EUR 850.00 For Business Accounts Only

Morningstar | Cullen/Frost Had a Strong Start to 2019

Narrow-moat-rated Cullen/Frost Bankers reported a good first quarter of 2019, as the bank’s consistent strategy of conservative underwriting continues to deliver shareholder returns. Earnings per share came in at $1.79, down 2% from the fourth quarter because of a seasonal uptick in compensation expenses and slight weakness in interest income. After adjusting our model for quarterly results, we are maintaining our fair value estimate of $99 per share for this high-quality bank.

Cullen/Frost’s deposit cost advantage shined this quarter. While several regional banks under our coverage have struggled with deposit costs, Cullen/Frost’s cost of interest-bearing deposits increased by only 6 basis points, which was a top-tier deposit beta. While Cullen/Frost’s proportion of non-interest-bearing deposits declined by 1.5% this quarter, the bank still has one of the best deposit bases under our regional bank coverage, and there is some seasonality behind this, as well.

Noninterest income grew 5.8% from the first quarter of 2018, largely due to impressive growth in the investment management and insurance businesses. We­ like these add-on businesses because they strengthen Cullen/Frost’s relationships with clients and lower the cost of client acquisition. Noninterest expenses grew 2.6% year over year, largely due to increases in compensation expense. We expect continued growth in noninterest expense due to the bank’s expansion into Houston.

Cullen/Frost had an exceptional quarter on credit costs. Slight increases in consumer credit costs were more than offset by reductions in commercial credit costs, leading to a 7-basis-point quarter-over-quarter decline in the net charge-off ratio. We expect that Cullen/Frost’s conservative underwriting culture will allow it to avoid most cyclical increases in credit costs.