As a Texas-based bank, Cullen/Frost Bankers (CFR 0.72%) was hit hard by the downturn in the energy sector.  Low energy prices made it difficult for many of the bank's customers to make good on their interest payments, which forced Cullen/Frost to greatly increase its provisions for loan losses. That fact weighed on the bank's profitability.

Image source: Getty Images.

Thankfully, last quarter we saw hints that the worst of the damage might finally be over. Let's take a closer look at its third-quarter results to find out for sure.

Cullen/Frost Bankers Q3: The raw numbers

MetricQ3 2016Q3 2015Change %
Net interest income $235.7 million $225.6 million 


Non-interest income $82.1 million $83.4 million (1.5%)
Net income $78.2 million $73.8 million 5.9% 
Earnings per share $1.24 $1.17 5.9%

Data source: Cullen/Frost Bankers.

What happened with Cullen/Frost Bankers this quarter?

  • Returns on average assets and common equity were 1.07% and 10.31%, respectively. In the year-ago period, those figures came in at 1.04% and 10.73%, respectively.
  • Average loans rose 0.8% to $11.5 billion.
  • Average deposits increased 2.4% to $24.7 billion.
  • The bank's capital ratios continue to exceed regulatory requirements. Common equity Tier 1, Tier 1, and total risk-based capital ratios were 12.4%, 13.24%, and 14.85%, respectively, at quarter's end.
  • Net interest margin rose by five basis points year over year to 3.48%.
  • Non-interest expense increased by 2.8% to $180.5 million. 
  • Book value per share was $47.98 at quarter end. While that was up 8.3% over the same quarter last year, it was down 0.5% sequentially.
  • Provisions for loan losses continue to drop, coming in at only $5 million for the quarter. That's a nice improvement from the $9.2 million charge that was recorded last quarter.
  • Net charge-offs dropped to $5 million, a huge drop from the $21.4 million that it recorded in the second quarter.

While the quarterly numbers were almost universally positive, non-performing assets did grow by 12% to $100.9 million in the third quarter.

What management had to say

CEO Phil Green said that he was happy with the bank's improved profitability and that he continues to stay focused on serving customers, noting:

We also continue to see positive results of our approach to working with customers, which served us well through the challenges of the past several months. We have enhanced the award-winning Frost customer experience by providing new mobile and online financial services to customers while also opening five new financial centers in the third quarter in attractive, growing markets.

Looking forward

Shares of Cullen/Frost Bankers have rebounded strongly from the beating they took at the start of the year as investors anticipated the end of the energy crisis. The company's solid quarterly results agree with that outlook, and a quick look at other regional banks with heavy energy exposure reaffirms that thesis. Oklahoma-based BOK Financial recently reported its third-quarter earnings results and stated that it had cut provisions for credit losses in half sequentially. That suggests that rising commodity prices are making it easier for energy companies to service their debt, which is a positive sign for investors. 

With the energy markets finally looking like they are on stable ground, Cullen/Frost can once again turn its attention to slowly building out its regional presence and finding new ways to delight its customers.