J.P. Morgan Neutral On Cullen/Frost Bankers Inc.

J.P. Morgan Chase & Co. is out with a research report on Cullen/Frost Bankers Inc. CFR and it has a Neutral rating and a $63 price target on shares after it reported earnings. In a note to clients, J.P. Morgan Chase & Co. writes, "CFR reported 2Q11 EPS of $0.91, which was ahead of our $0.86 estimate and consensus of $0.87. While Frost delivered another strong quarter of core ROA at 1.23% and ROTE of 13.3%, the company once again delivered no loan growth in the quarter as other loan category declines more than offset the $119 million quarterly growth in C&I loans in the quarter (13% annualized growth). On the call, management seemed to confirm that competition remains overly aggressive, loosening terms to win business. What management did convey (and what we believe is more telling of the way management at Frost thinks about creating shareholder value) was that the company's deposit growth was again very strong in the quarter at 10% annualized, and the company believes that given new customers added (over half the increase in deposits over the prior year has been from new customers), the company can offset any liquidity outflows as the economy heals, putting CFR in a position to profit from its core deposit franchise. With shares trading at a 48% premium to the group on P/TBV basis and a 12% core deposit premium, we believe shares appropriately reflect the franchise value and consequently, no change to our Neutral rating." Shares of CFR lost 72 cents yesterday to close at $54.69.