Shares of Cullen/Frost Bankers, Inc. (CFR) rose 1.03% to close at $79.73, after the company posted encouraging third-quarter 2014 results on Wednesday, before the opening bell. Driven by strong top-line growth, the company reported earnings of $1.19 per share, significantly outpacing the Zacks Consensus Estimate by 9 cents. Moreover, results were up 24% from the prior-year quarter figure of 96 cents.
Cullen/Frost’s impressive results were aided by an improved top line along with continued growth in loan and deposit balances. Moreover, credit quality recorded significant improvement. However, increased non-interest expenses were a concern.
The company’s net income available to common shareholders of $75.6 million in the reported quarter reflects a 29.5% increase from the year-ago quarter.
Performance in Detail
Cullen/Frost’s total revenue (net of interest expenses) on a taxable equivalent basis increased 14.4% year over year to $289.5 million. Further, it surpassed the Zacks Consensus Estimate of $273 million.
Net interest income on a taxable-equivalent basis was $208.6 million, up 16.5% from the year-ago quarter. The rise was primarily driven by increased average volume of interest earning assets. Moreover, net interest margin (NIM) climbed 1 basis point year over year to 3.39%.
Cullen/Frost’s non-interest income of $80.9 million was up 9.3% on a year-over-year basis. The surge was primarily attributable to an increase in trust and investment management fees, insurance commissions and fees, service charges on deposit accounts and other non-interest income.
Non-interest expense climbed 7.9% year over year to $163.8 million. This was mainly due to an increase in personnel expenses, net occupancy costs and other non-interest expenses.
Credit Quality
Credit metrics showed a marked improvement in the reported quarter. Non-performing assets declined 35.8% year over year to $63 million. The allowance for loan losses as a percentage of total loans stood at 0.91%, as of Sep 30, 2014, down 9 basis points from the prior-year quarter.
Further, net charge-offs were $0.4 million, down 92.6% year over year. Provision for loan losses descended 92.2% year over year to $0.4 million.
Capital Position
Cullen/Frost exhibited a strong capital position. Tier 1 Risk-Based Capital Ratio was 13.91%, compared with 14.53% in the prior-year quarter. Total Risk-Based Capital Ratio was 14.81% versus 15.68% at the end of the prior-year quarter.
Leverage ratio was 8.27% compared with 8.61% in the prior-year quarter. Return on average assets were up 12 basis points year over year to 1.13%, while return on average common equity rose 125 basis points to 11.32%.
Total loans increased 15.1% year over year to $10.7 billion while total deposits came in at $23.5 billion, up 17.5%.
Our Viewpoint
Going forward, we expect the company’s profitability to be aided by the growth in loans and deposits. Moreover, its capital deployment activities remained encouraging. Further, the WNB Bancshares merger enabled Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets and thereby aid expansion.
However, the prevalent low interest rate environment and surging expenses will continue to restrict bottom-line improvement. Nevertheless, with the ongoing revival of the economy, we expect the company to deliver better earnings.
Performance of other Southwest banks
BOK Financial Corporation’s (BOKF) third-quarter 2014 earnings per share of $1.09 missed the Zacks Consensus Estimate by a penny. Moreover, it compared unfavorably with the year-ago earnings of $1.10. Results were adversely affected by elevated operating expenses. Also, declining net interest revenue was a concern.
Texas Capital Bancshares Inc. (TCBI) reported third-quarter 2014 earnings per share of 78 cents, up 5.4% year over year. This surpassed the Zacks Consensus Estimate of 75 cents. Better-than-expected results were aided by improved revenues, partially offset by higher expenses and higher provision for credit losses. Loans and deposits witnessed strong growth during the quarter. While credit metrics were mixed, capital ratios deteriorated during the quarter.
Prosperity Bancshares Inc. (PB) reported remarkable third-quarter 2014 earnings results on the back of appreciable loans and deposits growth as well as top line improvement. Earnings per share came in at $1.10 outpacing the Zacks Consensus Estimate of $1.07. Moreover, earnings per share escalated 20.9% from the year-ago quarter.
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