Yahoo Finance Cullen/Frost Bankers Inc (CFR) Q1 2024 Earnings Call Transcript Highlights: Navigating ...
Net Income: $134 million in Q1 2024, down from $176 million in Q1 2023.
Earnings Per Share (EPS): $2.06 in Q1 2024, compared to $2.70 in Q1 2023.
Return on Average Assets: 1.09% in Q1 2024, down from 1.39% in Q1 2023.
Return on Average Common Equity: 15.22% in Q1 2024, down from 22.59% in Q1 2023.
Average Deposits: $40.7 billion in Q1 2024, a decrease of 4.8% from $42.8 billion in Q1 2023.
Average Loans: Grew 10.4% to $19.1 billion in Q1 2024 from $17.3 billion in Q1 2023.
Net Interest Margin: 3.48% in Q1 2024, up from 3.41% in the previous quarter.
Net Charge-offs: $7.4 million in Q1 2024, compared to $10.9 million in the previous quarter and $8.8 million in Q1 2023.
Nonperforming Assets: Totaled $72 million at the end of Q1 2024, up from $62 million in the previous quarter and $39 million in Q1 2023.
New Commercial Relationships: Increased by 10% year-over-year to 825 in Q1 2024.
Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: I guess starting off with the NII guide. So you guys are leaving it intact despite you're getting less cuts, the loan growth sounds like it's coming in a little bit stronger than even your revised high single-digit guide. So I guess it's just -- it's the higher the higher funding cost pressure that's keeping it intact? Just a little more color on the NII dynamics. A: Jerry Salinas, Group Executive VP & CFO - Yes. That's certainly some of that. And also, we're talking about higher for longer. As we've talked about the competitive field out here for deposits, I think the higher that risk, the longer that rates stay higher, I think we'll continue to see more pressure on deposits. We've been talking obviously for a while now about customers looking for higher yields. And I think that pressure will just continue.
Q: Maybe to start, so to follow up on Casey's question on NII. Jerry, last quarter, I thought you said that NII up 2% to 4%. I was assuming 5 rate cuts. But if we didn't get any cuts, we would add like 1.5% to that increase. Is it still the same? If we get no cuts as you're thinking 1.5% above? Or has that potential improvement lessen now? A: Jerry Salinas, Group Executive VP & CFO - It probably lessens a little bit now. A part of it again is when we're talking -- this whole conversation is about the noninterest-bearing deposits. And obviously, that's a big impact on that number. So given what the pressure that we saw there, a little bit more than we expected in the first quarter.
Q: Back on the NII guide, I was just wondering what your assumptions are for liquidity trends you're baking into that? It sounds like you made some securities purchases this quarter. Is the plan to grow that book some from here to reduce some of that cash and take some of the asset sensitivity off the table? And if you have those purchase yields on those different segments, that would be great. A: Jerry Salinas, Group Executive VP & CFO - Sure. Yes, on the -- let me give you those purchase yields first. I'll let that right here. So in the agencies, we bought at a [549] and the municipals at a [518] TE. What we're doing right now is I don't see liquidity moving very much during the year. Loan growth has obviously been better than we expected. We have been targeting investment purchases of about $1.6 billion is I think the guidance that I've given, $1.5 billion, $1.6 billion for the year. We're talking about scaling that back somewhat. Part of it is we just want to continue to be opportunistic in this environment.
Q: Good afternoon. I wanted to ask about deposit pressure. And most banks spoke about how deposit pressure eased in the first quarter. Do you think there's something related to your specific customer mix or the fact that you are accelerating growth in new markets, what do you think is driving that incremental pressure on deposit costs for you guys relative to what we're seeing in the broader market? A: Jerry Salinas, Group Executive VP & CFO - From a cost standpoint, I will say that we're really not feeling from a market standpoint, not feeling a lot of pressure on the deposit cost side. We need to be competitive and we are. I think we've got a -- we've decided we're competing primarily on the 90-day CD. It's really more of the pressure is coming on the noninterest-bearing.
Q: A couple of questions. Phil, should we expect the potential problem loans to continue to migrate higher? Or is that not necessarily true? A: Phillip D. Green, Chairman of the Board & CEO - Yes, John, first of all, I'll say probably loans, right? The old potential problem loans is a category that we don't use anymore, but the risk grade 10 and higher, could we expect the increase I would say maybe. And the reason I say that is because we were at such low levels. Really, the industry is at unsustainably low levels with everything coming out of the pandemic for credit quality, right? And so -- we're still not where we are, I would say, normal. And so -- but we are seeing some, what I would call, some reversion to me. So that would tell me, yes, we probably ought to expect it to go up some.
Q: Just one quick one, Jay, for you. Around the securities book, sorry if I missed this, should we expect, one, the securities portfolio to grow from 1Q average levels or stay flat? And second, could you confirm, I think you mentioned you have another $1 billion of securities that you expect to buy, what the pickup in the yield is on reinvestment versus what's rolling off? A: Jerry Salinas, Group Executive VP & CFO - Yes, I would expect all things being equal, we may be down a little bit, but it's going to be relatively flat. We're expecting cash flow, I think, of about $1.2 billion and the weighted yield of those are about a 2.26. And that's impacted somewhat. We've got $500 million that doesn't mature until the fourth quarter, and those are some treasury securities at 96 basis points.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
