Cullen/Frost Reports Strong Second Quarter Results

- Frost completes WNB Bancshares acquisition

- Average loans top $10 billion, a 9.5 percent increase

- Average deposits rise 13 percent

- Net interest margin rises to 3.48 percent

Jul 30, 2014, 09:00 ET from Cullen/Frost Bankers, Inc.

SAN ANTONIO, July 30, 2014 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported strong results for the second quarter of 2014 with significant increases in average loans, average deposits, net interest margin and total assets.

Cullen/Frost's net income available to common shareholders for the second quarter of 2014 was $64.5 million, a 13.1 percent increase from the second quarter of 2013 earnings of $57.0 million. On a per-share basis, net income was $1.02 per diluted common share, compared to $0.94 per diluted common share reported a year earlier. Returns on average assets and common equity were 1.04 percent and 10.33 percent respectively, compared to 1.03 percent and 9.93 percent for the same period a year earlier.

"I am pleased to report another good quarter for Cullen/Frost, as we continue to deliver strong results for our shareholders in an improving economy," said Dick Evans, Cullen/Frost chairman and CEO. "Thanks in part to our disciplined calling effort and the WNB acquisition, average loans exceeded $10 billion for the first time, increasing to $10.1 billion, a 9.5 percent increase over the same quarter in 2013. This quarter also included $4.8 million in transaction-related expenses associated with the acquisition.

"Average deposits grew to a record to $21.2 billion, a 13 percent increase over the same quarter of 2013, while an improving equities market helped boost trust and investment management fees by 18.6 percent over the previous year. Total assets exceeded $25 billion for the first time. Our value proposition continues to resonate well with customers as they understand the unique experience of doing business with Frost.

"In late May, we completed the acquisition of WNB Bancshares, Inc. into Cullen/Frost, bringing us into the dynamic Permian Basin, which is responsible for approximately 14 percent of the oil produced in the United States and 57 percent of the oil produced in Texas," Evans continued. "This acquisition strengthens our Texas franchise and will allow us to offer investment and insurance services to our new customers in Midland and Odessa."

"We are blessed to operate in Texas, a business-friendly state with an extraordinarily diversified economy and bright future," Evans continued. "Jobs in Texas are expected to grow 3 to 4 percent this year compared to projected U.S. job growth of 2 percent. The Texas unemployment rate is projected to end the year at close to 4.8 percent, well below the national average. With its thriving energy and technology sectors and stable housing markets, Texas remains one of the strongest states in the U.S.

"While regulatory and rate challenges remain, Frost is looking to the future and providing our customers with top-quality service, convenience and superior technology.

"I am grateful for our dedicated employees, who add value to customer relationships and provide superior service. They embody our culture and ensure a consistent customer experience at Frost, and I appreciate their hard work and loyalty," Evans continued.

For the first six months of 2014, net income available to common shareholders was $123.6 million, or $1.99 per diluted common share, compared to $112.2 million, or $1.85 per diluted common share, for the first six months of 2013. Returns on average assets and average common equity for the first six months of 2014 were 1.02 percent and 10.15 percent, respectively, compared to 1.02 percent and 9.71 percent for the same period in 2013.

Noted financial data for the second quarter:

  • The Corporation acquired WNB Bancshares, Inc.—with loans of $673.0 million and deposits of $1.6 billion—at the close of business on May 30, 2014. These loans and deposits, and the results of operations, are included from the date of acquisition.
  • Tier 1 and Total Risk-Based Capital Ratios remained strong at 13.84 percent and 14.76 percent, respectively, at the end of the second quarter of 2014 and are in excess of well capitalized levels. The tangible common equity ratio was 7.59 percent at the end of the second quarter of 2014 compared to 7.90 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 preferred stock, less goodwill and intangible assets divided by end of period total assets less goodwill and intangible assets. Frost's current capital levels today would meet the fully phased-in Basel III requirements issued by the U.S. bank regulators.
  • Net interest income on a taxable-equivalent basis increased $25.0 million, or 14.3 percent, to $198.9 million, from the $174.0 million reported a year earlier. This increase primarily resulted from an increase in the average volume of interest earning assets. Strong deposit growth helped to fund the increase in the volume of earning assets. The net interest margin was 3.48 percent for the second quarter, up from 3.43 percent for the second quarter of 2013 and 3.42 percent for this year's first quarter.
  • Non-interest income for the second quarter of 2014 was $79.2 million, an increase of $6.6 million, or 9.2 percent, compared to the $72.5 million reported a year earlier. Trust and investment management fees were $26.7 million, up $4.2 million or 18.6 percent, compared to $22.6 million in the second quarter of 2013. Most of the increase was due to investment fees, which are generally assessed based on the market value of trust assets that are managed and held in custody. Investment fees were up $3.0 million from last year's second quarter, due to improvements in the equities market, new business and changes to the fee schedule. Trust and investment management fees were also positively impacted by higher oil and gas fees, up $877,000. Insurance commissions and fees were up 6.0 percent to $9.8 million from the $9.3 million reported a year earlier. Other income increased $1.2 million to $8.9 million, and included a $1.3 million distribution from an SBIC-qualified capital investment.
  • Non-interest expense for the quarter was $164.0 million, an increase of $14.2 million, or 9.5 percent, compared to the $149.8 million reported for the second quarter of last year. Salaries and wages rose $4.0 million, or 6.0 percent, to $70.5 million from an increase in the number of employees, combined with normal annual merit and market increases. Net occupancy rose $1.1 million, or 8.6 percent, to $13.7 million, from last year's second quarter, primarily from increases in lease expense. Other expense increased $8.4 million or 22.5 percent, primarily from $4.8 million in expenses related to the WNB Bancshares acquisition. Other expense was also impacted by a $1.6 million increase in check card expense.  
  • For the second quarter of 2014, the provision for possible loan losses was $4.9 million, compared to net charge-offs of $1.8 million. The loan loss provision for the second quarter of 2013 was $3.6 million, compared to net charge-offs of $3.8 million. Non-performing assets for the second quarter of 2014 were $68.6 million, compared to $61.3 million last quarter and $101.7 million a year earlier. The allowance for possible loan losses as a percentage of loans at June 30, 2014 was 0.92 percent, compared to 0.98 percent last quarter and 1.01 percent at the end of the second quarter of 2013.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, July 30, 2014, 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, August 3, 2014 at 855-859-2056, with Conference ID # 75678234. 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 $26.5 billion in assets at June 30, 2014. Among the top 50 largest U.S. banks and one of 24 banks included in the KBW Bank Index, Frost provides a wide range of banking, investments and insurance services to businesses and individuals across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, 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, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
  • 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.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

2014

2013

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

2nd Qtr

CONDENSED INCOME STATEMENTS

Net interest income

$

169,629

$

160,335

$

159,208

$

155,353

$

153,181

Net interest income (1)

198,926

187,795

184,960

179,121

173,966

Provision for loan losses

4,924

6,600

5,899

5,108

3,575

Non-interest income:

Trust and investment management fees

26,748

25,411

24,237

22,692

22,561

Service charges on deposit accounts

20,462

19,974

20,602

20,742

20,044

Insurance commissions and fees

9,823

13,126

10,433

10,371

9,266

Interchange and debit card transaction fees

4,627

4,243

4,324

4,376

4,268

Other charges, commissions and fees

8,550

8,207

8,586

9,266

8,578

Net gain (loss) on securities transactions

2

1,179

(14)

6

Other

8,938

6,529

9,177

6,558

7,786

Total non-interest income

79,150

77,490

78,538

73,991

72,509

Non-interest expense:

Salaries and wages

70,473

70,217

72,201

68,524

66,502

Employee benefits

14,806

17,388

14,798

14,989

14,629

Net occupancy

13,733

12,953

12,750

13,094

12,645

Furniture and equipment

15,207

14,953

14,643

14,629

14,986

Deposit insurance

3,145

3,117

3,037

2,921

2,835

Intangible amortization

806

689

753

780

788

Other

45,800

38,624

36,333

36,886

37,373

Total non-interest expense

163,970

157,941

154,515

151,823

149,758

Income before income taxes

79,885

73,284

77,332

72,413

72,357

Income taxes

13,415

12,096

14,761

11,969

12,694

Net income

66,470

61,188

62,571

60,444

59,663

Preferred stock dividends

2,015

2,016

2,016

2,015

2,688

Net income available to common shareholders

$

64,455

$

59,172

$

60,555

$

58,429

$

56,975

PER COMMON SHARE DATA

Earnings per common share - basic

$

1.03

$

0.97

$

1.00

$

0.96

$

0.95

Earnings per common share - diluted

1.02

0.96

0.99

0.96

0.94

Cash dividends per common share

0.51

0.50

0.50

0.50

0.50

Book value per common share at end of quarter

41.72

39.76

39.13

38.63

37.91

OUTSTANDING COMMON SHARES

Period-end common shares

62,951

60,896

60,566

60,492

60,236

Weighted-average common shares - basic

61,551

60,701

60,461

60,340

60,011

Dilutive effect of stock compensation

916

886

846

866

664

Weighted-average common shares - diluted

62,467

61,587

61,307

61,206

60,675

SELECTED ANNUALIZED RATIOS

Return on average assets

1.04

%

1.00

%

1.02

%

1.01

%

1.03

%

Return on average common equity

10.33

9.97

10.21

10.07

9.93

Net interest income to average earning assets (1)

3.48

3.42

3.39

3.38

3.43

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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

2014

2013

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

2nd Qtr

BALANCE SHEET SUMMARY

($ in millions)

Average Balance:

Loans

$

10,080

$

9,578

$

9,348

$

9,251

$

9,207

Earning assets

23,020

22,240

21,864

21,199

20,468

Total assets

24,829

24,007

23,623

22,926

22,232

Non-interest-bearing demand deposits

8,736

8,153

8,002

7,738

7,452

Interest-bearing deposits

12,481

12,358

12,099

11,722

11,319

Total deposits

21,217

20,511

20,101

19,460

18,771

Shareholders' equity

2,648

2,553

2,497

2,447

2,445

Period-End Balance:

Loans

$

10,679

$

9,751

$

9,516

$

9,306

$

9,233

Earning assets

24,295

22,817

22,238

21,688

20,755

Goodwill and intangible assets

665

542

543

541

542

Total assets

26,523

24,685

24,313

23,530

22,572

Total deposits

22,517

21,066

20,689

19,979

19,078

Shareholders' equity

2,771

2,566

2,514

2,481

2,428

Adjusted shareholders' equity (1)

2,610

2,423

2,374

2,335

2,272

ASSET QUALITY

($ in thousands)

Allowance for loan losses:

$

98,286

$

95,156

$

92,438

$

93,147

$

93,400

As a percentage of period-end loans

0.92

%

0.98

%

0.97

%

1.00

%

1.01

%

Net charge-offs:

$

1,794

$

3,882

$

6,608

$

5,361

$

3,764

Annualized as a percentage of average loans

0.07

%

0.16

%

0.28

%

0.23

%

0.16

%

Non-performing assets:

Non-accrual loans

$

59,631

$

49,503

$

56,720

$

79,081

$

86,714

Restructured loans

1,137

8,243

1,900

Foreclosed assets

8,935

11,788

11,916

10,748

13,047

Total

$

68,566

$

61,291

$

69,773

$

98,072

$

101,661

As a percentage of:

Total loans and foreclosed assets

0.64

%

0.63

%

0.73

%

1.05

%

1.10

%

Total assets

0.26

%

0.25

0.29

0.42

0.45

CONSOLIDATED CAPITAL RATIOS

Tier 1 Risk-Based Capital Ratio

13.84

%

14.41

%

14.39

%

14.53

%

14.22

%

Total Risk-Based Capital Ratio

14.76

15.38

15.52

15.68

15.39

Leverage Ratio

8.66

8.59

8.49

8.61

8.60

Equity to Assets Ratio (period-end)

10.45

10.39

10.34

10.54

10.76

Equity to Assets Ratio (average)

10.66

10.63

10.57

10.67

11.00

(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,

2014

2013

CONDENSED INCOME STATEMENTS

Net interest income

$

329,964

$

305,994

Net interest income (1)

386,720

346,767

Provision for loan losses

11,524

9,575

Non-interest income:

Trust and investment management fees

52,159

44,446

Service charges on deposit accounts

40,436

40,088

Insurance commissions and fees

22,949

22,336

Interchange and debit card transaction fees

8,870

8,279

Other charges, commissions and fees

16,757

16,333

Net gain (loss) on securities transactions

2

11

Other

15,467

18,796

Total non-interest income

156,640

150,289

Non-interest expense:

Salaries and wages

140,690

132,967

Employee benefits

32,194

32,620

Net occupancy

26,686

24,624

Furniture and equipment

30,160

29,171

Deposit insurance

6,262

5,724

Intangible amortization

1,495

1,608

Other

84,424

78,858

Total non-interest expense

321,911

305,572

Income before income taxes

153,169

141,136

Income taxes

25,511

26,285

Net income

127,658

114,851

Preferred stock dividends

4,031

2,688

Net income available to common shareholders

$

123,627

$

112,163

PER COMMON SHARE DATA

Earnings per common share - basic

$

2.00

$

1.86

Earnings per common share - diluted

1.99

1.85

Cash dividends per common share

1.01

0.98

Book value per common share at end of quarter

41.72

37.91

OUTSTANDING COMMON SHARES

Period-end common shares

62,951

60,236

Weighted-average common shares - basic

61,129

60,300

Dilutive effect of stock compensation

902

629

Weighted-average common shares - diluted

62,031

60,929

SELECTED ANNUALIZED RATIOS

Return on average assets

1.02

%

1.02

%

Return on average common equity

10.15

9.71

Net interest income to average earning assets (1)

3.45

3.44

(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,

2014

2013

BALANCE SHEET SUMMARY

($ in millions)

Average Balance:

Loans

$

9,830

$

9,158

Earning assets

22,632

20,442

Total assets

24,419

22,223

Non-interest-bearing demand deposits

8,446

7,442

Interest-bearing deposits

12,420

11,305

Total deposits

20,866

18,747

Shareholders' equity

2,600

2,438

Period-End Balance:

Loans

$

10,679

$

9,233

Earning assets

24,295

20,755

Goodwill and intangible assets

665

542

Total assets

26,523

22,572

Total deposits

22,517

19,078

Shareholders' equity

2,771

2,428

Adjusted shareholders' equity (1)

2,610

2,272

ASSET QUALITY

($ in thousands)

Allowance for loan losses:

$

98,286

$

93,400

As a percentage of period-end loans

0.92

%

1.01

%

Net charge-offs:

$

5,676

$

20,628

Annualized as a percentage of average loans

0.12

%

0.45

%

Non-performing assets:

Non-accrual loans

$

59,631

$

86,714

Restructured loans

1,900

Foreclosed assets

8,935

13,047

Total

$

68,566

$

101,661

As a percentage of:

Total loans and foreclosed assets

0.64

%

1.10

%

Total assets

0.26

0.45

CONSOLIDATED CAPITAL RATIOS

Tier 1 Risk-Based Capital Ratio

13.84

%

14.22

%

Total Risk-Based Capital Ratio

14.76

15.39

Leverage Ratio

8.66

8.60

Equity to Assets Ratio (period-end)

10.45

10.76

Equity to Assets Ratio (average)

10.65

10.97

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

Greg Parker Investor Relations 210.220.5632 or Renee Sabel Media Relations 210.220.54164

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SOURCE Cullen/Frost Bankers, Inc.



RELATED LINKS

http://www.frostbank.com