Cullen/Frost Reports Steady Third Quarter Results

- Capital ratios still strong

- Deposits continue to rise

- Loan environment remains challenging

Oct 26, 2011, 09:00 ET from Cullen/Frost Bankers, Inc.

SAN ANTONIO, Oct. 26, 2011 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE: CFR) today released results for the third quarter of 2011, reporting that the Texas financial services leader continues to operate well in an ongoing environment of sluggish economic growth and low interest rates.

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Cullen/Frost's net income for the third quarter of 2011 was $54.5 million, or $.89 per diluted common share, compared to third quarter 2010 earnings of $55.0 million, or $.90 per diluted common share. Returns on average assets and equity for the third quarter of 2011 were 1.15 percent and 9.79 percent, respectively, compared to 1.25 percent and 10.49 percent for the same period of 2010.

The provision for loan losses was $9.0 million, compared to $10.1 million reported a year earlier, while the allowance for loan losses as a percentage of loans decreased to 1.43 percent from 1.57 percent for the same quarter of 2010.

For the third quarter of 2011, net interest income on a tax-equivalent basis increased 3.1 percent to $160.6 million, compared to the $155.7 million reported for the same quarter of 2010.  Average deposits for the quarter were $15.4 billion, an increase of $586 million over the previous quarter, and $1.1 billion over the $14.3 billion reported for the third quarter of 2010. Average loans for the third quarter of 2011 were $8.0 billion, down $22 million compared to the $8.1 billion reported for the third quarter a year earlier, and down $44 million compared to the $8.1 billion reported in the second quarter.  

"Cullen/Frost continues to produce steady results in a challenging economy and extended low interest rate environment," said CEO Dick Evans. "I was pleased to see strong growth in trust fees, the majority of it from investment fees. We saw solid increases in both net interest income and non-interest income for the quarter. The response to our company's value proposition since the financial crisis began in 2008 has been gratifying, validating our way of doing business, as customers come to understand the Frost difference. In fact, average deposits have grown almost $5.0 billion over the last 12 consecutive quarters.  

"In a lending environment that remains challenging, with individuals and businesses remaining cautious and paying down debt, we continue to add relationships. We are seeing the result of our disciplined calling and team selling efforts in the expansion of our customer base, which should drive our future growth.

"Frost opened three new financial centers during the third quarter, including locations in the Rice Village and River Oaks areas in Houston, and one location in Cedar Park in South Austin. In late September, our investment advisory, Frost Investment Advisors, launched the Frost Natural Resources Fund, adding another strategy to the firm's mutual fund family.

"The Texas markets Frost serves are some of the strongest in the U.S., and the state continues to grow jobs at a higher rate than the nation. The overall economy remains sluggish, however, and the recovery has flattened," said Evans. "Our credit quality levels are manageable, capital levels remain very strong, and we have money to lend.

"It has been three years since Cullen/Frost turned down TARP bailout funds, and we continue to believe that this was among the best decisions in our 143-year history," Evans said. "This decision allowed us to pursue a laser-like focus on building our business. In addition, we have consistently paid a shareholder dividend and, in fact, have increased the dividend annually for the past 17 years.

"As always, it is our people who make Cullen/Frost's success possible. They provide the human capital that makes our business work, and they are doing a great job of helping us take advantage of the opportunities we have seen in this recession. I appreciate their continued efforts to help our company grow," Evans said.

During the quarter, the company corrected an under-accrual of taxes from incorrectly deducting premium amortization on municipal bonds since 2008. This resulted in the unusually high effective tax rate in the third quarter of 30.3 percent. As a result, the Corporation recognized additional income tax expense totaling $6.0 million.  This was offset, in part, by a $4.2 million after-tax net gain on the sale of $32.6 million in long duration municipal securities during the quarter.

For the first nine months of 2011, earnings were $162.1 million, up 4.1 percent, compared to $155.7 million reported for the same period of 2010. On a per-share basis, earnings for the year to date were $2.64 per diluted common share, compared to $2.57 per diluted common share for the same period in 2010. Returns on average assets and equity for the first nine months of 2011 were 1.19 percent and 10.11 percent respectively, compared to 1.23 percent and 10.42 percent for the same period a year earlier.

Noted financial data for the third quarter of 2011 follows.

  • Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the third quarter of 2011 were 14.59 percent and 16.57 percent, respectively, and continue to be in excess of well capitalized levels. The tangible common equity ratio was 9.01 percent at the end of the third quarter of 2011 compared to 9.15 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 for the third quarter of 2011 totaled $160.6 million, an increase of 3.1 percent compared to $155.7 million for the same period a year ago. This increase resulted primarily from an increase in the average volume of earning assets and was partly offset by a decrease in the net interest margin. Strong growth in deposits has helped to fund the increase in earning assets. The net interest margin was 3.81 percent for the third quarter of 2011, compared to 4.04 percent for the third quarter of 2010, and 3.95 percent for the second quarter of 2011.
  • Non-interest income for the third quarter of 2011 totaled $79.2 million, an increase of $8.8 million compared to $70.4 million reported for the third quarter of 2010. This included a $6.4 million pre-tax gain on the sale of $32.6 million in long-duration municipal securities.  Without this gain, non-interest income would have been up $2.4 million from the third quarter last year. Trust fees rose $1.4 million to $18.4 million, compared to $17.0 million for the third quarter of 2010, with most of the increase resulting from investment fees. Insurance commissions and fees were up $1.0 million, mainly due to higher benefits commissions of $736,000 that were impacted, in part, by the acquisition of Clark Benefit Group in May 2011 ($243,000).
  • Non-interest expense was $137.4 million for the quarter, up $4.9 million, or 3.7 percent, compared to the $132.6 million reported for the third quarter a year earlier. Total salaries rose $2.0 million, or 3.3 percent, to $61.7 million, and were impacted by normal annual merit increases. Employee benefits were down $694,000, primarily related to decreases in expenses from the Corporation's retirement plan (down $678,000). Furniture and equipment expense was $13.1 million, up $941,000 from the same quarter last year. This increase occurred due to increases in software maintenance and amortization expenses primarily for software placed into service in 2010. Other expenses increased $5.0 million from the third quarter last year. The most significant components of this increase were $2.2 million in advertising and brand promotion expense and $3.0 million in various and sundry losses which included a $1.4 million write-down related to an interest in a limited partnership and $1.3 million in losses on the sale/write-down of foreclosed assets. Deposit insurance expense was down $2.1 million to $2.6 million compared to the third quarter of last year. The decrease was related to a change in the deposit insurance assessment base and a change in the method by which the assessment rate is determined for large financial institutions.
  • For the third quarter of 2011, the provision for loan losses was $9.0 million, compared to net charge-offs of $16.3 million.  For the third quarter of 2010, the provision for loan losses was $10.1 million, compared to net charge-offs of $9.4 million.  The allowance for  loan losses as a percentage of total loans was 1.43 percent at September 30, 2011, compared to 1.57 percent at the end of the third quarter last year and 1.52 percent at the end of the second quarter of 2011. Non-performing assets decreased to $139.3 million at the end of the third quarter, down from $161.4 million last quarter-end and $168.7 million at last year's third quarter.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 26, 2011, 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 30, 2011 at 800-642-1687 with Conference ID # of 19299812. 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 $19.5 billion in assets  at September 30, 2011 and 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.
  • 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)

2011

2010

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

       CONDENSED INCOME STATEMENTS

       Net interest income

$

145,361

$

144,333

$

141,759

$

141,563

$

142,416

       Net interest income(1)

160,579

159,509

156,638

155,221

155,702

       Provision for loan losses

9,010

8,985

9,450

11,290

10,100

       Non-interest income:

          Trust fees

18,405

18,976

18,220

17,399

17,029

          Service charges on deposit accounts

24,306

23,619

23,368

24,082

24,980

          Insurance commissions and fees

9,569

7,908

10,494

6,777

8,588

          Other charges, commissions and fees

8,134

8,478

8,759

7,796

7,708

          Net gain (loss) on securities transactions

6,409

--

5

--

--

          Other

12,394

11,811

11,487

14,224

12,125

          Total non-interest income

79,217

70,792

72,333

70,278

70,430

       Non-interest expense:

          Salaries and wages

61,697

61,775

62,430

60,744

59,743

          Employee benefits

12,004

13,050

15,311

12,458

12,698

          Net occupancy

12,080

11,823

11,652

11,197

12,197

          Furniture and equipment

13,106

12,628

12,281

12,335

12,165

          Deposit insurance

2,583

2,598

4,760

4,918

4,661

          Intangible amortization

1,108

1,107

1,120

1,217

1,276

          Other

34,829

33,816

32,507

30,872

29,812

          Total non-interest expense

137,407

136,797

140,061

133,741

132,552

       Income before income taxes

78,161

69,343

64,581

66,810

70,194

       Income taxes

23,654

13,657

12,653

13,759

15,199

       Net income

$

54,507

$

55,686

$

51,928

$

53,051

$

54,995

       PER SHARE DATA

       Net income – basic

$

0.89

$

0.91

$

0.85

$

0.87

$

0.90

       Net income - diluted

0.89

0.91

0.85

0.87

0.90

       Cash dividends

0.46

0.46

0.45

0.45

0.45

       Book value at end of quarter

36.69

35.54

34.25

33.74

34.78

       OUTSTANDING SHARES

       Period-end shares

61,245

61,245

61,242

61,108

60,836

       Weighted-average shares - basic

61,137

61,094

61,018

60,772

60,524

       Dilutive effect of stock compensation

102

297

316

176

141

       Weighted-average shares - diluted

61,239

61,391

61,334

60,948

60,665

       SELECTED ANNUALIZED RATIOS

       Return on average assets

1.15

%

1.23

%

1.19

%

1.18

%

1.25

%

       Return on average equity

9.79

10.45

10.11

9.96

10.49

       Net interest income to average earning assets(1)

3.81

3.95

4.03

3.93

4.04

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

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

2011

2010

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

       BALANCE SHEET SUMMARY

         ($ in millions)

       Average Balance:

          Loans

$

8,036

$

8,080

$

8,081

$

8,033

$

8,058

          Earning assets

17,053

16,356

15,822

15,953

15,590

          Total assets

18,825

18,170

17,678

17,855

17,470

          Non-interest-bearing demand deposits

5,905

5,464

5,248

5,371

5,125

          Interest-bearing deposits

9,524

9,379

9,221

9,264

9,166

          Total deposits

15,429

14,843

14,469

14,635

14,291

          Shareholders' equity

2,209

2,137

2,083

2,114

2,080

       Period-End Balance:

          Loans

$

8,090

$

8,068

$

8,025

$

8,117

$

8,053

          Earning assets

17,728

16,710

16,160

15,806

15,852

          Goodwill and intangible assets

540

541

541

542

543

          Total assets

19,490

18,478

17,942

17,617

17,738

          Total deposits

16,064

15,104

14,710

14,479

14,530

          Shareholders' equity

2,247

2,177

2,097

2,062

2,116

          Adjusted shareholders' equity(1)

2,003

1,974

1,943

1,907

1,865

       ASSET QUALITY

         ($ in thousands)

       Allowance for loan losses

$

115,433

$

122,741

$

124,321

$

126,316

$

126,157

          as a percentage of period-end loans

1.43

%

1.52

%

1.55

%

1.56

%

1.57

%

       Net charge-offs

$

16,318

$

10,565

$

11,445

$

11,131

$

9,385

          Annualized as a percentage of average loans

0.81

%

0.52

%

0.57

%

0.55

%

0.46

%

       Non-performing assets:

          Non-accrual loans

$

110,178

$

130,528

$

123,811

$

137,140

$

144,900

          Foreclosed assets

29,114

30,822

30,892

27,810

23,778

            Total

$

139,292

$

161,350

$

154,703

$

164,950

$

168,678

          As a percentage of:

            Total loans and foreclosed assets

1.72

%

1.99

%

1.92

%

2.03

%

2.09

%

            Total assets

0.71

0.87

0.86

0.94

0.95

       CONSOLIDATED CAPITAL RATIOS

       Tier 1 Risk-Based Capital Ratio

14.59

%

14.37

%

14.22

%

13.82

%

13.38

%

       Total Risk-Based Capital Ratio

16.57

16.42

16.31

15.91

15.46

       Leverage Ratio

8.82

8.94

8.99

8.68

8.67

       Equity to Assets Ratio (period-end)

11.53

11.78

11.69

11.70

11.93

       Equity to Assets Ratio (average)

11.73

11.76

11.78

11.84

11.90

    (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,

2011

2010

   CONDENSED INCOME STATEMENTS

   Net interest income

$

431,453

$

421,896

   Net interest income(1)

476,725

461,098

   Provision for loan losses

27,445

32,321

   Non-interest income

       Trust fees

55,601

51,029

       Service charges on deposit accounts

71,293

74,714

       Insurance commissions and fees

27,971

27,238

       Other charges, commissions and fees

25,371

22,656

       Net gain (loss) on securities transactions

6,414

6

       Other

35,692

36,112

       Total non-interest income

222,342

211,755

   Non-interest expense

       Salaries and wages

185,902

178,845

       Employee benefits

40,365

39,894

       Net occupancy

35,555

34,969

       Furniture and equipment

38,015

35,316

       Deposit insurance

9,941

15,533

       Intangible amortization

3,335

3,908

       Other

101,152

93,335

       Total non-interest expense

414,265

401,800

   Income before income taxes

212,085

199,530

   Income taxes

49,964

43,817

   Net income

$

162,121

$

155,713

   PER SHARE DATA

   Net income – basic

$

2.64

$

2.57

   Net income – diluted

2.64

2.57

   Cash dividends

1.37

1.33

   Book value at end of period

36.69

34.78

   OUTSTANDING SHARES

   Period-end shares

61,245

60,836

   Weighted-average shares – basic

61,083

60,289

   Dilutive effect of stock compensation

199

179

   Weighted-average shares – diluted

61,282

60,468

   SELECTED ANNUALIZED RATIOS

   Return on average assets

1.19

%

1.23

%

   Return on average equity

10.11

10.42

   Net interest income to average earning assets(1)

3.93

4.13

       (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,

2011

2010

   BALANCE SHEET SUMMARY

     ($ in millions)

   Average Balance:

     Loans

$

8,066

$

8,156

     Earning assets

16,415

15,125

     Total assets

18,229

16,961

     Non-interest-bearing demand deposits

5,541

4,907

     Interest-bearing deposits

9,376

8,962

     Total deposits

14,917

13,869

     Shareholders' equity

2,143

1,999

   Period-End Balance:

     Loans

$

8,090

$

8,053

     Earning assets

17,728

15,852

     Goodwill and intangible assets

540

543

     Total assets

19,490

17,738

     Total deposits

16,064

14,530

     Shareholders' equity

2,247

2,116

     Adjusted shareholders' equity(1)

2,003

1,865

   ASSET QUALITY

     ($ in thousands)

   Allowance for loan losses

$

115,433

$

126,157

     As a percentage of period-end loans

1.43

%

1.57

%

   Net charge-offs:

$

38,328

$

31,473

     Annualized as a percentage of average loans

0.64

%

0.52

%

   Non-performing assets:

     Non-accrual loans

$

110,178

$

144,900

     Foreclosed assets

29,114

23,778

         Total

$

139,292

$

168,678

   As a percentage of:

         Total loans and foreclosed assets

1.72

%

2.09

%

         Total assets

0.71

0.95

   CONSOLIDATED CAPITAL RATIOS

   Tier 1 Risk-Based Capital Ratio

14.59

%

13.38

%

   Total Risk-Based Capital Ratio

16.57

15.46

   Leverage Ratio

8.82

8.67

   Equity to Assets Ratio (period-end)

11.53

11.93

   Equity to Assets Ratio (average)

11.76

11.78

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

SOURCE Cullen/Frost Bankers, Inc.



RELATED LINKS

http://www.frostbank.com