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Cullen/Frost Reports First Quarter Results

Board declares second quarter dividend on common stock

SAN ANTONIO, April 30, 2020 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported first quarter 2020 results. Net income available to common shareholders for the first quarter of 2020 was $47.2 million, compared to $114.5 million in the first quarter of 2019. On a per-share basis, net income available to common shareholders for the first quarter of 2020 was $0.75 per diluted common share, compared to $1.79 per diluted common share reported a year earlier. Returns on average assets and average common equity were 0.57 percent and 4.88 percent, respectively, for the first quarter of 2020 compared to 1.48 percent and 14.08 percent, respectively, for the same period a year earlier.

For the first quarter of 2020, net interest income on a taxable-equivalent basis was $268.5 million, down 1.0 percent compared to the same quarter in 2019. Average loans for the first quarter of 2020 increased $790.0 million, or 5.6 percent, to $15.0 billion, from the $14.2 billion reported for the first quarter a year earlier. Average deposits for the quarter were $27.4 billion, up $1.3 billion, or 4.9 percent, compared to the $26.1 billion reported for last year's first quarter.

"Our first quarter showed accelerating growth in business volumes which can be seen in our increased loans and deposits," said Phil Green, Cullen/Frost Chairman and CEO. "We will continue to utilize our strong balance sheet and liquidity to meet our customers' demand for new loans. We also continue to do our part helping our communities deal with the effects of the COVID-19 pandemic, including working hard to keep our employees and customers safe, donating $2 million to charitable organizations to help provide relief, and going above and beyond to supply 10,500 customers with $3 billion in PPP loans. I am extremely proud of our employees who have performed at heroic levels in difficult conditions to provide this help to businesses and families in our communities."

Noted financial data for the first quarter of 2020 follows:

  • Adoption of the new Current Expected Credit Loss (CECL) standard on January 1, 2020 resulted in an after-tax reduction to retained earnings of $29.3 million. Excluding the impact of CECL adoption, we experienced a $134.3 million build in our allowance for credit losses on loans in the first quarter of 2020.
  • For the first quarter of 2020, credit loss expense related to loans was $172.9 million, compared to net charge-offs of $38.6 million. This compares with $8.4 million in credit loss expense and $12.7 million in net charge-offs for the fourth quarter of 2019, and $11.0 million in credit loss expense and $6.8 million in net charge-offs in the first quarter of 2019. Our credit loss expense related to loans was elevated in the first quarter as a result of COVID-19-related business closures and the challenges faced by our energy industry customers due to recent commodity price declines. Credit loss expense related to loans was also impacted by the adoption of CECL which utilizes an "expected loss" methodology as opposed to the incurred loss methodology under the prior accounting standard. The allowance for credit losses on loans as a percentage of total loans was 1.72 percent at March 31, 2020, compared to 0.90 percent at the end of the fourth quarter of 2019 and 0.95 percent at the end of the first quarter of 2019. Non-performing assets were $67.5 million at the end of the first quarter of 2020, compared to $109.5 million at the end of the fourth quarter of 2019 and $97.4 million at the end of the first quarter of 2019. Credit loss expense related to off-balance-sheet credit exposures was $2.3 million in the first quarter of 2020.
  • The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios at the end of the first quarter of 2020 were 12.02 percent, 12.02 percent and 13.97 percent, respectively, and continue to be in excess of well-capitalized levels and exceed Basel III minimum requirements.
  • Net interest income on a taxable-equivalent basis was $268.5 million, a decrease of 1.0 percent compared to the prior year period. Net interest margin was 3.56 percent for the first quarter of 2020, down 6 basis points compared to the fourth quarter of 2019 net interest margin of 3.62 percent. Net interest margin decreased 23 basis points compared to 3.79 percent in the year-ago period.
  • Non-interest income for the first quarter of 2020 totaled $212.9 million, an increase of $116.1 million, from the $96.8 million reported for the first quarter of 2019. First quarter non-interest income was impacted by a $107 million gain from the sale of $500 million in 30 year Treasuries purchased in the fourth quarter of 2019 as a hedge against falling interest rates. Excluding the gain on sale of these securities, non interest income in the first quarter would have increased approximately 7.4 percent compared to the first quarter of 2019. Trust and investment management fees for the first quarter increased $2.8 million or 8.8 percent compared to the first quarter of 2019. The increase in trust and investment management fees was primarily the result of increases in estate fees (up $1.1 million), trust investment fees (up $749,000), real estate fees (up $641,000), and oil and gas fees (up $475,000). Other non-interest income increased $4.1 million compared to the first quarter of 2019. The primary driver of the increase in other non-interest income was a $6.0 million gain realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. These increases were partly offset by a $1.9 million decrease in insurance commissions and fees. The decrease was related to commissions income (down $1.3 million) and contingent income (down $591,000). The decrease in commissions income was primarily related to decreases in benefit plan commissions, life insurance commissions and commissions on commercial lines property and casualty policies.
  • Non-interest expense was $224.2 million for the quarter, up $22.4 million, or 11.1 percent, compared to the $201.8 million reported for the first quarter a year earlier. Total salaries and wages rose $6.3 million, or 6.9 percent, to $98.8 million, primarily due to an increase in the number of employees and normal annual merit and market increases. First quarter net occupancy expense increased by $6.1 million, or 31.7 percent, compared to the same period in 2019, primarily driven by our move starting in June of 2019 into our new corporate headquarters building in San Antonio and other leases related to existing facilities and to our expansion within the Houston market area. Other non-interest expense increased $5.2 million, or 12.5 percent, compared to the first quarter of 2019. The increase was composed of increases in professional services expense (up $1.5 million); donations expense (up $912,000); and advertising/promotions expense (up $548,000), among other things. Technology, furniture and equipment expense for the first quarter increased by $3.6 million, or 16.5 percent, from the first quarter of 2019. The increase was primarily related to increases in cloud services expense (up $1.5 million), software maintenance expense (up $1.2 million), and depreciation of furniture and equipment (up $995,000).
  • Net income available to common shareholders in the first quarter was reduced by $5.5 million of deferred issuance costs associated with $150 million of Series A cumulative preferred stock that we issued in 2013 and redeemed during the first quarter of 2020.

The Cullen/Frost board declared a second-quarter cash dividend of $0.71 per common share, payable June 15, 2020 to shareholders of record on May 29 of this year.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, April 30, 2020, 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 at 1-800-944-6430 or via webcast on our investor relations website linked below.

Playback of the conference call will be available after 2 p.m. CT on the day of the call until midnight Sunday, May 3, 2020 at 855-859-2056 with Conference ID # of 7379004. 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 $34.1 billion in assets at March 31, 2020. 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"), including statements regarding the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations, 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 impact of the COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.
  • 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.

Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.

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.

A.B. Mendez
Investor Relations
210.220.5234

or

Bill Day
Media Relations
210.220.5427

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)












2020


2019


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr


1st Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

244,521



$

251,098



$

253,007



$

253,431



$

246,469


Net interest income (1)

268,453



275,038



276,618



277,751



271,179


Credit loss expense (2)

175,197



8,355



8,001



6,400



11,003


Non-interest income:










Trust and investment management fees

34,473



32,928



31,649



30,448



31,697


Service charges on deposit accounts

22,651



23,454



22,941



21,798



20,790


Insurance commissions and fees

16,485



12,138



11,683



10,118



18,406


Interchange and debit card transaction fees

3,255



3,608



4,117



3,868



3,280


Other charges, commissions and fees

9,365



9,020



10,108



8,933



9,062


Net gain (loss) on securities transactions

108,989



28



96



169




Other

17,697



14,079



8,630



7,304



13,550


Total non-interest income

212,915



95,255



89,224



82,638



96,785












Non-interest expense:










Salaries and wages

98,812



97,951



93,812



90,790



92,476


Employee benefits

24,889



21,651



21,002



20,051



23,526


Net occupancy

25,384



24,864



24,202



21,133



19,267


Technology, furniture and equipment

25,240



25,759



22,415



22,157



21,664


Deposit insurance

2,624



2,374



2,491



2,453



2,808


Intangible amortization

257



264



274



305



325


Other

46,957



47,943



44,668



46,320



41,734


Total non-interest expense

224,163



220,806



208,864



203,209



201,800


Income before income taxes

58,076



117,192



125,366



126,460



130,451


Income taxes

3,323



13,511



13,530



14,874



13,955


Net income

54,753



103,681



111,836



111,586



116,496


Preferred stock dividends

2,016



2,016



2,016



2,015



2,016


Redemption of preferred stock

5,514










Net income available to common shareholders

$

47,223



$

101,665



$

109,820



$

109,571



$

114,480












PER COMMON SHARE DATA










Earnings per common share - basic

$

0.75



$

1.61



$

1.74



$

1.73



$

1.80


Earnings per common share - diluted

0.75



1.60



1.73



1.72



1.79


Cash dividends per common share

0.71



0.71



0.71



0.71



0.67


Book value per common share at end of quarter

61.17



60.11



59.76



57.39



54.64












OUTSTANDING COMMON SHARES










Period-end common shares

62,553



62,669



62,537



62,638



63,081


Weighted-average common shares - basic

62,643



62,609



62,566



62,789



63,009


Dilutive effect of stock compensation

407



625



593



765



819


Weighted-average common shares - diluted

63,050



63,234



63,159



63,554



63,828












SELECTED ANNUALIZED RATIOS










Return on average assets

0.57

%


1.21

%


1.35

%


1.40

%


1.48

%

Return on average common equity

4.88



10.74



11.83



12.60



14.08


Net interest income to average earning assets

3.56



3.62



3.76



3.85



3.79




(1) Taxable-equivalent basis assuming a 21% tax rate.

(2) Provision for loan losses prior to first quarter of 2020.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2020


2019


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr


1st Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

$

14,995



$

14,705



$

14,471



$

14,375



$

14,205


Earning assets

30,804



30,621



29,693



29,114



28,954


Total assets

33,534



33,314



32,248



31,491



31,356


Non-interest-bearing demand deposits

10,737



10,772



10,316



10,148



10,193


Interest-bearing deposits

16,654



16,414



16,036



15,845



15,919


Total deposits

27,391



27,186



26,352



25,993



26,112


Shareholders' equity

4,009



3,900



3,828



3,632



3,441












Period-End Balance:










Loans

$

15,338



$

14,750



$

14,635



$

14,459



$

14,406


Earning assets

31,440



31,281



30,358



29,216



29,281


Goodwill and intangible assets

657



657



658



658



658


Total assets

34,147



34,027



33,098



31,817



31,663


Total deposits

28,141



27,640



27,084



25,985



26,295


Shareholders' equity

3,827



3,912



3,881



3,739



3,592


Adjusted shareholders' equity (1)

3,463



3,644



3,576



3,520



3,498












ASSET QUALITY










($ in thousands)










Allowance for credit losses on loans:

$

263,881



$

132,167



$

136,559



$

134,929



$

136,350


As a percentage of period-end loans

1.72

%


0.90

%


0.93

%


0.93

%


0.95

%











Net charge-offs:

$

38,646



$

12,747



$

6,371



$

7,821



$

6,785


Annualized as a percentage of average loans

1.04

%


0.34

%


0.17

%


0.22

%


0.19

%











Non-performing assets:










Non-accrual loans

$

66,727



$

102,303



$

97,446



$

71,521



$

92,162


Restructured loans



6,098



6,160



3,973



4,028


Foreclosed assets

806



1,084



1,427



907



1,175


Total

$

67,533



$

109,485



$

105,033



$

76,401



$

97,365


As a percentage of:










Total loans and foreclosed assets

0.44

%


0.74

%


0.72

%


0.53

%


0.68

%

Total assets

0.20



0.32



0.32



0.24



0.31












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio

12.02

%


12.36

%


12.35

%


12.29

%


12.34

%

Tier 1 Risk-Based Capital Ratio

12.02



12.99



12.99



12.94



13.00


Total Risk-Based Capital Ratio

13.97



14.57



14.63



14.60



14.68


Leverage Ratio

8.84



9.28



9.36



9.40



9.35


Equity to Assets Ratio (period-end)

11.21



11.50



11.73



11.75



11.34


Equity to Assets Ratio (average)

11.95



11.71



11.87



11.53



10.97




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

 

Cullen/Frost Bankers, Inc.

TAXABLE-EQUIVALENT YIELD/COST AND AVERAGE BALANCES (UNAUDITED)



2020


2019


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr


1st Qtr

TAXABLE-EQUIVALENT YIELD/COST (1)










Earning Assets:










Interest-bearing deposits

1.24

%


1.64

%


2.19

%


2.64

%


2.50

%

Federal funds sold and resell agreements

1.22



1.71



2.21



2.48



2.58


Securities

3.46



3.37



3.43



3.42



3.37


Loans, net of unearned discounts

4.65



4.88



5.16



5.34



5.33


Total earning assets

3.84



3.98



4.21



4.33



4.27












Interest-Bearing Liabilities:










Interest-bearing deposits:










Savings and interest checking

0.02



0.04



0.07



0.08



0.09


Money market deposit accounts

0.50



0.66



0.93



1.03



1.09


Time accounts

1.67



1.72



1.74



1.66



1.43


Public funds

0.85



1.05



1.34



1.51



1.39


Total interest-bearing deposits

0.39



0.49



0.63



0.68



0.69












Total deposits

0.24



0.29



0.39



0.41



0.42












Federal funds purchased and repurchase agreements

0.95



1.21



1.53



1.69



1.72


Junior subordinated deferrable interest debentures

3.54



3.83



4.18



4.34



4.40


Subordinated notes payable and other notes

4.71



4.71



4.71



4.71



4.72


Total interest-bearing liabilities

0.47



0.59



0.75



0.80



0.81












Net interest spread

3.37



3.39



3.46



3.53



3.46


Net interest income to total average earning assets

3.56



3.62



3.76



3.85



3.79












AVERAGE BALANCES










($ in millions)










Assets:










Interest-bearing deposits

$

2,586



$

2,000



$

1,566



$

1,171



$

1,729


Federal funds sold and resell agreements

260



275



212



246



250


Securities

12,963



13,641



13,444



13,322



12,770


Loans, net of unearned discount

14,995



14,705



14,471



14,375



14,205


Total earning assets

$

30,804



$

30,621



$

29,693



$

29,114



$

28,954












Liabilities:










Interest-bearing deposits:










Savings and interest checking

$

7,030



$

6,850



$

6,712



$

6,774



$

6,774


Money market deposit accounts

7,874



7,905



7,763



7,588



7,696


Time accounts

1,109



1,069



1,023



970



895


Public funds

640



590



538



513



554


Total interest-bearing deposits

16,654



16,414



16,036



15,845



15,919












Total deposits

27,391



27,186



26,352



25,993



26,112












Federal funds purchased and repurchase agreements

1,259



1,418



1,291



1,242



1,180


Junior subordinated deferrable interest debentures

136



136



136



136



136


Subordinated notes payable and other notes

99



99



99



99



99


Total interest-bearing funds

$

18,149



$

18,067



$

17,562



$

17,322



$

17,334




(1) Taxable-equivalent basis assuming a 21% tax rate.

 

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

 

SOURCE Cullen/Frost Bankers, Inc.