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Cullen/Frost (CFR) Gains on Q3 Earnings Beat, Higher Revenues

Shares of Cullen/Frost Bankers, Inc. CFR gained more than 9% following the release of its third-quarter 2022 results last week. The company’s earnings per share of $2.59 surpassed the Zacks Consensus Estimate of $2.19. The bottom line increased significantly from the prior-year quarter’s $1.65 per share.

Results were primarily aided by a rise in net interest income (NII), supported by higher rates and loan growth. Increased non-interest income was another tailwind. However, higher expenses hurt the results to some extent.

The company reported net income available to common shareholders of $168.1 million compared with $106.3 million recorded in the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues (on a taxable-equivalent basis) were $479.3 million, up 32.2% from the prior-year quarter. The figure surpassed the Zacks Consensus Estimate of $445.7 million.

NII on a taxable-equivalent basis increased 40.9% year over year to $379.5 million. The net interest margin (NIM) expanded 54 basis points (bps) year over year to 3.01%.

Non-interest income climbed 7.1% year over year to $99.8 million. The increase was due to a rise in all fee income components.

Non-interest expenses of $257.9 million were up 18.3% year over year. A rise in all cost components, other than intangible amortization costs, resulted in the upswing.

As of Sep 30, 2022, total average loans were $16.82 billion, up 1% sequentially. Total average deposits amounted to $45.80 billion, up 2.4% from the prior quarter.

Credit Quality Improves

In the reported quarter, the company did not record any credit loss expenses, similar to the prior-year quarter.

The allowance for credit losses on loans, as a percentage of total loans, was 1.38%, down from 1.58% in the prior-year period. However, net charge-offs, annualized as a percentage of average loans, expanded 2 bps year over year to 0.07%.

Capital Ratios Deteriorate, Profitability Ratios Improve

As of Sep 30, 2022, the tier 1 risk-based capital ratio was 13.26%, down from 14.01% recorded at the end of the year-earlier quarter. The total risk-based capital ratio was 14.80%, down from 15.90% as of Sep 30, 2021. Common equity tier 1 risk-based capital ratio was 12.74%, lower than the previous-year quarter’s 13.42%. The leverage ratio was 7.09%, down from 7.52% as of Sep 30, 2021.

Return on average assets and return on average common equity were 1.27% and 20.13%, respectively, compared with 0.90% and 9.87% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost is well-positioned for revenue growth, given the steady improvement in loan balances, higher interest rates and its efforts to boost fee income. However, rising expenses might hurt the bottom line to some extent in the near term.

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

 

CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise
CullenFrost Bankers, Inc. Price, Consensus and EPS Surprise

CullenFrost Bankers, Inc. price-consensus-eps-surprise-chart | CullenFrost Bankers, Inc. Quote

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Currently, Cullen/Frost carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

SVB Financial Group’s SIVB third-quarter 2022 earnings per share of $7.21 surpassed the Zacks Consensus Estimate of $6.79. The bottom line reflects a rise of 15.5% from the prior-year quarter.

SIVB’s results were primarily aided by an improvement in NII, driven by higher rates and loan growth. However, a rise in expenses, lower non-interest income and higher provisions were the undermining factors.

BankUnited, Inc.’s BKU third-quarter 2022 earnings per share of $1.12 outpaced the Zacks Consensus Estimate of $1.01. The bottom line also grew 19.1% from the prior-year quarter.

Results benefited from higher net interest income, a decent rise in loan balance and increasing rates. However, subdued fee income performance, a rise in expenses and an increase in credit costs acted as headwinds for BKU.


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