- Earnings: $143.8 million or $2.21 per share, compared to $160.4 million or $2.47 per share in the same quarter last year.
- Return on Average Assets: 1.18%, down from 1.3% last year.
- Return on Average Common Equity: 17.08%, down from 19.36% last year.
- Average Deposits: $40.5 billion, down 1.2% from $41 billion last year.
- Average Loans: $19.7 billion, up 11% from $17.7 billion last year.
- Net Interest Margin: 3.54%, up from 3.48% last quarter.
- Net Charge-offs: $9.7 million, compared to $7.4 million last quarter and $9.8 million last year.
- Nonperforming Assets: $75 million, up from $72 million last quarter and $69 million last year.
- Problem Loans: $986 million, up from $810 million last quarter and $442 million last year.
- Consumer Loan Growth: Average balances up 22% year-over-year.
- Mortgage Loan Fundings: $76 million in the quarter, over three times the first quarter fundings.
- Consumer Deposits: Average balances up 1.4% year-over-year.
- New Commercial Loan Commitments: $1.98 billion, up 58% from the first quarter and 29% from last year.
- Investment Portfolio: Averaged $18.6 billion, down $696 million from the first quarter.
- Non-interest Income: Insurance commissions and fees down $4.4 million or 23.9% from the first quarter.
- Non-interest Expenses: Benefits expense down $7.2 million or 20% from the first quarter.
- Deposit Insurance: Down $6.3 million from the first quarter.
- Stock Buyback: $30 million, translating to over 300,000 shares at an average price of $99.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cullen/Frost Bankers Inc (CFR, Financial) reported strong loan growth, with average loans increasing by more than 11% year-over-year to $19.7 billion.
- The company's organic growth strategy continues to yield positive results, particularly in the Houston, Dallas, and Austin expansion projects.
- Consumer loan balances saw a significant increase of over 22% year-over-year, driven by record consumer real estate lending and new mortgage products.
- Cullen/Frost Bankers Inc (CFR) maintained a healthy net interest margin of 3.54%, up six basis points from the previous quarter.
- The company has been recognized for its outstanding service, with J.D. Power acknowledging its excellence for 15 consecutive years.
Negative Points
- Earnings per share decreased to $2.21 from $2.47 in the same quarter last year, reflecting a decline in profitability.
- Average deposits fell by 1.2% year-over-year, indicating a potential challenge in attracting or retaining depositors.
- Nonperforming assets increased to $75 million from $69 million a year ago, suggesting a rise in credit risk.
- The company experienced a mix shift in deposits, with non-interest-bearing deposits decreasing by 2.1% while interest-bearing deposits increased slightly.
- Problem loans, defined as risk grade 10 or higher, rose to $986 million from $442 million a year ago, driven by issues in the contractor and automobile dealer sectors.
Q & A Highlights
Q: You had good commercial loan growth. Can you talk about what drove the loan growth? Was it line utilization or share gains?
A: It was mainly growth rather than line utilization. We had strong new commitments, particularly in CNI and energy sectors, with well-underwritten deals and good structures. Our team worked hard, achieving the second-highest quarter of calls.
Q: On the commercial real estate side, you had good growth. Are you being opportunistic where others are stepping back? Will this continue to drive loan growth?
A: The balanced growth in C&I is driven by projects put in place in the past. While we are opportunistic, we continue to focus on banking people and relationships rather than just projects.
Q: Regarding your deposit strategy, you were quick to raise rates when the Fed started increasing them. Will you lower rates similarly quickly?
A: Yes, we plan to move down in the same manner we went up, while continuing to monitor the competitive environment.
Q: On the NII guidance, you previously mentioned a $1.4 million hit per 25 basis point rate cut. Is this still accurate?
A: Yes, but it might be slightly higher now, around $1.5 to $1.6 million, depending on liquidity levels.
Q: You saw strength in CNI, particularly in energy. Any other bright spots?
A: No specific areas stand out besides energy. Overall, we've seen good growth and opportunities.
Q: On the credit side, you mentioned an increase in problem loans, particularly in C&I. Any patterns or specific industries?
A: The increase was driven by contractors and automobile dealers, particularly used car dealers. We also had a couple of multifamily deals moved to risk grade 10 due to covenant issues.
Q: What's the drag to earnings or returns today due to the investment spend in new branches? Will there be more branch additions over the next five years?
A: We expect the expansion markets to be breakeven by 2026. We plan to continue expanding into attractive markets in Texas, as the strategy is durable and scalable.
Q: You mentioned net interest margin (NIM) expansion. Will this continue if there are rate cuts?
A: We expect NIM to trend slightly upward each quarter for the remainder of the year, even with rate cuts. We have opportunities to reprice investments and loans at higher rates.
Q: On expenses, you lowered the top end of the range for this year. What initiatives are driving this?
A: The increase in the second half is driven by restricted stock awards and true-ups of incentive plans. We are focused on necessary expenses and maintaining a tight ship.
Q: Are there opportunities to close or consolidate underperforming branches to manage expenses?
A: Yes, we are closing older locations and moving them to new ones with better growth prospects. We continuously evaluate underperforming branches.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
