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Cullen/Frost Reports 4th Quarter And 2018 Annual Results

Board declares first quarter dividend on common and preferred stock

SAN ANTONIO, Jan. 31, 2019 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (CFR) today reported fourth quarter and annual results for 2018. Cullen/Frost reported net income available to common shareholders for the fourth quarter of 2018 of $117.2 million, or $1.82 per diluted common share, both up 19 percent compared to fourth quarter 2017. For the fourth quarter of 2018, returns on average assets and common equity were 1.48 percent and 14.85 percent, respectively, compared to 1.26 percent and 12.66 percent for the same period in 2017.

The company also reported 2018 annual net income available to common shareholders of $446.9 million, an increase of 25.5 percent compared to 2017 earnings of $356.1 million. On a per-share basis, 2018 earnings were $6.90 per diluted common share, compared to $5.51 per diluted common share reported in 2017. For the year 2018, returns on average assets and common equity were 1.44 percent and 14.23 percent respectively, compared to 1.17 percent and 11.76 percent reported in 2017.

"Our solid fourth-quarter and full-year 2018 earnings resulted from our continued, consistent execution of our plan," said Phil Green, Cullen/Frost chairman and CEO. "We continue to realize high-single-digit loan growth while pursuing consistent, above-market, profitable organic growth across our enterprise.

"We also continue to execute on our Houston expansion efforts," Green said. "We opened the first of the 25 new financial centers planned over the next two years in the Houston area just before the end of the fourth quarter."

During the fourth quarter of 2018, average loans increased 8.3 percent to $13.9 billion, up approximately $1.1 billion compared to $12.9 billion in the fourth quarter of 2017. Average deposits rose by 0.5 percent to $26.5 billion, up $123.7 million from the $26.4 billion reported in the fourth quarter of 2017. Average demand deposits were down $358 million, or 3.2 percent. This decrease was offset by a continued increase in average interest-bearing deposits, which were up $482 million or 3.2 percent compared to the fourth quarter of 2017.

For 2018, average total loans were $13.6 billion, an increase of approximately $1.2 billion, or 9.3 percent, from the $12.5 billion reported the previous year. Average total deposits for 2018 increased to $26.3 billion, up 1.5 percent, or $384.1 million, over the $25.9 billion reported in 2017.

Noted financial data for the fourth quarter:

  • The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios for Cullen/Frost at the end of the fourth quarter of 2018 were 12.65 percent, 13.34 percent, and 15.09 percent, respectively. Current capital ratios continue to be in excess of well-capitalized levels and exceed Basel III fully phased-in requirements.
  • Net interest income for the fourth quarter totaled $249.2 million, an increase of 11.3 percent compared to the $223.9 million reported for the fourth quarter of 2017. The net interest margin was 3.72 percent for the fourth quarter compared to 3.70 percent for the fourth quarter of 2017 and 3.66 percent for the third quarter of 2018. Had the current 21 percent corporate tax rate been in place, fourth quarter 2017 net interest margin would have been 3.39 percent. A shift in the mix of earning assets to higher yielding assets, primarily loans, and higher interest rates positively affected the net interest margin compared to a year ago.
  • Non-interest income for the fourth quarter of 2018 was $87.1 million, down $3.0 million from the $90.1 million reported a year earlier. Other income decreased $1.0 million, impacted by higher gains on the sale of properties recorded in the fourth quarter last year. The year-on-year comparison for the interchange and debit card transaction fees line of non-interest income was negatively impacted by $3.0 million related to the change in accounting standard addressed in the last bullet below.
  • Non-interest expense for the fourth quarter of 2018 was $199.7 million, up $3.4 million, or 1.7 percent, compared to the $196.3 million reported for the fourth quarter of 2017. Technology, furniture and equipment expense was up $2.6 million. The increase was primarily driven by a $1.4 million increase in software maintenance expense. Employee benefits expense increased $2.0 million, or 12.0 percent, impacted by higher medical benefits expense. Deposit insurance decreased $2.6 million, primarily due to the elimination of the surcharge during the fourth quarter as the Deposit Insurance Fund reached the prescribed reserve level set by the FDIC. Other non-interest expense of $47.5 million increased 0.4 percent compared to the fourth quarter of 2017. Adjusted for the accounting change related to interchange and ATM-related expenses, other non-interest expense would have increased $3.0 million or 6.8 percent. Other non-interest expense in the fourth quarter of 2018 was impacted by higher advertising/marketing expenses, up $2.6 million from a year earlier.
  • For the fourth quarter of 2018, the provision for loan losses was $3.8 million, compared to net charge-offs of $9.2 million. For the fourth quarter of 2017, the provision for loan losses was $8.1 million, compared to net charge-offs of $7.0 million. The allowance for loan losses as a percentage of total loans was 0.94 percent at December 31, 2018, compared to 1.00 percent last quarter and 1.18 percent at year-end 2017. Non-performing assets were $74.9 million at year end, compared to $86.4 million the previous quarter, and $157.3 million at year-end 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 fourth quarter of 2018, gross interchange and debit card transaction fees totaled $6.7 million while related network costs totaled $3.0 million. On a net basis, we reported $3.8 million as interchange and debit card transaction fees. See note 2 on page 6 of this release and our forthcoming Form 10-K for more information on the effects of this and other accounting changes.

The Cullen/Frost board declared a first-quarter cash dividend of $0.67 per common share, payable March 15, 2019 to shareholders of record on February 28 of this year. The board of directors also declared a cash dividend of $0.3359375 per share of the Noncumulative Perpetual Preferred Stock, Series A, which is traded on the NYSE under the symbol "CFR PrA." The Series A Preferred Stock dividend is also payable on March 15, 2019, to shareholders of record on February 28 of this year.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, January 31, 2019, at 10 a.m. Central Time (CT) to discuss the results for the quarter and the year. The media and other interested parties are invited to access the call in a "listen only" mode at 800-944-6430. Digital playback of the conference call will be available after 12 p.m. CT until midnight Sunday, February 3, 2019 at 855-859-2056, with the Conference ID# of 1165418. A replay of 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. (CFR) is a financial holding company, headquartered in San Antonio, with $32.3 billion in assets at December 31, 2018. One of the 60 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 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


4th Qtr


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

249,209



$

241,665



$

237,270



$

229,748



$

223,914


Net interest income (1)

273,810



265,687



260,531



252,536



268,611


Provision for loan losses

3,767



2,650



8,251



6,945



8,102


Non-interest income:










Trust and investment management fees

29,882



30,801



29,121



29,587



28,985


Service charges on deposit accounts

21,632



21,569



21,142



20,843



21,248


Insurance commissions and fees

11,394



11,037



10,556



15,980



11,728


Interchange and debit card transaction fees (2)

3,774



3,499



3,446



3,158



6,082


Other charges, commissions and fees

9,371



9,580



9,273



9,007



9,948


Net gain (loss) on securities transactions

(43)



(34)



(60)



(19)



(24)


Other

11,108



11,205



11,588



12,889



12,108


Total non-interest income (2)

87,118



87,657



85,066



91,445



90,075












Non-interest expense:










Salaries and wages

90,878



87,547



85,204



86,683



89,173


Employee benefits

19,066



18,355



17,907



21,995



17,022


Net occupancy

17,699



19,894



19,455



19,740



18,190


Technology, furniture and equipment

21,960



21,004



20,459



19,679



19,352


Deposit insurance

2,219



4,694



4,605



4,879



4,781


Intangible amortization

331



336



369



388



402


Other (2)

47,544



41,838



40,909



43,247



47,360


Total non-interest expense (2)

199,697



193,668



188,908



196,611



196,280


Income before income taxes

132,863



133,004



125,177



117,637



109,607


Income taxes

13,610



15,160



13,836



11,157



9,083


Net income

119,253



117,844



111,341



106,480



100,524


Preferred stock dividends

2,016



2,016



2,015



2,016



2,016


Net income available to common shareholders

$

117,237



$

115,828



$

109,326



$

104,464



$

98,508












PER COMMON SHARE DATA










Earnings per common share - basic

$

1.84



$

1.80



$

1.70



$

1.63



$

1.54


Earnings per common share - diluted

1.82



1.78



1.68



1.61



1.53


Cash dividends per common share

0.67



0.67



0.67



0.57



0.57


Book value per common share at end of quarter

51.19



49.49



49.53



48.58



49.68












OUTSTANDING COMMON SHARES










Period-end common shares

62,986



63,923



63,904



63,794



63,476


Weighted-average common shares - basic

63,441



63,892



63,837



63,649



63,314


Dilutive effect of stock compensation

811



1,022



1,062



1,013



981


Weighted-average common shares - diluted

64,252



64,914



64,899



64,662



64,295












SELECTED ANNUALIZED RATIOS










Return on average assets

1.48

%


1.49

%


1.43

%


1.36

%


1.26

%

Return on average common equity

14.85



14.40



14.03



13.62



12.66


Net interest income to average earning assets (1)

3.72



3.66



3.64



3.52



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 $3,233 in the fourth quarter of 2017.


 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2018


2017


4th Qtr


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

$

13,949



$

13,683



$

13,537



$

13,295



$

12,879


Earning assets

29,153



28,796



28,647



29,002



29,012


Total assets

31,330



30,918



30,758



31,131



31,107


Non-interest-bearing demand deposits

10,740



10,690



10,629



10,972



11,098


Interest-bearing deposits

15,767



15,462



15,440



15,457



15,286


Total deposits

26,507



26,152



26,069



26,429



26,384


Shareholders' equity

3,277



3,335



3,270



3,255



3,232












Period-End Balance:










Loans

$

14,100



$

13,815



$

13,712



$

13,364



$

13,146


Earning assets

29,894



29,042



28,494



29,414



29,595


Goodwill and intangible assets

659



659



659



660



660


Total assets

32,293



31,223



30,687



31,459



31,748


Total deposits

27,149



26,349



25,996



26,678



26,872


Shareholders' equity

3,369



3,308



3,310



3,243



3,298


Adjusted shareholders' equity (1)

3,433



3,449



3,373



3,297



3,218












ASSET QUALITY










($ in thousands)










Allowance for loan losses:

$

132,132



$

137,578



$

150,226



$

149,885



$

155,364


As a percentage of period-end loans

0.94

%


1.00

%


1.10

%


1.12

%


1.18

%











Net charge-offs:

$

9,213



$

15,298



$

7,910



$

12,424



$

7,041


Annualized as a percentage of average loans

0.26

%


0.44

%


0.23

%


0.38

%


0.22

%











Non-performing assets:










Non-accrual loans

$

73,739



$

82,601



$

119,181



$

123,152



$

150,314


Restructured loans







12,058



4,862


Foreclosed assets

1,175



3,765



3,643



1,371



2,116


Total

$

74,914



$

86,366



$

122,824



$

136,581



$

157,292


As a percentage of:










Total loans and foreclosed assets

0.53

%


0.62

%


0.90

%


1.02

%


1.20

%

Total assets

0.23



0.28



0.40



0.43



0.50












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio

12.65

%


12.93

%


12.69

%


12.69

%


12.42

%

Tier 1 Risk-Based Capital Ratio

13.34



13.63



13.40



13.42



13.16


Total Risk-Based Capital Ratio

15.09



15.44



15.29



15.36



15.15


Leverage Ratio

9.06



9.19



9.02



8.62



8.46


Equity to Assets Ratio (period-end)

10.43



10.60



10.78



10.31



10.39


Equity to Assets Ratio (average)

10.46



10.79



10.63



10.46



10.39













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


 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)










Year Ended December 31,


2018


2017


2016


2015


2014

CONDENSED INCOME STATEMENTS










Net interest income

$

957,892



$

866,422



$

776,336



$

736,632



$

686,934


Net interest income (1)

1,052,564



1,043,431



939,958



888,035



807,937


Provision for loan losses

21,613



35,460



51,673



51,845



16,314


Non-interest income:










Trust and investment management fees

119,391



110,675



104,240



105,512



106,237


Service charges on deposit accounts

85,186



84,182



81,203



81,350



81,946


Insurance commissions and fees

48,967



46,169



47,154



48,926



45,115


Interchange and debit card transaction fees (2)

13,877



23,232



21,369



19,666



18,372


Other charges, commissions and fees

37,231



39,931



39,623



37,551



36,180


Net gain (loss) on securities transactions

(156)



(4,941)



14,975



69



38


Other

46,790



37,222



41,144



35,656



32,256


Total non-interest income (2)

351,286



336,470



349,708



328,730



320,144












Non-interest expense:










Salaries and wages

350,312



337,068



318,665



310,504



292,349


Employee benefits

77,323



74,575



72,615



69,746



60,151


Net occupancy

76,788



75,971



71,627



65,690



55,745


Technology, furniture and equipment

83,102



74,335



71,208



64,373



62,087


Deposit insurance

16,397



20,128



17,428



14,519



13,232


Intangible amortization

1,424



1,703



2,429



3,325



3,520


Other (2)

173,538



175,289



178,988



165,561



167,656


Total non-interest expense (2)

778,884



759,069



732,960



693,718



654,740


Income before income taxes

508,681



408,363



341,411



319,799



336,024


Income taxes

53,763



44,214



37,150



40,471



58,047


Net income

454,918



364,149



304,261



279,328



277,977


Preferred stock dividends

8,063



8,063



8,063



8,063



8,063


Net income available to common shareholders

$

446,855



$

356,086



$

296,198



$

271,265



$

269,914












PER COMMON SHARE DATA










Earnings per common share - basic

$

6.97



$

5.56



$

4.73



$

4.31



$

4.32


Earnings per common share - diluted

6.90



5.51



4.70



4.28



4.29


Cash dividends per common share

2.58



2.25



2.15



2.10



2.03


Book value per common share at end of quarter

51.19



49.68



45.03



44.30



42.87












OUTSTANDING COMMON SHARES










Period-end common shares

62,986



63,476



63,474



61,982



63,149


Weighted-average common shares - basic

63,705



63,694



62,376



62,758



62,072


Dilutive effect of stock compensation

982



968



593



715



902


Weighted-average common shares - diluted

64,687



64,662



62,969



63,473



62,974












SELECTED ANNUALIZED RATIOS










Return on average assets

1.44

%


1.17

%


1.03

%


0.97

%


1.05

%

Return on average common equity

14.23



11.76



10.16



9.86



10.51


Net interest income to average earning assets (1)

3.64



3.69



3.56



3.45



3.41













(1) Taxable-equivalent basis assuming a 21% tax rate for 2018 and 35% tax rate for 2014-2017.

(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 $11,289 in 2017 and $8,473 in 2016.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)










Year Ended December 31,


2018


2017


2016


2015(1)


2014(1)

BALANCE SHEET SUMMARY ($ in millions)










Average Balance:










Loans

$

13,618



$

12,460



$

11,555



$

11,267



$

10,299


Earning assets

28,900



28,359



26,717



25,955



23,877


Total assets

31,030



30,450



28,832



28,061



25,766


Non-interest-bearing demand deposits

10,757



10,819



10,034



10,180



9,125


Interest-bearing deposits

15,532



15,085



14,478



13,861



12,928


Total deposits

26,289



25,905



24,512



24,041



22,053


Shareholders' equity

3,284



3,173



3,059



2,895



2,712












Period-End Balance:










Loans

$

14,100



$

13,146



$

11,975



$

11,487



$

10,988


Earning assets

29,894



29,595



28,025



26,431



26,052


Goodwill and intangible assets

659



660



662



663



667


Total assets

32,293



31,748



30,196



28,566



28,276


Total deposits

27,149



26,872



25,812



24,344



24,136


Shareholders' equity

3,369



3,298



3,003



2,890



2,851


Adjusted shareholders' equity (2)

3,433



3,218



3,027



2,776



2,710












ASSET QUALITY ($ in thousands)










Allowance for loan losses:

$

132,132



$

155,364



$

153,045



$

135,859



$

99,542


As a percentage of period-end loans

0.94

%


1.18

%


1.28

%


1.18

%


0.91

%











Net charge-offs:

$

44,845



$

33,141



$

34,487



$

15,528



$

9,210


Annualized as a percentage of average loans

0.33

%


0.27

%


0.30

%


0.14

%


0.09

%











Non-performing assets:










Non-accrual loans

$

73,739



$

150,314



$

100,151



$

83,467



$

59,925


Restructured loans



4,862








Foreclosed assets

1,175



2,116



2,440



2,255



5,251


Total

$

74,914



$

157,292



$

102,591



$

85,722



$

65,176


As a percentage of:










Total loans and foreclosed assets

0.53

%


1.20

%


0.86

%


0.75

%


0.59

%

Total assets

0.23



0.50



0.34



0.30



0.23












CONSOLIDATED CAPITAL RATIOS (3)










Common Equity Tier 1 Risk-Based Capital Ratio

12.65

%


12.42

%


12.52

%


11.37

%


      N/A


Tier 1 Risk-Based Capital Ratio

13.34



13.16



13.33



12.38



13.68

%

Total Risk-Based Capital Ratio

15.09



15.15



14.93



13.85



14.55


Leverage Ratio

9.06



8.46



8.14



7.79



8.16


Equity to Assets Ratio (period-end)

10.43



10.39



9.94



10.12



10.08


Equity to Assets Ratio (average)

10.58



10.42



10.61



10.32



10.53













(1) Certain items in prior financial statements have been reclassified to conform to the current presentation in connection with the adoption of a new accounting standard that requires unamortized debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.

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

(3) Beginning in 2015, capital ratios are calculated in accordance with the Basel III Capital Rules. Capital ratios for prior periods were calculated in accordance with previous capital rules.

A.B. Mendez
Investor Relations
210.220.5234
or
Bill Day
Media Relations
210.220.5427

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