Cullen/Frost Bankers, Inc. (CFR) Earnings Call Transcript & Summary

Thanks, Sherry. Phil Green, our Chairman and CEO, along with Dan Geddes, Group Executive Vice President and CFO, will lead this afternoon's conference call. Before handing things over to Phil and Dan, I should spend a moment on the safe harbor provisions. Certain remarks we make today will count as forward-looking statements under the definition given in the Private Securities Litigation Reform Act of 1995 as amended. It is our intent that such statements be covered by the safe harbor provisions for forward-looking statements found in the Private Securities Litigation Reform Act of 1995 as amended. For more detail on the risk factors tied to these forward-looking statements, please refer to the last page of text in this morning's earnings release. Should you need it, a copy of the release can be found on our website or obtained by calling the Investor Relations department at 210 to 220 to 5234. At this time, I'll hand the call over to Phil.

Thanks, A.B. Good afternoon, everyone, and thanks for joining us. On today's call, we'll go over Cullen/Frost's results for the third quarter of 2026, and after that our Chief Financial Officer, Dan Geddes, will offer some additional comments and guidance updates before we open things up for your questions. In the third quarter of 2026, Cullen/Frost earned $178.5 million, which is up 3.4% from the same quarter a year ago. Earnings per share came in at $2.84 for the third quarter, a 6.4% increase over the $2.67 posted in last year's third quarter. Return on average assets came to 1.31% in the third quarter, and return on average common equity was 16.16%, compared with 1.32% and 16.72%, respectively, in the third quarter of last year. Average deposits for the third quarter totaled $43.6 billion, up 3.6% from the prior year, while average loans climbed to $23.4 billion, a 9% rise over last year. Our consumer bank keeps producing strong results, rooted in a steady emphasis on the customer experience and in our investments in organic expansion, products, and technology. Consumer loans finished the quarter at $4.66 billion, up $736 million, or 18.7%, year-over-year. Consumer real estate lending remains the key driver behind this exceptional growth, and I'm pleased to report that, as of today, our mortgage portfolio has passed $1 billion. Mortgage lending also continues to be a significant opportunity for building wider relationships. Since the program started, 46% of mortgage customers were new to Frost, and 37% of those new customers have gone on to open additional products. Consumer deposits likewise grew strongly in a market that remains highly competitive. Consumer deposits rose $297 million during the third quarter, mainly on higher money market deposit balances. That growth would not be possible without the dedicated work of our sales, product, marketing, and technology teams and, naturally, without the world-class customer experiences our frontline bankers deliver every day at every Frost branch across the state. Non-interest income continued its strong growth, powered by our consistently best-in-class customer growth. Consumer non-interest income rose $2.6 million, or 9.4%, versus the same period a year earlier. Since we launched our expansion program in late 2018, consumer checking accounts are up 52%. Our commercial line of business is posting impressive growth as well. Our 90-day weighted loan pipeline hit an all-time high of $2.5 billion in the third quarter, 16% above what had been the previous record set in the second quarter. Opportunities generated by our legacy financial centers rose 14% in the third quarter, while those generated by our expansion locations were up 37%. Turning to new loan commitments booked, the third quarter came in 4% above a very strong second quarter, which puts year-to-date commitments up 19%. Commitments for what we call core loans — those under $10 million — reached a record $1.2 billion in the third quarter. Once again, we added more than 1,000 new relationships in the third quarter. Expansion remains a major catalyst for commercial relationships, representing 21% of new commercial relationships this quarter. Opportunities arising from other banks' mergers and acquisitions — which we refer to as market disruption — keep providing a robust source of new relationships for us. So far this year, new relationships stemming from market disruption have risen 73% versus the same period a year earlier. By historical standards, our overall credit quality is still good. Total problem loans — defined as those with a risk grade of 10 or worse — came to $902 million at the close of the third quarter, versus $917 million in the prior quarter and $828 million a year ago. Non-performing assets stood at $67 million at the end of the third quarter, compared with $114 million in the second quarter and $47 million a year ago. That quarter-end non-performing asset number equals just 28 basis points of period-end loans and 12 basis points of total assets. The drop in non-performers is largely tied to one large multifamily commercial real estate loan discussed on last quarter's call, which was paid off in full through an anticipated property sale during the third quarter. Net charge-offs in the third quarter were $8.4 million, versus $9.5 million the prior quarter and $6.6 million a year ago. Annualized net charge-offs for the third quarter equal only 14 basis points of average loans. On our previous conference call, I noted my optimism regarding our work to grow our wealth management and insurance brokerage business. Within wealth management, managed accounts rose by more than 5% year-over-year; at our Frost Insurance Agency, commercial customers grew by more than 10% year-over-year. I take pride in how these teams have responded to the changes we've implemented in those areas, especially given the increasingly competitive environment in which they operate. Our ongoing efforts and investments in these areas will help shape future results. Throughout our company, our people keep serving customers and shareholders with dedication to integrity, caring, and excellence. We have the best bankers in the best markets, and that is what will keep Frost distinct. With that, I'll hand it over to Dan for some further insights.

Thank you, Phil. I'd like to begin with some perspective on the strategy behind our branch expansion and the growth those investments are producing. In the third quarter, the branch expansion contributed $0.22, or 8.4%, of EPS accretion, and $0.51 year-to-date, or 6.6% of EPS accretion. We remain pleased with the volumes we've been able to achieve. Year over year, average loans were up 40% and now make up 13.9% of total loans, versus 10.8% a year ago, and they accounted for 48% of the growth. Deposits rose 23% and now comprise 9.1% of deposits compared with 7.6% in the same period last year, contributing 49% of the growth. The expansion branches have now reached $3.25 billion in loans and $4 billion in deposits. Since our last call, we opened one new location in the Dallas region, and we have four openings planned by year-end, which brings the total for the year to 12 locations; now turning to the company's third quarter financial performance. On net interest margin, our NIM percentage came in at 3.78% for the quarter, three basis points higher than the 3.75% reported last quarter. Net interest margin benefited from a volume mix shift in earning assets, moving from lower-yielding balances held at the Fed into loans and investment securities. Those gains were partly offset by higher volumes of both interest-bearing deposits and repos. Turning to our investment portfolio, total investments averaged $21.2 billion in the third quarter, an increase of $592 million from the prior quarter. Purchases during the quarter came to $1.6 billion, made up of $625 million of agency MBS securities yielding 5.69%, $494 million of Treasuries yielding 4.21%, and $481 million of municipals yielding 5.89% on a tax-equivalent basis. Maturities in the quarter included $1 billion of Treasuries at an average yield of 2.88%, $257 million of municipals at an average tax-equivalent yield of 4.45%, and $368 million of agency MBS paydowns. With the recent rise in rates, the net unrealized loss on the available-for-sale portfolio grew to $2 billion at quarter-end, versus the $1.1 billion reported at the end of the prior quarter. The tax-equivalent yield on the total investment portfolio for the quarter was 4.09%, an increase of 13 basis points from the previous quarter. The taxable portfolio averaged $14.1 billion, up $496 million from the prior quarter, with a yield of 3.68%, 17 basis points higher than 3.51% in the prior quarter. Our tax-exempt municipal portfolio averaged $7.2 billion, unchanged from the prior quarter, with a taxable-equivalent yield of 4.93%, up six basis points from the prior quarter. At the close of the third quarter, roughly 70% of the municipal portfolio was pre-refunded or PSF-insured. The duration of the investment portfolio stood at 5 years at quarter-end, up from 4.9 years at the end of the prior quarter. Turning to funding sources, on a linked-quarter basis, average total deposits of $43.6 billion rose $950 million from the previous quarter. Interest-bearing deposits rose by roughly 65%, while non-interest-bearing accounts accounted for 35% of the increase. October is off to a strong start, and deposit momentum has carried into the month, with average deposits reaching $44.4 billion. For the third quarter, interest-bearing deposit costs came in at 1.73%, which is 12 basis points higher than the 1.61% recorded in the second quarter. Customer repos averaged $4.9 billion during the third quarter, an increase of $471 million over the second quarter. Customer repo costs for the quarter were 2.67%, two basis points above the second quarter. Turning to non-interest income and expenses, I'd like to flag a few items that affected the linked-quarter results. On the non-interest income side, other income rose by $9.1 million, a figure that includes $7.6 million of gains from selling two legacy motor bank locations plus a $541,000 gain on the sale of certain loans held for sale. Partly offsetting those gains were $7.5 million of losses on securities sales, in which we sold $17 million of Treasuries yielding 2.15% and $18.6 million of municipals yielding 1.92%. In light of year-to-date actual performance, we recorded an additional $4.7 million of incentive compensation expense accruals this quarter. On top of that, marketing and advertising increased by $3.3 million, mainly because of extra targeted media spend during the quarter. As for our guidance for full year 2026, the current outlook incorporates one 25 basis point hike to the Fed funds rate in December. Net interest income growth for the full year is expected to land in the 5% to 5.5% range. That is an increase from our earlier guidance range of 4.75% to 5.25%; on net interest margin, we still anticipate an improvement of roughly 10 to 13 basis points relative to our full year 2025 net interest margin of 3.66%, unchanged from the guidance we gave a quarter ago. Full year average loan growth should come in between 8% and 8.5%. That raises the prior guidance of 7% to 8%. On deposits, full year average growth is expected to be in the 2% to 3% range, the same as prior guidance. Based on current projections, non-interest income growth should be 8.5% to 9%, up from the earlier guidance range of 7.5% to 8.5%. For non-interest expense, we expect growth in the 5% range year-over-year. That sits at the upper end of the prior guidance of 4.5% to 5%, and it reflects the additional incentive accruals and advertising expense mentioned earlier. On net charge-offs, full year 2026 should be in the range of 15 to 20 basis points of average loans, consistent with prior quarter guidance. Our effective tax rate expectation for full year 2026 falls in the range of 15.5% to 16%, consistent with the prior quarter. On the buyback front, let me note that in Q3 we spent $15 million under our $300 million authorized repurchase program, acquiring roughly 93,000 shares, which brings our repurchase total for the year to $175 million and 1.26 million shares; with that said, I'll hand the call back to Phil for questions.

Thank you, Dan. We'll open the call up for questions now.

Hey, thanks. Good afternoon, guys.

Hey, Will.

Hello, Will.

Hello, I want to start off by talking about loan growth. Obviously, it was a really strong result this quarter. Phil, might you walk us through how that growth broke down between commercial and consumer? It doesn't appear that Frost is really facing the same payoff headwinds that some others perhaps are. So I guess, would that be a fair statement? If you could offer a bit of commentary on the growth you saw this quarter, that would be great. Thank you.

All right. I think I'll take that at a broad level. We've just gotten feedback from all of our relationship managers as we prepare for our board meetings and, to some extent, this call. I've visited branches a great deal. At this point, I've set foot in just about every market we serve. The thing that stands out to me is how resilient activity and loan growth have proven throughout the year, even in the face of rising rates. When we sit down with our teams, they describe fierce competitive pressure we're up against. For the strongest customers, competition is intense — both for them and for prospects like them. My sense is that smaller banks are pushing harder on structure, often with terms you wouldn't normally consider or encounter. As our people have explained to me, there's plenty of business available, which lets us win enough to deliver the growth figures we've reported; we've already discussed how many disruption relationships we've recorded. The 73% increase represents a jump from roughly 150 new relationships last year to more than 250 this year. That contributes somewhat. On the consumer side, our mortgage product has performed so well and continues to gain recognition as a high-value offering in the market. Honestly, Will, the details are quite granular, and what we're observing is simply very typical. Our team is putting in hard work, our brand is strong, and there's disruption in the marketplace. Another point worth noting: I've occasionally heard that when rates began climbing, some people worried about missing out and didn't want to watch rates rise further, so they grabbed the rate available in the market at that moment. I believe some of that has been happening too. Finally, we've told our staff to stay competitive, we don't want to do anything foolish, and there are structural things you don't want to do. On these calls throughout the year, we've mentioned repeatedly that when it comes to funding, we're a low-cost producer. A strong relationship built on high character—a promising prospect we've pursued—shouldn't be sacrificed over a handful of basis points. Competing on price is something we're ready to do, and that's what we've been doing. It comes down to many factors rather than any single one. From where I sit, it's worked out very well, wouldn't you agree?

Will, I’ll just sort of add what I’m seeing, and it’s broad-based. If you look at our growth on a linked-quarter basis, roughly 40% of it is what I’d call C&I-related — both a C&I loan and also what we secure with real estate, which we call an owner-occupied real estate loan. That’s about 40%. Another 40% is kind of investor commercial real estate. Then really the majority of the other 20% is, as Phil mentioned, our consumer real estate, our one-to-four family mortgage product. I think Phil mentioned the 1,000 new commercial relationships; 40% — around, I think it’s around 42% — of our loan growth is attributed to new customers that we’ve brought on in the last year.

Dan, my sense is we've crossed 1,000 relationships for, what, six consecutive quarters now?

We've now had six quarters in a row. Like Phil said, there's been a pickup. Normally, half of our new relationships would come from the too-big-to-fail banks, with the remaining half coming from the other regional community banks we compete against. These days, that figure looks more like 40% from the too-big-to-fail institutions, and what closes that gap is roughly 10% from the banks we refer to as market disruption banks. As he noted, it's up almost 75% year-over-year. You've seen a rise in new relationships, and honestly I find it encouraging, since that cohort is heavily C&I-related when we look at what we're winning. These are what we'd describe as core C&I relationships in the communities we serve.

You might also mention, Dan, the percentage win rate of that business.

Usually, looking back—and these are reports I've reviewed across more than 20 years in my career—for a prospect, measured in dollar terms, we'd generally capture roughly one-third of those deals by dollar value; right now we're sitting at about 78% of won opportunities involving banks that are in the middle of mergers and acquisitions; that campaign has worked extremely well, and based on my earlier experience as a banker in the Houston market for 20 years, it carries a long tail. It generally runs for a minimum of a two-year stretch, because I think when a business owner or a consumer has their bank acquired, some individuals depart right away. Others might stay around to observe how the new organization operates and could become frustrated within six months, a year, two years; it can line up with a credit renewal if the credit culture has shifted; it's still early, but the results please us.

That’s excellent. Plenty of useful detail from the two of you—thank you. Dan, perhaps one for you on the deposit cost outlook. I remember during the last cycle, when rates rose, Frost moved early on deposit costs. Not as a defensive step, but simply because you believed it was the right thing for the customer. Will the same approach apply here if we do get a few rate hikes? Could you help us with what you expect for deposit costs and perhaps what betas will look like this cycle?

Yes. I’ll share roughly what we expect for loan and deposit beta. Loans would be about 80%; then on an interest-bearing basis, we’d expect perhaps a similar level. On an overall deposit basis, it’ll be roughly 50%, 55% beta. You should see us gain margin if rates rise into 2027.

All right. That's wonderful. Thanks a lot, everyone. I appreciate it.

Thanks.

Thank you. Good afternoon. I suppose I'll begin with expenses. You mentioned the plan for another four branches, which would take us to 12 for this year. Does that remain a reasonable annual figure in your view when you consider branch growth going forward? And along with that, should we still anticipate positive operating leverage?

Regarding expansion, as I said, we expect to open 12 this year. As we look toward '27, we have, I believe, 14 planned. That's ticking up somewhat. I'd characterize it as 12 to 15 in the near term. Our branch growth has simply been quite successful, and I don't anticipate any slowdown from us; in fact, over time I'd lean toward seeing us open more than the 12 to 15. Now for your second question, yes, our budget for '27 still needs to be completed. I'd note that, based on the guidance I just provided for '26, and specifically for '26, you're looking at 50 to 75 basis points of operating leverage. For next year, we'd be hoping for positive operating leverage, perhaps in that same vicinity or range. As we've said previously, wealth management is a business where we made some leadership changes this year and late last year, and we've brought in some really strong leaders, but we'll need some strong producers or wealth advisors coming in during '27 and '28. I believe you'll see us investing in our wealth management business in '27.

Okay, all right, thank you. I suppose regarding fee income, the guidance for 4Q suggests something like continued solid expansion. Should we expect that to potentially begin speeding up once the planned wealth management hires gain traction?

Yes, and let me note that the fourth quarter is affected by a put we established for some Treasury bill bonds we intend to buy in January; those are $250 million each for three-year, four-year, and five-year that we chose to exercise a put on, and we have roughly $5.5 million of benefit to non-interest income in the fourth quarter. That will assist that fourth quarter growth figure.

Thank you.

Regarding your question about wealth management, sure — I'd say many things will play into next year. Honestly, it's simply too soon to say. There's a build-up as newly hired advisors get up to speed on production. In my view, a usual ramp period could run 12 to 18 months before that producer truly repays your investment. My sense is this will be a long-term commitment.

Hi there, good afternoon. Maybe I'm looking at this the wrong way. When we consider branch expansion—or at least when I consider it—I really do believe that once you get that customer primacy, deposit growth should follow. Your growth in non-interest-bearing deposits has been pretty robust, this quarter included. Just tell us, as we look ahead over the next year or two, do you expect loan growth to outpace deposit growth? Is that because it's too competitive, and given how your balance sheet is made up, you don't have to be overly aggressive in chasing rate-sensitive deposits?

I'd say that, at present, with where interest rates sit, individuals and corporate controllers still have an opportunity to go after yield. For the industry as a whole, deposit growth has trailed loan growth; I think we're certainly punching above our weight in both of those categories. For the near term, you're probably right that we have the capacity to go acquire relationships through that loan growth. We're not out there growing our loan book simply for the sake of growing it. I mentioned that owner-occupied category. Those loans are specifically designed as relationship loans. They aren't transactional real estate loans. Over time, I think we've demonstrated the ability to grow deposits at a higher rate in a lower interest rate environment. I think that's the backdrop, Ebrahim—it's simply the interest rate environment that would hinder deposit growth.

Understood. I just wanted to ask a quick follow-up. If I caught it right, Phil, in the remarks you prepared, roughly 50% of mortgage customers are new to Frost, and I believe you said 1/3 of them added a second product?

Nearly 50%.

Nearly 50%. My question, I suppose, was about the historical view: we saw the mortgage product as commoditized, sensitive to rates, and shifting into the securitized market. Based on what you've observed over the past 12 to 24 months, are you seeing the mortgage product reliably turn into a fairly sticky tool for acquiring clients? It sounds like that's happening with at least 50% of customers.

Yes, it is. I said nearly 50%. Actually it's almost 40%, but that's still a genuinely strong figure in terms of the secondary products they're adding. Ebrahim, you're correct. That's how we see it. I might be recalling when they've discussed this previously, but we had a rule here when we began offering this product that no one was allowed to say we were entering the mortgage business. In fact, if you said it, you owed $5 to whoever — it cost me $60 in a single meeting. I made a mistake and said it. What we wanted was to offer a mortgage product, all right, because we had 4 of the 5 consumer real estate products, but mortgage was missing. We kept getting requests to have it. We were after a product with strong service levels—one we handle ourselves—and that ties into our broader customer support operations, mobile app included. Everything sits there in a seamless, polished format, delivering an excellent experience throughout. Actually, a person mentioned to me just last week—I'll leave the bank unnamed, though it was too big to fail—that they'd completed a mortgage in our Austin market. Their words were, "It hurts me to admit it, but my experience was fantastic." What matters is offering something that genuinely deepens the relationship with our customers. Since we're the ones servicing them, we retain quite a bit of latitude on pricing and similar decisions. One more factor pushing us in this direction, I'd say, is the fantastic distribution network we're constructing across Texas, which is an incredibly strong economic setting, and it makes perfect sense to have that product flowing through that distribution system. All of those elements came together. There's one more point I want to raise, Ebrahim, and it's a different approach, but we have no sales staff, no commissioned reps out in the field. What we have are advisers who assist people in getting into homes, right, and navigating the loan process. Everything of that nature — the commission side, asset sales, all of it — belonged to what you might call the business we used to be in. That isn't what we do now. What we provide is a genuinely high-quality service offering that customers are truly enjoying, and we're achieving real success with it. That's how we look at it. I hope that addresses your question.

No, that's useful. Could I just squeeze in a brief follow-up on Dan's earlier point about potentially exceeding 12 to 15 branches annually — what's the bottleneck there? A Midwest bank is expanding into Texas, 150 branches across the next three years. I'd assume you've got both the craft and the science of branch openings down. Is the constraint capital, expenses, or recruiting the right bankers — the reason that 12 to 15 couldn't double?

Every one of those. I believe that, if we chose to, we could take that 15 higher; in a way, we've been stockpiling some of our future locations because we knew others would be entering these markets, and I didn't want us to fall behind the curve the way we did 20 years ago, when Wachovia tried to build an organic network in Texas before they failed. They snapped up all the great sites, and it was impossible to get a site if you wanted a bank site; a couple of years ago, we started assembling sites in communities that weren't quite ready for it, but we thought would be ready for it in a couple of years. I'm pretty comfortable with where our warehouse stands. Getting the right personnel in place matters a great deal, since a strong site and a strong building alone aren't enough. Putting up a hundred branches wouldn't accomplish anything by itself. Someone capable has to be in charge, and you need solid processes that tie into your other business lines, plus a coordinated strategy for building out a trade area — that's the whole purpose behind these branches. It doesn't happen overnight. Is scaling possible? Sure. But I doubt we'd execute it as effectively as we are today. Will we eventually go beyond fifteen? Naturally we will, since the arithmetic means that for a steady percentage applied to a base that keeps expanding, the dollar figure must rise. At present, offering you an indication of roughly 15, or about 12 to 15 annually, strikes me as a solid guide; we'll inform you should we make a decision, and you'll notice it if we choose to increase it.

One more point I'd make: at the outset, I was briefing the management team in Houston, and after that we expanded to Dallas. From Dallas we went to Houston, and then we pushed into Austin. At this point we truly have it operating across the state, where we're briefing the management team for every one of our major regions. What that means, I believe, is that our scope is no longer just a single region or a couple of regions. It's genuinely about seeking out the strongest people across the entire state.

Got it. Thank you.

Thank you.

Thank you. Good afternoon. I'd like to start with expenses. Given the revised guidance, costs are rising 5% this year compared with roughly 10% in each of the two preceding years. Would you say mid-single digit is a solid pace of expense growth for next year? And second, do you see chances to perhaps use AI to boost productivity and efficiency, and possibly self-fund a portion of these investments to support the expense growth rate?

Peter, on the mid-single digits, for next year, as I said, we'll be making some investments in wealth management. My expectation is that it comes in a bit above the exact midpoint, though not returning to the high-single digits. That's simply my expectation absent having worked through the full budgeting process. I do know we will be investing there. As for your AI question, at some point I believe we will see AI projects funding themselves. I wouldn't claim we're at that stage now. My hope is that in the near future that becomes true, so that you can capture efficiencies and see them reflected in your expense growth.

Understood. Turning to credit, it's encouraging to see non-performing assets come down thanks to that multifamily loan being resolved. Is there any portfolio you're monitoring with extra attention, particularly now that rates are climbing?

Peter, my sense is they're still tied to commercial real estate. As we've mentioned previously, a handful of those older vintage multifamily projects remain. I believe we hold four of them, each with its own maturity date. I think that's this year?

In the current year.

My belief is that one of those falls in this year. Two could land in '27, and one in '28. It's the same refrain we've been repeating for the past two years, correct? Rents come in lower, leasing up is tougher, concessions are greater, and expenses run higher. What you truly must depend on is how the sponsor performs, whether they raise the equity required to right-size it or pursue the process of selling the property, and perhaps they secure bridge financing. Alternatively, the market may improve enough that they can satisfy the debt coverage ratios they need and similar requirements. That is what's occurring across all those projects, to varying degrees. None of them worries me at all. In my view, the sponsors we have are solid, and I genuinely believe the underwriting we've completed essentially speaks for itself. Since, if you examine that property that was sold, they basically sold it for the amount of our loan. We underwrote it at, I'm not certain, somewhere between 55% and 60%. To me, that demonstrates that the underwriting standards applied at the time proved adequate to handle a highly unfavorable situation, and that is among the things giving me confidence as we review the remaining deals. Interest rates have an impact, so we'll keep watching those as we go forward. That's the one I'd say we monitor most closely.

Peter, on anything that's rate-sensitive, I'd say homebuilders are experiencing margin strain whenever they use interest rate incentives to help people purchase their homes. In homebuilding, we have roughly $290 million in that category, comprising loans to homebuilders. That's not a large portion of our portfolio, but we're keeping an eye on it. Consumers have performed quite well. On the consumer side, our charge-offs came in at 25 basis points, and our past-dues were below 1%, and that's a favorable indicator of consumer health and of what we're observing.

Understood. That is genuinely useful. Thanks to both of you.

Hello, good afternoon. I appreciate you taking my questions. I have one regarding growth in non-interest-bearing deposits. My guess is that a portion of it stems from the treasury management investments you have made fairly steadily over the years, along with your capacity to win commercial operating accounts. Is that among the drivers of that growth, or does it come more from the consumer side?

At the moment, we are seeing it in what we refer to as DDA, which is exactly what you brought up, sort of the commercial side where, yes, I believe our investment in the treasury platform plus the customer service our clients get from our bankers and their teams is genuinely what distinguishes us. Frequently, it comes down to how easy it is to do business. That is an area where we score quite highly when Greenwich Associates evaluates us. We have the sales force in terms of the people, and that is matched with truly excellent technology and, I would say, sort of the back-of-the-house customer service. Whenever someone requires assistance 24/7, they are able to call and reach a live person. I believe all of those elements contribute to our capacity to grow those core DDA accounts. I believe it ties back to our branch expansion, as we enter communities and pursue both consumers and commercial businesses in the markets we are moving into. We do not open a branch merely expecting retail balances and offering either really out-of-market CDs or some kind of teaser to bring people over. Instead, we provide a square deal, and we provide outstanding customer service matched with world-class technology.

Do you get the sense that competition in treasury management is heating up as new players come into Texas and as technology keeps changing? Could you share any figures on what share of commercial clients have a treasury management relationship with you?

That's not something I have in front of me right now, but we can pull it and send it over to you. On the competition point, what I'd say is that I don't believe it's anything different from what we've dealt with in the past. It's definitely a competitive environment out there, but often for the commercial side, it's one piece of an overall package. It isn't simply, "Hey, I've got the best technology," or "Here's something you might find useful in your business." It's a component of the entire relationship. It might be combined with a line of credit, it might be combined with an equipment loan, it doesn't stand alone. It's about who you're going to be working with. That, I think, is truly where we stand out — our people in the field.

Thank you.

Hey, Janet.

Janet.

Oh, my apologies. Hey there. Are you able to hear me?

Hi.

Yes, Janet.

Hello. Hi. Sorry about that. I just want to be sure I'm reading your 2026 NII guidance the right way. If you take roughly the midpoint of your average loans, deposits, and NIM, then add loan beta at 80% and deposit beta at 50% to 55%, it's difficult to stay below your 5% to 5.5% NII growth for 2026. I'm just wondering whether there was any front-loaded benefit from loan yields in the third quarter, or whether something is missing?

There isn't anything I'd point to that we're, necessarily holding back. That single reduction—excuse me, that single increase—was factored into the December projections, so 2026 won't see much advantage from it. The real payoff would land more in 2027. I believe volumes will be the deciding factor. Should we manage to hit greater loan volumes—what we're—I just think that if greater volumes and assets with higher yields can be reached, then perhaps there's some potential gain on that front.

Hey Dan, here's a bit of inside baseball, and I'm going out on a limb here, but given that credit which got paid off, I'm aware that accrued interest sometimes comes into play and

During Q3, we saw a nonaccrual loan get repaid, and if I recall correctly, that gave us roughly a $3 million boost in the third quarter, which provided support to the NIM for that quarter.

All right, understood. To go back to what you said about the interest-bearing deposit beta, I think the rise in interest-bearing deposit costs during the third quarter came from the pricing moves you made in June on a sizable share of your money market balances. In effect, you're getting out ahead of the September hike. Are there comparable moves lined up? What should we expect for the size of the pricing increase on your deposits?