Cullen/Frost Bankers(CFR) - 2024 Q1 - Quarterly Results

First Quarter 2024 Earnings Highlights Overview of Q1 2024 financial performance, including net income, EPS, and CEO commentary on growth Q1 2024 Financial Performance Overview Net income available to common shareholders decreased 20.4% to $134.0 million, impacted by FDIC assessment | Metric | Q1 2024 (Reported) | Q1 2024 (Adjusted for FDIC) | Q1 2023 | | :------------------------------------------ | :----------------- | :-------------------------- | :----------------- | | Net Income Available to Common Shareholders | $134.0 million | ~$140.1 million | N/A (implied by % change) | | Diluted EPS | $2.06 | $2.15 | $2.70 | | Return on Average Assets | 1.09% | 1.14% | 1.39% | | Return on Average Common Equity | 15.22% | 15.92% | 22.59% | - The Q1 2024 results were impacted by a $7.7 million ($6.1 million after tax) addition to the estimated FDIC special assessment[2] - Excluding this, net income available to common shareholders would have been approximately $140.1 million, and EPS $2.15[2] CEO Commentary CEO Phil Green highlighted solid Q1 earnings from organic growth, steady loans, and expanding customer relationships - Solid earnings for Q1 2024 are attributed to the company's organic growth strategy and the hard work of its bankers[9] - Frost experienced a steady increase in loans and consistent growth in both commercial and consumer relationships, reflecting enduring strength and stability[9] - The company continues to invest in future growth, including opening a second new location in its Austin expansion on April 1[9] Detailed Financial Review Comprehensive review of net interest income, non-interest income and expense, and credit quality for Q1 2024 Net Interest Income and Margin Net interest income decreased 3.4% to $411.4 million, with margin at 3.48%; average loans grew 10.4% | Metric | Q1 2024 | Q4 2023 | Q1 2023 | YoY Change (Q1 24 vs Q1 23) | QoQ Change (Q1 24 vs Q4 23) | | :-------------------------------------- | :--------------- | :--------------- | :--------------- | :-------------------------- | :-------------------------- | | Net Interest Income (Taxable-Equivalent) | $411.4 million | $409.9 million | $425.844 million | -3.4% | +0.37% | | Net Interest Margin | 3.48% | 3.41% | 3.47% | +0.01 pp | +0.07 pp | | Average Loans | $19.1 billion | $18.6 billion | $17.3 billion | +10.4% | +2.7% | | Average Deposits | $40.7 billion | $41.184 billion | $42.8 billion | -4.8% | -1.1% | - Average non-interest-bearing deposits were down $720.2 million (4.9%) from Q4 2023, while average interest-bearing deposits were up $261.0 million (1.0%) from Q4 2023[25] Non-Interest Income Total non-interest income increased 5.8% to $111.4 million, driven by trust fees and service charges | Non-Interest Income Category | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change ($M) | YoY Change (%) | | :------------------------------------ | :----------- | :----------- | :-------------- | :------------- | | Total Non-Interest Income | 111.4 | 105.3 | +6.1 | +5.8% |\ | Trust and Investment Management Fees | N/A | N/A | +2.9 | +8.1% |\ | Service Charges on Deposit Accounts | N/A | N/A | +2.9 | +13.3% |\ | Other Non-Interest Income | N/A | N/A | +0.991 | +8.5% | - The increase in trust and investment management fees was primarily related to an increase in investment management fees, driven by an increase in the value of customer assets under management[27] - Service charges on deposit accounts increased due to increases in commercial service charges ($1.4 million) and commercial and consumer overdraft charges ($1.3 million)[27] Non-Interest Expense Non-interest expense rose 14.4% to $326.2 million, primarily due to salaries, benefits, and FDIC assessment | Non-Interest Expense Category | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change ($M) | YoY Change (%) | | :---------------------------------------- | :----------- | :----------- | :-------------- | :------------- | | Total Non-Interest Expense | 326.2 | 285.1 | +41.1 | +14.4% |\ | Total Non-Interest Expense (Excl. FDIC) | N/A | N/A | +33.4 | +11.7% |\ | Salaries and Wages | N/A | N/A | +17.7 | +13.5% |\ | Employee Benefits | N/A | N/A | +2.0 | +6.0% |\ | Other Non-Interest Expense | N/A | N/A | +9.0 | +17.3% |\ | Technology, Furniture, and Equipment | N/A | N/A | +2.5 | +7.7% | - The increase in salaries and wages was primarily related to annual merit and market increases and an increase in the number of employees, partly due to investment in organic expansion in Houston, Dallas, and Austin markets[11] - Technology, furniture, and equipment expense increased by 7.7% primarily due to increases in cloud services expense[28] Credit Quality Credit loss expense increased to $13.7 million, with non-accrual loans rising significantly to $71.5 million | Metric | Q1 2024 ($M) | Q4 2023 ($M) | Q1 2023 ($M) | YoY Change (Q1 24 vs Q1 23) | | :---------------------------------------- | :----------- | :----------- | :----------- | :-------------------------- | | Credit Loss Expense | 13.7 | 16.0 | 9.1 | +49.9% |\ | Net Charge-offs | 7.3 | 10.9 | 8.8 | -16.3% |\ | Allowance for Credit Losses on Loans (% of total loans) | 1.29% | 1.31% | 1.32% | -0.03 pp |\ | Non-accrual Loans | 71.5 | 60.9 | 38.4 | +86.2% | - Non-accrual loans as a percentage of total loans increased to 0.37% in Q1 2024 from 0.22% in Q1 2023[12] Corporate Information and Outlook Key corporate details, dividend declarations, forward-looking statements, and investor relations information Dividend Declaration The board declared Q2 cash dividends of $0.92 per common share and $11.125 per Series B Preferred share | Dividend Type | Amount per Share | Record Date | Payment Date | | :------------------------ | :--------------- | :---------- | :----------- | | Common Stock | $0.92 | May 31, 2024| June 14, 2024|\ | Series B Preferred Stock | $11.125 | May 31, 2024| June 17, 2024|\ | Series B Depositary Share | $0.278125 | May 31, 2024| June 17, 2024| Company Profile Cullen/Frost Bankers, Inc., a San Antonio-based financial holding company, manages $49.5 billion in assets - Cullen/Frost Bankers, Inc. is a financial holding company headquartered in San Antonio, with $49.5 billion in assets at March 31, 2024[6] - Frost provides a wide range of banking, investments, and insurance services to businesses and individuals across Texas in key regions like Austin, Dallas, Houston, and San Antonio[6] - Founded in 1868, Frost has a history spanning three centuries, assisting clients with their financial needs[6] Forward-Looking Statements and Risk Factors Forward-looking statements are subject to risks from economic conditions, interest rates, regulations, and geopolitical events - Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected[15][32] - Factors that could affect future results include changes in monetary and fiscal policies, inflation, interest rates, economic conditions, credit performance, technological changes, cyber incidents, and regulatory developments[32] - Financial markets and global supply chains may also be adversely affected by current or anticipated impacts of global wars/military conflicts, terrorism, or other geopolitical events[16] Conference Call and Investor Relations A conference call for Q1 results was held on April 25, 2024, with playback and investor info online - A conference call to discuss Q1 2024 results was held on Thursday, April 25, 2024, at 1 p.m. Central Time (CT)[29] - Playback of the conference call was available until midnight Sunday, April 28, 2024[29] - Additional investor information and webcast replays are available on the Cullen/Frost investor relations website: https://investor.frostbank.com/[13](index=13&type=chunk)[29] Consolidated Financial Summary (Unaudited) Unaudited consolidated financial statements, including income statements, balance sheets, and capital ratios Condensed Income Statements Unaudited condensed income statements detail quarterly financial performance, including net income and EPS, for Q1 2024 and 2023 | Metric | 2024 1st Qtr ($K) | 2023 4th Qtr ($K) | 2023 3rd Qtr ($K) | 2023 2nd Qtr ($K) | 2023 1st Qtr ($K) | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Net interest income | $390,051 | $388,152 | $385,426 | $385,266 | $399,820 |\ | (1) Net interest income (Taxable-equiv) | 411,367 | 409,904 | 407,353 | 408,594 | 425,844 |\ | Credit loss expense | 13,650 | 15,981 | 11,185 | 9,901 | 9,104 |\ | Total non-interest income | 111,377 | 113,751 | 105,998 | 103,528 | 105,265 |\ | Total non-interest expense | 326,217 | 365,222 | 293,256 | 285,042 | 285,142 |\ | Income before income taxes | 161,561 | 120,700 | 186,983 | 193,851 | 210,839 |\ | Net income | 135,690 | 102,551 | 155,651 | 162,118 | 177,653 |\ | Net income available to common shareholders | $134,021 | $100,882 | $153,983 | $160,449 | $175,984 |\ | Earnings per common share - diluted | $2.06 | $1.55 | $2.38 | $2.47 | $2.70 |\ | Return on average assets | 1.09% | 0.82% | 1.25% | 1.30% | 1.39% |\ | Return on average common equity | 15.22% | 13.51% | 18.93% | 19.36% | 22.59% | Balance Sheet Summary and Asset Quality Summary of average and period-end balance sheet items, asset quality metrics, and consolidated capital ratios | Balance Sheet Metric | 2024 1st Qtr ($M) | 2023 4th Qtr ($M) | 2023 3rd Qtr ($M) | 2023 2nd Qtr ($M) | 2023 1st Qtr ($M) | | :---------------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Average Balance: | | | | | |\ | Loans | $19,112 | $18,609 | $17,965 | $17,664 | $17,319 |\ | Total assets | 49,324 | 49,087 | 48,804 | 49,317 | 51,307 |\ | Total deposits | 40,724 | 41,184 | 40,828 | 41,007 | 42,757 |\ | Shareholders' equity | 3,687 | 3,108 | 3,372 | 3,470 | 3,305 |\ | Period-End Balance: | | | | | |\ | Loans | $19,388 | $18,824 | $18,399 | $17,746 | $17,486 |\ | Total assets | 49,505 | 50,845 | 48,747 | 48,597 | 51,246 |\ | Total deposits | 40,806 | 41,921 | 40,992 | 40,701 | 42,184 |\ | Shareholders' equity | 3,638 | 3,716 | 3,000 | 3,387 | 3,468 | | Asset Quality Metric | 2024 1st Qtr ($K) | 2023 4th Qtr ($K) | 2023 3rd Qtr ($K) | 2023 2nd Qtr ($K) | 2023 1st Qtr ($K) | | :---------------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Allowance for credit losses on loans | $250,297 | $245,996 | $242,235 | $233,619 | $231,514 |\ | As a percentage of period-end loans | 1.29% | 1.31% | 1.32% | 1.32% | 1.32% |\ | Net charge-offs | $7,349 | $10,884 | $4,992 | $9,828 | $8,782 |\ | Non-accrual loans | $71,515 | $60,907 | $67,175 | $67,781 | $38,410 |\ | As a percentage of total loans | 0.37% | 0.32% | 0.37% | 0.38% | 0.22% | | Capital Ratio | 2024 1st Qtr | 2023 4th Qtr | 2023 3rd Qtr | 2023 2nd Qtr | 2023 1st Qtr | | :---------------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Common Equity Tier 1 Risk-Based Capital Ratio | 13.41% | 13.25% | 13.32% | 13.42% | 13.24% |\ | Tier 1 Risk-Based Capital Ratio | 13.89% | 13.73% | 13.81% | 13.92% | 13.74% |\ | Total Risk-Based Capital Ratio | 15.35% | 15.18% | 15.28% | 15.39% | 15.22% |\ | Leverage Ratio | 8.44% | 8.35% | 8.17% | 8.11% | 7.69% |\ | Equity to Assets Ratio (period-end) | 7.35% | 7.31% | 6.15% | 6.97% | 6.77% | Taxable-Equivalent Yield/Cost and Average Balances Details taxable-equivalent yields on earning assets, costs on interest-bearing liabilities, and corresponding average balances | Metric | 2024 1st Qtr | 2023 4th Qtr | 2023 3rd Qtr | 2023 2nd Qtr | 2023 1st Qtr | | :---------------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Earning Assets Yields: | | | | | |\ | Interest-bearing deposits | 5.40% | 5.39% | 5.33% | 5.05% | 4.57% |\ | Loans, net of unearned discounts | 7.00% | 6.92% | 6.83% | 6.64% | 6.36% |\ | Total earning assets | 5.13% | 5.00% | 4.92% | 4.77% | 4.57% |\ | Interest-Bearing Liabilities Costs: | | | | | |\ | Total interest-bearing deposits | 2.34% | 2.27% | 2.12% | 1.87% | 1.52% |\ | Total interest-bearing liabilities | 2.54% | 2.48% | 2.33% | 2.11% | 1.79% |\ | Net interest spread | 2.59% | 2.52% | 2.59% | 2.66% | 2.78% |\ | Net interest income to total average earning assets | 3.48% | 3.41% | 3.44% | 3.45% | 3.47% | | Average Balances ($M) | 2024 1st Qtr | 2023 4th Qtr | 2023 3rd Qtr | 2023 2nd Qtr | 2023 1st Qtr | | :---------------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Earning Assets: | | | | | |\ | Interest-bearing deposits | $7,356 | $7,047 | $6,747 | $6,880 | $8,687 |\ | Loans, net of unearned discount | 19,112 | 18,609 | 17,965 | 17,664 | 17,319 |\ | Total earning assets | 45,883 | 45,579 | 45,366 | 45,929 | 47,904 |\ | Interest-Bearing Liabilities: | | | | | |\ | Total interest-bearing deposits | 26,748 | 26,487 | 26,005 | 25,776 | 26,121 |\ | Total interest-bearing liabilities | 30,791 | 30,488 | 29,785 | 29,750 | 30,606 |