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Cullen/Frost Reports Second Quarter Results

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Cullen/Frost Reports Second Quarter Results

Board declares third quarter dividend on common and preferred stock

PR Newswire

SAN ANTONIO, July 26, 2018 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported second quarter 2018 results. Net income available to common shareholders for the second quarter of 2018 was $109.3 million, compared to $83.5 million in the second quarter of 2017, representing an increase of 31 percent. On a per-share basis, net income available to common shareholders for the second quarter of 2018 was $1.68 per diluted common share, compared to $1.29 per diluted common share reported a year earlier. Returns on average assets and average common equity were 1.43 percent and 14.03 percent, respectively, for the second quarter of 2018 compared to 1.11 percent and 11.07 percent, respectively, for the same period a year earlier.

For the second quarter of 2018 net interest income was $237.3 million, up 10.5 percent compared to the same quarter in 2017. Average loans for the second quarter of 2018 increased $1.3 billion or 10.3 percent, to $13.5 billion, from the $12.3 billion reported for the second quarter a year earlier. Average deposits for the quarter were $26.1 billion compared to $25.7 billion reported for last year's second quarter, an increase of 1.6 percent.

"Our strong second-quarter earnings are the result of Frost bankers executing our strategy over the past several quarters," said Cullen/Frost Chairman and CEO Phil Green. "Our commitment to sustainable, organic growth and providing an attractive value proposition has resonated with our customers and prospects. The Texas economy continued to grow robustly in the second quarter, with year-to-date job growth of 3.6 percent through May, and Frost bankers in all our regions continued to deliver great experiences for our customers."

For the first six months of 2018, net income available to common shareholders was $213.8 million, up 28 percent compared to $166.5 million for the first six months of 2017. Diluted EPS available to common shareholders for the first six months was $3.30 compared to $2.57 in the year-earlier period. Returns on average assets and average common equity for the first six months of 2018 were 1.39 percent and 13.83 percent, respectively, compared to 1.11 percent and 11.31 percent, respectively, for the same period in 2017.

Noted financial data for the second quarter of 2018 follows:

  • The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios at the end of the second quarter of 2018 were 12.69 percent, 13.40 percent and 15.29 percent, respectively, and continue to be in excess of well-capitalized levels. Current capital ratios exceed Basel III fully phased-in requirements.
  • Net interest income of $237.3 million represented a 10.5 percent increase over the prior year period. Net interest margin was 3.64 percent for the second quarter of 2018, a 12 basis point increase over the first quarter of 2018 net interest margin of 3.52 percent. This compares to 3.70 percent in the second quarter of 2017 based on a 35 percent tax rate, and 3.38 percent had the current 21 percent tax rate been in place.
  • Non-interest income for the second quarter of 2018 totaled $85.1 million, an increase of $4.0 million, or 4.9 percent, compared to $81.1 million reported for the second quarter of 2017. Other non-interest income totaled $11.6 million, increasing $4.7 million compared to the second quarter of 2017. This increase was primarily related to recoveries of prior write-offs of $1.7 million, distributions on private equity investments of $1.2 million, and gains on the sale of properties of $885,000. Trust and investment management fees were $29.1 million, up $1.4 million, or 5.0 percent, from the second quarter of 2017. The increase was primarily driven by higher trust investment fees and oil and gas fees. Insurance commissions and fees were $10.6 million, up $828,000 or 8.5 percent, compared to the $9.7 million reported in the second quarter a year earlier.
  • Non-interest expense was $188.9 million for the second quarter of 2018, up $857,000 or 0.5 percent compared to the $188.1 million reported for the second quarter a year earlier. Total salaries rose $4.2 million, or 5.2 percent, to $85.2 million, and were impacted by an increase in the number of employees and by normal annual merit and market increases, as well as an increase in incentive compensation. Technology, furniture and equipment expense for the second quarter increased by $2.2 million, or 12.1 percent, from the second quarter of 2017. The increase was primarily driven by increases in software maintenance, software amortization, and service contracts expense. Other non-interest expense was $40.9 million in the second quarter of 2018, a decrease of $4.5 million, or 10.0 percent, from the second quarter a year earlier. A decrease in fraud losses (down $2.2 million) and lower advertising/promotions expense (down $1.9 million) were partly offset by costs related to our previously mentioned data security incident of $937,000, settlement costs of $879,000, and a $500,000 contribution to our charitable foundation.
  • For the second quarter of 2018, the provision for loan losses was $8.3 million, while net charge-offs totaled $7.9 million. This compares with a provision for loan losses of $6.9 million and $12.4 million in net charge-offs for the first quarter of 2018, and a provision for loan losses of $8.4 million and $11.9 million in net charge-offs in the second quarter of 2017. The allowance for loan losses as a percentage of total loans was 1.10 percent at June 30, 2018, compared to 1.12 percent at the end of the first quarter of 2018 and 1.20 percent at the end of the second quarter of 2017. Non-performing assets were $122.8 million at the end of the second quarter of 2018, compared to $136.6 million at the end of the first quarter of 2018 and $90.2 million at the end of the second quarter of 2017.
  • The interchange and debit card transaction fees category of non-interest income and the other expense category were each impacted by our adoption at the beginning of 2018 of a new accounting standard that affects how we report revenues and network costs associated with ATM and debit card network transactions. Prior to 2018, we recognized such revenues and network costs on a gross basis. Beginning in 2018, ATM and debit card transaction fees are reported net of related network costs. For the three months ended June 30, 2018, gross interchange and debit card transaction fees totaled $6.5 million while related network costs totaled $3.0 million. On a net basis, we reported $3.4 million as interchange and debit card transaction fees. See note 2 on page 6 of this release, and our forthcoming form 10-Q for more information on the effects of this and other accounting changes.

The Cullen/Frost board declared a third quarter cash dividend of $0.67 per common share, payable on September 14, 2018, to shareholders of record on August 31, 2018. The board of directors also declared a cash dividend of $0.3359375 per share of the Noncumulative Perpetual Preferred Stock, Series A, which trades on the NYSE under the symbol "CFR PrA." The Series A Preferred Stock dividend is payable on September 17, 2018, to shareholders of record on August 31, 2018.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, July 26, 2018, at 10 a.m. Central Time (CT) to discuss the results for the quarter. The media and other interested parties are invited to access the call in a "listen only" mode via webcast on our investor relations website linked below, or by phone at 1-800-944-6430.

Digital playback of the conference call will be available after 2 p.m. CT until midnight Sunday, July 29, 2018 at 855-859-2056 with Conference ID # of 6647169. The call will also be available by webcast at the URL listed below after 2 p.m. CT on the day of the call.

Cullen/Frost investor relations website: www.frostbank.com/investor-relations/

Cullen/Frost Bankers, Inc. (NYSE:CFR) is a financial holding company, headquartered in San Antonio, with $30.7 billion in assets at June 30, 2018. One of the 50 largest U.S. banks, Frost provides a wide range of banking, investments and insurance services to businesses and individuals across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost has helped clients with their financial needs during three centuries. Additional information is available at www.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 our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval 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, services or operations; (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 us and our customers and our assessment of that impact.
  • Volatility and disruption in national and international financial and commodity 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 effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply.
  • The soundness of other financial institutions.
  • Political instability.
  • Impairment of our 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 our borrowers.
  • Technological changes.
  • The cost and effects of failure, interruption, or breach of security of our systems.
  • Acquisitions and integration of acquired businesses.
  • Our ability to increase market share and control expenses.
  • Our ability to attract and retain qualified employees.
  • Changes in the competitive environment in our 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 our vendors, internal control systems or information systems.
  • Changes in our liquidity position.
  • Changes in our organization, compensation and benefit plans.
  • The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
  • Greater than expected costs or difficulties related to the integration of new products and lines of business.
  • Our 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. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.


Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)












2018


2017


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

237,270



$

229,748



$

223,914



$

219,211



$

214,788


Net interest income (1)

260,531



252,536



268,611



264,406



258,020


Provision for loan losses

8,251



6,945



8,102



10,980



8,426


Non-interest income:










Trust and investment management fees

29,121



29,587



28,985



27,493



27,727


Service charges on deposit accounts

21,142



20,843



21,248



20,967



21,198


Insurance commissions and fees

10,556



15,980



11,728



10,892



9,728


Interchange and debit card transaction fees (2)

3,446



3,158



6,082



5,884



5,692


Other charges, commissions and fees

9,273



9,007



9,948



10,493



9,898


Net gain (loss) on securities transactions

(60)



(19)



(24)



(4,867)



(50)


Other

11,588



12,889



12,108



10,753



6,887


Total non-interest income (2)

85,066



91,445



90,075



81,615



81,080












Non-interest expense:










Salaries and wages

85,204



86,683



89,173



84,388



80,995


Employee benefits

17,907



21,995



17,022



17,730



18,198


Net occupancy

19,455



19,740



18,190



19,391



19,153


Technology, furniture and equipment

20,459



19,679



19,352



18,743



18,250


Deposit insurance

4,605



4,879



4,781



4,862



5,570


Intangible amortization

369



388



402



405



438


Other (2)

40,909



43,247



47,360



41,304



45,447


Total non-interest expense (2)

188,908



196,611



196,280



186,823



188,051


Income before income taxes

125,177



117,637



109,607



103,023



99,391


Income taxes

13,836



11,157



9,083



9,892



13,838


Net income

111,341



106,480



100,524



93,131



85,553


Preferred stock dividends

2,015



2,016



2,016



2,016



2,015


Net income available to common shareholders

$

109,326



$

104,464



$

98,508



$

91,115



$

83,538












PER COMMON SHARE DATA










Earnings per common share - basic

$

1.70



$

1.63



$

1.54



$

1.43



$

1.30


Earnings per common share - diluted

1.68



1.61



1.53



1.41



1.29


Cash dividends per common share

0.67



0.57



0.57



0.57



0.57


Book value per common share at end of quarter

49.53



48.58



49.68



48.24



47.95












OUTSTANDING COMMON SHARES










Period-end common shares

63,904



63,794



63,476



63,114



64,226


Weighted-average common shares - basic

63,837



63,649



63,314



63,667



64,061


Dilutive effect of stock compensation

1,062



1,013



981



898



974


Weighted-average common shares - diluted

64,899



64,662



64,295



64,565



65,035












SELECTED ANNUALIZED RATIOS










Return on average assets

1.43

%


1.36

%


1.26

%


1.19

%


1.11

%

Return on average common equity

14.03



13.62



12.66



11.71



11.07


Net interest income to average earning assets (1)

3.64



3.52



3.70



3.73



3.70













(1)

Taxable-equivalent basis assuming a 21% tax rate for 2018 and 35% tax rate for 2017.

(2)

Beginning in 2018, in connection with the adoption of a new accounting standard, interchange and debit card transaction fees are reported net of related network costs. Prior to 2018, such network costs were reported separately as a component of other non-interest expense. For comparative purposes, interchange and debit card transaction fees reported net of related network costs would have totaled $2,801, $2,904 and $3,233 in the second, third and fourth quarters of 2017, respectively.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2018


2017


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

$

13,537



$

13,295



$

12,879



$

12,587



$

12,275


Earning assets

28,647



29,002



29,012



28,342



28,064


Total assets

30,758



31,131



31,107



30,390



30,124


Non-interest-bearing demand deposits

10,629



10,972



11,098



10,756



10,694


Interest-bearing deposits

15,440



15,457



15,286



14,994



14,967


Total deposits

26,069



26,429



26,384



25,750



25,661


Shareholders' equity

3,270



3,255



3,232



3,232



3,172












Period-End Balance:










Loans

$

13,712



$

13,364



$

13,146



$

12,706



$

12,512


Earning assets

28,494



29,414



29,595



28,941



28,084


Goodwill and intangible assets

659



660



660



660



661


Total assets

30,687



31,459



31,748



30,990



30,206


Total deposits

25,996



26,678



26,872



26,403



25,614


Shareholders' equity

3,310



3,243



3,298



3,189



3,224


Adjusted shareholders' equity (1)

3,373



3,297



3,218



3,131



3,173












ASSET QUALITY










($ in thousands)










Allowance for loan losses:

$

150,226



$

149,885



$

155,364



$

154,303



$

149,558


As a percentage of period-end loans

1.10

%


1.12

%


1.18

%


1.21

%


1.20

%











Net charge-offs:

$

7,910



$

12,424



$

7,041



$

6,235



$

11,924


Annualized as a percentage of average loans

0.23

%


0.38

%


0.22

%


0.20

%


0.39

%











Non-performing assets:










Non-accrual loans

$

119,181



$

123,152



$

150,314



$

143,104



$

86,413


Restructured loans



12,058



4,862



4,815



1,696


Foreclosed assets

3,643



1,371



2,116



2,094



2,041


Total

$

122,824



$

136,581



$

157,292



$

150,013



$

90,150


As a percentage of:










Total loans and foreclosed assets

0.90

%


1.02

%


1.20

%


1.18

%


0.72

%

Total assets

0.40



0.43



0.50



0.48



0.30












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio

12.69

%


12.69

%


12.42

%


12.38

%


12.81

%

Tier 1 Risk-Based Capital Ratio

13.40



13.42



13.16



13.14



13.59


Total Risk-Based Capital Ratio

15.29



15.36



15.15



15.19



15.65


Leverage Ratio

9.02



8.62



8.46



8.39



8.61


Equity to Assets Ratio (period-end)

10.78



10.31



10.39



10.29



10.67


Equity to Assets Ratio (average)

10.63



10.46



10.39



10.63



10.53













(1)

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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)








Six Months Ended








June 30,








2018


2017

CONDENSED INCOME STATEMENTS




















Net interest income







$

467,018



$

423,297


Net interest income (1)







513,067



510,413


Provision for loan losses







15,196



16,378


Non-interest income:










Trust and investment management fees







58,708



54,197


Service charges on deposit accounts







41,985



41,967


Insurance commissions and fees







26,536



23,549


Interchange and debit card transaction fees (2)







6,604



11,266


Other charges, commissions and fees







18,280



19,490


Net gain (loss) on securities transactions







(79)



(50)


Other







24,477



14,361


Total non-interest income (2)







176,511



164,780












Non-interest expense:










Salaries and wages







171,887



163,507


Employee benefits







39,902



39,823


Net occupancy







39,195



38,390


Furniture and equipment







40,138



36,240


Deposit insurance







9,484



10,485


Intangible amortization







757



896


Other (2)







84,156



86,625


Total non-interest expense (2)







385,519



375,966


Income before income taxes







242,814



195,733


Income taxes







24,993



25,239


Net income







217,821



170,494


Preferred stock dividends







4,031



4,031


Net income available to common shareholders







$

213,790



$

166,463












PER COMMON SHARE DATA










Earnings per common share - basic







$

3.33



$

2.59


Earnings per common share - diluted







3.30



2.57


Cash dividends per common share







1.24



1.11


Book value per common share at end of quarter







49.53



47.95












OUTSTANDING COMMON SHARES










Period-end common shares







63,904



64,226


Weighted-average common shares - basic







63,743



63,901


Dilutive effect of stock compensation







1,044



988


Weighted-average common shares - diluted







64,787



64,889












SELECTED ANNUALIZED RATIOS










Return on average assets







1.39

%


1.11

%

Return on average common equity







13.83



11.31


Net interest income to average earning assets (1)







3.58



3.67



(1)

Taxable-equivalent basis assuming a 21% tax rate for 2018 and a 35% tax rate for 2017.

(2)

Beginning in 2018, in connection with the adoption of a new accounting standard, interchange and debit card transaction fees are reported net of related network costs. Prior to 2018, such network costs were reported separately as a component of other non-interest expense. For comparative purposes, interchange and debit card transaction fees reported net of related network costs would have totaled $5,152 for the six months ended June 30, 2017.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)


















As of or for the








Six Months Ended








June 30,








2018


2017

BALANCE SHEET SUMMARY ($ in millions)










Average Balance:










Loans







$

13,416



$

12,183


Earning assets







28,824



28,036


Total assets







30,940



30,135


Non-interest-bearing demand deposits







10,799



10,710


Interest-bearing deposits







15,449



15,030


Total deposits







26,248



25,740


Shareholders' equity







3,263



3,114












Period-End Balance:










Loans







$

13,712



$

12,512


Earning assets







28,494



28,084


Goodwill and intangible assets







659



661


Total assets







30,687



30,206


Total deposits







25,996



25,614


Shareholders' equity







3,310



3,224


Adjusted shareholders' equity (1)







3,373



3,173












ASSET QUALITY ($ in thousands)










Allowance for loan losses:







$

150,226



$

149,558


As a percentage of period-end loans







1.10

%


1.20

%











Net charge-offs:







$

20,334



$

19,865


Annualized as a percentage of average loans







0.31

%


0.33

%











Non-performing assets:










Non-accrual loans







$

119,181



$

86,413


Restructured loans









1,696


Foreclosed assets







3,643



2,041


Total







$

122,824



$

90,150


As a percentage of:










Total loans and foreclosed assets







0.90

%


0.72

%

Total assets







0.40



0.30












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio






12.69

%


12.81

%

Tier 1 Risk-Based Capital Ratio







13.40



13.59


Total Risk-Based Capital Ratio







15.29



15.65


Leverage Ratio







9.02



8.61


Equity to Assets Ratio (period-end)







10.78



10.67


Equity to Assets Ratio (average)







10.55



10.33



(1)

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

A.B. Mendez
Investor Relations
210.220.5234

or

Bill Day
Media Relations
210.220.5427

Cullen/Frost Bankers logo. (PRNewsFoto/Cullen/Frost Bankers)

 

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SOURCE Cullen/Frost Bankers, Inc.

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