Cullen/Frost Bankers, Inc.
Q2 2021 Earnings Call Transcript

Published: 30 Jul 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Cullen/Frost Second Quarter Earnings Results Call. Thank you. I would now like to hand the conference over to your first speaker today, Mr. A. B. Mendez, Cullen/Frost’s Director of Investor Relations. Sir, please go ahead.

[A. B. Mendez:]

Thanks, Joanna. 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.

[Phil Green:]

Thank you, A.B. and good afternoon everybody. Thanks for joining us. Today, I will 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 you for your questions. In the second quarter, Cullen/Frost earned $116.4 million or $1.80 a share compared with earnings of $93.1 million or $1.47 a share reported in the same quarter last year and compared with $113.9 million or $1.77 a share in the first quarter. In the current environment, our company is in a strong position to benefit from the rebound in economic activity and we will continue our organic growth strategy while taking steps to enhance Frost’s experience for our customers and our employees. As expected, economic conditions have continued to weigh on conventional loan demand. Overall, average loans in the second quarter were $17.2 billion, a decrease of 1.7% compared to $17.5 billion in the second quarter of last year. Excluding PPP loans, second quarter average loans of $14.6 billion represented a decline of 3% compared to second quarter of 2020. However, we are seeing evidence of loan growth beginning to materialize as non-PPP loans trended up in the month of June and that upward trend has continued into July. Average deposits in the second quarter were $38.3 billion, an increase of more than 22% compared with $31.3 billion in the second quarter of last year. Our return on average assets and average common equity in the second quarter were 1.02% and 11.18%, respectively. We did not report a credit loss expense for the second quarter. Our asset quality outlook is stable. And in general, problem assets are declining in number. New problems have dropped significantly and are at pre-pandemic levels. Net charge-offs for the second quarter totaled $11.6 million compared with $1.9 million in the first quarter. Annualized net charge-offs for the second quarter were 4 basis points of average loans.

[Jerry Salinas:]

Thank you, Phil. Looking first at our net interest margin. Our net interest margin percentage for the second quarter was 2.65%, down 7 basis points from the 2.72% reported last quarter. The decrease was impacted by a higher proportion of earning assets being invested in lower-yielding balances at the Fed in the second quarter as compared to the first quarter, partially offset by the positive impact of the PPP loan portfolio. Interest-bearing deposits at the Fed averaged $13.3 billion or 31% of our earning assets in the second quarter, up from $9.9 billion or 25% of earning assets in the prior quarter. Excluding the impact of PPP loans, our net interest margin percentage would have been 2.37% in the second quarter, down from an adjusted 2.59% for the first quarter with all of the decrease resulting from the higher level of balances at the Fed in the second quarter. The taxable equivalent loan yield for the second quarter was 4.28%, up 41 basis points from the previous quarter and was impacted by an acceleration of PPP forgiveness during the quarter which accelerated the recognition of the associated deferred fees. Excluding the impact of PPP loans, the taxable equivalent loan yield would have been 3.80%, up 3 basis points from the prior quarter.

[Phil Green:]

Thank you, Jerry. We will now open it up for questions.

[Operator:]

Thank you. Your first question comes from the line of Jennifer Demba from Truist Securities. Your line is open.

[Jennifer Demba:]

Thank you. Good afternoon.

[Phil Green:]

Hey, Jennifer.

[Jennifer Demba:]

Just wondering if you could talk about the branch expansion and kind of the deposits and loan balances in the new offices at this point in Houston and how many offices you expect to open in Dallas and over what timeframe?

[Phil Green:]

Okay. Well, the – as I mentioned, the character of the business that we are generating the branches looks pretty close to what we do in the overall company. It is about two-thirds commercial at this point on deposits, about a third consumer. That’s a little bit higher than our bank totals on commercial consumer mix. We are probably somewhere between 55% and 60% on the commercial, if you look at the total company, but I think that’s pretty close. And if you look at loans 80% commercial and 20% consumer. If you look at the 80% commercial number, I think the biggest component of that is going to be traditional C&I loans. Second largest would be owner-occupied real estate, that type of thing. I can tell you, Jennifer, that we have been seeing the size of loan that we are doing in the expansion branches has been increasing, but it’s still deeply core. I think the latest numbers I saw is – we only had like three relationships that had loans of $10 million and more. So, this is really a good core business for us. And I think the last number I saw is the average loan size of about $1.2 million. And if you go back several months, that would have been probably more like $0.75 million and really round numbers. So we are seeing those numbers get a little bit larger, but not – we are not elephant hunting, and I think that’s good for us. And I think that it really shows that – two things. One, I think the economy is improving. So you are getting a little bit more demand, but I also think that the new bankers are becoming accustomed to our systems and our underwriting and our offerings and also being more successful prospecting. So, that’s what we are seeing on the loan side there. I will tell you that in Dallas, I really believe it’s going to be very consistent with what we see in Houston market. You can argue that Dallas might have even a little bit more diversified economy than Houston, because of the impact of energy on the Houston market. Dallas, I think is known for – in general business, I think it’s got over 10,000 corporate headquarters there, from an old number that I remember hearing. And I think that our kind of business banking is going to resonate very well there and it has already. I think Dallas is going to have a pretty good year. So, I think we will see pretty much the same kind of impact. I was really glad for us to be able to get the opportunity to create that number one ATM network in the DFW market. That has been – as good as our network has been in the state, I think we might have been number three before, 2 or 3. We were probably 4 or so, maybe 5ish in terms of ATM network in DFW, particularly Dallas. And this really takes that barrier to entry off the table and I think puts us in a really strong position as we move forward in that market beginning in January.

[Jennifer Demba:]

Phil, what are you seeing in terms of wage pressure right now? And what are you seeing in terms of – there seems to be a war for talent out there. So I am just wondering what you guys are experiencing.

[Phil Green:]

We are experiencing it. I keep going back to this conversation I had with our Director of HR and this has been at least a month ago now, but she came in, we were talking about telephone customer service operators. I think she said we got about 50 applications a week typically for that position. And I think she said that as of the last week, we got 3. It just shows you how much competition there is, not just from other businesses, but at that point in time, there was the government benefits, which are also frankly a competitive factor. So we’re seeing from our customers, everyone we talk to talks about wage pressure, they talk about the inability to hire people. And that’s on top of the supply chain issues that are out there. So we’re experiencing it. It’s a little bit worse in some markets, but it’s bad in all of them, maybe a little bit worse in Dallas and Austin, but again, it’s bad in all of them. So it’s tough.

[Jennifer Demba:]

Thank you.

[Phil Green:]

You’re welcome.

[Operator:]

Your next question is from the line of Steven Alexopoulos of JPMorgan. Your line is open. Steven, if you are on mute, please unmute. Your line is now open. I think we have to move on. Your next question is from the line of Brady Gailey of KBW. Your line is open.

[Brady Gailey:]

Hey, thanks. Good afternoon, guys.

[Phil Green:]

Hey, Brady.

[Jerry Salinas:]

Hey, Brady.

[Brady Gailey:]

So cash as a percentage of average earning assets just keeps going up for you guys and it’s now 31%. I know earlier this year, we had talked about Frost potentially using some of that cash to deploy into the bond book. But as we have seen the long end of the curve has gone down here. So, maybe just updated thoughts on when you feel is the right time to start putting some of that cash to work in a higher earning asset?

[Jerry Salinas:]

Brady, I think we have been pretty consistent. What we said last quarter was that our plan wasn’t to make any major purchases until late in the third quarter or early in the fourth quarter. That’s still currently our expectations. Obviously, we will keep an eye on the market and we do everyday. It’s something we are talking about all the time. But we did some purchases of municipals, as I mentioned during the quarter. We were somewhat opportunistic. Those yields had been coming down and we saw the ability to get in there early. So we did accelerate a couple of hundred million of purchases there. But at this point, we are just – we are more focused on late into the third and I am really thinking early in the fourth as we begin to see the deferred fees associated with PPP start coming off the books. As we said, they are accelerated in there. We saw a big chunk of them this quarter and they will continue to payoff through the rest of this year. So, that’s our current thought process. Obviously, we will keep an eye on the market if something comes up. If we have an opportunity, we will jump in. Did we like the market 45 – the yields 45 days ago better than we do today? Most certainly. But I think given what we see in our expectations, we still believe that inflation is out there. It’s not this temporary sort of conversation that’s going on, as Phil mentioned, even on the salary side that we talk about. So, we are being consistent at this point. I haven’t seen anything that’s made us change our thought process too much, but again, we will be conscious of when it’s time to pull the trigger as to what it makes sense to do.

[Brady Gailey:]

Alright. And then what do you think about the magnitude of these purchases? I mean, as you mentioned, your bond book is around $12 billion. How much growth could we see beginning this year and into next year? Is it going to be significant or is it just going to be modest?

[Jerry Salinas:]

Well, you mentioned the kind of looking at cash as a percent of our earning assets and even cash as a percentage of total assets. And obviously, we are way above any level that we’ve been here within the recent past. So we will – you know us and you have followed us for a long time. We are pretty conservative and have been on the amount of balances that we typically have at the Fed. But given the fact that I think this morning, we had $14 billion in balances there. We are looking to make significant purchases. It’s not going to be all at once obviously, but the thought process today is that we would utilize a significant amount of that liquidity in ‘21 and into ‘22 as well.

[Brady Gailey:]

Okay. And then my last question, just on the deposit side, deposit growth has been amazing, 27% last year, first half of this year, you’re still at over a 20% annualized pace. Do you think that eventually some of these deposits will move back out of the bank or how do you think about sustaining all of this notable deposit growth we’ve seen over the last year or so?

[Jerry Salinas:]

Yes. It was – I have to admit, I was amazed, looking even at the linked quarter growth. If you look at it annualized, was even stronger than the year ago growth. I think Phil talked a lot about our focus on new relationships, and we continue to do well when we look at our 12-month rolling average of what’s going on with our deposit base. We still see, obviously, that augmentation of our existing customers is, I think, something north of 70%, say, 72%. But we’re still getting growth from new customers, which is about 28%, which is still a good chunk. But what we’ve also seen is we’re seeing a lot of our larger commercial accounts increasing their deposit balances as well and have been at some of the higher levels. I think that given the rate environment that we’re in right now, given what you’re seeing out there as far as investment is concerned, I think it’s really hard to gauge when we might see those deposits leave. At this point, we continue to feel like the deposit level that we saw through the end of the second quarter, it was pretty consistent in July, that sort of level of growth. So we haven’t really seen any sort of runoff. And our projections right now don’t really have us growing a lot more from here. And a lot of it is really more due to the uncertainty as you said. So I think we’ve been really impressed with where we’re at and the growth that we’ve seen both from existing customers and from our new relationships. But you’re right, there is still a lot of uncertainty out there, a lot of liquidity out there. And hopefully, as some of the economy starts to take off, you’d expect that some of those dollars, both on the consumer side and on the commercial side will probably be spent and probably would be a good sign for the economy and for what’s going on. But at this point, we’re not projecting it to go much from here, but I haven’t seen any indication as of today that would indicate they are moving.

[Brady Gailey:]

Got it. Thanks guys.

[Operator:]

Your next question is from the line of Steven Alexopoulos of JPMorgan. Your line is open.

[Steven Alexopoulos:]

Take two. Can you guys hear me?

[Jerry Salinas:]

Yes.

[Steven Alexopoulos:]

Okay. I don’t know what happened before. First, I just want to drill down a little further into the commentary around deposits. If you guys look at the non-PPP loans that you said trended nice up in June and up so far in July, for those customers that are starting to draw on their lines on the commercial side, are they working their deposits down at all first? Or are they just concurrently bring deposits to you and then also drawing on their lines further?

[Phil Green:]

Steven, that’s a good question. And it just depends. I see so many anecdotal stories. I’ve talked to customers who’ve just had game-changing experiences with PPP or with grants. I mean complete reduction of debt on balance sheets. We just thought we’ve all got stories that we see there. So there – I think 1 thing that we’re seeing is we’ve got probably – we’ve got C&I opportunities, but we’ve got a fair amount of CRE opportunities. The CRE is probably a different deal than the scenario you described. I think what you’re talking about is mainly see C&I, regular C&I lending. So – and it’s just hard to pinpoint a dramatic trend either way. I just think it depends on the business. A lot of businesses just didn’t get any PPP loans. So they are – they have really been dependent upon what they are seeing in the economy and are seeing activity and are they willing to expand. So I think that’s probably driving most of that. At the same time, as I said, there have been some really game-changing balance sheet changes that have happened for some companies with regard to their liquidity and debt loads and all. So I wish I had a good answer for you. I just don’t know.

[Steven Alexopoulos:]

It’s a bit perplexing, but okay.

[Jerry Salinas:]

Yes. Steven, the one thing I will say is, early on, and you’re probably aware of this, a lot of us were saying that when PPP first started last year, the deposits – the loans would be made and the deposits would stay, right? The money wasn’t spent immediately. And so a lot of the conversation was around the inflation, and the deposits, if you will, were just the fact that customers got a PPP loan and then just parked the money. We’re not really seeing that being the case. We’ve seen movement of most of those. And again, you can’t tag that specific PPP loan to a deposit and then just be able to follow it completely. But when we looked at the activity within those accounts, it really looks like those dollars were spent. So it doesn’t look like we’re in that same situation that we were, say, 9 to 12 months ago.

[Steven Alexopoulos:]

Got it. Okay. And then I wanted to drill down on the 13,500 new net checking accounts you opened in the quarter. What’s the base? In other words, what’s the growth rate?

[Phil Green:]

Yes. So if you look at our customer growth overall, that’s about a 6.2% growth, annualized growth. And thinking round number is $400,000 to $500,000, but we could divide that. But I mean, that’s – I mean, that to me is amazing, honestly. I mean we’ve had – we have had goals to grow that number. I think our goal was to maybe get to 4% one day because you’re talking about a large base there. And for us to be at over 6% now on the entire base, I mean, I’m just – I’m really excited about that. And that’s not an accident. That can’t be an accident.

[Steven Alexopoulos:]

What portion of those are coming through digital channels versus the traditional branch? And does it vary much in Houston just given you’re opening new branches there?

[Phil Green:]

Yes. I’m thinking that 35%ish comes through digital. But I saw that number 2 hours ago and I just don’t have it here handy, but a significant amount. Hang on, maybe I’ve got it here. I would say about 30%ish in round numbers, looks like not a bad number.

[Steven Alexopoulos:]

Okay. Yes, very impressive. Okay, thanks for taking my questions.

[Phil Green:]

You bet.

[Operator:]

Your next question is from the line of Ebrahim Poonawala of Bank of America. Your line is open.

[Ebrahim Poonawala:]

Hey, good afternoon. I guess just wanted to clarify, Jerry, around your PPP numbers. You mentioned about $45 million, I think, in the second quarter; $30 million in 1Q. That implies an NII of about $235 million quarterly for the first half. Just wondering, it sounds like you’re managing the securities book with an eye on the NII outlook. Is that core NII ex PPP around $235 million the right way to think about where you might be in the back half of the year and where you would look to grow from as you look to redeploy cash into securities?

[Jerry Salinas:]

I do think that it looks like the NIM percentage might have hit the floor there. But again, a lot of it’s going to be dependent on if and when we pull the trigger on the investment portfolio purchases as you said. So that’s obviously a big driver of it. So – and again, the level of deposits, we really don’t know what’s happened. The level of growth that we’ve had has really been a lot more, obviously, than we expected and keeping that liquidity at the Fed has really had a downward pressure on that NIM percentage. So it’s going to be dependent on those things, you’re right. But I think at this point, I think you’re thinking about it right, we kind of feel like we are at the bottom of that. It was nice to see the loan yields up a little bit even on a linked quarter basis, even ex PPP. But I’m going to tell you that there is a lot of pricing pressure, a lot of competition there. And obviously, we’ve said and we continue to say, we’re a relationship bank and we don’t want to lose relationships for a few basis points. So we’re really saying that we want to be competitive there. So we could feel a little bit of pressure there. We will continue to feel pressure there. I shouldn’t say that we won’t because we will, and it’s going to continue from everything that I hear. So we will feel some pressure on that loan yield. But I think, knock-on wood given all things being equal, I think we may have hit bottom there.

[Ebrahim Poonawala:]

The cash deployment into securities is that more a function of where the interest rates go or is it a function of how quickly PPP runs off, like what’s the bigger driver of your thought process in the cash?

[Jerry Salinas:]

No, it’s not really related to the PPP runoff. I mean obviously, we’re aware of it. So it’s not like we can look in our financials and not realize it. But no, that’s not really not going to be the thing that pulls the trigger. I mean we’d already been talking about before, the acceleration of the forgiveness that we were talking – I think Phil mentioned in the call last quarter that we were talking about late third, most likely early fourth. So again, we don’t like the market. We have the right to not pull the trigger if we don’t think it’s where we want to be, but you know where we’re headed. I mean that’s just our process at this point.

[Ebrahim Poonawala:]

That’s helpful. And I guess just a separate question. Phil, we have talked about this in the past, you introduced the Early Pay Day, the $100 grace period on deposits. Just talk to us in terms of the retail side of the bank. You shared some of that. What are you seeing in terms of customer behavior changing about acquiring clients? And of the 13,000 checking accounts that you talked about, what percentage are truly translating into customers where you see them as being down the road? Just talk to us in terms of how many of these 13,500 accounts in term of relationship for Frost?

[Phil Green:]

Okay, Ebrahim, you were breaking up. I apologize a bit, but let me answer what I think I heard your question. Of the 13,500, I think you asked about accounts, how many are relationships with Frost. Just one point of clarification, those are not accounts. Those are new relationships. So – and we don’t count it a relationship unless we get a checking account, okay? So these are not – we could go on and advertise higher rates on CDs or higher rates on money market deposit accounts and bring in a bunch of rate shoppers or whatever. These are relationships. The account number is consistent, but – so I really believe that all these represent solid relationships from us. Another thing we keep an eye on, and you have to keep an eye on is what does attrition look like. And our attrition year-over-year has been really good. I think our closed accounts were up only 0.5% year-over-year quarter in the second quarter. So we’re doing a good job there. I mean – and when you look at the value proposition, I mean, we’ve got a really great comparison with our new overdraft grace and with our – the Early Pay Day. And another thing to keep in mind is about 70% of our customers are – we’re the primary relationship where we have their direct deposits. So I think that also speaks well of what our – how sticky and how deep these relationships are. But I apologize again there was some breakup when you were asking the question. If I’ve missed something, please guide me to where I should be going.

[Ebrahim Poonawala:]

No, I think that covers it, yes and sorry about that.

[Operator:]

Thank you very much. Your next question is from Ken Zerbe of Morgan Stanley. Your line is open.

[Ken Zerbe:]

Great, thank you. Just want to clarify really quick, in terms of the 3% expense growth, is the base that you’re looking at the full $849 million from last year? I know there is some one-time items in results late last year, so just that one?

[Jerry Salinas:]

Yes, I’m just going off the reported number, that $849 million, you’re right.

[Ken Zerbe:]

Got it. Okay, perfect. And then in terms of provision expense, obviously, a couple of quarters in a row is zero. Is it fair to assume that you’re going to try to stay at zero on a go-forward basis or – I know other banks have obviously been releasing a lot more reserves based on the CECL model, but there is also some subjectivity to CECL modeling? Thanks.

[Jerry Salinas:]

Right. Yes. I think you’re right. At this point, we haven’t recorded any provision for the year. And a big part of us, of our allowance calculation need, if you will, is associated with the overlays, right? Because the models themselves – and we will release our 10-Q this afternoon, and we gave quite a bit of detail on how the – how that CECL worked. The models did actually calculate, if you will, a lower reserve requirement. But what we’ve said is given all the uncertainty that we continue to see associated with the pandemic and the effects it has on certain parts of the economy, and again, given all the uncertainty that we’ve seen here recently with the variant, we feel that it really was not the time to release any reserves. We obviously feel real comfortable about our reserve coverage but thought there was too much uncertainty in the market for us to release reserves. At the end of the day, we’ve got to look at it every quarter and see where we’re at. I know there are some thoughts that the September, October time frame will be interesting given that you’ve got a lot of employers requiring or requesting employees to get back to work after Labor Day. You’ll have the kids back in school. Obviously, the variant conversation that’s going on currently is starting to highlight other issues with the mask again. So we think that come September, October, I think it will be interesting to see where we’re at. I don’t expect – and then maybe this is a given. I don’t expect us to have provisions for the rest of the year, given where we’re at. But as far as any discussion about would we be releasing reserves that will really be dependent on what we’re seeing at the end of the third quarter and at the end of the fourth quarter. Right now, I think there was just too much uncertainty given what we were saying to release reserves.

[Ken Zerbe:]

Got it. That makes sense. And I certainly understand the variability around the Delta variant. But just, I guess if the economy does get better, let’s say, the Moody’s models get better in 3Q, but there is still that concern, I mean, do you have enough flexibility that you can continue to add to the qualitative reserves like for the next couple of quarters? I’m just wondering if there is a limit to where you’re unable just to keep adding qualitative, if that makes sense.

[Jerry Salinas:]

Yes. No, it does. And obviously, the thought process there is – I think, my take on it would be the more – the bigger percentage of your allowance that is related to overlays or qualitative factors, the more quantitative those qualitative factors will have to be, if that makes sense. It’s not – it’s – I’m not going to be at a point where I can say it would never be the case, but I can’t have an extreme where the models would say I needed $10 million, let’s say, and I had a $90 million overlay to get you to $100 million reserve. That’s never going to be the case. And so again, I think given where we’re at, I think our overlay, you’ll see was significant compared to the models this quarter. We feel comfortable with that. But I think to answer that question, could we not or could we grow our qualitative reserves as a percentage of the total allowance for the rest of the quarters? I think that’s a difficult question to answer. If we did, let’s say, we got to that point, I think what you’d find is that the support for that would be a lot more quantitative in nature, even if it’s a qualitative adjustment if that makes sense.

[Ken Zerbe:]

It does. Alright. Thank you very much.

[Jerry Salinas:]

Sure.

[Operator:]

Your next question is from the line of Dave Rochester from Compass Point. Your line is open.

[Dave Rochester:]

Hey, good afternoon guys.

[Phil Green:]

Hey, Dave.

[Dave Rochester:]

Back on your expense guide, it seems like that would imply a pretty decent step-up in the expense run rate in the back half of the year, maybe to that 225 level quarterly just to hit that 3% just roughly. Any color as to what lines you’re expecting will drive that?

[Jerry Salinas:]

Sure. Well, I’ll just talk about a couple of things there. We’ve really – I think I said this last time, and we were having a meeting with the head of our marketing group. We’ve really been light for the first half of the year on marketing expenses. So we are projecting a pretty big increase in marketing-related expenses, especially in the fourth quarter. So that’s going to take a big bite out of that increase. In addition to that, we’re going to have additional expenses with that Houston expansion in the second half because as we’ve got more and more settled there, you’ll see that rise. And as we’ve talked about, we’re going to do future expansion there and also the Dallas expansion. We will see a little bit of that. You won’t see a lot, but it’s going to run through our numbers here. We also have incentives that get paid in the fourth quarter that are one-time hits and are discrete to that quarter. So that’s also going to affect the line items there. Phil mentioned some salary pressures. We continue to have that. And then also, really, we’ve got open positions that we’re trying to fill. There is a lot of requests for – a lot of desire for some talent that’s not that easy to find. And so we’re projecting that we can fill those positions, but it’s taking us longer to do that than we had expected. And so – and then generally, I think just in the other expense category, it’s been a little bit slower starting out the year. I think now that we’ve started cranking up and people are in the office and we’re starting to visit with customers again, you’ll see just an increase, if you will, in this general sort of meals and entertainment sort of category of items than we’ve had in the first half of the year. I will say that we continue to focus on expenses. I’m going to tell you, if we are able to beat that 3% growth, I’m going to be happy about it. But at this point, given what I’m seeing, that’s what it looks like right now. And there are some specific things like I mentioned that I can put my finger on that are going to drive that increase.

[Dave Rochester:]

Okay, great. I appreciate all the color there. Maybe just switching to the margin, you mentioned loan pricing pressure a bit on the call. I was just curious what the front – both back books’ differential is now on new loan yields versus the roll-off rate at this point?

[Jerry Salinas:]

What I saw was 28 basis points on the weighted commercial portfolio decrease on the new business in the quarter versus the back book.

[Dave Rochester:]

Okay. And then you guys mentioned still feeling comfortable about making the securities purchases a few months from now. I was just wondering if the curve at that point looks like it does today, are you still okay with that? And would you still plan to accelerate those purchases?

[Phil Green:]

It’s hard to say. Just I think everybody hates this market and few people understand what the tenure is doing when inflation is growing like gangbusters and then it continues to go down. So I mean, we will do what we have to do. I mean we said for a long time, really all year long that we looked at the late third, fourth quarter to be when we thought we’d be pulling trigger on this stuff. Obviously, we thought rates would be higher that point in time and inflation would have reared its head and the market would have responded well. Half of that happened. Inflation has reared more than its head and the market hasn’t really responded on it. We also said during that time that we might miss the peak and we have, at least at this point, but that were still going from 10 or 15 basis points to 125 or so 175 basis points. So there is still a lot of operating leverage that we will bring to the party when we decide to do it. But I would love to see – there is – clearly, there is been volatility in the market as it relates to yields. We’ve got some time based on our time frame to see that play out in the marketplace. I’d love to see some variability happen and be able to take advantage of some of it on the high side. We will see. I know that’s not definitive, but no one’s got the answer to that question right now.

[Dave Rochester:]

Yes, great. And then maybe one last one on capital, those ratios continue to grow. Just in general, CET1 ratio is inching up to 14%. How do you think about that? Do you expect those to continue to grow from here? Are you thinking about buying back some shares to stabilize that? Any thoughts there would be great?

[Jerry Salinas:]

We’ve said repeatedly, and you saw us increase our dividend this quarter. Our focus is really on ensuring we can pay that dividend. That’s what our primary focus is on. I’m sure you saw on our balance sheet that – and we talked about earlier in the call, I mean, assets are going like crazy given all the deposit growth that we’re seeing. And if you look at our leverage ratio, we’re probably a little low compared to peers. And we’ve been coming down there. So we keep an eye on that. But – so really, David, right now, I’d say that we’re more focused on ensuring that we pay the dividend more than we are on the stock buyback.

[Dave Rochester:]

Yes. Okay, great. Thanks guys.

[Jerry Salinas:]

Thank you.

[Operator:]

I am no longer seeing any questions. I would like to turn the call back to Phil for closing remarks.

[Phil Green:]

Well, thank you. We appreciate everybody’s interest and for being on the call today. And with that, we will be adjourned.

[Operator:]

Thank you so much. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.