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Why Is Cullen/Frost (CFR) Up 5.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cullen/Frost Bankers (CFR). Shares have added about 5.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cullen/Frost due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cullen/Frost Q1 Earnings Disappoint, Provisions Escalate

Cullen/Frost delivered first-quarter 2020 earnings per share of 75 cents, missing the Zacks Consensus Estimate of 91 cents. Results also compare unfavorably with the prior-year quarter figure of $1.79 per share.

Escalating expenses and a decline in net interest income were major drags in the quarter. Also, higher provisions on adoption of CECL and the coronavirus outbreak were undermining factors. However, higher fee income, along with rise in loans and deposit balances, were the positives.

The company reported net income available to common shareholders of $47.2 million compared with the $114.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Escalating Expenses

The company’s total revenues were $481.5 million in the first quarter, up 30.8% from the prior-year quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $365 million.

Net interest income on a taxable-equivalent basis slipped 1% year over year to $268.5 million. Additionally, net interest margin contracted 23 basis points (bps) year over year to 3.56%.

Non-interest income more than doubled to $213 million on a year-over-year basis. This increase mainly resulted from net gains on securities transactions.

Non-interest expenses of $224.2 million flared up 11.1% year over year. Rise in almost all the cost components resulted in elevated expenses in the reported quarter. 

Strong Balance Sheet

As of Mar 31, 2020, total loans were $15.3 billion, up 3.4% sequentially. Total deposits amounted to $28.1 billion, up 1.8% from the prior quarter.

Credit Quality: A Mixed Bag

As of Mar 31, 2020, provision for loan losses more than doubled to$175.2 million on a year-over-year basis on the coronavirus crisis. Further, net charge-offs, annualized as a percentage of average loans, expanded 85 bps year over year to 1.04%. Allowance for loan losses, as a percentage of total loans, was 1.72%, up 77 bps from the prior-year quarter.

Non-performing assets were $67.5 million, down 30.7% from the year-ago quarter.

Steady Profitability and Capital Ratios

As of Mar 31, 2020, Tier 1 risk-based capital ratio was 12.02% compared with the 13% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 13.97%, down from 14.68% as of Mar 31, 2019. Furthermore, leverage ratio edged down to 8.84% from 9.35% as of Mar 31, 2019. Common Equity Tier 1 Risk-Based Capital Ratio was 12.02% compared with the previous-year quarter’s 12.34%.

Return on average assets and return on average common equity were 0.57% and 4.88%, respectively, compared with the 1.48% and 14.08% witnessed in the prior-year quarter.


Management expects net interest income and net interest margin to decline sequentially in second-quarter 2020, given the Fed’s rate cuts in March and a continuing decline in LIBOR rates.

The company expects non-interest expenses in 2020 to grow 8.5% from that reported in 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -8.35% due to these changes.

VGM Scores

Currently, Cullen/Frost has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.


Cullen/Frost has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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