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

Greetings, and welcome to the Cullen/Frost Bankers, Inc. first quarter earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. Please go ahead.

Thanks, Donna. This morning's conference call -- or this afternoon'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 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.

Thanks, A.B., and good afternoon, everyone. Thanks for joining us. Today, I'll review first quarter results for Cullen/Frost. And our Chief Financial Officer, Jerry Salinas, will provide additional comments, and then we're going to open it up for your questions. In the first quarter, Cullen/Frost earned $176 million, or $2.70 per share, compared with earnings of $97.4 million, or $1.50 per share, reported in the same quarter last year. That represents an increase of 80%, that's 8-0 percent, over last year's level. Our return on average assets and average common equity in the first quarter were 1.39% and 22.59%, respectively, and that compares with 0.79% and 9.58% for the same period last year. I'm extremely proud of this performance, and I believe that it helps demonstrate the value of Frost's culture, the excellence of our people and the soundness of our institution. These results are a product of our commitment to our philosophy, which our late former Chairman, Tom Frost, captured years ago in our 21-word mission statement, which reads: We will grow and prosper building long-term relationships based on top quality service, high ethical standards and safe sound assets. Never have those words rung truer. Our commitment to this mission produces tangible results like we just reported, and it is reflected in factors such as our commitment to sound liquidity, which resulted in our going into March with 20% of our deposit base held in a checking account at the Federal Reserve. This not only serves to protect depositors, it also allowed us to take direct benefit from Federal Reserve interest rate increases as they continued to fight inflation. By sharing these benefits with our depositors throughout this upward rate cycle, I'm convinced we built not only balances, but also trust with our deposit customers. Have a level of bank deposits generally been impacted by these higher rates in the Fed's quantitative tightening? Of course, they have. Remember, our deposits peaked in August of last year. Did most banks see movement by some nervous depositors last month in the wake of the failure of some specialized banks? Of course, they did. But keep this in mind, Frost did not take on any federal home loan bank advances. We did not participate in any special liquidity facility or government borrowing. We did not access any wholesale funding, and we did not utilize any reciprocal insurance arrangements to build insured deposit percentages. And while lending out only 41.5% of our deposit base at quarter end, we continued to provide consistent capital to our customers and communities by growing our average loan portfolio over the year by 7.5%, in line with our high single digits target. We also continued to successfully execute our focus on organic expansion in major Texas markets. For example, our Houston expansion, including the original 25 location build-out, plus the partial completion of 3 additional locations, what we call Houston 2.0, continue to mature and exceed pro formas, with 115% of our household goal, 169% of our loan goal and 102% of our deposit goal. I'll add that in a moment, Jerry will share some insights into the financial impact from the maturing Houston expansion. In addition, our Dallas expansion just reached the halfway mark this week and currently stands at 228% of our new household goal, 282% of our loan goal and 318% of our deposit goal. Now taking a closer look at the quarter. Our consumer business continues to perform extremely well. In fact, the first quarter represented an all-time high for net new customers, up 26% from the first quarter of last year. Even more impressive to me was the fact that for the month of March, we exceeded our previous all-time monthly record for net new consumer customers by 33%. That's over 1,000 more customers than our previous record. Our bankers are busy. Looking at this increase in new customer growth, it was led by Dallas and Houston, our two expansion markets, which accounted for 75% of this household growth. Houston was up 33% and Dallas was up 133%. And even our headquarters market of San Antonio saw net new household growth in March of 14%. Average consumer deposit balances for the first quarter declined 1.4% from the fourth quarter of last year as customers continued to spend excess balances and take advantage of significantly higher rate opportunities. Most of that decline was in our consumer checking balances, which was partially offset by increases in consumer CD balances as customers took advantage of our highest available rates. But I think it's important to note that looking at the period, March 10 to April 14, consumer checking balances were actually up 1.3%. Consumer loan growth ended the quarter at $2.45 billion, or 28% higher than the first quarter of last year, driven by consumer real estate as our home improvement and home equity products continue to be the right product at the right time for customers with low rate first mortgages. Credit continues to be excellent with average credit scores exceeding $750. Our new mortgage pilot program continued to originate loans for employees, and we are very pleased with the experience we've been able to provide. We look forward to rolling the product out to the market when we began offering it initially in our Dallas region later in the second quarter. Looking at our commercial business, it's clear that even as our volumes increased 4.1% from the same quarter a year ago, the increases in interest rates by the Fed are having their intended effect of slowing the rate of growth for commercial activity, particularly in the commercial real estate sector. I'm pleased with our prospecting efforts in the market as we increased our number of calls by 24% over the fourth quarter. That resulted in a linked quarter 25% increase in the dollar amount of prospect deals we looked at, and we actually booked 50% more prospect dollars for the same period. However, we saw the dollars of customer deals we looked at and booked, both fall by around 35% for the same period. And this was reflected particularly in a 52% decline in the dollar value of customer CRE deals we looked at, and a 66% decline in the dollar value of customer CRE deals booked. It shouldn't be a surprise that commercial real estate activity is moderating in this rate environment. Looking forward, our dollar volume of total new opportunities in our pipeline is up 26% from the end of 2022. And looking out at just the next 90 days, the gross pipeline is up 17% from year-end. But when probability weighted by our loan officers, it looks pretty flat. So I'd have to say I'm seeing some mixed signals in the tea leaves, and we'll just have to see how it turns out. What I can say definitively is that between March and April, average loans are up $192 million. So to this point, we're still seeing decent growth. Credit quality continues to be strong by historical standards. Problem loans, which we define as risk grade 10 or higher, were $347 million at quarter end, down $100 million or 22.4% from the first quarter of last year and up $25 million from our year-end level. Nonperforming loans were $39.1 million at quarter end, down 22.9% from a year ago and flat from the previous quarter. Charge-offs for the quarter were $8.8 million, up $2.5 million from the first quarter of last year and represented an annualized 21 basis points of average loans. Now regarding commercial real estate, as we noted last quarter, overall, our commercial real estate portfolio metrics continue to indicate good operating performance across all asset types with acceptable debt service coverage ratios and loan to values. Total CRE commitments were $10.9 billion at quarter end with $8.3 billion funded and outstanding. Within this portfolio, what we would consider to be the major categories of investor CRE, things like office, multifamily, retail and industrial as examples, totaled $4.7 billion or 43% of CRE commitments. Our investor CRE portfolio has held up well, exhibiting an overall average loan-to-value of about 55% and loan-to-cost of about 61% and acceptable reported debt service coverage ratios. Higher interest rates have certainly led to some decline in coverage ratios and will probably lead to some valuation declines, but we're starting from a strong position with good cushion. Specifically, in the office building portfolio, which is top of mind in the current environment and including medical office, we have about $2.4 billion committed and $2.2 billion outstanding, with about half of that being owner-occupied buildings. We consider owner-occupied properties to have a lower risk profile due to reliance on our C&I borrowers operating cash flow rather than income generated from underlying real estate. And borrowers in our C&I portfolio have held up very well as we operate in some of the strongest markets in the United States. The investor office portfolio exhibited an average loan-to-value of 55% and an average debt service coverage ratio of 1.35 at current interest rates. Again, starting from a strong position with cushion for potential valuation declines. Our comfort level with our office portfolio continues to be based on the character and experience of our borrowers and sponsors, the predominantly Class A nature of our office building projects and the fact that 83% of the exposure is associated with stabilized projects that are 87% leased. It also helps to be operating in Texas. Finally, I'm happy to report we learned in the first quarter that for the seventh year in a row, Frost had received the highest number of Greenwich Excellence and Best Brand Awards of any bank in the nation. The Greenwich awards are given for providing superior service, advice and performance to small business and middle market banking clients. In addition, we learned that for the 14th year in a row, Frost had received the highest ranking in customer satisfaction in the J.D. Power U.S. Retail Banking Satisfaction Study for Texas. None of these accomplishments would be possible without our outstanding staff always striving to go above and beyond to make people's lives better. They made it all happen, and I'm immensely proud of them and our great company. Now I'll turn the call over to our Chief Financial Officer, Jerry Salinas, for some additional comments.

Thank you, Phil. I wanted to start off first by talking a little bit about our Houston expansion results. As a reminder, we announced our planned initial 25 branch expansion in Houston in 2018. The last of those branches, which we refer to as Houston 1.0, was opened in 2021. So these branches are still in, what I would call, the development stage. We've been very pleased with the volumes we've been able to achieve as we've mentioned previously in some of these calls. Looking at the first quarter, linked quarter annualized growth in average balances for these locations was 29% for deposits and 30% for loans. Also, I'm happy to say that Houston 1.0 is now profitable as those branches earned approximately $1.4 million pretax in the month of March, or $0.02 a share after tax, and we would expect that their performance will continue to improve. Now moving to our net interest margin. Our net interest margin percentage for the first quarter was 3.47%, up 16 basis points from the 3.31% reported last quarter. Higher yields on both balances held at the Fed and loans had the largest positive impact on our net interest margin percentage. The increase was also positively impacted, to a much lesser extent, by a higher yield on investment securities. These positive impacts were partially offset by higher costs on both deposits and repurchase agreements and the impact of lower balances held at the Fed. Looking at our investment portfolio. The total investment portfolio averaged $21.7 billion during the first quarter, up $1.6 billion from the fourth quarter average, as we continue to deploy some of our excess liquidity during the quarter. We made investment purchases during the quarter of approximately $2.1 billion, which included $1.7 billion in Agency MBS securities with a yield of 5.02% and $390 million in municipal securities with a taxable equivalent yield of about 5.01%. During the first quarter, we sold about $1.2 billion in investment securities, about $900 million in municipal and about $300 million in Agency MBS securities, as we took advantage of market dislocations, which allowed us to improve interest income going forward. We recognized a net gain of about $21,000 on those transactions. The net unrealized loss on the available-for-sale portfolio at the end of the quarter was $1.4 billion, an improvement of $260 million from the $1.7 billion reported at year-end. The net unrealized loss on the held-to-maturity portfolio at the end of the quarter was $110 million, down $61 million from year-end. The taxable equivalent yield on the total investment portfolio in the first quarter was 3.24%, up 15 basis points from the fourth quarter. The taxable portfolio, which averaged $13.3 billion, up approximately $1.3 billion from the prior quarter, had a yield of 2.67%, up 26 basis points from the prior quarter, impacted by the higher yields on recently purchased Agency MBS securities. Our tax-exempt municipal portfolio averaged about $8.4 billion during the first quarter, up about $293 million from the fourth quarter and had a taxable equivalent yield of 4.23%, up 6 basis points from the prior quarter. At the end of the first quarter, approximately 73% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the first quarter was 5.5 years, down from 5.8 years at the end of the fourth quarter. Looking at deposits. On a linked-quarter basis, average deposits were down $2 billion, or 4.5%, with about 2/3 of the decrease coming from noninterest-bearing deposits and 1/3 coming from interest-bearing deposits. I want to talk a little bit more about our noninterest-bearing deposits, which totaled $16 billion at the end of the quarter, with 96% of that amount being commercial demand deposits. Related to these commercial DDAs, I have mentioned previously that this category was the most at risk, given the high interest rates, as commercial treasurers and CFOs were beginning to focus on those balances, as any balances above amounts needed for normal transactional operational amounts were not earning any interest. When rates were at or near 0, that was not a big deal. But as rates started to go up, we had seen some reduction in our DDA balances that began in the September, October time frame. And we mentioned those balances were the most at risk. And we suspected that those balances would continue to decrease, which they have. These decreases did not accelerate after the bank failures in March. The decrease in the monthly average balance from January to February was $538 million. The average balance then decreased $301 million between February and March. And into April, the average balance is down $492 million from the March average. These decreases have not been unusual and were not unexpected. Looking at total interest-bearing deposits, they've been pretty stable during the period. At the end of December, they stood at $26.4 billion and decreased $167 million to end the quarter at $26.2 billion. The average balance for both the month of March and April month-to-date is $26.1 billion, so basically flat during this time period. Customer repos for the first quarter averaged $4.2 billion, up $636 million from the $3.6 billion average in the fourth quarter, as we saw some deposit flows into our repo product during the quarter. The cost of interest-bearing deposits for the quarter was 1.52%, up 36 basis points from the fourth quarter. Looking at noninterest income on a linked quarter basis, I just wanted to point out a couple of items. Trust and investment management fees were down $3.6 million, or 8.9%, driven by decreases in estate fees of $2.1 million, real estate fees of $667,000 and oil and gas fees down $449,000. Estate fees and real estate fees can fluctuate based on the number of estates settled or properties sold, respectively. Insurance commissions and fees were up $7.3 million, or 62%, from the fourth quarter, driven by higher property and casualty contingent bonuses up $3.1 million, benefits commissions up $2.8 million and live commissions up $1.2 million, which those live commissions can tend to be kind of choppy. As a reminder, the first quarter is typically our strongest quarter for insurance revenues, given we typically recognize contingent income in that quarter and also impacted by our natural business cycle. The second quarter is typically our weakest quarter for insurance revenues, again, impacted by our normal renewal business volumes. Other income was down $4.9 million from the fourth quarter, primarily due to a $5.1 million distribution received from an SBIC investment in the fourth quarter last year. Regarding 2023 expenses, looking at our full year projection of expenses for 2023, as we mentioned last quarter, we currently expect total noninterest expense for the full year 2023 to increase at a percentage rate in the mid-teens over our 2022 reported levels. The effective tax rate for the first quarter was 15.7% or about 15.9% excluding discrete items. Our current expectation is that our full year effective tax rate for 2023 should be in the range of about 15% to 16%, but that can be affected by discrete items during the year. Regarding the estimates for full year 2023 earnings, our current projections include a 25 basis point Fed rate increase in May, followed by a 25 basis point decrease in September, November and December. Given those rate assumptions and our expectation of 2023 noninterest expense growth, we currently believe that the current mean of analyst estimates of $9.79 is reasonable. With that, I'll now turn the call back over to Phil for questions.

Thanks, Jerry. And we'll open it up for questions now.

[Operator Instructions] Today's first question is coming from Steven Alexopoulos of JPMorgan.

I wanted to dig a bit deeper into the decline in noninterest-bearing and period-end deposits. Can you help us understand how those trended? It sounds like it was pretty normal, but I just want to dive a little bit more into this. How those trended through what we saw from Silicon Valley Bank and Signature? What did you guys see in that aftermath where most banks saw a fairly substantial reduction in the uninsured deposits?

Really from a fluctuation standpoint, those balances, as you would expect and as I talked about, we've kind of seen a downward trend starting back in September, October. And I don't think that during those days with SVB that I would have said, "Hey, it really looks more unusual than it had the week before, let's say. We were already on that downward sort of trend." Obviously, we're paying a lot of attention to it. And you can tell by the averages, they were down. But yes, I'm not going to say -- I'm sure there was some concerns. So it's not like we have our head in the sand. But I don't think it's been anything significant. Like I said, when I mentioned the average balances, that's really what I was trying to give a little bit of color that really in March and, as you would expect, that was pretty early on at the 10th, let's say. So that was the first 1/3 of the month. And the balances between February and March weren't that much lower. We've seen them continue to decrease in April, like I said. And some of that obviously can get affected by tax payments as well. And I'll take a little step back and say, pre-COVID, for us, typically, what would happen is that our deposits would tend to peak in December. A lot of the corporate customers would do a window dressing as we call it. So those balances would tend to decrease -- excuse me, increase in December. And then as we went into the first quarter, those balances would begin to decrease into the first quarter and end through April and -- with tax payments and such. And then would pick up in the tail end of the year. So some of it is natural trend based on what some of the corporate customers have done historically. But I wouldn't say that we saw a significant -- I'm sure there was some downward movement. But just quoting the numbers I mentioned regarding average balances, I don't think it was really anything that caught a lot of our attention. Obviously, we were paying attention. There were a lot of conversations going on between our customers and our bankers. Customers were reaching out to them, and we were having good conversations. But I don't think it was anything that, I would say, "Gosh, on day x those deposits were down $3 billion or something like that." Nothing like that. We never saw any sort of decrease that, I would say, was beyond a reasonable band.

Yes, Steven, I might just add that really, the -- seeing anybody that looked like they were concerned of any size was notable in it, there were so little of it. I'd say less than one hand that I heard about. And I think our experience was that when you talk to people, they were okay. I think it's indicative of our relationship model and that our customers didn't really consult social media. They consulted our bankers. And we had lots of calls. And I think early on, we were calling customers more than we were getting calls. So I agree that, Jerry, it was certainly a time everyone was paying attention. And you would want to make sure you're communicating, that our people had the best information. And that if you saw anything that was sort of not quite right reported, that you could address it and then everybody would be equipped. But I was really proud of our customer base. I think it was really indicative of the relationships and really trust that people had on Frost.

You're one of the few banks that didn't see substantial outflows on that Monday, Tuesday, Wednesday after SVB. So kudos to you guys on that front. On the net interest margin, Jerry, I thought you said last quarter, it was also assuming that rates went up, I think, one more. And then there were several cuts. You said you thought that NIM would peak in the third quarter. I'm curious if the Fed goes 1 or 2 more times, but then holds rates at that level through the end of the year, how does that change the trajectory of NIM that you would expect?

Yes. I think some of it -- some of the moving pieces as we continue to talk about is, what happens to this commercial DDA? I think our expectations there, let me start with that, is that -- I mentioned that the April volume is down from March. And so we expect, based on what we're seeing and conversations with those customers, that we'll begin to really settle into the low point in the second quarter and start to see in the -- going forward an increase. And I'm not talking about significant increases. Maybe stabilization might be a better word than increases, starting in the second half of the year. So if in your scenario, I guess I'll stop in a second and say so, one thing that it's not affecting us today as much is that we, for modeling purposes, have assumed that we won't make any more investment purchases this year. And the reason we took that out of the model was more, given all the noise and concerns about liquidity and all the questions that were coming up, we just appreciate the flexibility we could give ourselves if we took that out of the assumptions. Now I'm not saying we won't buy anything, but it's good to have that built into our base. Should we see something opportunistically, we can take advantage. So we're going to be under -- in a higher rate environment, we're going to be in a little bit of a lower sort of operating performance standpoint because we're not going to be investing at what you might expect might be higher rates. And again, some of it is going to be dependent also on deposit betas. I think we right now feel pretty good on our deposit costs, what we're paying our depositors. We're being a little bit more aggressive on our CDs. It's something that we really want to make sure that we're helping our customers make one decision, and the decision being that they want to bank with Frost. And so being a little bit more aggressive there. So I think those are the two things that potentially could have an impact on the net interest margin. So in our scenario, we project, one, a NIM that's relatively flat for the rest of the year. Again, a lot of it is going to be dependent on what happens with those demand deposits. But in a scenario where I've got one rate increase, I think you said, no cuts, but maybe another increase after that. I think what we project is for any 25 basis point increase, roughly, we would expect about $1.3 million pretax improvement in net interest income, if that kind of helps you out there.

Yes. That's very helpful. If I could sneak one last one in. Just on liquidity, where did cash level then on a period-end basis? And how do you think about that balance moving forward?

Yes. We were -- I think Phil may have said in his comments at the end of the quarter, we were -- 20% of deposits is kind of where we ended up. And the number, I'll give it to you as of today, I think we were at a little shy of $6.9 million -- billion, excuse me. Yes, $6.9 billion.

And do you think you'll see further reductions in that level moving forward?

I guess it's going to -- that's -- the big question is deposit flows. Right now, we don't have any assumptions for investment purchases. We'll certainly expect that we'd get some cash flow from the investment portfolio with just maturities and such. And I think loan growth -- as Phil said, we expect loan growth to be at that high single digit. So that's not going to have a big impact on cash balances. So we -- I think all things being equal, we could be in this ballpark for the rest of the year.

The next question is coming from Peter Winter of D.A. Davidson.

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

Well, I think before -- if we just talk about asset sensitivity and reducing it, we said for some time that there are really 3 things that we look at as providing some measure of protection. Now we are asset-sensitive. And so -- that -- we can't obviate that totally, but the 3 things are if we were willing to lock in some of the rates by extending on the yield curve out from the daily Fed balance that we're maintaining. So that's one thing. And the second thing is that because we've done so much work increasing our deposit rates over time, really beginning with the cycle of rate increases, we've got built-in capacity to respond to rate reductions. In the event they happen, we can lower those down, so that helps. And then the third thing that we've got really in our business is what our business volume is going to do? And are we able to continue to grow organically and post good numbers there? The outlook looks good, but we'll just have to see what happens there. And so that's the third piece of it. And there -- I will say that with regard to hedging program, that type of thing, we continue to look at those for opportunities. It's been our position that those have been -- we really didn't see value in there vis-a-vis cash markets or other things. And so we really haven't availed ourselves of that. But we continue to look at that, and they may be a part of what we do if we feel like there's opportunity there for the company and for shareholders. So that's really our perspective on it.

Got it. And you mentioned that you're still comfortable with the high single-digit loan growth, but I'm just wondering, in this environment, we've been hearing that certain lenders are pulling back or tightening underwriting standards. Do you think there's going to be opportunities for you guys to take market share just given the strength of your balance sheet and strong capital?

Peter, that's a great question. We were actually talking about it this morning. That's a little bit of a wildcard. I would say, while I don't see it definitively in our in our pipeline numbers yet, I hear about it anecdotally. And I'm aware of some deals where banks were not able to complete a transaction that they had offered on the same terms and we ended up getting some of those. My gut tells me that's going to happen more. What we're going to have to do, though, is we're going to have to be prudent and careful in the deals that we're seeing, particularly in the commercial real estate space because the developers and our customers tell us that it's easier to get equity than it is to get debt capital these days. And so you can imagine, cell phone is ringing a lot. And we don't do transactions. We bank people, and we have long-term relationships. So we got to be really prudent and taking advantage of that. I think there'll probably be maybe a little bit less of that in the C&I space. I hope not. I really would love to expand the C&I business because it's so long term. It's got a long sales cycle, but it's very profitable. And -- so let's hope. I think that is the wildcard right now as we move through the rest of this year. If we see banks that are pulling in their horns because of liquidity issues, we could see a little bit of growth there.

The next question is coming from Brady Gailey of KBW.

So expense growth has been mid-teens for the last -- it was last year, you're expecting it to be this year. I know some of that is driven by what has happened in Dallas and in Houston. But when you think about longer-term expense growth, what is the right level there? I'm guessing it's somewhere back in the mid- to high single digit level?

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

Okay. And then, Jerry, just to clarify your comment about a kind of flat net interest margin from here. That's based off the first quarter level, that 3.47% NIM?

Right.

The next question is coming from Ebrahim Poonawala of Bank of America.

Jerry, maybe I missed it. Did you give a number for where DDA sort of noninterest-bearing deposits ended the quarter? And give us a sense of your expectations around that mix given, as you said, you expected these customers to move excess funds out. If we get the last rate hike next week, is it fair to assume that a lot of these customers who had to reprice and move out of that deposit bucket have already done so, so we are at a point where your noninterest-bearing balances should begin to stabilize? Or is that not the right way to think about it?

No. I think, Ebrahim, that's kind of where we're at. We kind of expect that those balances -- I think the people that had xx balances in those DDAs have really put a time -- a lot of time and effort in getting those balances moved out of there, being more efficient in their -- managing their cash positions. But I do expect that we'll still see some of that in the second quarter. And as I mentioned, I think this hopefully is a low point for us the second quarter. We're not projecting currently that we see a huge increase, but we are expecting stabilization and slight movements up through the rest of the year. I think when I looked at the percentage here, we were down below 40%. We had been above 41%, but I think we're, at the end of the quarter, I think it was in 39% or -- sorry, 39%, something like that. I don't expect it will change a whole lot at this point. We're going to -- we're feeling downward pressure through the second quarter. And hopefully, after that, we begin to see stabilization. To the extent we see increases in interest-bearing, which we're going to be happy to see, we could see some decline. Obviously, the percentage that we had of noninterest-bearing to interest-bearing was inflated the last few years, starting with COVID, as those commercial balances really increase significantly starting with some of those PPP balances in 2020. So I think we're getting back to somewhat of a more normalized percentage between noninterest-bearing and interest-bearing.

Got it. And just as a separate question, I think, Phil, you mentioned based on surveys internally, mixed signals and tea leaves, how are you -- like how do you think this shakes out in terms of whether or not we see a deeper downturn over the next few months and quarters as opposed to skirting a meaningful recession? Just give us a sense of what you think will be the driving factors in terms of which way the economy plays out. And is that -- is any of that changing your outlook around investments, expansion into Dallas, any of those plans?

Well, Ebrahim, I wish I knew. I wish I was that smart to know what the view would be. I mean I really think things are still good in the areas that we operate now. I realize we operate only in Texas, but it's a pretty good environment. Certainly, commercial real estate is slowing. I don't -- and it's really not because we're not getting people coming in. I was talking not long ago at a meeting with the governor -- with the group. And actually, I think also I heard it later from the state comptroller, there's 1,000 people a day moving into the state. So it's not that we aren't having growth, it's been the arithmetic of the commercial real estate transactions just don't work for the returns. And so that's really what's happened. That's the thing that's slow us. Everything else seems to be pretty good. The biggest compliant I still hear is lack of availability of skilled labor. It is not so much all labor. It's now kind of shifted to skilled labor. So there's still a great job market, looking to hire people. So I don't think it's worth what you pay for it. But I don't think we're going to see much of a recession, if one, in Texas in terms of where we operate. As far as what it means for us as far as expanding, it's not going to impact us at all. You saw those numbers. I mean it's not hurting our growth. And as far as -- one thing I think is interesting, if you look at the expansion numbers -- and we don't get every source of new customer, right, I mean -- but we do collect -- like where did you come from? Where were you banking before? And I saw about a 20% sample size of new accounts. We're getting -- 2/3 of our business is coming from the, what I'll call, too big to fail. I'm not going to name names. You can guess who they are. And so it tells me that you hear a lot of narrative that, "Well, can regionals compete with them, et cetera?" We can and we have been. And remember, March was our biggest month by far. So I think the dynamics are all good. And I think that we just continue to look at other places that make sense for us to employ this strategy within the state. So no, it would not impact our expansion plans.

And how many branches, Phil, do we have planned for the rest of the year in Dallas?

Let me see. What is it, April? I think we were going to do -- I would say -- I'm going to guess 6 more. And say I'm within 25% right either way on that. Jerry might have...

Yes, I think what we were saying was through April, we would open 6, 3 in Dallas and then 2 and -- 3 in Dallas in the first quarter and then 2 in April and 1 in Houston in the quarter. And I think we're expecting to open another 4 locations in Dallas and 2 in Houston by the end of the year.

Okay.

And will that be it? Or where is that relative to the endpoint you want to be, at least for now?

Well, Dallas was going to be 30 in 30 months. I think we're pretty much on.

Yes. I think it will still take us into next year. So I think that's the current plan, is that we would -- right around midyear, I think it's kind of the original thought that we'd be done with the Dallas expansion, if I remember correctly.

The next question is coming from Manan Gosalia of Morgan Stanley.

I wanted to ask around CRE office. And any thoughts about -- your comments earlier on some of the metrics in the CRE portfolio were helpful. But I was wondering if some of the -- what are the maturities that are coming up in '23 and '24? And just given the pressure on CRE pricing, any thoughts on where LTVs are coming out at after reappraisals?

Okay. It's mouthful. Let's see. Give me just a minute to look here. Okay. Investor -- Investor office. I'm sorry, I'm stumbling here, but I want to try and see if I can find it. We have two -- 36% of the office matures in less than a year. Okay. So -- there's -- I might be able to pull something out as we continue to talk. I apologize. I don't have anything more than that. But right now, that's a number that I'm able to see. I think that -- yes.

Okay. A separate question. Just given your comments earlier on competitors pulling back, is that helping spreads on new loans at all? And how do you expect those spreads to trend as we go through the year?

I think it's helping some on spreads. I think it's helping on structure. I think it's adding about, let's say, in round numbers, 5% on average, more equity in the deals. And it's probably helping with guarantees and support, that type of thing. I would say the really good projects, though, it's still competitive. And we tend to not be looking at institutional deals. They're -- I'll call them smaller. I mean it's still a fair amount of money, but less institutional. And that means that there are a lot of banks trying to get that. And -- so I would -- I've seen less spread relief than I've seen structured relief recently. But I think there's probably been a little bit of spread relief.

Yes. I think if we just look at the new and renewed business, just linked quarter is the best I've got. But on the loans that are prime-based, yes, we can see some nice improvement there. And the same on AMERIBOR. And I'm going to say the sulfur price loans look to be relatively flat, maybe down a little bit. So yes, I think, overall, the spread looks better.

The next question is coming from Brody Preston of UBS.

I wanted to just follow up on what -- I think you told Steve, the cash balances earlier. I just wanted to clarify, did you say the cash balances at quarter end were $6.9 billion?

That was today's balance.

Okay.

At the end of the quarter, we were $8.6 billion.

$8.6 billion, okay. All right. That's very helpful. And then could you give us a sense around the cadence of borrowing utilization through the first quarter? How did it move throughout the quarter, particularly in February and March? And then where did total borrowings stand at quarter end?

Can I come back? I'm sorry, I'm second-guessing myself what answer I gave you. So we're at about right under $6.9 billion today, and we were at $8.6 billion at March. I want to make sure I didn't get those numbers -- okay. Perfect. Sorry. Go ahead.

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

Sure.

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

You're talking on commercial loans? Help me with your question, I'm sorry.

No. Your usage of repurchase agreements is really what I'm...

Yes, I'm sorry. So the repo balances are really -- repo balances with our customers, when they put deposits with us that are fully collateralized. That's what we were talking about. And it's really at the customer's discretion. Are you asking how those moved? I'm sorry, I wasn't following your question.

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

Sure. At the end of the quarter, let me see here, we were at $4.2 billion. We started the quarter -- at the end of the year, we were at $4.7 billion. I think if I look at it today, just to give you an idea of that balance, today's month-to-date balance would be around looks like $4 billion.

Okay. Got it. And within your NIM guidance that you gave, could you give us a sense for what the interest-bearing deposit beta that you're using is?

Yes. We're -- I think we've kind of stuck with a cumulative beta. I think a little north of 31%. I'm going to say it's about 32%, pretty consistent with where we've been. That's kind of the expectation.

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

Well, our duration went from 5.8 years for the total portfolio, it's the only thing we give, down to 5.5 years. And we bought about $900 million in municipals -- hold on a second. I'm sorry. So we bought $1.7 billion in Agency at a 5.02% and $390 million in municipals at a 5.01%. So basically putting stuff on. And the 5.01% is a TE yield. So putting stuff on basically at 5%.

This is Phil. So I wanted to respond to that question about the office terms. Just took me a while to find it. As I said, the investor office that is a term of within 12 months is 27%; 12 to 36 months is 19%; 36 months to 59 months is 21%; and greater than 60 months is 33%. So sorry, I wasn't able to pull that up earlier.

The next question is coming from Jon Arfstrom of RBC Capital.

Jerry, on the provision this quarter, would you -- was that growth-driven? Or was that just driven by the charge-off?

The charge-off is really where we saw most of that tied to.

Okay. So what is the message on the provision? How do you want us to think about that?

Yes. I think that really, as it turned out, I would expect that, that's not going to be too far off, our current expectations based on the sort of loan guidance that you heard from Phil and based on some relative -- based on really good credit quality, but also making sure considerations about what we're seeing in the economy and the possibility of a recession even if it's mild. I would assume that, that's not too bad of a run rate going forward for the next couple of quarters.

Okay. Good. That helps. Just a couple of other clarifications. You guys talked a little bit about the -- I think it was the dollar volume of new opportunities in the pipeline was up something like 20% year-to-date, but the probability weight was flat.

Yes.

What drives that difference? What drives that lower probabilities? Is just saying that these opportunities won't meet your standards or why that gap?

No. It's mainly -- an opportunity is just you're aware of a deal, you're sort of engaged on it, but a customer might not decide to go forward. It could be that you don't think that the current structure would meet your standard. It could be a lot of things. Might be competitively that they're just locked in to another institution. And so our officer just feels like his odds are maybe not as good as what they should be. It's definitely art and not science. And I -- it's really. It's -- whenever you have -- again, we're talking about it this morning, when you have a pretty good increase in opportunities like I've mentioned, and you mentioned just now, when there are a lot of them that go in, the lenders tend to not have as high probability. Because you just got a lot of deals that you're sorting out. It doesn't sound very scientific, but it makes an impact. I tend to look at what the weighted pipeline is. And I think it tells a little bit of a story on how our people see things.

Okay. All right. And then just last one as well, or last one here. You talked about the record new consumer account activity, and you flagged Houston and Dallas. Any idea what percentage of these would be like, what you would call, primary household relationship or primary banking relationship? Do you track that?

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

What does your gut tell you on that?

I tell you -- I would tell you that we are mostly primary. There are numbers which we -- on the commercial side, which compare the top -- it compares market share, okay? I've seen it by market share segment. And so let's look at customers with sales under $100 million, okay, in the markets we serve. And if you look at which of the banks, I'd say the top 6, 7 banks, which of the banks has the highest percentage of primary relationship, okay? It's us. All right. So -- and that's just because of our relationship model. I mean if we're going to bank you, we're going to want to have your -- what we call, your funnel account, your core account. And so -- and we don't even count it as a relationship unless we get that account. So my gut is going to tell me it's going to be pretty high. Maybe...

Yes, I think that -- I was here trying to get some information and talking to our Head of Retail. I think that he thinks that it's -- about 70% of it is really that we're picking up is primary household.

So it's moving market share. Yes. Okay.

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

Well, I'll just say if anybody wants to ask a question, we're here. It's our job. Are there any more questions in the queue?

Let me check. One moment, please. I'm not showing any questions at this time.

All right. Fair enough. Okay. Well, we thank everybody for their interest and their support, and we'll be adjourned. Thank you.

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