Cullen/Frost (CFR) Down Despite In-Line Q2 Earnings, Costs Up
Zacks Investment Research | Jul 25, 2019 09:26PM ET
Cullen/Frost Bankers, Inc. (NYSE:CFR) reported earnings per share of $1.72 in second-quarter 2019, in line with the Zacks Consensus Estimate. Results compare favorably with the prior-year quarter figure of $1.68 per share.
Top-line strength and higher loan balance were reflected in the quarter. Further, a strong balance-sheet position and lower provisions were driving factors. However, elevated expenses were a major drag, escalating investors’ concerns. Therefore, shares of Cullen/Frost declined 2.19%, following the release.
The company reported net income available to common shareholders of $109.6 million compared with $109.3 million recorded in the prior-year quarter.
Revenue Growth Offset Escalated Expenses
The company’s total revenues were $360.4 million in the second quarter, up 4.3% from the prior-year quarter. The revenue figure, however, lagged the Zacks Consensus Estimate of $364.6 million.
Net interest income on a taxable-equivalent basis climbed 6.6% year over year to $277.8 million. Additionally, net interest margin expanded 21 basis points (bps) year over year to 3.85%.
Non-interest income totaled $82.6 million, down 2.9% from the year-ago quarter. This decrease came in mainly due to lower other charges, commissions and fees, along with other non-interest income.
Non-interest expenses of $203.2 million flared up 7.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.
Strong Balance Sheet
As of Jun 30, 2019, total loans were $14.5 billion, slightly up sequentially. Total deposits amounted to $26 billion, down 1.1% from the prior quarter.
Credit Quality: A Marked Improvement
Credit metrics improved during the June-end quarter. As of Jun 30, 2019, provision for loan losses decreased 22.9% on a year-over-year basis to $6.4 million. Further, net charge-offs, annualized as a percentage of average loans shrunk 1 basis point year over year to 0.22%. Allowance for loan losses, as a percentage of total loans, was 0.93%, down 17 bps from the prior-year quarter.
Non-performing assets were $76.4 million, down 37.8% from the year-ago quarter.
Steady Profitability and Capital Ratios
As of Jun 30, 2019, Tier 1 risk-based capital ratio was 12.94% compared with 13.02% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 14.60%, up from 14.85% as of Jun 30, 2018. Furthermore, leverage ratio inched up to 9.40% from 9.02% as of Jun 30, 2018.
Return on average assets and return on average common equity were 1.40% and 12.60%, respectively, compared with 1.43% and 14.03% witnessed in the prior-year quarter.
Capital Deployment Update
Cullen/Frost’s board of directors announced a new stock-repurchase plan worth $100 million.
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Our Viewpoint
Cullen/Frost displayed an impressive performance during the April-June period. Growth in loan balance indicates continued organic growth. Though escalating expenses might continue to depress the company’s bottom-line growth, it remains well poised to benefit from easing margin pressure and higher net interest income.
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