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Cullen/Frost (CFR) Down Despite In-Line Q2 Earnings, Costs Up

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Cullen/Frost Bankers, Inc. (CFR - Free Report) reported earnings per share of $1.72 in second-quarter 2019, in line with the Zacks Consensus Estimate. Results compare favorably with the prior-year quarter figure of $1.68 per share.

Top-line strength and higher loan balance were reflected in the quarter. Further, a strong balance-sheet position and lower provisions were driving factors. However, elevated expenses were a major drag, escalating investors’ concerns. Therefore, shares of Cullen/Frost declined 2.19%, following the release.

The company reported net income available to common shareholders of $109.6 million compared with $109.3 million recorded in the prior-year quarter.

Revenue Growth Offset Escalated Expenses

The company’s total revenues were $360.4 million in the second quarter, up 4.3% from the prior-year quarter. The revenue figure, however, lagged the Zacks Consensus Estimate of $364.6 million.

Net interest income on a taxable-equivalent basis climbed 6.6% year over year to $277.8 million. Additionally, net interest margin expanded 21 basis points (bps) year over year to 3.85%.

Non-interest income totaled $82.6 million, down 2.9% from the year-ago quarter. This decrease came in mainly due to lower other charges, commissions and fees, along with other non-interest income.

Non-interest expenses of $203.2 million flared up 7.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.    

Strong Balance Sheet

As of Jun 30, 2019, total loans were $14.5 billion, slightly up sequentially. Total deposits amounted to $26 billion, down 1.1% from the prior quarter.

Credit Quality: A Marked Improvement

Credit metrics improved during the June-end quarter. As of Jun 30, 2019, provision for loan losses decreased 22.9% on a year-over-year basis to $6.4 million. Further, net charge-offs, annualized as a percentage of average loans shrunk 1 basis point year over year to 0.22%. Allowance for loan losses, as a percentage of total loans, was 0.93%, down 17 bps from the prior-year quarter.

Non-performing assets were $76.4 million, down 37.8% from the year-ago quarter.

Steady Profitability and Capital Ratios

As of Jun 30, 2019, Tier 1 risk-based capital ratio was 12.94% compared with 13.02% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.60%, up from 14.85% as of Jun 30, 2018. Furthermore, leverage ratio inched up to 9.40% from 9.02% as of Jun 30, 2018.

Return on average assets and return on average common equity were 1.40% and 12.60%, respectively, compared with 1.43% and 14.03% witnessed in the prior-year quarter.

Capital Deployment Update

Cullen/Frost’s board of directors announced a new stock-repurchase plan worth $100 million.

Our Viewpoint

Cullen/Frost displayed an impressive performance during the April-June period. 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 net interest income.
 

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

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

Cullen/Frost Bankers, Inc. price-consensus-eps-surprise-chart | Cullen/Frost Bankers, Inc. Quote

Currently, Cullen/Frost holds 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 1.01% in the second quarter. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. Also, the reported figure came in 8.4% higher than the prior-year quarter tally.

Riding on higher revenues, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 2.1% in second-quarter 2019. Adjusted earnings per share came in at 96 cents, beating the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 9.1% year over year.

BOK Financial (BOKF - Free Report) delivered a positive earnings surprise of 7.2% in the second quarter of 2019. Earnings per share of $1.93 outpaced the Zacks Consensus Estimate of $1.80. The bottom line also compared favorably with the prior-year quarter’s reported earnings of $1.75. Top-line strength, aided by rising net interest and fee income, was recorded. Further, loans balance improved. However, rise in expenses and provisions were headwinds.

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