The rebound in energy prices has been a godsend to many companies. As a Texas-based bank, Cullen/Frost Bankers (NYSE:CFR) has certainly benefited from the recovery since many of its customers operate in the energy sector. In response, traders have been bidding up shares of the bank to new heights on the thesis that better times lie ahead.

Coming into Wednesday's earnings report, market watchers believed the company was well positioned to report a sharp rebound in profits. Let's take a closer look at the bank's quarterly performance to see if it was able to meet those lofty expectations.


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Cullen/Frost Bankers Q4: The raw numbers

MetricQ4 2016Q4 2015Change (YOY)
Net interest income $245.0 million $225.6 million 


Non-interest income $93.4 million $83.2 million 12.3%
Net income $81.7 million $56.2 million 45.4% 
Earnings per share $1.28 $0.90 42.2%

Data source: Cullen/Frost Bankers. YOY = year over year.

What happened with Cullen/Frost Bankers this quarter?

  • Returns on average assets and common equity were 1.09% and 11.03%, respectively. Those figures were 0.78% and 8.07%, respectively, in the year-ago period.
  • Average deposits jumped by 3.9% to $25.4 billion.
  • Average loans rose by 3.1% to $11.7 billion.
  • Frost bank remains very well capitialzied. Common equity Tier 1, Tier 1, and total risk-based capital ratios were 12.5%, 13.3%, and 14.9%, respectively, at quarter's end.
  • Net interest margin increased by 10 basis points year over year to 3.55%. Management credited the jump to the Federal Reserve's decision to increase interest rates. 
  • Non-interest expense rose sharply during the period, coming in at $194 million. That's up 12% over the same quarter last year. Management said the increase was owed to higher spending on employee salaries and benefits plus a $12.9 million jump in other expenses. 
  • Book value per share at quarter-end was $45.03. This figure is up 1.6% over the same quarter last year, but it's actually down 6.1% sequentially.
  • Provisions for loan losses was $8.9 million for the quarter. That's a steep drop-off from the $34 million provision that was recorded in the year-ago quarter.
  • Net charge-offs were $5.7 million. That's a nice improvement from the $8.5 million in charges that were recorded last year. 

While the bank's numbers largely trended in the right direction, the company did state that non-performing assets at year-end were $102.6 million. That represents a 20% increase year over year and a 1% sequential rise, so shareholders should continue to keep a watchful eye on this figure.

What management had to say

"The fourth quarter represented a strong finish to the year and it generated some great momentum going into 2017," said Phil Green, Cullen/Frost's CEO. He later commented that the bank's "loan growth was particularly good toward the end of the year," and that he was quite proud of his team's ability to put up such strong growth numbers in a challenging operating environment.

Management also stated that the bank once again received the highest ranking in customer satisfaction in Texas, according to a J.D. Power and Associates 2016 U.S. Retail Banking Satisfaction Study. This is the seventh year in a row the bank has won this award.

Looking forward

Cullen/Frost Bankers' stock has been on an absolute tear over the past year. Shares has more then doubled in value over the past 12 months, and they're currently trading at an all-time high. Given the recent performance of the energy markets, the anticipated rise in interest rates, and a more favorable political environment, it isn't hard to understand why investors are feeling bullish.

With several trends working in its favor, Cullen/Frost continues to look well positioned for profitable growth ahead. That makes this award-winning bank a great stock for financial investors to keep their eye on.