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Cullen/Frost (CFR) Stock Up 3.3% as Q3 Earnings Top Estimates

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Cullen/Frost Bankers, Inc. (CFR - Free Report) reported third-quarter 2020 earnings per share of $1.50, which handily surpassed the Zacks Consensus Estimate of $1.19. However, it compared unfavorably with the prior-year quarter figure of $1.73 per share.

Results were supported by a decline in expenses along with improved loan and deposit balance. Perhaps due to these positives, the company’s shares gained 3.3% in response to the earnings release.

However, a decline in net interest income and fee income were major drags in the quarter. Also, higher provisions on the coronavirus outbreak were undermining factors.

It reported net income available to common shareholders of $95.1 million compared with $109.8 million in the prior-year quarter.

Revenues Fall, Expenses Decline

The company’s total revenues were $350.6 million in the third quarter, down 4.2% from $365.8 million in the prior-year quarter. The top line also lagged the Zacks Consensus Estimate of $351.8 million.

Net interest income on a taxable-equivalent basis slipped 3.5% year over year to $267 million. Additionally, net interest margin contracted 81 basis points (bps) to 2.95%.

Non-interest income declined 6.3% to $83.6 million on a year-over-year basis. This fall mainly resulted from lower service charges on deposit accounts, interchange and debit card transaction fees along with other charges, commissions and fees.

Non-interest expenses of $202.1 million fell 3.2% year over year. A decline in almost all the cost components, except for technology, furniture and equipment resulted in lower expenses in the reported quarter.

Strong Balance Sheet

As of Sep 30, 2020, total loans were $18.2 billion, up 1.4% sequentially. Total deposits amounted to $33.5 billion, up 2.5% from the prior quarter.

Credit Quality Worsens

Credit metrics deteriorated during the September quarter. As of Sep 30, 2020, provision for loan losses more than doubled to $20.3 million on a year-over-year basis on the coronavirus crisis. Further, net charge-offs, annualized as a percentage of average loans, expanded 5 bps to 0.22%. Allowance for loan losses, as a percentage of total loans, was 1.45%, up 52 bps from the prior-year quarter.

Non-performing assets were $96.4 million, down 8.3%.

Steady Profitability and Capital Ratios

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 12.71% compared with 12.99% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.69%, up from 14.63% as of Jun 30, 2019. Furthermore, leverage ratio moved down to 7.85% from 9.36% as of Sep 30, 2019. Common Equity Tier 1 Risk-Based Capital Ratio was 12.71% compared with the previous-year quarter’s 12.35%.

Return on average assets and return on average common equity were 0.96% and 9.30%, respectively, compared with 1.35% and 11.83% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost displayed a disappointing performance during the July-September period. Though improvement in loan and deposit balances indicates continued organic growth, falling revenues might keep eroding the company’s bottom line. Further, higher provisions and margin pressure are concerning.

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

CullenFrost Bankers, Inc. price-consensus-eps-surprise-chart | CullenFrost Bankers, Inc. Quote

Currently, Cullen/Frost carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

Performance of Other Banks

UMB Financial (UMBF - Free Report) reported third-quarter 2020 net operating income of $1.59 per share, surpassing the Zacks Consensus Estimate of $1.01. The reported figure also compares favorably with the prior-year quarter’s earnings of $1.27.

TCF Financial Corporation (TCF - Free Report) reported third-quarter 2020 adjusted earnings per share of 63 cents, beating the Zacks Consensus Estimate by 1 cent. Also, the figure increased 16.7% from the prior quarter.

Bank of Hawaii Corporation (BOH - Free Report) delivered an earnings surprise of 8% in third-quarter 2020. Earnings per share of 95 cents surpassed the Zacks Consensus Estimate of 88 cents. However, the bottom line compares unfavorably with earnings of $1.29 reported in the prior-year quarter.

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