The gradual recovery in energy prices has allowed many of Cullen/Frost Bankers(NYSE:CFR) customers to shore up their financial statements. In turn, the bank's revenue is on the rise and its provision for loan losses is declining. The combination is having a strong impact on the bank's profitability.

Coming into Wednesday morning's earnings report, market watchers believed that Cullen/Frost was poised to post double-digit growth on its bottom line yet again. Was the company able to live up to those high expectations? Let's take a closer look at how the Texas-based bank performed during the period.

man at bank writing a check

Image source: Getty Images.

Cullen/Frost Bankers Q1: The raw numbers

MetricQ1 2017Q1 2016Year-Over-Year Change 
Net interest income $252.4 million $229.2 million 

10.1%

Non-interest income $83.7 million $96.1 million (12.9%)
Net income $82.9 million $68.8 million 24.1% 
Earnings per share $1.28 $1.07 19.6%

Data source: Cullen/Frost Bankers.

What happened with Cullen/Frost Bankers this quarter?

  • Net interest income grew by double digits thanks to increasing loan volumes and higher interest rates.
  • The drop in noninterest income was primarily attributable a $14.9 million gain on a securities transaction that was recorded in the first quarter of 2016. If you exclude that one-time gain, then noninterest income would have risen by 3%.
  • Earnings per share jumped by more than 19%, to $1.28. That was comfortably ahead of the $1.22 in profits that Wall Street had expected.
  • Return on average assets was 1.12%, which was nicely ahead of the 0.96% that was recorded in the same period last year.
  • Return on average common equity was 11.55%.
  • Average deposits came in at $25.8 billion, up 7.8% year over year.
  • Average loans jumped 5.1%, to $12.1 billion.
  • Net interest margin rose yet again, this time by 6 basis points, to 3.64%. Management said the increase is attributable to the Federal Reserve's interest rate hikes. 
  • Noninterest expense rose 4.9%, to $187.9 million. 
  • Book value per share at quarter-end was $46.20. That is basically flat year over year but up 2.5% sequentially.
  • Provisions for loan losses continue to drop, coming in at $8 million for the quarter. That's far below the $28.5 million provision that was recorded in the year-ago quarter.
  • On the flip side, net charge-offs were $7.9 million, up sharply from last year's $2.5 million. In addition, nonperforming assets was $118.2 million at quarter-end. That's up 15% from the end of the fourth quarter of 2016.

What management had to say

Cullen/Frost CEO Phil Green said: "We continue to build momentum from the last half of 2016, particularly in net interest income and loan growth." He later stated that the bank is "well-positioned" to grow as interest rates rise.

Green also pointed out that Cullen/Frost received 33 Greenwich Excellence awards in February, more than any other bank in the country.

Looking forward

Shareholders appeared to be quite happy with the company's quarterly performance and its budding prospects as shares rose by a few percent in the morning following the release. The jump pushed Frost Bankers' stock to within a few points of an all-time high, which hints that the markets are expecting the good times to continue. With interest rates poised to rise, and clear signs that the energy markets have stabilized, it is hard to blame the markets for feeling enthusiastic about this bank's potential.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Cullen/Frost Bankers. The Motley Fool has a disclosure policy.