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Cullen/Frost (CFR) Stock Down 4.1% Despite Q4 Earnings Beat

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Zacks Equity Research
·5 min read
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Cullen/Frost Bankers, Inc. CFR reported fourth-quarter 2020 earnings per share of $1.38, which handily surpassed the Zacks Consensus Estimate of $1.30. However, it compared unfavorably with the prior-year quarter figure of $1.60 per share.

Results reflect strong capital position and improved deposit balance. However, decline in revenues was a major drag in the quarter. Also, higher provisions acted as an undermining factor. Perhaps due to these negatives, the company’s shares tanked 4.1% in response to the earnings release.

It reported net income available to common shareholders of $88.3 million compared with $101.7 million in the prior-year quarter.

In 2020, earnings of $5.19 per share beat the consensus estimate of $5.04 but fell 25.3% year over year. Net income available to common shareholders of $323.6 million declined 26% from 2019.

Revenues Fall, Expenses Rise

The company’s total revenues were $357.1 million in the fourth quarter, down 3.6% from $370.3 million in the prior-year quarter. The top line, however, outpaced the Zacks Consensus Estimate of $351.3 million.

In 2020, total revenues climbed nearly 5% year over year to $1.54 billion. Also, the top line marginally surpassed the consensus estimate of $1.53 billion.

Net interest income on a taxable-equivalent basis slipped 3.4% year over year to $265.7 million in the quarter. Additionally, net interest margin contracted 80 basis points (bps) to 2.82%.

Non-interest income declined 4.1% to $91.3 million on a year-over-year basis. This fall mainly resulted from lower service charges on deposit accounts, insurance commissions and fees and other income.

Non-interest expenses of $222.9 million rose nearly 1% year over year. A rise in almost all the cost components, except for employee benefits and intangible amortization resulted in higher expenses in the reported quarter.

As of Dec 31, 2020, total loans were $17.5 billion, down 4.1% sequentially. Total deposits amounted to $33.5 billion, up 4.5% from the prior quarter.

Credit Quality: A Mixed Bag

As of Dec 31, 2020, credit loss expense more than doubled to $13.8 million on a year-over-year basis on the coronavirus crisis. Allowance for loan losses, as a percentage of total loans, was 1.51%, up 61 bps from the prior-year quarter.

However, net charge-offs, annualized as a percentage of average loans, contracted 4 bps to 0.30%. Also, non-performing assets were $62.3 million, down 43.1%.

Steady Profitability and Capital Ratios

As of Dec 31, 2020, Tier 1 risk-based capital ratio was 13.47% compared with 12.99% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.44%, up from 14.57% as of Dec 31, 2019. Furthermore, leverage ratio moved down to 8.07% from 9.28%. Common Equity Tier 1 Risk-Based Capital Ratio was 12.86% compared with the previous-year quarter’s 12.36%.

Return on average assets and return on average common equity were 0.86% and 8.55%, respectively, compared with 1.21% and 10.74% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost displayed a lukewarm performance during the fourth quarter. Though improvement in deposit balances indicates strong liquidity, falling revenues might keep eroding the company’s bottom line. Further, higher provisions and margin pressure are concerning.

Nevertheless, with gradual improvement in economic conditions, the company is expected to perform better in the quarters ahead.

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise
CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

CullenFrost Bankers, Inc. price-consensus-eps-surprise-chart | CullenFrost Bankers, Inc. Quote

Currently, Cullen/Frost sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Banks

New York Community Bancorp NYCB posted fourth-quarter 2020 earnings per share of 27 cents, inching past the Zacks Consensus Estimate of 26 cents. The figure also compares favorably with the prior-year quarter figure of 20 cents, up 35%.

Synovus Financial SNV delivered fourth-quarter 2020 adjusted earnings of $1.08 per share, handily beating the Zacks Consensus Estimate of 82 cents, aided by solid fee income. Also, the reported figure comes in 15% higher than the prior-year quarter tally.

UMB Financial UMBF reported fourth-quarter 2020 net operating income of $3.26 per share, surpassing the Zacks Consensus Estimate of $1.48. The bottom line also compares favorably with the prior-year quarter’s earnings of $1.36. Fourth-quarter results include a pre-tax gain of $108.8 million on the company’s investment in Tattooed Chef, Inc.

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