Cullen/Frost Bankers, Inc.
Q4 2013 Earnings Call Transcript

Published: 29 Jan 2014

[Richard W. Evans:]

Well, welcome to the Cullen/Frost Bankers, Inc. Because of weather, we have been on delay. I hope somebody's out there listening to us. We don't have an assisted operator, but we will go through our comments, and then we will entertain questions from the analysts. Let me get started, Greg Parker.

[Greg Parker:]

Thanks, Dick. This morning's conference call will be led by Dick Evans, Chairman and CEO; and Phil Green, Group Executive Vice President and CFO. Before I turn the call over to Dick and Phil, 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 in the 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 at our website or by calling Investor Relations at 220-5632.

[Richard W. Evans:]

Thank you, Greg. Good morning, and thanks for joining us. It's my pleasure today to review Cullen/Frost 2013 Fourth Quarter and Annual Results. Our Chief Financial Officer, Phil Green, will then provide additional comments. After that, we'll be happy to answer your questions. I'm pleased to report for 2013 that Cullen/Frost recorded substantial loan and deposit growth, continued significant credit quality improvement, received respected third-party recognition as one of the strongest banks in Texas and in the entire nation and top $24 billion in assets for the first quarter -- for the first time in our history. The solid and consistent results are a credit to our dedicated employees and strong value proposition. During the fourth quarter of 2013, our net income available for common shareholders was $60.6 million compared to $60.2 million reported in the fourth quarter of 2012, which did not include any preferred stock dividends. This was $0.99 per diluted common share versus $0.97 in the fourth quarter of 2012. Fourth quarter 2013 return on average assets and common equity were 1.2% and 10.21%, respectively, compared to 1.9% and 9.84% in the same period of 2012. The company reported 2013 annual net income available to common shareholders of $231.1 million compared to 2012 earnings of $238 million, which did not include any preferred stock dividends. On a per share basis, 2013 earnings were $3.80 per diluted common share compared to $3.86 reported in 2012. For the year, return on average assets and common equity were 1.2% and 9.93%, respectively, compared to 1.14% and 10.3% reported in 2012. Deposit growth remained strong among both new and existing customers. Fourth quarter average total deposits were $20.1 billion, up 9.1% over the fourth quarter of 2012. Average total deposits in 2013 were up $2 billion from 2012. Net interest income for the fourth quarter 2013 was $185 million on a tax equivalent basis, up 7.4% from $172.2 million for the fourth quarter of 2012. This increase primarily resulted from an increase in the average volume of net interest -- net earning assets and was partly offset by a decrease in net interest margin. The net interest margin was 3.39% for the fourth quarter of 2013 compared to 3.38% for the third quarter of 2013 and 3.48% in the fourth quarter of 2012. For 2013, net interest income on a taxable equivalent basis increased to $710.9 million, up 6.4% over the $668.2 million reported in 2012. Noninterest income for the fourth quarter of 2013 was $78.5 million, up 3.5% from the $75.9 million reported a year earlier. Trust and investment management fees were $24.2 million, up $3.7 million or 18% from the $20.5 million a year earlier, due in part to the equities market, new business and changes in the fee schedule. Insurance commissions and fees rose $2 million in the fourth quarter 2013 to $10.4 million compared to $8.4 million in the fourth quarter of last year. For the entire year, noninterest income was $302.8 million, up $14 million over the $288.8 million reported last year. Noninterest expense for the fourth quarter of 2013 was $154.5 million compared to $146.1 million in the fourth quarter of 2012. Salaries were up $4.8 million over the same period a year earlier to an increase in the number of employees, combined with normal annual merit and market incentive increases. Turning to loan demand. Our loan growth is strong. Fourth quarter 2013 average loans were up 5.4% over the fourth quarter of 2012 to $9.3 billion. For 2013, our average annual total loans was $9.2 billion, up 9.1% from the $8.5 billion in 2012. The increase is largely attributed to our focused efforts to leverage the new relationships we added since the recession began, as well as loan growth with existing customers. In 2013, we had the highest level of new loan requests we have ever experienced. The requests were 4% higher than 2012, which was the previous record. 2013 also saw the highest volume of new loan commitments since 2008. We booked 6% more than the previous year, and the fourth quarter was 10% better than the fourth quarter of 2012. The advanced rate on the revolving lines decreased from 1 year ago but increased since the third quarter. If customers utilize their facilities at the same level they did in December of 2012, it would have meant an increase in balances of approximately $300 million in loans outstanding. Many customers increased their revolving lines in 2013 in preparation for growth or acquisitions. Commitments for real estate construction were up 19%. The increase in these commitments has yet to show up in loan outstandings because these customers are using their lines less and are putting more equity upfront into construction projects. Over time, we expect the growth of our loans to catch up with the growth in commitments. We are optimistic about continued loan growth in 2014. Our credit quality maintains a positive trend that began 4 years ago. Our nonperforming assets declined by $35.5 million from the fourth quarter of 2012 and by $28.3 million from the third quarter of 2013. Absent any significant changes in global, national or Texas economy, we expect that our positive credit quality trends will continue. Our capital levels remained very strong. Tier 1 and total risk-based capital ratios for Cullen/Frost were 14.65% and 15.79%, respectively, at the end of the fourth quarter of 2013 and are in excess of Basel III fully phased-in capital requirements. The ratio of tangible common equity to tangible assets remained strong at 7.68% at the end of the fourth quarter of 2013. 2013 was another solid year for Cullen/Frost. We posted strong results, grew customer relationships and managed expenses through a weak national economy and low rate environment. We launched top-rated banking apps for iPhone and Android. The overwhelming positive response from our customers underscores our commitment to technology, service and convenience. We also made consumer-focused changes in our business and consumer checking accounts. We would place these accounts up against any other institution in the country in providing the best value to customers. In our growing Dallas region, we became the exclusive ATM provider at the renovated Love Field Airport in 2013 and opened 2 new financial centers. In Houston, we opened 1 new financial center. During the fourth quarter, we also acquired Houston-based Kolkhorst Insurance, which will enable us to expand our presence in that important market. Throughout the year, well-regarded third parties validated Frost's outstanding service, culture and financial strength. For the fourth consecutive year, J.D. Powers and Associates write Frost highest in Texas in retail banking customer satisfaction. Greenwich Associates awarded Frost with a record-high 22 Greenwich Excellent Awards for superior performance and overall client satisfaction and other relationships and service categories in small business and middle-market banking. In 2013, we expanded our customer base and brought value to our shareholders, paying and increasing the shareholder dividend for the 19th consecutive year. During the first quarter of 2013, we also issued a $150 million in noncumulative perpetual preferred stock and have been paying a dividend to preferred shareholders since the second quarter. The dedicated employees at Frost deliver on our value proposition and live our culture each and every day. I thank them for their commitment to our customers and our company that helps make our success possible. Before I turn the call over to Phil, I'll close with a few comments about our economy and Cullen/Frost. I continue to be optimistic about our company's future. Businesses are cautiously beginning to grow again, but confidence is guarded. Nationally, we are still lacking the job growth needed to spur a strong consumer confidence and robust economic recovery. Fortunately, however, Cullen/Frost operates in Texas, which remains one of the strongest areas in the U.S. economy. Job growth in Texas is consistently higher than the national average while unemployment is consistently lower than most other states, thanks to our strength in construction, energy, technology and petroleum exports. Following 2012 Texas's job growth of 3.3% and 2013 job growth of 2.5%, we are expecting gradual improvement this year with jobs in Texas projected to grow 3% in 2014. Whenever we talk about Texas jobs, we hear that Texas grows low-wage jobs faster. Yes, that's true. But Texas also leads the rest of the nation in creating middle income and high-wage jobs. Since 2000, Texas has been the strongest state for exports. In fact, if you look at Texas exports versus U.S. exports minus Texas, the spread continues to widen. At Cullen/Frost, we continue to focus on the basics. We're reaching out to new and existing customers to expand our customer base. Our assets now exceed $24 billion for the first time in history. Since year-end 2007, before the recession began, our assets have grown 80%, and that's organic growth without any major bank acquisitions. We do, however, currently expect to complete our merger with WNB Bancshares in the second quarter, subject, of course, to our receiving regulatory approval. Midland and Odessa are some of the fastest growing cities in the country. The multibillion dollar investments by major energy companies and the vibrant Permian Basin should help ensure its economic vitality for years to come. Our merger with the well-respected, well-managed Western National Bank should only bolster our strong growth in loans and deposits. In conclusion, our credit quality is improving and continues to show a positive trend in the future as we stay true to our principles and lending disciplines. Our capital levels are strong. We have money to lend. We remain focus on our value proposition, strong culture and excellent customer service, and we continue to deliver steady, superior, financial performance for our shareholders. And with that, I'll turn the call over to our CFO, Phil Green.

[Phillip D. Green:]

Thank you, Dick. As Dick mentioned, it was a good quarter for us. Quarterly year-over-year tax equivalent revenue exceeded expense and provision growth by $5 million, and that was driven primarily by a $13 million increase in tax equivalent net interest income. This was volume related and reflected a 9% increase in earning assets versus the fourth quarter a year ago. While the net interest margin declined 9 basis points from a year ago, we did experience our first linked quarter increase in the margin in some time with a one-basis-point increase to 3.39%. Looking behind the numbers for the quarter, however, the core increase in margin is even stronger. The fourth quarter was negatively impacted 7 basis points by strong deposit growth, which resulted in additional fed liquidity of over $450 million. However, there were several positive factors impacting our core margin and these included

[Richard W. Evans:]

Thank you, Phil. We are now happy to answer your questions.

[Greg Parker:]

Bear with us just a second as we try to join the Q&A.

[Richard W. Evans:]

I don't know that the operator is going to help us if you have a question. Try to ask -- we're real good at running a bank, but I'm not -- we've never had this operator challenge of before. Hello? Okay. We'll be happy to take your questions. I understand you can still hear me, but I can't hear the questions.

[Operator:]

[Operator Instructions]

[Greg Parker:]

Okay, great. If there are any questions, I understand you could hear us. Hopefully, we'll be able to hear your questions.

[Terence J. McEvoy:]

It's Terry McEvoy from Oppenheimer. Can I ask a question?

[Richard W. Evans:]

Sure.

[Terence J. McEvoy:]

Just looking at expense growth versus revenue growth last year, expenses came in above revenue. How should we think about or how are you thinking about expenses, I guess, in the first quarter and in full year '14, given the kind of 5.5% or 6% growth we saw last year?

[Phillip D. Green:]

Well, Terry, if you're looking at growth in revenue versus expenses on a fourth -- are you looking fourth quarter versus fourth quarter?

[Terence J. McEvoy:]

I did both full year and fourth quarter versus fourth quarter.

[Phillip D. Green:]

The number I look at for revenue growth is tax equivalent revenue increases fourth quarter to fourth quarter was up about 6% and noninterest expenses were up about 5.8%. So they were pretty much in line as I compute that number. But I think your question really has to do with the size of expense growth and is there anything unusual and how that affects expenses going forward. I'd say if you look at a couple of categories in expenses on a year-over-year basis, there were large items in the -- in 2013. I apologize for that beeping. I'm not sure what that is, but we'll just talk through it. We did have, first of all, the write-down of the Greenbelt [Technical Difficulty] we're back [Technical Difficulty] which we had made available for sale, which have been purchased, literally, 30 years ago. In addition, we did have the growth related to Valero Corner Stores or it's now just called the Corner Stores ATM branch core, but now the third largest ATM network in the state of Texas, more ATMs available. That was a little over $3 million in the increase between '13 and '12. WNB legal costs were $1 million. [indiscernible] other cost [Technical Difficulty] is an update to systems. On the furniture and equipment side, we planned it forward, our ATM global app development that Dick talked. So some of the things or unusual growth had to do with our improving our value proposition, making ourselves a more effective, viable competitor against the too-big-to-fail banks, and that's what we've been doing through this period of time. So it's been a commitment to increase that value proposition in order to grow accounts and grow business. And as you'll -- but I think you'll see a bigger disparity between revenue growth and expense growth on the positive side, which is due to margin growth and some of the unusual items that we talked about reducing in 2014.

[Richard W. Evans:]

Terry, does that answer your question?

[Terence J. McEvoy:]

I'm great.

[Richard W. Evans:]

There another question?

[Unknown Analyst:]

It's Rob [ph] Robertson.

[Richard W. Evans:]

Go ahead. [Technical Difficulty]

[Unknown Analyst:]

Can you guys hear me?

[Richard W. Evans:]

We can hear you.

[Unknown Analyst:]

Okay, sorry about that. Well, I just want to ask a question on the loan portfolio yields. You indicated that loan yields were a basis point higher. And I was just curious if you were -- so you're booking loans at 4.5-ish [indiscernible] now, or can you give us any kind of color around loan spreads?

[Richard W. Evans:]

[indiscernible]

[Phillip D. Green:]

Yes, I think we saw a little bit of improvement through the quarter. The average is about the same, the loan spread we saw in the third quarter, maybe just a little bit higher.

[Richard W. Evans:]

Yes. I think, as we mentioned, we're -- there -- it's a little lumpy. But we are seeing some optimism, and customers are starting to move forward somewhat. In the energy field, you still see low usage of loans as they’re building up, waiting to buy properties. I think one example of it was in Shared National Credits -- that commitment. We're up from 12/31/12 of $1.453 billion to $1.551 billion, and outstandings were down $586 million. So that's just one example of kind of the mix. Commercial real estate is picking up in yields somewhat higher than C&I. We have been pleased that our fee income, fees on loans has improved during the year. So there are a lot of moving parts, and we were pleased to see a little bit of increase in the yield.

[Phillip D. Green:]

We had -- the average spread to prime for the fourth quarter was about 87 basis points, which was -- have been in line with the third quarter. It might have been just a tad higher.

[Richard W. Evans:]

Did you get that answer?

[Unknown Analyst:]

I'm sorry, I missed the number that you gave just now, Phil.

[Phillip D. Green:]

87 basis points spread to prime was the spread on new and renewed loans for the fourth quarter, which would've been in line with -- maybe just a little bit higher than the third quarter.

[Greg Parker:]

Thanks. If I could try to remind everybody to mute their phones if you're not asking a question. That might help. We're getting some feedback and noise from other phones. So if you could mute your phones if you're not asking a question.

[Richard W. Evans:]

So we've had 2 questions, we're happy to take another one.

[David Rochester:]

It's Dave Rochester of Deutsche Bank. So real quick one, Phil. You mentioned that there was a 5-basis-point improvement in securities yields. Any of that from a decline in premium am expense?

[Phillip D. Green:]

Not really. Our premium amortization really didn't change a lot. The -- fairly consistent on the municipal portfolio, and it was down a little bit on -- in the fourth quarter. It's about $3 million in the fourth quarter compared to, say, $3.4 million in the third, and that was really the MBS. So it's a -- there would've been a small amount related to that.

[David Rochester:]

Got you. And after the purchases in the munis this quarter, I was just wondering if you had that as -- the total portfolio as a percentage of assets at the end of the quarter.

[Phillip D. Green:]

Well, the -- I don't have that number on top of my head to compute it for you. Total securities were $9,035,000,000 at the end of the quarter. So we could divide that by $24 billion, get the number.

[David Rochester:]

So maybe we're around 17% of assets or something like that?

[Phillip D. Green:]

Whatever that computes to be.

[David Rochester:]

Yes. Would you consider taking that over 20%, or how do we think about how much larger that portfolio can get? Because I know we tend to ask you that every quarter, and I know you've said that you still have some more room to grow that. So just trying to get a sense for what's your comfort level is with that.

[Phillip D. Green:]

The interesting thing is if you look at the portfolio at the end of the year, '13 compared to the end of last year, we're almost the same amount of money and we're the same duration as we were before. And so we really didn't have a big change in it, and yet we saw our balance sheet grow a lot. So I think we've got a lot of room to grow. In fact, we've got to do something with the money. At the end of the -- or the average for the fourth quarter, I think it was about -- a little over $3.6 billion at the fed account -- in the fed account. So we still do have room to do something. We'd like to see loans be the place where we do it, but it's -- if they're not going to grow that fast, then we're going to need to continue to do investing in the market. The place we see to continue to do investing is municipals.

[David Rochester:]

And you mentioned the loans there. Can you talk about how the pipeline looks going into this quarter, maybe some of the activities you're seeing this quarter versus the pipeline going into the fourth quarter?

[Richard W. Evans:]

Typically, the fourth quarter is always a strong quarter, and first quarter falls off a little bit. You -- we did see a pickup in revolving lines of credit for C&I loans, which we're pleased, a little bit stronger than probably we expected, but you've got some seasonal buildup in that regard. I think the thing that -- as I mentioned in the call, the commercial real estate has a strong commitment backlog, and as I told you, they're starting to put their equity in and waiting till the last minute to start using those lines. But there's pretty good buildup in that, and that should continue to grow. We had a little bit growth in consumer, which was good. And so overall, it'll probably be a little bit lumpy, but pipeline continues to be good. I'm real proud of our calling effort. And as I mentioned to you, the pipelines, the requests are strong. The problem -- the commitments have grown substantially. The challenge has been to get people to use their lines. The good news is they're asking for them, and we're giving them lines but usage has been a little bit weaker. If you look -- just to give you -- the revolvers went up from 39.54% in November to an advance rate of 40.69% and -- but decliners, which are primarily commercial real estate, dropped from 49.47% to 47.25%. So -- and they've been pretty flat from that. I think there's some opportunity and -- to see some advancements on the commercial real estate.

[David Rochester:]

Great. Just one last one if I could. The other income was up a little bit this quarter, and I know you talked about the strength in the trust fees. I was just wondering if there are any maybe performance -- annual performance fees in that trust line. And maybe if you could talk about what drove that other income line, that would be great.

[Phillip D. Green:]

Are you comparing it to year-over-year or linked quarter?

[David Rochester:]

Linked quarter.

[Phillip D. Green:]

There were some recoveries. Number one, in sundry income of about $1.3 million related to primarily a recovery on real credit. And...

[David Rochester:]

How much was that again, sorry?

[Phillip D. Green:]

Trading activity was particularly good as well. It was up about $3.4 million, primarily in non-hedge interest rate swap fees.

[David Rochester:]

So swap fees were up. And what was the first number you gave?

[Phillip D. Green:]

Sundry income.

[David Rochester:]

Sundry income, and how much was that?

[Phillip D. Green:]

I'm sorry. On capital markets trading income, it's $1.3 million non-hedge interest rate swap fees. Apparently, I've said something different. The first one was related to a loan recovery of a prior credit.

[David Rochester:]

And how much was that loan recovery again? Sorry, I missed it.

[Phillip D. Green:]

All of that category together was -- the recovery was about $1.5 million, which is the largest of -- component of sundry income, which is $1.8 million.

[Joshua Cohen:]

This is Josh, filling in for Scot Valentin at FBR. I might have missed this, but what's the line utilization for the fourth quarter?

[Richard W. Evans:]

It's about 42%, 43%.

[Joshua Cohen:]

And how does that compare to the third quarter?

[Richard W. Evans:]

It's pretty flat, a lot of moving parts. You heard me previously talking about real estate and C&I revolvers.

[Joshua Cohen:]

Okay. And then what are you seeing in the M&A market in Texas? And do you think you'll be active in the second half, or...

[Richard W. Evans:]

We're aggressive lookers and conservative buyers. You've heard me say that a thousand times. There's a lot of activity in smaller banks, $200 million going with another $200 million sort of things. So that's where the major activity is.

[Greg Parker:]

Next caller?

[Emlen B. Harmon:]

It's Emlen Harmon from Jefferies. I apologize if I missed this. But on the -- just on the tax rate, it did tick up a bit since last quarter. I guess how are you guys thinking about the tax rate as you look out into 2014?

[Phillip D. Green:]

Well, I think the tax rate we're expecting to be down a little bit, probably closer around 16% on -- in 2014. We did have an increase in the quarter mainly because the earnings were better, and the estimate for effective tax rate for the year had to be adjusted for that.

[Emlen B. Harmon:]

Got it. And just on the reserve release. You've had kind of a modest release again this quarter. And I forgot if it was the third quarter or the second quarter, you talked about kind of getting into the point where you thought you were getting close to end-of-reserve releases. I guess -- again, how are you thinking about that into next year? And are you just seeing enough economic improvement that, that is potentially going to leak lower from here?

[Richard W. Evans:]

Well, obviously, it's all formula-driven, and we are growing loans. And so you got to build a little bit as you go along there. But it's pretty much...

[Phillip D. Green:]

We're expecting to build reserve in dollar amount next year. I mean, next year being this year, 2014.

[John V. Moran:]

This is John Moran from Macquarie. So I just want to make sure that I got a couple of things written down here correctly. The purchases, Phil, in the muni book this quarter, it sounded like $305 million with a 6.7 duration and then $146 million with a 16.3 and 10-year call. Is that correct? Did I get that right?

[Phillip D. Green:]

Yes. Let me look at what I -- refer back to what I said. It sounded right to me when I heard it. Yes, let me threw you back here

[John V. Moran:]

Got it. And then, Phil, do you have the duration of the book at the end of the year and where that compare versus 3Q with the new purchases?

[Phillip D. Green:]

Okay. The duration of the portfolio, you look at it 2 ways. One is if the duration with municipal is going to maturity, which that's not what experience is, and then it's -- the duration of the muni is going to call. And with them going to call, the duration of the portfolio is 3.5 years, which we've been fairly close, not that much different from the [indiscernible], again, which nobody expects. That would be 5 to 6 years.

[John V. Moran:]

Okay. So 5, 6 to maturity, 3.5 to call. And 3 -- and the 3.5 to call is pretty close to where it was at 3Q.

[Phillip D. Green:]

It was. In fact, I could look for it. And I think there was no change.

[John V. Moran:]

Okay. And then just kind of circling back on Dave Rochester's question with respect to kind of redeploying or -- some of the liquidity into securities. Would it be fair to say that sort of what we saw this quarter might be representative of sort of how you guys are thinking about that in '14, again with the caveat that obviously I think everybody would prefer? You guys would rather see it in huge loan growth, but...

[Richard W. Evans:]

We're trying.

[Phillip D. Green:]

Yes. I think what you looked at, there was about 400 -- what was it $450 million worth of purchase in the quarter. That's going to be heavy for us. We -- I don't think you'll see that same level. We'll do a fairly consistent amount of investing at a smaller level and there'll be times when we'll -- you'll see us make bigger purchases. For example, when Western Bank comes on, they've got a significant amount of liquidity, which they're carrying today on a short-term basis that we'll invest. So you'll see that happen. And then the second thing you'll see are higher level of investments that we'll make is, remember, the interest rate swap runs off in November. And we'll take some of that liquidity and reinvest around that time, and we're hopeful that yields at that time are going to be somewhat improved as the fed stops tapering activity or begins to taper. So anyway, I'd say that the last 2 quarters have been a little high to see that drop-down some, except the times -- whenever we're either buying for the swap, replace or reinvesting for Western.

[John V. Moran:]

Got it. Got it. That's helpful. And then just a last one for me. Western, I think, originally, we were thinking it was going to close sometime in first quarter, sounds like now second quarter. Fair to say that that's going to be as early in second quarter as you guys can get it done?

[Richard W. Evans:]

We can get it done. We're just a little bit slower -- move through the process.

[Kyle M. Kavanaugh:]

This is Kyle Kavanaugh at Palisade Capital. I just had a question, I kind of missed it with all that noise, about your last commentary on the guidance. Is that a function of the liquidity that you're going to be reinvesting, or is it a function of loan growth?

[Phillip D. Green:]

It's a function of a lot of things. I mean, we've got -- we are going to be doing some investing. We're -- we've done some good things for noninterest income growth, and the loan growth, we expect to be pretty good. And then the Western acquisition is going to be great for us, and we're really looking forward to getting that in as well. So it's not any one thing. It's just a lot of...

[Kyle M. Kavanaugh:]

A mixture of all of them?

[Phillip D. Green:]

Yes.

[Steven A. Alexopoulos:]

It's Steven Alexopoulos from JPMorgan. I couldn't hear at all what you said in response to the first question on expenses. Can you just talk briefly on what your plan for expenses are this year? 2013, you invested a lot. You're up like 5% or so. Is that about the run rate we should be thinking about for 2014?

[Phillip D. Green:]

I think it's probably going to be a little bit lower than that, but I don't think it'll be 5%. I mean, other things equal, that you see some unusual things happen occasionally. But I think our run rate for next year -- did you say other expenses, by the way?

[Steven A. Alexopoulos:]

No, that was total expenses.

[Phillip D. Green:]

Okay, total expenses. All right. Yes, total expenses would be a little higher than 5%.

[Steven A. Alexopoulos:]

Was that in terms of your expectations for 2014? Is that what you're seeing?

[Phillip D. Green:]

Remember, we've got Western National Bank, which is coming on, which is going to be a factor there. So we're adding in a fairly significant acquisition.

[Steven A. Alexopoulos:]

Okay. Phil, just maybe one other question. I may have missed this, too. But did you give any commentary on expectations for the net interest margin, which would've been up without the liquidity build in terms of expectations over the next few quarters?

[Phillip D. Green:]

Yes. I think at this point, we're expecting to be fairly flat.

[Unknown Analyst:]

This is Mitch Amos [ph] from Morgan Stanley. I have a question about the insurance commissions line item in your fee income. Be -- I'm just wondering whether the increase in the fourth quarter linked quarter was related to onetime events. And how much of it actually is related to the Kolkhorst acquisition going forward in 2014?

[Phillip D. Green:]

Okay. The -- there wasn't a lot of it related in the fourth quarter Kolkhorst because it was acquired during the quarter. So only $62,000 related to Kolkhorst in the quarter. I would say the thing that was unusual for the fourth quarter was that -- on the employee benefit side. We saw a lot of early renewals for people trying to grandfather in before the ACA act, Affordable Care Act, kicks in next year. So we -- on the employee benefit side, we saw about $1 million, I would say, in early renewals for that. So that could be considered a little bit unusual.

[Richard W. Evans:]

Next question? Any other questions? All right. We appreciate your interest in our company. We apologize for the problems. I think they were in Atlanta with the bad weather. You who are in bad weather, Texas is a great place to live and Frost is the only place to bank down here. So I'd suggest you come our way. With that, we stand adjourned.

[Greg Parker:]

We stand adjourned.