Cullen/Frost Reports Third Quarter Results

- Average deposits rise 11.5 percent
- Average loans increase 7.1 percent
- Trust and investment fees up 8.9 percent
- Frost to enter Permian Basin market

PR Newswire

SAN ANTONIO, Oct. 30, 2013 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (CFR) today reported third quarter 2013 results, as the Texas financial services leader continues to post steady results in an uncertain economic environment.

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

Cullen/Frost's net income available to common shareholders for the third quarter of 2013 was $58.4 million, compared to third quarter 2012 earnings of $58.7 million. On a per-share basis, net income was $0.96 per diluted common share, compared to $0.95 per diluted common share reported a year earlier. Returns on average assets and common equity were 1.01 percent and 10.07 percent respectively, compared to 1.11 percent and 9.75 percent for the same period a year earlier.

For the third quarter of 2013, net interest income on a tax-equivalent basis increased 7.0 percent to $179.1 million, compared to the $167.3 million reported for the same quarter of 2012. Average deposits for the quarter were $19.5 billion, an increase of $2.0 billion, or 11.5 percent, over the $17.5 billion reported for the third quarter of 2012. For the third quarter of 2013, average loans were $9.3 billion, an increase of 7.1 percent compared to the $8.6 billion reported for the third quarter a year earlier.

The provision for loan losses was $5.1 million, compared to $2.5 million reported a year earlier, while the allowance for loan losses as a percentage of loans decreased to 1.00 percent from 1.20 percent for the same quarter of 2012.

"Cullen/Frost continues to generate steady results in an extended low-interest rate environment and an economy that seems to be waiting on clarity," said CEO Dick Evans. "I was pleased to see double-digit deposit growth and strong increases in net-interest income and trust and investment management fees. During the third quarter, we announced a merger agreement with WNB Bancshares, Inc. When this merger is complete, it will bring Frost into Midland and Odessa for the first time. The Permian Basin is a significant driver of the state's strong oil and gas business, and we are delighted to expand our franchise into this dynamic region.

"Average loans increased more than 7 percent despite a highly competitive lending environment and the ongoing uncertainty in Washington that is causing concern and caution among business owners," Evans said. "Our focused calling effort continues to expand our customer base, and our relationship managers are working harder than ever to grow loans. Our credit quality is manageable, capital levels remain strong, and we have plenty of liquidity to fund loans.

"Since 2007, before the financial crisis began, year-to-date average deposits at Frost have risen $8.8 billion, a reflection of our efforts to build and extend relationships based on our well-accepted value proposition. The greater liquidity continues to pressure the net interest margin in this challenging rate environment.

"We are fortunate to be located in Texas, where job growth consistently outpaces the national average. The dynamic Texas markets we serve performed well during the recession and are among the strongest in the U.S.," said Evans. 

"It has been five years since the 2008 financial crisis put the U.S. and global economy on the brink of collapse. Decisions we made during that period paved the way for our good performance today. We have consistently paid a shareholder dividend, and have increased the dividend annually for the past 19 years. 

"As always, our exceptional and dedicated employees bring the Frost culture to life every day, taking care of customers, helping our company grow and making our success possible," Evans said.

For the first nine months of 2013, net income available to common shareholders was $170.6 million compared to $177.8 million reported for the same period of 2012. Year-to-date earnings were $2.81 per diluted common share, compared to $2.88 per diluted common share for the same period in 2012. Returns on average assets and average equity for the first nine months of 2013 were 1.02 percent and 9.83 percent respectively, compared to 1.16 percent and 10.09 percent for the same period a year earlier.

Noted financial data for the third quarter of 2013 follows:

  • Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the third quarter of 2013 were 14.53 percent and 15.68 percent, respectively, and continue to be in excess of well capitalized levels. The tangible common equity ratio was 7.81 percent at the end of the third quarter of 2013, compared to 8.80 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 preferred stock, 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 2013 totaled $179.1 million, an increase of 7.0 percent, compared to $167.3 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 3.38 percent for the third quarter of 2013, compared to 3.54 percent for the third quarter of 2012, and 3.43 percent for the second quarter of 2013.
  • Non-interest income for the third quarter of 2013 totaled $74.0 million, a 4.0 percent increase compared to $71.2 million reported for the third quarter of 2012. Trust and investment management fees were $22.7 million, up $1.8 million, or 8.9 percent, from the third quarter of 2012, with approximately $1.2 million of the increase related to investment fees. Insurance commissions and fees were $10.4 million, compared to the $10.0 million reported the third quarter a year earlier. Other charges, commissions and fees were up $2.0 million to $9.3 million, with approximately half of the increase related to higher annuity income. Other income was down $1.5 million from last year's third quarter and was impacted by decreases in income from securities trading and customer derivative transactions.
  • Non-interest expense was $151.8 million for the quarter, up $7.4 million compared to the $144.5 million reported for the third quarter a year earlier. Total salaries rose $3.5 million, or 5.4 percent, to $68.5 million, and were impacted by an increase in the number of employees, combined with normal annual merit and market increases. Employee benefits rose $970,000, primarily related to increases in medical insurance expense and payroll taxes. Other expense was $36.9 million, up 6.9 percent, or $2.4 million, from $34.5 million for the third quarter last year. This increase was impacted by higher professional services expense, including $853,000 of transaction-related expenses associated with the pending acquisition of WNB Bancshares. Inc.
  • For the third quarter of 2013, the provision for loan losses was $5.1 million, compared to net charge-offs of $5.4 million. For the third quarter of 2012, the provision for loan losses was $2.5 million, compared to net charge-offs of $2.7 million. The allowance for loan losses as a percentage of total loans was 1.00 percent at September 30, 2013, compared to 1.20 percent at the end of the third quarter last year and 1.01 percent at the end of the second quarter of 2013. Non-performing assets were $98.1 million at the end of the third quarter, compared to $101.7 million last quarter-end and $124.9 million at last year's third quarter.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 30, 2013, 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, November 3, 2013 at 855-859-2056 with Conference ID # of 86218467. 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. (CFR) is a financial holding company, headquartered in San Antonio, with $23.5 billion in assets at September 30, 2013. 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)





2013


2012



3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


CONDENSED INCOME STATEMENTS











Net interest income

$

155,353


$

153,181


$

152,813


$

154,405


$

151,532


Net interest income(1)


179,121



173,966



172,802



172,156



167,341


Provision for loan losses


5,108



3,575



6,000



4,125



2,500


Non-interest income:
















    Trust and investment management fees


22,692



22,561



21,885



20,543



20,843


    Service charges on deposit accounts


20,742



20,044



20,044



21,162



20,797


    Insurance commissions and fees


10,371



9,266



13,070



8,436



9,964


    Interchange and debit card transaction fees


4,376



4,268



4,011



4,330



4,194


    Other charges, commissions and fees


9,266



8,578



7,755



7,740



7,265


    Net gain (loss) on securities transactions


(14)



6



5



4,435



--


    Other


6,558



7,786



11,010



9,241



8,095


    Total non-interest income


73,991



72,509



77,780



75,887



71,158


















Non-interest expense:
















    Salaries and wages


68,524



66,502



66,465



67,442



64,984


    Employee benefits


14,989



14,629



17,991



12,867



14,019


    Net occupancy


13,094



12,645



11,979



11,772



13,193


    Furniture and equipment


14,629



14,986



14,185



13,932



14,193


    Deposit insurance


2,921



2,835



2,889



3,159



2,593


    Intangible amortization


780



788



820



918



973


    Other


36,886



37,373



41,485



35,977



34,495


    Total non-interest expense


151,823



149,758



155,814



146,067



144,450


Income before income taxes


72,413



72,357



68,779



80,100



75,740


Income taxes


11,969



12,694



13,591



19,912



17,071


Net income


60,444



59,663



55,188



60,188



58,669


Preferred stock dividends


2,015



2,688



--



--



--


Net income available to common shareholders

$

58,429


$

56,975


$

55,188


$

60,188


$

58,669

































PER COMMON SHARE DATA
















Earning per common share – basic

$

0.96


$

0.95


$

0.91


$

0.98


$

0.95


Earning per common share- diluted


0.96



0.94



0.91



0.97



0.95


Cash dividends per common share


0.50



0.50



0.48



0.48



0.48


Book value per common share at end of quarter


38.63



37.91



38.33



39.32



39.35


















OUTSTANDING COMMON SHARES
















Period-end common shares


60,492



60,236



59,970



61,479



61,462


Weighted-average common shares - basic


60,340



60,011



60,593



61,382



61,317


Dilutive effect of stock compensation


866



664



581



339



369


Weighted-average common shares - diluted


61,206



60,675



61,174



61,721



61,686


















SELECTED ANNUALIZED RATIOS
















Return on average assets


1.01

%


1.03

%


1.01

%


1.09

%


1.11

%

Return on average common equity


10.07



9.93



9.49



9.84



9.75


Net interest income to average earning assets(1)


3.38



3.43



3.45



3.48



3.54



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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2013


2012



3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


BALANCE SHEET SUMMARY
















    ($ in millions)
















Average Balance:
















    Loans

$

9,251


$

9,207


$

9,109


$

8,868


$

8,635


    Earning assets


21,199



20,468



20,415



20,138



19,218


    Total assets


22,926



22,232



22,213



21,964



21,010


    Non-interest-bearing demand deposits


7,738



7,452



7,431



7,690



7,161


    Interest-bearing deposits


11,722



11,319



11,292



10,736



10,289


    Total deposits


19,460



18,771



18,723



18,426



17,450


    Shareholders' equity


2,447



2,445



2,431



2,433



2,393


















Period-End Balance:
















    Loans

$

9,306


$

9,233


$

9,162


$

9,224


$

8,811


    Earning assets


21,688



20,755



20,787



21,148



20,024


    Goodwill and intangible assets


541



542



543



544



545


    Total assets


23,530



22,572



22,498



23,124



21,848


    Total deposits


19,979



19,078



19,044



19,497



18,245


    Shareholders' equity


2,481



2,428



2,443



2,417



2,419


    Adjusted shareholders' equity(1)


2,335



2,272



2,229



2,179



2,144


















ASSET QUALITY
















    ($ in thousands)
















Allowance for loan losses:

$

93,147


$

93,400


$

93,589


$

104,453


$

105,401


    As a percentage of period-end loans


1.00

%


1.01

%


1.02

%


1.13

%


1.20

%

















Net charge-offs:

$

5,361


$

3,764


$

16,864


$

5,073


$

2,747


    Annualized as a percentage of average loans


0.23

%


0.16

%


0.75

%


0.23

%


0.13

%

















Non-performing assets:
















    Non-accrual loans

$

79,081


$

86,714


$

91,644


$

89,744


$

106,407


    Restructured loans


8,243



1,900



1,613



--



--


    Foreclosed assets


10,748



13,047



12,630



15,502



18,524


      Total

$

98,072


$

101,661


$

105,887


$

105,246


$

124,931


    As a percentage of:
















      Total loans and foreclosed assets


1.05

%


1.10

%


1.15

%


1.14

%


1.41

%

      Total assets


0.42



0.45



0.47



0.46



0.57


















CONSOLIDATED CAPITAL RATIOS
















Tier 1 Risk-Based Capital Ratio


14.53

%


14.22

%


14.23

%


13.68

%


14.10

%

Total Risk-Based Capital Ratio


15.68



15.39



15.44



15.11



15.62


Leverage Ratio


8.61



8.60



8.42



8.28



8.59


Equity to Assets Ratio (period-end)


10.54



10.76



10.86



10.45



11.07


Equity to Assets Ratio (average)


10.67



11.00



10.94



11.08



11.39



 (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,



2013


2012


CONDENSED INCOME STATEMENTS














Net interest income

$

461,347


$

450,456


Net interest income(1)


525,890



496,020


Provision for loan losses


14,683



5,955


Non-interest income:







    Trust and investment management fees


67,138



62,774


    Service charges on deposit accounts


60,830



62,230


    Insurance commissions and fees


32,707



31,512


    Interchange and debit card transaction fees


12,655



12,603


    Other charges, commissions and fees


25,599



22,440


    Net gain (loss) on securities transactions


(3)



(121)


    Other


25,354



21,462


    Total non-interest income


224,280



212,900









Non-interest expense:







    Salaries and wages


201,491



191,310


    Employee benefits


47,609



44,768


    Net occupancy


37,718



37,203


    Furniture and equipment


43,800



41,347


    Deposit insurance


8,645



7,928


    Intangible amortization


2,388



2,978


    Other


115,744



103,492


    Total non-interest expense


457,395



429,026


Income before income taxes


213,549



228,375


Income taxes


38,254



50,611


Net income


175,295



177,764


Preferred stock dividends


4,703



--


Net income available to common shareholders

$

170,592


$

177,764









PER COMMON SHARE DATA







Earning per common share - basic

$

2.82


$

2.89


Earning per common share – diluted


2.81



2.88


Cash dividends per common share


1.48



1.42


Book value per common share at end of period


38.63



39.35









OUTSTANDING COMMON SHARES







Period-end common shares


60,492



61,462


Weighted-average common shares – basic


60,313



61,270


Dilutive effect of stock compensation


724



347


Weighted-average common shares – diluted


61,037



61,617









SELECTED ANNUALIZED RATIOS







Return on average assets


1.02

%


1.16

%

Return on average common equity


9.83



10.09


Net interest income to average earning assets(1)


3.42



3.63



            (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,




2013


2012











BALANCE SHEET SUMMARY








    ($ in millions)








Average Balance:








    Loans


$

9,190


$

8,319


    Earning assets



20,697



18,639


    Total assets



22,459



20,446


    Non-interest-bearing demand deposits



7,541



6,798


    Interest-bearing deposits



11,446



10,114


    Total deposits



18,987



16,912


    Shareholders' equity



2,441



2,352










Period-End Balance:








    Loans


$

9,306


$

8,811


    Earning assets



21,688



20,024


    Goodwill and intangible assets



541



545


    Total assets



23,530



21,848


    Total deposits



19,979



18,245


    Shareholders' equity



2,481



2,419


    Adjusted shareholders' equity(1)



2,335



2,144










ASSET QUALITY








    ($ in thousands)








Allowance for loan losses:


$

93,147


$

105,401


As a percentage of period-end loans



1.00

%


1.20

%









Net charge-offs:


$

25,989


$

10,701


    Annualized as a percentage of average loans



0.38

%


0.17

%









Non-performing assets:








    Non-accrual loans


$

79,081


$

106,407


    Restructured loans



8,243



--


    Foreclosed assets



10,748



18,524


      Total


$

98,072


$

124,931


As a percentage of:








      Total loans and foreclosed assets



1.05

%


1.41

%

      Total assets



0.42



0.57










CONSOLIDATED CAPITAL RATIOS








Tier 1 Risk-Based Capital Ratio



14.53

%


14.10

%

Total Risk-Based Capital Ratio



15.68



15.62


Leverage Ratio



8.61



8.59


Equity to Assets Ratio (period-end)



10.54



11.07


Equity to Assets Ratio (average)



10.87



11.51



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

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