Cullen/Frost Bankers Inc (CFR) 2007 Q2 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers second quarter earnings call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. Thank you I would now like to turn the call over to Mr. Greg Parker, Executive Vice President and Director of Investor Relations. Please go ahead sir.

Thank you. 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 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 provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended.

Please see the last page of the text in this mornings'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 web site or by calling the investor relations department at 210-220-5632. At this time I'll turn the call over to Dick Evans.

Thank you Greg. I'm pleased to report another record quarter for our company, $53.6 million net income, up 10.5% versus the second quarter of last year, $0.89 cents per diluted common share, return on assets 1.66%, return on equity 15.40%, net interest margin reached 4.72%, highest level in five years, average loans $7.5 billion, increase of 14% versus the second quarter of '06. Average deposits $10.1 billion, 11.3% versus last year. And trust income was up 12.4% over last year. Record quarters are possible because of our outstanding staff and I am very proud of them. And appreciate their commitment for taking excellent care of our customers. It was a year ago this month we an announced the acquisition of Summit Bank shares in Fort Worth and closed the acquisition in December of last year.

We're pleased with the performance of the Fort Worth market now that the two organizations have been operating as one for over six months. I would also note that it is important to remember that comparisons to the second quarter a year ago were impacted in part by this acquisition. As we have reported for over a year the Texas economy continues to outperform the U.S. and I continue to be optimistic about the state's growth going forward. All the Texas markets we serve are better, equal to the state's growth rate. Texas is also reported to be the highest competitive market in the U.S. and new entries of financial service companies and expansion of present companies are happening daily. On the consumer side, we have three major areas of activities. We are responding and repositioning our consumer checking accounts. The aggressive pricing of our new products and expansion of our branch distribution system.

Effective July the 21st we reduce the number of consumer checking account products from six to four, making it simpler to explain to our customers. We increase the value of competitiveness by adding free bill pay service across all products. We increase our ATM access to a large group of customers. Today Frost has two of the most competitive rates in our marketplace. We offer as low as 6.99% on our home equity products and a 5% rate on our two year CD. Finally, we are making material improvements in our branch distribution system. I want to remind you that in 2006 we increased our statewide branch network by 25% with the Alamo and Summit acquisition. This year we will open new branches in San Antonio, Austin and in the Rio Grande valley, a new market, Brownsville, which we have not had a branch in until this new one will open. All three of these major activities are supported by direct mail programs to communicate with our customers and prospects.

On the business side, loan growth is our primary focus. Loans outstanding have been relatively flat our commitment growth is over $800 million per quarter for the last three quarters. This tells us our officers are working hard to put new lines on the books. Addressing the question of why our commitment strong and outstandings flat we see that 75% is because of the lower advance rate on commitments. Last year on June the 30th, 2006, we had a 49% advance rate on our total revolving lines of credits. This year that number is 46%. Three percentage points doesn't sound like much until you're looking at a total revolving line of credit base of over $11 billion. Secondly, 25% was because of greater payoffs and pay downs on loans.

Looking closer at the character of these payoffs and pay downs, we find that almost 25% is the ordinary course of business. But we also find that almost 20% is because of the greater liquidity in our economy today. Companies are making good money, their cash flow is higher anticly in oil and gas loans, which is not a surprise to any of us, where their prices are up and are generating some significant funds. We also see that about a little over 15% is because of real estate construction loans funding into the permanent lender much quicker than before. These take accounts are faster and often we see the take-out happen at the certificate of occupancy, rather waiting for certain occupancy levels to be obtained.

Let me give you an example. We financed a small hotel, which is a rarity for us, but it's to a very good group of people, that we have done a lot of other business for, it's in I would describe as a middle market of Texas, the cost was $11 million. They sold the project for $14.5 million at the certificate of occupancy. Normally speaking, this project would have waited for several months until the occupancy level could be established and at what room rate. Also will we see because of low cap rates, we're seeing more real estate projects being sold because the buyer just feels it's, the seller just feels it's the top price.

Also looking at the payoffs and pay downs, approximately 10% is because companies sold again their liquidity, cash flow and companies are, owners are saying to me this is a price I never believed we would realize and I think it's time to sell this company. So about 10% came from that. And then as you know this is a company that tries to look ahead at weaknesses and credits and when we identify a weakness our first objective is to repair it, talk to the customer, but in the event they don't have the ability to improve that financial performance we ask them to find a new home. So a little over 5% were the ones we asked to move. The good news about competition is there is a lot of alternatives for them to move down the street.

Looking at the first six months of this year, business loans that we lost to competition, it's running about like we have seen over the last year. For this six months 52% was related to price, 48% to structure. The good news is the majority of these relationships we still keep some relationship. And often we have a greater profitability without the credit risk. By markets and looking at period end loan growth our strongest markets remain San Antonio, Fort Worth, Corpus Christi and Austin. We did see some slowing in Fort Worth as a result of some significant energy pay downs. Our weakest markets are Dallas, Houston and the valley.

Looking forward, we engage [Greenwhich] research in 2006 and because of that research it gave us confidence there is an opportunity for improved growth, but it does require sales staff to be very disciplined and focused. To be more specific about the opportunity, there are a million companies in Texas with annual sales of over a million dollars. $650,000 are in our footprint. Maintains a market penetration of 13 % of the Texas middle market businesses. These are businesses with sales of $10 million to a $100 million. This 13% is in our footprint. And if you look closer at different markets the highest concentration or highest penetration is in the San Antonio market followed by Austin and Fort Worth, then the smaller percentage of penetration is in the Houston and Dallas market.

Now, we need to remind ourselves that the smaller the percentage is also the greatest opportunity. For companies not doing business with Frost we are identifying those companies that are attracted to our brand, who share our core values, and companies with whom we have traditionally done well with for many years. We estimate that this select group to be 25 to 30,000 prospects in the state. Based on our analysis it would appear that we should be six times more successful with this select group of prospects than the market as a whole. Even with all this analysis prospecting activity requires time, consistency and discipline in nurturing the relationship.

Also, again, Greenwhich Research addressed our customer satisfaction. Frost qualitative performance in Texas continues to be distinctive and led top competitors. Customer satisfaction, relationship managers, top management calling and branch performance are viewed as notable strengths. Credit customers site the bank's credit policy as highly supportive of the bar's needs. We will continue to seek profitable quality growth for today and over the long term. Now I'll ask Phil Green, our CFO, to share his thoughts about our performance.

Thanks Dick. I'm going to make just a few comments. I want to add a little bit of color on our net interest margin for the quarter. I want to add a little color on a few of the noninterest revenue areas, talk a little bit about our outlook and then we will open it up for questions.

As Dick mentioned, our net interest margin was up by seven basis points from the first quarter, that's our second consecutive increase. There were a number of factors that went into this and I know that there's a lot of interest on the part of some of our listeners regarding what's going on in the margins, so at the risk of being even more boring I will go into a little bit of inside baseball on this to talk about what happened during the quarter.

There were a number of positive factors, there was no one big thing. If I break it down I'd say there were about two basis points of this improvement was because of reduction in the cost of some of our nondeposit liabilities. A couple of things happened there, you remember we paid off our trust preferred securities in the first quarter and we went into sub debt in recognizing interest savings. So we had a partial quarter in the first quarter from this impact, full quarter in the second quarter, so that was a benefit. And then in addition we saw a slight reduction in our rates that we paid on liability repose, which is a big sweep product that we use for treasury management companies, moving excess balances into these. Saw a little bit of decrease in that rate, those combined for a couple basis points improvements. Loans and investments combined for about a three basis point improvement in our margin.

A couple different things, loan volumes on average were up by $55 million for the quarter. So that added some benefit there. And then we had an investment, two year treasury which was an $85 million investment. We made a couple years ago. In our wisdom we bought those at 3.85% yield and those matured and even going into fed funds obviously helped us out there.

Actually when we bought those things, I think they were about 1%, so they were a good investment for us. It's nice to see them mature and us be able to go into a more current yield. So those two items were about three basis points. Then if you look I'll call it deposit mix four basis points this was a case where we had some of our higher volume or higher cost deposits, namely jumbo CDs and some public fund CDs reduce in terms of absolute volume and so. We saw an improvement in margin as a result of that.

On the negative side, had an unusual item that occurred. We had the cost of our what I'll call, [IOLTA]what are called deposits increase during the quarter, which affected us by negative two basis point. Now, describing what I mean by that, we maintain I'd say about $120 million in NOW accounts, regular NOW accounts which are called IOLTA deposits. It escapes me what the acronym stands for, but basically these are deposits that are maintained by numerous law firms around the state who are customers with us and they are regular NOW accounts which we hold the funds, which they hold funds prior to distributing them to successful plaintiffs. And basically the state, what happens to the interest on these funds, it's remitted to the state and that's used for low income individuals to provide legal services.

Well, the state agency that maintains and administers that program had decided that regular NOW accounts would no longer be eligible for that program and we needed to pay a significantly higher rate to stay involved in it, which we decided to do. But the rate on those accounts went up to 3.15% today on those accounts. So it's a good rate and it's a good deposit for us to maintain, but obviously significantly higher than the regular NOW account rate, that affected us bay about as I said two basis points. That was the cost of almost $3 million this year in terms of net interest margin.

I think the thing to keep in mind about the margin is that the improvements that we saw really should pretty much stay with us. With possible exception of the jumbo CDs. It if we see those move up in response to what we're now, I would call a really good rate, we could see some reduction in the margin of percentage as a result of the growth in those liabilities that remains to be seen what will happen with those liabilities. So I think that if we see loans volume, that is loans outstanding increase off some of these commitments Dick's talked about that we've been riding, we should see some additional strength in margin if loans volume remain flat I think the margin would be what I'll call more stable.

Looking at noninterest income on a couple of items, I wanted to talk about trust fees for just a second. We did have a really good performance there, we were up by about 12.5% year over year on our trust fees. As we have said many times those are really driven by investment fees which are 70% and more of the trust fees we maintain. So in the case of the year over year comparison really all that growth was from investment fees, because they were up by $1.9 million. And the markets have had a really good run, particularly in the second quarter of this year, 40% plus of our managed assets or equities, we see that the market improvement really does help us.

When you look at the late quarter we have also had a really strong quarter. We were up by nonannualized 4.7% over the first quarter thats a 19% annualized rate. Investment fees were 90% of the growth in the first quarter growth and trust fees, they were up about $686,000. We also had you might recall in the second quarter we have a seasonal factor that occurs. We repair a lot of tax returns for trust customers and get paid for it. So we had a $560,000 increase in these fees over the first quarter. It's a seasonal factor, you will see that reduced in the coming quarter. But to offset that, we really had in a couple of areas that what I'll call are a little more volatile fees, that is estate fees and real estate fees, we have that equal amount of reduction versus the first quarter.

So the seasonal benefit of those tax fees is offset by state fees, real estate fees. Those are volatile. You can't really tell when those are going to happen, because frankly they depend on when a person might pass away and that estate fee might be paid. And so those sort of offset. What remains then of the growth in trust fees for the first quarter was we had a good growth in oil and gas fees. They're up by almost $200,000, which is a 13.5% growth over the first quarter.

We saw some good well activity and drill activity happen in our trust, particularly in some of the south Texas areas. So that was a benefit. So I think really we can look at the growth and trust fees as being strong and on a net basis really representative of what's going on there, hopefully on a go forward basis. Hopefully these markets will continue to cooperate.

On the service charges on deposit side, I wanted to point out that we did have an increase there for the first time in a while we saw growth in our service charges on deposits, they were up by a $1.3 million on a link quarter basis. And we didn't have much impact from a higher earnings credit rate, so we didn't see commercial service charges go down. What we did see was overdraft fees were higher than the first quarter.

Some of that's a seasonal factor because the second quarter is just always higher than what is always a low first quarter. But we also did increase the fee we charge on overdrafts from what I would say is sort of a lower rate in the marketplace to more of a mid point in the marketplace. And that did increase and really account for a lot of what growth we saw in service charges.

I will say that our, what we are going to do and with some of this increase is we're going to see, as Dick pointed out, we did change and increase the value propositions of our individual checking accounts, so we're going to be plowing some of that money back into those accounts by having lower fees on some of those accounts. Providing broader ATM access for more people, free bill pay on the accounts, that type of thing. So what we're doing is we're reinvesting some of that money back into the, into our value proposition and what we expect to see is over time an enhanced growth rate related to those individual accounts because our value propositions are strong.

I also wanted to talk about an issue that we brought up last time and it had to do with an increase in the impact on state taxes. You might remember that we pointed out that there was an unintended consequence as a result of new tax law that had been introduced in Texas which because of the way it handled out of state receipts it basically had a higher than anticipated impact on a lot of taxpayers in the state. And it was supposed to be more tax neutral the way it was implemented. I talked last time that we were going to see what might happen with regard to a technical corrections bill to correct that.

In fact, we saw that happen. We did see that was corrected and so the impact of that tax is less than it was we were seeing last quarter. The benefit of that should be about $0.04 a share to us, around, around a little over $3 million, between $3 and $4 million, I can't remember, it was about $2.4 million on after tax basis. Unfortunately the IOLTA impact offset a lot of that, so I guess you could say the state giveth and the the state taketh away. But it was good to see that benefit come through.

Looking forward, finally I think I'll say regarding the outlook for the year, we expect we will be within the range of estimates that are in place today. And I'd say around the mid point of that range right now does not appear to be unreasonable. With those comments I think I'll turn it back over to Dick for questions.

Thank you Phil. Now we will be happy to entertain your questions.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Pancari.

Good morning.

Good morning John.

I wanted to see if we can get some additional color on your outlook for loan growth, I know you're conservativeness and some of the other detail you give us around loans, wait on some of the on balance sheet growth we're seeing, but wanted to see if that changes your outlook at all longer term, specifically given this environment. And then also it if you can give that, give us some color on your pipelines as well and your markets.

That's a great question John, and it's probably the biggest question that, it's a hard question to answer. But let me just give you a little information. Year-to-date total calls are up 14%. The the total new pipeline was up 22%. The pipeline for prospects is up 28%. Year-to-date our new commitments up 24% compared to last year. At the same time as I mentioned, you know, we lost pipeline commitments to pricing was the largest, $270 million. Structure $245 million. And then we lost $142 million as prospects chose to stay with incumbent institution, that is not move from where they are. And this is about a 41% increase over last year.

So, what I just shared with you are pluses and minuses. One of the reasons I went through lengthy discussion of kind of what our advance, as I said you take the 3% on the $11.5 billion, I can't answer the question of whether they're going to advance more or less. We do know that it's at a lower percentage than we have historically seen. And then this greater payoff as I shared with you, I think that the trends are going to continue to move into longer term real estate, you know, construction loans into the permanent, the permanents looking for loans faster so they lowered some of their standards from the standpoint of watching what the true occupancy's going to be and with this liquidity issue.

The reason why we have, you know, rather than as I've talked about for almost a year about about the competition, there's not anything I can do about it. In fact I'd a lot rather than in Texas than anywhere else in the U.S. because it's a great market. And the reason we have spent a great deal of time on research and identifying the specific markets and the opportunities which I pointed out to you, you know, 25 or 30,000 prospects that are not doing business with us, we have, , 13% penetration of this middle market, 10 to a $100million in sales, there's no question that plenty of opportunity.

Now, our staff has been riding a bicycle pretty fast to put on $800 million a quarter. And we just going to have to stay more focused and that's what I meant by we believe that we can be six times more successful by staying more focused on the customers that we have identified that we have traditionally done well with over many years. What does that mean? Traditionally done well over many years, we went back and looked at customers that we had had for over 20 years and identified their characteristics. That includes the biggest factor is credit quality. We have been through the 80s, we don't ever want to go to that kind of situation again. We're far from perfect. It doesn'tt mean that we make every credit decision correct, but we do have a criteria. I would hope that the reason why we're experiencing a higher payoff is that we have a higher quality of customers that, but I can't prove that to you. Only time will tell. And then last, but not least, I would say to you that this prospecting activity, while the prospects are there, while we experiencing a higher payoff is that we have a higher quality of customers that, but I can't prove that to you. Only time will tell.

And then last but not least, I would say to you that this prospecting activity, while the prospects are there, while we have great staff, while we have identified them and we will be more focused it does require time. You don't build the kind of relationships that we want and that bring profitability to this company, which means not just a loan transaction, but a relationship with a customer that has the checking accounts and where we can broaden the base with that customer, 401(k)s or selling insurance and all the things we do, that's the kind of bank we are. But it does take time, it takes consistency, and it takes discipline to nurture these

Okay. That's helpful. Just a quick follow up to that prospecting you were talking about Dick, are you seeing, you know, what are you finding out in terms of your borrowers or potential borrowers in terms of their willingness to keep their banking business with banks that may have been recently acquired by out of state players, are you seeing an increased willingness on behalf of those customers to stay with those institutions and consider banking with these larger out of state players, how is that behavior changing.

Well, loyalty isn't what it used to be, but it's still good. I mean, any time that you can create $800 million in in commitments a quarter obviously, you know, I'm not happy with flat outstandings, but certainly we have held onto a lot of good relationships. You know, I didn't talk about asset quality, because it's kind of boring. It's about as flat and about as good as you can get. We had when you look at nonperformers over 90 day pass dues and potential problems at the end of the first quarter we had $72.1 million, today we have $73 million.

Obviously nonperformers are down, which is good. You know, our reserve is at a 130. You know, we covered charge-offs, almost $73,000, so in essence they were covered. You know, we have been at a 130, you know, for, you know, last, you know, practically a year and we're in this oh, 15 basis points charge-off, which if you have been in this business a long time it doesn't get much better.

As I mentioned, you know, we called over $50 million out of our loan portfolio of loans we didn't think were good. So I know that, I know you want a specific answer, I don't have a specific answer. There's nobody more interested in what you're asking than I am and there's no one more pleased with the work that our staff is doing and what I call the signs of understanding it.

I'm optimistic that we're doing, I'm sure we're doing almost everything we can and I'm optimistic about the future. But we will just have to see. I thought we would be up the second quarter. And we're not. So we will just see how we go.

Okay, great. Thank you.

Your next question comes from the line of Andrea [Cho].

Good morning gentlemen.

Good morning Andrea.

Regarding the balance sheet, it looks like securities ran off quite a bit. Maybe we can start with what average securities were this quarter versus I think the $3.2 billion they were last quarter and how much the decrease was.

On an average basis we, we're at $3.2 billion, $3,210,000,000 in the first quarter. Global securities actually averaged $3,286,000,000 for the second.

Okay. Let's see, but average earning assets went down, so what drove that down.

It would have been in fed funds Andrea, we averaged 731 in the first quarter and right at 500 in the second.

Okay. That helps. Then going to deposits, if you could talk a bit more about, you know, what was going on in the other deposit category such as, you know, noninterest bearing commercial, your savings deposits, your money market accounts.

Okay. On a link quarter basis.

As Phil's as looking at the specifics, remember the first quarter is always a strong quarter coming off of year end and builds up a little bit, and then goes into the second quarter.

Dick's right on that Andrea, on average basis I think we had in the release that we were on demand deposits down about $36 million. So pretty flat, about 1% change from that first quarter strong number that Dick talked about. And that was pretty consistent, we were down about $12 million in C&I demand, so that one was almost flat. Correspondent banks down about $17 million. Public funds demand about $7 million. On the savings account, time accounts, it's been pretty consistent story.

Our money market index account is where we have seen the growth. We had about a 2% increase on average for the quarter, about $45 million, annualized basis that's up about 7.5%. The drops that we saw as I mentioned were jumbo CDs were down about 49 million. Jumbo CDs for public funds were down just under 20 million. That's where we saw some of the higher costs go down, which gave us a little bit of optical improvement in our net interest margin that I talked about earlier.

Got you. Are there trends that you can share with us early in the third quarter.

You know, Andrea, I don't have those right at hand. I think that --

In general.

Yes, I might be able to get a general feel for it. I don't want to say something that would be wrong, at least on purpose. Let's see. I want to try and get an average so I don't, they swing around so much on a daily basis. So month to date our deposits are running about $10,192,000,000. That's on a total basis. So the average for the second quarter $10,097,000,00, right? I'm sorry, I'm just having to grab a number here. So they're up somewhat in the third quarter.

Okay. Perfect. This was very helpful, thank you.

Your next question comes from the line of Jennifer (inaudible).

Good morning.

Good morning Jennifer.

What's your stance on share repurchase at this juncture?

We're in favor of them. Actually we, we have made some progress on share repurchases, I think we bought about 1.2 million shares in the first half of this year. I think all that second quarter. And so we hit a pretty good lick on that.

What's your authorization left.

About two and a half million, roughly.

Total.

Two and a half million left.

No, two and a half total.

Oh, two and a half total, okay. Would you anticipate using all that, the rest of it this year?

I anticipate more. I don't know how much more we will use. I don't think all of it I think some more of it, but right now I don't have an exact number. We knew we had excess cash and capital and thought we had an opportunity, so we went ahead and hit it pretty good.

Okay. Wondering what you're seeing also in the M&A market right now Dick, in talking to potential sellers given the challenges everyone is seeing in the industry right now.

Well, you know, Texas has been so hot for awhile, I don't know whether we're a good representative. It's still continuing. I don't see a lot of change. There's, you may see a little more activity in the smaller 250 range versus, you know, the bigger ones, but I think if you're asking because of the challenges do I see a big change, yes, I haven't seen a big change in the marketplace, but just continuing to have a consistent flow.

Thank you.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster. Your next examination question is a follow-up question from the line of Andrea.

Well, hello again. Hello. Just a couple follow-up questions. First on the tax rate, it looks like there was a dip in the second quarter, could you tell us what drove that and if, you know, it's sustainable at this this lower level.

Andrea, I think what you see there is that impact that Texas tax law change, we did get that technical correction in.

Okay.

So you see that decline. I think it's sustainable at that level.

Okay. Good. And then regarding, regarding credit, which is very, very good, you know, do you see because it remains very good do you see loan loss provisioning staying at, you know, the second quarter run rate, is that possible, would you be willing to have the reserve ratio inch lower?

The word willing, I will tell you with the way the formulas work and the laws that we operate on it really isn't what I'm willing to do, it's really what the formula calls for. It it looks like we're somewhere at the top of a credit cycle. I don't know whether it's going to last six months or another six years. But I know that if you look at credit default and recovery rates, recovery rates are about as good as you can see them since we're almost about a ten year period of time and default rates are about as low. When you talk to an old banker like me that believes in cycles, someday it will cycle. And I don't know when, if I did I'd be real smart.

Andrea, I'd have to say that, you know, if you're looking, if I was looking at it and saying on a continuum would the reserve increase or decrease, just giving what I think we're seeing in credit trends and those things could change overnight, I would tend to see the probabilities being more towards a decrease than an increase right now.

Yes, okay. Then so that was helpful, thank you. On the borrowed funds, I was wondering if you could give us a number as well. Last quarter I think you were at 837.43.

You're right. And this quarter they averaged 860.

Okay. Perfect. Again, very helpful, thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of John Langston.

Hi guys, thanks for taking my question. In talking about your Greenwhich study, talked about how you're having good success in penetrating the San Antonio, Austin, Fort Worth markets, less success in Dallas and Houston, I was curious as to how you were thinking that you would improve that, is it going to be from just some [denovo] branching or do you foresee possible an a day when you would go in and try to acquire I guess some more market share in those particular markets.

Well, first of all let's not forget Houston and Dallas are pretty big cities. So you're going to have and it's while we have been in Houston a while, Dallas is over a time period relatively new entry comparatively. To answer your question, we're always, we're always looking at opportunities, as long as I can remember of the right kind of acquisitions and but we're very particular as you know. And we as I mentioned to you, we are continuing to expand our branch distribution system. So yes, we will continue with denovo, continue to look at the right acquisitions. The other thing I want to remind you when you look at those penetration, the research is really helped us focus better, but it's not -- this isn't a 30 day, 90 day turn around, this takes time.

And the good news is I think it can help our relationship managers be more successful, which I certainly want them to be for themselves as well as for our company. And I think that's the real benefit of very competitive market is helping us stay, stay more focused. And it it also shows it isn't a surprise that where we have been for 140 years would be a larger penetration of this middle market business. I would hope so and it is.

Right. You said and correct me if I'm wrong, but you said there was basically a million companies out there which you-all would kind of consider your market, your addressable market. And you said that two thirds or 650,000 of those companies are in the markets that you're in.

But the other, I'm assuming the other third is, you know, west of Fort Worth I guess. Do you ever see a day that you-all might expand your footprint to be in the markets where the other third of your addressable market is.

Well, that's the rest of Texas. That's a pretty big place. And it would take time, with you for right now we got a lot of work to do where we are. We're where 70% of the population is. We're where the average income is $3,000 to $5,000 greater than the state average. So we like where we are. And obviously we got our work cut out with, you know, the 650,000 in our footprints is plenty of work in my lifetime. And so I think we got all where we are.

Okay. All right, thanks a lot guys.

Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster. At this time, there are no further questions. I will now turn it back over to the presenters for closing remarks.

Well, thank you forever your interest in Cullen/Frost. This completes our call.

This concludes today's conference call. You may now disconnect.