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Cullen/Frost (CFR) Up 1.1% on Q2 Earnings Beat, Dividend Hike

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Shares of Cullen/Frost Bankers, Inc. (CFR - Free Report) have gained 1.1% following the release of second-quarter 2022 results. The company reported earnings per share of $1.81, surpassing the Zacks Consensus Estimate of $1.77. It increased marginally from the prior-year quarter figure of $1.80.

The results were driven by higher net interest income (NII) on a taxable-equivalent basis and a rise in fee income. Further, the rise in average loan balances and total deposits reflects a strong balance sheet position. However, the increase in expenses was a worrisome matter.

The company reported net income available to common shareholders of $117.4 million compared with $116.4 million recorded in the prior-year quarter.

Revenues, Deposits & Loans Increase, Expenses Flare Up

The company’s total revenues (on a taxable-equivalent basis) were $409.3 million in the second quarter, up 10% from the prior-year quarter. The top line also surpassed the Zacks Consensus Estimate of $403 million.

NII (taxable-equivalent basis) increased 11% year over year to $311.4 million. However, the net interest margin (NIM) contracted 9 basis points (bps) to 2.56%.

The non-interest income climbed 7% to $97.9 million on a year-over-year basis. This primarily resulted from an increase in all components, apart from trust and investment management fees.

Non-interest expenses of $246.3 million flared up 14% year over year. A rise in all the components, other than intangible amortization, resulted in the increase.

As of Jun 30, 2022, average loans were $16.67 billion, up 1.8% sequentially. Total average deposits amounted to around $44.73 billion, up 4.1% from the prior quarter’s $42.96 billion.

Credit Quality Improved

As of Jun 30, 2022, the company did not record any credit loss expenses, similar to the prior-year quarter. Further, the allowance for credit losses on loans, as a percentage of total loans, was 1.43%, down 11 bps from the prior-year period.

However, net charge-offs, annualized as a percentage of average loans, expanded 3 bps year over year to 0.07%.

Capital Ratios Down, Mixed Profitability Ratios

As of Jun 30, 2022, the tier 1 risk-based capital ratio was 13.17%, down from 14.21% recorded at the end of the year-earlier quarter. The total risk-based capital ratio was 14.75%, down from 16.17% as of Jun 30, 2021. Common equity tier 1 risk-based capital ratio was 12.64%, lower than the previous-year quarter’s 13.60%. In addition, the leverage ratio declined to 7.03% from 7.60%.

Return on average assets and return on average common equity were 0.92% and 13.88%, respectively, compared with 1.02% and 11.18% witnessed in the prior-year quarter.

Dividend Update

Management declared a hike sequentially in the third quarter cash dividend by 16% to 87 cents. The dividend will be paid out on Sep 15 to its shareholders on record as of Aug 31, 2022.

Our Viewpoint

Cullen/Frost has put up a decent performance in the second quarter of 2022. The improvement in the credit quality and balance sheet strength were encouraging. Further, the capital deployment activities seem sustainable. However, the weak capital position and higher expenses were undermining factors.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Valley National Bancorp’s (VLY - Free Report) adjusted earnings per share of 32 cents beat the Zacks Consensus Estimate of 29 cents. The bottom line also improved 6.7% on a year-over-year basis.

The acquisition of Bank Leumi USA during the quarter majorly supported the results, driving revenues, loans and deposit balances. Also, VLY’s organic expansion efforts and higher interest rates acted as tailwinds. However, a drastic jump in non-interest expenses and higher provisions (indicating the Bank Leumi deal and deteriorating economic outlook) were the undermining factors.

Hilltop Holdings Inc.’s (HTH - Free Report) second-quarter 2022 earnings of 45 cents per share easily outpaced the Zacks Consensus Estimate of 32 cents. However, the bottom line plunged 62.8% from the prior-year quarter.

Results benefited from higher rates and rising loan balance, which led to an increase in NII. Also, lower expenses acted as a tailwind. However, lower non-interest income, mainly due to the weak mortgage business, was the undermining factor for HTH. Further, a worsening U.S. economic outlook resulted in higher provisions during the quarter.


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