Cullen/Frost Bankers Inc (CFR) 2016 Q1 法說會逐字稿

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers' first-quarter earnings call.

(Operator Instructions)

Thank you. Mr. Greg Parker, Executive Vice President and Director of Investor Relations, you may begin your conference.

Thank you, Rob. 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 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 the Investor Relation's department at 210-220-5632.

At this time, I will turn the call over to Phil.

Thank you, Greg. Good morning and thanks for joining us. Today I will review first-quarter 2016 results for Cullen/Frost. Our Chief Financial Officer, Jerry Salinas, will provide additional comments about our performance and our outlook, before we open it up for questions.

Our first-quarter earnings of $1.07 a share were down slightly from $1.10 last year, but were up sharply from the $0.90 reported the previous quarter. Several factors significantly affected the quarter.

Regulators unveiled a new bright-line leverage test and a shared national credit exam for E&P companies The test is based on the ratio of total-company debt to all types of cash flow or debt of all types to cash flow and to EBITDA, and very significantly impacted their review of credits. It was also a big change from the guidance which they'd given in previous years regarding collateral coverage. We recognized additional provisions for the quarter under this new criteria.

We also applied this new, more stringent criteria of debt to EBITDA to our non-shared national credit energy portfolio, resulting in higher classifications and provisions. We also changed our underwriting criteria to recognize the new guidance for new deals.

As oil prices dropped sharply during the quarter to the mid 20s, we booked additional provisions to set aside specific reserves for some affected credits. At the same time, we reduced our exposure to energy in our municipal portfolio by selling $444 million in non-insured bonds from energy-intensive economies and replacing them with PSF-insured securities. The sale of these municipal securities resulted in a gain of $12 million, while improving the overall quality of the portfolio.

Energy seems to overshadow all our discussions these days, and I will discuss our energy-related business in more detail in a few moments. But I'd like to mention how well we are doing in our underlying business.

Excluding the energy, average loans were up 6% from the previous year. In a challenging environment, we posted first-quarter ROA of just under 1% at 0.96%, and our total return on tangible common equity was 12.49%. We saw our pre-provision tax-equivalent net revenue increased 2.4% from a year ago, net of securities gains, and we generated positive operating leverage.

Looking at loans and deposits, new commercial loan opportunities were up 8% compared with the first quarter last year, so we are seeing activity. On the consumer banking side, we saw a total consumer loans grow 5% compared to the same quarter last year, and consumer-deposit balances were up almost 2%.

New loan commitments were up 7% compared to the first quarter of last year and represented the highest first quarter ever for us. As has been the case, runoff is higher than historical levels and continues to put pressure on outstandings, and it continues to be competitive. Last year a little over half the deals we lost were from structure; today it is running more like two-thirds.

Regarding credit quality, overall credit quality is acceptable. Delinquencies continue to be below 1% at 60 basis points. Non-performing assets were $180 million in the first quarter of 2016, compared to $85.7 million last quarter, and $59.6 million in the first quarter of 2015. The increase was primarily related to three energy credits, two of which were previously listed as potential problem loans and another which was impacted by the sharp first-quarter drop in prices and the inability to refinance a maturity tranche in their debt structure, where appropriate specific loss allocations have been assigned to these borrowers.

At the end of the first quarter, problem loans, which we define as risk-rate 10 and higher, aggregated to be $960 million, or 8.3% of total loans. Of that, energy-related problem loans represented $594 million. It's important to note the energy problem loan totals include the result of, one, the recently completed shared national credit examination, and two, an evaluation of our non-shared national credit borrowers utilizing the recently published regulatory guidance using debt to EBITDA.

In total, the $594 million represents 36% of our energy portfolio. $114 million is on non-accrual. Our shared national credit energy loans totaled $496 million, or approximately 30% of our outstanding energy dollars. Of this, $225 million are noted as problem credits.

We are continuously reviewing, discussing, analyzing, and shocking individual borrowers. And for this reason, we feel that when completed, the spring redetermination will not have a major impact on the problem energy loan totals. Additionally, as a result of our ongoing efforts to understand and address the risk in the energy portfolio, we have set aside allowance reserves of $85 million, representing 5.13% of total outstanding energy loans. The net increase in problem energy-related loans accounted for nearly 90% of the quarterly increase in problem loans. Also, there is currently little, if any, contagion exhibited in our non-energy portfolio.

Our energy loan segments in the first-quarter 2016 were as follows.

Production loans totaled $1.180 billion, or 71% of our energy loans. We recognized $478 million, or 40.6% of our production loans as a problem. Again, problem defined as risk-rate 10 or higher.

Service totaled $251 million, or 15%, of our portfolio. We recognized $82 million, or 33% of these loans as a problem. The remaining 14% of the portfolio consists primarily of: transportation, $91 million; manufacturing, $57 million; and private client, $51 million. We recognized $34 million, or about 15% of these loans as problem loans.

I am very proud of how our energy group is performing, and their hard work staying close to and working with our customers. This is a cyclical business, and we are addressing and working through it in a proper way, drawing on the 400-plus-year experience of our energy team. The energy business is important to the country, it's important to Texas, and we will continue to be a part of it for the long term.

We also know that how you underwrite and choose customers before a slowdown is the most important part of getting through it. Have we done everything perfectly? Of course not, we never do. Have we made some mistakes? Yes we have. But I believe looking back on this time and the way we handled it will make our shareholders and future Frost bankers proud.

But that shouldn't define us. It shouldn't define us, because there are thousands of Frost bankers working just as hard to create better customer experiences, better products and services, better technology, grow customer relationships, and deliver on our unique value proposition and culture, which at Frost, is the thing that makes the magic happen.

Finally, let's remember the unique set of advantages this Company has and why I'm so optimistic for our future. First, we are in growth markets in 3 of the top 10 largest US cities in an economically diversified state. That state projects to grow population roughly twice the US rate over the next five years. Yes, we are only in Texas, but that's like saying we are only in Canada or Australia, when you look at the relative size of our economies.

Second, we have got tremendous untapped operating leverage. Take for example our loan-to-deposit ratio of only 48%, down from 80% in 2008. And we will prudently extend this over time. We are also solidly asset-sensitive and will take great advantage of this as rates rise. Just look at the impact of the recent 25 basis point increase in December.

That said, we haven't just sat on hands waiting for higher rates. But with this down-cycle, we have crafted one of the finest bond portfolios anywhere. And our relational model provides us with one of the lowest cost-funding bases in the country, which allows us to compete effectively with anyone, regardless of size.

We also have an award-winning value proposition based on our strong culture that provides everyone is significant. We give a square deal that provides excellence at a fair price, and we are a safe, sound place to do business. It resonates with the market and is responsible for our string of third-party recognition like: JD Power awards; Consumer Reports' award for the Top US Regional Bank; the highest rated bank app in the Apple Store, which we developed; and 29 Greenwich Excellence Awards for Commercial Banking, just to name a few.

We've already made some significant investments we can leverage for the future, including: a highly recognizable Texas brand, our own development over the last 15 years of web and mobile banking application technology; a 20-year deployment of organization-wide data warehouse technology; a new facility for operations and support that houses over one-quarter of our staff and provides a competitive workplace experience that facilitates collaboration and agile workplace methodologies; a 24-hour telephone customer service; and the second-largest free ATM network in Texas, just to name a few.

In closing, I want to thank our exceptional staff for the hard work and dedication they bring every day, but above all, for their passion in delivering great customer experiences that really do make people's lives better.

I'll now turn the call over to Jerry Salinas, our Chief Financial Officer, for additional comments.

Thank you, Phil. I'm going to give some information on the Texas economy, then I'll give some additional color on our financial performance before closing with an update on 2016 guidance. I'll then turn the call back over to Phil for questions.

Looking at the Texas economy, the Dallas Fed is projecting 1% increase in job growth in 2016, up slightly from their previous projection of 0.7%. The Texas unemployment rate stayed steady at 4.3%. That level continues to be lower than the US unemployment rate, which ticked up to 5%.

Looking at industry sectors, 8 of the state's 11 industry sectors grew during the first quarter. Leisure and hospitality was up 5.5%. Education and health services was up 4.1%. Trade, transportation, and utilities climbed 2.5%. The three declining sectors that you might expect, were: oil and gas extraction, down 24.6%; construction, down 5.2%; and manufacturing, down 2.6%. As a side note, oil and gas extraction accounts for less than 2% of Texas jobs.

Looking at some of our markets, Dallas-Fort Worth has corporate relocations and expansions, including Toyota, State Farm, FedEx, Liberty Mutual, Amazon, etc., that are adding tens of thousands of jobs to the Metroplex economy. Austin also remains hot, with an employment rate of 3.1%. Despite the ongoing downturn in energy, Houston's economy is performing better than originally projected.

Health, leisure and hospitality, and retail are helping to soften the impact of lower oil prices on the local economy. And according to the Dallas Fed, the San Antonio region expanded faster in the first quarter than any other major Texas Metro area, adding jobs near last year's pace of 3.2%, and that growth was broad-based.

Looking at our financial performance, our net interest margin for the quarter was 3.58%, up 15 basis points on a link quarter from the 3.43% reported last quarter. About 8 basis points of the increase was related to higher rates earned on loans and balances at the Fed.

The loan yield for the quarter was 3.99%, up 14 basis points from the fourth quarter. The other 7 basis point improvement in our net interest margin percentage related to an improvement in our earning asset mix, as earning assets contracted due to normal seasonal first-quarter deposit outflows, which reduced our balances at the Fed.

In his comments, Phil mentioned a gain on the sale of municipal securities during the quarter. In addition, I wanted to mention that early in the first quarter, we were opportunistic, and took advantage of some disruption in the market and sold $750 million of five-year Treasury securities, yielding 1.1% that were set to mature later in 2016. We recognized a pre-tax gain of about $2.8 million on that sale. During the first quarter, we replaced about $500 million of those securities with the purchase of four-year Treasury securities at 1.38%.

Our municipal portfolio at the end of the first quarter was $6.33 billion, down from $6.53 billion at the end of December. This decrease in municipal securities was impacted by the sale of securities that Phil mentioned. Also, as a result of the sale, at the end of the first quarter, 68% of the municipal portfolio was pre-refunded, or PSF insured, up from about 62% at the end of December.

During the first quarter, the total investment portfolio averaged $11.54 billion, down about $259 million from the fourth-quarter average of $11.8 billion. The yield on the investment portfolio was 4.06% for the quarter, up 7 basis points from the 3.99% in the fourth quarter, and was impacted by a higher proportion of higher yielding municipal securities in the first quarter as compared to the fourth quarter. The duration of the investment portfolio at the end of the first quarter was 4.6 years, down slightly from 4.7 years at March 31 last year, and up from the 4.3 years last quarter.

Our capital levels remain strong, with our common equity tier-one ratio at 11.82% at the end of March. I want to point out that all Basel III capital ratios increased when compared to the link quarter and the same quarter a year ago. All exceed the fully phased-in 2019 requirements. Regarding consensus estimates, including our first-quarter as-reported EPS of $1.07, we believe that the current mean of analysts' estimates of $4.36 is a little low.

With that, I will turn the call back over to Phil for questions.

Thank you Jerry. We'll now open up the call for questions.

(Operator Instructions)

Brady Gailey from KBW.

Hey, good morning, guys.

Good morning, Brady.

So sorry if I missed it, but where did total energy balances end on a period-end basis in 1Q?

$1.656 billion.

Okay. And then you said you had roughly a 5.1% reserve against that, so $85 million. So if you look at the reserve outside of energy, so to strip out the $85 million and strip out the energy loans, the non-energy reserve, by my math, continues to trend down here. This quarter it looks like it finished around 78 basis points. Do think that that reserve will need to trend higher just as we continue to exist through this downturn in Texas?

Not necessarily. We are not seeing much, if any contagion, in the portfolio right now, and so I would not expect that to happen from a contagion basis. As far as the reserve itself, any and all of the reserve stands ready to be against all loans, even though we have specifically noted the $85 million related to energy. And if you look at the performance of the portfolio and how it's doing with regard to classified levels, et cetera, it's extremely strong. So we feel good about the reserve as it stands today.

Okay. And then you also have some nice margin expansion in Q1. How do think the margin trends from here on out? Do you expect that loan yields will continue to tick up and that the margin could potentially see some more growth as we get into the rest of 2016?

What I'd say, Brady, is that certainly we don't give a lot of specific guidance, but what I would say is certainly that net interest margin percentage is going to be dependent on what happens in deposit flows, for example. That will result in how much balances we keep at the Fed.

I'll say from a loan pricing standpoint, that's still competitive. The prime increase went in at the end of December, so the full impact was in the quarter. So I wouldn't necessarily see a lot of potential for increases in the net interest margin percentage. I would tend to say that it would probably stay where it's at or trend a little bit lower.

Okay, and then lastly for me on deposit cost, are you feeling any pressure to pass along any of the 25 basis point bump we got?

No we are not. We have not seen any movement on the, particularly the major players in the market, as a result of that change. And we are not seeing any pressure on moving that up at this time.

Great, thank you guys.

You are welcome.

Steven Alexopoulos from JPMorgan.

Hey, good morning, everybody.

Good morning, Steven.

Wanted to start, I think you guys said that the grade 10 balances are $ 225 million, was that correct?

Are you talking about for energy?

Yes, the special mention.

Grade 10 in total would be $276 million, or say $277 million.

Okay, and then what were the classified balances in the quarter, again, in energy?

Energy classifieds, well, you'd have to add grades 11 and 12, have to do a little math here for second. Say $28 million -- say you're just under $290 million.

$290 million, okay, that's helpful. Could you talk about where are the energy commitments? What was the balance there, and can you talk about the drawdowns that you might have seen in the quarter?

Where are the commitments? Let's see, we are about 54% committed, if I recall, in terms of the E&P portfolio.

The unfunded commitments were about $1.3 billion at the end of the quarter.

Great, thank you. Okay, that is helpful. And then on the nonperforming asset increase around $94 million. How much of that was related to shared national credits? And I don't know if you commented what percent of th SNC exam results were included in the first quarter.

All the SNC exam results were included in the first quarter.

Okay.

There were, of the three credits we are talking about, there were two of those were shared national credits; one was not shared.

Got you, great. And then just one final one. You guys said you had sold securities in energy-intensive industries. Could you share what's the balance remaining that are still in the energy-intensive industries?

There aren't any.

So you sold it all?

None that are not insured.

Okay, got you. Okay. Thanks for all the questions.

You're welcome.

Steve Moss from Evercore.

Good morning.

Good morning.

With regard to -- touching back on energy here, just wondering if you'd give a little more color around the nonperforming loans, what type of loans they are and what the workout you expect for those loans?

Well, they are E&P loans, all three of them. They are working through the issues right now, as you'd expect. They, I would say, in general, have good property sets, but they have high debt.

I know in one case, it's really got good operating cost. It's in a great property set. It had a situation where it had a tranche that was maturing of debt; they couldn't get it worked out. It was right at the low point of commodity prices in the first quarter. Also it had impacted their -- when prices went down that low, that was when the redetermination was done. So a lot of factors came to bear at one time and impacted them, so that will be worked out over time. There are options for that as far as they are proposing a workout. We're also looking at secondary markets as an option for that borrower.

Others were situations where there were equity kicked in and there was time extended and forbearance that was given by us. They are working through their problems, and should be covered for the next couple years. I would say in general, the thing is if you've got high leverage and high operating cost, those would be a characteristic of the ones we saw in the first quarter that went non-performing.

Okay, sorry, I meant to ask, what basins are they in?

One second, I'll pull that up. Mainly Permian, maybe a Marcellus one in there as well.

Could you disclose what the specific reserves are to the energy NPLs?

Hang on just one second. I'm just going to try to give you a little more visibility. On the reserve related to the energy non-performers would be about -- a little over $28 million.

Okay. And then you mentioned a change in underwriting standards for energy. Just wondering how much tighter are the new guidelines relative to your old underwriting practices and how you think about the business going forward with regard to the new standards?

I think the thing to say is they are different. It's one aspect of it; we are still underwriting with the old criteria with regard to property values, borrowing bases, percentages of that, et cetera. It introduces another factor when you are dealing with cash flow, with its 4 times debt to EBITDA.

And so you will run your analyses and you will look and see what the cash flow of the deal is as it goes forward. And I think that will have the effect, not just with us but the industry, of reducing liquidity somewhat in the industry. But you've got to remember, we consider character and experience first in terms of our underwriting. But that's the arithmetic of the impact on the cash flow.

Got it. And one last question, if I could. Turning to the securities book, given there are just a lot of moving parts, wondering what the yield was at quarter end.

You are talking about, excuse me, for the fourth quarter or you are talking about in the month of December?

Month of March, I'm sorry.

Month of March, hold on a second. Let me get that for you. Looks like we were at a 406.

Thank you very much.

Stephen, are you still there?

Yes.

Just one clarification on the specific reserves. They were, for energy, were 27,450.

Okay, thanks.

Sure.

Emlen Harmon from Jefferies.

Hey, good morning, guys.

Good morning.

Jerry, a quick question on the NIM. Would expect the margin to react similarly to any additional action that we get from the Fed? I did notice the non-interest-bearing deposits were down quarter over quarter. I know that there can be a seasonal effect there. Would just be curious your perspective on how much of that was seasonal versus rate-seeking behavior on the part of depositors.

At this point, we haven't heard anything that would to lead us to believe that there is a lot of rate searching going on. I think that from our standpoint, what we are seeing from a fourth quarter to first quarter, it looked almost all seasonal to us.

As far as future rate increases, obviously a lot of it will be dependent on what happens with deposit pricing. We've said we are competitive with the market, so a lot of it will depend on what happens in the market on deposits.

Got you. Thanks. And then just on the EPS expectation for the year, what are you assuming for rates within that?

We are not. We are assuming one rate increase late in the year in December. It is not having a big impact on our [EPS].

Thanks a lot, thanks for taking questions.

Sure.

Brett Rabatin from Piper Jaffray.

Hi guys, good morning. Wanted to -- I don't know if you guys have it handy, but the gross income on (technical difficulty), interest income, and interest expense, would you happen to have the handy?

Would you repeat that one time, Brett?

The net interest income, the components of that, interest income and interest expense.

Are you looking for TE or non-TE?

Actually both, if you have it.

I'm sure. TE net interest income for the quarter was $232 million.

Okay. I'll go back into --

And non-TE was right at $189.7 million.

Okay. And then I joined a few minutes late, but I did hear you talk about new loan activity being up 8% year over year and commitments being up 7%. And I know payoffs are hard to gauge, but how do we think about the loan growth expectations for the year? You guys grew about 4.5% last year. Can you have a little bit of loan growth for the next few quarters?

I think you're going to have energy continue to decline given the environment, so we will have that factor. But our expectation is that we'll continue to see loan growth, because people are working hard, making lots of calls, and any time you see the pipeline increase like that, we will expect to be successful moving forward. So we will expect to continue to post loan growth through the rest of this year.

Okay. And then the other thing was just seasonal expense and personnel in the first quarter. Would it be fair to assume 2Q you have a [2 million] or so decline in personnel?

Some of that, of course, is going to be related to incentive compensation, but all things being equal, yes, you may see a -- hold on here just a second. I would think that what I'm looking at is I wouldn't expect that there would be a material difference between the first and the second quarter.

Okay. Great, thanks for the color.

John Moran for Macquarie Research.

Good morning.

Good morning.

Just curious, I know you mentioned in the prepared remarks that the spring redetermination is not expected have any material impact going forward. I'm wondering, and I know it's early on, but at this point, how much of it are you through and what do the declines look like in terms of commitments based on what you are seeing so far?

I'd say we are probably 90% through the public ones. And probably overall, we're, say over 60% through overall. I'd say the declines are 20% to 25% from the previous determinations. But we have -- you've got a couple things going on. We've got the new standard that we applied with regard to debt to EBITDA, picked up companies, and then also we've been evaluating, shocking, and analyzing our portfolio and our borrowers as we've gone along. So we don't wait until the redetermination happens to adjust things.

Got you. The other one I had -- actually two others. Real quick one, housekeeping one on the loan yields up 14 basis points, that was pretty clean, there was no noise in that number?

No. Pretty clean.

Okay. And then, I think, and I apologize if I missed this when I jumped on just a touch late, but last quarter you guys gave us a pretty good update on Houston commercial real estate exposures in multifam. I was wondering if that was provided.

Actually, we didn't, but I can address that now. First of all, outstandings in Houston real estate, commercial real estate are about $760 million. We were down about $120 million, as I recall, from the previous quarter, which was some payoffs we had and people moving into permanent financing. So we were disappointed to see that.

But I'd say in commitments overall, we have roughly $1 billion in commercial real estate commitments in Houston. The areas that people are most interested in, if we looked at some of those office buildings, if you look at commitments, about say $1 billion, we have $188 million in commitments on office buildings. We've got basically an average note size of $2.1 million. We have three loans over $10 million, none of those are related to energy.

We have two borrowers who we define as problem credits, which are, again, risk rate 10 or higher. That's another parlance of that, is special mention or higher. Two problems here: a total debt for both of those of $1.5 million. Both of those were classified before the energy declines happened, so we don't have any office buildings that are a result of lower energy prices.

As far as multifamily, we basically got 12 projects there. Our largest is a $32 million project, but it is in Austin, Texas. It is student housing it is not related to Houston. We've got some -- if you look at the strictly Houston-related projects, of the $101 million in commitments for multifamily, we basically only got $50 million that are extended to typical apartment projects in the Houston area. We have only one problem loan there. It is for $600,000. Our largest project there is a $28 million project that is doing very well; it is in the Katy area, if you are familiar with Houston.

If you looked at office warehouse, we have $237 million committed there. We have no loans over $10 million in that area. Only one of them of any size has ties to energy, and that is primarily downstream in the chemical sector. If you look at loans that are over $5 million, our total exposure is only $24 million in commitment. So there is lots of granularity. As far as ones that would be noted as problems, there are only 13 of them of 156 notes that we've got there. So 13 of them that the aggregate there is $17 million. The largest of that being $3.5 million, and of those, 8 are in the energy area with a committed debt of say, $14.6 million.

So if you look overall at Houston, $1 billion in commitments, $24 million total noted as being problems. Of that $24 million, $14.6 million can be tied to energy. So I think our people have done a fantastic job underwriting in Houston. We had issues back in the 1980s with Houston real estate, as a lot of other people did. We've got people with great experience underwriting net market. It's again, it's not what you do today in markets, it's what you've done going into down cycles that really makes a difference, and we have done a great job.

And another thing I'll say is that the Houston market really is, I think overall, still strong in real estate. You've got issues in the office tower. You've got subleases that are increasing. Yes, there's some slowing in multifamily. Retail is extremely strong, still trying to catch up, single-family is doing well.

So just a few other things I will mention. Say retail strip centers in the market, we've got $221 million committed dollars, no classifications in that area. Medical, we've got just under $100 million. We've got one classification for $2.3 million. So take C-stores for example, only had $57 million in C stores in Houston area, just, one classification, and that's $300,000. I think you can see that the portfolio is doing very well and our people have done a great job.

Got it. Thanks very much. That is terrific detail. Thank you.

You're welcome.

(Operator Instructions)

Peter Winter from Sterne Agee.

Thanks, good morning. I'm just curious, now that you've -- Chairman and CEO with Dick retiring and you've had a couple of months, do you see any changes to the business strategy or some things that you'd do differently than the way the Company was run?

First of all, what we are going to do is we're going to stay true to the culture that we've had for 150 years. That's that way Dick ran it, that's the way Tom Frost ran it before him and others before him, and that's what we're going to continue to do. And that mission is 21 words: we will grow and prosper building long-term relationships based on top-quality service, high ethical standards, and safe, sound assets. So we're going to keep the ball squarely in the middle of that fairway.

I will tell you, Peter, the thing that we are going to do is we'll continue to grow the business. And I think Dick did a great job with that; we're going to continue to do it. I'll be honest, we spent a lot of time talking about energy and dealing with energy, but again, as I said earlier, I really don't think it ought to define us because of what we are doing and the success we're having in other areas and just growing the business.

I, frankly, don't wake up in the morning thinking the first thing about the business being energy. We are doing a great job there, we've got great people, we are working our plan through the cyclical business here. The first thing I think about is how we create even better customer experiences. I know we are world-class at it today, and you can see it through the third-party recognition that we've got, but we need to be better and we are going to be better. And I think about how can we get more people who are non-customers in the state of Texas to consider Frost as a viable alternative to the too big to fail, frankly? And they should, be because we are.

And we will provide a better experience for them. And as we crack the code on becoming a more and more viable candidate, and given the response of the market to our value proposition and our retention rates, I'm extremely optimistic about what this Company can do going forward.

Great. And then just one housekeeping, on the tax rate. It was a little but lower than what we've seen the last couple of quarters. I'm just wondering what type of tax rate we should think about going forward.

The tax rate that we had for the first quarter would be our best estimate at this time. I think we were like at 12.06%; based on our current assumptions, that's a good effective tax rate to use.

Okay, thank you.

There no further questions at this time. I will turn call back to Mr. Green for closing remarks.

I want to thank you very much for participating in the call today. That will end our call. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.