Cullen/Frost Bankers(CFR) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3 2022, Cullen/Frost earned $168.1 million or $2.59 per share, compared to $106.3 million or $1.65 per share in Q3 2021, and $117.4 million or $1.81 per share in Q2 2022 [7] - Return on average assets and average common equity were 1.27% and 20.13%, respectively, indicating strong performance and effective growth strategies [8] - Average loans, excluding PPP, were $16.75 billion, a 13% increase from $14.82 billion in Q3 2021, and a 5% increase on a linked-quarter basis [9] Business Line Data and Key Metrics Changes - Average consumer loans reached $2.1 billion, up 15.9% year-over-year, primarily driven by consumer real estate products [12] - New commercial commitments totaled $2.04 billion, up 12% year-over-year, but down 7% from the previous quarter [10] - Total delinquencies, excluding PPP, were $80.5 million, or 48 basis points of total loans, indicating stable credit quality [17] Market Data and Key Metrics Changes - Average deposits in Q3 were $45.8 billion, a 17% increase compared to Q3 2021, and up 9.6% on an annualized basis from the previous quarter [11] - The Houston expansion branches generated approximately $1 billion in deposits, with loans of $765 million and over 18,000 new households [13] - The Dallas branches opened earlier in the month achieved 356% of deposit goals and 290% of loan goals [14] Company Strategy and Development Direction - The company is focused on sustainable organic growth, with a strategy to expand its presence in Texas through new branches and enhanced customer relationships [20] - A new mortgage loan process is being developed, with plans for a pilot program to launch soon [16] - The company aims to maintain a strong customer service focus while investing in technology and marketing to enhance its competitive position [64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic challenges, emphasizing strong credit quality and effective risk management [20][81] - The outlook for consumer loans remains positive, with expectations for continued growth in the consumer banking sector [12] - Management indicated that they do not foresee significant issues with asset quality, despite potential risks in commercial real estate [81] Other Important Information - The net interest margin for Q3 was 3.01%, up 45 basis points from the previous quarter, driven by higher yields on loans and balances held at the Fed [22] - Total noninterest expenses increased by $11.6 million or 4.7% from the previous quarter, primarily due to higher salaries and wages [29] - The effective tax rate for Q3 was 14%, with expectations for the full year to be in the range of 13% to 14% [30] Q&A Session Summary Question: What drove the growth of noninterest-bearing deposits? - Management noted that while there are concerns about larger balances, they have managed to offset reductions and continue to build relationships, with 55% of deposit growth from existing customers and 45% from new customers [33] Question: What is the outlook for the TCE ratio? - Management indicated that the TCE ratio is not a major concern, and future movements will depend on interest rates rather than just payoffs [35][36] Question: How is the customer reception to higher deposit rates? - Management reported continued growth in retail numbers and deposits, indicating a positive reception to higher rates [41] Question: What are the expectations for net interest income (NII) and net interest margin (NIM)? - Management expects NIM and NII to increase in Q4, with a positive trajectory into 2023 [47] Question: What is the outlook for deposit growth in 2023? - Management anticipates softer growth compared to previous quarters, particularly for larger customers, but remains optimistic due to branch expansions and competitive rates [56] Question: Are there any concerns regarding asset quality trends? - Management stated that there are currently no significant weaknesses in asset quality, although they are monitoring commercial real estate closely [81] Question: What is the plan for branch expansion? - Management plans to open approximately 20 more branches in Dallas and Houston, continuing to explore attractive markets in Texas [87][88]