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Cullen/Frost Has Earned Its Premium, and More

Stocks in this article: CFR BAC C JPM USB CBSH

When factoring in the company's higher level of capital, Cullen/Frost's earnings ratios show that the company had very few negative surprises for its investors through the credit crisis.

Loan Growth Prospects

Cullen/Frost reported had $22.5 billion in total assets as of March 31. The company reported first-quarter net income of $55.2 million, or 91 cents a share, declining from $60.2 million, or 97 cents a share, in the fourth quarter, and $61.0 million, or 99 cents a share, during the first quarter of 2012.

The first-quarter results were lowered by about $6.2 million, for "the write-down of land that is part of the headquarters facility that was recently made available for sale." First-quarter earnings were also lowered by a $6 million provision for loan loss reserves, increasing from $4.1 million the previous quarter and $1.1 million a year earlier. The bank said it made a $15 million loan charge-off springing from a single customer relationship, and that its credit quality was otherwise strong.

Cullen/Frost reported a first-quarter ROA of 1.01% and an ROCE of 9.47%.

Like most banks in the prolonged low-rate environment, Cullen/Frost saw its net interest margin narrow, to 3.45% in the first quarter, from 3.48% the previous quarter and 3.72% a year earlier. However, the company's loan growth led to an increase in net interest income to $172.8 million in the first quarter, from $172.2 million in the first quarter and $164.7 million during the first quarter of 2012.

Cullen/Frost reported average loans of $9.1 billion during the first quarter, increasing 3% from the previous quarter and 13% from a year earlier.

During the company's earnings conference call on April 24, Cullen/Frost CEO Dick Evans said "in the first three months of this year, we saw the highest level of quarterly loan requests in our history," and that the bank's "active loan plan is now 30% higher than last quarter and 40% higher than a year ago."

When asked for details on the loan pipeline, Evans said "some of the drivers are energy, medical, automobiles," and added that "We are also seeing a pickup on the commercial real estate and owner-occupied, and multifamily continues to be a strong segment."

Also on April 24, Cullen/Frost raised its quarterly dividend on common shares to 50 cents from 48 cents, for a dividend yield of 3.20%, based on Monday's closing price.

Sentiment among sell-side analysts for Cullen/Frost is rather negative, in light of the stock's valuation. Among 18 analysts polled by Thomson Reuters, Oppenheimer analyst Terry McEvoy rates the shares "outperform," while 10 analysts have neutral ratings, six analysts rate the shares "underperform," and one analyst rates Cullen/Frost a "sell."

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