The big picture has not changed since Q2-10. Texas economy is still growing [due to exposure to energy and high tech] but appears to be cooling. Customers are telling us 'call me after the election' due to wanting more clarity in their outlook. CFR's decision to exit consumer mortgages back in 2000 looks to have been a great move.
EPS, ROA, ROE, NII, non-interest income and deposits [both from average balances and the number of accounts] are up. NIM and average loans are down slightly. CFR's calling efforts are paying off. 85% of our loan requests had been from existing customers prior to the downturn. Existing customer now account for only 70% of loan requests at the end of this quarter.
Assuming QE2 goes through, will there continue to still be pressure on margins? CFR: Yes, the turnover on securities at lower yields - that alone will put pressure on the margin. And the average duration of the portfolio is now down to 2.42 years.
Will expenses costs be going up? CFR: Due to technology costs, new regulatory expenses, and some compensation costs, those will drive expenses up.
As long as gas is above $3, due you feel comfortable with your energy portfolio? CFR: Yes. Economic half life [of the wells?] is about 7 years. Finding costs are low - but fracing costs are high.
What are your numbers for loan utilization stats? CFR: Line usage is in the high 40s - but most important factor is that the amount of the credit lines is going down. NPL inflows was flat for first, second and third quarters. 30-89 day past dues is now the lowest in 7 or eight quarters. The CFR Watch list was up $7 million. CFR added a couple of contractors. Any new renegotiated loans this quarter? CFR: No.
Texas munis at 5% yields. There are a lot of people who are not buying them due to not having the income that would generate a need to have tax free - but you can not load up on the tax free munis due to duration risk.
What are your thoughts on stock buy-backs? CFR: Rules for capital requirements is still not clear. If we do not see any acquisition to put capital to use, the board will consider that.
Can you provide any color on NIM? CFR: We think there is a bubble in credit pricing [all securities] right now. It is in securities and not loans that will cause any pressure on NIM. But the industry just has to increase the margins on loans right now - we have to get paid for the risk. The decrease in NIM compared to last quarter was due to increased liquidity.
Given you think there is a bubble in security pricing - and thoughts on selling off that portfolio? CFR: No. If we took gains, then we would just have to go back into the market [at lower yields].