Shares of Cullen/Frost Bankers, Inc. (CFR) rose 2.13% to close at $62.15, after the company posted encouraging fourth-quarter 2014 results on Wednesday, before the opening bell. Driven by strong top-line growth, the company reported earnings of $1.11 per share, significantly above the prior-year quarter figure of 99 cents. However, results were in line with the Zacks Consensus Estimate.
Cullen/Frost’s encouraging results were aided by higher revenues along with continued growth in loan and deposit balances. Moreover, credit quality recorded a marked improvement. However, elevated non-interest expenses remain a concern.
The company’s net income available to common shareholders of $70.7 million in the reported quarter reflects a 16.7% increase from the year-ago quarter.
For full-year 2014, net income available to common shareholders was $269.9 million or $4.29 per share, up from $231.1 million or $3.80 per share in the prior year. However, results lagged the Zacks Consensus Estimate by a penny.
Performance in Detail
For full-year 2014, the company’s total revenue (net of interest expenses) on a taxable equivalent basis came in at $1.13 billion, outpacing the Zacks Consensus Estimate of $1.07 billion. Moreover, results were up 11.9% year over year.
Cullen/Frost’s total revenue (net of interest expenses) on a taxable equivalent basis increased 12% year over year to $295.2 million in the quarter. Further, it surpassed the Zacks Consensus Estimate of $277 million.
Net interest income on a taxable-equivalent basis was $212.6 million, up 14.9% from the year-ago quarter. The rise was primarily driven by increased average volume of interest earning assets. Yet, net interest margin (NIM) declined 5 basis points year over year to 3.34%.
Cullen/Frost’s non-interest income of $82.6 million was up 5.2% 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 9.4% year over year to $169 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 6.6% year over year to $65.2 million. The allowance for loan losses as a percentage of total loans stood at 0.91%, as of Dec 31, 2014, down 6 basis points from the prior-year quarter.
Further, net charge-offs were $3.2 million, down 51.5% year over year. Provision for loan losses descended 25.4% year over year to $4.4 million.
Capital Position
Cullen/Frost exhibited a strong capital position. Tier 1 Risk-Based Capital Ratio was 13.68%, compared with 14.39% in the prior-year quarter. Total Risk-Based Capital Ratio was 14.55% versus 15.52% at the end of the prior-year quarter.
Leverage ratio was 8.16% compared with 8.49% in the prior-year quarter. Return on average assets were in line with the prior-year quarter at 1.02%, while return on average common equity rose 15 basis points to 10.36%.
Total loans increased 15.8% year over year to $11 billion while total deposits came in at $24.1 billion, up 16.4%.
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 were 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. Currently, Cullen/Frost carries a Zacks Rank #3 (Hold).
Performance of other Southwest banks
BOK Financial Corporation (BOKF) reported fourth-quarter 2014 earnings per share of 93 cents, down from $1.06 reported in the prior-year quarter. Excluding branch closure costs accrued in the quarter and net changes in the fair value of mortgage servicing rights of 16 cents, adjusted net income was $1.09 per share. Notably, the Zacks Consensus Estimate stood at $1.07.
Texas Capital Bancshares Inc. (TCBI) reported fourth-quarter 2014 earnings per share of 78 cents, surpassing the prior-year quarter earnings of 67 cents. However, results were in line with the Zacks Consensus Estimate. Higher revenues along with loans and deposits were positives for the quarter. However, elevated expenses and higher provision for credit losses remain concerns.
Prosperity Bancshares Inc. (PB) delivered yet another positive earnings surprise, with fourth-quarter 2014 earnings per share of $1.12 outpacing the Zacks Consensus Estimate of $1.08. Moreover, earnings per share escalated 14.3% from the year-ago quarter.
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