Cullen/Frost Bankers, Inc.

Greetings. Welcome to the Cullen Frost Bankers, Inc. Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Director of Investor Relations, A.B. Mendez. Thank you. You may begin.

Thanks, Alex. Our conference call today 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 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 on our website or by calling the Investor Relations Department at 210-220-5234. At this time, I'll turn the call over to Phil.

Thanks, AB. Good afternoon, everybody, and thanks for joining us today. I'll review the second quarter results for Cullen Frost, and our Chief Financial Officer, Jerry Salinas, will provide additional comments, and then we'll open it up to your questions. In the second quarter, Cullen Frost earned $117.4 million, or $1.81 a share, compared with earnings of $116.4 million, or $1.80 a share reported in the same quarter last year, and $97.4 million, or $1.50 a share in the first quarter of this year. Our return on average assets and average common equity in the second quarter was 0.92% and 13.88% respectively. These results in our overall growth show that our company's well-positioned to succeed in what's been an unusual and evolving environment. Our loan growth is strong. Average loans excluding PPP in the second quarter were $16.5 billion, or 13.2% higher than the average loans of $14.6 billion in the second quarter of 2021. It was good to see our growth exceeded our typical goal of high single-digit increases. In the second quarter, we booked 28% more loan commitments in the same period last year. All segments were strong with CNI up 25%, CRE up 37%, and consumer up 31%. In addition, we saw new loan opportunities continue to increase. They increased 10% from a year ago and increased an unannualized 9% on a link quarter basis, so the overall flow is good. Looking at our weighted 90-day pipeline, it was up 9% from a year ago. On a link quarter basis, it's fairly flat, down 2% as increases in commercial and consumer segments offset a reduction in the near-term pipeline for commercial real estate. Average deposits in the second quarter were $44.7 billion, an increase of 16.9% compared with the second quarter of last year. And as much as we focus on loan growth, we were very pleased with our growth in deposits because it's through deposits that we build long-term relationships as we offer attractive value propositions that customers can trust. Growth in our consumer business continues to be strong. Our net addition of 7,242 consumer households in the second quarter was an all-time high for us and represented an 8% increase from the same period a year ago. Consumer loan growth was also strong. On a link quarter annualized basis, average consumer loans grew by 20.6%, led by increases in consumer real estate. Our success here was driven by our HELOC, home equity, and home improvement products. Also, our pipeline for these loans continues at record levels. Now, regarding our expansion efforts, In Houston, we see the momentum continuing as newly opened branches mature. At the end of the second quarter, we stood at 109% of deposit goal, 122% of new household goal, and 185% of our loan goal. Our Dallas expansion is admittedly in its very early innings. However, I'm encouraged that the preliminary results are similar to our Houston success with 165% of deposit goal, 220% of loan goal, and 235% of new household goal. We're making excellent progress towards launching our mortgage product, and we expect to begin a pilot program toward the end of this year. As you know, we're designing the entire process from start to finish to originate and service mortgage loans in keeping with the great Frost customer experience. Despite uncertainty about the broader economy, we have seen no signs of increasing loan delinquency. Our overall credit quality remains good. The June 30th total for delinquencies excluding PPP was $61.4 million or 37 basis points of total loans. Total problem loans, which we define as risk rate 10 and higher, total $429 million at the end of the second quarter, and that was down from $447 million at the end of the previous quarter. Once again, we did not report a credit loss expense in the second quarter, and net charge-offs for the second quarter were $2.8 million, compared with $6.3 million in the first quarter. Annualized net charge-offs for the second quarter were seven basis points of average loans and below our typical long-term level. Non-accrual loans were $35.1 million at the end of the second quarter, a decrease from $49 million at the end of the first quarter. I was glad to see the great work of our energy team rationalizing our concentration in our energy portfolio. Energy loans represented 5.9% of loans at the end of the second quarter, and I'm happy to declare that we've reached mid-single digits. Finally, after more than two years of working with over 32,000 PPP borrowers, we've helped better than 98% of them with forgiveness. Our teams worked on the last few hundred PPP borrowers who haven't yet begun the process, and we're committed to helping every one of them get across the finish line. And I couldn't be more proud of our team and the effort that they made in helping our customers and the business. You may remember that I've described our efforts in this area as historic and heroic, and while I hope we don't ever encounter another historic challenge like that anytime soon. As I mentioned earlier, we've got strategies and systems in place to allow us to succeed in all economic environments. And I should point out that Frost employees do heroic deeds every day. I continue to hear from customers who get help from our bankers in sorting out their finances after a spouse passed away or who got financial planning that enabled their kids to go to college, or who simply just had a pleasant interaction with a banker while they were having an otherwise lousy day. For us, those interactions are just doing our jobs in accordance with Frost's philosophy, but to our customers, those are heroic acts. I'd like to thank our people for being a force for good in people's everyday lives. Now I'll turn the call over to our Chief Financial Officer, Jerry Salinas, for some additional comments.