Cullen/Frost Bankers, Inc. (CFR) Q2 2008 Earnings Report, Transcript and Summary

Good morning. My name is Morris and I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be question-and-answer session. [Operator Instructions]. Thank you. At this time, I would like to now turn the call over to Mr. Greg Parker, Executive Vice President, Director of Investor Relations. Sir, you may now begin your conference.

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 to Dick and Phil, I need to take a moment to address the Safe Harbor Provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor Provisions, the 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 Relations department at 210-220-5632. At this time I will turn the call over to Dick. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Thank you Greg. I am pleased to report another quarter of solid results for our company. In fact, I would say that our results were remarkably steady when considering the overall economic environment in which we are operating. I would attribute this primarily to two factors. First, our approach to business is one that has succeeded for 140 years in good and bad times. And during those tough times, Frost reputation as a disciplined, reliable financial institution makes us a safe haven for customers and investors seeking shelter in a storm. That's a result of strategic decisions we've made to enter some businesses and to exit others as we saw in the residential mortgage business. And it's always attributable to our employees who are dedicated to providing customers with outstanding service. I'm very proud of their commitment. The second factor in our success this quarter is the Texas economy in which we operate is compared to the conditions nationally doing very well. Texas is not immune to the changes occurring elsewhere in the nation, but we are certainly stronger than most. The Lone Star State might be the lone bright spot in the economy today and we're seeing that in our results. Together, these two factors have allowed us to continue producing quality results consistently and this quarter is no exception. As usual, Phil Green, our CFO will provide depth behind the numbers we are reporting today, but I would like to start with a brief overview and then we will be happy to answer your questions. Results of the second quarter of 2008 were steady. Although we did encounter some pressure from the current environment with net income of $52.5 million for the second quarter of '08 versus $53.6 million reported for the second quarter of '07. On a per share basis, however, earnings remained at $0.89 per diluted common share, the same as reported a year earlier. In brief, the primary reason for the relatively slight decline in income is approximately $700,000 in after tax expense related to the settlement of a lawsuit, which Phil will discuss in a bit more detail. While the markets in Texas continue to be competitive, we saw good increases in business volumes during the second quarter as our average loans increased 9.8% from last year to $8.2 billion and average deposits increased 3.2% to $10.4 billion. Our net interest margin was 4.68% for the second quarter compared to 4.67% for the first quarter and 4.72% for the second quarter a year ago. Net interest income on a taxable equivalent basis rose 2.4% to $136 million compared to $133 million reported for the second quarter '07. Non-interest income $70.6 million, up 10.2% for the second quarter... from the second quarter of last year. As you look at these comparisons, I think you will see like I saw that they are consistent in growth in all the categories. Trust fees increased 7.6% to $19 million largely due to our oil and gas management fees and investment fees. Service charges on deposits were $21.6 million, up 7.4%. Impacting this was a $2 million increase in service charges on commercial accounts resulting from higher treasury management fees due to the drop in earnings credit rate. Insurance commissions and fees were up 7.2% to $7 million compared to a year ago. Other service charges and fees were $9.5 million compared to $7 million for the second quarter '07. Investment fees of $1.4 million were recognized in the second quarter of '08. Other income increased 6.3% to $13.5 million. On the expense side, non-interest expenses for the quarter were up 6.6%. Without the litigation settlement, we would have been up 5.7% versus the second quarter of last year and continue to be well managed with a growing company. Now let's take a look at credit quality. I am pleased that our credit quality continues to be favorable and consistent with prior reporting periods. Charge-offs before recoveries was $6.5 million versus $6.7 million in the first quarter. No single loan or industry represented a significant portion of the charge-off total. Loan delinquencies 30 days or more are down to $68.6 million versus $71.5 million for the first quarter. Similar to the charge-off expense, no one borrower type or industry represents a disproportionate share of the past due total. Non-performing assets did increase to $49.6 million versus $36.6 million in the first quarter, but slightly less than 12 months ago where we sat at $49.7 million. One Loan, an insurance company of approximately $7 million was the primary addition to non-performing assets this quarter. That loan was first identified in 2005 and now has a 50% reserve. Allowance for possible loan losses at the end of the second quarter of '08 stood at $94.5 million or 1.13% of loans and covered non-accruals by 233.5%. I would also note that the provision exceeded net charge-offs by almost $2 million for the quarter. As you know, we exited the mortgage business seven years ago, a decision that continues to benefit us. Given the level of scrutiny that mortgages and homebuilders have been subject to, I would like to take a couple of minutes to discuss our homebuilder portfolio. We continue to reduce our exposure to the homebuilders. In the second quarter, we had loan commitments of $443 million, down from $480 million in the first quarter. Outstandings for the same period were down from $255 million to $252 million and almost a third of these loans outstanding are to individuals constructing their own homes where obviously you have a broad diversification. Frost homebuilder portfolio is only in Texas, no national builders, the average experience of our builders is 20 plus years, our committed dollars are only 10% to starter home market. We are not taking on any new homebuilders and we are supporting our current homebuilder clients who continue to perform and communicate with us on a regular basis. While we're feeling some pressure on the housing front, Texas has been somewhat insulated from the housing crunch felt across the nation, partly because the economy continues to grow here, partly because Texas builders have been through harder times than this and we both know how to adjust. Moving to the consumer banking front. Our consumer banking business remains strong as our business model of relationship banking, extraordinary customer service and fair pricing pays off. We are seeing solid organic customer growth as we see continued improvement in our industry-leading retention rate. Once we get a customer, they don't leave us. We're seeing positive consumer balance growth. Consumer loan growth is good at 12.5% growth rate from the second quarter last year along with good credit quality. Now let's move to the business side of our company and first take a look at loan growth. We are comfortable that our current loan growth is meeting our strategic goals. We continued to execute a disciplined growth strategy. We are quick to determine which business prospects we target and the potential from those prospects. This strategy led us to booking more than $1 billion in new commitments in the quarter. We again had a loss of volumes of $726 million related to pricing and structure for the first half of the year, a 27% increase over last year. However, we held to our standards and we still achieved good growth this quarter. More importantly, we believe the most sophisticated models cannot replace personal experience to form an opinion about character. Let's talk a minute about the deposit growth on the business side. We continue to see substantial opportunity in the current environment based on depositor-only prospects. We need to remember that 75% of businesses do not require consistent borrowings and many have no borrowing needs at all. With loan growth meeting our expectation, our focus will be increasing new business relationships with solid deposit characteristics. We focus on targeting businesses that have similar attributes to the existing Frost customers and which align with our philosophy of high quality service and safe sound assets. This helped our sales associates identify the best prospect clients. As a result, we are more efficient and targeting producing better results faster. A comment about these on the business side, we have observed an opportunity to increase business fees. The current market conditions are providing fee and rate increase possibilities even in this competitive Texas environment. Our management is focused on programs aimed at revenue growth. To close, let me reiterate how pleased I am with this quarter's results. Our approach to doing business, our discipline, our strategic decisions have positioned Cullen/Frost to succeed in difficult economic conditions providing solutions to customers and investors alike searching for a safe haven during tough times. As a result, we are producing steady earnings where others are in trouble. And we are going to keep the pressure on. We recently announced the availability to the general public of a family of mutual funds. In the coming week, we are introducing a first of its kind online account and we believe this will gain great acceptance. At the same time, we are continuing to expand our bricks and mortar as we expect to open five new offices by the end of 2008. We're excited about the opportunities to grow our business. You know, they say, 'you should never dig a well when you are thirsty.' That's why we are ready right now. And now let me turn it over to Phil. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Thanks Dick. I'm just going to make a few additional comments about our operations as you mentioned and provide an update for the rest of the year as far as our outlook, and then open it up for questions. It was a good quarter, but in many ways it was a fairly uneventful quarter for us with the most unusual item being the $1.1 million charge for the settlement of the patent lawsuit that Dick mentioned. We also increased provision slightly to exceed charge-offs and build reserve by about $2 million. Outside of that we saw decent revenue growth and fairly controlled expenses. I feel the 2.5% growth we had in net interest income versus last year was really especially gratifying when you consider that interest rates were down by 325 basis points from a year ago. That $1.2 billion interest rate swap we talked about before really helped us offset the impact of lower rates and allowed us to continue the growth we had in deposits and loans to be reflected in our net interest income growth. And as we said before, the swap really just helps us offset the volatility of our net interest income due to changes in interest rates and instead allows us to build revenue through the deposits and loans of the new relationships that we build everyday. On the net interest margin, excuse me, while down slightly from last year, it actually increased 1 basis point to 4.68% in the second quarter even with a 100 basis point drop in rates that occurred in March and April. During the quarter, I should point out that the swap contributed $7.4 million of positive cash flow to offset rate declines and that was up from $4 million in the first quarter. Our fee income was up by over 10% from the previous year with really no real unusual items in various categories. What might be a little unusual is the fact that we were able to show nice revenue gains in both trust income and insurance commissions with both of those up over 7% in what could be considered tough markets for both those areas. The 7.5% growth in trust fees was aided by oil and gas revenues, securities lending fees, and investment fees. The growth in investment fees was a result of above market performance as well as good account growth. The 7.2% increase in insurance revenue was a result of several factors. As most people know, property and casualty fees have been under pressure. They dropped 7% due to the soft market in this area. However, we offset that decline with a 17% organic increase in our benefits business and the impact of some smaller benefits agency acquisitions which we made during the year which added $1.2 million in revenue. I also want to comment on the small securities loss of approximately $50,000 for the quarter. Because of the strong loan growth that we've been able to achieve, we sold approximately $190 million of mortgage-backed securities choosing to build liquidities to support that growth and we mixed gains and losses to about a breakeven. We could have continued to leverage the investments, however given the environment and our outlook for the yield curve going forward we chose to undertake the sales. Regarding expenses, I feel that the growth of 5.7% adjusted for the lawsuit settlement represents good control of expenses for a company, which continues in the growth mode. A number of the expense categories were impacted by our growth in branches both the three new branches as well as four branch relocations during the year. Our expense growth also included costs associated with significant upgrades of our Customer Service Systems that we've talked about before. Regarding the lawsuit settlement, it involved checked imaging patents and involved over 50 banks across the country, it's been fairly well publicized. We settled our portion and obtained a license for the use of the patents going forward. It resulted in a $1.1 million current quarter charge as well as future payments for the license that we received. However the future payments are not material to the operating trends our company would otherwise experience. Taking a quick look at deposits, they were up by 3.2% versus last year, but growth slowed somewhat in the first quarter with an annualized increase of about 1% due to various factors. Some of this slowdown was seasonal such as demand deposits which had an annualized growth of about 1.5% and public fund transaction accounts which were down at a 25% annualized clip. Another area of decline was in CDs, which although really not a large source of revenue for us saw an annualized decline of around 16% as we saw maturities of some higher-yielding CDs including some promotional rates that we had offered a few months earlier. However, we did see growth in the areas of consumer checking, savings and all money market accounts. And together these grew at an annualized rate at over 7%. I will say that we have seen a continuation of the extremely high penalty rates being paid by larger organizations as they struggle to add liquidity [inaudible] their problems. And while our rates are strong by historical standards, we are in some cases well behind some of these troubled competitors yet. To this point we have continued to see deposit growth as depositors have chosen our value propositions of fair rate combined with security and stability. However, as we said before, we will continue to monitor this situation. In closing regarding our outlook, I also expect continued flat rates through the year-end although rate changes impact is much less than in the past. And given our current outlook for the environment, we continue to see our performance as somewhere more towards the middle section of the range of estimates for our company. With that I'll turn it back over to Dick now for questions. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Thank you, Phil. I will now open the call for any questions anyone should have. Question and Answer

[Operator Instructions]. And your first question will come from the line of Brent Christ.

Good morning. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Good morning.

I apologize if you have covered this before, I had a little trouble getting into the call. But could you talk a little bit more about the drivers behind the strong loan growth this quarter and then maybe touch on kind of where the pipeline stood at the end of the quarter? Richard W. Evans Jr. - Chairman & Chief Executive Officer: The drivers were very across the board. The good news is they were driven by energy, owner occupied real estate, public finance, contractors and medical, which is pretty much the areas that we've continued to focus on in the past. So the... plus consumers, as I mentioned earlier, did have good growth and were continuing to see that have a good broadbased growth. You remember I will remind you in consumer that... remember Texas is kind of the old antiquated state, where you can't own more than 80% over the lanes added together. So we are seeing really some good quality and good growth at the same time. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: And I'll just elaborate a little bit on Dick's comments as far as the categories that you will see in our public filings, of the growth linked-quarter basis of about $340 million. About half of that was in C&I type lending and about half of that was the real estate type lending. Dick has talked about some of the components to C&I. And when you look at real estate, about 60% of that was commercial real estate mortgages, most of which are owner-occupied and then of the remaining 40%, it was... 20% would have been consumer-related real estate like home equity, home equity lines of credit, probably consumer real estate. And then construction would be that other 20%, mainly commercial construction with an increase there. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Your question about pipeline, obviously we had a really strong first quarter and the pipeline is down a little bit going into the third quarter primarily because you've... I don't like to run these cycles, but you have a little bit of cycles when you got real strong and you go into closing lots of loans and you get a little bit behind your pipeline and when I say a little bit it's a little bit less than 10% lower than it was going into the first quarter.

That's helpful. How about from a geographic perspective in terms of the growth? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: It was spread out, really pretty much every area had growth. Some of them had... some of the, I will say, smaller markets over... really small had some fairly high [inaudible] growth because you got smaller basis. I will just run through it, on an annualized basis, our growth in the value was about 2%. San Antonio was 12, Houston was 12%, Fort Worth was 13%, Austin was 20%, our Dallas market had 44% growth and our Corpus Christi market which had some unusual public finance activity was 56%. So we had good growth really in all the markets, it was not concentrated really in any one particular. Richard W. Evans Jr. - Chairman & Chief Executive Officer: I will just remind you, just to fill in on those numbers. If you look at Fort Worth, Houston and San Antonio we're about 80% of the company as they are all running in the... around the 12% growth.

Got you. Okay. And then one other question. I know you guys have as indicated a shared national credit portfolio with thermal energy exposure in there, there was a larger company in Oklahoma to file for bankruptcy yesterday I believe, and just curious if you can comment on, if there was any exposure to that specific credit and if there was... if they would've been reflected in this quarter's results? Richard W. Evans Jr. - Chairman & Chief Executive Officer: No exposure. In fact, Brent, I never have heard of it, which is the good news and I've been scrambling to find out what it was about.

All right. Thanks a lot.

And your next question will come from the line of John Pancari of J.P. Morgan.

Good morning. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Good morning.

Can you give us just your view here on any weakness that you may be seeing evolve in the commercial portfolios as we work through this credit cycle here, obviously you've commented on your... some of the pressure you're seeing in home building and in the real estate side, but in terms of C&I and in terms of commercial real estate, income producing type of property, just want to get an idea of the trends you are seeing there, if you are seeing amounting weakness there that you are worried about? Richard W. Evans Jr. - Chairman & Chief Executive Officer: I really can't find a trend, John. We've looked... the only common thread which goes through good and bad times is really relates to management. And we are having... we don't have a problem here and there in different kinds of industries, but when you get down to it, it's really created by poor management and definitely we've searched as I think all of us are like you, is there a trend, we talked a lot about commercial real estate and others. But it's really... they are up a little bit, the problems as I just said, the non-performers are up. You get a slower economy, you've got to be up a little bit. And even in this great state of Texas, we grew last year very strong at over 3% and I think we will have job growth coming in at about 1.5%. Yeah, I think the other thing that we have to watch for back to your question on problems is that I am one that believes this inflation is pretty serious. And you've got to watch those companies where the cost, the fuel cost, obviously trekking companies are something that... and anybody that's heavy in transportation, we're asking a lot of questions related to those and how they are dealing with it. I've been surprised that this nation has dealt as well as it has with increasing fuel cost. But also in restaurants, food cost is up, really relates a lot to the corn prices being up and [inaudible] long discussion about ethanol. But that has driven cost across the board. So I think what we've got to do, to answer your question, I cannot see a trend outside a home building. And it mainly relates to management and then third, we have got to look carefully at where this inflated cost are affecting companies and watch for that.

Okay. And I'm sorry if you may have already addressed this. But can you talk a little bit about how you may see some opportunities to pick up share here as some of the larger banks are pulling back and licking their wounds a bit and the conduits [inaudible] it seems to me, particularly in the state like you are in with a bank of your size, you are probably one of the better ones to compete and pick up share in this type of situation, we've got the big players hurting a little bit? Richard W. Evans Jr. - Chairman & Chief Executive Officer: Well, John, that's certainly is logical. And one of the things that surprised me is the big players seem to think that Texas is the golden place and everything is perfect here and they haven't pulled back as much as I thought they would although we're starting to see it. We are also starting to see, which I'm pleased about on the deposit side both businesses and individuals start to get some understanding of why they should be in a place that is safe for their money. Obviously FDI see insurance and all that kind of stuff in different ways you can structure, but at the end of the day, when you go out to get on an airplane, if you think it's going to crash, I don't think you ought to get on it. If you see all the crashes that we are seeing in the banking business today, more people are starting to understand that and they want to be at a place they don't have to worry about it and certainly Frost is a safe haven and a good place for those customers. And we are hearing more and more stories of people and particularly businesses that are moving over because they can be comfortable here. And we did have good loan growth, as you saw in the first quarter and that's really a result that stand with our disciplines and continue to build, going after prospects as I mentioned in the call, that have the same attributes that customers currently lack with us and appreciate good safe sound assets, high quality service. So we are seeing more response to that.

Okay. Then a last question here. Do you see any potential opportunities here as we could see some fine [ph] invention of some local Texas players here, smaller ones that is... any opportunities to pick up branches in select markets or anything in terms of acquisition opportunities as these guys are running into trouble? Richard W. Evans Jr. - Chairman & Chief Executive Officer: Well, fortunately, we are in a position that people think of us, we are not going to vary from our value system and our standards and our strategic plans. And that is, number one, stay in Texas, number two to stay in the markets in which we are currently serving, stay with quality. But as the larger organizations sell bricks and mortars that could be attractive to us, certainly we would be understood. And as they spin off different types of their businesses that are in Texas that possibly could be attracted to us. So we are very open to it. We've got a strong capital position, we have a strong liquidity position, and we don't take it for granted. We want to keep this organization and we will keep it going in the right direction of a good solid organization.

Okay. Thank you.

[Operator Instructions] Your next question will come from the line of Andrea Jao of Lehman Brothers.

Good morning, everyone. Richard W. Evans Jr. - Chairman & Chief Executive Officer: Good morning, Andrea.

Well, last quarter you mentioned that the investment banking pipeline was good and so we saw a ramp-up in income this quarter, just wondering do you have any color as you look at the back half of the year for investment banking? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: We still got some good things in the pipeline. It's a small organization, so it's not one that you should expect to see [inaudible] in scale in terms of ramp-up in fees, Andrea. But the topline continues to be good and it's... and we expect to have a good year.

Okay. Then with respect to tax rate, that came down in the second quarter, just wondering what the good run rate would be for the back half of the year? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Andrea, the reason it's been coming down is because of our... the opportunities we've been seeing in municipal investments, tax-free investments. And I'd say... I wouldn’t expect to see a lot of change from it, there may be some, we had a few of these investments opportunistically. But given what we are seeing with loan volumes, I really expect our investment activity to be somewhat less in the second half than the first. And so I think the opportunities for taking that down are probably not as great as they were in the first half.

Okay. Great. Thank you so much. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: You're welcome.

[Operator Instructions] And you do have a follow-up question from the line of Andrea Jao.

Thanks a lot, again sorry about that. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: That's all right.

Do you think provisioning should come back down more to the $4 million area, which is kind of the run rate in 4Q and 1Q versus the elevated $6 million in the second quarter? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: I think one of the things that you got to think about is, we are coming off of times where charge-offs were running 15 basis points and 14 last year and very low rates. We seem to be getting back into... if you look over a longer period of time, more normalized in the kind of where... somewhere in the low 20s, which is still quiet frankly I believe is excellent. I think it's a time that is prudent to keep the loan loss allowance strong, we're at 113, we were 115 last time. We are having good loan growth. So those are... the economy is slowing, those are tough decisions that you got to look for the right answer. But all in all, I feel very good about where our asset quality is and sure it's up a little bit, but that would be expected in a slower economy.

Okay, great. And then I was hoping to get some numbers specifically securities and borrowing, the average numbers? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Average numbers, okay. Just one second. Are you talking about for the quarter compared to the previous quarter?

Yes, please. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Linked-quarter basis? You will see that our securities portfolio averaged $3.380 billion, which is down little bit from the previous quarter of $3.414 billion, our Fed fund sold position averaged $144 million which was down a little bit from $266 million than we averaged the previous quarter. And then you saw in the release, the growth in loans, which was up, went from an average of $7.917 billion and third to $8.187 billion in the first. So you can see that we were sort of taking the securities portfolio somewhat, and certainly the liquidity portfolio somewhat to support the good loan growth as we have been able to achieve in this time.

Great, thank you so much. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Welcome.

And you do have a follow-up question from the line of Brent Christ of Fox-Pitt.

Good morning. Just a couple of quick follow-ups. First on the reserve question Andrea just asked, how are you guys kind of thinking about the reserve coverage given it has come down a little bit over the past couple of quarters, even though you've been providing more than the charge-offs just because of a growth, is there a floor on that you'd now like to see that fall below? Richard W. Evans Jr. - Chairman & Chief Executive Officer: It's not mathematical from our thinking, it's really looking at what's happening with the economy and the loan growth and a lot of factors considering. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: I think as we said before, at this point, classifieds grow more than we anticipate, we will provide more than we anticipate, because it's pretty responsive to it. And I think... other things equal, we tend to air towards maintenance for building, but that's going to depend on what loan growth does and then what we see in classifieds. As we said before, new loans don't really... and the formula approach is that we use today new loans don't really have a big bearing on your reserve levels that's not like they used to. They used to say, well, let's keep a 1% reserve all the time and loans grow, we will keep 1% in reserve really is there more to go against risk that have been identified, specifically classifications as I say and so I think that's the thing you'd see it the most responsive to. Having said that we are cognizant that we are compared to number of others and we have lot of different audiences that look at that number, as far as just the overall reserve level. But I tend to think that the formula tends to work all that out over the long run. I don't really see us getting into a position where we're some kind of gross [ph] anomaly in terms of our reserve coverage versus the market.

Okay. So is there any real build in that ratio that would have to be driven by some adverse risk rating migration within the loan portfolio, right, okay. And then just a question on the margin, now as I said seemingly, on hold here, how are you guys kind of thinking about the margin kind of over the near to intermediate term? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: I think that we are expecting it to be fairly consistent honestly and as I say the swap really gets in place models out to where we don't really have an much of an impact of higher rates and got small impact of lower rates just because of negative complexities of the investment portfolio. What we've seen in the past is that if loan levels grow, these are the other assets and the balance sheet of other earning assets since they typically have a higher yield, you will see a margin increase because of loan growth. I will tell that because we did sell some fairly good-yielding securities as I mentioned earlier to support some of the loan growth we've had. Anytime you get in a position where you are selling securities to fund those loans, it doesn't really afford you ... because those securities yields are so good, it doesn't really allow you the opportunity to build margin through growing loans, because the yields are pretty comparable. But I'd say that if the deposit growth continues and picks up and we put it in loans, we will see a little bit of an increase in loan deposit ratio. We could see a pick up in margin related to that. But... my outlook is that it's fairly consistent to meet my expectation over the next 6 months.

Got you. And then my last question is just on those securities that you sold, did you say it was a 109 million? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: 190.

190. And what was the yield on it? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: It was about 560.

560. And was that early in the quarter or at the end? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: It was right at the end of the quarter.

Are there other securities that you've kind of contemplating potentially selling some more over the next quarter or two to fund some of the loan growth? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: No.

Great. Thanks a lot guys.

And there are no further questions at this time. Do you have any closing remarks? Richard W. Evans Jr. - Chairman & Chief Executive Officer: We appreciate the interest in Cullen/Frost and this concludes our call. Thank you very much.

And this does conclude today's conference call. You may now disconnect.