U.S. Markets closed

Cullen/Frost (CFR) Stock Down 3% Despite Q2 Earnings Beat

Zacks Equity Research
1 / 2

Cullen/Frost (CFR) Stock Down 3% Despite Q2 Earnings Beat

Cullen/Frost's (CFR) organic growth in the second quarter is reflected by higher loans and revenues. Yet, weaker capital position remains a concern.

Cullen/Frost Bankers CFR delivered a positive surprise of 3.1% in second-quarter 2018. Earnings per share of $1.68 surpassed the Zacks Consensus Estimate of $1.63. Further, the reported figure compares favorably with $1.29 in the prior-year quarter.

Top-line strength and lower provisions were reflected in the quarter. Further, increase in loans and expansion of margin were the positives.

However, shares of Cullen/Frost were down 3.1% post earnings release, reflecting investors’ reaction toward lower deposits and weaker capital position during the quarter. Also, expenses continued to rise.

The company reported net income available to common shareholders of $109.3 million, up 30.9% from $83.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Total revenues came in at $322.3 million, up 8.9% from the prior-year quarter. However, revenues lagged the Zacks Consensus Estimate of $342.9 million.

Net interest income on a taxable-equivalent basis climbed nearly 1% year over year to $260.5 million. The upswing was primarily attributable to the rise in earning assets. Also, net interest margin expanded 26 basis points (bps) year over year to 3.64% (assuming tax rate to be 21% in prior-year quarter).

Non-interest income totaled $85.1 million, up 4.9% from the year-ago quarter. The increase was mainly due to higher trust and investment management fees, other income and insurance commissions and fees, partially offset by lower interchange and debit card transaction fees.

Non-interest expenses of $188.9 million jumped slightly year over year. Increase in personal costs led to elevated expenses in the reported quarter.

Balance Sheet Position

As of Jun 30, 2018, total loans were $13.7 billion, up 2.6% sequentially. However, total deposits amounted to $26 billion, down 2.6% from the prior quarter.

Credit Quality: A Mixed Bag

As of Jun 30, 2018, provision for loan losses decreased 2.1% on a year-over-year basis to $8.3 million. Allowance for loan losses, as a percentage of total loans, was 1.10%, down 10 bps from the prior-year quarter. Also, net charge-offs, annualized as a percentage of average loans contracted 16 bps year over year to 0.23%.

However, non-performing assets were $122.8 million, up 36.2% from the year-ago quarter.

Profitability and Capital Ratios

As of Jun 30, 2018, Tier 1 risk-based capital ratio was 13.40% compared with 13.59% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.29%, down from 15.65% as of Jun 30, 2017. Leverage ratio inched up to 9.02% from 8.61% as of Jun 30, 2017.

Return on average assets and return on average common equity were 1.43% and 14.03%, respectively, compared with 1.11% and 11.07% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost delivered an impressive performance in the second quarter. Rise in loan balance and expansion of margin indicates continued organic growth. Though escalating expenses might continue to dampen the company’s bottom-line growth, it remains well poised to benefit from strong revenue base and lower provisions.

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

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

Performance of Other Banks

Evercore EVR delivered a positive earnings surprise of 17.9% in second-quarter 2018. Adjusted earnings per share of $1.65 surpassed the Zacks Consensus Estimate of $1.40. Also, the figure was 55.7% higher than the prior-year quarter.

BOK Financial’s BOKF pulled off a positive earnings surprise of 2.3% in second-quarter 2018. Earnings per share of $1.75 outpaced the Zacks Consensus Estimate of $1.71. Further, the bottom line compared favorably with $1.35 in the prior-year quarter.

Sallie Mae SLM delivered a positive earnings surprise of 8.7% in second-quarter 2018. The company reported core earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Moreover, the figure surged 56.3% from the prior-year quarter.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
BOK Financial Corporation (BOKF) : Free Stock Analysis Report
 
SLM Corporation (SLM) : Free Stock Analysis Report
 
Evercore Inc (EVR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research