Cullen/Frost Reports Steady 4th Quarter Results, Annual Earnings for 2009

Consistent Performance in Challenging Economy

- Record deposit levels

- Non-performing loans decline

- Capital ratios remain strong

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

SAN ANTONIO, Jan. 27 /PRNewswire-FirstCall/ -- Cullen/Frost Bankers, Inc. today reported results for the fourth quarter and full year of 2009, as the Texas financial services leader continued to operate well in a challenging economy and extended low rate environment.

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Cullen/Frost reported net income for the fourth quarter of 2009 of $51.5 million, or $.86 per diluted common share, compared to fourth quarter 2008 earnings of $53.0 million, or $.89 per diluted common share. For the fourth quarter of 2009, returns on average assets and equity were 1.25 percent and 10.70 percent respectively, compared to 1.47 percent and 12.79 percent for the same period of 2008.  

The company also reported annual earnings for 2009 of $179.0 million, or $3.00 per diluted common share, compared to 2008 earnings of $207.3 million, or $3.50 per diluted common share.  For the year, returns on average assets and equity were 1.14 percent and 9.78 percent respectively, compared to the 1.51 percent and 13.11 percent reported in 2008.

During the fourth quarter of 2009, Cullen/Frost saw non-performing assets decline by $40.6 million from the previous quarter. In addition, the company recognized a pre-tax  net gain of $16.3 million related to the prepayment of certain debt and the termination of the related interest rate swap.  

"Overall, our company performed well in 2009 in the midst of a very difficult economy," said Dick Evans, Cullen/Frost chairman and CEO.  "I was pleased to see a nearly $2 billion increase in average deposits for the year, a record for Cullen/Frost, from customers who see Frost as a safe haven. Today we have strong capital levels — stronger even than when we declined TARP 15 months ago — and are well positioned for growth.

"I was encouraged to see a $40 million reduction in non-performers this quarter, and credit quality continues to be at manageable levels. Although the provision was higher, it exceeded  net charge-offs, increasing the reserve level to 1.50 percent of loans," said Evans.

Evans said that customer uncertainty about the Texas economy continued to impact the lending environment, noting that loans are down despite a strong calling effort that has brought in new relationships. Business owners, Evans said,  are largely on the sidelines, paying down debt and reducing inventory.

"We are working harder in this environment to grow the number of relationships and to broaden and deepen existing ones. When the economy begins to grow again, we will be well positioned to reap the benefits of this effort.  

"In November of 2009 we completed construction on the $50 million Frost Technology Center, a state-of-the-art facility that ensures our capacity to meet future data and information technology needs as the company grows.  We have also updated our technology infrastructure and enhanced the security of our data processing systems and customer information."

Evans said the company opened four new financial centers in 2009, including locations in Austin, San Antonio and Plano in the Dallas region.  Late in the year, Frost opened a financial center in Houston that was a relocation of an older facility.  The company also introduced Frost Mobile in 2009, which has been well received by customers who appreciate the added flexibility and convenience of doing business with Frost from their mobile phones.

"We have a seasoned staff who knows how to adapt in a tough environment.  We are fortunate to have that experience level and to operate in a pro-business state.  I continue to be optimistic about our prospects.

"I appreciate the efforts of our outstanding employees around the state, and I am inspired by their energy, their expertise and their commitment to our culture and to taking great care of our customers."

For the year ended December 31, 2009, average annual total loans were $8.7 billion, an increase of 4.1 percent compared to $8.3 billion for the previous year. Average annual total deposits for 2009 rose to $12.4 billion, up 17.9 percent over the $10.5 billion reported in 2008.  Net interest income on a taxable-equivalent basis grew to $577.7 million, a 4.2 percent increase over the $554.4 million reported a year earlier, reflecting the impact of increasing volumes. For 2009, non-interest income rose to $293.7 million, up 2.2 percent over the $287.3 million reported for 2008, while non-interest expense increased 9.4 percent over the previous year to $532.2 million and was heavily impacted by $21.2 million in higher FDIC insurance premiums.

Noted financial data for the fourth quarter:

  • Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the fourth quarter of 2009 were 11.91  percent and 14.19  percent, respectively and are in excess of well capitalized levels.  The ratio of tangible common equity to tangible assets was 8.56 percent at the end of the fourth quarter of 2009, compared to 8.37 percent for the same quarter last year.
  • Net interest income on a taxable-equivalent basis for the fourth quarter totaled $150.7 million, a 4.9 percent increase from the $143.7 million reported for the fourth quarter of 2008.   This increase primarily resulted from an increase in the average volume of earning assets  and was partly offset by a decrease in the net interest margin.   The net interest margin was 4.20 percent for the fourth quarter, compared to 4.60 percent for the fourth quarter of 2008 and 4.12 percent for the third quarter of 2009.
  • Non-interest income for the fourth quarter of 2009 was $86.3 million, up 24.8 percent over the $69.2million reported a year earlier.  

Other income increased $16.2 million from the fourth quarter of 2008 due primarily to the $17.7 million gain recognized from the termination of the  interest rate swap associated with certain debt that was paid off early.


Trust income was $17.7 million, compared to $17.5 million for the fourth quarter of 2008, with most of  this increase resulting from higher investment fees due to increases in the equities market. Investment fees are assessed  based on the market value of trust assets, which totaled $22.7 billion at December 31, 2009 up $1 billion from the fourth quarter a year ago.  This increase was partially offset by lower oil and gas fees from the same period last year, as oil and natural gas prices have decreased, impacting the amount of royalties received.


Service charges on deposits were $26.0 million, an increase of $2.3 million or 9.8 percent, compared to $23.7 million reported for the previous year's fourth quarter. Impacting this was a $2.0  million increase in service charges on commercial accounts, resulting from higher treasury management fees. A drop  in the earnings credit rate for commercial accounts compared to a year earlier, impacted treasury management fees.  When  interest rates are lower, customers earn less credit for their deposit balances, which, in turn, increases the amount of service charges to be paid for through fees.


  • Non-interest expense for the fourth quarter of 2009 was $134.2 million, up $10.7 million or 8.6 percent from the $123.5  million for the fourth quarter of 2008.  A large part of this increase is due to  higher FDIC insurance expense of $3.3 million.  Total salaries  were up $268 thousand over the same quarter a year earlier, as a result of normal annual merit and market increases, offset  by a decrease in incentive compensation. Employees benefits were up $2.2 million or 21.3 percent, primarily due to increases in expenses related to the company's medical costs, 401(k) and profit sharing plans, and retirement plan.  Net occupancy expense was $11.5 million, an increase of $1.1 million from the fourth quarter last year, due primarily to expenses associated with new locations.   Expenses for furniture and equipment were up $2.1 million to $12.1 million, due mainly to increases in depreciation expense related to furniture and fixtures, primarily for new locations, amortized software and software maintenance expense. Other expense was $32.5 million, a $2.1 million increase when compared to the fourth quarter of 2008. Included in other expense is a $1.4 million prepayment penalty on the early termination of certain debt.
  • For the fourth quarter of 2009, the provision for possible loan losses was $22.3 million, compared to net charge-offs of $20.1 million. For the fourth quarter of 2008, the provision for possible loan losses was $8.6 million, compared to net charge offs of $5.4 million. The allowance for possible loan losses as a percentage of total loans was 1.50 percent at December 31, 2009, compared to 1.25 percent at year-end 2008. Non-performing assets were $180.2 million at year-end, compared to $220.9 million the previous quarter, and $78.0 million at year-end 2008.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, January 27, 2010 at 10:00 a.m. Central Time (CT) to discuss the results for the quarter and the year.  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 12:00 p.m. CT until midnight Sunday, January 31, 2010 at 800-642-1687, with the Conference  ID# of 49680053. 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 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 assets of $16.3 billion at December 31, 2009. The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Its subsidiary, Frost Bank, operates more than 100 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 banking organization headquartered in Texas 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)

2009

2008

4th Qtr

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

CONDENSED INCOME STATEMENTS

Net interest income

$

138,594 

$

133,989

$

134,464

$

129,632

$

138,081 

Net interest income(1)

150,743 

144,915

144,325

137,733

143,707 

Provision for possible loan losses

22,250 

16,940

16,601

9,601

8,550 

Non-interest income:

 Trust fees

17,669 

16,755

16,875

15,969

17,483 

 Service charges on deposit accounts

26,017 

26,395

25,152

24,910

23,697 

 Insurance commissions and fees

6,734 

8,505

7,106

10,751

6,470 

 Other charges, commissions and fees

7,804 

6,845

6,288

6,762

8,407 

 Net gain (loss) on securities transactions

(1,309)

--

49

--

(133)

 Other

29,430 

10,991

12,536

11,472

13,274 

 Total non-interest income

86,345 

69,491

68,006

69,864

69,198 

Non-interest expense:

 Salaries and wages

58,736 

58,591

56,540

56,776

58,468 

 Employee benefits

12,756 

13,445

13,783

15,240

10,517 

 Net occupancy

11,523 

11,111

10,864

10,690

10,384 

 Furniture and equipment

12,065 

11,133

10,662

10,363

10,010 

 Deposit insurance

5,126 

4,643

11,667

4,376

1,785 

 Intangible amortization

1,473 

1,564

1,719

1,781

1,929 

 Other

32,537 

31,747

31,054

30,273

30,450 

 Total non-interest expense

134,216 

132,234

136,289

129,499

123,543 

Income before income taxes

68,473 

54,306

49,580

60,396

75,186 

Income taxes

16,979 

9,607

11,721

15,414

22,223 

Net income

$

51,494 

$

44,699

$

37,859

$

44,982

$

52,963 

PER SHARE DATA

Net income - basic

$

0.86 

$

0.75

$

0.64

$

0.76

$

0.89 

Net income - diluted

0.86 

0.75

0.63

0.76

0.89 

Cash dividends

0.43 

0.43

0.43

0.42

0.42 

Book value at end of quarter

31.55 

31.80

30.12

30.34

29.68 

OUTSTANDING SHARES

Period-end shares

60,038 

59,929

59,653

59,423

59,416 

Weighted-average shares - basic

59,762 

59,537

59,331

59,189

59,171 

Dilutive effect of stock compensation

64 

91

119

75

311 

Weighted-average shares - diluted

59,826 

59,628

59,450

59,264

59,482 

SELECTED ANNUALIZED RATIOS

Return on average assets

1.25 

%

1.11

%

0.98

%

1.23

%

1.47 

%

Return on average equity

10.70 

9.70

8.35

10.33

12.79 

Net interest income to average earning assets(1)

4.20 

4.12

4.28

4.33

4.60 

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

2009

2008

4th Qtr

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

BALANCE SHEET SUMMARY

 ($ in millions)

Average Balance:

  Loans

$

8,440   

$

8,582   

$

8,784   

$

8,809   

$

8,712   

  Earning assets

14,501   

14,121   

13,632   

12,942   

12,435   

  Total assets

16,335   

16,047   

15,519   

14,881   

14,347   

  Non-interest-bearing demand deposits

4,574   

4,343   

4,138   

3,971   

3,803   

  Interest-bearing deposits

8,644   

8,453   

8,045   

7,487   

7,106   

  Total deposits

13,218   

12,796   

12,183   

11,458   

10,909   

  Shareholders' equity

1,909   

1,829   

1,818   

1,766   

1,647   

Period-End Balance:

  Loans

$

8,368   

$

8,519   

$

8,644   

$

8,779   

$

8,844   

  Earning assets

14,437   

14,436   

13,855   

13,530   

13,001   

  Goodwill and intangible assets

547   

549   

549   

551   

551   

  Total assets

16,288   

16,158   

15,785   

15,331   

15,034   

  Total deposits

13,313   

12,922   

12,497   

12,033   

11,509   

  Shareholders' equity

1,894   

1,906   

1,797   

1,803   

1,764   

  Adjusted shareholders' equity(1)

1,740   

1,709   

1,675   

1,650   

1,626   

ASSET QUALITY

  ($ in thousands)

Allowance for possible loan losses

$

125,309   

$

123,122   

$

122,501   

$

114,168   

$

110,244   

  as a percentage of period-end loans

1.50   

%

1.45   

%

1.42   

%

1.30   

%

1.25   

%

Net charge-offs

$

20,063   

$

16,319   

$

8,268   

$

5,677   

$

5,415   

   Annualized as a percentage of average loans

0.94   

%

0.75   

%

0.38   

%

0.26   

%

0.25   

%

Non-performing assets:

  Non-accrual loans

$

146,867   

$

191,754   

$

168,805   

$

114,233   

$

65,174   

  Foreclosed assets

33,312   

29,112   

21,478   

13,533   

12,866   

    Total

$

180,179   

$

220,866   

$

190,283   

$

127,766   

$

78,040   

   As a percentage of:

  Total loans and foreclosed assets

2.14   

%

2.58   

%

2.20   

%

1.45   

%

0.88   

%

  Total assets

1.11   

1.37   

1.21   

0.83   

0.52   

CONSOLIDATED CAPITAL RATIOS

Tier 1 Risk-Based Capital Ratio

11.91   

%

11.49   

%

10.91   

%

10.64   

%

10.30   

%

Total Risk-Based Capital Ratio

14.19   

13.72   

13.34   

12.98   

12.58   

Leverage Ratio

8.50   

8.47   

8.50   

8.70   

8.80   

Equity to Assets Ratio   (period-end)

11.63   

11.80   

11.38   

11.76   

11.73   

Equity to Assets Ratio   (average)

11.69   

11.40   

11.72   

11.87   

11.48   

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

Year Ended December 31

2009

2008

2007

2006

2005

CONDENSED INCOME STATEMENTS

Net interest income

$

536,679 

$

534,025 

$

518,737 

$

469,163 

$

391,266 

Net interest income(1)

577,716 

554,353 

534,195 

479,138 

398,938 

Provision for possible loan losses

65,392 

37,823 

14,660 

14,150 

10,250 

Non-interest income:

  Trust fees

67,268 

74,554 

70,359 

63,469 

58,353 

  Service charges on deposit accounts

102,474 

87,566 

80,718 

77,116 

78,751 

  Insurance commissions and fees

33,096 

32,904 

30,847 

28,230 

27,731 

  Other charges, commissions and fees

27,699 

35,557 

32,558 

28,105 

23,125 

  Net gain (loss) on securities transactions

(1,260)

(159)

15 

(1)

19 

  Other

64,429 

56,900 

53,734 

43,828 

42,400 

  Total non-interest income

293,706 

287,322 

268,231 

240,747 

230,379 

Non-interest expense:

  Salaries and wages

230,643 

225,943 

209,982 

190,784 

166,059 

  Employee benefits

55,224 

47,219 

47,095 

46,231 

41,577 

  Net occupancy

44,188 

40,464 

38,824 

34,695 

31,107 

  Furniture and equipment

44,223 

37,799 

32,821 

26,293 

23,912 

  Deposit insurance

25,812 

4,597 

1,220 

1,162 

1,110 

  Intangible amortization

6,537 

7,906 

8,860 

5,628 

4,859 

  Other

125,611 

122,717 

123,644 

105,560 

98,383 

  Total non-interest expense

532,238 

486,645 

462,446 

410,353 

367,007 

Income before income taxes

232,755 

296,879 

309,862 

285,407 

244,388 

Income taxes

53,721 

89,624 

97,791 

91,816 

78,965 

Net income

$

179,034 

$

207,255 

$

212,071 

$

193,591 

$

165,423 

PER SHARE DATA

Net income - basic

$

3.00 

$

3.51 

$

3.59 

$

3.48 

$

3.14 

Net income - diluted

3.00 

3.50 

3.57 

3.44 

3.09 

Cash dividends

1.71 

1.66 

1.54 

1.32 

1.165 

Book value

31.55 

29.68 

25.18 

23.01 

18.03 

OUTSTANDING SHARES

Period-end shares

60,038

59,416

58,662

59,839

54,483

Weighted-average shares - basic

59,456

58,846

58,952

55,467

52,481

Dilutive effect of stock compensation

58

324

645

1,043

1,235

Weighted-average shares - diluted

59,514

59,170

59,597

56,510

53,716

SELECTED ANNUALIZED RATIOS

Return on average assets

1.14

%

1.51

%

1.63

%

1.67

%

1.63

%

Return on average equity

9.78

13.11

15.20

18.03

18.78

Net interest income to average earning assets(1)

4.23

4.67

4.69

4.67

4.45

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

Year Ended December 31

2009

2008

2007

2006

2005

BALANCE SHEET SUMMARY

  ($ in millions)

Average Balance:

Loans

$

8,653   

$

8,314   

$

7,464   

$

6,524   

$

5,594   

Earning assets

13,804   

11,868   

11,340   

10,203   

8,969   

Total assets

15,702   

13,685   

13,042   

11,581   

10,143   

Non-interest-bearing demand  deposits

4,259   

3,615   

3,524   

3,334   

3,009   

Interest bearing deposits

8,161   

6,916   

6,689   

5,850   

5,124   

Total deposits

12,420   

10,531   

10,213   

9,184   

8,133   

Shareholders' equity

1,831   

1,580   

1,395   

1,074   

881   

Period-End Balance:

Loans

$

8,368   

$

8,844   

$

7,769   

$

7,373   

$

6,085   

Earning assets

14,437   

13,001   

11,556   

11,461   

10,197   

Goodwill and intangible assets

547   

551   

558   

563   

184   

Total assets

16,288   

15,034   

13,485   

13,224   

11,741   

Total deposits

13,313   

11,509   

10,530   

10,388   

9,146   

Shareholders' equity

1,894   

1,764   

1,477   

1,377   

982   

Adjusted shareholders' equity(1)

1,740   

1,626   

1,484   

1,432   

1,033   

ASSET QUALITY

($ in thousands)

Allowance for possible loan losses

$

125,309   

$

110,244   

$

92,339   

$

96,085   

$

80,325   

As a percentage of period-end loans

1.50   

%

1.25   

%

1.19   

%

1.30   

%

1.32   

%

Net charge-offs:

$

50,327   

$

19,918   

$

18,406   

$

11,110   

$

8,921   

As a percentage of average loans

0.58   

%

0.24   

%

0.25   

%

0.17   

%

0.16   

%

Non-performing assets:

Non-accrual loans

$

146,867   

$

65,174   

$

24,443   

$

52,204   

$

33,179   

Foreclosed assets

33,312   

12,866   

5,406   

5,545   

5,748   

   Total

$

180,179   

$

78,040   

$

29,849   

$

57,749   

$

38,927   

As a percentage of:

   Total loans and foreclosed assets

2.14   

%

0.88   

%

0.38   

%

0.78   

%

0.64   

%

   Total assets

1.11   

0.52   

0.22   

0.44   

0.33   

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

SOURCE Cullen/Frost Bankers, Inc.



RELATED LINKS

http://www.frostbank.com