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Cullen/Frost (CFR) Gains on Q4 Earnings Beat; Revenue Up

Cullen/Frost Bankers, Inc.CFR recorded a positive earnings surprise of 3.2% in fourth-quarter 2016, leading to a 2.33% rise in shares. The company reported earnings per share of $1.28, beating the Zacks Consensus Estimate of $1.24. Moreover, the reported figure was up from 90 cents per share recorded in the year-ago quarter.

Higher revenues and falling provisions primarily supported the beat. Further, rise in loans and deposits reflected organic growth. However, elevated expenses and increase in non-performing assets were the dampening factors.

Net income available to common shareholders came in at $81.7 million, exceeding the year-ago quarter figure by approximately 45.4%.

For full-year 2016, net income available to common shareholders was $296.2 million or $4.70 per share, up from $271.3 million or $4.28 per share in the prior year. Moreover, results outpaced the Zacks Consensus Estimate of $4.64.

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Improved Revenues Offset Rising Expenses

For full-year 2016, the company's total revenue (net of interest expenses) on a taxable equivalent basis came in at $1.29 billion, outpacing the Zacks Consensus Estimate of $1.19 billion. Moreover, results were up 5.7% year over year.

Cullen/Frost's total revenue (net of interest expenses) was $338.4 million, reflecting an increase of 9.6% from the prior-year quarter. Moreover, it outpaced the Zacks Consensus Estimate of $294 million.

Net interest income on a taxable-equivalent basis increased 8.6% year over year to $245 million. Moreover, net interest margin was 3.55%, up 12 basis points (bps) year over year, due to the Fed's interest rate hikes and a shift in the mix of earning assets to higher yielding assets.

Non-interest income totaled $93.4 million, up 12.3% from the year-ago quarter. The increase was mainly due to net gain on securities transactions and higher other non-interest income.

Non-interest expenses of $193.9 million grew 11.8% year over year. The rise in almost all categories of expenses led to the increase.

Strong Balance Sheet

As of Dec 31, 2016, total loans summed $12 billion, up 4.3% from the prior-year quarter. Further, total deposits amounted to $25.8 billion, up 6.2% year over year.

Credit Quality: A Mixed Bag

As of Dec 31, 2016, non-performing assets were $102.6 million, up 19.7% from the year-ago quarter. Also, allowance for loan losses, as a percentage of total loans, was 1.28%, up 10 bps from the prior-year quarter.

However, net charge-offs, annualized as a percentage of average loans contracted 11 bps year over year to 0.19%. Provision for loan losses slumped 73.8% year over year to $8.9 million.

Capital Ratios Deteriorates, Mixed Profitability Ratios

As of Dec 31, 2016, Tier 1 risk-based capital ratio was 13.33% compared with 13.68% in the prior-year quarter. Total risk-based capital ratio was 14.93%, down from 15.11% as of Dec 31, 2015. Further, leverage ratio declined to 8.14% from 8.28% as of Dec 31, 2015.

Return on average assets and return on average common equity were 1.09% and 11.03%, respectively, compared with 0.78% and 8.07% in the prior-year quarter.

Our Viewpoint

We expect Cullen/Frost to witness organic growth, driven by continued improvement in loan and deposit balances. Moreover, the WNB Bancshares merger has helped Cullen/Frost to further capitalize on the growth momentum in the diverse Texas markets.

However, escalating expenses continue to restrict the company's bottom-line growth. In addition, significant exposure to the risky real estate loans and increase in non-performing assets continue to raise concerns.

Cullen/Frost Bankers, Inc. Price, Consensus and EPS Surprise

Cullen/Frost Bankers, Inc. Price, Consensus and EPS Surprise | Cullen/Frost Bankers, Inc. Quote

Currently, Cullen/Frost carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Banks

Bank of America Corporation BAC reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. Further, the figure was 48% higher than the year-ago quarter number.

Driven by interest income, Wells Fargo & Company's WFC fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter's earnings of $1.00 per share. Including net hedge ineffectiveness accounting impact of 7 cents, earnings came in at 96 cents per share.

Comerica Inc. CMA delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of 99 cents came ahead of the Zacks Consensus Estimate of 95 cents. The adjusted figure excludes a restructuring charge of 7 cents per share. Also, earnings increased 43.8% year over year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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