .
Speaker #2: And so there's just some the , the other income like you mentioned , the derivatives FX had a really strong year and capital markets as well .
Speaker #2: And the other one I'd mention is just, with rates going down, one of the components is money market fund, and annuity income from our trust and you business.
Speaker #2: We just know we have that not growing for next year, and it's certainly not growing at 4% or 5%. And so, those are the drags on other income.
Casey Haire: Okay. Fair enough. And then just on the capital front, so another strong quarter on the buyback, that's two quarters around, I think, where you've been pretty more aggressive than you have been in the past. Can we expect that to continue? Is there a little bit more urgency to keep capital ratios from building from what's pretty strong levels?
Casey Haire: Okay. Fair enough. And then just on the capital front, so another strong quarter on the buyback, that's two quarters around, I think, where you've been pretty more aggressive than you have been in the past. Can we expect that to continue? Is there a little bit more urgency to keep capital ratios from building from what's pretty strong levels?
Speaker #8: Okay . Fair enough . And then just on the capital front . So another another strong quarter up on the buyback . That's two quarters I think , you know , where you've been pretty more aggressive than you have been in the past is , you know , can we expect that to continue ?
Speaker #8: You know , is there a little bit more urgency to to keep capital ratios from , from building from what's pretty strong levels ?
Dan Geddes: As you mentioned, our capital ratios are at strong levels, and we are generating capital through earnings. So we want to prioritize growth, prioritize growing and protecting our dividend. But we feel like this is another tool that we can use to just, if the opportunity presents itself in the market, we felt like the purchases we made in 2025 made a lot of sense. And I would say that we'll probably be more consistent in the buyback in 2026, is the plan. That could always change, but I would sense that we would be more active than we have in past years. And it may look similar to this year, or it could vary either high, low, but I think you'll just see us be more consistent.
Dan Geddes: As you mentioned, our capital ratios are at strong levels, and we are generating capital through earnings. So we want to prioritize growth, prioritize growing and protecting our dividend. But we feel like this is another tool that we can use to just, if the opportunity presents itself in the market, we felt like the purchases we made in 2025 made a lot of sense. And I would say that we'll probably be more consistent in the buyback in 2026, is the plan. That could always change, but I would sense that we would be more active than we have in past years. And it may look similar to this year, or it could vary either high, low, but I think you'll just see us be more consistent.
Speaker #2: And , you know , as you mentioned , our capital ratios are at strong levels . And , you know , we are generating capital through earnings .
Speaker #2: And so , we want to , you know , prioritize growth , prioritize growing and protecting our dividend . But we feel like this is another tool that we can use .
Speaker #2: You know the to to just if there if the opportunity presents in the market , you know we felt like the the purchases we made in the in 2025 made a lot of sense .
Speaker #2: And you know , we we I would say that we'll probably be more consistent in the buyback in 2026 . Is the plan that could always change .
Speaker #2: But I would sense that we would be more active than we have in past years . And it may look similar to this year or , you know , the very it could vary either high or low .
Casey Haire: Okay. Very good. Just last one for me on the expenses. So it sounds like these 12 to 15 branches are going to per year is what you guys are thinking about. Is there any more investment spend that is embedded within this year's expense guide? Just trying to get a sense of this 5% to 6% expense growth, is this something we should expect? Is this now the base, or is there some more relief coming in the future as these investments wear off?
Casey Haire: Okay. Very good. Just last one for me on the expenses. So it sounds like these 12 to 15 branches are going to per year is what you guys are thinking about. Is there any more investment spend that is embedded within this year's expense guide? Just trying to get a sense of this 5% to 6% expense growth, is this something we should expect? Is this now the base, or is there some more relief coming in the future as these investments wear off?
Speaker #2: But I think you'll just see us be more consistent.
Speaker #8: Okay . Very good . Just last one for me on the expenses . So it sounds like these 12 to 15 branches are going to , you know , per year is what you guys are thinking about .
Speaker #8: Is there any more , you know , investment spend that is embedded within this year's expense guide ? Just trying to get a sense of like , you know , this 5 to 6% expense growth , you know , is this something we this now expect or is should the base or is there some more relief coming in in the future as these investments wear off ?
Dan Geddes: No. I guess with a caveat of just opportunity in the AI space, we will see opportunities for that in coming years. But short of and you would hope those investments would, one, enhance the customer experience, but two, basically would pay for themselves over time. So they would be good investments, long-term investments. But outside of that, really the only item that we kind of have growing higher than the 5% to 6% is in technology, which makes a lot of sense. So we'll continue to invest in technology. But other than that, we are at a pretty good run rate in terms of the expansion and just in terms of we have the people in place in technology and cybersecurity.
Dan Geddes: No. I guess with a caveat of just opportunity in the AI space, we will see opportunities for that in coming years. But short of and you would hope those investments would, one, enhance the customer experience, but two, basically would pay for themselves over time. So they would be good investments, long-term investments. But outside of that, really the only item that we kind of have growing higher than the 5% to 6% is in technology, which makes a lot of sense. So we'll continue to invest in technology. But other than that, we are at a pretty good run rate in terms of the expansion and just in terms of we have the people in place in technology and cybersecurity.
Speaker #2: You know , for guess with I a caveat of just opportunity in the AI in space , you know , we we will see opportunities for that in coming years .
Speaker #2: But short of , you know , and you would hope those investments would one , you know , enhance the customer experience . But two provide basically would pay for themselves over time .
Speaker #2: So they'd be good investments long term investments , but you know , outside of that , you know , the the really the only item that's , you know , we kind of have growing higher than the , the 5 to 6% is in technology , which makes a lot of sense .
Speaker #2: So, we'll continue to invest in technology. But other than that, we are at a pretty good run rate in terms of the expansion.
Dan Geddes: It's really more about executing on platforms and on software than it is on having to grow the people side of those, which we've done considerably over the last 5 years.
It's really more about executing on platforms and on software than it is on having to grow the people side of those, which we've done considerably over the last 5 years.
Speaker #2: in And just terms of we have the people in place in , in technology and cybersecurity . And so it's really more about executing on , on platforms and on software than it is on having to grow the people side of those which we've done .
Phil Green: Yeah. A lot of those foundational investments that we were making, kind of generational investments, moving technology to a stronger, better place. And we've really leaned heavy on that in the last few years, and we should be able to leverage that more. Dan's right. AI is the Wild West, and we'll see what happens there. Everyone's trying to figure that out. I think everyone sees the ability to use that and the power of that. But I think what he said is right, that those investments should be paying off in terms of efficiencies within the business pretty quickly. So even though we have to spend some money there, I'm pretty confident that we're going to get our returns back quickly on that.
Phil Green: Yeah. A lot of those foundational investments that we were making, kind of generational investments, moving technology to a stronger, better place. And we've really leaned heavy on that in the last few years, and we should be able to leverage that more. Dan's right. AI is the Wild West, and we'll see what happens there. Everyone's trying to figure that out. I think everyone sees the ability to use that and the power of that. But I think what he said is right, that those investments should be paying off in terms of efficiencies within the business pretty quickly. So even though we have to spend some money there, I'm pretty confident that we're going to get our returns back quickly on that.
Speaker #2: You know, considerably over the last five years.
Speaker #1: Yeah , those a lot of foundational investments that we were making , you know , kind of generational investments , moving technology to a , you know , a stronger , better place .
Speaker #1: And , you know , that's we really leaned heavily on that in the last few years . And we should be able to leverage that more in Dan's right .
Speaker #1: You know , AI is is a , you know , the Wild West . You know , and we'll see what happens there .
Speaker #1: Everyone's trying to figure that out . I think everyone sees the ability to use that . And the power of that . But I think what he said is right , that those investments should , you know , should be paying off in terms of efficiencies within the business .
Speaker #1: Pretty quickly . So even so , even though we have to spend some money there , I'm confident that pretty we're going to get our returns back quickly on that .
Casey Haire: Great. Thank you.
Casey Haire: Great. Thank you.
Operator: Our next question is from Peter Winter with D.A. Davidson. Please proceed.
Operator: Our next question is from Peter Winter with D.A. Davidson. Please proceed.
Speaker #8: Great . Thank you .
Peter Winter: Thanks. Good afternoon. If I could drill down a little bit further into the fee income and look specifically at deposit service charges, which is your second biggest fee income business, that's been up almost 14% the past two years in a row. Is it as simple as record new account growth that's driving that, or is there anything else? And if you continue to show record new account growth, should we expect a similar type of rate of growth?
Peter Winter: Thanks. Good afternoon. If I could drill down a little bit further into the fee income and look specifically at deposit service charges, which is your second biggest fee income business, that's been up almost 14% the past two years in a row. Is it as simple as record new account growth that's driving that, or is there anything else? And if you continue to show record new account growth, should we expect a similar type of rate of growth?
Speaker #3: Our next question is from Peter Winter with D.A. Davidson. Please proceed.
Speaker #9: Thanks. Good afternoon. If I could drill down a little bit further into the fee income and look specifically at deposit service charges, which is your second biggest income business that's been up almost 14% the past two years in a row.
Speaker #9: Is it as simple as record new account growth ? That's driving that ? Or is there anything else ? And you know , if you continue to show record , new account growth , should we expect a similar type of rate of growth
Phil Green: I think it's a good observation. Let me just make a general comment, and then I'll turn it over to Dan to add anything additional. As we talk about this, you've nailed it. We're growing accounts, and so we're seeing income grow. As a matter of fact, a lot of the things that you typically charge for associated with an account, well, one of them would be overdraft fees, right? But we have been reducing the cost for overdrafts. We've been giving you free overdrafts. We've not charged for overdrafts for $100. So we've been doing lots of stuff that would otherwise reduce that line item, but we see it grow. And you're seeing it grow for two reasons. One, customers like to utilize it. Okay? And we are not aggressive on this, but it's a product that has a value proposition that many people like.
Phil Green: I think it's a good observation. Let me just make a general comment, and then I'll turn it over to Dan to add anything additional. As we talk about this, you've nailed it. We're growing accounts, and so we're seeing income grow. As a matter of fact, a lot of the things that you typically charge for associated with an account, well, one of them would be overdraft fees, right? But we have been reducing the cost for overdrafts. We've been giving you free overdrafts. We've not charged for overdrafts for $100. So we've been doing lots of stuff that would otherwise reduce that line item, but we see it grow. And you're seeing it grow for two reasons. One, customers like to utilize it. Okay? And we are not aggressive on this, but it's a product that has a value proposition that many people like.
Speaker #1: I think
Speaker #1: it's a ? it's a good observation . Let me just make a general comment and then I'll turn it Dan over to to to add anything additional , you know , as we talk about this , you've nailed it .
Speaker #1: We're growing accounts . And so we're seeing income growth as a matter of fact , a lot of the things that , you know , you typically charge for associated with account , well , one of them would be overdraft fees , right .
Speaker #1: But we have been reducing the cost for overdrafts. We've been giving you free overdrafts. We've not charged for overdrafts for $100.
Speaker #1: So we've been doing lots of stuff that would otherwise reduce that line item. But we see it grow, and you're seeing it grow for two reasons.
Speaker #1: One , customers like to utilize it . Okay . And we are not aggressive on this . But but it's a product that has a value proposition that many people like .
Phil Green: Not everyone, but some do. Okay? You got to opt into the product. We seem to do everything we can to slow it down, but people like it. So that's the first thing. But the second thing is we're growing our numbers of accounts. I said it last time. The percentage of customers that are new to us in the last five years is staggering. And so that's really what it is. And it's funny we talk about it. And our retail people, we'll have our retail line of business meetings. They're almost apologizing for the growth in some of those line items. But when you get back to it, if you can grow your business, and you give good service, and you got products people want, things just work out. I think that's what's happening in that line item.
Not everyone, but some do. Okay? You got to opt into the product. We seem to do everything we can to slow it down, but people like it. So that's the first thing. But the second thing is we're growing our numbers of accounts. I said it last time. The percentage of customers that are new to us in the last five years is staggering. And so that's really what it is. And it's funny we talk about it. And our retail people, we'll have our retail line of business meetings. They're almost apologizing for the growth in some of those line items. But when you get back to it, if you can grow your business, and you give good service, and you got products people want, things just work out. I think that's what's happening in that line item.
Speaker #1: Not everyone , but some Okay . do . You got to opt into the product . We seem to do everything we can to slow it down , but it's but people like it , so the first thing but the second thing is we're growing our numbers of accounts .
Speaker #1: I know I said it last time , you the the know , percentage of customers that are new to us in the in the last five years is staggering .
Speaker #1: And so that's really what it is . And it's funny , we talk about it , you know , and our retail people , we have our retail line of business meeting .
Speaker #1: They're almost apologizing for the growth in some of those line items . And it's but but when you get back to it , you know , if you can grow your business and you and you give good service , you got products .
Dan Geddes: Peter, the other side on the commercial side, you could see with rate cuts the commercial service charge income increase because the balances don't cover as much as the service charges. And so they're having to either carry higher balances, which is a plus for us, or pay the hard cost of the service charge. So with our rate cut scenario in there, we do have and we just annually look at, are we in market on our commercial service charges, and we'll make adjustments annually. And those have been steadily going up, just like everything else that we that would be the other side of the coin.
Dan Geddes: Peter, the other side on the commercial side, you could see with rate cuts the commercial service charge income increase because the balances don't cover as much as the service charges. And so they're having to either carry higher balances, which is a plus for us, or pay the hard cost of the service charge. So with our rate cut scenario in there, we do have and we just annually look at, are we in market on our commercial service charges, and we'll make adjustments annually. And those have been steadily going up, just like everything else that we that would be the other side of the coin.
Speaker #1: People want things to just work out. I think that's what's happening in that line item.
Speaker #2: And Peter , the the other side on the commercial side , I , you know , you could see with rate cuts , you know , our , you know , the commercial service charge income increase .
Speaker #2: And because the balances don't cover as many as much as the the service charges . And so they're having to either carry higher balances , which is a plus for us or pay harder .
Speaker #2: The hard cost of the of the service charge . So with our rate cut scenario in there , we do have and we just annually look are we at , you know , in market on our commercial service charges .
Speaker #2: And we'll make adjustments annually . And you know , those those have been steadily going up just like everything else that we've we've that would be the other side of the coin .
Peter Winter: If I could follow up on, I heard your comments on the opportunities that's being created with the disruption with new entrants. But if I ask it differently, with new entrants coming in, the thinking is that they'll use pricing as a way to win business and be more competitive both on the loan side and deposit side. And for example, Fifth Third is going to be opening up 50 new branches in Texas for the next three years. So is there some risk with the new entrants coming in that it could create a little bit of a headwind because they're getting competitive to win business?
Peter Winter: If I could follow up on, I heard your comments on the opportunities that's being created with the disruption with new entrants. But if I ask it differently, with new entrants coming in, the thinking is that they'll use pricing as a way to win business and be more competitive both on the loan side and deposit side. And for example, Fifth Third is going to be opening up 50 new branches in Texas for the next three years. So is there some risk with the new entrants coming in that it could create a little bit of a headwind because they're getting competitive to win business?
Speaker #9: If I could follow up on I heard your comments on the opportunities that that's being created with the disruption with new entrants . But if I ask it differently , with coming new entrants in , the thinking is that they'll use pricing as a way to win business and be more competitive both on the loan side and deposit side , and for example , fifth , third is going to be opening up 50 new branches in Texas for the next three years .
Speaker #9: So is there some risk with the new entrants coming in that it could create a little bit of a headwind because they're getting competitive to win business?
Phil Green: Yeah. I understand what you're saying. Well, we've seen it before, right? Not a first rodeo on this. And so you're right. You'll tend to use price moving into new markets because it's the easiest thing to use. It's the one thing that everyone can use. And it's also true that we do not intend to lose business and lose our customers to competitors, no matter who they are. And it's also true, I believe, that we are a low-cost producer as relates to funding cost. And so we're able to respond to the relationships that we want to and in the markets that we want to very effectively against, say, a price competitor. And we'll win against literally anybody on service. And so I feel we're pretty well positioned. Could there be some headwinds? Sure. But I'm very confident of our ability to succeed in a competitive situation.
Phil Green: Yeah. I understand what you're saying. Well, we've seen it before, right? Not a first rodeo on this. And so you're right. You'll tend to use price moving into new markets because it's the easiest thing to use. It's the one thing that everyone can use. And it's also true that we do not intend to lose business and lose our customers to competitors, no matter who they are. And it's also true, I believe, that we are a low-cost producer as relates to funding cost. And so we're able to respond to the relationships that we want to and in the markets that we want to very effectively against, say, a price competitor. And we'll win against literally anybody on service. And so I feel we're pretty well positioned. Could there be some headwinds? Sure. But I'm very confident of our ability to succeed in a competitive situation.
Speaker #1: Yeah , I understand what you're saying . Well , you've seen it seen it before right . Not our first rodeo on this .
Speaker #1: And so you're right. You know, you'll tend to use price moving into new markets because it's the easiest thing to use.
Speaker #1: It's the one thing that everyone can use. And it's also true that we do not intend to lose business and lose our customers to competitors.
Speaker #1: You know , no matter who they are . And , and it's also true , I believe , that we are a low cost producer .
Speaker #1: As relates to funding costs . And so we're able to respond , you to , to the relationships that we want to . In , in the markets that we want to very effectively say , against , a price competitor and , and will win against literally anybody on service .
Speaker #1: And so I feel we're pretty well positioned . Could there be some headwinds ? Sure . You know , but I'm very confident of our ability to succeed in a competitive situation .
Peter Winter: Thanks, Phil. Thanks, Dan.
Peter Winter: Thanks, Phil. Thanks, Dan.
Operator: Our next question is from David Chiaverini with Jefferies. Please proceed.
Operator: Our next question is from David Chiaverini with Jefferies. Please proceed.
Speaker #9: Thanks, Phil. Thanks, Dan.
David Chiaverini: Hi. Thanks for taking the question. So wanted to ask about your loan pipelines and new commitments. You mentioned about new commitments being up meaningfully, although pipelines down link quarter. Can you just talk about areas of strength and perhaps areas of weakness in the pipelines and new commitments?
David Chiaverini: Hi. Thanks for taking the question. So wanted to ask about your loan pipelines and new commitments. You mentioned about new commitments being up meaningfully, although pipelines down link quarter. Can you just talk about areas of strength and perhaps areas of weakness in the pipelines and new commitments?
Speaker #3: Our next question is from David Cerini with Jefferies. Please proceed.
Speaker #10: Hi . Thanks for taking the question . So I wanted to ask about your loan pipelines and new commitments . You about new mentioned commitments being up meaningfully , although pipelines down linked quarter .
Speaker #10: Can you just talk about areas of strength and perhaps areas of weakness in the pipelines and new commitments?
Dan Geddes: Yeah. Sure. So I mean, I'm looking at just how our pipeline compares to year-over-year, and it's up 16% this time last year. So that's going to be driven primarily. We're seeing good opportunities in commercial real estate right now. It's pretty much, I would say, about 60% customer, 40% prospect, which is a good balance. It's not overweighted one way or the other. And you would like we tend to win just about almost all of our customer opportunities out there. So then to me, it's just a matter of time before those would get closed out. And so those are kind of the two areas I would say that we're seeing the most opportunities right now. And I think it's pretty well spread out.
Dan Geddes: Yeah. Sure. So I mean, I'm looking at just how our pipeline compares to year-over-year, and it's up 16% this time last year. So that's going to be driven primarily. We're seeing good opportunities in commercial real estate right now. It's pretty much, I would say, about 60% customer, 40% prospect, which is a good balance. It's not overweighted one way or the other. And you would like we tend to win just about almost all of our customer opportunities out there. So then to me, it's just a matter of time before those would get closed out. And so those are kind of the two areas I would say that we're seeing the most opportunities right now. And I think it's pretty well spread out.
Speaker #2: Yeah, sure. So I'm looking at just how our pipeline compares to year over year. And it's, you know, it's up 16% from this time last year.
Speaker #2: So you know, that's going to be driven primarily. You know, we're seeing good opportunities in commercial real estate right now.
Speaker #2: It's, you know, pretty much, I would say, about 60% customer, 40% prospect, which is a good balance. It's not one way or the other.
Speaker #2: And , you know , you would like we tend to win just about almost all of our customer opportunities out there . So then it's to me it's of before those matter time just a of those we get closed out .
Speaker #2: so And your you're those are , those are kind of the two areas I would say that we're seeing , you the know , most opportunities right now .
Dan Geddes: When I look at where those opportunities are coming from, from our regions, it's a lot of our expansion regions are doing well. It's roughly 25% of our new opportunity and pipeline is in the Houston area, and roughly half are from Houston, Dallas, and Austin. So I think half of that weighted pipeline is from our expansion regions.
When I look at where those opportunities are coming from, from our regions, it's a lot of our expansion regions are doing well. It's roughly 25% of our new opportunity and pipeline is in the Houston area, and roughly half are from Houston, Dallas, and Austin. So I think half of that weighted pipeline is from our expansion regions.
Speaker #2: And you know , I think it's , it's it's pretty well spread out when I look at where those opportunities are coming from , from our regions , you know , it's , you know , a lot of our expansion regions are doing , doing well .
Speaker #2: You know , it's , you know , roughly 25% of our new opportunity and pipeline is in the in the Houston area . And roughly half or from Houston , Dallas and Austin .
Speaker #2: So I think half of that , you know , pipeline weighted pipeline is from our expansion regions .
David Chiaverini: Great. Thanks for that. And Phil, since you mentioned it about M&A and how familiar you are with it, can you provide updated thoughts on your viewpoint on M&A and your CET1? Very well above peers here at 14%. So any comments there would be helpful.
David Chiaverini: Great. Thanks for that. And Phil, since you mentioned it about M&A and how familiar you are with it, can you provide updated thoughts on your viewpoint on M&A and your CET1? Very well above peers here at 14%. So any comments there would be helpful.
Speaker #10: Great . Thanks for that . And , Phil , since you mentioned it about M&A and how familiar you are with it , can you provide updated thoughts on your viewpoint on M&A and your Cet1 ?
Speaker #10: You know , very , you know , well above peers here at 14% . So any comments there would be helpful .
Phil Green: Well, our position is the same as it's been. We're not interested in M&A. As you say, we have done it a fair amount in the past. And so we know how to do it. But we also know what's good about it and what's bad about it or not as good when you're talking about an organic alternative. And because we've made the investments in our business, which have allowed us to grow our household relationships at a level as good or really better than anybody, we're leaning into that. And one example that I use that's kind of anecdotal, but it's easy to understand. I'll look at some of these acquisitions that have been made just recently, and they're paying—and I'm sure they have good reason for it, but it's just a comparison. But in an acquisition, you're seeing pay $220 million for $1 billion of assets. Okay?
Phil Green: Well, our position is the same as it's been. We're not interested in M&A. As you say, we have done it a fair amount in the past. And so we know how to do it. But we also know what's good about it and what's bad about it or not as good when you're talking about an organic alternative. And because we've made the investments in our business, which have allowed us to grow our household relationships at a level as good or really better than anybody, we're leaning into that. And one example that I use that's kind of anecdotal, but it's easy to understand. I'll look at some of these acquisitions that have been made just recently, and they're paying—and I'm sure they have good reason for it, but it's just a comparison. But in an acquisition, you're seeing pay $220 million for $1 billion of assets. Okay?
Speaker #1: Well , our position is the same as it's been . We're not interested in M&A . As you say , we have done it a fair amount in the past .
Speaker #1: And so we know how to do it . But we also know what you know , what's good about it and what's what's what's bad about it .
Speaker #1: Or not . As good when you're talking about an organic alternative . And because we've made the investments in our business , which have allowed us to grow our household relationships at a level as good or better than anybody , we're leaning into that .
Speaker #1: And , you know , one example that I use , that's kind of that's anecdotal , but , you know , it's easy to understand .
Speaker #1: I some of these look at acquisitions that have been , you know , made just recently , and they're paying , you know , and I'm sure they have reason for good it .
Speaker #1: But it's just a comparison . But in an acquisition , you're seeing pay $220 million for $1 billion of assets . Okay . Well , we've looked at what it costs for our organic growth .
Phil Green: Well, we've looked at what it costs for our organic growth. I go back to our first $1 billion we raised in Houston 1.0. When we got to $1 billion, we spent for everything, the burn rate, you name it, all in $90 million. And in that, somebody—and I've done this before—you buy someone and you have to take the locations that they've got, right? And you try to rationalize it and make sense out of all of it. And sometimes it works out awesome. But in our case, for that $90 million, we got the absolute best 25 locations we could identify in Houston, Texas. And so that's what I want to do. That's more fun than giving huge amounts of your company away to somebody else and then trying to convince everyone to stay and then trying to convince the customers to stay who didn't choose you.
Well, we've looked at what it costs for our organic growth. I go back to our first $1 billion we raised in Houston 1.0. When we got to $1 billion, we spent for everything, the burn rate, you name it, all in $90 million. And in that, somebody—and I've done this before—you buy someone and you have to take the locations that they've got, right? And you try to rationalize it and make sense out of all of it. And sometimes it works out awesome. But in our case, for that $90 million, we got the absolute best 25 locations we could identify in Houston, Texas. And so that's what I want to do. That's more fun than giving huge amounts of your company away to somebody else and then trying to convince everyone to stay and then trying to convince the customers to stay who didn't choose you.
Speaker #1: go back And I to our first billion dollars . We raised in Houston 1.0 . When we got to $1 billion , we spent for everything the burn rate , you name it all in $90 million .
Speaker #1: You know? So, and in that, somebody—and I've done this before—you buy someone, and you have to take that location. Is that right?
Speaker #1: And they've got—you try to rationalize it and make sense out of all of it. And sometimes it works out awesome.
Speaker #1: But but in our case , for $90 million , we locations that got we could the absolute best 25 identify in Houston , Texas .
Speaker #1: And so . You know , that's what to I want do . That's that's more fun than trying to than given huge amounts of your company away to somebody else and then try to convince everyone to stay and then trying to convince the customers to stay who didn't choose you , you know , to me , it's more fun having bankers choose you and come to work for you and then have customers choose you and come in and and then treat them .
Phil Green: To me, it's more fun having bankers choose you and come to work for you and then have customers choose you and come in and then treat them, not dislocate them by changing their account numbers and loan officers and all that. Instead, you're just taking care of them and making their lives better. I mean, that's what we do every day. We wake up and we do that. We don't worry about who's buying who or who we want to buy or any of that stuff. It's simple. It's customer-focused, and it's working for us. So I have zero interest in making an acquisition.
To me, it's more fun having bankers choose you and come to work for you and then have customers choose you and come in and then treat them, not dislocate them by changing their account numbers and loan officers and all that. Instead, you're just taking care of them and making their lives better. I mean, that's what we do every day. We wake up and we do that. We don't worry about who's buying who or who we want to buy or any of that stuff. It's simple. It's customer-focused, and it's working for us. So I have zero interest in making an acquisition.
Speaker #1: You know , not not dislocate them by changing their account numbers and and and loan officers and all that . Instead you just taking care of them and making their lives better .
Speaker #1: I mean , that's what we do every day . We wake up and we do that . We don't worry about buying , who's or who we who want to buy or any of that stuff .
Speaker #1: It's simple. It's customer-focused, and it's working for us. So I have zero interest in making an acquisition.
David Chiaverini: Very helpful. Thank you.
David Chiaverini: Very helpful. Thank you.
Operator: Our next question is from Ben Gerlinger with Citi. Please proceed.
Operator: Our next question is from Ben Gerlinger with Citi. Please proceed.
Speaker #10: Very helpful. Thank you.
Speaker #5: Yeah .
Phil Green: Good afternoon.
Ben Gerlinger [Director Equity Research: Good afternoon.
Speaker #3: Our next question is from Ben Gerlinger with Citi. Please proceed.
Dan Geddes: Hey, Ben.
Dan Geddes: Hey, Ben.
Phil Green: Most of my questions have been asked and answered, and I really appreciate the color on all the outside entrants and pricing and things like that. I did get a couple of emails from some investors. I wanted to clarify that the guidance is GAAP or is it CORE?
Ben Gerlinger [Director Equity Research: Most of my questions have been asked and answered, and I really appreciate the color on all the outside entrants and pricing and things like that. I did get a couple of emails from some investors. I wanted to clarify that the guidance is GAAP or is it CORE?
Speaker #11: Good afternoon .
Speaker #2: Hey , Ben .
Speaker #11: My questions have been asked and answered, and I really appreciate the color on the outside entrance and pricing and things like that.
Speaker #11: Did get a couple emails from some investors. Wanted to clarify— is that the guidance gap, or is it core?
Dan Geddes: GAP.
Dan Geddes: GAP.
Phil Green: Guidance in GAAP or core?
Ben Gerlinger [Director Equity Research: Guidance in GAAP or core?
Dan Geddes: Yeah. It would be GAAP.
Dan Geddes: Yeah. It would be GAAP.
Phil Green: Okay. And then if you think about Q1—well, sorry. You do talk about how there's a few nonrecurring items in Q1. And then typically there's taxes and things like that. Or excuse me, Q4. Going into Q1, then you have taxes. Is there any color that you should see in terms of Q1, or is it just kind of a restart lower on a GAAP basis and then kind of march higher throughout the year?
Ben Gerlinger [Director Equity Research: Okay. And then if you think about Q1—well, sorry. You do talk about how there's a few nonrecurring items in Q1. And then typically there's taxes and things like that. Or excuse me, Q4. Going into Q1, then you have taxes. Is there any color that you should see in terms of Q1, or is it just kind of a restart lower on a GAAP basis and then kind of march higher throughout the year?
Speaker #5: Gap .
Speaker #1: I'm having .
Speaker #2: It was the guidance gap or core? Yeah, it would be gap.
Speaker #11: And then if you think about one Q well , sorry , you do talk about how there's a few non-recurring items and then in one Q typically there's there's taxes and things like that .
Speaker #11: Excuse me for going into one. Q, then you have taxes. Is there any color that you should see in terms of one?
Speaker #11: Q, or is it just kind of a restart lower on a GAAP basis, and then kind of march higher throughout the year?
Dan Geddes: It would be the same thing kind of on a GAAP basis. And then just one of the things that jumps out in Q1 would be primarily on the income side for insurance. That's just typically a higher quarter for insurance for renewals. So that might be the only one of the things that would jump out. But it's the same seasonality we've reported in the past.
Dan Geddes: It would be the same thing kind of on a GAAP basis. And then just one of the things that jumps out in Q1 would be primarily on the income side for insurance. That's just typically a higher quarter for insurance for renewals. So that might be the only one of the things that would jump out. But it's the same seasonality we've reported in the past.
Speaker #2: It would be the same thing , kind of on a GAAP basis . And then just one of the things that that jumps out in , in the in the first quarter would be primarily on the income side for insurance .
Speaker #2: Well, that's just typically a higher quarter for insurance for renewals. So that might be the only one of the things that would jump out.
Phil Green: Gotcha. That's helpful. Thank you, guys.
Jon Arfstrom [Managing Director: Hey, thanks. Good afternoon.
Speaker #3: Our next question is from Jon Arfstrom with RBC Capital Markets. Please proceed.
Phil Green: Good afternoon.
Phil Green: Good afternoon.
Jon Arfstrom: I asked this question a couple of quarters ago, Dan. So same question. Margin or net interest income outlook without the 3 rate cuts, I'm assuming that's good for you. And if so, how much?
Jon Arfstrom [Managing Director: I asked this question a couple of quarters ago, Dan. So same question. Margin or net interest income outlook without the 3 rate cuts, I'm assuming that's good for you. And if so, how much?
Speaker #12: Hey , thanks . Good afternoon .
Speaker #5: Good afternoon .
Speaker #12: Question: I asked this question a couple of quarters ago, Dan. So, same question—margin or net interest income outlook without the three rate cuts.
Dan Geddes: Yeah. So a cut is roughly $2 million a month to net interest income. So we have our 3 cuts in there. And so if we don't get the April cut, you're looking at $16 million additional on net interest income. And I think that's around 2 to 3 basis points improvement, all things being equal. And all things will likely never be equal, but just if that helps. And then just depending on the timing of the cuts and whether we get them, that would be, again, just the impact of 1 cut to our NII.
Dan Geddes: Yeah. So a cut is roughly $2 million a month to net interest income. So we have our 3 cuts in there. And so if we don't get the April cut, you're looking at $16 million additional on net interest income. And I think that's around 2 to 3 basis points improvement, all things being equal. And all things will likely never be equal, but just if that helps. And then just depending on the timing of the cuts and whether we get them, that would be, again, just the impact of 1 cut to our NII.
Speaker #12: I'm assuming that's good for you. And if so, how much?
Speaker #2: Yeah . So it's a cut . Is roughly 2 million a month to net interest income . So you know we we have our three cuts in there .
Speaker #2: And so, if we don't get the April cut, you know, you're looking at $16 million additional on net interest income.
Speaker #2: And and I think that's around 2 to 3 basis point improvement . All things being equal . And all things will likely never be equal .
Speaker #2: But just if that helps, and then just depending on the timing of the cuts and whether we get them, that would be, again, just the impact of one cut to our NII.
Jon Arfstrom: Yep. Okay. Very helpful. And then just you guys touched on credit earlier, but any thoughts on how you want us to approach the provision and the reserve outlook from here?
Jon Arfstrom [Managing Director: Yep. Okay. Very helpful. And then just you guys touched on credit earlier, but any thoughts on how you want us to approach the provision and the reserve outlook from here?
Speaker #12: Very helpful Okay . Yeah . . And then just you guys touched on credit earlier , but any thoughts on how you want us to approach the the provision and the reserve outlook from here ?
Dan Geddes: One of the things that you may see, we're early in the year, is just where does our provision end up in terms of is it going to stay, is it going to stay where it ended at $129? I think you could see that if we are able to resolve a lot of these multifamily. You could see that tick down a couple of basis points. Again, that's looking at the lens of today and with really strong credit metrics. That might be the thing I would just mention to you. You could see that trend down a little bit if we continue to see positive credit trends in 2026.
Dan Geddes: One of the things that you may see, we're early in the year, is just where does our provision end up in terms of is it going to stay, is it going to stay where it ended at $129? I think you could see that if we are able to resolve a lot of these multifamily. You could see that tick down a couple of basis points. Again, that's looking at the lens of today and with really strong credit metrics. That might be the thing I would just mention to you. You could see that trend down a little bit if we continue to see positive credit trends in 2026.
Speaker #2: You know , one of the things that , you know , you you may you'll you may see me early in the year , you know , is is just , you know , where does where does our provision end , end up in terms of , you know , is it is it going to stay ?
Speaker #2: going to stay where it Is it ended at a 129 . You know , I think , you know , you could see that if we don't if we are able to resolve a lot of these multifamily , you could see that tick down a couple basis points .
Speaker #2: Again , that's looking at the lens of today . And , you know , with really strong credit metrics , that might be the , the the thing I would just to you , mention you could see that trend down a little bit .
Jon Arfstrom: Yep. Okay. All right. Thanks a lot, guys.
Jon Arfstrom [Managing Director: Yep. Okay. All right. Thanks a lot, guys.
Speaker #2: If we continue to see positive , you know , credit , credit trends in 26 .
Operator: We have reached the end of our question and answer session. I would like to turn the floor back over to Phil for closing comments.
Operator: We have reached the end of our question and answer session. I would like to turn the floor back over to Phil for closing comments.
Speaker #12: Okay. All right. Thanks a lot, guys.
Phil Green: Okay, everyone. Thanks for being on our call today and for your interest in the company. We're adjourned. Thanks. Bye-bye.
Phil Green: Okay, everyone. Thanks for being on our call today and for your interest in the company. We're adjourned. Thanks. Bye-bye.
Speaker #3: We have reached the end of our Q&A session. I would like to turn the floor back over to Phil for closing comments.
Speaker #1: Okay everyone . Thanks for being on our call today and for your interest in the company . We're adjourned . Thanks . Bye bye .
Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
