Cullen/Frost Bankers, Inc. (NYSE:CFR) Q2 2018 Earnings Conference Call - Final Transcript

Jul 26, 2018 • 11:00 am ET

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Cullen/Frost Bankers, Inc. (NYSE:CFR) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the Cullen/Frost Bank second quarter earnings conference call. My name is Amy, and I would be facilitating the audio portion of today's interactive broadcast. (Operator Instructions) At this time, I would like to turn the show over to Mr. A.B. Mendez, SVP and Director of IR. Mr. Mendez, you may begin.

Executive
A.B. Mendez

Thank you, Amy. This morning's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group EVP and CFO.

(Forward-Looking Cautionary Statements)

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

Executive
Phillip Green

Thanks, A.B., and welcome to the IR team. And I'd also like to thank Greg Parker who's been managing IR for Frost for about the past 20 years. Greg's done an outstanding job for us. Greg, thank you and congratulations on your new role in Operational Risk.

Well, good morning, everyone, and thanks for joining us. Today, I'll review second quarter's results for Cullen/Frost, and our CFO, Jerry Salinas will also provide additional comments before we open it up to your questions.

In the second quarter, Cullen/Frost earned $109.3 million or $0.168 (ph) per diluted common share, which represents a 30% increase compared with the same quarter last year. Our solid second quarter earnings were the result of Frost Bankers executing the strategy that we discussed over the past several quarters, focusing on sustainable above average organic growth. Along with the excellent earnings, our return on average assets reached 1.43% in the second quarter, the highest quarterly total in 9 years.

Now I'd like to offer some details about the elements that go into this growth. We continue to build our loan portfolio while maintaining our quality standards. During the second quarter, average loans were $13.5 billion. This represents an increase of more than $1.2 billion or just over 10% versus the second quarter last year. C&I loans grew 10% and commercial real estate loans grew 11%. Our provision for loan losses was $8.3 million in the second quarter and that compared to $6.9 million in the first, and $8.4 million in the second quarter 2017.

Nonperforming assets totaled $122.8 million in the second quarter. This was down 10% from the $136.6 million in the first quarter. Potential problem loans totaled $50 million at the end of the second quarter. That's our lowest level in more than 3 years and it matches levels prior to the energy downturn.

Net charge-offs in the second quarter of 2018 were $7.9 million compared with $12.4 million in the first quarter and $11.9 million in the second quarter of last year. The lower total represents continued improvement in credit quality and maintaining higher loan standards. As expected, second quarter annualized net charge-offs dropped to a level of 23 basis points of our average loans. Overall, delinquencies for accruing loans at the end of the second quarter were $67 million or 49 basis points appeared in loans. That's a number well within our standards and comparable to what we've experienced in the past 2.5