Zacks Investment Research | Feb 03, 2019 08:55PM ET
Cullen/Frost Bankers (NYSE:CFR) delivered a positive earnings surprise of 3.4% in fourth-quarter 2018. Earnings per share of $1.82 surpassed the Zacks Consensus Estimate of $1.76. Further, the reported figure compares favorably with earnings of $1.53 per share in the prior-year quarter.
Top-line strength and lower provisions were witnessed in the fourth quarter. Further, increase in loans and deposits and expansion of margin were other positives. However, expenses continued to escalate and non-interest income declined, which might have caused a nearly 2% decline in price for the stock.
The company reported net income available to common shareholders of $117.2 million, up 19% from $98.5 million recorded in the prior-year quarter.
Earnings per share for 2018 came in at $6.90, which outpaced the Zacks Consensus Estimate of $6.84. Further, the figure compares favorably with earnings of $5.51 per share reported in 2017. Net income available for common shareholders (GAAP Basis) for 2018 amounted to $446.8 million, up from $356 million recorded in the previous year.
Revenue Growth Offsets Higher Expenses
Total revenues for the fourth quarter came in at $360.9 million, up nearly 1% from the prior-year quarter. Also, revenues surpassed the Zacks Consensus Estimate of $344.2 million.
Total revenues for 2018 came in at $1.40 billion, up 1.7% from the prior year. The revenue figure also outpaced the Zacks Consensus Estimate of $1.35 billion.
Net interest income for the quarter, on a taxable-equivalent basis, climbed 2% year over year to $273.8 million. Also, net interest margin expanded 2 basis points (bps) year over year to 3.72% (assuming tax rate of 21% in the prior-year quarter).
Non-interest income totaled $87.1 million, down 3.3% from the year-ago quarter. The fall was mainly due to a decrease in all components except trust and investment management fees.
Non-interest expenses of $199.7 million jumped 1.7% year over year. Increase in salaries and wages, employee benefits, technology-related costs and other expenses led to elevated expenses in the reported quarter.
Balance Sheet Position
As of Dec 31, 2018, total loans were $14.1 billion, up 2.1% from the prior-quarter end. Further, total deposits amounted to $27.1 billion, up 3% from the end of the third quarter.
Credit Quality: A Mixed Bag
As of Dec 31, 2018, provision for loan losses plummeted 53.5% on a year-over-year basis to $3.8 million. Allowance for loan losses, as a percentage of total loans, was 0.94%, down 24 bps from the prior-year quarter end. Also, non-performing assets were $74.9 million, down 52.4% from the year-ago quarter.
However, net charge-offs, annualized as a percentage of average loans, expanded 4 bps year over year to 0.26%.
Profitability and Capital Ratios
As of Dec 31, 2018, Tier 1 risk-based capital ratio was 13.34% compared with 13.16% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.09%, down from 15.15% as of Dec 31, 2017. Leverage ratio inched up to 9.06% from 8.46% as of Dec 31, 2017.
Return on average assets and return on average common equity was 1.48% and 14.85%, respectively, compared with 1.26% and 12.66% witnessed in the prior-year quarter.
Our Viewpoint
Rise in loan and deposit balances, and expansion of margin indicates continued organic growth. Though escalating expenses might continue to dampen the company’s bottom-line growth, it remains well poised to benefit from a solid revenue base and lower provisions.
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