Cullen/Frost Bankers (NYSE:CFR), a regional bank based in Texas, reported its first-quarter results on Thursday.

The bank's top line grew 7% when compared to the year-ago period. That's a decent result, but it is a bit lower than the double-digit growth rate that we've seen in recent quarters. Management was still able to crank out double-digit growth on the bottom line thanks to stock buybacks and expense control. The prosperity allowed the company to raise its dividend by 6%, too.

Cullen/Frost Bankers Q1: The raw numbers

Metric Q1 2019 Q1 2018 Change (YOY)
Net interest income $246.5 million $229.7 million 7.3%
Non-interest income $96.8 million $91.5 million 5.8%
Net income $114.5 million $104.5 million 9.6%
Earnings per share $1.79 $1.61 11.2%

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

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Image source: Getty Images.

What happened with Cullen/Frost Bankers this quarter?

  • Average loans grew 7% to $14.2 billion. 
  • Average deposits declined 1% to $26.1 billion.
  • Return on average assets was up 12 basis points year over year to 1.48%.
  • Return on common equity remained strong at just over 14%.
  • Net interest margin was 3.79%.
  • Book value per share at quarter-end grew 12% year over year to $54.68. 
  • The allowance for loan losses as a percentage of total loans dipped to 0.95%. 
  • Net charge-offs dropped sequentially to just $6.8 million. 

What management had to say

CEO Phil Green said in the press release that the company continues to show steady organic growth: "Our focus is on building and cultivating long-term relationships with our customers, and remaining true to the Frost culture that has sustained us for more than 150 years."

On the call with investors, Green heaped praise on the company's employees: "We have outstanding, welcoming locations and we have top-quality digital services, but those things are frankly useless, unless you have a plan to use them well, and especially, unless you have good people to execute that plan. Those things are Frost's competitive advantage."

Check out the latest Cullen/Frost earnings call transcript.

Looking forward

Frost's CFO Jerry Salinas stated that the bank's expectations for the interest rate environment for the remainder of the year have changed. The company was previously counting on two Fed rate hikes in the back half of the year; it no longer expects that to happen. Management also now expects LIBOR rates to remain low and the yield curve to be flat.

These updates caused Salinas to state, "we are more comfortable with the lower end of the current range of analyst estimates"; the current analyst estimate EPS range for the full year is between $6.89 and $7.20. If the company hits the bottom of this range, EPS will remain flat when compared to the year-ago period.

The good news for investors is that Frost's key numbers continue to trend in the right direction. Revenue, book value, and net income are all rising, and the company credit quality ratios are all in good shape. The company has also significantly pulled back on its exposure to the energy markets, which should protect the business in case that sector gets hit again.

2019 will likely be a disappointing year for investors who crave EPS growth, but that weakness is mostly attributable to the Fed's interest rate policy. Market watchers continue to predict double-digit EPS growth over the long term. If the company can hit that target, long-term investors will probably be rewarded for holding shares in this well-run bank.

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