Cullen/Frost Reports Solid Third Quarter Results

- Continued strong deposit growth

- Credit quality continues at manageable levels

- Capital ratios remain strong

Oct 27, 2010, 09:00 ET from Cullen/Frost Bankers, Inc.

SAN ANTONIO, Oct. 27 /PRNewswire-FirstCall/ -- Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported earnings for the third quarter of 2010 of $55.0 million, an increase of 23.0 percent over the $44.7 million reported for the same period in 2009. On a per-share basis, net income for the quarter was $.90 per diluted common share, compared to the $.75 per diluted common share reported a year earlier.

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Return on average assets and return on average equity for the third quarter of 2010 were 1.25 percent and 10.49 percent, respectively, compared to 1.11 percent and 9.70 percent for the same quarter in 2009.

The provision for possible loan losses was $10.1 million, compared to $16.9 million reported a year earlier, while the allowance for possible loan losses as a percentage of loans increased to 1.57 percent from 1.45 percent for the same quarter of 2009.

For the third quarter of 2010, net interest income on a tax-equivalent basis increased 7.4 percent to $155.7 million, compared to the $144.9 million reported for the same quarter of 2009.  Average deposits for the quarter were $14.3 billion, an increase of $474 million over the previous quarter, and a rise of $1.5 billion over the $12.8 billion reported for the third quarter of 2009. Average loans for the third quarter of 2010 declined slightly to $8.1 billion, compared to the $8.6 billion reported for the third quarter a year earlier, and were essentially flat compared to the $8.1 billion reported in the second quarter.  

"Our company's third quarter performance reflects that Cullen/Frost continues to operate well in this challenging environment," said Cullen/Frost CEO Dick Evans. "I was pleased to see good growth in net interest income, as we continue to see the benefits of lower deposit costs and having deployed some of our liquidity into quality investments during the last half of 2009. We continue to grow our customer base and expand relationships, which we believe will fuel our future growth."

The flight to quality and safety that Cullen/Frost has been experiencing for eight consecutive quarters continues to drive average deposit growth, with deposits up almost $4.0 billion since the third quarter of 2008.  

"Customers and prospects are continuing to bring their money to Frost amid this deleveraging environment, and we will be there to help them reinvest and grow their businesses again when confidence returns," Evans said.  

"Although making loans continues to be challenged by an environment in which both businesses and consumers remain cautious and are paying down debt, Cullen/Frost continues to add new relationships and build for the future.  We are also maintaining discipline in expense control, even as  we continue to invest in our company."

The new Frost Technology Center, which is now fully operational, will meet the company's technology infrastructure expansion needs for the foreseeable future.  This quarter, the organization moved an older financial center in Fort Worth to a newer facility, and the relocation of one of the  Dallas locations should be complete by year-end. The company is also in the midst of a program to renovate a number of older financial centers throughout the state to better serve customers and reflect the Frost brand.

"We continue to believe Texas is positioned to do well coming out of this recession and that the U.S. economy is starting to level off, which is encouraging," said Evans. "Even with improved economic conditions, charge-offs and the provision for loan losses remain at elevated levels. Our credit quality levels continue to be manageable.

"The Texas markets Frost serves are among the strongest in the nation, and the state's economy continues to outpace the U.S. by about one percent in job growth. Cullen/Frost has strong capital and money to lend, and we continue to focus on building and expanding relationships."

"With the two-year anniversary of Cullen/Frost's turning down TARP bailout funds approaching in a few days, we believe that decision was  among the best in our company's 142-year history," Evans continued. "Declining the bailout funds freed the organization to focus our attention unabated  on building our business.  Cullen/Frost has continued to pay dividends throughout the financial crisis, even increasing our dividend each year for the last 16 years."

"At Cullen/Frost, it is the human capital as much as the financial capital that makes this possible. Our employees have done an incredible job of helping us take advantage of the opportunities this recession has presented, and I appreciate their ongoing efforts to help our company grow," Evans said.

For the first nine months of 2010, earnings were $155.7 million, up 22.1 percent,  compared to $127.5 million reported for the same period of 2009. On a per-share basis, earnings for the year to date were $2.57 per diluted common share, compared to $2.14 per diluted common share for the same period in 2009. Returns on average assets and equity for the first nine months of 2010 were 1.23 percent and 10.42 percent respectively, compared to 1.10 percent and 9.45 percent for the same period a year earlier.

Noted financial data for the third quarter of 2010 follows.

  • Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the third quarter of 2010 were 13.38 percent and 15.46 percent, respectively and are in excess of well capitalized levels.  The tangible common equity ratio was 9.15 percent at the end of the third quarter of 2010 compared to 8.70 percent for the same quarter last year.  
  • Net-interest income on a taxable equivalent basis for the third quarter of 2010 totaled $155.7 million, an increase of 7.4 percent compared to $144.9 million for the same period a year ago. This increase primarily resulted from an increase in the average volume of earning assets  as we are now seeing the benefits of deploying some of our liquidity into quality investments late in the second half of 2009. The net interest margin was 4.04 percent for the third quarter of 2010, compared to 4.12 percent for the third quarter of 2009, and 4.18 percent for the second quarter of 2010. The margin has been pressured in this near zero rate environment although that pressure has been mitigated somewhat by the benefits of quality municipal bond investments made since the last half of 2009.
  • Non-interest income for the third quarter of 2010 totaled $70.4 million, compared to $69.5 million reported for the third quarter of 2009.

Trust fee income was $17.0 million, compared to $16.8 million a year earlier. Most of this increase was related to increases in oil and gas trust management fees and securities lending income.  Investment fees, which represent approximately 74 percent of total trust fees,  were flat compared to the same quarter a year ago.

Service charges on deposit accounts were $25.0 million, down $1.4 million compared to $26.4 million for the third quarter of 2009. This reduction resulted from a $988 thousand decrease in overdraft/insufficient funds charges on consumer accounts, which was impacted by new overdraft regulations, and a $957 thousand decrease in service charges on commercial accounts. These decreases were partly offset by a $613 thousand increase in point-of-sale income from PIN-based debit card transactions.  

Other charges, commissions and fees were $7.7 million for the third quarter of 2010, up $863 thousand from last year's third quarter of $6.8 million, due primarily to commission income related to the sale of annuities (up $287 thousand) and mutual fund management fees (up $246 thousand). Other non-interest income increased $1.1 million  from the third quarter last year due primarily to increases in revenues from Visa checkcard usage (up $671 thousand) and mineral interest income (up $231 thousand).

  • Non-interest expense was $132.6 million for the quarter, up $318 thousand, or flat with the $132.2 million reported a year earlier.  Total salaries rose $1.2 million, or 2.0 percent, to $59.7 million, and were impacted by an increase in incentive compensation expense and stock-based compensation expense and were partially offset by lower staff levels.  Employee benefits were down $747 thousand, or 5.6  percent, primarily related to decreases in expenses from the Corporation's retirement plan (down $862 thousand). Net occupancy expense was $12.2 million, an increase of $1.1 million, or 9.8 percent, from the third quarter last year due mainly to increases in expense for the new technology center, in building depreciation, service contracts expense and building maintenance. Furniture and equipment was $12.2 million, which was up $1.0 million, or 9.3 percent from the same quarter last year. This increase occurred due to increases in software amortization expense and equipment rental, also related to the technology center.  Other expenses declined $1.9 million, or 6.1 percent, from the third quarter last year. The most significant components of this decrease were the losses from sale/write down of foreclosed assets (down $1.1 million) and armored motor services expense (down $599 thousand).
  • For the third quarter of 2010, the provision for possible loan losses was $10.1 million, compared to net charge-offs of $9.4 million.  For the third quarter of 2009, the provision for possible loan losses was $16.9 million, compared to net charge-offs of $16.3 million.  The allowance for possible loan losses as a percentage of total loans was 1.57 percent at September 30, 2010, compared to 1.45 percent at the end of the third quarter last year and 1.56 percent at the end of the second quarter of 2010.  

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 27, 2010, at 10:00 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 1-800-944-6430. Digital playback of the conference call will be available after 2:00 p.m. CT until midnight Sunday, October 31, 2010 at 800-642-1687 with Conference ID # of 18344509. The call will also be available by webcast at the URL listed below and available for playback after 2:00 p.m. CT. After entering the Web site, 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 assets of $17.7 billion at September 30, 2010.  The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Frost operates more than 110 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost is the largest Texas-based banking organization that operates only in Texas, with a legacy of helping clients with their financial needs during three centuries.

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 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.
  • Political instability.
  • 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.
  • Changes in the competitive environment among financial holding companies and other financial service providers.
  • The effect 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 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 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)

2010

2009

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

CONDENSED INCOME STATEMENTS

Net interest income

$

142,416

$

141,896

$

137,584

$

138,594

$

133,989

Net interest income(1)

155,702

155,054

150,343

150,743

144,915

Provision for possible loan losses

10,100

8,650

13,571

22,250

16,940

Non-interest income:

 Trust fees

17,029

17,037

16,963

17,669

16,755

 Service charges on deposit accounts

24,980

24,925

24,809

26,017

26,395

 Insurance commissions and fees

8,588

7,512

11,138

6,734

8,505

 Other charges, commissions and fees

7,708

8,029

6,919

7,804

6,845

 Net gain (loss) on securities transactions

--

1

5

(1,309)

--

 Other

12,125

12,428

11,559

29,430

10,991

 Total non-interest income

70,430

69,932

71,393

86,345

69,491

Non-interest expense:

 Salaries and wages

59,743

58,827

60,275

58,736

58,591

 Employee benefits

12,698

12,675

14,521

12,756

13,445

 Net occupancy

12,197

11,637

11,135

11,523

11,111

 Furniture and equipment

12,165

11,662

11,489

12,065

11,133

 Deposit insurance

4,661

5,429

5,443

5,126

4,643

 Intangible amortization

1,276

1,299

1,333

1,473

1,564

 Other

29,812

33,125

30,398

32,537

31,747

 Total non-interest expense

132,552

134,654

134,594

134,216

132,234

Income before income taxes

70,194

68,524

60,812

68,473

54,306

Income taxes

15,199

15,624

12,994

16,979

9,607

Net income

$

54,995

$

52,900

$

47,818

$

51,494

$

44,699

PER SHARE DATA

Net income – basic

$

0.90

$

0.87

$

0.79

$

0.86

$

0.75

Net income - diluted

0.90

0.87

0.79

0.86

0.75

Cash dividends

0.45

0.45

0.43

0.43

0.43

Book value at end of quarter

34.78

33.65

32.25

31.55

31.80

OUTSTANDING SHARES

Period-end shares

60,836

60,656

60,443

60,038

59,929

Weighted-average shares - basic

60,524

60,365

59,972

59,762

59,537

Dilutive effect of stock compensation

141

199

185

64

91

Weighted-average shares - diluted

60,665

60,564

60,157

59,826

59,628

SELECTED ANNUALIZED RATIOS

Return on average assets

1.25

%

1.26

%

1.17

%

1.25

%

1.11

%

Return on average equity

10.49

10.67

10.07

10.70

9.70

Net interest income to average earning assets(1)

4.04

4.18

4.19

4.20

4.12

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

2010

2009

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

BALANCE SHEET SUMMARY

 ($ in millions)

Average Balance:

  Loans

$

8,058

$

8,142

$

8,271

$

8,440

$

8,582

  Earning assets

15,590

15,071

14,665

14,501

14,121

  Total assets

17,470

16,872

16,530

16,335

16,047

  Non-interest-bearing demand deposits

5,125

4,906

4,684

4,574

4,343

  Interest-bearing deposits

9,166

8,911

8,806

8,644

8,453

  Total deposits

14,291

13,817

13,490

13,218

12,796

  Shareholders' equity

2,080

1,989

1,926

1,909

1,829

Period-End Balance:

  Loans

$

8,053

$

8,066

$

8,190

$

8,368

$

8,519

  Earning assets

15,852

15,245

14,991

14,437

14,436

  Goodwill and intangible assets

543

545

546

547

549

  Total assets

17,738

17,060

16,761

16,288

16,158

  Total deposits

14,530

13,952

13,734

13,313

12,922

  Shareholders' equity

2,116

2,041

1,949

1,894

1,906

  Adjusted shareholders' equity(1)

1,865

1,826

1,785

1,740

1,709

ASSET QUALITY

  ($ in thousands)

Allowance for possible loan losses

$

126,157

$

125,442

$

125,369

$

125,309

$

123,122

  as a percentage of period-end loans

1.57

%

1.56

%

1.53

%

1.50

%

1.45

%

Net charge-offs

$

9,385

$

8,577

$

13,511

$

20,063

$

16,319

  Annualized as a percentage of average loans

0.46

%

0.42

%

0.66

%

0.94

%

0.75

%

Non-performing assets:

  Non-accrual loans

$

144,900

$

134,524

$

144,617

$

146,867

$

191,754

  Foreclosed assets

23,778

24,744

26,936

33,312

29,112

    Total

$

168,678

$

159,268

$

171,553

$

180,179

$

220,866

  As a percentage of:

   Total loans and foreclosed assets

2.09

%

1.97

%

2.09

%

2.14

%

2.58

%

   Total assets

0.95

0.93

1.02

1.11

1.37

CONSOLIDATED CAPITAL RATIOS

Tier 1 Risk-Based Capital Ratio

13.38

%

13.16

%

12.70

%

11.91

%

11.49

%

Total Risk-Based Capital Ratio

15.46

15.52

15.05

14.19

13.72

Leverage Ratio

8.67

8.80

8.70

8.50

8.47

Equity to Assets Ratio (period-end)

11.93

11.96

11.63

11.63

11.80

Equity to Assets Ratio (average)

11.90

11.79

11.65

11.69

11.40

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

Nine Months Ended

September 30,

2010

2009

CONDENSED INCOME STATEMENTS

Net interest income

$

421,896

$

398,085

Net interest income(1)

461,098

426,972

Provision for possible loan losses

32,321

43,142

Non-interest income

Trust fees

51,029

49,599

Service charges on deposit accounts

74,714

76,457

Insurance commissions and fees

27,238

26,362

Other charges, commissions and fees

22,656

19,895

Net gain (loss) on securities transactions

6

49

Other

36,112

34,999

Total non-interest income

211,755

207,361

Non-interest expense

Salaries and wages

178,845

171,907

Employee benefits

39,894

42,468

Net occupancy

34,969

32,665

Furniture and equipment

35,316

32,158

Deposit insurance

15,533

20,686

Intangible amortization

3,908

5,064

Other

93,335

93,074

Total non-interest expense

401,800

398,022

Income before income taxes

199,530

164,282

Income taxes

43,817

36,742

Net income

$

155,713

$

127,540

PER SHARE DATA

Net income - basic

$

2.57

$

2.14

Net income - diluted

2.57

2.14

Cash dividends

1.33

1.28

Book value at end of period

34.78

31.80

OUTSTANDING SHARES

Period-end shares

60,836

59,929

Weighted-average shares - basic

60,289

59,353

Dilutive effect of stock compensation

179

69

Weighted-average shares - diluted

60,468

59,422

SELECTED ANNUALIZED RATIOS

Return on average assets

1.23

%

1.10

%

Return on average equity

10.42

9.45

Net interest income to average earning assets(1)

4.13

4.24

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

As of or for the

Nine Months Ended

September 30,

2010

2009

BALANCE SHEET SUMMARY

  ($ in millions)

Average Balance:

Loans

$

8,156

$

8,724

Earning assets

15,125

13,569

Total assets

16,961

15,488

Non-interest-bearing demand deposits

4,907

4,152

Interest-bearing deposits

8,962

7,999

Total deposits

13,869

12,151

Shareholders' equity

1,999

1,805

Period-End Balance:

Loans

$

8,053

$

8,519

Earning assets

15,852

14,436

Goodwill and intangible assets

543

549

Total assets

17,738

16,158

Total deposits

14,530

12,922

Shareholders' equity

2,116

1,906

Adjusted shareholders' equity(1)

1,865

1,709

ASSET QUALITY

($ in thousands)

Allowance for possible loan losses

$

126,157

$

123,122

As a percentage of period-end loans

1.57

%

1.45

%

Net charge-offs:

$

31,473

$

30,264

Annualized as a percentage of average loans

0.52

%

0.46

%

Non-performing assets:

Non-accrual loans

$

144,900

$

191,754

Foreclosed assets

23,778

29,112

   Total

$

168,678

$

220,866

As a percentage of:

   Total loans and foreclosed assets

2.09

%

2.58

%

   Total assets

0.95

1.37

CONSOLIDATED CAPITAL RATIOS

Tier 1 Risk-Based Capital Ratio

13.38

%

11.49

%

Total Risk-Based Capital Ratio

15.46

13.72

Leverage Ratio

8.67

8.47

Equity to Assets Ratio (period-end)

11.93

11.80

Equity to Assets Ratio (average)

11.78

11.65

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

SOURCE Cullen/Frost Bankers, Inc.



RELATED LINKS

http://www.frostbank.com