Cullen/Frost Bankers, Inc. (NYSE:CFR.PRA) Q2 2016 Earnings Conference Call - Preliminary Transcript

Jul 27, 2016 • 11:00 am ET

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Cullen/Frost Bankers, Inc. (NYSE:CFR.PRA) Q2 2016 Earnings Conference Call - Preliminary Transcript

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Presentation
Operator
Operator

Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bank's Second Quarter Earnings Conference Call. [Operator Instructions].

I would now like to turn today's call over to Mr. Greg Parker, Executive Vice President and Director of Investor Relations. Mr. Parker, you may begin.

Executive
Greg Parker

Thank you, Nicole. This morning's conference call will be led by Phil Green, Chairman and CEO and Jerry Salinas, Group Executive Vice President and CFO.

Before I turn the call over to Phil and Jerry, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available at our website or by calling the Investor Relations department at 210-220-5632.

At this time, I will turn the call over to Phil.

Executive
Phil Green

Thank you, Greg. Good morning and thanks for joining us. Today, I will review second quarter 2016 results for Cullen/Frost. Our Chief Financial Officer, Jerry Salinas, will also provide additional comments before we open it up to your questions.

In the second quarter, Cullen/Frost earned $1.11 per diluted common share, which is flat with the same quarter last year and up from $1.07 a share reported in the previous quarter. Looking overall at the second quarter, credit quality was stable and showed signs of improvement over the first quarter. Our provision for loan losses was $9.2 million compared to $28.5 million in the first quarter. Non-performing assets dropped by more than half from $180 million in the first quarter to $89.5 million in the second. Net charge-offs in the second quarter totaled $21.4 million, the vast majority of which were specifically reserved for in prior periods. We are seeing other signs of growth compared with the first quarter. While energy loans continue to drop, total loans outside the energy sector grew at an annualized rate of 7.9% between the first and second quarters. The first quarter of this year included one-time events like the net gain of $15 million from the sale of securities that reduced our concentrations in oil-dependent economies. It also included a more stringent regulatory debt to EBITDA standard, which we apply to our energy portfolio. The second quarter has been more towards a return to business as usual.

Looking deeper at credit quality, regarding the reduction in nonperforming assets, I mentioned earlier, nearly the entire reduction was a result of payoffs on three credits: two payoffs were energy credits totaling $62.8 million; the other was a payoff on a real estate credit of