Earnings Call: Q4 2019

Jan 30, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Frost 4th Quarter and Full Year 2019 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amy Mendez, Senior Vice President and Director of Investor Relations. Thank you. Please go ahead. Thanks, Chantal. This morning's conference call will be led by Phil Green, Chairman and CEO and Jerry Salinas, Group Executive Vice President and CFO. Before I turn the call over to Phil and Jerry, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend 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 Investor Relations department at 210-220-5234. At this time, I'll turn the call over to Phil. Thanks, A. V. Good morning, everyone, and thanks for joining us. Today, I'll review the 4th quarter and full year results for Cullen Frost and our CFO, Jerry Salinas, will also provide additional comments and then we're going to open it up to your questions. In the Q4, Cullen Frost earned $101,700,000 or $1.60 per share compared with earnings of $117,200,000 $1.82 a share reported in the same quarter a year ago. For the full year, CullenFrost earned $435,500,000 or $6.84 a share compared with earnings of $446,900,000 or $6.09 a share reported in 2018. The lower interest rate environment impacted our results as you would expect. However, our team continues to execute our strategy of pursuing consistent above average organic growth across our enterprise and we're investing for the long term while maintaining our quality standards. Our return on average assets was 1.21 percent in the 4th quarter compared to 1.48% in the Q4 of last year. Average deposits in the Q4 of $27,200,000,000 were up 2.6% compared to the Q4 of last year, while average loans were up 5.4%. Our provision for loan losses was $8,400,000 in the 4th quarter compared to $8,000,000 in the Q3 of this year and $3,800,000 in the Q4 of 2018. Net charge offs for the Q4 were $12,700,000 compared with $6,400,000 in the 3rd quarter and $9,200,000 in the Q4 of last year. 4th quarter annualized net charge offs were 34 basis points of average loans. Non performing assets were $109,500,000 at the end of the 4th quarter compared with $105,000,000 in the 3rd quarter and $74,900,000 in the Q4 of last year. Overall delinquencies for accruing loan at the end of the Q4 were $58,200,000 and that was 39 basis points of period end loans. And those numbers remain well within our standards and comparable to what we've experienced in the past several years. And overall, our credit quality remains good. Total problem loans, which we define as risk grade 10 and higher were $511,000,000 at the end of the 4th quarter compared to $487,000,000 in the Q3 of this year and $477,000,000 in the Q4 of last year. The increase in the 4th quarter related primarily to the energy portfolio. Energy related problem loans were $132,400,000 at the end of the 4th quarter compared to $87,200,000 for the Q3 and $115,400,000 in the Q4 of last year. The energy related problem loan total is mostly attributable to 3 borrowers with whom we've been working for several quarters. Energy loans in general represented 11.2% of our portfolio at the end of the 4th quarter, up from the previous quarter, but well below our peak of more than 16% in 2015. Our focus for commercial loans continues to be on consistent balanced growth, including both the core component, which we define as lending relationships under $10,000,000 in size, as well as larger relationships, while maintaining our quality standards. The balance between these relationships went from 52% larger and 48% core at the end of 2018 to 57% larger and 43% core at the end of 2019. The movement towards larger loans in 2019 was mostly due to activity in the 4th quarter where some quality new energy relationships were added after exiting a number of credits during the year. New relationships increased 4% versus the Q4 of a year ago. The dollar amount on new loan commitments booked during the Q4 was up sharply, increasing 75% from a year ago and 44% from the prior quarter. Even excluding the strong energy growth we saw in the 4th quarter, new loan commitments grew 42% versus a year ago and 20% from the prior quarter and represented good increases in both C and I and CRE. That said, quality deals are hard to come by. In 2019, we booked just 3% more loan commitments compared to 2018, despite looking at 16% more deals. In CRE, we saw our percentage of deals lost to structure increase from 63% in 2018 to 69% in 2019. Our weighted current active loan pipeline in the 4th quarter was up by about 9% overall compared to the prior quarter and was driven by a 20% growth in C and I opportunities. Of the 10 new financial centers that we've opened so far in the Houston region, 4 were opened in the 4th quarter. We expect to open 1 more Houston area financial center in the current quarter on our way to a total of 25 new financial centers and we've already hired more than 150 of the approximately 200 employees we expect to staff this expansion. Those new financial center openings benefit both commercial and consumer banking. Let's look at our consumer business. We added almost 13,000 net new customers consumer customers in 2019, an increase of 48% from a year ago. That represented a 3.8% increase in the total number of consumer customers, all of it representing organic growth. In the 4th quarter, 32% of our account openings came from our online channel, which includes our Frost Bank mobile app. This channel continues to grow rapidly. In fact, online account openings were 30% higher compared to the Q4 2018. The consumer loan portfolio averaged $1,700,000,000 in the 4th quarter, increasing by 1.2% compared to the 4th quarter last year. Cross Bankers have done a great job expanding our presence in growing markets. Our overall strategy of sustainable organic growth is serving us well. The interest rate environment continues to present challenges to our industry, but we remain focused on the fundamentals and growing our lines of business in line with our quality standards. 2019 had its share of challenges, but also had its share of achievements. Besides adding the new financial centers in Houston that I mentioned, we also expanded into a completely new market where we opened our 1st financial center in Victoria, Texas and we completed our corporate headquarters move to the new Frost Tower in Downtown San Antonio in the culmination of a process that began 6 years ago. Our commitment to customer service was confirmed when Frost received the highest ranking in customer satisfaction in Texas and J. D. Power's U. S. Retail Banking Satisfaction Study for the 10th consecutive year and received more Greenwich Excellence and Best Brand Awards for Small Business and Middle Market Banking than any bank in the nation for the 3rd consecutive year. That's a tribute to the dedication of everyone at Frost who works hard every day to take care of our customers and implement our strategies. And that dedication is what sets Frost apart from other financial service companies. Now I'll turn the call over to our Chief Financial Officer, Jerry Salinas for some additional comments. Thank you, Bill. I'll make a few comments about the Texas economy before providing some additional information about our financial performance for the quarter and I'll close with our guidance for full year 2020. All of the Texas macroeconomic numbers I'll mention here are sourced from the Dallas office of the Federal Reserve. Texas job growth was a very strong 4% in November and the Dallas Fed now estimates 1.9 percent Texas job growth for full year 2019. December statewide unemployment of 3.5% uptick slightly from the historically low 3.4% level seen in each of the 6 months through November. In terms of employment growth by industry, as of November, construction had the strongest employment growth in Texas with 11.5% growth for the month and growth of 5% for the year to date period through November. Financial activities was the industry with the 2nd fastest job growth at 3.5% year to date through November. Energy was the only sector that showed meaningfully negative Texas job growth down 2.7% year to date through November. According to the Dallas Fed surveys, activity in the Texas services sector accelerated again in the 4th quarter and revenue growth in this sector has remained in positive territory every month since December of 2009. Looking at individual markets, Houston economic growth remains above the historical average and the Dallas Fed stated that as of November data suggests continued moderate growth ahead. Job growth in the Houston region accelerated to a 2.8% rate in the 3 months through November compared to a more modest 1.6% rate for the full year through November. Professional and Business Services and Education and Health Services led Houston job growth over the 3 months through November, growing at 8.2% and 7.7% respectively over the same period a year earlier. Regarding the DFW Metroplex, the Dallas business cycle index maintained by the Dallas Fed expanded at a 5% annual rate in the 4th quarter compared to 4.8% in the 3rd quarter, while the Fort Worth Business Cycle Index expanded at a consistent 4.1% rate in the second half of the year. For the DFW Metroplex, November job growth remains strong at a 4.8% annualized rate and area unemployment remained near multi year lows at 3.2% in Dallas and 3.3% in Fort Worth. The Austin economy has also remained healthy in November and the Dallas Fed's Austin Business Cycle Index has now been an expansion territory for more than 10 years with index growth remaining at or above the region's historical 6% average for the past 9 years. In the 3 months ending in November, Austin area job growth moderated to 2.4%. Austin's unemployment rate remained at 2.7% in November for the 4th consecutive month. The San Antonio region posted strong economic growth in November with the Dallas Fed San Antonio Business Cycle Index continuing to grow above its long term average. The San Antonio Business Cycle Index grew at a 5.5% rate in November and San Antonio job growth was 4.7% for the 3 months through November with area unemployment remaining at 3.1%. Permian Basin payrolls remained flat through November and the unemployment rate has ticked up in recent months. While the rig count has generally declined in recent months, oil production has continued to increase. Permian region job declines in the mining, manufacturing and government sectors were offset by job growth in the leisure and hospitality, professional and business services, information and trade transportation and utility sectors for the year to date period through November, resulting in overall flat performance for jobs in the region. Despite the lack of job growth in the Permian region, November unemployment remained low at 2.4 percent for the 2nd consecutive month. Our net interest margin percentage for the 4th quarter was 3.62%, down 14 basis points from the 3.76% reported last quarter. The decrease primarily resulted from lower yields on loans and balances at the Fed as well as an increase in the proportion of balances at the Fed as a percentage of earning assets partially offset by lower funding costs. The taxable equivalent loan yield for the 4th quarter was 4.88%, down 28 basis points from the 3rd quarter impacted by the lower rate environment with September October Fed rate cuts. The total investment portfolio $13,600,000,000 during the 4th quarter, up about $197,000,000 from the 3rd quarter average of $13,400,000,000 The taxable equivalent yield on the investment portfolio was 3.37 percent in the 4th quarter, down 6 basis points from the 3rd quarter. Our municipal portfolio averaged about $8,400,000,000 during the 4th quarter, up about $193,000,000 from the 3rd quarter. The municipal portfolio had a taxable equivalent yield for the 4th quarter of 4.8% flat with the previous quarter. At the end of the Q4 about 2 thirds of the municipal portfolio was PSF insured. During the Q4 approximately 1 $400,000,000 of our treasury securities that were yielding about 1.51% matured. As insurance against the potential backdrop of flat to down rates for an extended period of time, we made the decision to add duration to our investment portfolio. During the Q4, we purchased about $1,500,000,000 in securities to replace the treasuries that matured. During the quarter, we purchased $500,000,000 in 30 year treasuries yielding about 2.27%, approximately $700,000,000 in agency mortgage backed securities yielding about 2.37% and about $300,000,000 in municipal securities with a TE yield of 3.3%. As a result of the maturities and purchases I just mentioned, the duration of the investment portfolio at the end of the quarter was 5.4 years compared to 4.3 years last quarter. Looking at our funding sources, the cost of total deposits for the Q4 was 29 basis points, down 10 basis points from the 3rd quarter. The cost of combined Fed funds purchased and repurchase agreements, which consist primarily of customer repos decreased 32 basis points to 1.21 percent for the 4th quarter from 1.53% in the previous quarter. Those balances averaged about $1,420,000,000 during the Q4, up about $126,000,000 from the previous quarter. Moving to non interest expense, total non interest expense for the quarter increased approximately $21,100,000 or 10.6% compared to the Q3 excuse me, the 4th quarter last year. Excluding the impact of the Houston expansion and the operating costs associated with our headquarters move in downtown San Antonio, non interest expense growth would have been approximately 6.3%. Regarding the outlook for the full year of 2020, the estimates for full year 2020 earnings, we currently believe that those estimates for 2020 earnings that FactSet mean of $6.13 is reasonable. So again, regarding the estimates for full year 2020 earnings, we currently believe that the FactSet mean of $6.13 is reasonable. Our assumptions do not include any rate cuts in 2020. With that, I'll turn the call back over to Phil for questions. Thank you, Jerry. Now we'll open up the call for questions. Your first question comes from Peter with Wedbush. Your line is open. Good morning. Good morning. I was just wondering, can you talk about what the loan outlook is for you guys for 2020? I think before you've targeted high single digits and I'm just wondering what the outlook is going forward? I think it's fairly consistent with that. It may be depending on your definition of high, but certainly over 5% is what we'd shoot for. I don't and I don't think it will be double digits. So that's close I think I'll get to it. Okay. And then one of your competitors the other day talked about this increased competition from the non bank players and it resulted in a very high level of pay downs and payoffs. I'm just wondering what you're seeing from on a competition level in your markets? Yes, competition continues to be tough and it's mainly around structure. But it's I wouldn't relate it just to non bank competition. I think we have said before, it's been big banks, small banks. It has been some non bank competition as well. And I think from people I've talked to in the industry that's sort of a national thing as people are searching for yield. So and it's mainly around guarantees and advance rates and those type of things. So and as I said, we lost more deals to structure on particularly real estate this year than last year. We're up 69% loss due to structure versus 63% a year ago. So it's not a factor. It's not the only factor, the non banks. And then just one more housekeeping. Jerry, in other income, I know it can be volatile, but there was a big increase relative to the past 2 quarters. I'm just wondering if there was anything unusual this quarter? I think we had a stronger capital markets underwriting fees during the quarter. Those were up $1,600,000 compared to the Q4 last year. And we had about $1,000,000 on an insurance claim that we got paid on. I think those are the 2 things that stand out. Okay. Thanks very much. Next question comes from Jennifer Demba with SunTrust. Your line is open. Thank you. Good morning. Good morning, Jennifer. My question is on credit. Can you just talk about the level of energy charge offs you saw during the Q4 and for the entire year in 2019? And what you think is likely over the next few quarters given problem loans have gone up pretty significantly in that sector? I think just in general, the We're coming to the end of this process of moving through the snake. Most we've got 2 large energy credits and non performers both around say 30 little over $30,000,000 And they've been working those things. We've been working those things out for a while. In one case, 3 years or so and the other, a long period of time. I think we're getting close to the point where a final resolution for those is going to happen. I don't know when it will be exactly, but I think it's sooner rather than later. It could be the Q1, it could be after that. And so my gut tells me that there'll be some charge offs related to those, a good amount of it reserved for already, but maybe not all, probably not all of it, given what's been happening with the discount rates on in the energy space has been pretty well known by everybody over the last couple of quarters. So I think we'll see higher energy charge offs, but it's really related to the culmination of these deals that have been working for a long time as opposed to anything happening with new credits because there's been some weakness in the sector. Does it make sense? Let me just ask a follow-up. So, in terms of the new problem loans that came in during 4th quarter, what kind of gives you confidence that that kind of credit migration trend is, I guess, inflecting? Yes. Well, I mean, the one that was rated a problem in the Q4, I mean, we talked about it last quarter, it was one that was on watch before and it's the reason we put it there is because their plan calls for selling assets and we know that's a difficult environment. It's a difficult environment to do that. Now they've got strategic properties and early results on what they saw initially was pretty good. So, but it's not a great environment to be selling assets in. So we'll just be seeing how that works over time. But it's we decided it's a proper thing to move it to a problem. But again, like I said, early results on that are pretty good right now. Okay. Jennifer, in the 4th quarter net charge offs on energy were $2,900,000 Okay. All right. And for the year? For the year, I'm seeing, it looks like a little north of 6. Okay. And just one more question on non expenses. Just wondering, Jerry, if you think you'll see a similar level of expense growth this year, given you're trying to complete the Houston expansion. I guess you've got what 15 more offices? Right. Well, we don't give specific line item guidance, but Jennifer, what I would point you to is our Q4 to Q4 or as reported growth percentage and expenses. And to me that's really representative of our expectations going into 2020. Obviously, we as a group are all focused on on trying to manage expenses in this environment of trying to grow the business and trying to being faced with some technology debt if you will. It's really important for us to focus on expenses. But right now, I would take that Q4 to Q4 growth is kind of in the ballpark of our current expectations. Okay. Thank you. Your next question comes from Steven Akeroulos with JPMorgan. Your line is open. Hi, good morning everybody. Good morning. I'd like to start on the margin. So, NIM was obviously down a lot given how much LIBOR and short term rates moved down in the quarter. How do you think about the core NIM from here? As I'm looking out in that Q4, I think we're at a 3.62% in the 4th quarter. And the way we're not projecting any rate cuts like I said. So to me kind of what I'm looking at is we'd be flattish to maybe up just slightly, but really, really flat is what I'm thinking for 2020 compared to the Q4 of 2019 percentage wise. Yes, that's helpful. And then thank you. On the Houston branches, I know it's early, but for the branches you have opened, can you talk about the growth trends you're seeing so far? Is it roughly in line with expectations? And then cost for the branches that are coming out where you thought it would be? I think we're happy with what we've seen versus what we expected. The cost number I think is a little bit less than we had thought it would be just because we were had many of them that were pushed near the end of the year. So that was really just more of a timing thing. And we're seeing good growth in households. Probably seeing a little bit better growth in households than we expected, a little bit better loan growth than we expected, a little bit less deposit levels than we had expected. But I'm not really worried about that as we get these relationships in. I think we'll see that be in line with what we were expecting to see. The main thing I'm focused on is what's happening with relationships and those are better than we anticipated. So I'm not discouraged at all. In fact, I'm encouraged by what we're doing and how our people are executing. Another good thing about it is that we've hired some great people and we're getting people that are wanting to buy into our culture and seasoned bankers. I think the average relationships managers, as I recall, was around 20 years. So these are real solid Yes. And as Phil mentioned, we had kind of disclosed the $0.19 and we did a negative impact on 2019. It was just a little bit better than what we expected. And And as he mentioned, a lot of that was driven by the timing of the openings. And for 2020, we're projecting that expansion. It's going to be the worst in the 2nd year obviously and so we're expecting a hit of $0.35 related to the Houston expansion in 2020 with improvements after that. Okay. That's very helpful. And then finally for Phil, so we saw another MOE earlier this week. Is an MOE something that you would consider? I mean, I know the culture is so strong at the company and really differentiates you. How do you think about an MOE for Colin Frost? Thanks. Yes. Well, of course, no CEO would talk about that kind of thing. But I'll just tell you what I've said consistently, I'll say it again. And that is that, you know that a roll up is not something that we're interested in, that we're executing an organic strategy and I think the risk and the payoff is lower on the organic strategy, the payoff is better. We're investing with their income statement as opposed to investing with our balance sheet. The best use of an acquisition for a company like ours is really one that's not a roll up that puts you in a position to do an acquisition puts you in a position to do organic growth from that point forward. And so but as I said before, those things don't happen very often. They come along infrequently. The last time we did that was when we moved out to the Midland and Odessa market with W and P about 6 years ago. So acquisitions is not on our radar screen. What's on our radar screen is how we're growing the company and growing relationships every day. And that's the thing we're focused on. Thanks for taking all my questions. Your next question comes from Brady Gailey with KBW. Your line is open. Hey, thanks. Good morning, guys. Morning. Hey, Brady. The energy loan loss reserve last quarter was about 33,300,000 dollars It was about 2.2%. Did that I know you had some problem energy loans flow in this quarter, but did that change much on a linked quarter basis? We were yes, we moved it up. It's about 37,400,000 dollars percentage. Yes. So we were at 33.3 percent, you're right, and we moved that up to about 37.4 percent. All right. That's helpful. And then when you take a step back and look at Houston, it was a little under 0 point 19 dilutive to last year, it's $0.35 dilutive to this year 2020. When will that hit breakeven? And how many years until you will recoup all those losses? Well, the breakeven, as we said before, on average for these locations has been about 20 27 months. Right. I think 27 months. So anyone can do the math on that, lay that out and sort of see when those tipping points occur. I think one thing to keep in mind is this really in 2020 should be the highest hit. So to the extent that you're seeing a lower burn rate, if you will, even for the branches that are still maturing, you can add some momentum from where we've been say in 2020. So I see the momentum in terms of its contribution towards earnings increases should begin in 2021. That said, they all have to breakeven even and get to the point where they grow our earnings. So that happens in 27 months on average. So just look at when we're opening them and make your assumption there and see when you think those turnaround. All right. And then lastly Yes, go ahead. Lastly for me, you've hired I think you said you've hired 150 employees out of the 200 that are planned. Out of the 150 that you've hired, how many of those are commercial lenders roughly? I would say 20 of them or so, round numbers. All right, great. Thanks guys. Next question comes from Jon Arstrom with RBC Capital Your line is open. Hey, thanks. Good morning. Hey, Jon. Good morning. Just a couple of follow ups, one on Brady's question on kind of 2020 versus 2021. Do you expect to have all the hiring done and essentially the compensation and some of the facilities expenses in the run rate exiting 2020 expense run rate? Yes. You're saying do we expect to have most of that in? Yes. Yes. Because our current plan is and one may fall, but our current fall out into 2021, but our current plan is to have those all open by the end of this year. And as far as the bankers are concerned, we typically try to hire a lot of the staff there 6 months before. And so the locations, we are kind of moving along this year with the expectation. I think Phil mentioned that we're projecting 1 this quarter. I think we're projecting 5 in the second quarter. So yes, there will be a you won't be at a 100% run rate, but you will get the bulk of it in 2020. Yes. Okay. Okay, good. That helps. And then, Jerry, as long as you're there, last quarter you talked about extending duration a bit. You did so this quarter. Curious if there's more to come for you in that area and then maybe talk about the impact and how you think about a little flatter curve that we're facing right now? I think there is we're continuing to have conversations. I think the plan is to continue to add duration. I think I said we bought $500,000,000 in treasuries. There's we're thinking about potentially if the market makes sense for us, we'll do another $500,000,000 there. Our focus really for the year is probably less on municipal securities than it has been historically. We bought, I think I said $700,000,000 in mortgage backed during the quarter and that's probably kind of where we're headed as far as percentage wise. We're probably moving more towards mortgage backed right now is the current plan. And really I think you talked about a flatter yield curve. Really what we did this was really kind of a proactive move kind of as insurance. I mean we're kind of looking at where our exposure is and our exposure was to flat rates. And so from our end it made sense for us to extend duration through our investment portfolio. If we get the opportunity on the loan portfolio side, we may decide to do something there. But right now, yes, I think that that's our plan. Okay. All right, good. Thank you for that. And then Phil, just the commercial pipeline, you talked about up 9% sequentially with C and I as a driver. And then earlier you were talking about larger versus smaller. Go ahead. No, go ahead. Yes. You talked about larger versus smaller. I'm just that pipeline increase, can you talk about is that would you characterize that as deep and broad commercial strength or would you say it's energy driven or help us understand that? Yes. I think it's I think the increase in energy in the quarter was as much as it was, was just an anomaly. I mean, we had some the opportunity to put on some really great relationships and we've been moving out of relationships, ones which we didn't think were right for us or deep enough for us throughout the year. And so we just had a number of those hit. I would expect that I don't have the energy pipeline percentage of that 20% growth at C and I in front of me. But I don't expect a change in our focus on core over time. And you'll have dislocations like you saw in the Q4 in a particular segment, sometimes it might be commercial real estate and sometimes. So I don't expect it to be much different. And we were looking again, we're not getting out of large deals we're good at and we want to do them. It's really this core thing is about balancing the portfolio. It's working on the core and on the large deals. So I expect this to continue to be in balance there. We're focused on it, I'll tell you. Okay. All right. The basic message is it's broad, It's not just energy in terms of what you're seeing. Yes. No, no, no, no. We have changed our focus there. Yes, absolutely. Okay. All right. Thank you. You bet. Your next question comes from Rahul Patil with Evercore ISI. Your line is open. Thanks. I just want to drill down in the expenses a little bit. I know you talked about 4th quarter reported expense growth year over year. That was around 10.5%. That is kind of a good run rate going into 2020. And so you're basically guiding to a 10% to 11% year over year growth in 2020 expenses. Last quarter, you talked about expenses on a reported basis will be north of 8% growth. So what has changed why that incremental growth in 2020? I said somebody threw out the number 8 percent and I just said it's going to be north of that. So we didn't really give any specific guidance. What I'll say is really our outlook for expenses really hasn't changed significantly for 2020. The Houston expansion of course has been part of it. You saw a big increase in our technology expenses between the Q3 and the Q4. We have really been projecting that to happen earlier in 20 19. Those projects actually didn't get closed out until the Q4 and so they had a big impact on the Q4. But now I mean our outlook for expenses between last quarter and this quarter as it relates to 2020 hasn't changed significantly. Okay. That's fair. And then the other thing is that you talked about 2020 EPS, you're comfortable with the consensus EPS of $6.13 Consensus right now is not modeling 10%, 11% expense growth, right? Loan growth in that 5% range, that is essentially where everybody is thinking about loan growth for you guys. NIM outlook appears to be slightly better. Last time you said you probably noticed a downward trajectory through 2020. Now you're saying flattish. I'm just trying to get a sense for where exactly in the consensus number 613 are you comfortable? What's driving that comfort level right now, given that expenses are probably hedging high? To be quite honest with you, we don't spend our time analyzing where consensus is at. We look at the bottom line number and that's the number that we're seeing in FactSet and based on that number we're comfortable with the overall projection. To be honest with you, I've given you a little bit more color we typically do trying to help there, but we don't give specific line item guidance. Okay. And just one last question. How are you guys thinking about day 2 provisioning under CECL? I think that at the end of the day from a CECL standpoint, we would expect that the future provisions, they're going to continue to be impacted by charge offs, the mix of loan growth, of course, the forecasted economic environment we're not too worried about it at this point, but a lot of it will be dependent on what the environment looks like at that point. All right. Thank you. Your next question comes from Matt Olney with Stephens. Your line is open. Yes. Thanks for taking my question. Just want to follow-up on the consumer loan portfolio. I know it's a pretty small part of the overall portfolio, but if we go back a few years ago, the consumer portfolio had some pretty strong growth and it's since slowed down quite a bit. So can you just talk more about that portfolio? What drove the growth a few years ago? And what's driven the slowdown more recently? And we have seen some higher charge offs in that book more recently. Anything to note there? Thanks. Yes. It's the main component of the portfolio that is slowing, in fact, it's declined some year over year has been in the personal lines of credit, unsecured lines of credit. The losses that you're seeing there really related to some loans to some individuals whose companies had some issues. And we've tightened up in that area on PLCs and in the underwriting there. And so you've seen that drop. And so we don't expect that to be a systemic or recurring issue. We've actually had really good growth as it relates to the consumer real estate part of that portfolio, which includes home equity loans, home improvement loans, etcetera. And that continues to grow and we were happy with that. So really what you're seeing is really an offset on one side of the portfolio being in personal lines of credit offsetting what is good growth in the consumer real estate and which has extremely great credit metrics and great performance. Next question comes from Steven Alexopoulos with JPMorgan. Your line is open. Hi, everyone. I just had two quick follow ups. The first on the deposit side, why did you guys have such strong growth in average deposits? Do you have any color there? Well, we really have had good growth in the second quarter excuse me, the second part of the year. It's something we've obviously been focused on. Let me go here and just pull it. I think that hold on, let me see specifically what categories are growing here. On a linked quarter basis, some of it was driven by good increases obviously in the C and I category. So if you're looking at a linked quarter basis, the Q4 for us is always stronger. I think the Q4 this year was stronger than normal. Like I said, some of that started in the Q3. And so it's been on that in the C and I, the commercial deposits. I think some of it has to do with rates. Some of it has to do with volatility. But I think that we continue to make the calls that we need to make. We continue to see growth in new customers. On the things that we need to do to grow the business. We had during the 'eighteen, starting in 'eighteen, as rates started to go up over 150 basis points, we were starting to have challenges on the commercial DDA. We were seeing some of those balances leave as I think the opportunity costs of keeping balances in DDA accounts got too expensive. I think we're starting to we're proactively doing some things to get some of that back on the balance sheet. But in addition to that, I think just the lower rate environment is probably helping us here. And like I said, we're continuing to focus on building those new relationships. We've had great from the interest bearing side, we've had good growth in the jumbo deposits, jumbo CDs. We've got a pretty competitive rate there and those continue to go up. But I've really been impressed also with the growth that we've seen and interest on checking really to be honest with you. So really just we've had some good augmentation addition of new customers. So knock on, we're pretty excited about the growth that we've seen. That's helpful. And then separately, some of your Texas peers have called out pressure on restaurant finance loans, restaurant franchise loans. Do you guys have a material exposure to restaurants? No. I don't think we do. I mean, it's not something that is a big component to us and that's not I've not heard that. The restaurant business is always historically a riskier part, but no, it's not really something that's raised to my radar. Perfect. Thanks for taking my follow ups. Okay. There are no further questions at this time. I will now turn the call back over to Phil Green for closing remarks. Okay, everyone. Thanks for your participation. We'll be adjourned. This concludes today's conference call. You may now disconnect.