Higher Revs Drive Cullen/Frost's Earnings Beat


After posting in-line earnings for two consecutive quarters, Cullen/Frost Bankers, Inc. (CFR) reported  fourth-quarter 2013 earnings of 99 cents per share, beating the Zacks Consensus Estimate of 97 cents. Also, this was above the prior-year quarter figure of 97 cents.

For full-year 2013, Cullen/Frost’s earnings per share of $3.80 beat the Zacks Consensus Estimate marginally. However, results came in 1.6% below the prior-year figure.

Cullen/Frost’s impressive results were driven by an improved top line along with continued growth in loan and deposit balances. However, higher operating expenses and increased provision for credit losses acted as downsides.

The company’s net income of $60.6 million in the reported quarter reflects a marginal decline from the year-ago quarter. Also, for 2013, it was down 2.9% year over year to $231.1 million.

Performance in Detail

Cullen/Frost’s total revenue (net of interest expenses) increased 6.2% year over year to $263.5 million. Further, it surpassed the Zacks Consensus Estimate of $245.0 million.

For full-year 2013, total revenue (net of interest expenses) stood at $1.0 billion, up 5.9% year over year. Moreover, it outpaced the Zacks Consensus Estimate by 5.2%.

Cullen/Frost’s net interest income on a taxable-equivalent basis was $185.0 million, up 7.4% from the year-ago quarter. The increase was primarily driven by a larger number of interest earning assets, partly mitigated by a decline in net interest margin (NIM), which reduced 9 basis points year over year to 3.39%.

Cullen/Frost’s non-interest income of $78.5 million advanced 3.5% year over year. The increase was mainly backed by a rise in trust and investment management fees, insurance commissions and fees.

On the flip side, Cullen/Frost’s non-interest expense climbed 5.8% year over year to $154.5 million. This was due to an increase in personnel expenses and net occupancy costs, partially offset by a decline in deposit insurance costs and intangible amortization costs.

Credit Quality

Credit metrics were a mixed bag in the reported quarter. Non-performing assets declined 33.7% year over year to $69.8 million. The allowance for loan losses as a percentage of total loans stood at 0.97%, as of Sep 30, 2013, down 16 bps from the prior-year quarter.

However, provision for loan losses jumped 43.0% year over year to $5.9 million, while net charge-offs increased 5 bps to 0.28%.

Average loans increased 5.4% year over year to $9.3 billion while average deposits stood at $20.1 billion, up 9.1%.

Capital and Profitability Ratios

Cullen/Frost’s capital ratios remained strong while profitability ratios partially improved in the quarter.

Tier 1 Risk-Based Capital Ratio was 14.65%, compared with 13.68% in the prior-year quarter. Total Risk-Based Capital Ratio was 15.79% versus 15.11% at the end of the prior-year quarter.

Return on average assets were down 12 bps year over year to 1.02%, while return on average common equity rose 15 bps to 9.93%.

Our Viewpoint

Though Cullen/Frost started with a disappointing performance in the first quarter of 2013, the following quarters delivered better results. We believe continuously improving loan and deposit balances and a strong equity market will drive the company’s profitability going forward.

However, we remain cautious owing to the prevalent low interest rate environment, surging expenses and continuing pressure on NIM.

Cullen/Frost currently carries a Zacks Rank #2 (Buy).

Performance of other South-West Banks

Prosperity Bancshares Inc. (PB) beat the Zacks Consensus Estimate, while both First Financial Bankshares Inc. (FFIN) and Texas Capital BancShares Inc. (TCBI) missed the Zacks Consensus Estimate in their latest releases.

Read the Full Research Report on TCBI
Read the Full Research Report on CFR
Read the Full Research Report on FFIN
Read the Full Research Report on PB

Zacks Investment Research


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