Morningstar | Another Strong Quarter for Cullen/Frost: Year-Over-Year Average Loan Growth in Double Digits
Cullen/Frost reported excellent second-quarter 2018 results, with the return on average assets improving to 1.43% and the return on average common equity improving to 14.03%. Both again were some of the best results we have seen since the global financial crisis. The bank’s expense control beat our estimates, and credit costs continued to remain below average. As a result, we are increasing our full-year EPS estimate to $6.78 and our fair value estimate to $107 per share from $102. This is 2.7 times tangible book value as of June 2018.Loan growth remained strong for Cullen/Frost, with average balances up nearly 2% quarter over quarter, and roughly 10% year over year. The bank even saw decent growth in its commercial and industrial portfolio of roughly 10% year over year, better than most peers. Management also sounded upbeat on future economic prospects, stating they are generally seeing optimism among customers. New lona commitments, while down for energy and CRE, were up 7% year over year, which suggests Cullen/Frost’s outsize loan should be sustainable. The bank also continued to make progress on its consumer banking push, and also its push for more commercial loan commitment of 10 million or less in size. Nonperforming assets and potential problem loans were both down during the quarter, as did net charge-offs. The Texas economy also remained healthy, with unemployment down in key markets and solid economic growth as well.
Noninterest income was up 4.9% year over year, which we would view as normal for the bank. Further, noninterest expenses were well-controlled, up only 4.6% year over year. With nicely expanding net interest margins, the bank should continue generating positive operating and solid earnings growth over the medium term.
Cullen/Frost Bankers is a financial holding company and a bank holding company. Through its subsidiaries, the company provides a range of products and services throughout various Texas markets. The company provides commercial and consumer banking services, as well as trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing services. The company serves a variety of industries including, among others, energy, manufacturing, services, construction, retail, telecommunications, healthcare, military and transportation. The company's reportable operating segments are: Banking and Frost Wealth Advisors.
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