Cullen/Frost (CFR) Stock Declines 7.6% Despite Q2 Earnings Beat
Cullen/Frost Bankers, Inc. CFR reported second-quarter 2023 earnings per share of $2.47, up from $1.81 in the prior-year quarter. The bottom line also surpassed the Zacks Consensus Estimate of $2.40.
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 expenses and deteriorating credit quality were major drags. These concerns turned the investors bearish on the stock, as the shares declined 7.6% following the release.
The company reported net income available to common shareholders of $160.4 million, up from $117.4 million in the prior-year quarter.
Revenues Increase, Expenses Rise
The company’s total revenues were $512.1 million in the second quarter, up 25.1% from the prior-year quarter. The top line also surpassed the Zacks Consensus Estimate of $506.78 million.
NII on a taxable-equivalent basis jumped 31.2% to $408.6 million year over year. Additionally, net interest margin (NIM) expanded 89 basis points (bps) year over year to 3.45%. Our estimates for NII and NIM were $408.8 million and 3.40%, respectively.
Non-interest income improved 5.7% to $103.5 million year over year. The rise was due to an increase in almost all the components of non-interest income, except service charges on deposit accounts. Our estimate for non-interest income was $101.6 million.
Non-interest expenses of $285 million increased 15.7% year over year. A rise in all the components, except for intangible amortization, resulted in the upswing. Our estimate for non-interest expenses was $293.9 million.
As of Jun 31, 2023, total loans were $17.75 billion, up 1.5% sequentially. Our estimate for total loans was $18.23 billion. Total deposits amounted to $40.70 billion, down 3.5% from the previous quarter.
Credit Quality Deteriorates
As of Jun 30, 2023, the company recorded credit loss expenses of $9.9 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 15 bps year over year to 0.22%.
However, the allowance for credit losses on loans, as a percentage of total loans, was 1.32%, down 11 bps.
Capital Ratios & Profitability Ratios Improve
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 13.92%, up from 13.17% recorded at the end of the year-earlier quarter. The total risk-based capital ratio was 15.39%, up from 14.75% as of the prior-year quarter.
The common equity Tier 1 risk-based capital ratio was 13.42%, up from the previous-year quarter’s 12.64%. The leverage ratio increased to 8.11% from 7.03%.
Return on average assets and return on average common equity were 1.30% and 19.36% compared with 0.92% and 13.88% witnessed in the prior-year quarter, respectively.
Dividend Update
Management declared a hike sequentially in the third quarter cash dividend by 5.7% to 92 cents. The dividend will be paid out on Sep 15 to its shareholders on record as of Aug 31, 2023.
Our Viewpoint
Cullen/Frost has put up a decent performance in the second 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 second-quarter earnings per share of $2.27 missed the Zacks Consensus Estimate of $2.28. Nonetheless, the bottom line increased 15.8% from the prior-year quarter.
Results were aided by an improvement in net interest revenues, driven by higher rates and loan growth. Also, total fees and commissions witnessed a rise in the quarter under review. However, an increase in expenses and provisions were a matter of concern for BOKF.
BankUnited, Inc.'s BKU second-quarter 2023 earnings per share of 78 cents missed the Zacks Consensus Estimate of 79 cents by a penny. The bottom line also declined 4.9% from the prior-year quarter.
BKU's results were adversely impacted by an increase in operating expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income and lower provisions for credit losses acted as tailwinds.
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Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
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