Cullen/Frost (CFR) rises 4% on fourth quarter earnings and revenue

Following better than expected fourth quarter 2021 results, the shares of Cullen/Frost Bankers, Inc. The CFR gained 3.99%. The company reported earnings per share of $1.54, beating Zacks consensus estimate of $1.34. The results also compare favorably to the year-ago quarter figure of $1.38 per share.

Higher revenue and deposit balances were a major tailwind in the quarter. In addition, improving credit quality and capital strength were positive. However, high expenses and shrinking margins were major drags.

The company reported net income available to common shareholders of $99.4 million, compared to $88.3 million recorded in the year-ago quarter.

For the year, earnings per share were $6.76, which compares favorably to earnings per share of $5.10 the previous year. Net income available to common shareholders was $435.9 million, up from $322.6 million in 2020.

Income increases, expenses increase

The company’s total revenue was $373.1 million in the fourth quarter, up 4.5% from the year-ago quarter. Revenue also exceeded Zacks’ consensus estimate of $353 million.

In 2021, revenue fell 4.6% from the prior year level to $1.46 billion.

Net interest income (NII) on a tax equivalent basis decreased slightly year over year to $264 million. Additionally, net interest margin (NIM) contracted 51 basis points (bps) year-on-year to 2.31%.

Non-interest revenue climbed 19.4% to $109.1 million year over year. This is mainly due to an increase in all components, except commissions and insurance costs.

Non-interest expense of $238.6 million increased 7% year over year. An increase in all components drove the recovery, partially offset by a decrease in amortization of intangible assets in the reported quarter.

As of December 31, 2021, average total loans were $15.98 billion, down 1.3% sequentially. Average total deposits were $41.02 billion, up 4.9% from the prior quarter.

Decent credit quality

Credit metrics improved in the fourth quarter. As of December 31, 2021, the company had recorded no credit loss charges, compared to $13.8 million recorded in the prior year quarter. Additionally, net write-offs, annualized as a percentage of average loans, fell 23 basis points year-over-year to 0.07%.

Still, the allowance for credit losses on loans, as a percentage of total loans, was 1.52%, up 1 basis point from the prior year period.

Capital position improving, profitability ratios mixed

As of December 31, 2021, the Tier 1 risk-based capital ratio was 13.70%, improving from 13.47% at the end of the prior year quarter. The total risk-based capital ratio was 15.45%, compared to 15.44% as of December 31, 2020. The common equity Tier 1 risk-based capital ratio was 13.13%, higher than the 12 .86% of the prior year quarter. However, the leverage ratio fell slightly to 7.34% from 8.07% as of December 31, 2020.

Return on average assets and return on average equity were 0.81% and 9.26%, respectively, compared to 0.86% and 8.55% in the prior year quarter.

Our point of view

Cullen/Frost is well positioned for revenue growth, given continued improvement in deposit balances, liquidity position and efforts to increase fee income. However, rising expenses, as well as falling fares, are major concerns.

Nevertheless, with the gradual improvement in economic conditions, the company should perform better in the coming quarters.

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

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

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

Performance of other banks

Texas Capital Bancshares TCBI reported adjusted earnings per share of $1.19 for the fourth quarter of 2021, beating Zacks’ consensus estimate of 91 cents. Additionally, the results compare favorably to the $1.14 in the prior year quarter.

Capital strength and lower expenses were the drivers for TCBI. In addition, the provision for credit losses recorded benefits. Still, a decline in NII and commission income as well as reduced margins were deterrents. Additionally, results from Texas Capital reflect lower loan and deposit balances.

Webster Financial WBS reported fourth-quarter 2021 adjusted earnings per share of $1.31, which beat Zacks’ consensus estimate of $1.10. The published figure excludes notable items, such as merger-related charges, strategic optimization and debt prepayment expenses.

Rising NII and commission income boosted Webster Financial’s results. In addition, lower costs, growth in loan balances and impressive capital ratios have been positive. In addition, the release of reserves during the quarter was a tailwind. However, the decline in the NIM and the deposit balance were the main concerns for WBS.

Synovus Financial SNV reported adjusted earnings of $1.35 per share in the fourth quarter of 2021, beating Zacks’ consensus estimate of $1.1. In addition, net income compares favorably to earnings of $1.08 per share recorded in the prior year quarter.

Synovus’ results were driven by higher NII and commission income, lower expenses and reversal of provisions. SNV’s strong loan and deposit balances fueled organic growth. However, the shrinking NIM and deteriorating capital position were the undermining factors.

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