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Cullen/Frost Bankers Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Frost Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, A.B. Mendez. Senior Vice President and Director of Investor Relations. Thank you. Please go ahead.
Thanks [indiscernible]. This morning's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group Executive Vice President and CFO.
Before I turn the call over to Phil and Jerry, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available on our Website or by calling Investor Relations department at 210-220-5234.
At this time, I'll turn the call over to Phil.
Thanks, A.B. Good morning everyone, and thanks for joining us. Today, I'll review the fourth quarter and full year results for Cullen/Frost, and our CFO, Jerry Salinas, will also provide additional comments and then we are going to open it up for your questions.
In the fourth quarter, Cullen/Frost earned $101.7 million or $1.60 per share compared with earnings of $117.2 million or $1.82 a share reported in the same quarter a year ago.
For the full year Cullen/Frost earned $435.5 million or $6.84 a share compared with earnings of $446.9 million or $6.96 a share reported in 2018.
The lower interest rate environment impacted our results as you would expect. However, our team continues to execute our strategy of pursuing consistent above-average organic growth across our enterprise and we're investing for the long-term while maintaining our quality standards.
Our return on average assets was 1.21% in the fourth quarter compared to 1.48% in the fourth quarter of last year. Average deposits in the fourth quarter of $27.2 billion were up 2.6% compared to the fourth quarter of last year while average loans were up 5.4%.
Our provision for loan losses was $8.4 million in the fourth quarter compared to $8 million in the third quarter of this year and $3.8 million in the fourth quarter of 2018.
Net charge-offs for the fourth quarter were $12.7 million compared with $6.4 million in the third quarter and $9.2 million in the fourth quarter of last year. Fourth quarter annualized net charge-offs were 34 basis points of average loans.
Non-performing assets were $109.5 at the end of the fourth quarter compared with $105 million in the third quarter and $74.9 million in the fourth quarter of last year. Overall delinquencies for accruing loan at the end of the fourth quarter were $58.2 million and that was 39 basis points period in loans. Those numbers remain well within our standards comparable to what we've experienced in the past several years and overall our credit quality remains good.
Total problem loans which we define as risk grade 10 and higher were $511 million at the end of the fourth quarter compared to $487 million in the third quarter of this year, $477 million in the fourth quarter last year. The increase in the fourth quarter related primarily to the energy portfolio.
Energy related problem loans were $132.4 million at the end of the fourth quarter compared to $87.2 million for the third quarter and $115.4 million in the fourth quarter of last year. The energy related problem loan total is mostly attributable to three borrowers with whom we've been working for several quarters.
Energy loans in general represented 11.2% of our portfolio at the end of the fourth quarter up from the previous quarter but well below our peak of more than 16% in 2015. Our focus for commercial loans continues to be on consistent balance growth including both the core component which we define as lending relationships under 10 million in size as well as larger relationships while maintaining our quality standards.
The balance between these relationships went from 52% larger and 48% core at the end of 2018 to 57% larger and 43% core at the end of 2019. The movement towards larger loans in 2019 was mostly due to activity in the fourth quarter where some quality new energy relationships were added after exiting a number of credits during the year.
New relationships increased 4% versus the fourth quarter of a year ago. The dollar amount a new loan commitments booked during the fourth quarter was up sharply increasing 75% from a year ago and 44% from the prior quarter. Even excluding the strong energy growth we saw in the fourth quarter new loan commitments grew 42% versus a year ago and 20% from the prior quarter and represented good increases in both CNI and CRE.
That said quality deals are hard to come by. In 2019 we booked just 3% more loan commitments compared to 2018 despite looking at 16% more deals. In CRE we saw our percentage of deals lost structure increase from 63% in 2018 to 69% in 2019.
Our weighted current active loan pipeline in the fourth quarter was up by about 9% overall compared to the prior quarter and was driven by a 20% growth in CNI opportunities. Of the 10 new financial centers that we've opened so far in the Houston region four were opened in the fourth quarter. We expect to open one more Houston area financial center in the current quarter on our way to a total of 25 new financial centers and we've already hired more than 150 of the approximately 200 employees we expect to staff this expansion. Those new financial center openings benefit both commercial and consumer banking.
Let's look at our consumer business. We added almost 13,000 net new consumer customers in 2019, an increase of 48% from a year ago. That represented a 3.8% increase in the total number of consumer customers all of it representing organic growth.
In the fourth quarter 32% of our account openings came from our online channel which includes our Frost Bank mobile app. This channel continues to grow rapidly. In fact online account openings were 30% higher compared to the fourth quarter 2018.
The consumer loan portfolio averaged $1.7 billion in the fourth quarter increasing by 1.2% compared to the fourth quarter last year.
Cross bankers have done a great job expanding our presence in growing markets. Our overall strategy of sustainable organic growth is serving us well. The interest rate environment continues to present challenges to our industry but we remain focused on the fundamentals and growing our lines of business in line with our quality standards.
2019 had its share of challenges but also had its share of achievements. Besides adding the new financial centers in Houston that I’ve mentioned we also expanded into a completely new market where we opened our first financial center in Victoria Texas and we completed our corporate headquarters move to the new Frost tower in downtown San Antonio in the culmination of a process that began six years ago.
Our commitment to customer service was confirmed when Frost received the highest ranking in customer satisfaction in Texas and JD Powers U.S. Retail Banking Satisfaction study for the tenth consecutive year and received more Greenwich Excellence and Best Brand awards for small business and little market banking at any bank in the nation for the third consecutive year.
That's a tribute the dedication of everyone at Frost who works hard every day to take care of our customers and implement our strategies and that dedication is what sets Frost apart from other financial service companies.
Now I'll turn the call over to our chief financial officer Jerry Salinas for some additional comments.
Thank you Phil. I'll make a few comments about the Texas economy before providing some additional information about our financial performance for the quarter and I'll close with our guidance for full year 2020.
All of the Texas macroeconomic numbers I'll mention here are source from the Dallas office of the Federal Reserve. Texas job growth was a very strong 4% in November and the Dallas Fed now estimates 1.9% Texas job growth for full year 2019. December statewide unemployment of 3.5% uptick slightly from the historically low 3.4% level seen in each of the six months through November.
In terms of employment growth by industry as of November construction had the strongest employment growth in Texas with 11.5% growth for the month and growth of 5% for the year-to-date period through November.
Financial activities was the industry with the second fastest job growth at 3.5% year-to-date through November. Energy was the only sector that showed meaningfully negative Texas job growth down 2.7% year-to-date through November. According to the Dallas Fed surveys activity in the Texas services sector accelerated again in the fourth quarter and revenue growth in this sector has remained in positive territory every month since December of 2009.
Looking at individual market Houston economic growth remains above the historical average and the Dallas Fed stated that as of November data suggests continued moderate growth ahead. Job growth in the Houston region accelerated to a 2.8% rate in the three months through November compared to a more modest 1.6% rate for the full year through November.
Professional and business services and education and health services led Houston job growth over the three months through November growing at 8.2% and 7.7% respectively over the same period a year earlier.
Regarding the DFW Metroplex the Dallas business cycle index maintained by the Dallas Fed expanded at a 5% annual rate in the fourth quarter compared to 4.8% in the third quarter while the Fort Worth business cycle index expanded at a consistent 4.1% rate in the second half of the year.
For the DFW Metroplex November job growth remains strong at a 4.8% annualized rate an area unemployment remained near multi-year lows at 3.2% in Dallas and 3.3% in Fort Worth.
The Austin economy has also remained healthy in November and the Dallas Fed Austin business cycle index has now been an expansion territory from more than 10 years with index growth remaining at or above the region's historical 6% average for the past nine years.
In the three months ending in November Austin area job growth moderated to 2.4%. Austin's unemployment rate remained at 2.7% in November for the fourth consecutive month.
The San Antonio region posted strong economic growth in November. The Dallas Fed San Antonio business cycle index continuing to grow above its long-term average. The San Antonio business cycle index grew at a 5.5% rate in November and San Antonio job growth was 4.7% for the three months through November with area unemployment remaining at 3.1%.
Permian Basin payrolls remained flat through November and the unemployment rate has kicked up in recent months. While the rate count has generally declined in recent months oil production has continued to increase. Permian region job declines in the mining, manufacturing and government sectors were offset by job growth in the leisure and hospitality, professional and business services, information and trade transportation and utilities sectors for the year-to-date period through November resulting in overall flat performance for jobs in the region. Despite the lack of job growth in the Permian region November unemployment remained low at 2.4% for the second consecutive month.
Our net interest margin percentage for the fourth quarter was 3.62% down 14 basis points from the 3.76% reported last quarter. The decrease primarily resulted from lower yields on loans and balances at the Fed as well as an increase in the proportion of balances at the Fed as the percentage of earning assets partially offset by lower funding costs.
The taxable equivalent loan yield for the fourth quarter was 4.88% down 28 basis points from the third quarter impacted by the lower rate environment with September and October Fed rate cuts.
The total investment portfolio averaged $13.6 billion during the fourth quarter up about $197 million from the third quarter average of $13.4 billion. The taxable equivalent yield on the investment portfolio was 3.37% in the fourth quarter down 6 basis points from the third quarter.
Our municipal portfolio averaged about $8.4 billion during the fourth quarter up about $193 million from the third quarter. The municipal portfolio had a taxable equivalent yield for the fourth quarter of 4.8% flat with the previous quarter.
At the end of the fourth quarter about two-thirds of the municipal portfolio was PSF insured. During the fourth quarter approximately $1.4 billion of our treasury securities that were yielding about 1.51% matured. As an insurance against a potential backdrop of flat to down rate for an extended period of time we made the decision to add duration to our investment portfolio.
During the fourth quarter we purchased about $1.5 billion in securities to replace the treasuries that matured. During the quarter we purchased $500 million in 30 year treasuries yielding about 2.27% approximately $700 million in agency mortgage-backed securities yielding about 2.37% and about 300 million in municipal securities with a TE yield of 3.3%.
As a result of the maturities and purchases I just mentioned the duration of the investment portfolio at the end of the quarter was 5.4 years compared to 4.3 years last quarter.
Looking at our funding sources the cost of total deposits for the fourth quarter was 29 basis points down 10 basis points from the third quarter. The combined cost of, the cost of combined fed funds purchased and repurchase agreements which consists primarily of customer repos decreased 32 basis points to 1.21% for the fourth quarter from 1.53% in the previous quarter. Those balances averaged about $1.42 billion during the fourth quarter up about $126 million from the previous quarter.
Moving to non interest expense. Total non-interest expense for the quarter increased approximately $21.1 million or 10.6% compared to the fourth quarter last year. Excluding the impact of the Houston expansion and the operating costs associated with our headquarters move in downtown San Antonio non-interest expense growth would have been approximately 6.3%.
Regarding the outlook for the full year of 2020 the estimates for full year 2020 earnings we currently believe that those estimates for 2020 earnings that facts that mean of $6.13 is reasonable. So again regarding the estimates for full year 2020 earnings we currently believe that the fact that mean of $6.13 is reasonable. Our assumptions do not include any rate cuts in 2020.
With that I'll turn the call back over to Phil for questions.
Thank You Jerry. Now we will open up the call for questions.
[Operator Instructions] Your first question comes from Peter Winter with Wedbush. Your line is open.
Good morning.
Good morning.
I was just wondering can you talk about what the loan outlook is for you guys for 2020? I think before you've targeted high single digits and I'm just wondering what the outlook is going forward.
I think it's fairly consistent with that. It might be depending on your definition of high but certainly over 5% is what we'd shoot for. And I don't think it will be double digits. So that's close I think I get to it.
Okay. And then one of your competitors the other day talked about this increased competition from the non-bank players and it resulted in a very high level of pay downs and payoffs. I'm just wondering what you're seeing on a competition level in your markets?
Yes. Competition continues to be tough and it's mainly around structure but it's, I wouldn't relate it just to non-bank competition. I think I've said before in big bank small banks it has been some non-bank competition as well and I think from people I've talked to in the industry that's sort of a natural thing as people are searching for yield. So it's mainly around no guarantees and advance rates and those type of things. So and as I said we lost more deals to structure on particularly real estate this year than last year were 69% loss due to structure versus 63% a year ago. So it's not a factor it's not the only fact with non-banks.
And then just one more housekeeping Jerry in other income I know it can be volatile but there was a big increase relative to the past two quarters. I'm just wondering there was anything unusual this quarter.
I think we had a stronger capital markets underwriting fee during the quarter those were up 1.6 million compared to the fourth quarter last year and we had about a million dollars on an insurance claim that we got paid on. I think those are the two things that stand out.
Okay. Thanks very much.
Next question comes from Jennifer Demba with SunTrust. Your line is open.
Thank you. Good morning.
Good morning.
My question is on credit. Can you just talk about the level of energy charge off you saw during the fourth quarter and for the entire year in ‘19 and what you think is likely over the next few quarters given problem loans have gone up pretty significantly in that sector?
I think just in general we're coming to the end of -- this process of moving through the [indiscernible] most we've got two large energy credits in non-performers both around say 30 a little over $30 million dollars and they've been working those things we've been working those things out for a while. In one case three years or so and in the other a long period of time. I think we're getting close to the point where a final resolution for those is going to happen.
I don't know when it will be exactly but I think it's sooner rather than later. It could be the first quarter. It could be after that and so my gut tells me that there will be some charge offs related to those a good amount of is reserved already but maybe not all probably not all of it given what's been happening with the discount rates in the energy space has been pretty well known by everybody over the last couple of quarters. So I think we'll see higher energy charge offs but it's really related to the culmination of these deals that have been working for a long time as opposed to anything happened with the new credits because there's been some weakness in the sector. Does that make sense?
Let me just ask a follow-up. So in terms of a new problem loans that came in during fourth quarter what kind of gives you confidence that that kind of credit migration trend is I guess inflecting?
Yes. Well I mean the one that was rated A problem in the fourth quarter, I mean we have talked about it last quarter, it was one that was on watch before and it's and the reason we put it there is because their plan calls for selling assets and we know that's a difficult environment. It's a difficult environment to do that. Now they've got strategic properties and early results on what they saw initially was pretty good. But it's not a great environment to be selling assets. And so we'll just be seeing how that works over time but it's we’ve decided to properly move into a problem but again and like I said early results on that are pretty good right now.
Okay.
Jennifer in the fourth quarter net charge offs on energy were 2.9 million.
Okay. All right. And for the year?
For the year I'm seeing it looks like a little north of 6.
Okay. And just one more question on it, on non-interest expenses. Just wondering Jerry if you think you'll see a similar level of expense growth this year given you're trying to complete the Houston expansion. I guess you've got what 15 more offices.
Right. Well we don't give specific line item guidance but Jennifer where what I would point out point you to is our fourth quarter to fourth quarter as reported growth percentage and expenses and to me that's really representative of our expectations going into 2020. Obviously we as a group are all focused on trying to manage expenses in this environment of trying to grow the business and trying to being faced with some technology debt if you will. It's really important for us to focus on expenses but right now I would take that fourth quarter to fourth quarter growth as kind of in the ballpark of our current expectations.
Okay. Thank you.
Your next question comes from Steven Alexopoulos with JP Morgan. Your line is open.
Hi good morning, everybody.
Very good morning.
Let's just start with the margins. And then, there's obviously done a lot given how much LIBOR and short-term rates moved down in the quarter. How are you thinking at for NIM from here?
As I'm looking out in that fourth quarter, I think we're at a 362 in the fourth quarter. And we're not projecting any rate cuts like I said. So, to me kind of what I'm looking at is we'd be flattish to maybe up just slightly but really flat is what I'm thinking for at 2020 compared to the fourth quarter of '19 percentage wise.
Yes, that's helpful. And then - thank you. On the Houston branches, I know it's early but for the branches you have opened, can you talk about the growth trends you're seeing so far, is it that roughly in line with expectations and then cost for the branches that are coming out where you thought it would be?
I think we're happy with what we've seen versus what we expected, the cost number I think is a little bit less than we had thought it would be just because we were had many of them that were pushed near the end of the year. So, that actually is more of a timing thing.
And we're seeing good growth in households, probably seeing a little bit better growth in households and we expect it, or a bit better loan growth and we expect it a little bit less deposit levels than we had expected.
But I'm not really worried about that as we get these relationships and I think we'll see that be in line with what we were expecting to see. The main thing I'm focused on is what's happening with relationships and those were better than we anticipated.
So, I'm not just curious at all, I've talked them, I'm encouraged by what we're doing and how our people are executing. Another good thing about it is that we hired some great people and we're getting people that are going to buy in direct culture and season bankers, I think the average relationships managers that I recall was around 20 years. So, these are real solid people.
Thank you. And --.
Yes, as Phil mentioned, we had gone to disclose the $0.19 and we did a negative impact on ‘19, it was just a little bit better than what we expected and as he mentioned a lot of that was driven by the timing of the openings and for 2020, we're projecting that expansion.
Yes, it's going to be the worst in the second year obviously and so we're expecting ahead of $0.35 related to the Houston expansion in 2020, we have improvements after that.
Okay, that's very helpful. And then finally, for Phil. So, we saw another MOE earlier this week. Is the MOE that you would consider, I know that the culture is so strong at the company and really differentiates you. How do you think about an MOE for Cullen/Frost? Thanks.
Yes. Well of course, or we'd talk about that kind of thing. But I'll just tell you what I've said. Consistently I'll say it again and that is that you know that the rollups not something that we're interested in that we're executing an organic strategy and then think the risk and the payoff but that is lower.
On the organic strategy, the payoff is better. We're investing with our income statement as opposed with our balance sheet. The best use of an acquisition for a company like ours is really one that's not a role up puts you in a position to do an acquisition -- puts you in a position to do organic growth from that point forward.
And so, as I said before, those things don’t happen very often. They come along and frequently. The last time we did, that was when moved out to the Midland and Odessa market with WNB about six years ago. So, acquisitions is not on our radar screen. What's on our radar screen is how we're growing and the company and growing relationships every day. And that's the thing we're focused on.
Thanks for taking all my questions.
Yes.
[Operator Instructions] Your next question comes from Brady Gailey with KBW. Your line is open.
Hi thanks, good morning guys.
Good morning.
Hi, Brady.
So, the energy loan loss reserve last quarter was about 33.3 million that was up [indiscernible]. And that and really has a problem energy lines flow again in this quarter but did that change much on a length core basis?
We were, yes we moved it up, it's about $37.4 million. Percentage yes, so we were at 33.3% alright and we moved to that up to about 37.4%.
All right, that's helpful. And then, when you take a step back and look at Houston, it was a little under $0.19 dilutive, its $0.35 dilutive to this year 2020. When will that it breakeven and how many years until you will recoup all those losses?
The breakeven as we said before on average for these locations it's been about 27 months.
Right.
27 months. So, anyone can do the math on that, lay that out and sort of see when those tripping points occur. I think one thing to keep in mind is, is this really in 2020 should be the highest hit. So, to the extent that you're seeing a lower burn rate if you will even for the branches that are still maturing.
You can add some momentum from where we would have been say in 2020. So, I see the momentum in terms of its contribution towards earnings increases should begin 2021. That said, they all have to breakeven and get to the point where they grow earnings.
So, that happens in 27 months on average. So, just look at when we're opening them and make your assumption there and see when you think those turn around.
All right. And then lastly --.
Yes, go ahead.
Lastly, from you've hired I think you said you've hired a 150 employees out of the 200 that are plan and the 150 that you've hired, how many of those are commercial lenders, roughly?
Yes. I would say 20 of them or so around numbers.
All right, great. Thanks, guys.
Next question comes from Jon Arfstrom with RBC Capital Markets. Your line is open.
Great, thanks. Good morning.
Hey, Jon.
Good morning, Jon.
Just a couple of follow-ups, one on Brady's question on kind of 2020 versus '21. Do you expect to have all the hiring done and essentially the compensation and some of the facilities expenses in the run rate actually in 2020 expense run rate?
Yes. You're saying do we expect to have most of that in?
Yes.
Yes, okay. Because our current plan is in and one may fall but our current fallout into 2021 but our current plan is to have those all open by the end of this year. And as far as the bankers are concerned, we typically try to hire a lot of the staff there six months before.
And so the locations we are kind of moving along this year with the expectation. I think Phil mentioned that we are projecting one this quarter, I think we're projecting five in the second quarter. So, yes there will be -- you won't be at a 100% run rate but you will you'll get the bulk of it in 2020.
Yes, okay good. That helps. And then Jerry, as long as you're there, last quarter you talked about extending duration a bit, you did so this quarter. Curious if there's more to come for you on in that area and then maybe talk about the impact and how you think about a little wider curve that we're facing right now.
I think there is, we'll continue to have conversations. I think the plan is to continue to add duration. I think I've said we bought 500 million in treasuries, there's we're thinking about potentially if the market makes sense for us, we will do another 500 million there.
My focus really for the year is probably less on municipal securities than it has been historically. We bought, I think I said 700 million in mortgage backs during the quarter and that's probably kind of where we're headed as far as percentage wise. We're probably moving more towards mortgage back right now is the current plan.
And really I think you talked about a flatter yield curve. Really and what we did is was really kind of a proactive move, it kind of an insurance. I mean, we're kind of looking at where our exposure is and our exposure was to flat rates.
And so, from our end it makes sense for us to extend duration through our investment portfolio. If we get the opportunity on the loan portfolio side, we may decide to do something there. But right now yes I think that that's our plan.
Okay. All right, good. Thank you for that. And then Phil, just the commercial pipeline you talked about up 9% sequentially with C&I as the driver. And then really are you talking about larger versus smaller, -- okay, go ahead.
No, go ahead.
Yes. So, you talked about larger versus small. I'm just that that pipeline increase can you talk about is that what you'd characterize that as deep and broad commercial strength or would you say it's energy driven or help us understand that.
Yes. I think it's, I think the increase in energy in the quarter was as much as it was, it's just an anomaly and then we had.
Okay.
Some and the opportunity to put on some really great relationships and we've been moving out of relationships, ones which we didn’t think were right for us or deep enough for us throughout the year. And so, we just had a number of those hit.
I would expect that, I don’t have the energy pipeline percentage of that 20% growth of C&I in front of me. But I don’t expect a change in our focus on core over time and yes you have dislocations like you saw in the fourth quarter in a particular segment. Sometimes it might be commercial real estate in some times.
So, I don’t expect it to be much different. And we were looking again we're not getting out of large deals and we're good and we want to do them, it's really this core thing about balance in the portfolio, it's working on the core and on the large deals.
So, I expect this to continue to be in balance there. We're focused on it, I'll tell you.
Okay, all right. The basic message is its broad it's not just energy in terms of what you were thinking when talking?
Yes. No, where we not, we have changed our focus there.
Yes, okay. All right, thank you.
Yes.
Your next question comes from Rahul Patil with Evercore ISI. Your line is open.
Thanks. I just want to drill down in the expenses a little bit. I know you talked about fourth quarter reported expense growth year-over-year, that was around 10.5%. That is kind of a good run rate going into 2020. And so, you're basically guiding to attempt 11% year-over-year growth in 2020 expenses.
Last quarter you talked about expenses on reported basis, we'll be north of 8% growth. So, what has changed why that incremental growth in 2020?
I said it -- somebody threw out the number 8% and I just said it's going to be north of that. So, we didn’t really give any specific guidance. What I'll say is really our outlook for expenses really hasn’t changed significantly for 2020. The Houston expansion of course has been part of it.
You saw a big increase in our technology expenses between the third quarter and the fourth quarter. We had really been projecting that to happen earlier in 2019. Those projects actually didn’t get closed out until the fourth quarter and so they had a big impact on the fourth quarter.
But now I mean, our outlook for expenses between last quarter and this quarter as it relates to 2020 hasn’t changed significantly.
Okay, that's fair. And then, the other thing is that as you talked about 2020 EPS, you're comfortable with the consensus EPS of 613, consensus right now is not modeling 10% to 11% expense growth, right. Loan growth in that 5% range, that is essentially where everybody is thinking about loan growth for you guys.
NIM outlook appears to be slightly better, last time you said you probably notice a downward trajectory through 2020, now you're saying flattish. I'm just trying to get a sense for where exactly in the consensus number is 613, are you comfortable, what's driving that comfort level right now given that expenses are probably make it higher.
Yes. To be quite honest with you, we don’t spend our time analyzing where consensus is at, we look at the bottom-line number. And that's the number that we're seeing impact setting and based on that number we're comfortable with the overall projection. To be honest with you I've given you a little bit more color than we typically do trying to help there but we don't give specific line item guidance.
Okay. And just one last question how are you guys thinking about day two provisioning under CECIL?
I think that at the end of the day from CECIL standpoint we would expect that the future provisions they're going to continue to be impacted by charge offs, the mix of loan growth of course, the forecasted economic environment and other factors and at this point there's obviously a lot to be determined to what happens by the time that first quarter provision is concerned but we're not too worried about it at this point but a lot of it will be dependent on what the environment looks like at that point.
All right. Thank you.
The next question comes from Matt Olney with Stephens. Your line is open.
Yes. Thanks for taking my question. Just want to follow up on the consumer loan portfolio. I know it's a pretty small part of the overall portfolio but if we go back a few years ago the consumer portfolio had some pretty strong growth and it's since slowed down quite a bit. So can you just talk more about that portfolio? What drove with the growth a few years ago? And what's driven the slowdown more recently and we have seen some higher charge-offs in that book more recently. Anything to note there? Thanks.
Yes. The main component of the portfolio that is slowing in fact is declining some year-over-year it has been in the personal lines of credit, unsecured lines of credit. The losses that you're seeing and they are really related to some loans to some individuals whose companies had some issues and now we've tightened up in that area on PLCs and in the underwriting there. So you've seen that drop and so we don't expect that to be a systemic or recurring issue. We've actually had really good growth as relates to the consumer real estate part of that portfolio which includes home equity loans, home improvement loans, etc. And that continues to grow and we were happy with that. So really what you're seeing it's really an offset on one side of the portfolio being a personal lines of credit and offsetting what is good growth and the consumer real estate and which has extremely great credit metrics and great performance.
Okay. That's all for me. Thank you.
All right. Thank you.
Next question comes from Steven Alexopoulos with JP Morgan. Your line is open.
Hi everyone. I just had two quick follow-ups. The first is on the deposit side. Why do you guys have such strong growth in average deposit? Is any color there?
Well, we really have had good growth in the second quarter excuse me the second part of the year. It's something we've obviously been focused on. Let me go here and just pull it I think that hold on to see specifically what categories are growing here. A linked quarter basis some of it was driven by good increases obviously in the CNI category. So if you're looking you're looking at a linked quarter basis the fourth quarter for us is always stronger. I think the fourth quarter this year was stronger than normal. Like I said some of that started in the third quarter and so it's been on that in the CNI the commercial deposits. I think some of it has to do with rates. Some of it has to do with volatility but I think that we continue to make the calls that we need to make.
We continue to see growth in new customers. We continue to be focused on the things that we need to do to grow the business. We had during the ‘18, starting in ‘18 as rates started to go up over 150 basis points we were starting to have challenges on the commercial DDA. We were seeing some of those balances leave as I think the opportunity costs of keeping balances in DDA accounts got too expensive.
I think we're starting to, we're proactively doing some things to get some of that back on the balance sheet but in addition to that I think just the lower rate environments probably helping us. Like as I said we continue to focus on building those new relationships. We've had great from the time, from the interest-bearing side we've had good growth in the jumbo deposits of jumbo CDs. We've got a pretty competitive rates there and those continue to go up but I've really been impressed also with the growth that we've seen in interest on checking really to be honest with you. So really just we've had some good augmentation from our existing customers but we've also had addition of new customers. So knock on we're pretty excited about the growth that we've seen.
Okay. That's helpful and then separately some of your Texas peers have called out pressure on restaurant franchise loans. You guys have a material exposure to restaurants?
No. I don't think we do. I mean it's not something that is a big component to us and that's not, I've not heard that. The restaurant business is always historically a riskier part but no, it's not really something that's raised to my regard.
Okay. Perfect. Thanks for taking my follow-ups.
Okay.
There are no further questions at this time. I would now turn the call back over to Phil Green for closing remarks.
Okay everyone. Thanks for your participation. We will be adjourned.
This concludes today's conference. You may now disconnect.