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Cullen/Frost Reports Solid Third Quarter Results

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SAN ANTONIO, Oct. 24, 2012 /PRNewswire/ -- 

  • Net income up 7.6 percent
  • Loans grow by 7.5 percent
  • Deposits rise 13.1 percent 

Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported that strong loan and deposit growth contributed to solid third quarter 2012 results, as the Texas financial services leader continues to operate well in a slowly recovering economy.

(Logo: http://photos.prnewswire.com/prnh/20030109/CFRLOGO)

Cullen/Frost's net income for the third quarter of 2012 was $58.7 million, or $.95 per diluted common share, up 7.6 percent compared to third quarter 2011 earnings of $54.5 million, or $.89 per diluted common share. Returns on average assets and equity for the third quarter of 2012 were 1.11 percent and 9.75 percent, respectively, compared to 1.15 percent and 9.79 percent for the same period of 2011.

The provision for loan losses was $2.5 million, compared to $9.0 million reported a year earlier, while the allowance for loan losses as a percentage of loans decreased to 1.20 percent from 1.43 percent for the same quarter of 2011.

For the third quarter of 2012, net interest income on a tax-equivalent basis increased 4.2 percent to $167.3 million, compared to the $160.6 million reported for the same quarter of 2011. Average deposits for the quarter were $17.5 billion, an increase of $568 million over the previous quarter, and $2.1 billion over the $15.4 billion reported for the third quarter of 2011. For the third quarter of 2012, average loans were $8.6 billion, an increase of $599 million, or 7.5 percent, compared to the $8.0 billion reported for the third quarter a year earlier, and up $367 million compared to the $8.3 billion reported in the second quarter of 2012.

"Cullen/Frost continues to generate solid results in an improving, but still sluggish economy and extended low interest rate environment," said CEO Dick Evans. "I was pleased to see loans reach $8.6 billion, a growth of 7.5 percent over last year's third quarter, as our disciplined calling and team selling efforts are starting to pay off.

"In a lending environment that remains both challenging and competitive, with businesses demonstrating caution and paying down debt, we are seeing the result of our work, both in loan growth and in the expansion of our customer base. Our credit quality levels remain manageable, capital levels remain very strong, and we have money to lend," said Evans.

"We saw a good increase in net interest income for the quarter and a $2.1 billion increase in average deposits," Evans said. "Since the financial crisis began, customers have responded to our company's value proposition by bringing their deposits and their business to Frost. Since year-end 2007, average deposits have grown almost $7 billion, which we welcome. At the same time, the greater liquidity created by increased deposits continues to pressure the net interest margin, especially in this low rate environment."

"We are blessed to be in Texas and fortunate to serve some of the strongest markets in the nation. Austin, Dallas, Fort Worth, Houston and San Antonio are mentioned in almost every article highlighting cities that have weathered the recession well and are positioned to grow even stronger in the recovery. Texas continues to grow jobs at a higher rate than the nation.

"Four years ago the U.S. was on the brink of the greatest financial crisis since the 1930s. Decisions we made then have enabled us to perform well today. Frost was one of the first banks in the nation to turn down TARP bailout funds, a decision that ranks among the best in our 144-year history," Evans said. "Not having to deal with the repercussions of repaying TARP allowed us to stay focused on building our business. We have consistently paid a shareholder dividend and, in fact, have increased the dividend annually for the past 18 years.

"Our outstanding employees make Cullen/Frost's success possible, and I appreciate their dedication and commitment to helping our company grow," Evans said.

For the first nine months of 2012, earnings were $177.8 million, up 9.6 percent, compared to $162.1 million reported for the same period of 2011. Year-to-date earnings were $2.88 per diluted common share, compared to $2.64 per diluted common share for the same period in 2011. Returns on average assets and average equity for the first nine months of 2012 were 1.16 percent and 10.09 percent respectively, compared to 1.19 percent and 10.11 percent for the same period a year earlier.

Noted financial data for the third quarter of 2012 follows:

  • Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the third quarter of 2012 were 14.10 percent and 15.62 percent, respectively, and continue to be in excess of well capitalized levels. The tangible common equity ratio was 8.80 percent at the end of the third quarter of 2012, compared to 9.01 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 2012 totaled $167.3 million, an increase of 4.2 percent, compared to $160.6 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 3.54 percent for the third quarter of 2012, compared to 3.81 percent for the third quarter of 2011, and 3.61 percent for the second quarter of 2012.
  • Non-interest income for the third quarter of 2012 totaled $71.2 million, compared to $79.2 million reported for the third quarter of 2011. During last year's third quarter, the company reported a $6.4 million pre-tax gain on the sale of $32.6 million in long-duration municipal securities. Revenue from interchange and debit card transaction fees was $4.2 million, down $4.5 million from $8.7 million for the third quarter of 2011. This reduction was directly related to regulatory changes implemented by the Durbin Amendment to Dodd-Frank. Trust and investment management fees were $20.8 million, up $1.2 million from the third quarter of 2011, with about half of the increase related to investment fees. Other charges, commissions and fees were up $693,000 with most of the increase related to new revenues from Frost HR Consulting which was part of the Stone acquisition in January of this year. Other income was up $1.9 million from last year's third quarter, with $1.1 million of that increase due to income from customer derivative activities.
  • Non-interest expense was $144.5 million for the quarter, up $7.1 million compared to the $137.4 million reported for the third quarter a year earlier. Total salaries rose $3.3 million, or 5.3 percent, to $65.0 million, and were impacted by an increase in the number of employees, combined with normal annual merit and market increases. Employee benefits rose $2.0 million, primarily related to increases in expenses from the Corporation's retirement plan, up $877,000, and an increase in medical expenses, up $520,000. Net occupancy expense was $13.2 million, up $1.1 million, related to a $643,000 increase in lease expense, due mainly to five new financial centers opened since last year's third quarter. Furniture and equipment expense was $14.2 million, up $1.1 million from the same quarter last year, primarily due to increases in software maintenance and services contracts.
  • For the third quarter of 2012, the provision for loan losses was $2.5 million, compared to net charge-offs of $2.7 million. For the third quarter of 2011, the provision for loan losses was $9.0 million, compared to net charge-offs of $16.3 million. The allowance for loan losses as a percentage of total loans was 1.20 percent at September 30, 2012, compared to 1.43 percent at the end of the third quarter last year and 1.24 percent at the end of the second quarter of 2012. Non-performing assets were $124.9 million at the end of the third quarter, compared to $112.1 million last quarter-end and $139.3 million at last year's third quarter.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 24, 2012, 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 p.m. CT until midnight Sunday, October 28, 2012 at 855-859-2056 with

Conference ID # of 37619280. 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 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 $21.8 billion in assets at September 30, 2012. 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, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost has helped clients with their financial needs during three centuries. Additional information is available at frostbank.com.

Forward-Looking Statements and Factors that Could Affect Future Results|

Certain statements contained in this Earnings Release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Corporation's future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Cullen/Frost or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.|

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

  • Local, regional, national and international economic conditions and the impact they may have on the Corporation and its customers and the Corporation's assessment of that impact.
  • Volatility and disruption in national and international financial markets.
  • Government intervention in the U.S. financial system.
  • Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
  • Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.
  • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.
  • Inflation, interest rate, securities market and monetary fluctuations.
  • The effects of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Corporation and its subsidiaries must comply.
  • The soundness of other financial institutions.
  • Political instability.
  • Impairment of the Corporation's goodwill or other intangible assets.
  • Acts of God or of war or terrorism.
  • The timely development and acceptance of new products and services and perceived overall value of these products and services by users.
  • Changes in consumer spending, borrowings and savings habits.
  • Changes in the financial performance and/or condition of the Corporation's borrowers.
  • Technological changes.
  • Acquisitions and integration of acquired businesses.
  • The ability to increase market share and control expenses.
  • The Corporation's ability to attract and retain qualified employees.
  • Changes in the competitive environment in the Corporation's markets and among banking organizations and other financial service providers.
  • The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
  • Changes in the reliability of the Corporation's vendors, internal control systems or information systems.
  • Changes in the Corporation's liquidity position.
  • Changes in the Corporation's organization, compensation and benefit plans.
  • The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.
  • Greater than expected costs or difficulties related to the integration of new products and lines of business.
  • The Corporation's success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Greg Parker
Investor Relations
210/220-5632

or

Renee Sabel
Media Relations
210/220-5416


Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

 



2012


2011



3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


CONDENSED INCOME STATEMENTS
















Net interest income

$

151,532


$

149,217


$

149,707


$

150,323


$

145,361


Net interest income(1)


167,341



163,972



164,707



165,340



160,579


Provision for loan losses


2,500



2,355



1,100



--



9,010


Non-interest income:
















           Trust and investment management fees


20,843



21,279



20,652



18,861



19,652


           Service charges on deposit accounts


20,797



20,639



20,794



21,475



22,072


           Insurance commissions and fees


9,964



9,171



12,377



7,450



9,569


           Interchange and debit card transaction fees


4,194



4,292



4,117



4,166



8,719


           Other charges, commissions and fees


7,265



7,825



7,350



7,125



6,572


           Net gain (loss) on securities transactions


--



370



(491)



--



6,409


           Other


8,095



6,187



7,180



8,583



6,224


















           Total non-interest income


71,158



69,763



71,979



67,660



79,217


















Non-interest expense:
















           Salaries and wages


64,984



62,624



63,702



66,126



61,697


           Employee benefits


14,019



14,048



16,701



12,574



12,004


           Net occupancy


13,193



12,213



11,797



11,413



12,080


           Furniture and equipment


14,193



13,734



13,420



13,454



13,106


           Deposit insurance


2,593



2,838



2,497



2,773



2,583


           Intangible amortization


973



994



1,011



1,052



1,108


           Other


34,495



36,085



32,912



36,441



34,829


















           Total non-interest expense


144,450



142,536



142,040



143,833



137,407


















        Income before income taxes


75,740



74,089



78,546



74,150



78,161


        Income taxes


17,071



16,027



17,513



18,736



23,654


















        Net income

$

58,669


$

58,062


$

61,033


$

55,414


$

54,507


































PER SHARE DATA

















Net income – basic

$

0.95


$

0.94


$

0.99


$

0.90


$

0.89


Net income - diluted


0.95



0.94



0.99



0.90



0.89


Cash dividends


0.48



0.48



0.46



0.46



0.46


Book value at end of quarter


39.35



38.48



37.81



37.27



36.69


















OUTSTANDING SHARES

















Period-end shares


61,462



61,404



61,373



61,264



61,245


Weighted-average shares - basic


61,317



61,291



61,201



61,154



61,137


Dilutive effect of stock compensation


369



344



332



54



102


Weighted-average shares - diluted


61,686



61,635



61,533



61,208



61,239


















SELECTED ANNUALIZED RATIOS

















Return on average assets


1.11

%


1.14

%


1.23

%


1.12

%


1.15

%

Return on average equity


9.75



9.95



10.59



9.74



9.79


Net interest income to average earning assets(1)


3.54



3.61



3.73



3.76



3.81


















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

 


Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)




2012


2011




3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr



BALANCE SHEET SUMMARY


































          ($ in millions)

















Average Balance:

















           Loans

$

8,635


$

8,268


$

8,050


$

7,975


$

8,036



           Earning assets


19,218



18,605



18,087



17,806



17,053



           Total assets


21,010



20,401



19,920



19,579



18,825



           Non-interest-bearing demand deposits


7,161



6,829



6,399



6,325



5,905



           Interest-bearing deposits


10,289



10,053



9,998



9,804



9,524



           Total deposits


17,450



16,882



16,397



16,129



15,429



           Shareholders' equity


2,393



2,347



2,317



2,258



2,209




















Period-End Balance:

















           Loans

$

8,811


$

8,490


$

8,127


$

7,995


$

8,090



           Earning assets


20,024



19,033



18,583



18,498



17,728



           Goodwill and intangible assets


545



546



547



539



540



           Total assets


21,848



20,866



20,417



20,317



19,490



           Total deposits


18,245



17,277



16,909



16,757



16,064



           Shareholders' equity


2,419



2,363



2,321



2,284



2,247



           Adjusted shareholders' equity(1)


2,144



2,110



2,076



2,036



2,003




















ASSET QUALITY



































          ($ in thousands)

















Allowance for loan losses

$

105,401


$

105,648


$

107,181


$

110,147


$

115,433



           as a percentage of period-end loans


1.20

%


1.24

%


1.32

%


1.38

%


1.43

%



















Net charge-offs

$

2,747


$

3,888


$

4,066


$

5,286


$

16,318



           Annualized as a percentage of average loans


0.13

%


0.19

%


0.20

%


0.26

%


0.81

%




































Non-performing assets:

















           Non-accrual loans

$

106,407


$

92,255


$

97,870


$

94,338


$

110,178



           Foreclosed assets


18,524



19,818



22,676



26,608



29,114




















             Total

$

124,931


$

112,073


$

120,546


$

120,946


$

139,292



           As a percentage of:

















             Total loans and foreclosed assets


1.41

%


1.32

%


1.48

%


1.51

%


1.72

%


             Total assets


0.57



0.54



0.59



0.60



0.71




















CONSOLIDATED CAPITAL RATIOS


































Tier 1 Risk-Based Capital Ratio


14.10

%


14.07

%


14.47

%


14.38

%


14.59

%


Total Risk-Based Capital Ratio


15.62



15.61



16.10



16.24



16.57



Leverage Ratio


8.59



8.65



8.68



8.66



8.82



Equity to Assets Ratio (period-end)


11.07



11.32



11.37



11.24



11.53



Equity to Assets Ratio (average)


11.39



11.51



11.63



11.53



11.73



 

 (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,




2012



2011


    CONDENSED INCOME STATEMENTS





















    Net interest income

$

450,456


$

431,453


    Net interest income(1)


496,020



476,725


    Provision for loan losses


5,955



27,445


    Non-interest income







        Trust and investment management fees


62,774



59,436


        Service charges on deposit accounts


62,230



64,650


        Insurance commissions and fees


31,512



27,971


        Interchange and debit card transaction fees


12,603



25,459


        Other charges, commissions and fees


22,440



20,625


        Net gain (loss) on securities transactions


(121)



6,414


        Other


21,462



17,787



        Total non-interest income


212,900



222,342









    Non-interest expense







        Salaries and wages


191,310



185,902


        Employee benefits


44,768



40,365


        Net occupancy


37,203



35,555


        Furniture and equipment


41,347



38,015


        Deposit insurance


7,928



9,941


        Intangible amortization


2,978



3,335


        Other


103,492



101,152



        Total non-interest expense


429,026



414,265









    Income before income taxes


228,375



212,085


    Income taxes


50,611



49,964









    Net income

$

177,764


$

162,121




000



















    PER SHARE DATA














    Net income – basic

$

2.89


$

2.64


    Net income – diluted


2.88



2.64


    Cash dividends


1.42



1.37


    Book value at end of period


39.35



36.69









    OUTSTANDING SHARES














    Period-end shares


61,462



61,245


    Weighted-average shares – basic


61,270



61,083


    Dilutive effect of stock compensation


347



199


    Weighted-average shares – diluted


61,617



61,282









    SELECTED ANNUALIZED RATIOS














    Return on average assets


1.16

%


1.19

%

    Return on average equity


10.09



10.11


    Net interest income to average earning assets(1) 


3.63



3.93


 

(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,



2012



2011


BALANCE SHEET SUMMARY





















      ($ in millions)







Average Balance:







      Loans

$

8,319


$

8,066


      Earning assets


18,639



16,415


      Total assets


20,446



18,229


      Non-interest-bearing demand deposits


6,798



5,541


      Interest-bearing deposits


10,114



9,376


      Total deposits


16,912



14,917


      Shareholders' equity


2,352



2,143









Period-End Balance:







      Loans

$

8,811


$

8,090


      Earning assets


20,024



17,728


      Goodwill and intangible assets


545



540


      Total assets


21,848



19,490


      Total deposits


18,245



16,064


      Shareholders' equity


2,419



2,247


      Adjusted shareholders' equity(1)


2,144



2,003









ASSET QUALITY








      ($ in thousands)







Allowance for loan losses

$

105,401


$

115,433


      As a percentage of period-end loans


1.20

%


1.43

%








Net charge-offs:

$

10,701


$

38,328


      Annualized as a percentage of average loans


0.17

%


0.64

%








Non-performing assets:







      Non-accrual loans

$

106,407


$

110,178


      Foreclosed assets


18,524



29,114



          Total

$

124,931


$

139,292


    As a percentage of:







          Total loans and foreclosed assets


1.41

%


1.72

%

          Total assets


0.57



0.71









CONSOLIDATED CAPITAL RATIOS








Tier 1 Risk-Based Capital Ratio


14.10

%


14.59

%

Total Risk-Based Capital Ratio


15.62



16.57


Leverage Ratio


8.59



8.82


Equity to Assets Ratio (period-end)


11.07



11.53


Equity to Assets Ratio (average)


11.51



11.76


 

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

 

 

     

SOURCE Cullen/Frost Bankers, Inc.

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