Cullen/Frost Bankers in San Antonio reported a strong second quarter underpinned by solid loan growth, but investors showed disappointment in its progress at widening margins after recent Federal Reserve rate hikes.
The $30.1 billion-asset bank’s net interest margin for the second quarter was 3.70%, which was six basis points higher than in the first quarter and 13 basis points better than a year earlier.
Cullen/Frost executives told analysts on a conference call Thursday to expect the margin growth for 2017 to be in line with the first half of the year, Brady Gailey at Keefe, Bruyette & Woods said. Observers had had higher expectations for the second-quarter margin figure and the full-year performance, Gailey explained.
“It’s not going to be as big of an advantage near term as people thought,” Gailey said in referring to the rest of 2017 and early 2018. “Net interest margin expectations have to be peeled back a little bit.”
Perhaps as a result, the company’s stock fell nearly 5% Thursday, to $91.76.
That said, the company reported second-quarter net income of $83.5 million, a 20.1% increase from the year-earlier period. Its $1.29 diluted earnings per share matched the consensus of analyst expectations, according to FactSet Research Systems.
Total loans were $12.3 billion, up 6.4%. Net interest income was $214.8 million, an increase of 12.7%.
That loan growth will pay off the long run, Cullen/Frost Chairman and CEO Phil Green says.
"We continue to benefit from increases in loan volumes throughout our portfolio, and we're well positioned as interest rates rise," Green said in a news release Thursday.
Noninterest income rose nearly 4% to $81.1 million; that included a 6.7% gain in service charges on deposit accounts to $21.2 million. The company attributed the increase to trust and investment management fees, which rose 6.6% to $27.7 million.
Noninterest expenses rose 4.8% to $188.1 million, partly because of a 32.7% increase in deposit insurance costs to $5.6 million. The loan-loss provision decreased 8.3%, down to $8.4 million.
“Their earnings number was roughly in line with estimates, so if you look at the quarter, it’s a pretty nice quarter. I just think everybody thinks it might be a bit slower to see if it benefits from rising rates than what we previously thought,” Gailey said.