Texas-based Cullen/Frost Bankers (NYSE:CFR) reported its third-quarter results on Thursday. A robust lending environment combined with modest expense growth to drive 27% growth in net income. 

Cullen/Frost Bankers Q3: The raw numbers

Metric Q3 2018 Q3 2017  Change (Y-o-Y)
Net interest income $241.7 million $219.2 million


Non-interest income $87.7 million $85.0 million 3.2%
Net income $115.8 million $91.1 million 27%
Earnings per share $1.78 $1.41 26%

Data source: Cullen/Frost Bankers. Y-o-Y = year over year.

TWo business people looking at clipboard with numbers on it

Image source: Getty Images.

What happened with Cullen/Frost Bankers this quarter?

  • Average loans increased $1.1 billion, or 8.7%, to $13.7 billion. 
  • Average deposits increased 1.6% to $26.2 billion.
  • Returns on average assets expanded 6 basis points sequentially to 1.49%. 
  • Return on common equity was very strong at 14.4%.
  • Net interest margin expanded to 3.66%. This was a 2-basis-point jump sequentially, but it was down 7 basis points versus the year-ago period. 
  • Book value per share at quarter end was $49.49.
  • The allowance for loan losses as a percentage of total loans declined to 1%.
  • Net charge-offs were $15.3 million. This figure was up substantially from the $6.3 million recorded last year.
  • Loans to the energy sector remained steady at 11% of total loans.
  • Potential problem loans totaled $59.1 million. That matches the levels reach before the energy downturn and suggests that it's back to business as usual. 

What management had to say

CEO Phil Green said: "These robust earnings reflect our emphasis on sustainable, above-average organic growth. Texas remains a growing and attractive place to do business, and we have ample opportunities for growth in the state."

Green also shared some details about new account openings on the conference call with investors that should provide reasons for optimism:

Net new customer growth is up by 60% compared with a year ago. About 22% of our account openings came from our online channel, which includes Frost Bank mobile app. That's nearly 26% higher than last year. 

Looking forward

CFO Jerry Salinas has never offered investors earnings guidance, but he does occasionally comment on the estimates that are published by analysts. On that front, he happily pointed out that the current consensus estimate of $6.77 per share in 2018 is "a little low."

As usual, Green concluded his remarks on the call with investors by highlighting Frost Bank's strengths and reaffirming his belief that the company is in a solid position to continue to thrive:

I'm extremely pleased with what our people at Frost were able to achieve this quarter and so far this year. It's not often you're able to report a 27% increase in earnings. We can do this because Frost bankers take care of our customers by offering them top-quality service and excellence at a fair price. They provide a safe, sound place to do business, and most of all, they provide great customer-service experiences that make people's lives better. We've been doing that for 150 years, and that experience has shown us the value of having a positive, optimistic attitude toward opportunities.

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