Cullen/Frost Reports Solid Second Quarter Results

$2.0 Billion Increase in Average Deposits

Jul 25, 2012, 09:00 ET from Cullen/Frost Bankers, Inc.

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.



RELATED LINKS

http://www.frostbank.com