Cullen/Frost Bankers(US:CFR)2022-07-28 21:02Financial Data and Key Metrics Changes - In Q2 2022, Cullen/Frost earned $117.4 million or $1.81 per share, compared to $116.4 million or $1.80 per share in the same quarter last year, and $97.4 million or $1.50 per share in Q1 2022 [7] - Return on average assets and average common equity in Q2 was 0.92% and 13.88% respectively [7] - Net interest margin percentage for Q2 was 2.56%, up 23 basis points from 2.33% in the previous quarter [22] Business Line Data and Key Metrics Changes - Average loans, excluding PPP, in Q2 were $16.5 billion, a 13.2% increase from $14.6 billion in Q2 2021 [8] - Consumer loan growth was strong, with average consumer loans growing by 20.6% on a linked quarter annualized basis [12] - Average deposits in Q2 were $44.7 billion, an increase of 16.9% compared to Q2 last year [10] Market Data and Key Metrics Changes - The weighted 90-day pipeline was up 9% from a year ago, although it was down 2% on a linked quarter basis [9] - New loan opportunities increased 10% year-over-year and 9% on a linked quarter basis [9] - Public fund balances negatively affected linked quarter growth, with average balances down $400 million [28] Company Strategy and Development Direction - The company is focused on maintaining strong deposit growth as part of its long-term relationship-building strategy [10] - Expansion efforts in Houston and Dallas are showing positive results, with the company exceeding its deposit and loan goals in both markets [13] - A new mortgage product is expected to launch by the end of the year, aimed at enhancing customer experience [14] Management's Comments on Operating Environment and Future Outlook - Management noted no signs of increasing loan delinquency despite broader economic uncertainties [14] - The company is optimistic about maintaining strong loan growth and is not currently seeing significant credit issues [56] - Management expects total non-interest expenses to increase at a low double-digit percentage rate over 2021 levels due to wage increases and expansion efforts [29] Other Important Information - The effective tax rate for Q2 was 14.8%, with expectations for the full year to be around 13% to 14% [30] - The company has helped over 98% of its PPP borrowers with forgiveness, showcasing its commitment to customer support [18] Q&A Session Summary Question: What was the thought behind driving strong growth in interest-bearing deposits? - Management emphasized a cultural decision to provide a fair value proposition to customers, recognizing the importance of trust in the banking relationship [34][36] Question: How should deposit betas be thought of through the cycle? - Management indicated that historical betas were about 30% on interest-bearing deposits and 20% on total deposits, which is what they are currently assuming for 2022 [39] Question: Was the goal for new markets too low? - Management explained that goals were based on historical performance, and they are encouraged by the results in Dallas, which could potentially outperform Houston [42] Question: What is the outlook for expenses in the second half of the year? - Management expects a deceleration in expense growth as many increases have already been built into the base [46] Question: How is credit quality being managed? - Management stated that they are comfortable with their current reserve levels and are not seeing signs that would necessitate provisioning [56][75] Question: How are competitors behaving in terms of risk appetite? - Management noted some marginal improvement in competitive structure but indicated that competition remains strong, particularly in commercial real estate [78]