Apr 23, 2008
Executives
Greg Parker - EVP and Director of IR Richard W. Evans, Jr.
- Chairman and CEO Phillip D. Green - Group EVP and CFO
Analysts
Brent Christ - Fox-Pitt Kelton John Pancari - JPMorgan Andrea Jao - Lehman Brothers Justin Maurer - Lord, Abbett & Co. Jennifer Demba - Robinson Humphrey Jon Arfstrom - RBC Capital Markets
Operator
Good afternoon. My name is Jonathan, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Cullen/Frost Bank First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].
Thank you. Mr.
Parker, you may begin your conference.
Greg Parker - Executive Vice President and Director of Investor Relations
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 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 Relations Department at 210-220-5632. At this time, I'll turn the call over to Dick Evans.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Thank you, Greg. Cullen/Frost's net income was $52.8 million, up 11.6% for the first quarter of 2008 or $0.89 per diluted common share or a 14.1% increase compared to the first quarter of 2007.
Return on assets 1.59%. Return on equity 13.89%.
I am pleased to report another quarter of strong results for our company. For the first quarter, we saw good increases in fee income from trust, insurance operation, and growth in business volumes as both loans and deposits were up over the first quarter of 2007.
Credit quality continues to be manageable and capital levels are favorable in comparison to our peers. While competition in the Texas markets we serve continue to be brisk, this is a great state and an exceptional place for business.
The strong job growth is the foundation for Texas good economy with over 30% of all private sector jobs created in America last year were created in the great state of Texas. We are committed to staying close to our customers and providing them with the very best service and products.
As always, I am deeply grateful to our outstanding people who bring the Frost brand to life every day while taking care of our customers. As the U.S.
economy undergoes contraction and Texas performs better, Cullen/Frost is well positioned. Capital ratios are all well above minimum requirements, and our liquidity position gives us the ability to meet current obligations and future opportunities as they occur.
In the financial crisis, having exited the residential mortgage business and indirect auto lending business over five years ago and credit cards prior to that, we avoided the areas creating much of the current problems. Our relationship customer focused and staying true to the principles of human judgment and remembering the experiences of the '80s as our executive team remains the same as it was in the '80s.
We do not depend on risk models alone, while today have proven once again to fail the financial system. As stated earlier, our business volumes are growing.
Average deposits are up 1.4% to $10.4 billion versus first quarter of last year. Average loans are up 6.9%, or $513 million to $7.9 billion versus last year and $357 million of that increase was from the fourth quarter to the first quarter.
Net interest income increased 2.8% to $135 million. While the Federal Reserve has worked to restore order in the financial system since late August with the cutting of interest rates of 300 basis points since this time last year, with 200 basis points occurring in the first quarter of '08, this does impact our balance sheet which still has some asset sensitivity.
Without question, our seven-year $1.2 billion interest rate hedge we purchased in late 2007 helped to mitigate the impact of these cuts. Our net interest margin is down 3 basis points to 4.67% from the fourth quarter of '07.
Non-interest income is up $4.7 million to $70.2 million. Trust fees up 8%.
Service charges on deposits up 4%. Insurance commissions up 5%.
Non-interest expenses continue to be well managed with a growing company. Asset quality remains at manageable levels.
The provision for the quarter of $4 million covered net charge-offs of 3.8 million or five basis points for the quarter. Allowance for loans is 1.15% of total loans.
Non-accruals increased from $29.8 million to $36.6 million. The allowance to non-performing loans is well covered at 323%.
If you take the total potential problems plus past dues over 90 days and non-performing assets versus last quarter, they increased less than $4 million. As discussed last quarter, the increase in problem loans is fortunately limited to one sector, one-to-four family builders.
Our homebuilder commitments versus our last call are down from $510 million to $480 million, and outstandings are flat with the last quarter. To give you an idea of home affordability in Texas versus other areas of the country, in Los Angeles in 1999, 43% of the homes were affordable to median income families but only 2% at the end of 2006.
Comparing that with Texas, in Dallas in 1999, 64% of the homes were affordable. By 2006 the percentage had barely slipped to 62%.
In Austin, home prices actually became more affordable over this period of time in contrast to the U.S. as a whole.
At this time, we don't see any other trends and homebuilders appear to be manageable. In a recent speech, Richard Fisher, President and CEO of the Federal Reserve Bank of Dallas stated that Jack Kennedy before becoming President reminded an audience once that the Chinese character for the word crisis has two brush strokes.
One stroke means danger, the other means opportunity. As you can see from the review of our growth in the first quarter, we do have opportunities and a few words about our growth activities.
In-person calls across the company are running consistently over 1700 calls per week. I am particularly pleased that our calling effort is working as a team across business lines, approximately 20% of the time.
Our banking activities, in-person calls are up 9% and 14% versus the fourth quarter. In-person prospect calls are up 21% and 32% versus the fourth quarter.
As you can see, our officers are responding to our focus, and that is to increase quality calls, especially on prospects. This focus is resulting in 34% more in the pipeline from prospects, and as expected, new commitments are up 9%.
Competition in Texas still remains strong for the quarter. We lost $339 million due to structure and pricing, about 55% more than last year.
Taking a look at the consumer side, our organic checking accounts are growing in the mid-single digits. Consumer deposit growth is slightly above 2%.
Consumer loan growth is in the high single digit range, primarily in home equity loans. In our trust and brokerage area, in-person calls are over 350 per week and prospect calls as a percentage of total calls are in the 30% range.
Our good investment performance has saved us over 60% from the total market decline. Again, a good opportunity to bring new clients.
New business booked is better than expected by almost 60%, and the loss of business is less. Our investment team projected the first half of '08 would be a weak market and the last half will be better.
Let's hope they're right about the whole year because we are now seeing the weak market, and that will affect our fee growth. Overall, we feel good about the performance and opportunity for growth of new business.
The Texas economy is a good place to be. The first quarter job growth for Texas was 1.80% versus the U.S.
at a negative 0.7%. All the markets we serve are at or above the state job growth rate with the exception of Dallas at a strong 1.30% and Corpus Christi was slightly negative.
Labor markets are tight. Businesses in general are performing well.
We expect some slowing versus '07 in job growth falling to 1% range in the first half and stronger in the last half. For several years, I have said to you that Texas jobs grow about two times the nation, but it doesn't seem to work anymore with the U.S.
at a negative growth rate. Now I ask Phil Green, our CFO, to make some comments.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Thank you, Dick. I'll just make a couple of additional comments, one about margin and one about our outlook and then we'll open it up for questions.
As Dick mentioned, I believe our quarterly results were solid and they reflect our commitment to relationship bank business and also to a common sense approach to risk management. As you know, during the quarter the Fed cut interest rates by 200 basis points.
We were able to manage a net interest margin of 4.67% which is down only three basis points from the fourth quarter of last year. If you look at net interest income, and if we adjust it for one less day than we have in this year's first quarter compared to the fourth, we would have actually increased net interest income by almost 1% versus the fourth quarter of last year even with the reduction in rates.
And I believe that this reflects a few things. One, our good volume growth that Dick just mentioned that we had in the first quarter as well as good performance of our investment portfolio and also the impact of $1.2 billion seven-year interest rate swap that we put on in October of last year.
Dick has already discussed our loan growth but I might also point out that as of April 21st, our loans had increased another $126 million since quarter end. So at this point, there appears to be good follow-on, and it also appears to be broad based.
But it's going to take hard work to continue to sustain in our competitive marketplace. No question about that.
Related to our investment portfolio, it's had very good performance. It saw an increase in yield of 4 basis points compared to the fourth quarter to yield of 5.34%.
As many dislocations occurred in the fixed income markets we did utilize our liquidity and our high quality investment portfolio to take advantage of selected opportunities. And as an example I'd point out that late in the first quarter we sold approximately $600 million in mortgage-backed agency securities.
We mixed gains and losses of about $5 million each to essentially break even. And the securities we sold had a duration of 3.9 years.
We went out slightly on the yield curve. We purchased $550 million for 4.6 year duration mortgage-backed securities from the same agency and took advantage of a steeper yield curve and picked up 53 basis points, again with no net loss.
We also saw some opportunities in the municipal securities markets, and we purchased almost $20 million in AAA Texas school district municipals. And these are backed by the Texas Permanent School Fund known as PSF to yield right at 7%.
I think it's interesting that these were non-bank qualified securities and that this yield is now paying the full... tax.
Finally, this week we purchased $300 million in 30-year Ginnie Mae mortgage-backed securities with durations of 4.5 years yielding 5.25% to take advantage of the unprecedented spreads available on these full faith and credit investments. Now, with regard to the $1.2 billion interest rate hedge against prime, in the fourth quarter as we reported, it provided net positive cash flow of $240,000 and 1 basis point of margin improvement.
In the first quarter, this had improved to $4 million in net positive cash flow and 14 basis points in margin improvement. And at its current pay rate with prime at 5.25, the swap is now providing approximately $6.9 million of quarterly positive cash flow and 24 basis points of margin improvement.
So it's definitely helping us achieve our goal of a more neutral position with regard to interest rates. Our outlook for rates calls for two more 25 basis point cuts by the Fed, although we'll add given inflation and the dollar, it's our opinion that these are neither necessary nor warranted but that's another discussion.
Finally, 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. And with that, I'll turn back over to Dick for questions.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Thank you, Phil. We'll now be happy to entertain your questions.
Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Brent Christ.
Brent Christ - Fox-Pitt Kelton
Good morning, guys.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Good morning.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Good morning.
Brent Christ - Fox-Pitt Kelton
You've posted pretty strong loan growth for the past couple of quarters. And even it sounds like it's occurred so far in the second quarter, has continued that momentum.
Could you just give us a little more sense of where you're getting that growth from both from a geographic as well as a product perspective?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
The geographic is...
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Rick, I'll comment on that if you'd like. First of all, Brent, you want to look at the linked quarter or year-over-year?
Brent Christ - Fox-Pitt Kelton
The linked quarter if you have it.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Linked quarter. If you look at the linked quarter basis, I'll look at period end numbers.
We were up by $243 million, which is about 3.1% not annualized. The biggest part of that was in C&I and this is all spread around pretty well.
We had a $121 million growth in commercial and industrial loans. The next portion obviously would be real estate.
We had a $110 million growth in real estate. Commercial construction is $75 million which has been the largest component of that.
The rest of it was spread out in a lot of various categories of the real estate with... really the only reductions in the real estate segments would have been in land was down about $1.4 million and one-to-four family mortgage which we only have because we picked up some in acquisitions, was down about $1 million as it continues to roll off.
If you looked at the geographic growth, really we had good broad-based growth in every region. For example, Austin was up $11 million, you can say 2%.
Corpus was up, these were unannualized percentages. Corpus Christi was up 1.3%, Dallas up 3.3%, Fort Worth up 3.1%, Houston up 2.5%, San Antonio up 4.7%, Rio Grande Valley up about 0.7%.
So I think you see that it's pretty broad based both in terms of portfolio and geographically. Go ahead.
Brent Christ - Fox-Pitt Kelton
I mean, I know it's quite a competitive market. And are you having to compromise at all in terms of pricing or structure to get this growth?
Or is there just... would you view it kind of as a flight to quality by some of the borrowers in that you're able to pick up some of this business?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Well, the world is pretty much a compromise. So to say we're not compromising at all wouldn't be correct.
But I would say because we've tried to share with you how much business we do lose to structure and pricing, we certainly try to hold the line on the principles of good structure. What's kind of interesting is that, that the market in Texas versus the rest of the nation, I'm not in the rest of the nation, but my observation is that things are tightening up and pricing is increasing.
We haven't seen as much of that in Texas. And so it's still very competitive.
I think one of the things, I know why you picked up on it is I reported the $339 million, that we lost due to structure and pricing, 55% more than last year. And when I saw that number I was kind of astounded, but it makes sense when you take into consideration how strong our prospecting is increasing.
So we're increasing the prospecting obviously to grow new relationships because that grows deposits and grows the other types of businesses, which is the key to a relationship type bank. At the same time, as you increase prospecting, you're going to lose more business.
And really the loss is about the same as it was the first quarter. And it's hard to compare these kind of things, but from structure and pricing.
But the increase in prospecting will create more as a result because it's just harder to take business away from somebody else. But the good news is that we have a strong effort going that way.
We've been successful in that regard. And what's even more important, you build a greater diversification of loan size, which is our objective.
And that's something that doesn't happen overnight. It happens over years.
But certainly that's an objective. So the real drivers were energy and owner occupied real estate.
We did have some automobile agencies increase, two customers that we have had for at least 25 years. We're seeing in our insurance company financing and medical.
And I'm particularly pleased that our risk rates continue to, for new commitments to be about where the average is. So, that tells me that we're not putting on greater risk as we continued to grow this business.
And final, if you look at our pie chart of the diversification in our portfolio, I'm also pleased that it's not changing. What that means is energy runs the largest and it is under 10% but it stays about the same percentage.
So we're not out doing something new in some business we've never been in before. We're staying consistent with the kind of things we've done in the past just expanding those sectors.
Brent Christ - Fox-Pitt Kelton
Got you. And then one last question.
You mentioned some of the actions with the investment portfolio in terms of kind of swapping out of some securities into some higher yielding ones with longer duration. But that occurred late in the quarter.
Could you give us a sense in terms of the potential margin lift from that and if there was a notable change in the trajectory upward later in the quarter because of those actions?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Well, the moves that we made all did help margin, that's true, Brent. Remember, though, we did have as far as the margin trajectory, we did have those 200 basis point rate cuts by the Fed.
So all these things we are working at times against each other, working to offset each other. So I think, what it has helped us to do is to help us have more stability in the margin.
All of those three factors that we talk about: The volumes, the investment portfolio moves, the interest rate swap hedge, all those things helped together to really provide more stability. So I'm not looking so much for a dramatic trajectory increase in margins so much as we're hoping to provide more stability.
Brent Christ - Fox-Pitt Kelton
Got you. Okay.
Thank you.
Operator
Your next question comes from the line of John Pancari.
John Pancari - JPMorgan
Good morning.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Good morning.
John Pancari - JPMorgan
I wanted to see if you could give us a little bit more color on your loss trends and your delinquency trends as well, particularly in the residential homebuilder portfolio.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
As I mentioned to you, the... when you add up the potential problems...
first of all, as I said, the real increases, the majority of them, are really related to one-to-four family builders. But when you look at potential problems and non-performing assets and past dues over 90 days, they're up less than $4 million.
So I think you can look at it as the $4 million is really the kind of bottom line of the increase. We do have, because we've lived through times like this, kind of an unbelievable focus on all homebuilders.
I mean, we know what every one of them is doing almost all the time. And you can see that we are down in total commitments, but the outstandings are pretty much flat.
You would expect that to happen because the springtime and summer is when you build and sell homes. And so...
but I think we'll see it kind of stay around that $250 million level of outstandings. And obviously where you've got the builders that have low capital going into this slowdown, their only way to pay it out is to sell homes, and they're selling a little bit slower.
But all in all, I remember in '80s we really didn't experience large losses in the homebuilders. What happened, it just took longer.
Sometimes you would lose some interest, and that's the reason our... the non-performers are up is...
from 29.8 million to 36.6. That's in essence homebuilding.
And so you get into that, it takes a little bit of a delay. But I do feel comfortable.
It's just going to take a little bit of time. And the good news is Texas is growing jobs, and that's the real key to it.
And we're still very affordable.
John Pancari - JPMorgan
Okay.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Does that address your issue?
John Pancari - JPMorgan
Yes, it does. And consistent with what you're seeing there on the homebuilder front, would you...
I guess what type of range would you be expecting here that your non-performers could trend in this type of cycle and again just pointing to the weakness you are seeing in homebuilding?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
I wish I knew that answer. Because we're right on top of it.
I don't see any dramatic change. You never know.
Certainly I hope that we are on the front end and aggressive in addressing because that's the characteristic of our company. And at the same time this is a great opportunity...
those good builders to help them through this period of time. We're not a company that turns the spigot on or off.
We're a company that looks at the individual customer and makes sure that we're dealing with the reality. And if they're out of capital, then we've got to deal with that, and that's a smaller group.
You know, the foreclosures are around $5 million. And so I don't see it as...
I see it as something that's certainly getting our attention and should get our attention. But as you saw about affordability in the comments I made about us versus the rest of the country, I think it would be unwise for us to over dramatize the problem in Texas because it's just going to be a lot better.
John Pancari - JPMorgan
Okay. All right.
Then one last question, on the fee income side, I'm sorry if I missed it because I got on the call late, but the decline in other charges, commissions and fees, linked quarter, can you just talk to that?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
On the linked quarter comparison that is primarily the result of a lower investment banking fees in the first quarter compared to the fourth. We've still got a good pipeline and all those if you remember, we use the word sort of lumpy in terms of how those fees flow in because again we work on several...
on a few deals, usually few larger deals during the year. And it takes time to bring in but we feel pretty good about the activity we've got there.
Don't see any difference.
John Pancari - JPMorgan
Okay. Great.
Thank you.
Operator
Your next question comes from the line of Andrea Jao.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Hi, Andrea.
Andrea Jao - Lehman Brothers
Good morning. Andrea Jao from Lehman Brothers.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Good morning.
Andrea Jao - Lehman Brothers
A lot of the smaller regional banks are building reserves at the time when earnings power isn't as strong as it has been. Your earnings power remains relatively strong, especially compared to your peers.
And I know credit quality is good, and I know reserve covers NPLs more than 300%. But are you even considering or can you even consider building up reserves even a little bit at this point?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
We're not going to consider going to jail. And the laws are pretty strict on that as you know.
And the SEC wants to have volatility and more of a mark-to-market, and the rules are strict. So it isn't just what I want to do; it's what is required under the laws.
I will tell you that our methodologies have been consistent for years and years. And it is showing that our reserve is adequate and that we are building it in according to the problems and the weakness in the economy.
And so, you can't build it more than that fortunately. We don't have more weakness.
Andrea Jao - Lehman Brothers
Okay. With respect to the deposits, I was hoping to get more color on what trends you're seeing.
Are customers more apt to seek the safety and soundness in bank deposits? What kind of seasonality are you seeing at this point?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Well, they should, but they don't always see it. I think that I'll make an editorial comment on this environment, when you may be playing with too big to fail and not letting the cycles and the capitalistic system work, you have...
and that is if somebody's broke, they're broke. But we have always been a safe haven and safety and soundness, and we do get...
I get every month editorial comments from our customers or factual comments from our customers sharing with us how they want their money to be in a good safe place. And we have had some benefit to that.
I guess I'm saying to you not as much as I think probably is realistic in this environment. I'll let Phil make a few comments.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Andrea, we've had I think good deposit growth. We have seen, as far as seasonality we do see some increase this time of the year.
A lot of it from... we've always said it was built up for taxes and taxes that were paid.
So we've had really good growth in transaction accounts. I feel like just a strong...
just anecdotally strong feeling there. We've mentioned before we have a relationship with a company which provides debit card services to students and universities that we got through Horizon acquisition.
We've actually been working with them to try and offload that for some period of time. And I think that probably within the next six months we'll definitely exit that relationship.
That shows that the demand deposits but the way it works is, the fee we pay into that relationship basically means that while those costs go through non-interest income, basically costs us 75% of the Fed funds rate for that portion of demand deposit that relates to that relationship. So that's a little bit unusual.
They had good growth because of just the increase in funds that go to those students this time of the year. So, not including that, I feel like, we had a pretty standard seasonality related to our demand deposits.
I think our time deposits have been good. It's interesting, I think, what you see, though, going into the pricing of these deposits in the market.
If you were to look at since the Fed started cutting, we're down about 300 basis points in general market rates. We've been able to cut our MMA rate only about two-thirds of that.
So we've given the customer about 100 basis points of that... that change.
On CD rates we've cut about 60% of the rates. So we've given them 40% of that rate cut.
If you were to look what's happened this quarter, the Fed cut rates 200 basis points, and we were only... we only decided to cut our MMA rate about a little over half of what that rate cut was.
We dropped rates there about 1.1%. And the reason we're seeing that compression is...
I won't call it irrational pricing from some of the larger competitors because if I were in the shape that they were in, building liquidity is not irrational. I would say it's unconventional pricing where they're paying well in excess in many cases of Fed funds in order to obtain some of these deposits.
I think that there is, though, a... in the mind of our customers and the general market, there is an important...
or safety and soundness is very important. I can tell you for me as a depositor, it's very important to me.
And I think that value proposition is important for us. And I think as far as how much we'll be able to cut deposit rates, assuming the Fed continues to move down, we'll make those decisions as we look at the market and we evaluate our situation when those happen.
But I'm of the mind that safety and soundness today is a very important value proposition and there should be a differential in terms of what rates are paid. So we may be more aggressive than we have been in terms of more offsetting our deposit rates against these changes from the Fed.
Andrea Jao - Lehman Brothers
Okay. And then one housekeeping question, is there anything non-occurring in the other expense line?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Anyone non-recurring in the other expense line?
Andrea Jao - Lehman Brothers
Yes. Or anything in particular that drove it higher compared to last quarter.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Well, compared to last quarter, actually, we had... we had a little bit more unusual stuff, I would say, in the first quarter seasonally.
But the fourth quarter is our lowest quarter for advertising and promotion. And so $735,000 of the unfavorable was related to advertising because it's...
our first quarter and second quarter typically are higher for us. And then the other things I'd say are just more activity-related, other professional related, just different things.
The most significant factor I saw was that advertising and promotion was up by 735,000 compared to the fourth quarter.
Andrea Jao - Lehman Brothers
Okay. Thank you so much.
Operator
Your next question comes from the line of Justin Maurer.
Justin Maurer - Lord, Abbett & Co.
Hi, guys.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Hi, Justin.
Justin Maurer - Lord, Abbett & Co.
Phil, on the Fed funds, purchase/sold, any discussion kind of where you think you're up? At year-end you were kind of 350 sold and 900ish bought.
Any change there kind of with the rates coming down so much?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Justin, if you looked at what we averaged on first quarter our Fed funds sold were about $266 million. Say we are down some from the $379 million average for the fourth quarter.
In terms of the Fed funds purchased and repos we were down just a little bit, we averaged $894 million. So it was down a little bit from $919 million in the previous quarter.
I would say that what we're seeing now is we've got good loan growth. And so we're using some liquidity to fund that.
And we also took advantage of, as I said, what really incredible spreads to treasuries on some of these full faith and credit mortgage-backs and took advantage of that, about $300 million of that in just this week. So we saw that as an opportunity to use some dry powder, and we took it, so --
Justin Maurer - Lord, Abbett & Co.
week But it was that... that doesn't sound like it was Fed funds.
You said $894 million, what's it running currently? Is it up from that?
To buy those?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
No, we didn't really buy anything. We just used our Fed funds liquidity position to do it.
Justin Maurer - Lord, Abbett & Co.
Yeah. Okay.
Got you. Okay.
Any sense as to how much you guys may have benefited from LIBOR being sticky on the way down because of what's going on. I know others have talked about and I think it's somewhat surprising for most that the margins haven't gotten as crushed maybe as people thought in part because LIBOR has remained at higher levels.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
If you look at LIBOR based loans, hold on one second, I think I've got that here. I want to say we have about $1.5 billion worth of LIBOR-based loans.
But I think that's reasonably close. And so if they true that up, that could be a slight benefit.
Justin Maurer - Lord, Abbett & Co.
I mean it doesn't sound like it's much, though.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
1.5 billion is 1.5 billion, but.
Justin Maurer - Lord, Abbett & Co.
And whatever you want to guess as to what the detail should be, and so it is I guess.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Well I think we saw, once it came out in the papers, as my investment guys were telling me that they saw LIBOR clean-up, and moving it up by about 20 basis points. So there could be some marginal benefit there, but...
Justin Maurer - Lord, Abbett & Co.
Okay.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
You can do the math.
Justin Maurer - Lord, Abbett & Co.
And then lastly, I hate to say it but you guys nudged over 76% loan to deposits. Is there an aid in your future if loan growth is still good or?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Well, you know our strong feelings. We're never going to be 100%.
Justin Maurer - Lord, Abbett & Co.
Yes.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
But this is a time that there's some good opportunities, and I think the real key is to stay with quality and relationships. We're not going to...
we're... as you know, we're not focused on just loan growth, but if, because of this unusual time and what's happening to a lot of the large banks, it may be a time to take it a little bit higher but we don't have a number, Justin.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Justin, as I recall, we got up to almost 80% a few years ago.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
I think it's 78 something.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
For the last recession. So it could happen.
But what we want to do is definitely work the deposits, work the relationships, which will generate deposits and grow both sides of the balance sheet. We're keeping our eye on it.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
That's really the key. Remember, we want to grow deposits with loans, and so as you do that, that keeps the ratio from moving as much.
Justin Maurer - Lord, Abbett & Co.
Yes. Back to the money market that you've only taken two-thirds down, is there...
how do you guys think about it in terms of on the one hand, the whole safety and soundness thing, you're close to the top of the heap and from a selling perspective to the customer, that's a great selling point. But at the same time acknowledging that others around you need liquidity like you said, Phil, and therefore you can't maybe push it too far?
But do you guys think that those potentially offset each other in a sense and therefore there is more room to move down?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Justin, again that's more art than science. But I would say that there has been.
We've had decent growth in our time deposits. We haven't seen a decline.
But I'll tell you today as you look, there's some people paying... I'm looking at the rate sheet today, you've got some people paying, here is 135.
These are the largest banks in the country, 35 basis points over Fed funds. Here's 115 over Fed funds.
Here's 165 over Fed funds. Here's another large bank we're ahead of which has been about 50 under Fed funds.
It's just an unusual time. Right now our value proposition has allowed us to be fourth in the market on money market rate and be okay.
I just think it's worth something. You can't push it too far, but I think you really need to recognize what your strengths are, too.
And I frankly think that if the Fed does move down again and possibly one more time, that given what inflation is doing and things, that it will be more short-term anyway. So we'll just have to see.
We're feeling more aggressive, though, I'll tell you, given where we are in the market, given what's going on in the marketplace that just feeling that we have to compare with rates with every wounded banks out there.
Justin Maurer - Lord, Abbett & Co.
Yeah got you.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
I guess, Justin, I don't guess, but with people that handle our customers, we are helping them understand that a bank that pays those kind of rates above Fed funds or whatever the rate is, there's no doubt there's more risk. And they need to value that proposition.
And most people when they come down to it, their deposits in the bank, they don't put them here because they plan on losing them.
Justin Maurer - Lord, Abbett & Co.
Right.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
One thing that we have said and it's kind of caught on around here that we're using with ourselves and customers, and I'll give credit to an investor that happened to use the phrase with me at a conference a couple of months ago. He said, You know, you really ought not to be picking up pennies in front of steamrollers today.
And that's what a lot of people were doing. And I think that's a really good visual picture of what you could be doing if you make the wrong choice with the wrong financial institution for a few basis points.
Justin Maurer - Lord, Abbett & Co.
Well it's important to the extent you guys are much more tilted towards the commercial side where by and large their balances won't be insured because of the amount that they have versus the standard retail customer, they might be willing to roll the dice a little bit because they are insured.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
And I think from a commercial standpoint, they... obviously they understand the markets better in general.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Justin, I'll say just one other thing. We've got lots of alternatives for customers.
I mean, if you look at CD pricing, for example, we're probably number two. We are number two versus most of the categories there.
We have got that opportunity. We've got money market funds, both treasury and traditional money market funds that we offer people.
We've got all kinds of wealth management. We can give you anything you want.
But if you're a depositor that's really concerned about safety and soundness of your money, we can give you a fair rate and we can let you sleep at night, and that's one important value proposition we have.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
And one of the things having that $25 billion trust and asset management business, we have been moving lots of money into it and holding onto the relationship of the customer and giving them that alternative.
Justin Maurer - Lord, Abbett & Co.
Okay.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Anyway, just to sum up, we have always said pricing is art, not science really as it relates to these deposits. And we'll just have to see what we do with regards to cutting rates whenever the Fed cuts, and we'll just have to see.
Justin Maurer - Lord, Abbett & Co.
Thanks guys.
Operator
Your next question comes from the line of Jennifer Demba.
Jennifer Demba - Robinson Humphrey
Phil, could you give us an idea of what the contingency fees were on the insurance commission line? This quarter versus a year ago?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Okay. Hang on just one second.
I think I'm putting my hands on that. It was down a little bit.
I think it was $3.3 million.
Jennifer Demba - Robinson Humphrey
Is that about $3.3 million?
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
Let me get back with you on that.
Jennifer Demba - Robinson Humphrey
Okay.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
I'll have it for you.
Jennifer Demba - Robinson Humphrey
And can you give us a flavor how much of that $36 million in non-performing assets is residential builder related, just to give us an idea, approximately?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
The non-accruals are about $5 million and the foreclosures are about $5 million, so it's about $10 million total.
Jennifer Demba - Robinson Humphrey
Thank you very much. Good quarter.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Thank you, Jen.
Phillip D. Green - Group Executive Vice President and Chief Financial Officer
The $3.3 million is right and we were down about $142,000 from the previous year.
Jennifer Demba - Robinson Humphrey
Thanks.
Operator
[Operator Instructions]. Your next question comes from the line of John Harlow [ph].
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Hello, John. John?
John, we're not hearing you. Maybe the operator can help us.
Operator
Mr. Harlow, if you're using a hands-free phone please pick up your handset and ensure the mute feature on your phone has not been pressed.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
John, we're still not hearing you.
Operator
Mr. Harlow's question has been withdrawn.
Your next question comes from the line of Jon Arfstrom.
Jon Arfstrom - RBC Capital Markets
Good morning.
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Good morning Jon.
Jon Arfstrom - RBC Capital Markets
I thought my name was Harlow for a second. Should have heard me trying to get through.
Obviously, you have capital and you have access to capital and a nice stock price. And I'm just curious on M&A if you're seeing interesting opportunities, and if so what kind of appetite do you have?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Jon, our focus has not changed in that regard. You know that the kind of banks we're interested in are obviously in Texas, in the markets we currently operate and, more important, have the culture and the relationship focus that we have.
I would say the market's a little quieter in this environment and certainly there's those that we have... are aware that we would have an interest, and they continue to operate, and Texas is a good economy.
But, we're just staying the course of looking for that right opportunity. We're not...
you know that we don't buy on price. We buy on quality.
And I do think that this is an environment that if those opportunities appear, that it certainly would require a lot more due diligence because this is a real unusual time. But we're interested, just as we were a year ago or five years ago, but it's all related to the kinds of customers and the kind of operation they have.
Jon Arfstrom - RBC Capital Markets
Okay. And then I have a question on oil prices, if you can.
Obviously people think oil prices and they think Texas and I'm curious if you have any opinion on how much it benefits you and given where the prices are, if you have any concerns in terms of credits inside of your portfolio due to the high prices?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
Let's take the last... first of all, in general, the way I look at Texas with oil income is there's no doubt when you look at the whole economy as a whole, it certainly is a benefit and a positive and raises the waterline for the economy as a whole.
There's lots of individuals, like myself, that I don't have any oil and gas production. So therefore I feel the pain the same as any other individual at the pump.
So you've got kind of a mixture there. Moving more specifically to your question, we're comfortable with our pipeline, and it really relates to the price deck of the price that we're loaning per barrel.
Currently we're loaning $55 in '08, $52.50 '09, and $50 beyond then. On gas $6.25, '08 and $6, '09.
Those prices are going to come up. It could be $68 in '08, say $55 in '09, and maybe hold to $50 beyond there and possibly $6.50 versus $6.25 on gas in '08 and $6.25, some of the things we're looking at.
And then beyond that we've learned in the '80s we look at the sensitivity where we take 75% of the best case, and that would be somewhere in the neighborhood of $45 oil and under $5 on gas. And from that perspective I would tell you I'm comfortable with those numbers.
And so I don't get very excited if it goes to 117 or it's 100 except from an economic standpoint and all the issues related to the dollar and worldwide and those kinds of things. But for Cullen/Frost Bankers, Inc., I feel comfortable with the prices that we're using and where we are.
The other thing I would say to you is that unlike two years ago and certainly five or ten years ago, many of our customers used hedging to lock in their prices and probably in general about 60% of the portfolio is hedged in someway or another. And so all of that has taken a lot of the risk out of it...
from my perspective.
Jon Arfstrom - RBC Capital Markets
Okay. That's helpful.
And then, Phil, you said the size of the energy portfolio is under 10%. Is the growth rate any faster or slower than the rest of the portfolio?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
I might help Phil that the... it's staying about the same.
When you look at shared national credits, they jumped, and 17 that's where a lot of the energy is, just simply because of the price even at $50, it just takes a lot of money to what used to be $10 million loan is 30 or 40. But our shared national credit percentage of energy loans is still running 65%.
And so it's relatively speaking, it's holding its own percentage wise to the overall portfolio. We learned a lot from the '80s and we really watch these concentrations of credits and have good disciplines that I think are well in line.
Jon Arfstrom - RBC Capital Markets
Thank you.
Operator
[Operator Instructions]. There are no further questions at this time.
Mr. Evans, do you have any closing remarks?
Richard W. Evans, Jr. - Chairman and Chief Executive Officer
We appreciate and thank everybody for participating in the call and your interest in Cullen/Frost Bankers, Inc. This completes our call.
Operator
This concludes today's conference call. You may now disconnect.