Analyst Note| Eric Compton, CFA |
Narrow-moat-rated Cullen/Frost reported decent fourth-quarter earnings, with EPS of $1.38 compared with Factset consensus of $1.28. This equated to a return on equity of 8.6% during the quarter. Revenue remained under some pressure, with net interest income on a reported basis down 3.5% year over year and roughly 0.5% quarter over quarter, while fees were down 4% year over year. Expenses were up 1% year over year, leading to a decline in preprovision net revenue of 12%. Provisioning dropped to its lowest level for the year. After peaking at $175 million in the first quarter, provisioning has now dropped to just under $14 million. 2021 will be another difficult year to predict as a second round of Paycheck Protection Program loans flows through the balance sheet, yields likely remain under some pressure, and provisioning potentially swings around again. Based on these results, we will likely raise our fair value modestly, likely by a mid-single-digit percentage.