Cullen/Frost (CFR) Rises 10.1% on Q3 Earnings & Revenues Beat
Cullen/Frost Bankers, Inc. CFR shares have gained 10.1% following the earnings release on the Oct 26 trading session. CFR reported third-quarter 2023 earnings per share of $2.38, down from $2.59 in the prior-year quarter. However, the bottom line surpassed the Zacks Consensus Estimate of $2.14.
Results were primarily aided by an increase in net interest income (NII) on higher loan balances and rising rates in the quarter. However, a rise in non-interest expenses and credit loss expenses were significant drags.
The company reported net income available to common shareholders of $154 million, down from $168.1 million in the prior-year quarter.
Revenues Increase, Expenses Rise
The company’s total revenues were $513.4 million in the third quarter, up 7.1% from the prior-year quarter. The top line also surpassed the Zacks Consensus Estimate of $496.3 million.
NII on a taxable-equivalent basis jumped 7.3% to $407.4 million year over year. Additionally, net interest margin (NIM) expanded 43 basis points (bps) year over year to 3.44%. Our estimates for NII and NIM were $382.5 million and 3.47%, respectively.
Non-interest income improved 6.2% to $106 million year over year. The rise was due to an increase in almost all the components of non-interest income except trust and investment management fees. Our estimate for non-interest income was $104 million.
Non-interest expenses of $293.3 million increased 13.7% year over year. A rise in all the components of expenses resulted in the upswing. Our estimate for non-interest expenses was $286.1 million.
As of Sep 30, 2023, total loans were $18.40 billion, up 3.7% sequentially. Total deposits amounted to $40.99 billion, marginally up from the previous quarter. Our estimate for total deposits was $40.78 billion.
Credit Quality Deteriorates
As of Sep 30, 2023, the company recorded credit loss expenses of $11.2 million compared with no credit loss expenses recorded in the prior-year quarter. Further, net charge-offs, annualized as a percentage of average loans, expanded 4 bps year over year to 0.11%.
However, the allowance for credit losses on loans, as a percentage of total loans, was 1.32%, down 6 bps.
Capital Ratios Improve & Profitability Ratios Decline
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 13.81%, up from 13.26% recorded at the end of the year-earlier quarter. The total risk-based capital ratio was 15.28%, up from 14.80% as of the prior-year quarter.
The common equity Tier 1 risk-based capital ratio was 13.32%, up from the year-ago quarter’s 12.74%. The leverage ratio increased to 8.17% from 7.09%.
Return on average assets and return on average common equity were 1.25% and 18.93% compared with 1.27% and 20.13% witnessed in the prior-year quarter, respectively.
Our Viewpoint
Cullen/Frost has put up a decent performance in the third quarter of 2023. It is well-positioned for revenue growth, given the steady improvement in loan balances, higher interest rates and its efforts to boost fee income. However, rising expenses may affect the bottom line to some extent in the near term.
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
BOK Financial Corporation’s BOKF reported third-quarter 2023 earnings per share of $2.04, which missed the Zacks Consensus Estimate of $2.12. The bottom line also decreased 12.1% from the prior-year quarter.
The results of BOKF were adversely affected by a rise in expenses and a decline in net interest revenues. However, total fees and commissions witnessed an increase in the reported quarter. Also, loan and deposit balances improved sequentially.
Prosperity Bancshares Inc. PB reported third-quarter 2023 earnings per share of $1.20, beating the Zacks Consensus Estimate by a penny. The bottom line, however, decreased 19.5% from the prior-year quarter. The reported quarter figure includes merger-related provisions and expenses.
Results benefited from higher non-interest income and no provisions. Further, a solid loan and deposit balance offered some support. However, lower NII and higher expenses were the headwinds for PB.
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