Cullen/Frost Bankers(CFR)2023-07-28 00:37Financial Data and Key Metrics Changes - In the second quarter, the company earned 2.47 per share, representing a 36.6% increase from 1.81 per share, in the same quarter last year [29] - Return on average assets and average common equity were 1.30% and 19.36% respectively, compared to 0.92% and 13.88% for the same period last year [41] - Non-performing loans totaled 39.1 million at the end of the first quarter [47] Business Line Data and Key Metrics Changes - The commercial and private banking business saw a 33% increase in new customer relationships year-over-year, with 1,145 new relationships added [31] - Consumer loans ended the quarter at 0.05 to quarterly earnings per share, with a 31% linked quarter annualized growth in average balances for deposits [52] Market Data and Key Metrics Changes - Houston led all regions with 333 net new relationships, up 63% from the previous quarter [32] - The company plans to double its locations in the Austin area from 17 to 34, capitalizing on its position in Texas's third-largest deposit market [35] - The Gulf Coast and Victoria regions produced 68 net new relationships, up by 48% [32] Company Strategy and Development Direction - The company is focused on growing its business and winning competitively, particularly in the Austin market [21] - Expansion efforts in Houston and Dallas are showing strong performance, with Dallas expansion currently at 226% of new household goals [46] - The company aims to maintain high ethical standards and safe sound assets while building long-term relationships [30] Management's Comments on Operating Environment and Future Outlook - Management expects non-performing loans to increase but remains optimistic about credit quality, stating that problem loans are still low by historical standards [10][22] - The company is cautious about the economic environment but believes in the strength of its underwriting and customer relationships [20] - Management anticipates that the pace of deposit outflows will slow down, but uncertainty remains due to attractive risk-reward options for customers [56] Other Important Information - The net unrealized loss on the available-for-sale portfolio increased to 148 million [53] - The company did not take on any federal home loan bank advances or utilize any brokered deposits during the quarter [43] - The effective tax rate for the first six months of the year was approximately 16% [59] Q&A Session Summary Question: What should we expect on nonperformers? - Management expects non-performing loans to increase but emphasizes that they are currently at low levels and manageable [9][10] Question: How long does it take Houston 1.0 to reach corporate-wide profitability? - It is projected to take about 27 months for Houston 1.0 to break even [24] Question: What is the financial impact of the Austin expansion? - Significant impacts are not expected in 2023, with more substantial effects anticipated in the following year [95] Question: Why are non-interest-bearing deposits continuing to decline? - Management noted that customers are taking longer to stabilize their operating cash needs, leading to continued outflows [91] Question: What is the outlook for deposit beta next year? - Management does not expect much change in deposit beta, aiming to remain competitive with peers [130]