Cullen/Frost Bankers (NYSE:CFR) reported its fourth-quarter results on Thursday, Jan. 25. The Texas-based bank posted double-digit net income growth thanks to a rapidly expanding loan portfolio and widening net interest margin.

Let's sift through the regional bank's results to see if the good times can continue.

A teller handing a customer a check.

Image source: Getty Images.

Cullen/Frost Bankers Q4: The raw numbers

Metric Q4 2017 Q4 2016 Year-Over-Year Change 
Net interest income $224 million $202 million 


Noninterest income $90 million $93 million (3%)
Net income $99 million $82 million 18% 
Earnings per share $1.53 $1.28 20%

Data source: Cullen/Frost Bankers.

What happened with Cullen/Frost Bankers this quarter?

  • The year-over-year growth in net interest income was largely driven by a 9.8% gain in average loans.
  • Rising interest rates allowed the company's net interest margin to expand by 15 basis points to 3.70%, which also contributed to the big jump in net income and earnings per share.
  • Fourth-quarter results were favorably impacted by a $4 million tax adjustment thanks to the recent passage of the Tax Cuts and Jobs Act. This resulted in a $0.06 boost to EPS during the period.
  • Returns on average assets expanded by 17 basis points to 1.26%
  • Returns on common equity jumped 163 basis points to 12.66%
  • Book value per share increased 10% to $49.68.
  • The allowance for loan losses as a percentage of total loans declined slightly to 1.18%.
  • Non-performing assets ballooned by more than 53% to $157 million at year-end.
  • Cullen/Frost's board declared a first-quarter cash dividend of $0.57 per common share. However, no stock was repurchased during the quarter.

What management had to say

Cullen/Frost CEO Phil Green was enthusiastic about the bank's strong finish to 2017:

"Our annual net interest income on a tax-equivalent basis topped $1 billion for the first time ever, and our bankers continue to do a great job increasing our loan portfolio at all levels. Our team got our customers and our locations through the hurricane that affected the Gulf Coast in August, and we're a stronger organization as we celebrate the 150th anniversary of our founding in 2018. We're all proud to be Frost bankers."

Green also took some time on the company's conference call with investors to call out that outstanding energy loans at quarter end totaled $1.5 billion, or about 11.4% of total loans. This is down considerably from its peak of 16% in 2015 and speaks volumes about management's focus to lessen the company's dependence on the energy sector.

Finally, management seemed delighted to point out that the company received the highest ranking in customer satisfaction in Texas in the J.D. Power and Associates 2017 U.S. Retail Banking Satisfaction Study. This was their eight year in a row of receiving this honor. What's more, the company also received 33 Greenwich Excellence Awards during the year. That marks the 12th year in a row that Frost has been recognized.

Looking forward

Frost's management pointed out on their conference call that job growth remains robust in many of Texas' biggest cities. That fact paints a favorable backdrop for the company's ability to grow its deposit and loan portfolios. When combined with the expected interest rate hikes later this year, CFO Jerry Salinas commented that analyst earnings estimates of $6.12 for the full year 2018 "is too low."

All in all, Frost's results showed that the company is having no problems executing against its plan in these favorable market conditions. With interest rates expected to rise throughout 2018 and the employment picture in Texas looking good, Frost's shareholders continue to have plenty of reasons to remain optimistic.

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