Cullen/Frost Reports Solid Second Quarter Results $2.0 Billion Increase in Average Deposits

SAN ANTONIO, July 25, 2012 /PRNewswire/ --

  • Period-end loan growth up 5.2 percent over 2011 second quarter
  • Average deposits up 13.7 percent
  • Asset quality continues to improve
  • Net income rises 4.3 percent despite interchange impact  

Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported that loan and deposit growth drove strong second quarter results, as the Texas financial services leader continues to demonstrate its ability to operate effectively and increase revenue in a challenging regulatory and interest rate environment.

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Cullen/Frost reported net income for the second quarter of 2012 of $58.1 million, a 4.3 percent increase over second quarter 2011 earnings of $55.7 million. On a per-share basis, net income was $0.94 per diluted common share, compared to $0.91 per diluted common share reported a year earlier. Returns on average assets and equity were 1.14 percent and 9.95 percent respectively, compared to 1.23 percent and 10.45 percent for the same period a year earlier.

"Cullen/Frost delivered another solid quarter for our shareholders, despite a sluggish economy, regulatory challenges and historically low interest rates," said Dick Evans, Cullen/Frost chairman and CEO. "I was especially pleased to see average loans increase by 2.3 percent over the same quarter of 2011—5.2  percent on a period-end basis.  We are beginning to see the results of our disciplined calling efforts. Our value proposition is resonating with our customers, as evidenced in part, by the strong 13.7 percent growth in average deposits and a 4.8 percent increase in trust income this quarter.

"Throughout the recession, we have focused on building new relationships, confident that they positioned us well for stronger future growth. Although we are nowhere near pre-recession levels, we have seen some measured optimism in the market, especially with our larger business clients. The new businesses we've brought in made a significant contribution to  the $2.0 billion in average deposit growth since last year's second quarter. Since year-end 2007, we have increased our asset size by 55 percent.

"As expected, the Durbin amendment to Dodd-Frank is pressuring income from interchange and debit card transaction fees. Despite this impact on non-interest income, we continue to increase earnings and manage expenses well."

"We are fortunate to be in Texas, where jobs are growing faster than the nation," Evans said. "Texas jobs are projected to grow by 2.5 to 3 percent this year, about twice that of the nation, and the unemployment rate of 6.9 percent is well below the national average of 8.2 percent. With strong energy and technology sectors and stable housing markets that didn't go through boom-and-bust cycles, Texas remains one of the strongest states in the nation.

"The banking industry continues to face regulatory challenges as hundreds of rules related to Dodd-Frank have yet to be interpreted. At Frost, we are moving forward with confidence and delivering outstanding shareholder value. We continue to focus our marketing efforts on increasing brand awareness to help more Texans understand the Frost difference. Our decision to publicly turn down TARP bailout funds resonates well with customers and prospects, along with the 21 Greenwich Associates awards Frost Bank won this year for excellence in business banking and treasury management. Frost Bank ranks highest in Texas for the third consecutive year in the J.D. Power and Associates U.S. Retail Banking Satisfaction Study. And we were one of 50 U.S. companies recognized as a J.D. Power 2012 Customer Service Champion.

"In June, after more than a century as a national bank, our banking subsidiary finalized the move to become a Texas state bank and member of the Federal Reserve. Frost Bank's primary regulators are now in Texas – the Texas Department of Banking in Austin and the Federal Reserve Bank of Dallas – not Washington, D.C. We anticipate better communication with our regulators and believe it was the right decision for our company. Even though our legal name has changed to Frost Bank, our customers can still count on both FDIC protection on deposits and our commitment to operating one of the strongest banks in the nation.

"Our outstanding employees continue to bring our culture to life every day, adding value to customer relationships and providing exceptional service. I appreciate their commitment to our company and our culture," Evans continued.

For the first six months of 2012, net income was $119.1 million, or $1.93 per diluted common share, compared to $107.6 million, or $1.75 per diluted common share, for the first six months of 2011. Returns on average assets and average equity for the first six months of 2012 were 1.19 percent and 10.27 percent, respectively, compared to 1.21 percent and 10.29 percent for the same period in 2011.

Other noted financial data for the second quarter follows:

  • Tier 1 and Total Risk-Based Capital Ratios remained strong at 14.07 percent and 15.61 percent, respectively, at the end of the second quarter of 2012 and are in excess of well capitalized levels. The tangible common equity ratio was 8.94 percent at the end of the second quarter of 2012 compared to 9.12 percent for the same quarter last year. The tangible common equity ratio, which is a non-GAAP financial measure, is equal to end of period shareholders' equity less goodwill and intangible assets divided by end of period total assets less goodwill and intangible assets.
  • Net interest income on a taxable-equivalent basis increased $4.5 million, or 2.8 percent, to $164.0 million, from the $159.5 million reported a year earlier. This increase primarily resulted from an increase in the average volume of interest earning assets and was partly offset by a decrease in the net interest margin. Strong growth in deposits helped to fund the increase in the volume of earning assets.  The net interest margin was 3.61 percent for the second quarter, compared to 3.95 percent for the second quarter of 2011 and 3.73 percent for the first quarter this year.
  • Non-interest income for the second quarter of 2012 was $69.8 million, compared to the $70.8 million reported a year earlier. Trust and investment management fees were $21.3 million, up $966,000, or 4.8 percent, compared to $20.3 million in the second quarter of 2011. Most of the increase resulted from oil and gas trust management fees, up $486,000. Insurance commissions and fees were $9.2 million, up $1.3 million from the $7.9 million reported in last year's second quarter. Other charges, commissions and fees were $7.8 million, up $1 million, or 14.7 percent, when compared to $6.8 million reported in the same quarter a year earlier. The largest component of this increase was $477,000 in human resources consulting fees related to the Stone Partners acquisition, which was completed at the beginning of the year. Revenue from interchange and debit card transaction fees was $4.3 million, down $4.4 million from $8.7 million for the second quarter of 2011. This reduction was directly related to regulatory changes implemented by the Durbin Amendment to Dodd-Frank. 
  • Non-interest expense for the quarter was $142.5 million, an increase of $5.7 million, or 4.2 percent, compared to the $136.8 million reported for the second quarter of last year. Salaries and benefits rose $1.8 million, or 2.5 percent, to $76.7 million as a result of normal annual merit and market increases, as well as an increase in pension expense. Furniture and equipment expense increased $1.1 million, or 8.8 percent, from the same quarter last year, with most of the increase coming from software maintenance. Other non-interest expense increased $2.3 million or 6.7 percent, from a year earlier. Write-downs of company assets and other real estate owned represented $1.1 million of this increase. Also impacting the increase was a $452,000 rise in advertising and brand promotion expense.
  • For the second quarter of 2012, the provision for possible loan losses was $2.4 million, compared to net charge-offs of $3.9 million. The loan loss provision for the second quarter of 2011 was $9.0 million, compared to net charge-offs of $10.6 million. Non-performing assets for the second quarter of 2012 were $112.1 million, compared to $120.5 million last quarter and $161.4 million a year earlier. The allowance for possible loan losses as a percentage of loans at June 30, 2012 was 1.24 percent, compared to 1.52 percent at the end of the second quarter of 2011.

 

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, July 25, 2012, at 10 a.m. Central Time (CT) to discuss the results for the quarter.  The media and other interested parties are invited to access the call in a "listen only" mode at 800-944-6430. Digital playback of the conference call will be available after 2 p.m. CT until midnight Sunday, July 29, 2012 at 855-859-2056, with Conference ID #10492542. The call will also be available by webcast at the URL listed below and available for playback after 2 p.m. CT. After entering the website, www.frostbank.com, go to "About Frost" on the top navigation bar, then click on Investor Relations.

Cullen/Frost Bankers, Inc. (NYSE: CFR) is a financial holding company, headquartered in San Antonio, with $20.9 billion in assets  at June 30, 2012 and more than 115 financial centers throughout Texas. One of 24 U.S. banks included in the KBW Bank Index, Frost provides a wide range of banking, investments and insurance services to businesses and individuals in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost has helped clients with their financial needs during three centuries. Additional information is available at frostbank.com.

Forward-Looking Statements and Factors that Could Affect Future Results  

Certain statements contained in this Earnings Release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Corporation's future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Cullen/Frost or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:  

  • Local, regional, national and international economic conditions and the impact they may have on the Corporation and its customers and the Corporation's assessment of that impact.|
  • Volatility and disruption in national and international financial markets.|
  • Government intervention in the U.S. financial system.|
  • Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.|
  • Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.|
  • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.|
  • Inflation, interest rate, securities market and monetary fluctuations.|
  • The effects of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Corporation and its subsidiaries must comply.|
  • The soundness of other financial institutions.
  • Political instability.
  • Impairment of the Corporation's goodwill or other intangible assets.
  • Acts of God or of war or terrorism.
  • The timely development and acceptance of new products and services and perceived overall value of these products and services by users.
  • Changes in consumer spending, borrowings and savings habits.
  • Changes in the financial performance and/or condition of the Corporation's borrowers.
  • Technological changes.
  • Acquisitions and integration of acquired businesses.
  • The ability to increase market share and control expenses.
  • The Corporation's ability to attract and retain qualified employees.
  • Changes in the competitive environment in the Corporation's markets and among banking organizations and other financial service providers.
  • The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
  • Changes in the reliability of the Corporation's vendors, internal control systems or information systems.
  • Changes in the Corporation's liquidity position.
  • Changes in the Corporation's organization, compensation and benefit plans.
  • The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.
  • Greater than expected costs or difficulties related to the integration of new products and lines of business.
  • The Corporation's success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.  

Greg Parker
Investor Relations
210/220-5632
or
Renee Sabel
Media Relations
210/220-5416

 

Cullen/Frost Bankers, Inc.


CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)


(In thousands, except per share amounts)






2012


2011











2nd Qtr



1st Qtr



4th Qtr



3rd Qtr



2nd Qtr


















CONDENSED INCOME STATEMENTS


































Net interest income

$

149,217


$

149,707


$

150,323


$

145,361


$

144,333


Net interest income(1) 


163,972



164,707



165,340



160,579



159,509


Provision for loan losses


2,355



1,100



--



9,010



8,985


Non-interest income:
















     Trust and investment management fees


21,279



20,652



18,861



19,652



20,313


     Service charges on deposit accounts


20,639



20,794



21,475



22,072



21,328


     Insurance commissions and fees


9,171



12,377



7,450



9,569



7,908


     Interchange and debit card transaction fees


4,292



4,117



4,166



8,719



8,695


     Other charges, commissions and fees


7,825



7,350



7,125



6,572



6,825


     Net gain (loss) on securities transactions


370



(491)



--



6,409



--


     Other


6,187



7,180



8,583



6,224



5,723


     Total non-interest income


69,763



71,979



67,660



79,217



70,792


















        Non-interest expense:
















          Salaries and wages


62,624



63,702



66,126



61,697



61,775


          Employee benefits


14,048



16,701



12,574



12,004



13,050


          Net occupancy


12,213



11,797



11,413



12,080



11,823


          Furniture and equipment


13,734



13,420



13,454



13,106



12,628


          Deposit insurance


2,838



2,497



2,773



2,583



2,598


          Intangible amortization


994



1,011



1,052



1,108



1,107


          Other


36,085



32,912



36,441



34,829



33,816


















          Total non-interest expense


142,536



142,040



143,833



137,407



136,797


















    Income before income taxes


74,089



78,546



74,150



78,161



69,343


    Income taxes


16,027



17,513



18,736



23,654



13,657


















        Net income

$

58,062


$

61,033


$

55,414


$

54,507


$

55,686


































PER SHARE DATA


































Net income - basic

$

0.94


$

0.99


$

0.90


$

0.89


$

0.91


Net income - diluted


0.94



0.99



0.90



0.89



0.91


Cash dividends


0.48



0.46



0.46



0.46



0.46


Book value at end of quarter


38.48



37.81



37.27



36.69



35.54


















        OUTSTANDING SHARES

































Period-end shares


61,404



61,373



61,264



61,245



61,245


Weighted-average shares - basic


61,291



61,201



61,154



61,137



61,094


Dilutive effect of stock compensation


344



332



54



102



297


Weighted-average shares - diluted


61,635



61,533



61,208



61,239



61,391


















        SELECTED ANNUALIZED RATIOS


































Return on average assets


1.14

%


1.23

%


1.12

%


1.15

%


1.23

%

Return on average equity


9.95



10.59



9.74



9.79



10.45


Net interest income to average earning assets(1) 


 

3.61



 

3.73



 

3.76



 

3.81



 

3.95


















(1) Taxable-equivalent basis assuming a 35% tax rate.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)




2012



2011











2nd Qtr



1st Qtr



4th Qtr



3rd Qtr



2nd Qtr


















BALANCE SHEET SUMMARY



















($ in millions)
















Average Balance:
















     Loans

$

8,268


$

8,050


$

7,975


$

8,036


$

8,080


     Earning assets


18,605



18,087



17,806



17,053



16,356


     Total assets


20,401



19,920



19,579



18,825



18,170


     Non-interest-bearing demand deposits


6,829



6,399



6,325



5,905



5,464


     Interest-bearing deposits


10,053



9,998



9,804



9,524



9,379


     Total deposits


16,882



16,397



16,129



15,429



14,843


    Shareholders' equity


2,347



2,317



2,258



2,209



2,137


















Period-End Balance:
















     Loans

$

8,490


$

8,127


$

7,995


$

8,090


$

8,068


     Earning assets


19,033



18,583



18,498



17,728



16,710


     Goodwill and intangible assets


546



547



539



540



541


     Total assets


20,866



20,417



20,317



19,490



18,478


     Total deposits


17,277



16,909



16,757



16,064



15,104


    Shareholders' equity


2,363



2,321



2,284



2,247



2,177


     Adjusted shareholders' equity(1)


2,110



2,076



2,036



2,003



1,974


















ASSET QUALITY




















($ in thousands)
















     Allowance for possible loan losses

$

105,648


$

107,181


$

110,147


$

115,433


$

122,741


     As a percentage of period-end loans


1.24

%


1.32

%


1.38

%


1.43

%


1.52

%

















     Net charge-offs:

$

3,888


$

4,066


$

5,286


$

16,318


$

10,565


     Annualized as a percentage of average loans


 

0.19

 

%


 

0.20

 

%


 

0.26

 

%


 

0.81

 

%


 

0.52

 

%

















     Non-performing assets:
















     Non-accrual loans

$

92,255


$

97,870


$

94,338


$

110,178


$

130,528


     Foreclosed assets


19,818



22,676



26,608



29,114



30,822


















     Total

$

112,073


$

120,546


$

120,946


$

139,292


$

161,350


     As a percentage of:
















     Total loans and foreclosed assets


1.32

%


1.48

%


1.51

%


1.72

%


1.99

%

     Total assets


0.54



0.59



0.60



0.71



0.87


















CONSOLIDATED CAPITAL RATIOS

































Tier 1 Risk-Based Capital Ratio


14.07

%


14.47

%


14.38

%


14.59

%


14.37

%

Total Risk-Based Capital Ratio


15.61



16.10



16.24



16.57



16.42


Leverage Ratio


8.65



8.68



8.66



8.82



8.94


Equity to Assets Ratio (period-end)


11.32



11.37



11.24



11.53



11.78


Equity to Assets Ratio (average)


11.51



11.63



11.53



11.73



11.76


 

(1) Shareholders' equity excluding accumulated other comprehensive income (loss).

 

Cullen/Frost Bankers, Inc.


CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)


(In thousands, except per share amounts)








Six Months Ended






June 30,












2012



2011







CONDENSED INCOME STATEMENTS




















Net interest income


$

298,924


$

286,092



Net interest income(1) 



328,679



316,146



Provision for loan losses



3,455



18,435



Non-interest income:









     Trust and investment management fees



41,931



39,784



     Service charges on deposit accounts



41,433



42,578



     Insurance commissions and fees



21,548



18,402



     Interchange and debit card transaction fees



8,409



16,740



     Other charges, commissions and fees



15,175



14,053



     Net gain (loss) securities transactions



(121)



5



     Other



13,367



11,563



     Total non-interest income



141,742



143,125












Non-interest expense:









     Salaries and wages



126,326



124,205



     Employee benefits



30,749



28,361



     Net occupancy



24,010



23,475



     Furniture and equipment



27,154



24,909



     Deposit insurance



5,335



7,358



     Intangible amortization



2,005



2,227



     Other



68,997



66,323



     Total non-interest expense



284,576



276,858












Income before income taxes



152,635



133,924



Income taxes



33,540



26,310



Net income


$

119,095


$

107,614



















PER SHARE DATA









Net income – basic


$

1.94


$

1.76



Net income – diluted



1.93



1.75



Cash dividends



0.94



0.91



Book value at end of period



38.48



35.54












OUTSTANDING SHARES









Period-end shares



61,404



61,245



Weighted-average shares - basic



61,246



61,056



Dilutive effect of stock compensation



339



307



Weighted-average shares - diluted



61,585



61,363












SELECTED ANNUALIZED RATIOS









Return on average assets



1.19

%


1.21

%

Return on average equity



10.27



10.29



Net interest income to average earning assets(1)  



3.67



3.99



 

(1) Taxable-equivalent basis assuming a 35% tax rate.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)





As of or for the





Six Months Ended





June 30,










2012



2011











BALANCE SHEET SUMMARY









($ in millions)








Average Balance:








     Loans


$

8,159


$

8,081


     Earning assets



18,346



16,091


     Total assets



20,161



17,926


     Non-interest-bearing demand deposits



6,614



5,356


     Interest-bearing deposits



10,025



9,301


     Total deposits



16,639



14,657


     Shareholders' equity



2,332



2,110











Period-End Balance:








     Loans


$

8,490


$

8,068


     Earning assets



19,033



16,710


     Goodwill and intangible assets



546



541


     Total assets



20,866



18,478


     Total deposits



17,277



15,104


     Shareholders' equity



2,363



2,177


     Adjusted shareholders' equity(1) 



2,110



1,974










ASSET QUALITY








($ in thousands)








Allowance for loan losses


$

105,648


$

122,741


     As a percentage of period-end loans



1.24

%


1.52

%









Net charge-offs:


$

7,954


$

22,010


     Annualized as a percentage of average loans



0.20

%


0.55

%









Non-performing assets:








     Non-accrual loans


$

92,255


$

130,528


     Foreclosed assets



19,818



30,822


          Total


$

112,073


$

161,350


As a percentage of:








     Total loans and foreclosed assets



1.32

%


1.99

%

     Total assets



0.54



0.87










CONSOLIDATED CAPITAL RATIOS








Tier 1 Risk-Based Capital Ratio



14.07

%


14.37

%

Total Risk-Based Capital Ratio



15.61



16.42


Leverage Ratio



8.65



8.94


Equity to Assets Ratio (period-end)



11.32



11.78


Equity to Assets Ratio (average)



11.57



11.77


 

(1) Shareholders' equity excluding accumulated other comprehensive income (loss).

SOURCE Cullen/Frost Bankers, Inc.



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