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Cullen/Frost (CFR) Rallies on Solid Q4 Earnings & Revenues

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Following Cullen/Frost Bankers, Inc.’s (CFR - Free Report) reported positive surprise of 5.8% in fourth-quarter 2017, shares jumped 4.32%. Adjusted earnings per share of $1.47 handily surpassed the Zacks Consensus Estimate of $1.39. Results excluded $4.0 million or 6 cents per share net-benefit related to the Tax Cuts and Jobs Act.

Including tax benefit, the company reported net income available to common shareholders of $98.5 million, or $1.53 per share compared with $81.7 million, or $1.28 per share recorded in the prior-year quarter.

Top-line strength and lower provisions was reflected in the quarter. Further, increase in loans and deposits, and a strong balance sheet position were the positives. However, elevated expenses and lower non-interest income remained major drags.

For full-year 2017, net income available to common shareholders was $356.1 million or $5.51 per share, up from $296.2 million or $4.70 per share in the prior year. Excluding tax benefit, net income came in at $5.45 per share, outpacing the Zacks Consensus Estimate of $5.38.

Revenue Growth Offset Escalated Expenses

For full-year 2017, the company’s total revenues (net of interest expenses) on a taxable equivalent basis came in at $1.38 billion, outpacing the Zacks Consensus Estimate of $1.37 billion. Moreover, results were up 7% year over year.

The company’s total revenues were $358.7 million in the quarter, up 6% from the prior-year quarter. Further, revenues outpaced the Zacks Consensus Estimate of $342.1 million.

Net interest income on a taxable-equivalent basis climbed 9.7% year over year to $268.6 million. The upswing is primarily attributable to the rise in earning assets and higher interest rates.

Additionally, net interest margin expanded 15 basis points (bps) year over year to 3.70%, as the Fed’s interest rate hikes led to higher yielding assets.

Non-interest income totaled $90.1 million, 3.5% down from the year-ago quarter. The decrease was mainly due to net loss on securities transactions and reduced other income.

Non-interest expenses of $196.3 million flared up 1.3% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter, partially offset by lower other expenses.

Strong Balance Sheet

As of Dec 31, 2017, total loans were $13.1 billion, up 9.2% year over year. Total deposits amounted to $26.9 billion, up 4.3% from the prior-year quarter.

Credit Quality: A Mixed Bag

As of Dec 31, 2017, provision for loan losses decreased 9% on a year-over-year basis to $8.1 million. Also, net charge-offs, annualized as a percentage of average loans expanded 3 bps year over year to 0.22%. Allowance for loan losses, as a percentage of total loans, was 1.18%, down 10 bps from the prior-year quarter.

Non-performing assets were $157.3 million, up 53.3% from the year-ago quarter.

Profitability and Capital Ratios Improve

As of Dec 31, 2017, Tier 1 risk-based capital ratio was 13.16% compared with 13.33% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.15%, up from 14.93% as of Dec 31, 2016. Furthermore, leverage ratio inched up to 8.46% from 8.14% as of Dec 31, 2016.

Return on average assets and return on average common equity were 1.26% and 12.66%, respectively, compared with 1.09% and 11.03% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost reported impressive performance in the fourth quarter. Growth in loan and deposit balance indicates continued organic growth. Though escalating expenses might continue to depress the company’s bottom-line growth, it remains well poised to benefit from easing margin pressure and lower provisions.
 

Cullen/Frost Bankers, Inc. Price, Consensus and EPS Surprise

Cullen/Frost Bankers, Inc. Price, Consensus and EPS Surprise | Cullen/Frost Bankers, Inc. Quote

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


Performance of Other Southwest Banks

Driven by top-line strength, Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive earnings surprise of around 2.6% in fourth-quarter 2017. Adjusted earnings per share of $1.19 outpaced the Zacks Consensus Estimate by 3 cents. Results were driven by rise in revenues and lower provisions. Organic growth was reflected, with significant rise in loans and deposit balances. However, elevated expenses remained the undermining factor.

BOK Financial Corporation’s (BOKF - Free Report) the fourth-quarter adjusted earnings per share of $1.29 lagged the Zacks Consensus Estimate of $1.34. However, the bottom line compared favorably with 76 cents in the year-earlier quarter. Results reflected a decline in loans balance, partially offset by improved revenues and lower expenses. Also, improving credit quality and strong capital position acted as tailwinds.

Prosperity Bancshares Inc. (PB - Free Report) released its fourth-quarter and full-year 2017 results. Adjusted earnings of 99 cents per share for the quarter lagged the Zacks Consensus Estimate by a penny. The figure came in line with the prior-year quarter’s earnings. Results were affected by an increase in expenses and lower non-interest income, along with continued margin pressure. However, higher net interest income, and improving loan and deposit balances were on the positive side.

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