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Cullen/Frost (CFR) Stock Down 2.5% Despite Q2 Earnings Beat

Zacks Equity Research
·4 mins read

Cullen/Frost Bankers, Inc. CFR reported second-quarter 2020 earnings per share of $1.47, which handily surpassed the Zacks Consensus Estimate of 71 cents. However, it compares unfavorably with the prior-year quarter figure of $1.72 per share.

Results were supported by a decline in expenses along with improved loan and deposit balance. However, a decline in net interest income and fee income were major drags in the quarter. Also, higher provisions on the coronavirus outbreak were undermining factors. Perhaps due to these concerns, the company’s shares lost 2.5% following the earnings release.

It reported net income available to common shareholders of $93.1 million compared with $109.6 million recorded in the prior-year quarter.

Revenues Decline, Expenses Fall

The company’s total revenues were $347.3 million in the second quarter, down 3.6% from the prior-year quarter. The revenue figure also lagged the Zacks Consensus Estimate of $357.3 million.

Net interest income on a taxable-equivalent basis slipped 2.9% year over year to $269.7 million. Additionally, net interest margin contracted 72 basis points (bps) year over year to 3.13%.

Non-interest income declined 6.1% to $77.6 million on a year-over-year basis. This fall mainly resulted from lower service charges on deposit accounts, interchange and debit card transaction fees along with other charges, commissions and fees.

Non-interest expenses of $199.7 million fell 1.7% year over year. A decline in almost all the cost components, except for technology, furniture and equipment along with net occupancy resulted in elevated expenses in the reported quarter.

Strong Balance Sheet

As of Jun 30, 2020, total loans were $18 billion, up 17.2% sequentially. Total deposits amounted to $32.7 billion, up 16.1% from the prior quarter.

Credit Quality Worsens

Credit metrics deteriorated during the June-end quarter. As of Jun 30, 2020, provision for loan losses more than doubled to $32 million on a year-over-year basis on the coronavirus crisis. Further, net charge-offs, annualized as a percentage of average loans, expanded 72 bps year over year to 0.94%. Allowance for loan losses, as a percentage of total loans, was 1.39%, up 46 bps from the prior-year quarter.

Non-performing assets were $85.2 million, up 11.5% from the year-ago quarter.

Steady Profitability and Capital Ratios

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 12.48% compared with 12.94% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.43%, down from 14.6% as of Jun 30, 2019. Furthermore, leverage ratio moved down to 8.01% from 9.4% as of Jun 30, 2019. Common Equity Tier 1 Risk-Based Capital Ratio was 12.48% compared with the previous-year quarter’s 12.29%.

Return on average assets and return on average common equity were 0.99% and 9.6%, respectively, compared with 1.4% and 12.6% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost displayed a disappointing performance during the April-June period. Though improvement in loan and deposit balances indicates continued organic growth, falling revenues might keep eroding the company’s bottom line. Further, higher provisions and margin pressure are concerning.

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 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

BankUnited, Inc.’s BKU reported second-quarter 2020 earnings per share of 80 cents hugely surpassed the Zacks Consensus Estimate of 21 cents. Nevertheless, the figure reflects a decline of 1.2% from the prior-year quarter.

UMB Financial UMBF reported second-quarter 2020 net operating income of $1.33 per share, which easily surpassed the Zacks Consensus Estimate of 32 cents. The reported figure also compares favorably with the prior-year quarter’s earnings of $1.17.

Bank of Hawaii Corporation BOH delivered an earnings surprise of 3.2% in second-quarter 2020. Earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 95 cents. However, the bottom line compares unfavorably with $1.40 reported in the prior-year quarter.

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