Cullen/Frost Bankers, Inc.

Ladies and gentlemen, thanks for standing by. Our conference will begin momentarily. Once again, thank you for standing by. Our conference will begin momentarily. Thank you. Thank you. Thank you. Thank you. Greetings and welcome to the Colin Frost Bankers first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin.

A.B. Thank you, Daryl. Our conference call today 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 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 at 210-220-5234. At this time, I'll turn the call over to Phil.

Thanks, A.B., and good afternoon, everybody. Thanks for joining us today. I will review the first quarter results for Colin Frost, and our CFO, Jerry Salinas, will provide additional comments, and then we're going to open it up for your questions as normal practice. In the first quarter, Colin Frost earned $97.4 million, or $1.50 per share, compared with earnings of $113.9 million, or $1.77 a share reported in the same quarter last year, and $99.4 million, or $1.54 a share in the fourth quarter of 2021. Our return on average assets and average common equity in the first quarter were 79 basis points, and 9.58% respectively. And I'm happy with these results to start the year, and I'm optimistic about the prospects for our sustainable organic growth strategy as business activity continues to return to normal and we move farther into a rising interest rate environment. Average deposits in the first quarter were $43 billion. That was an increase of more than 21%. compared with $35.4 billion in the first quarter of last year. This is outstanding growth, and Jerry will talk more about this growth in his comments, but I believe at its core, it reflects our commitment to strong value propositions centered around world-class customer service, investments into our business for both physical expansion and employee compensation and account features, and also a commitment to a square deal with our customers, which is the basis of any healthy long-term relationship. Loan growth was also outstanding. Average loans excluding PPP in the first quarter were 16.1 billion, or 8.3% ahead of the same time last year. On a linked quarter basis, we saw average loans excluding PPP increase over the fourth quarter and unannualized 4.5%, helping support our expectations for four-year average loan growth in the highest single digits. I'm very pleased with the success of our commercial lending segment. We booked $1.73 billion in new commitments in the first quarter, up 51% from new loan commitments the first quarter of last year. The gains were strong in all segments, New commitments booked in the first quarter tend to be seasonally lower than the fourth quarter, and that was true this first quarter as well as we saw first quarter commitments down 29% from our record monster fourth quarter level. However, our gross new loan opportunities at the end of the first quarter were up by 29% compared to the fourth quarter, and our weighted pipeline at the end of the first quarter increased by 9% from the fourth quarter. And all this is to say that the outlook for loan growth continues to be good. A few other things I found interesting about our lending activity. In the first quarter, compared to a year ago, we looked at 19% more deals. But we booked 42% more deals. That improvement was driven by the C&I component, which went from a 29% booking rate last year to a 41% in the first quarter, so we're having more success. We're seeing more activity from customers as they begin expanding their businesses, so we, of course, would expect a higher success rate there. Our advance rate on commercial working capital lines increased from 32.5% at year end to 34.8% at the end of the first quarter, still below a more normalized 38 to 40% level. New customer acquisition continues to be key. Our numbers show that 40% of our linked quarter growth and outstanding loan balances came from customers added over the last 12 months. Our expansion efforts are becoming more creative to growth. As an example, our year-over-year loan growth of 8.3% would have been 6.8% without the expansion volume. Our consumer business continues to be strong. In the first quarter, Total consumer checking households grew over 7.2% compared to last year, which aligns with the record growth we saw in 2021. Same store sales for checking accounts increased 17%. Consumer deposits grew nearly a billion dollars in the quarter, giving us a 20% year-over-year increase and loan demand has picked up on the consumer side, helping us grow loan balances by a little over 7% year over year, and helping to set the stage for the launch of our mortgage product later this year. We believe our value proposition is resonating, and we can continue to grow this business, especially in our expansion markets. In Houston, We see the momentum continuing to build as the newly opened branches there mature. At the end of the first quarter, we stood at 110% of our deposit goal, 125% of our new household goal, and 181% of our loan goal. And we've had a very successful start to our Dallas region expansion as well. For the two locations that opened so far this year, along with the Redbird Financial Center that opened in 2021. Our numbers are early, but they do represent 130% of deposit goal, 183% of loan goal, and 245% of our household goal. Despite the macroeconomic challenges, we continue to be optimistic about growth in this economy. The third new location in our 28 branch Dallas expansion project is scheduled to open in the second quarter. Additionally, we will continue to expand in Houston, adding another eight locations over the course of 22 and 23. Credit continues to be good. Total problem loans, which we define as risk rate 10 and higher, total $447 million at the end of the first quarter down from 540 million at the end of the previous quarter. During the first quarter, newly identified outstanding problem loans totaled $14 million. During 2021, the average addition to problem loans was about $54 million. The increase during the first quarter was one of the smallest in several years. The resolution of problems via payoffs Payments and upgrades in the first quarter totaled $104 million. The short story here is that the favorable rate of resolutions continued through the first quarter of 2022. March 31 total for delinquency was the lowest in several years. Once again, we did not report a credit loss expense in the first quarter and our net charge offs for the first quarter were $6.3 million and those compared with $2.8 million in the fourth quarter. Annualized net charge-offs for the first quarter were 16 basis points of average loans and below our typical long-term level. Non-accrual loans were only $49 million at the end of the first quarter, a decrease from $53.7 million at the end of the fourth quarter last year. In the first quarter, we continued making progress toward our goal of a mid-single-digit concentration level in the energy portfolio over time, with energy loans representing 6.27% of loans at the end of the quarter. And over the last 12 months, energy loans are down by 16%. After two years of working with business customers on PPP loans, we are almost across the finish line with forgiveness complete for 97% of our borrowers. Putting in the extra effort to help PPP borrowers wasn't easy, but it was the right thing to do. And the same goes for our decision late last year to raise our minimum pay to $20 an hour. Then in the first quarter, after the Federal Reserve increased interest rates, we made the decision to pass some of that increase along to our depositors. Again, it wasn't easy and it wasn't inexpensive, but it was the right thing to do for our customers. Steps like these show our commitment to our communities and being a force for good in people's everyday lives, and that's reflected in the third-party recognition that Frost receives. We learned in the first quarter that once again, and for the sixth year in a row, we'd received the highest number of Greenwich Excellence and Best Brand Awards of any bank in the nation. The Greenwich Awards are given for providing superior service, advice, and performance to small business and middle market banking clients. Also, earlier this month, we learned that once again, at this time, it was the 13th year in a row, we received the highest ranking in customer satisfaction for J.D. Power U.S. Retail Banking Satisfaction Study for Texas. Over the past few years, we've talked to you about all the steps we've taken to enhance our value proposition and our competitive advantage, things like organic expansion projects, overdraft grace, early payday, the state's biggest ATM network. Keep in mind, this growth has taken place during the pandemic when many of our employees were working remotely and while our financial centers were taking extraordinary measures to keep people safe. I say this a lot, but I can't say it often enough. I'm so proud of our company and of our employees and everything we've accomplished together. Knowing what our team can do is what makes me so optimistic about Frost's success in the future. Now I'll turn the call over to our Chief Financial Officer, Jerry Salinas, for some additional comments.