Cullen/Frost Bankers (NYSE:CFR), a regional bank based in Texas, reported its second-quarter results on Thursday, July 26. A favorable lending environment combined with rising interest rates to drive earnings-per-share growth of 30%.

Let's put Frost's financial results under the microscope to see whether the good times can continue.

Cullen/Frost Bankers Q2: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Change
Net interest income $237.3 million $214.8 million


Non-interest income $85.1 million $81.1 million 4.9%
Net income $109.3 million $83.5 million 31%
Earnings per share $1.68 $1.29 30%

Data source: Cullen/Frost Bankers.

What happened with Cullen/Frost Bankers this quarter?

  • Net interest income increased more than 10% on the back of a double-digit uptick in average loan activity.
  • Net interest margin expanded 12 basis points sequentially to 3.64%, thanks largely to the rising-interest-rate environment.
  • Returns on average assets increased to 1.43%, the highest rate in nine years.
  • Returns on equity expanded to 14.03%.
  • Book value per share grew 3% year over year to $49.53.
  • The allowance for loan losses as a percentage of total loans declined yet again to 1.10%. Potential problem loans were about $50 million at quarter-end, which is the lowest level in more than three years.
  • Net charge-offs declined from $11.9 million last year to just $7.9 million in the second quarter.
  • The energy sector -- which has been a source of trouble for the company for many years -- comprised just over 11% of total loans.
  • Nonperforming assets dipped sequentially to $122.8 million.
  • The company's mobile-banking app provided 9% of new account openings. That is up 65% compared to the same quarter last year.
Banker handing money across a table

Image source: Getty Images.

What management had to say

Commenting on the quarter, Cullen/Frost's CEO Phil Green stated: "Our strong second-quarter earnings are the result of Frost bankers executing our strategy over the past several quarters. Our commitment to sustainable, organic growth and providing an attractive value proposition has resonated with our customers and prospects."

Green also noted that job growth in Texas was 3.6% in the first half of 2018, and that the unemployment rate in the state is near a four-decade low. The thriving local economy is providing a great backdrop for the company.

Looking forward

CFO Jerry Salinas doesn't share guidance with Wall Street, but on the conference call with investors, he did say that the full-year earnings estimate of $6.74 is "reasonable" given the likelihood of another rate hike in the fall.

Phil Green ended his prepared remarks on the call by crediting the company's strong growth to Frost's great people culture:

I'm extremely pleased with what our people at Frost were able to achieve this year and in this quarter, particularly. It's not often we report a 30% increase in earnings. They do it by taking care of our customers, modeling for them top-quality service and excellence at a fair price.