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A month has gone by since the last earnings report for Cullen/Frost Bankers (CFR). Shares have lost about 15.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cullen/Frost due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cullen/Frost Q4 Earnings Beat Estimates, Revenues Rise
Cullen/Frost delivered fourth-quarter 2019 positive earnings surprise of 1.3%. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.58. However, the bottom line compared unfavorably with the prior-year quarter figure of $1.82 per share.
Results reflected top-line strength aided by higher loan and deposit balances. However, elevated expenses and provisions, along with contracting margins, were major drags.
The company reported net income available to common shareholders of $101.7 million, down 13.3% from the prior-year quarter.
In 2019, earnings of $6.84 per share were down nearly 1% from the prior year’s figure, but outpaced the consensus estimate by 2 cents. Net income declined 2.5% to $435.5 million.
Revenues Rise, Expenses Escalate
The company’s total revenues were $370.3 million in the fourth quarter, up 2.6% from the prior-year quarter. The revenue figure topped the Zacks Consensus Estimate of $364.6 million.
In 2019, total revenues were $1.5 billion, up 4.3%. Also, the top line matched the consensus estimate.
Net interest income on a taxable-equivalent basis moved marginally upward year over year to $275 million. Additionally, net interest margin contracted 10 basis points (bps) to 3.62%.
Non-interest income totaled $95.3 million, up 9.3% from the year-ago quarter. This increase was due to rise in all the components except interchange and debit card transaction fees, and other charges, commissions and fees.
Non-interest expenses of $220.8 million jumped 10.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.
Strong Balance Sheet
As of Dec 31, 2019, total loans were $14.8 billion, marginally up from the prior quarter. Total deposits amounted to $27.6 billion, up 2.1% sequentially.
Credit Quality: A Mixed Bag
As of Dec 31, 2019, provision for loan losses increased significantly on a year-over-year basis to $8.4 million. Non-performing assets were $109.5 million, up 46.2%. Also, net charge-offs, annualized as a percentage of average loans, expanded 8 bps year over year to 0.34%. However, allowance for loan losses, as a percentage of total loans, was 0.90%, down 4 bps.
Profitability and Capital Ratios
As of Dec 31, 2019, Tier 1 risk-based capital ratio was 12.99% compared with 12.94% recorded at the end of the prior-year quarter. Furthermore, total risk-based capital ratio was 14.57%, down from 14.64% as of Dec 31, 2018. Leverage ratio moved up to 9.28% from 9.06% as of Dec 31, 2018.
Return on average assets and return on average common equity were 1.21% and 10.74%, respectively, compared with 1.48% and 14.85% in the prior-year quarter.
Management expects full-year 2020 earnings of $6.13.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Cullen/Frost has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cullen/Frost has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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