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What You Should Know About Cullen/Frost Bankers Inc’s (NYSE:CFR) Risks

Arjun Bhatia

Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. As a small-cap bank with a market capitalisation of US$7.37B, Cullen/Frost Bankers Inc’s (NYSE:CFR) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Cullen/Frost Bankers’s bottom line. Since the level of risky assets held by the bank impacts the attractiveness of it as an investment, I will take you through three metrics that are insightful proxies for risk. See our latest analysis for Cullen/Frost Bankers

NYSE:CFR Historical Debt Jun 1st 18

Does Cullen/Frost Bankers Understand Its Own Risks?

Cullen/Frost Bankers’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. With a bad loan to bad debt ratio of 121.71%, the bank has cautiously over-provisioned by 21.71%, which illustrates a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.

How Much Risk Is Too Much?

Cullen/Frost Bankers is engaging in risking lending practices if it is over-exposed to bad debt. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. A ratio of 0.92% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

Cullen/Frost Bankers operates by lending out its various forms of borrowings. Customers’ deposits tend to carry the smallest risk given the relatively stable interest rate and amount available. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Cullen/Frost Bankers’s total deposit level of 94.55% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.

Next Steps:

Cullen/Frost Bankers exhibits prudent management of risky assets and lending behaviour with sensible levels for all three ratios. It has a strong understanding of how much it should provision for lower quality borrowers and has maintained a sensible level of deposits against its liabilities. Cullen/Frost Bankers is deemed a less risky investment given its sound and sensible lending strategy which gives us more confidence in its operational risk management. Today, we’ve only explored one aspect of Cullen/Frost Bankers. However, as a potential stock investment, there are many more fundamentals you need to consider. I’ve put together three important aspects you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for CFR’s future growth? Take a look at our free research report of analyst consensus for CFR’s outlook.
  2. Valuation: What is CFR worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CFR is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.