A month has gone by since the last earnings report for Cullen/Frost Bankers (CFR). Shares have lost about 1.9% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cullen/Frost due for a breakout? 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 & Revenues Beat Estimates
Cullen/Frost Bankers reported a positive surprise of 2.3% in first-quarter 2019. Earnings per share of $1.79 handily surpassed the Zacks Consensus Estimate of $1.75.
Top-line strength and higher loan balance were reflected in the quarter. Further, a strong balance balance-sheet position was a positive. However, elevated expenses and provisions remained major drags.
The company reported net income available to common shareholders of $114.5 million compared with $104.5 million recorded in the prior-year quarter.
Revenue Growth Offsets Escalated Expenses
The company’s total revenues were $368 million in the first quarter, up 7% from the prior-year quarter. Further, revenues outpaced the Zacks Consensus Estimate of $365.6 million.
Net interest income on a taxable-equivalent basis climbed 7.4% year over year to $271.2 million. Additionally, net interest margin expanded 27 basis points (bps) year over year to 3.79%.
Non-interest income totaled $96.8 million, up 5.8% from the year-ago quarter. The increase was mainly due to rise in almost all components of income.
Non-interest expenses of $201.8 million flared up 2.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter, partially offset by lower other expenses.
Strong Balance Sheet
As of Mar 31, 2019, total loans were $14.4 billion, up 2.1% sequentially. Total deposits amounted to $26.3 billion, down 3% from the prior quarter.
Credit Quality: A Mixed Bag
As of Mar 31, 2019, provision for loan losses increased 59.4% on a year-over-year basis to $11 million. Yet, net charge-offs, annualized as a percentage of average loans shrunk 19 bps year over year to 0.19%. Allowance for loan losses, as a percentage of total loans, was 0.95%, down 17 bps from the prior-year quarter.
Non-performing assets were $97.4 million, down 28.7% from the year-ago quarter.
Steady Profitability and Capital Ratios
As of Mar 31, 2019, Tier 1 risk-based capital ratio was 13.00% compared with 13.01% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.68%, up from 14.89% as of Mar 31, 2018. Furthermore, leverage ratio inched up to 9.35% from 8.62% as of Mar 31, 2018.
Return on average assets and return on average common equity were 1.48% and 14.08%, respectively, compared with 1.36% and 13.62% witnessed in the prior-year quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Cullen/Frost has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cullen/Frost has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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