Dave Rochester: Okay. Great. And maybe just one last quick one. On the 159-debt service coverage ratio you gave on the office book, that’s an updated figure for today’s rates. Is that right?
Phil Green: Yes, that’s where we stand on average today.
Dave Rochester: Okay. Great. Thanks guys.
Jerry Salinas: Hey Dave. I just want to make sure when I said around a little over 3%, that’s on an after-tax basis. I couldn’t remember if I said pretax after tax.
Dave Rochester: Okay. Thanks for that.
Operator: Thank you. The next question is coming from Brady Gailey of KBW. Please go ahead.
Brady Gailey: I wanted to start with your comment about growing the bond portfolio. I think on a net basis of about $2.2 billion in 2023. If you look at the amount of cash that Frost still has at least on an average basis in the fourth quarter, it was 24% of average earning assets. It feels like you could do potentially more than the $2 billion adding to the bond book, especially as the rates are more attractive today. Is there some possible upside to the amount of bonds that you’ll consider adding in ’23?
Jerry Salinas: Yes, that’s a possibility, obviously. Right now, what we’re really concerned with is, it’s just making sure we understand exactly what’s going on with deposits. I guess what I’d say is that it’s something that we’re talking about. Should we get the opportunity, if we think something we get an opportunity on the yield side with some sort of market correction, we could jump in. So there is that possibility. But I think right now, we’re really — the numbers that we’re giving is really kind of the way we’re modeling. Like I said, I never say never sort of thing, but I’d go with our projections. Let’s not forget that in 2022, we spent $8.6 billion, I think, grows. And in that year, we only had a little over $8.6 billion, we only had a little bit over $1 million in inflows.
So net we spent $7.5 million. So we’ve moved the needle quite a bit. And so, we’ve made some purchases already in January of this year of $1 billion, I think, roughly. So could we, yes, I don’t see that as a high probability at this point. But yes, that’s always a possibility given what happens in the market.
Brady Gailey: Okay. And then, my second question is on mortgage. Is that relatively new unit gets up and running for you guys, I think that’s an originated keep model, not an originated sell model. So as that business continues to mature, do you think that, that will push the loan growth outlook beyond the high single digits just because you’ll have that new lever of loan growth as you keep those mortgages.
Phil Green: Good question, Brady. I don’t know if it goes above high single digits, but it will be additive to it. I don’t really have it in my mind enough to know how much that would move the needle. But it’s going to be a significant part of the portfolio. The way I hope it turns out is, if you look 5 years out, it’d be the 10-ish percent of the portfolio back when we used to have them on the book before, I think we’re around that area, 10%, 12% of the portfolio. So I just think directionally, we’d be in that same level. So if you kind of took what would that be and what kind of volumes would that be, you could sort of pencil out how much that might add to growth.
Brady Gailey: Okay. Great. Thanks guys.
Operator: Thank you. The next question is coming from Manan Gosalia of Morgan Stanley. Please go ahead.
Manan Gosalia: I had a quick follow-up on the expense side. Are these expenses that you have pretty much set in stone for 2023? Or do you have some flexibility depending on which way the overall environment goes? And then, I also had a clarification on your comments on the run rate moving lower. Do you think that basically the growth rate moves lower off of the new expense base in 2023 as you go into 2024, or do you think as you get the new loan system and check processing system, et cetera, running and the old one rolls off, that the actual dollars can stabilize or come down as you go into ’24? Thanks.
Phil Green: Well, my comments really weren’t intended to indicate that the dollars would come down because, obviously, we’re growing company. We’re going to continue to invest. My point is that I don’t see us investing at the same level with some of these. I mean, for example, I didn’t mention it, but take mortgage, we have bootstrapped that operation. We spent some serious money doing it. It’s a fantastic product. It’s going to be a tremendous product for us going forward, but we don’t have to rebuild that next year. So we’re going to have that same level of cost structure and it will be higher because of inflation and growth, that kind of thing. But we’re not going to have to bootstrap it. So that’s really what I’m pointing out.
I think we’re making a lot of these generational investments that we’re really going to be trying to harvest and we’ll be dealing more with an increasing expense base, but just not increasing at the same level that we have been that’s my hope. That’s what we’re going to try to manage to.
Manan Gosalia: Got it. All right. Perfect. And then, a follow-up on the prior questions on the securities book. I guess even if you don’t get a market correction opportunity to make larger purchases you are, given that we’ve come off the highs in yields, what would change your strategy to maybe accelerate some of the investments in that securities book?
Jerry Salinas: Yes. I think that if we felt like there was a correction that was significant that got our attention. I think that we would accelerate that.
Manan Gosalia: Got it. And any thoughts on what — once the Fed begins to cut rates, what your cash position should look like as a percentage of earning assets?
Jerry Salinas: We’ve kind of been all over the board. I think the thing is today, you’re right, we’ve got more liquidity than we have had. I think that we feel comfortable being able to bring that down to something much more normalized. But we don’t have a number out there. A lot of it is going to be dependent on what we’re seeing. I think if you’ve got, say, something as far as earning assets are concerned, something in the range of 10% or lower, I mean I think we could be somewhere in that range.
Manan Gosalia: Got it. Thank you.
Operator: . The next question is coming from Peter Winter of D.A. Davidson. Please go ahead.
