Cullen/Frost (CFR) Gains Over 2% on Q1 Earnings Beat (revised) - Analyst Blog

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Shares of Cullen/Frost Bankers, Inc. ( CFR ) rose 2.2% to close at $72.26, after the company delivered a positive earnings surprise on Wednesday, before the opening bell. The company reported first-quarter 2015 earnings of $1.10 per share, 14.6% above the prior-year quarter figure of 96 cents. The bottom line beat the Zacks Consensus Estimate of $1.09 per share.

Cullen/Frost's encouraging results were aided by higher revenues, along with continued growth in loan and deposit balances. Moreover, overall credit profile of the company improved during the quarter. However, elevated non-interest expenses and rise in provisions remain concerns.

The company's net income available to common shareholders of $70.1 million in the reported quarter reflects an 18.6% increase from the year-ago quarter.

Performance in Detail

Cullen/Frost's total revenue (net of interest expenses) increased 11% year over year to $263.9 million. However, it missed the Zacks Consensus Estimate of $277 million.

Net interest income came in at $180.7 million, up 12.7% from the year-ago quarter figure. Net interest income on a taxable-equivalent basis was $216.7 million, up 15.4% year-over-year. The rise was primarily driven by an increase in interest earning assets led by strong deposit growth. Yet, net interest margin (NIM) declined one basis point year over year to 3.41%.

Cullen/Frost's non-interest income of $83.2 million was up 7.4% on a year-over-year basis. The surge was primarily attributable to an increase in trust and investment management fees, along with a rise in all sources of non-interest income.

Non-interest expense climbed 8.6% year over year to $171.5 million. Increase in all components of expenses triggered the rise.

Credit Quality

Credit metrics represented a mixed bag in the reported quarter. Non-performing assets declined 2.7% year over year to $59.6 million. The allowance for loan losses, as a percentage of total loans, stood at 0.94%, as of Mar 31, 2015, down 4 basis points (bps) from the prior-year quarter.

Further, net charge-offs were $2 million, down 48.6% year over year. However, provision for loan losses rose 23.7% year over year to $8.2 million.

Capital Position

Cullen/Frost remained well capitalized during the reported quarter. Tier 1 risk-based capital ratio was 12.60%, while total risk-based capital ratio stood at 13.93% as of Mar 31, 2015. Further, leverage ratio was recorded at 7.89%.

Return on average assets edged up 2 bps to 1.02% as of Mar 31, 2015, and return on average common equity rose 37 bps to 10.34%.

Total loans increased 15% year over year to $11.2 billion, while total deposits came in at $24.2 billion, up 14.6%.

Our Viewpoint

Going forward, we expect the company's profitability to be aided by growth in loans and deposit. Further, the WNB Bancshares merger enabled Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets and thereby, aid in the expansion.

However, the prevalent low interest rate environment and surging expenses will continue to restrict bottom-line growth. Nevertheless, with improvement in economy and a strong Texas franchise, we expect the company to continue delivering strong earnings. Currently, Cullen/Frost carries a Zacks Rank #3 (Hold).

Performance of Other Southwest Banks

BOK Financial Corporation ( BOKF ) reported first-quarter 2015 earnings per share of $1.08, beating the Zacks Consensus Estimate of $1.03.

Texas Capital Bancshares Inc. ( TCBI ) reported first-quarter 2015 earnings per share of 70 cents, surpassing the prior-year quarter figure of 60 cents. However, results came in line with the Zacks Consensus Estimate. Higher revenues, along with loans and deposits, were positives for the quarter. Nevertheless, elevated expenses and higher provision for credit losses continued to pose concerns.

Also, Prosperity Bancshares Inc. ( PB ) reported in-line first-quarter 2015 results. Earnings per share of $1.05 escalated 4% from the year-ago quarter.

(This article has been revised to correct an inaccuracy. The original version should no longer be relied upon.)

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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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