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Cullen/Frost (CFR) Down Despite Solid Q1 Earnings & Revenues

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Cullen/Frost Bankers, Inc. (CFR - Free Report) reported a positive surprise of 2.3% in first-quarter 2019. Earnings per share of $1.79 handily surpassed the Zacks Consensus Estimate of $1.75.

Top-line strength and higher loan balance were reflected in the quarter. Further, a strong balance balance-sheet position was a positive. However, elevated expenses and provisions remained major drags, escalating investors’ concerns. Therefore, shares of Cullen/Frost declined 4.2%, following the release.

The company reported net income available to common shareholders of $114.5 million compared with $104.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Escalated Expenses

The company’s total revenues were $368 million in the first quarter, up 7% from the prior-year quarter. Further, revenues outpaced the Zacks Consensus Estimate of $365.6 million.

Net interest income on a taxable-equivalent basis climbed 7.4% year over year to $271.2 million. Additionally, net interest margin expanded 27 basis points (bps) year over year to 3.79%.

Non-interest income totaled $96.8 million, up 5.8% from the year-ago quarter. The increase was mainly due to rise in almost all components of income.

Non-interest expenses of $201.8 million flared up 2.6% 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 Mar 31, 2019, total loans were $14.4 billion, up 2.1% sequentially. Total deposits amounted to $26.3 billion, down 3% from the prior quarter.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, provision for loan losses increased 59.4% on a year-over-year basis to $11 million. Yet, net charge-offs, annualized as a percentage of average loans shrunk 19 bps year over year to 0.19%. Allowance for loan losses, as a percentage of total loans, was 0.95%, down 17 bps from the prior-year quarter.

Non-performing assets were $97.4 million, down 28.7% from the year-ago quarter.

Steady Profitability and Capital Ratios

As of Mar 31, 2019, Tier 1 risk-based capital ratio was 13.00% compared with 13.01% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.68%, up from 14.89% as of Mar 31, 2018. Furthermore, leverage ratio inched up to 9.35% from 8.62% as of Mar 31, 2018.

Return on average assets and return on average common equity were 1.48% and 14.08%, respectively, compared with 1.36% and 13.62% witnessed in the prior-year quarter.

Dividend Update

Cullen/Frost’s board of directors announced an increased cash dividend of 71 cents, up 6% from the prior pay out. The new dividend will be paid on Jun 14 to shareholders of record as of May 31, 2019.

Our Viewpoint

Cullen/Frost displayed an impressive performance in the first quarter. Growth in loan 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 higher fee income.

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

Performance of Other Southwest Banks

Driven by top-line strength, Synovus Financial (SNV - Free Report) reported a positive earnings surprise of 8.9% in first-quarter 2019. Adjusted earnings of 98 cents per share beat the Zacks Consensus Estimate of 90 cents. Also, the reported figure came in 15.1% higher than the prior-year quarter tally.

BOK Financial (BOKF - Free Report) delivered a positive earnings surprise of 5.5% in the first quarter. Earnings per share of $1.54 outpaced the Zacks Consensus Estimate of $1.46. The bottom line, however, compared unfavorably with the prior-year quarter’s reported tally of $1.61. Results included certain one-time items.

Riding on higher revenues, Citizens Financial Group, Inc. (CFG - Free Report) recorded a positive earnings surprise of 4.5% in the March-end quarter. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results excluded one-time items of $4 million or 1 cent per share.

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