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Edited Transcript of CFR earnings conference call or presentation 26-Jul-18 3:00pm GMT

Q2 2018 Cullen/Frost Bankers Inc Earnings Call

SAN ANTONIO Sep 27, 2018 (Thomson StreetEvents) -- Edited Transcript of Cullen/Frost Bankers Inc earnings conference call or presentation Thursday, July 26, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. B. Mendez

Cullen/Frost Bankers, Inc. - Director of IR

* Jerry Salinas

Cullen/Frost Bankers, Inc. - Group Executive VP & CFO

* Phillip D. Green

Cullen/Frost Bankers, Inc. - Chairman & CEO

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Conference Call Participants

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* Alex Lau

JP Morgan Chase & Co, Research Division - Research Analyst

* Brady Matthew Gailey

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* David Patrick Rochester

Deutsche Bank AG, Research Division - Equity Research Analyst

* Ebrahim Huseini Poonawala

BofA Merrill Lynch, Research Division - Director

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Jon Glenn Arfstrom

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Cullen/Frost Bank Second Quarter Earnings Conference Call. My name is Amy, and I would be facilitating the audio portion of today's interactive broadcast. (Operator Instructions)

At this time, I would like to turn the show over to Mr. A.B. Mendez, Senior Vice President and Director of Investor Relations. Mr. Mendez, you may begin.

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A. B. Mendez, Cullen/Frost Bankers, Inc. - Director of IR [2]

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Thank you, Amy. This morning's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group Executive Vice President and CFO.

Before I turn the call over to Phil and Jerry, I need to take a moment to address the safe harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend that 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.

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

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [3]

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Thanks, A.B., and welcome to the Investor Relations team. And I'd also like to thank Greg Parker, who's been managing Investor Relations for Frost for about the past 20 years. Greg has done an outstanding job for us. So, Greg, thank you, and congratulations on your new role in operational risk.

Well, good morning, everyone. Thanks for joining us. Today, I'll review second quarter results for Cullen/Frost, and our Chief Financial Officer, Jerry Salinas, will also provide additional comments before we open it up to your questions.

In the second quarter, Cullen/Frost earned $109.3 million or $1.68 per diluted common share, which represents a 30% increase compared with the same quarter last year. Our solid second quarter earnings are the result of Frost Bankers executing the strategy that we discussed over the past several quarters, focusing on sustainable above-average organic growth. Along with the excellent earnings, our return on average assets reached 1.43% in the second quarter, the highest quarterly total in 9 years.

Now I'd like to offer some details about the elements that go into this growth. We continue to build our loan portfolio while maintaining our quality standards. During the second quarter, average loans were $13.5 billion. This represents an increase of more than $1.2 billion or just over 10% versus the second quarter last year. C&I loans grew 10%, and commercial real estate loans grew 11%.

Our provision for loan losses was $8.3 million in the second quarter, and that compared to $6.9 million in the first and $8.4 million in the second quarter 2017. Nonperforming assets totaled $122.8 million in the second quarter. This was down 10% from the $136.6 million in the first quarter. Potential problem loans totaled $50 million at the end of the second quarter. That's our lowest level in more than 3 years, and it matches levels prior to the energy downturn.

Net charge-offs in the second quarter of 2018 were $7.9 million compared with $12.4 million in the first quarter and $11.9 million in the second quarter of last year. The lower total represents continued improvement in credit quality and maintaining higher loan standards. As expected, second quarter annualized net charge-offs dropped to a level of 23 basis points of our average loans.

Overall delinquencies for accruing loans at the end of the second quarter were $67 million or 49 basis points of period-end loans. That's a number well within our standards and comparable to what we've experienced in the past 2.5 years. Total problem loans, which we define as risk grade 10 and higher, decreased by more than 6% compared to the first quarter and were down about 25% from a year ago.

Outstanding energy loans at the end of the second quarter represented just over 11% of total loans. The energy industry activity is increasing in markets where we do business, but the percentage of energy loans in our portfolio remains well below our peak of more than 16% in 2015. Other industries in Texas continue to do well. In general, our customers tell us they're optimistic about their prospects for future growth, and Frost is well positioned to serve them with a competitive product mix and strong value proposition.

Average total deposits in the second quarter were $26.1 billion compared with $25.7 billion in the second quarter of last year.

In consumer banking, our value proposition and award-winning service continue to attract customers. On a linked-quarter basis, same-store sales growth from new account origination is up 4.5% unannualized in the second quarter. Almost 9% of our account openings came from our online channel, which includes our Frost Bank mobile app. That's nearly 65% higher than last year. The consumer loan portfolio averaged $1.620 billion by the end of the first quarter, increasing by 8.3% or $125 million compared to the second quarter of 2017.

On the commercial side, new loan opportunities are up by 2% year-to-date compared with last year. However, this was impacted by new energy opportunities, which were down 27% from the year ago, and public finance opportunities, which were down 26%. However, regular commercial new opportunities were up by 7%, while commercial real estate opportunities increased 4%.

Looking now at new loan commitments booked in the second quarter. Overall, they declined from the year ago by 6%. However, the regular C&I component was up by 7%. Both energy and commercial real estate new commitments were down 17%. As we mentioned last quarter, early 2017 was an extremely strong period for commercial real estate. However, on a linked-quarter comparison of new loan commitments booked shows solid growth from the first quarter with all portfolio segments increasing. Remember that the first quarter is typically seasonally weaker. With regard to the current active loan pipeline, I'm glad to see the second quarter was up from the previous year by 7%.

Finally, our strategy of building our core loan portfolio, which we define as loan relationships under $10 million in size, continues to help provide steady, sustainable organic growth. For the second quarter, new commitments under $10 million accounted for 50% of commitments booked, up from 44% in the second quarter last year.

Let me say that I'm extremely pleased with what our people at Frost were able to achieve this year and this quarter, particularly. It's not often you're able to report a 30% increase in earnings. They do it by taking care of our customers and offering them top quality service and excellence at a fair price. They provide a safe, sound place to do business. And most of all, they provide great customer experiences that make people's lives better. We've been doing that for 150 years now, and that experience has shown us the value of having a positive, optimistic attitude towards growth. Our hardworking Frost bankers build long-term relationships with our customers that benefit everyone in good times and bad, and I want to thank them for that.

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

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [4]

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Thank you, Phil. I'll make a few general comments about the Texas economy before I provide some additional information about our financial performance for the quarter and close with our guidance for full year 2018.

The Texas economy continues to expand amid a tight labor market and historically low unemployment. According to the Federal Reserve's Dallas branch, Texas employment has expanded 3.6% year-to-date. The Texas unemployment rate in June decreased to 4%. That's near a 4-decade low and the same as the U.S. national average. Tight labor markets are challenging Texas businesses to find qualified workers. The Dallas Fed projects 2018 Texas job growth at 3%. Based on that forecast, Texas should add more than 370,000 new jobs in 2018.

Looking at individual markets. Houston's economy expanded 6.1% in June, the fastest among the major metro areas. Year-to-date, Houston employment is up 4.8%. The biggest gains were in professional services and manufacturing. Energy jobs are also increasing. Houston's unemployment rate fell to 4.4% in June, the lowest in more than 3 years. According to the Dallas Fed, employment in the Dallas/Fort Worth Metroplex grew 3.2% annualized year-to-date. Growth through the first 6 months is 3.6% in Dallas and 2.4% in Fort Worth. Job expansion is widespread across all sectors. Payrolls in the goods-producing sector, that's manufacturing and construction and mining, were up an annualized 9.3% this year in Dallas. June unemployment was 3.5% in Dallas and 3.6% in Fort Worth.

The Austin labor force is up 3% -- 3.8% annualized this year. Growth is mixed across industries. Leisure and hospitality grew 14% from March to May, while health care and professional business services have the largest declines. Austin's unemployment rate in June was 3%.

The San Antonio economy is steady with low unemployment. Goods-producing industries are growing at a robust pace. Energy sector and manufacturing jobs expanded briskly in the previous 3 months. Although, leisure and hospitality jobs continued to decline. San Antonio's June unemployment rate fell to 3.3%.

The Permian Basin economy is growing rapidly with surging employment and record-low unemployment. Midland-Odessa employment has added jobs at an annualized rate of above 10% for 4 consecutive months. Employment in the Permian Basin is now higher than during its pre-bust peak. Midland-Odessa's unemployment rate fell to a new low of 2.5% in June, the lowest in the state. For Texas, as a whole, the Dallas Fed projects 3% job growth in 2018.

Now moving to our financial performance. Our net interest margin percentage for the second quarter was 3.64%, up 12 basis points from the 3.52% reported last quarter. Driving the increase was a favorable effect of higher yields on earning assets, primarily loans and balances at the fed and higher loan volumes. In addition, a lower proportion of earning assets invested in balances at the fed during the second quarter had a positive effect on the net interest margin percentage. These favorable variances were partly offset by higher deposit costs during the second quarter. The taxable equivalent loan yield for the second quarter was 4.90%, up 25 basis points from the 4.65% recorded in the first quarter driven by the higher rate environment.

Looking at our investment portfolio. The total investment portfolio averaged $11.9 billion during the second quarter, up about $90 million from the first quarter average of $11.8 billion. The taxable equivalent yield on the investment portfolio was 3.36% in the second quarter, flat with the first quarter. Our municipal bond portfolio averaged about $7.7 billion during the second quarter, up about $59 million from the first quarter. During the second quarter, we purchased about $230 million in municipal securities with a taxable equivalent yield of about 4%. The municipal portfolio had a taxable equivalent yield for the second quarter of 4.1%, down 2 basis points from the previous quarter. At the end of the second quarter, about 68% of the municipal portfolio was pre-refunded or PSF-insured.

Regarding income taxes, our effective tax rate for the quarter was 11.1%, up from the 9.5% recorded last quarter, impacted by higher net income and a lower benefit from stock option settlements during the second quarter as compared to the first. On a year-to-date basis, our effective tax rate was 10.3%.

Regarding the outlook for 2018. Estimates for the full year 2018 -- regarding the estimates for full year 2018 earnings, we currently believe that the mean of analyst estimates for the year of $6.74 is reasonable given our current assumption of another rate hike in September.

With that, I'll now turn the call back over to Phil for questions.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [5]

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Thank you, Jerry. And with that, we'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from the line of Ebrahim Poonawala of Bank of America Merrill Lynch.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [2]

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So I guess if you can -- first, just wanted to touch up on in terms of deposits. I mean, we saw a pretty sharp decline on a period-end basis. Average balances were a little bit better. If Phil or Jerry, you can talk about the dynamics on the deposit front where the growth -- whether you expect those to grow in the back half of the year and the change that you've seen in the cost of deposits quarter-over-quarter.

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [3]

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Sure. But one thing, Ebrahim, you know what, we -- to look at a period end is really kind of tough for us because those balances fluctuate so much period end to period end from 1 day to the next. So we certainly tend to focus more on the averages. So if you're looking -- I guess if I look at year-over-year average, for example, we're showing a 1.6% quarter-over-quarter growth compared to the second quarter of last year. And what we saw was really our demand deposits, which, for us, were about $10.7 billion or about 40% of our deposits. They were actually down about 0.6%. So that's really where we're seeing the decrease is on those commercial balances. Our interest-bearing accounts were actually up 3.2% compared to the second quarter last year. And really, what we're seeing is that the -- with the alternatives available to customers, we are seeing some dollars moving into some sweep accounts, for example. The customers are using their balances to grow the business, but there is going to be pressure in that -- in the -- in deposits as we look to the rest of the year. For us, we really see a pickup typically seasonally, starting in the third and fourth quarter. And right now, that's really what our projections show is that we're assuming that we'll have that same sort of trend going up for the latter part of the year.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [4]

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Understood. And if you could provide the change in the cost of interest-bearing deposits for the quarter.

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [5]

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Sure. So cost -- total cost went from -- for the first quarter was 16 basis points, going up to 27.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [6]

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Understood. And just moving to sort of the outlook. When we think about the margin and 3.64% based on sort of the expectation on the deposit front, if we don't get a rate hike, like what's your expectations for the margin? It should continue to trend higher without the hike and with the hike. What's that adding to the margin?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [7]

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What I'd say is, again, on the net interest margin, as we discussed, some of that kind of depends on what happens with deposits. Our projections right now assume that those will continue to trend up. The net interest margin will trend up through this latter part of the year really either way, with or without September increase. Because again, the impact of the June increase isn't completely on our numbers but obviously better if we get the rate hike in September. But percentage-wise, it will be dependent on those deposit volumes.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [8]

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Got it. And just last question, moving to expenses. We are running like sub-2% year-over-year in terms of expense growth. Do we still expect expenses to end the year in that 4% range? Or is 2% the right way to think about expense growth for 2018?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [9]

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No. What I would say, I think, the guidance I've given is what I'm still comfortable with. But what we've said and I think we need to be careful with last year because, remember, the network costs are in last year's expenses. And this year, they're netted against the income. So if you adjust out the '17 expenses, they're like at $747 million. If you adjust out the $12 million in network costs. And the guidance I've given is that we projected we'd be up about 4.5% from that, and that's still a good number.

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Operator [10]

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Your next question comes from the line of Jennifer Demba of SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [11]

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I was just wondering if you could talk about the loan competition dynamics you saw during the quarter, where the most opportunities were and where you were seeing maybe the most pricing restructure competition.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [12]

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Sure. From the -- little bit competition side, it continues to be -- it tends to be tough. It's been that way for a long, long time, shows no signs of abating. I think that the -- it's my sense that probably the biggest level of competition you see on price side is probably fixed-rate loans on the smaller side because I think you get a lot of community banks in that area, which tend to price particularly aggressively. So that's where I would see that. As far as where our growth is coming from, it's been really well balanced. The biggest part of the growth that we've seen has been in C&I loans, and that's good because that's really our wheelhouse. We do great with consumer, CRE. Obviously, we're good energy lender. But the part of the portfolio that's been growing the most has been C&I., and that's -- I think that's partly because focus and that's partly because of our focus on core loans, and those tend to be more in the C&I area. And then our -- you've heard us talk about final authority, where we give some authority to execute transactions on an expedited basis to our people. I think those tend to be C&I as well. So -- and whether or not C&I, I think they tend to be owner-occupied CRE for the most part.

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Operator [13]

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Your next question comes from the line of Dave Rochester of Deutsche Bank.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [14]

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I was just curious. Next year, for 2019, how much in the way of expense savings you're expecting to get from the roll off of the FDIC surcharge.

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [15]

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Dave, we're projecting that number in the $8 million to $9 million range, pretax, obviously. Yes.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [16]

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Great. And then the data security expense that was in this quarter, are you expecting that to drop out as we head into the back half of the year?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [17]

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There was a lot of communication that happened early. So I mean, as it relates to that part of it, yes. I would think that, that would lighten up some. But like anytime you get into these data intrusion issues, there's a -- it's a process. There is -- whether it's regulatory, legal or whatever. And so there'll be some ancillary costs, I'm sure, that we'll see as we go through that process, but the biggest amount of activity was in that previous quarter.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [18]

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Yes. Okay. And just switching back to the NIM. I know you guys have raised rates on deposits a few times this quarter. I was just curious if you've noted that those increases have had a positive impact already on flows. And then if you could just talk about maybe where average deposits have trended so far this quarter, just to give an early look on that trend. So it sounds like you're positive on that this quarter.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [19]

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I'll just make a couple of comments, and Jerry can fill in. Yes. I think definitely, they've had -- the rate changes have had a positive impact. I think, year-over-year, Jerry said we're up like around 3.5% or so in time deposit growth, and I really believe that would have been a negative number had we not taken the action we did on increasing interest rates.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [20]

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And then on the average balances so far this quarter, are you seeing that growth there so far?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [21]

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Let me grab some information here, Dave, real quick. What I'd say is that we are seeing -- basically right now, I would tell you that we're probably about flat, maybe up a little bit on average.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [22]

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Okay, great. And then just one last one. You guys had some great loan growth this quarter, and I was just curious how the pipeline heading into 3Q looks versus the pipeline heading into 2Q. It sounded like you're saying it was up from a year ago but was just curious quarter-over-quarter how that looks.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [23]

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Yes. If you looked at the pipeline, current active pipeline on a linked-quarter basis, it was up by -- on a gross basis, up by 5%. So that's quarter-over-quarter (inaudible) To me, it's -- the pipeline still looks good. And I think our outlook for loan still looks good. It hasn't changed from what we've been seeing over the last few quarters and expecting for this year.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [24]

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And then just one last one, back on the NIM. It sounded like you were saying that you think the NIM can still expand the next quarter. Whether you get another rate hike or not in September, I guess, expands through the end of this year, whether you get that September rate hike or not. And is that just because, as you were saying, you did not benefit the full amount from the June rate hike or you're not expecting to -- I guess you had some of the impact in second quarter. And even though you're going to see the rest of it in 3Q, you think that's enough to have the NIM expanding through the end of this year?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [25]

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All I said, really, Dave, was that it's trending up. I think that obviously if we get the September rate hike, things look better. But with the June rate hike, it's just -- it was so late in June that it really reflects in, in all of the numbers.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [26]

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Yes. And that incorporates all the increases that you've made on the cost of deposit side, obviously. Yes. Okay, great.

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Operator [27]

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(Operator Instructions) Your next question comes from the line of Steven Alexopoulos of JPMorgan.

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Alex Lau, JP Morgan Chase & Co, Research Division - Research Analyst [28]

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This is Alex on for Steve. Just want to touch on the question from before on deposit costs. You mentioned 16 to 27 basis points. That's on the total cost of deposits, right?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [29]

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Right. From 16 to 27, yes.

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Alex Lau, JP Morgan Chase & Co, Research Division - Research Analyst [30]

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Got it. Okay. That helps. And then just touching on expenses, were there any onetimers in the quarter? And can you just touch on that for a bit?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [31]

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Yes. I think that we try to identify in the quarter kind of the things that were unique. We did have like $900,000 related to the IT incident that I mentioned, then we had another $900,000 in settlements during the quarter, settlement costs. And then we had a $500,000 contribution to our charitable foundation that were kind of unique.

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Alex Lau, JP Morgan Chase & Co, Research Division - Research Analyst [32]

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Got it. And that's on a year-over-year basis?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [33]

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Yes. They would be unique, if you will. But the comparison numbers are, yes, against the -- actually, those are distinct numbers in the second quarter. So regardless of the comparisons, they're distinct numbers -- discrete numbers. That makes sense?

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Alex Lau, JP Morgan Chase & Co, Research Division - Research Analyst [34]

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Yes, helpful. And then just given what some other banks have been saying about the commercial real estate market getting more competitive and even irrational. Can you touch on what you're seeing in the CRE space?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [35]

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Well, obviously, competition is always strong. But the thing to focus on and remember about us is we're not banking things. We're not doing transactions. We're banking people, and we've got some great relationships as it relates to commercial real estate. And it's -- again, competition is strong, but we see strong equity in projects. The economy is good. So we're being careful, but we've got plenty of opportunity, and we're continuing to see that. I also said we were down a little bit from last year because that was such a strong period last year, but I still think the pipeline is good and we've got opportunity to really support great customers as they see good projects. Obviously, you got to be careful on what you're doing, and things are changing. Retail is changing in terms of how we see that underwritten and what great good developers are looking for. But even -- we're being careful with multifamily, although there are some good opportunities that are out there for some great customers. And the industrial side, I think, it continues to be very strong in Texas, so -- and residential as well. So you got to be careful, but to describe it as irrational from our point of view I don't think would be accurate, particularly as you relate to the work we do with great customers.

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Operator [36]

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Your next question comes from the line of Brady Gailey of KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [37]

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Yes. So just another question on deposit costs. I mean, you look at the total cost of deposits, they were up 11 basis points linked quarter. That's more of an increase, I mean, obviously in the past, which totally makes sense. That's where everybody is headed. But just looking forward, I just wanted to get your take on where you think deposit betas will be. I mean, you look at the 11 basis points that's about a 45% deposit beta. We're seeing some of your peers closer to 80% to 90% deposit beta. I mean, do you think that Frost will get up to that level over time?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [38]

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We were a lot higher than that earlier. But you go back to July last year, I think one reason that we're not at those levels because we did our heavy lifting a year ago, which is why we've been able to show some growth. I think we've got some flexibility, frankly, Brady, in terms of the betas that we're bringing to the table for future increases. And we'll see. We'll just keep an eye on the market, like look at deposit flows. And Jerry, any comments you have on this?

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [39]

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No. I think I agree with you 100%. Yes. I think that's the way we're looking at it is that we do have more flexibility and be able to move accordingly.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [40]

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All right. And then...

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [41]

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Sorry, Brady, but it's still same. I don't think we feel the same. I'm not at pressure today at some of the peers because, as he said, we did a lot of the heavy lifting a year ago. So we're not in the same place as they are.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [42]

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Yes. And then -- so I mean, deposit balances were down a little bit this quarter sounds like from commercial demand deposits. I know you never like to see down deposits. But at the same time, your loan-to-deposit ratio is only 53%. So I mean, would you be fine seeing a little more deposit shrinkage if that helped keep deposit costs at bay?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [43]

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Honestly, no. I mean, we're really trying to grow organically, make sure our value proposition is working. And I think it is. I think what we're seeing, as Jerry mentioned, is if you're a commercial business and you have opportunities now, I mean, the opportunities cost, I believe, at adding cash, it's just higher. And plus the activity here in Texas is strong, so we're seeing people use money. And so that's really the area that I think is going to be most interesting to see. Consumer checking accounts are up, and the interest-bearing account categories are up. And we've done, as we said, the lifting to keep that value proposition strong. And so I think if it's a deposit -- not a deposit. If it's a funding source that's low cost and somewhat transactional and it's in the commercial area, that's the thing that's going to be interesting to see. If you look at the growth we've had in commercial, over 100% of the growth we've had in the commercial sector has been from new customers. So you've seen diminishment from our current customer base. That's different than in the consumer side. It's roughly 50-50 new customer growth and augmentation on the consumer side. So it really revolves around this commercial funding base and what we're going to see as rates go up. And then I think we'll reach some kind of dynamic equilibrium at some point and then go from there. But while we're seeing some diminishment in customer balances, I am really happy with the work that our people have done in growing new relationships, again which account for really all the growth in the commercial area. And that's really the job that we have had and we'll continue to have. We just got to continue to grow long-term relationships and we're pretty good at it, we got to stay good at it.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [44]

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And then finally for me, just the duration of the bond book last quarter. It was 4.8 years, so that -- it sounds like that didn't change much in 2Q.

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Jerry Salinas, Cullen/Frost Bankers, Inc. - Group Executive VP & CFO [45]

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Yes. I think that's right. I think it was maybe down to 4.7%, so that's really why I didn't say anything, yes.

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Operator [46]

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Your next question comes from the line of Jon Arfstrom of RBC Capital Markets.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [47]

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Just a few follow-ups on some of the numbers that seemed a little bit outsized. Phil, I think you said on consumer, you talked about new account origination, up 4.5% unannualized. Is that -- did I hear that correctly?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [48]

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Same-store sales -- stores that have been opened for a year or more.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [49]

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Can you talk a little bit about that? It seems like it's -- that's a strong number if it's unannualized.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [50]

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Yes. It is a strong number. Probably, we got some seasonality in that because -- wouldn't surprise me if the first quarter was a little bit weak. But if you were to look at -- let's say you looked at year-over-year growth, which really isn't the best one to use this quarter, because the Rio Grande Valley was down a lot. And that was because -- largely because Capital One got out at market, and we had a really big increase as they exited. So if you looked at -- if you took the Rio Grande Valley out and you looked at year-over-year growth in same-store sales, it would have been 6.8%. And so it is not like annualizing the first quarter, but that's still really good same-store sales growth. And if you look at the major markets we were in, Dallas was up 14.8%. Permian Basin was up over 15%. Tarrant County was up over 15%. Houston was up over 5%. So those are just some examples. But I think our value proposition is good, and we're working hard on that. So...

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [51]

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Okay, okay. Good. That helps. Two other things here. One other number that seemed outsized. You talked about new energy opportunities down 27% from the year-ago quarter. Is that your risk tolerance? Or is there something else happening that you'd want to call out on that number?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [52]

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I think it's mainly us pruning the portfolio, just making sure that we're -- the things that we're doing are ones that we really want to do, really good opportunities for us. So it's really our call. We could do a lot more if we wanted to in that line of business.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [53]

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Okay. Last question I have. You talked about the -- I think you call it the core loan portfolio of under $10 million, and that's 50% of your commitments. Would you have any idea what your market share would be where you have geographic presence in that under $10 million market?

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [54]

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I've seen the numbers that we come up with, and what -- let me just give you a general feel for it. If you look at companies with sales size of, say, under $100 million and we kind of look at it sometimes under $10 million and you'll get under $100 million, so if you just look at under $100 million. I mean, our market share is not that far off from the Big Three, the big to fail. And Chase is in the under $100 million for us, sales side. We're probably twice our size which Chase is 100x our size or more as a company. And we're -- and you look at the other 2 of the big 3, I mean, we're sort of not that far off from the share that they have in that segment. Of course, they're a huge -- a lot bigger than we are in the really big companies in Texas. We don't really play in that area, but that's the numbers that I have seen for us. And I think we've been doing a good job, frankly, taking some share there.

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Operator [55]

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And there are no further questions in queue at this time. I turn the call back over to Mr. Green for any closing remarks.

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Phillip D. Green, Cullen/Frost Bankers, Inc. - Chairman & CEO [56]

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Well, we thank you for your support, and that is the end of our call. Appreciate you joining us today.

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Operator [57]

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This concludes today's conference call. You may now disconnect.