Cullen/Frost Bankers Inc.'s second-quarter profits beat Wall Street's expectations as stable credit costs and margin expansion offset another quarter of balance-sheet contraction.
Though many other banking companies have expressed concerns about credit quality and margins, executives at Cullen/Frost gave analysts an upbeat assessment of both Wednesday. Related Links
"If we see loan volumes increase, we should see some additional strength in margins," said Phillip Green, the $12.9 billion-asset San Antonio company's chief financial officer. "Even if the volumes remain flat, we should be more stable."
Cullen/Frost's margin expanded 5 basis points from the first quarter, to 4.72%. Its loan-loss provision was unchanged, at $2.65 million. Net chargeoffs rose just 5.1%, to $2.7 million, while nonperforming assets fell 2.8%, to $45.5 million.
"Given what we're seeing in credit trends, … I would tend to say that the probability is leaning more toward a decrease than an increase [in provisions] right now," Mr. Green said.
Second-quarter profits rose 13.3% from the first quarter and 10.5% from a year earlier, to $53.6 million, or 89 cents a share, which beat the average of analysts' estimates by a penny, according to Thomson Financial.
The December purchase of Summit Bancshares Inc. of Fort Worth helped buoy Cullen/Frost results.
Largely because of the margin expansion, Cullen/Frost's net interest income rose 1.5% from the first quarter, to $133.1 million.
Intense competition for loans within the company's core Texas markets is a lingering issue. Its loan portfolio shrank 0.6% from the first quarter, to $7.4 billion. Deposits fell 1%, to $10.2 million.
Richard Evans Jr., Cullen/Frost's chairman, president, and chief executive, told analysts on a conference call that competitors beat his company out of about $500 million of loans during the quarter by offering more favorable pricing or terms.
Mr. Evans said his lenders have increased their prospecting.
"There's no question that there's plenty of opportunity, and our staff has been riding the bicycle pretty fast," he said. "We're just going to have to stay more focused."
The number borrowers paying down their loans rose during the second quarter, Mr. Evans said. "I would hope that the reason why we're experiencing a higher payoff is we have higher-quality customers."
