Cullen/Frost Bankers, Inc. (NYSE:CFR) Q3 2017 Earnings Conference Call - Final Transcript

Oct 26, 2017 • 11:00 am ET

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Cullen/Frost Bankers, Inc. (NYSE:CFR) Q3 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning. My name is Marcella, and I will be your conference operator today. I'd like to welcome everyone to the Cullen/Frost third quarter earnings conference call. (Operator Instructions) Mr. Greg Parker, you may begin your conference.

Executive
Greg Parker

Thank you, Marcella. This morning's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group Executive Vice President and CFO. (Forward-looking Cautionary Statements) 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'll turn the call over to Phil.

Executive
Phil Green

Thank you, Greg. Good morning, and thanks for joining us. Today, I'll review third quarter 2017 results for Cullen/Frost, and our Chief Financial Officer, Jerry Salinas, will also provide additional comments before we open it up for your questions.

In the third quarter, Cullen/Frost reported $1.41 per diluted common share, and that compared to $1.24 in the same quarter last year and $1.29 in the second quarter of this year. This is very good quarter for Frost. Besides the excellent earnings, our return on average assets exceeded 1.19%, which is the highest level since the first quarter of 2012. And we also reversed the trend of declining money market deposits and showed strong growth in loans.

During the quarter, average loans were $12.6 billion, and this represents an increase of approximately 10% over the third quarter of last year and on a linked quarter annualized basis. Our provision for loan losses was just under $11 million in the third quarter, and it was up from $8.4 million in the second quarter. Although the impact of the Gulf Coast storms to our third quarter results has been pretty nominal, we believe it's prudent to recognize the possibility of lingering impacts in the future.

Nonperforming assets totaled $150 million in the third quarter. It was an increase from the total of $90.2 million in the second quarter. And while our energy portfolio continues to improve significantly, some of these credits are still moving through the snake, as I've said before towards their final resolution. And we can talk more about them in your questions.

Net charge-offs in the third quarter of 2017 were $6.2 million, and that compared with $11.9 million in the previous quarter and was $5 million in the third quarter of 2016. Annualized net charge-offs represent just 20 basis points of average loans for the third quarter. Overall delinquencies for accruing loans at the end of the third quarter were only 62 basis points of period-end loans, and all this is -- although this is a slight increase from the 58 basis points in the second quarter, it's still one of the lowest totals in more than 2 years.

Total problem loans, defined as risk grade 10 and higher, many of you know these as criticized, classified and doubtful