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Why Is Cullen/Frost (CFR) Down 3.6% Since Last Earnings Report?

Zacks Equity Research
·4 mins read

It has been about a month since the last earnings report for Cullen/Frost Bankers (CFR). Shares have lost about 3.6% in that time frame, underperforming 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 catalysts.

Cullen/Frost Q2 Earnings Beat Estimates, Provisions Escalate

Cullen/Frost 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.

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.


Until the pandemic subsides, the company expects continued draws on lines of credit, reduced fee income and low revenues related to investment management, insurance and brokerage operations as well as increased customer and client defaults, including defaults of unsecured loans.

The company expects non-interest expenses in 2020 to grow 6% from that reported in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 21.56% due to these changes.

VGM Scores

Currently, Cullen/Frost has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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