Greg Parker Richard W. Evans - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of Strategic Planning Committee, Chairman of The Frost National Bank and Chief Executive Officer of Frost National Bank Phillip D. Green - Chief Financial Officer, Principal Accounting Officer, Group Executive Vice President, Chief Financial Officer of Frost National Bank and Group Executive Vice President of Frost National Bank

Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division Ken A. Zerbe - Morgan Stanley, Research Division David Rochester - Deutsche Bank AG, Research Division Stephen M. Moss - Evercore Partners Inc., Research Division Emlen B. Harmon - Jefferies & Company, Inc., Research Division Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division Scott Valentin - FBR Capital Markets & Co., Research Division Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division Matthew J. Keating - Barclays Capital, Research Division

Good morning. My name is Jared, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Conference Call for Cullen/Frost Bankers, Inc. [Operator Instructions] Thank you. Mr. Parker, you may begin.

Thank you, Jerry. 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 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.

Thank you, Greg. Good morning, and thanks for joining us. It's my pleasure today to review First Quarter 2013 Results for Cullen/Frost. Our Chief Financial Officer, Phil Green, will then provide additional comments. After that, we'll be happy to answer your questions. I'm pleased to report that for the first quarter of 2013, Cullen/Frost grew loans by 13% and reported 14% deposit growth. Our capital levels and liquidity are stronger now than they were before the 2008 financial crisis. The results amid economic and regulatory challenges are a credit to our dedicated employees and excellent value proposition. During the first quarter of 2013, our net income was $55.1 million compared to $61 million reported in the first quarter of last year. This was $0.91 a share versus $0.99 for the first quarter of 2012. For the first quarter of 2013, return on average assets and equity were 1.01% and 9.47%, respectively, compared to 1.23% and 10.59% reported in the first quarter of last year. Deposit growth continues to be strong. First quarter 2013 average total deposits were $18.7 billion, up $2.3 billion or 14.2% over the $16.4 billion reported in the first quarter of 2012. Our deposit growth is coming from both new and existing customers. Net interest income for the first quarter of 2013 was $172.8 million, up 4.9% from last year. This increase primarily resulted from an increase in the average volume of interest-earning assets and was partly offset by a decrease in the net interest margin. Net interest margin was 3.45% for the first quarter of 2013 compared to 3.73% in the first quarter of 2012 and 3.48% for the fourth quarter of 2012. Noninterest income for the first quarter of 2013 was $77.8 million, up $5.8 million from the $72 million we reported a year earlier.…

Thanks, Dick. I'm going to make just a few additional comments concerning our regular operations and transactions involving San Antonio downtown real estate and our current outlook for the year, and then we'll turn it back over to Dick for questions. As Dick mentioned, our net interest margin for the first quarter was down 3 basis points to 3.45%, and most of this slight decline resulted from a 12 basis point lower loan yield versus the previous quarter. We did not see an increase in deposit-generated liquidity during the first quarter because of a seasonal slowdown in deposit growth, so that was not a factor in margin compression in the first quarter. Looking at loan and deposit growth on a linked quarter basis, average loans were up an annualized 11% and were driven by a 15.6% annualized increase in C&I loans and an 8.9% annualized increase in commercial real estate loans. Average deposits grew an annualized 6.5% on a linked quarter basis because of the seasonal annualized decline in average demand deposits of 13%, but on the other hand, our time deposits were very strong with an annualized growth on a linked quarter basis of almost 21%, with the biggest contributors there being regular money market deposit accounts and interest-bearing checking accounts. Looking at our overall deposit portfolio, over last year, we still have good growth coming from new customers. During this time, approximately 40% of our growth comes from new customer relationships compared to 60% from account augmentation. Also, I want to make a couple of brief comments about the 2 downtown San Antonio properties that Dick mentioned. As he said, we did sell the Rand Building and garage in the first quarter. We actually realized a gain of about $5.6 million on that property, but since we took back a 2-year lease on much of it, we had to defer about $1.3 million of this gain over the lease term. At the same time, we executed this transaction to pare down some of our investment in San Antonio real estate. We decided to designate an additional piece of excess bank property as available for sale in the form of a piece of land which has served as a greenbelt for our headquarters building for over 25 years. This necessitated a write-down in this property's book value to be more in line with current values for real estate at this time, and that resulted in a write-down of about $6.2 million. So the net impact included in the current quarter for both of these properties was a cost of approximately $1.9 million, again, not including the $1.3 million gain we're now amortizing. And finally, as far as our expectations for the full year of 2013, we currently expect to be slightly below the mean for analyst estimates for the year. And with that, I'll turn it back over to Dick for questions.

Thank you, Phil. We're now happy to take your questions.

[Operator Instructions] Okay, and our first question comes from Brady Gailey. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: So the loan loss reserve, on a percentage basis, was down roughly 10 basis points to almost 1%. But was some of that reserve release dedicated towards the special C&I credit? Or in other words, did you have allocated reserves in the reserve on that credit and that's what partially drove the lower loan loss reserve ratio?

Brady, this is Phil. We didn't have anything specifically ID-ed for that particular credit, but there was sufficient reserve available to, I'd say, take care of about $10 million of the $15 million. And I'd say, of our provision for the quarter, probably $5 million would have been related to that one credit. So we would have had a lower provision were it not for that. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And with the reserve at 1%, flat almost, do you think you're done seeing that reserve move down on a percentage basis?

I think, for the most part, without being too exact about it, I think we're at 1.02%, as I recall, for the end of the quarter. And yes, I would say probably for the most part. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then finally, on loan growth, average balances were up nicely, but if you look at -- in the period, they were down a modest 3%, but [indiscernible] from last quarter's positive 19%. Was there anything driving that kind of lower end-of-period loan growth in Q1? Or was it just a pull forward in 4Q as we had the fiscal cliff uncertainty? Did you guys hear me?

Excuse me, ladies and gentlemen, we are experiencing technical difficulties. So just one moment, and I'll place you on a music hold. [Technical Difficulty] Okay. And you're live.

Okay. This is Dick Evans and Phil Green, again. Brady, I think you had the last question regarding the loan growth being flat for the first quarter. In fact, it was actually down about $61 million. I would remind you of the $100 million overdraft towards the end of the year we talked about that was with the corresponding bank that failed to transfer the money in. And so it was outstanding for a day or 2. So that's the reason I say flat. In fact, commercial real estate loans were up $72 million, and remind you that loans build up towards the end of the year for balance sheet purposes. And also, there's a few seasonal things that take place, such as with the spirits [ph] type credits that we have. And also, there was substantial borrowing at the end of the year for estate planning, some of which remained and others did not. So I would also say to you, looking at the economic statistics, there was somewhat of a pause in the first quarter. People just kind of held back. But I was extremely pleased with the information I shared with you about the activity. And so while loans were flat for the first quarter, the activity building into the second quarter was very positive.

Brady, this is Phil. One other thing to point out, just to give you a little bit more visibility on where we stand today, the most recent numbers for loans on a point-in-time basis would be, recently, loans at $9.213 billion compared to $9.224 billion. It was pretty much flat from where we were at the end of the year. Remember, as Dick said, that included that $100 million overdraft, so adjusted that off, I would say we were somewhat up from where we were at the end of the year, as we stand today.

And your next question comes from Ken Zerbe with Morgan Stanley.

I wanted to quickly see if there was anything that you could add on what you've seen on the securities portfolio this quarter? If we sort of look back to the prior quarter, you had some elevated purchases and were going to buy some more muni into the quarter, but if we look at the balance of this quarter, it looks like it's come down quite materially. Was there any change in sort of the types of securities that you're buying? Or you're just pulling back because if loan growth is pulling in strong or...

Okay. Ken, where we stand on the portfolio, we did make, during the quarter, I'd say a modest amount of purchases of investments for munis, about $113 million, averaged about a 3.60% yield. And so that was the most recent activity in the investment portfolio. As far as the change in the portfolio, total securities, the average for the fourth quarter was $9,029,000,000. We averaged slightly higher, $9,090,000,000, in the first quarter and we did have a -- we had a shift in some -- in the mix. We had a little bit higher municipals because of the purchases that we had talked about last quarter and the ones I just mentioned to you. So munis actually averaged $2.871 billion for the fourth quarter and they were $3.253 billion for the first quarter. At the same time, we had a drop in taxable securities from $6.158 billion in average for the fourth quarter to $5.837 billion in the first. So what you're seeing is a move, slightly more municipals coming out of taxables, a slight increase in the portfolio overall by about, I'd say, $50 million, $60 million on an average basis from the fourth to the first. And on a net basis of the entire portfolio, the yield actually was the same. It was at 3.32% in the fourth quarter. It was at 3.32% in the first quarter. I would say, just outlook-wise, for what we'd see for investments, we really don't like much out there, but we do continue to see that we feel like the most value there is in the municipal segment of the market. We've got a tremendous amount of liquidity. I think we averaged $2.2 billion in fed liquidity in the first quarter. But if you look more recently, we're up, I think, a little bit over $3 billion today. So I think we're going to be doing some modest continued purchases of municipal securities, probably in the, I'd say, average 15-year segment. And that's going to be what we will do with the portfolio as we stand right now.

Okay. That's helpful. I guess one quick follow-up. If I look at, overall, on the earning asset balances, have you seen any move in liquidity, quarter-over-quarter?

Yes, we did. I mean -- you mean like as in the quarter we stand now, and you mean recently?

First versus fourth.

Oh, first versus fourth. Actually, not really. I mean, we look at our balances at the fed as a proxy for our checkbook liquidity. And it was $2.212 billion in the fourth quarter. It was $2.2 billion, let's call it, even, in the first. So there was only -- there was about a $12 million change result. And what we saw was that the growth in -- that we had in the deposit category really went to fund loans and then a, on an average -- this is on an average basis, went to fund loans and a slight increase in investment securities. So we didn't really see much change in liquidity in the first quarter versus the fourth. And that was really, as I said earlier, we tend to have weaker demand deposits after the end of the year, and so we had that decline in demand deposits, annualized, 13%. But this tend to recover and continue to move up, and we're seeing that trend happen as we sit here in the second quarter.

And your next question comes from Dave Rochester with Deutsche Bank.

Can you guys talk about loan pricing in the market? I think you'd mentioned that all-in spreads to prime were near 90 bps or so in 4Q. If we could just get an update there, and then what you're seeing generally in the competitive environment?

I would say, first of all, with regard to our spreads to prime, they actually have been fairly consistent at the low 90s, I'd say around 92, 93 basis points. So really, when we look at the loan yield decline in the first quarter versus the fourth, I think it's probably -- we estimate that it's, say, 2/3 related to payoffs of higher-rate loans. Fixed-rate loans, for example, that's -- were just made higher yields, and repricing of deals and renewals where there's a little bit tighter spread, and probably 1/3 of it is related to a larger number of deals that were bigger deals that typically carry tighter spreads. But as far as the average renewal rate, it was fairly close to where it was as the spread to prime in the first quarter versus fourth.

I might just make a couple of comments about the market. We recently got the Greenwich Research study, and by the way, we had another year of outstanding recognition in that regard. But our customers are more satisfied than any other bank in the state, which is a good feeling. It also pointed out that Texas is the most competitive market. Texas is more conservative about spending than the rest of the country, so that's a reason we're very disciplined in our calling effort. The bank is -- it's -- there is no question that we've seen it to be a very competitive market. I would tell you that this time last year, we were sitting at 60-40 pricing, being 60% of the loans we lost over pricing. Then we moved to 50-50 through the fourth quarter, and we've seen it come back to 60-40 this past quarter. So it is extremely competitive, and we continue to see those challenges. You know we're not going to compromise our credit disciplines in that regard.

And are you thinking, at this point, the margins should continue to drift lower here as you continue to see those resets from the higher-rate fixed product?

I would say, last quarter, I thought it would be flat to slightly down. We had little bit of compression this quarter. I think it's going to depend on really what happens with loan growth and how successful we're going to be expanding that and using liquidity up for that. But I would say flat to maybe slightly down for the margin. Again, the securities that we end up buying could have some impact on that, but let's say flat to slightly down.

Got you. And just one last one, do you have the duration on the securities booked today? And then how much more room do you have to build that muni book at this point?

Well, first of all, with your question regarding duration, we're sitting today, or I should say at the end of the quarter, at a 3.3-year duration on the portfolio, which is, I think, really historically pretty much in our sweet spot where we've been. I think we've got -- it depends on how much liquidity we have come in, in terms of the room we have. But I would say, if you're talking with regard to overall asset sensitivity of the company, actually, we have moved more and more towards an asset-sensitive position. So I think we've got probably more room than we've had, say, a year ago, for example, in terms of being able to spend some of our duration that we would normally use in our balance sheet, because of the move towards more asset sensitivity. And that's really happened as we've continued to see deposits come on, a lot of those non-maturity type deposits like demand deposits, and a lot of that money has gone into day money at the Fed, which is immediately sensitive. So I really feel we have -- we're really not limited so much on the sensitivity position of the company because I think that's continued to get more and more liquid. To us, it's just really -- I mean, I think municipals are one of the best values out there, but we still don't love them. I mean, they're -- we'd like to see more spread in them, but you've got to do something. So I mean, I think it's more an issue of how much we're willing to do with our liquidity in this market. And right now, I think munis are the best thing. And I will just say that we continue to buy only the highest-quality segment of that portfolio. All we're buying is Texas and 75% of what we have is PSF-insured Texas schools. So those of you who know the bond market and the municipal market know what high-quality AAAs those are, so...

And your next question comes from John Pancari with Evercore Partners.

It's actually Steve Moss in for John here. Just wanted to ask, in terms of the loan pipeline pickup, what the -- where are you seeing the greatest increase in loan demand?

Well, it's really broad-based. Obviously, some of the drivers are energy, medical, automobiles are the largest contributors to C&I. We're also seeing a pickup on the commercial real estate and owner-occupied, and multifamily continues to be a strong segment. So it's pretty broad-based. As I said in my comments, we're pleased that it is broad-based across all of the markets and across all segments in both large and small loans.

Okay. And just judging by the pickup in loan pipeline, I guess it would be fair to assume that year-over-year loan growth will probably be higher versus last year's 5% or so?

Well, we'll just have to see. That's a pretty volatile year. And -- but certainly, when you see the pipeline and all the other statistics about what we're seeing, and Phil shared with you some growth just in this last sector last month, it's positive.

And your next question comes from Emlen Harmon with Jefferies. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Phil, was just hoping you could give us a little bit of color on the other fee line, obviously been kind of volatile over the course of the last year, reset down a bit this quarter. I was just hoping you could give us a little bit of an, I guess, an explanation behind that, or help us understand what's going on there.

Okay. Well, the biggest thing that was in the other income category was the gain on sale that we were able to recognize currently of -- on the Rand Building and garage. That was $4.5 million in that -- in this quarter, the first quarter. I would say that's probably the biggest thing that affected us. You remember, last quarter, in the fourth quarter, we had a very high level of derivative sales, particularly interest rate swaps, on some large transactions. It was a couple million dollars there which sort of moved that up. And so it's kind of, by its nature, they're just sundry. They're kind of other items. They're not really -- you always have a certain level of them, but they're not as predictable as some of the other areas. Those are 2 of the big items that, I would say, happened in the last quarter and this quarter. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: And -- okay. So I mean, if we think about -- obviously, probably going to be some kind of lumpiness in there. But if we think about that as a run rate, kind of that $6.5 million level is at least kind of a good starting base, excepting some other kind of unusual items that may spring up?

Well, if you're saying should we take out that $4.5 million from where we were in the first quarter, yes, I mean, that's a start. I would say -- yes, I mean, that's -- I'd say that's reasonable. But as you said, it's going to be lumpy and so there's going to be some stuff, positives and negatives in there. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Got you. Okay. And then just one other quick one on the tax rates, kind of the 20% range this quarter, down a good amount. Is that -- is there some effect from the asset sales in there? Or is that more related to just kind of mixing to a larger percentage of the securities booked being tax-free?

Are you comparing it to the fourth quarter? Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Yes.

Well, one of the things that happened in the fourth quarter, our effective tax rate was a little bit higher than normal because, obviously, you have to true up the last quarter of the year to what your final tax rate turns out to be. And remember, we had those sales of investment securities. I recall it was a gain of about, round numbers, $4.5 million in the fourth quarter that were just opportunistic and we didn't anticipate in our planning. And so those were taxed at a 35% marginal rate. And so you had to factor those in, and you only had one quarter to do it. And our run rate had been in the low 20s, on average, during the year, okay? So that's why -- that's the main reason the fourth quarter was a little higher, and it was about a 40 -- it was about a 24.9%, let's say, effective tax rate. Since we don't have those gains in the current quarter or anticipate them for the year, right now, we have a 19 point -- let's just call it 19.75% effective tax rate in the first quarter. So I would say -- and that's a little bit lower than last year as a result of some of the additional municipals and tax-free income that we have in this year compared to last year. It's just related to those additional munis that we've bought. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Got it. And just one more quick one, I guess, if I could. Just the share count in the quarter, you guys obviously executed kind of the preferred issuance and a share buyback in the quarter. Looks like there may be a little bit more leak in the share count. Have you guys kind of finished that repurchase program, or can we expect that share count to come down a little bit as well?

Well, the ASR program buyback continues, and so even if it's -- I mean, other things equal, you'll see it go down from that. But one of the things that's happening is, with the stock price where it is, we've seen a very high level of option exercises on the point of -- on the part of staff. And so what you're seeing there, I think, is a lot of -- there's a lot of that strike price that increases the capital and, of course, the shares are issued that increases -- the shares that are issued increase our stock outstanding. So I think that's the other thing that's affecting it. One other thing, I think, as the stock price goes up is the effective impact of your options tends to go up as well, so that's a little inside baseball. But you know what I'm talking about there when you do the -- I used to call it the treasury stock method of accounting for stock options.

You now have a question from Brett Rabatin with Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Wanted to, just firstly, just housekeeping if you had handy, Phil, the gross spread revenue and interest expense for the quarter. And then I was hoping to get maybe any color around line utilization for the quarter. Didn't know how that compared to 4Q.

Okay. Well, let me make sure I'm -- you want the tax equivalent net interest income for the quarter? Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Yes. You guys gave us the net number, was just hoping you might have handy, Phil, the gross spread income and the expense for the quarter. And then maybe -- and then...

Got it. I got it. Non-TE -- the -- let me just give you the numbers, okay? First quarter interest income would have been $159 million; interest expense, $5.9 million. So net interest income on a non-TE basis, $152.8 million.

On the line usage, was that the second part of the question?

Yes. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Right.

The advance rate on revolving lines decreased in the quarter. But at the end of March, they had returned to the same level as in December of '12. So -- and obviously, they're much higher than a year ago. The percentage is -- of line usage, I don't have the exact percentage here, but it should be about the same as we've been experiencing.

And Brett, by the way, it just took me a minute to find it, but our tax equivalent adjustment for the first quarter was 19 -- well, there's $20 million even.

And your next question comes from Terry McEvoy with Oppenheimer. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Phil, I was wondering if you could help me a bit looking at second quarter expenses, a better feel for the run rate. I know you talked about the real estate sales. But the increase in fraud that was mentioned in the press release, as well as the ATM expenses, are those ongoing or onetime in nature? Or closer to onetime in nature?

You were coming in really weak at the first part of that question. I apologize, but could you repeat your question? Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Sure. Just a better sense for expenses. The expense run rate in the second quarter had obviously popped up in the first quarter. Can you help us get a feel for Q2?

Okay. I would say that, obviously, adjusting out the $6.2 million write-down that we had related to that one property, we've definitely come out of there in determining the run rate. There was a -- I would say, of the sundry losses and write-offs that I saw, I would estimate that probably another $1 million would not be, what I'd say, core run rate. I would take out another $1 million. I mean, there's always going to be some stuff that come up -- that comes up there, but I would say there probably was another $1 million that was unusual enough that I'd say I wouldn't include it in my run rate. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Okay. And then as a follow-up, is there a revenue component at all for the ATM expansion and the rebranding? Or is that purely for marketing and convenience for your customer base?

It's marketing and convenience for our customer base.

[Operator Instructions] And you have a question from Scott Valentin with FBR. Scott Valentin - FBR Capital Markets & Co., Research Division: Just trying to think of the asset mix going forward, this quarter, interest-bearing asset growth, a little less than we thought. I think you pointed to demand deposit typical seasonality, seeing some shrinkage there. But just wondering, the mix going forward, if you see that getting the same level of deposits you had last year in growth? Should we expect securities portfolio to gross -- to take up the excess liquidity?

Honestly, I expect our liquidity to grow, mainly just because of the bond market. I mean, we're going to do as little as we can. And I know that's style more than -- and that's more art than science, I know it sounds like it is. We just don't like the market, and as we've said for years, we'll just do what we have to do when we have to do it. But I would expect our liquidity to grow because our deposit growth has picked back up and just the opportunities for purchases out there are -- they're just few and far between.

And your next question comes from Jon Arfstrom with RBS (sic) (RBC).

RBC. Question for you, Dick, just maybe looking at loan growth potential a different way. When I see a 30% up pipeline sequentially and 40% year-over-year, it suggests pretty strong loan growth. And you seem a little bit cautious on promising that, and I understand that, but I guess my question for you is if you could point to maybe 1 or 2 things that you think are holding your borrowers back or that make you a little bit more cautious on promising more loan growth? I'd be interested in what those couple of factors are.

Well, in a word, it's the uncertainty in this environment coming out of Washington. The -- people continue to be scared to death. But even with that, you're seeing some growth in capital expenditures. I think that just is a necessary thing. As we've been dragging along here for a number of years, people have to buy new machinery and computers and that sort of thing. You're obviously seeing some growth in commercial real estate, and housing is starting to pick up somewhat. The -- we're really seeing a broad base in commercial real estate. The -- as I mentioned, owner-occupied, people are starting to expand their business somewhat. I think the word I would say is caution, but we've been frozen for 5 years, and so people are starting to just expand very cautiously.

Okay. And do you feel like you -- are you comfortable taking more risk from a lending point of view?

I would never say that. I think we're managing our risk properly. I feel good about where we are. We're in a really good market. Texas is strong. I think that the reason we're able to grow at these higher rates is because we have a very disciplined execution. We're very focused on loan growth. And don't forget that if you just look at the comparison of deposit, we're #5 in the State of Texas. The 4 banks bigger than we are, 3 of them are too big to fail, and they have 55% of the deposits and, obviously, lots of loans. The 4 banks below us have about 8% of the deposits and fewer loans. And so there is a good opportunity. We're competing against the big guys, and we'll continue to be aggressive. We have been very successful in our public funds area, but primarily in nonprofits like hospitals and expansion of schools have been a good opportunity, and we picked up some really good relationships in that regard. That have a multiplier effect of taking care of these large non-profits. The boards of those are substantial individuals and see what we're doing for them, and it's led to some other business.

Jon, this is Phil. I think that we don't want to leave the impression that we don't expect to have loan growth. I mean, we do. But you know us. I mean, if someone throws a number out there and say, "Are you going to grow this?" I mean, we're not that comfortable promising numbers or percentages, so we need to hedge that a little bit. But I think everything you heard Dick say is we anticipate, we fully expect to have loan growth. But we always want to be careful with what we promise on percentages.

Yes. Let me just share something else with you. We saw in the first quarter that our growth of new loans, 64% came from prospects. You've heard me say many times that you -- over a long history, 80% of your growth comes from existing customers, and I think that's something to remember, but it's refreshing to see the opportunities we're getting from new customers. It's a tough fight out there with a short stick, but we -- our people are doing a good job. We're doing -- our calling discipline is very strong. We're doing better planning on the leads that we call on and we're doing better team calls. And what I mean by that, where we have insurance business from a customer, is we ensure we -- see if we can't get a loan opportunity and all the mixtures of treasury management and trying everyone in the world to work as a team, and we have a real disciplined approach to that. I also would say to you, we've been saying to you for over 5 years that we believed that building new relationships would start to pay off. And while I don't have specifics, we are seeing that, and it's proving in the base that we're not only getting deposits from these customers but we're starting to get loan opportunities, which was the whole strategy that we had in building the base of the company.

And you have a question from Matthew Keating with Barclays.

Could you let us know your shared national credit balance at the end of the quarter? I think it was $628 million at 4Q. Did that go up or down this quarter?

At the end of March 31, we were $669 million. That's up $41 million from December 31. We continue to -- it stays a little over 60% are energy, and really didn't change that percentage much.

And then just a question on capital redeployment strategy. I think, in the past, you've kind of talked about wanting to reserve capital for opportunistic M&A and for dividends and just for organic growth. Maybe -- obviously, you switched to the accelerated share repurchase this quarter. Can you just talk about your thoughts, generally, on capital return and maybe comment on the M&A environment?

Well, I'd say, just with regard to capital return, what we said when we did the preferred stock issuance is that we were really -- we're -- we weren't reducing our level of Tier 1 capital. What we were doing is recasting Tier 1 from common into the perpetual preferred because regulators gave you that opportunity to do that in the capital rules. And so the reason we didn't reduce our absolute level of common equity -- or of Tier 1 capital was because we don't know what the rules are. And the regulators won't tell you what they are because they don't know. And so we can't tell you how capitalized we are until we know what the final rules are. We can't tell you right now if we were going to have to capitalize OCI or not, and that's a crazy way to regulate an industry, but that's where we are. And so I can't really say definitively where we are with regard to capital returns until we know what those numbers are. Obviously, historically, what we have done is we always said we've historically done acquisitions first with excess capital, and then we've made sure our dividend is strong, and then when we didn't have opportunities in those other -- in those areas, we did share repurchases. And I don't think anything has changed with regard to our view concerning those 3 alternatives.

I'll just add to what Phil said, that in regard to acquisitions, you've heard me say it a thousand times, that we're aggressive lookers and conservative buyers, and that remains true today. Interesting enough, in the last 90 days, in the smaller banks in the state of Texas, there has been a change. You're seeing more mergers of small bank with another smaller bank, and I assume that, that is a movement to try to deal with the added expense of all the overregulation that's been put onto the banking system. I'm not sure that will work, but if you're not making much money, then you just make more volume, is kind of what I've seen in the past. But there is a change. Prices have come up a little bit in regard to the very bottom. But there may be the beginning of a trend of smaller getting together to try to fight this cost issue that they're faced with. For us, we will continue to look hard for the opportunities, but when you're growing at -- organically at the rate we're growing, we really like that. And our disciplines of calling, as I've talked about, are very good. And our quality of service, as you've heard us talk about, and another recognition by J.D. Power and Associates this year on the retail side, we're taking very good care of customers. And with the ATM expansion, that's making more convenience for our customers across the state. So there is a lot of things, and not to mention our new app that just was released, and it has had phenomenal results. And so there's a lot of things happening to continue to grow this company organically.

And we have no further questions. Dick, you may continue.

Thank you very much. Well, this concludes our first quarter 2013 conference call. We thank you for your interest. We stand adjourned.

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