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Cullen/Frost (CFR) Q1 Earnings Disappoint, Provisions Escalate

·4 min read

Following the first-quarter 2020 results, shares of Cullen/Frost Bankers, Inc. CFR have declined 7.61%. The company reported earnings per share of 75 cents, missing the Zacks Consensus Estimate of 91 cents. Results also compare unfavorably with the prior-year quarter figure of $1.79 per share.

Escalating expenses and a decline in net interest income were major drags in the quarter. Also, higher provisions on adoption of CECL and the coronavirus outbreak were undermining factors. However, higher fee income, along with rise in loans and deposit balances, were the positives.

The company reported net income available to common shareholders of $47.2 million compared with the $114.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Escalating Expenses

The company’s total revenues were $481.5 million in the first quarter, up 30.8% from the prior-year quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $365 million.

Net interest income on a taxable-equivalent basis slipped 1% year over year to $268.5 million. Additionally, net interest margin contracted 23 basis points (bps) year over year to 3.56%.

Non-interest income more than doubled to $213 million on a year-over- year basis. This increase mainly resulted from net gains on securities transactions.

Non-interest expenses of $224.2 million flared up 11.1% year over year. Rise in almost all the cost components resulted in elevated expenses in the reported quarter.   

Strong Balance Sheet

As of Mar 31, 2020, total loans were $15.3 billion, up 3.4% sequentially. Total deposits amounted to $28.1 billion, up 1.8% from the prior quarter.

Credit Quality: A Mixed Bag

Credit metrics improved during the March-end quarter. As of Mar 31, 2020, provision for loan losses more than doubled to$175.2 million on a year-over-year basis on the coronavirus crisis. Further, net charge-offs, annualized as a percentage of average loans, expanded 85 bps year over year to 1.04%. Allowance for loan losses, as a percentage of total loans, was 1.72%, up 77 bps from the prior-year quarter.

Non-performing assets were $67.5 million, down 30.7% from the year-ago quarter.

Steady Profitability and Capital Ratios

As of Mar 31, 2020, Tier 1 risk-based capital ratio was 12.02% compared with the 13% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 13.97%, down from 14.68% as of Mar 31, 2019. Furthermore, leverage ratio edged down to 8.84% from 9.35% as of Mar 31, 2019. Common Equity Tier 1 Risk-Based Capital Ratio was 12.02% compared with the previous-year quarter’s 12.34%.

Return on average assets and return on average common equity were 0.57% and 4.88%, respectively, compared with the 1.48% and 14.08% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost displayed a disappointing performance during the January-March period. Though growth in loan and deposit balances indicates continued organic growth boosting revenues, escalating expenses might keep eroding the company’s bottom line. Further, higher provisions and margin pressure are concerns.

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

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 carries a Zacks Rank #5 (Strong Sell).

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

Performance of Other Banks

Synovus Financial SNV came up with first-quarter 2020 adjusted earnings of 21 cents per share, missing the Zacks Consensus Estimate of 31 cents. Also, the reported figure came in 79% lower than the prior-year quarter tally.

Regions Financial RF recorded adjusted earnings of 15 cents per share in the March-end quarter, missing the Zacks Consensus Estimate of 19 cents. The figure plummeted 59.5%, year over year.

Evercore EVR delivered first-quarter adjusted earnings per share of $1.21, beating the Zacks Consensus Estimate of $1.03. However, results were down 27% from the prior-year quarter’s $1.66 per share.

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