Cullen/Frost Bankers (CFR) in San Antonio posted record profits in the first quarter as strong deposit growth and sharply improved asset quality more than offset a declining net interest margin and a dip in fee income.

The $19.1 billion-asset parent of Frost Bank said Wednesday that it earned $61 million the quarter that ended March 31, up 17.55 from the same period last year. Earnings per share climbed 16%, to 99 cents, or seven cents better than the estimates of analysts polled by Thomson Reuters.

Credit quality was a key driver of results. Nonperforming assets fell 25% year over year, to $120.5 million, its lowest level in more than three years. The company set aside just $1.1 million for loan losses, compared to $8.4 million in last year's first quarter.

Earnings were also aided by a 13% increase in deposits year over year, to $16.4 billion, which helped the company increase earning assets. Net interest income climbed 5%, to nearly $165 million, as loan balances grew slightly and funding costs fell, though its overall net interest margin slipped 30 basis points, to 3.73%.

Non interest income fell slightly, to $72 million, due largely to reduced caps on interchange fees, though the dip was offset somewhat by a gain in trust and management fees.

Cullen/Frost's shares were trading at $57.66 midday Wednesday, up 1.1% from Tuesday's close.

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