Cullen/Frost (CFR) Gains On Q1 Earnings And Revenue Beat

Shares of Cullen/Frost Bankers, Inc. (NYSE:CFR) gained 4.7% after the company recorded a positive earnings surprise of 4.92% in its first-quarter 2017 results. The company reported earnings per share of $1.28, beating the Zacks Consensus Estimate of $1.22. Moreover, the reported figure was up from $1.07 per share recorded in the year-ago quarter.

Higher revenues primarily supported the beat. Both loans and deposits showed improvement. However, elevated expenses remained the downside.

Net income available to common shareholders came in at $82.9 million, exceeding the year-ago quarter figure by approximately 24.1%.

Revenue Growth Offsets Escalated Expenses

The company’s total revenue was $336.1 million, up 3.3% from the prior-year quarter. Moreover, it outpaced the Zacks Consensus Estimate of $320 million.

Net interest income on a taxable-equivalent basis increased 10.1% year over year to $252.4 million. The increase was primarily attributable to a rise in earning assets in loans and securities, higher yields on loans and increase in cash balances. Moreover, net interest margin increased 6 basis points (bps) year over year to 3.64%, as the Fed’s interest rate hikes led to higher yielding assets.

Non-interest income totaled $83.7 million, down 12.9% from the year-ago quarter. The decrease was mainly due to absence of net gain on securities transactions and lower insurance and commission fees.

Non-interest expenses of $187.9 million rose 4.9% year over year. The rise was primarily due to higher assessment rate as a result of new surcharge and an increase in assets.

Strong Balance Sheet

As of Mar 31, 2017, total loans were $12.2 billion, up 1.8% from the previous quarter. Total deposits amounted to $26.1 billion, up 1.3% sequentially.

Credit Quality: A Mixed Bag

As of Mar 31, 2017, non-performing assets were $118.2 million, down 34.3% from the year-ago quarter. Also, allowance for loan losses, as a percentage of total loans, was 1.26%, down 14 bps from the prior-year quarter.

However, net charge-offs, annualized as a percentage of average loans expanded 18 bps year over year to 0.27%. Provision for loan losses plunged 72% year over year to roughly $8 million.

Profitability and Capital Ratios Improve

As of Mar 31, 2017, Tier 1 risk-based capital ratio was 13.50% compared with 12.66% at the end of the prior-year quarter. Total risk-based capital ratio was 15.62%, up from 14.39% as of Mar 31, 2016. Further, leverage ratio increased to 8.34% from 7.96% as of Mar 31, 2016.

Return on average assets and return on average common equity were 1.12% and 11.55%, respectively, compared with 0.96% and 9.55% in the prior-year quarter.

Our Viewpoint

Cullen/Frost’s growth in loan and deposits indicates continued organic growth. However, escalating expenses may continue to curb the company’s bottom-line growth. In addition, significant exposure to the risky real estate loans and stringent regulations raise concerns.

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

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

Cullen/Frost currently 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

Texas Capital Bancshares, Inc. (NYSE:TCB) reported a negative earnings surprise of 9.1% in first-quarter 2017. Earnings per share of 80 cents missed the Zacks Consensus Estimate by 8 cents. However, the bottom line improved 63.3% from the prior-year quarter figure of 49 cents per share.

TCF Financial Corporation (NYSE:TCB) reported first-quarter 2017 earnings per share of 25 cents, lagging the Zacks Consensus Estimate and the prior-year quarter figure of 26 cents. The lower-than-expected results were primarily due to a decline in non-interest income as well as elevated expenses.

Huntington Bancshares Incorporated (NASDAQ:HBAN) reported adjusted earnings per share of 21 cents, missing the Zacks Consensus Estimate by a penny. Also, the figure was 15% below the prior-year quarter. The reported earnings exclude FirstMerit acquisition-related net expenses of 4 cents per share.

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