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Cullen/Frost Reports Second Quarter Results

Board declares third quarter dividend on common and preferred stock, and authorizes $100 million stock repurchase program

SAN ANTONIO, July 25, 2019 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (CFR) today reported second quarter 2019 results. Net income available to common shareholders for the second quarter of 2019 was $109.6 million, compared to $109.3 million in the second quarter of 2018. On a per-share basis, net income available to common shareholders for the second quarter of 2019 was $1.72 per diluted common share, compared to $1.68 per diluted common share reported a year earlier. Returns on average assets and average common equity were 1.40 percent and 12.60 percent, respectively, for the second quarter of 2019 compared to 1.43 percent and 14.03 percent, respectively, for the same period a year earlier.

For the second quarter of 2019, net interest income on a taxable-equivalent basis was $277.8 million, up 6.6 percent compared to the same quarter in 2018. Average loans for the second quarter of 2019 increased $838.6 million, or 6.2 percent, to $14.4 billion, from the $13.5 billion reported for the second quarter a year earlier. Average deposits for the quarter were $26.0 billion, basically flat compared to the $26.1 billion reported for last year's second quarter.

"Frost bankers' commitment to sustainable, organic growth has resulted in another solid quarter," said Cullen/Frost Chairman and CEO Phil Green.  "During the second quarter, we continued our expansion in the Houston market by opening two more new financial centers, and after six years of planning and implementation, we also moved to our new corporate headquarters in San Antonio."

For the first six months of 2019, net income available to common shareholders was $224.1 million, up 4.8 percent compared to $213.8 million for the first six months of 2018. Diluted EPS available to common shareholders for the first six months of 2019 was $3.51 compared to $3.30 in the year-earlier period, representing an increase of 6.4 percent. Returns on average assets and average common equity for the first six months of 2019 were 1.44 percent and 13.32 percent, respectively, compared to 1.39 percent and 13.83 percent, respectively, for the same period in 2018.

Noted financial data for the second quarter of 2019 follows:

  • The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios at the end of the second quarter of 2019 were 12.29 percent, 12.94 percent and 14.60 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 $277.8 million, an increase of 6.6 percent over the prior year period. Net interest margin was 3.85 percent for the second quarter of 2019, up 6 basis points over the first quarter of 2019 net interest margin of 3.79 percent.
  • Non-interest income for the second quarter of 2019 totaled $82.6 million, a decrease of $2.4 million, or 2.9 percent, from the $85.1 million reported for the second quarter of 2018. Trust and investment management fees were $30.4 million, up $1.3 million, or 4.6 percent, from the second quarter of 2018. The increase in trust and investment management fees was primarily the result of an increase in trust investment fees due to higher average equity valuations and an increase in the number of accounts. Insurance commissions and fees of $10.1 million decreased $438,000, or 4.1 percent, from the previous year. The decrease in commission income during the second quarter was primarily related to a decrease in benefit plan commissions due to fluctuations in business volumes. Other non-interest income in the second quarter of 2019 was $7.3 million, down $4.3 million compared to the second quarter of 2018. The decrease was primarily related to other income recorded in the year-ago period from recoveries of prior write-offs ($1.7 million), distributions on private equity investments ($1.2 million), and gains on the sale of various branch and operational facilities ($502,000).
  • Non-interest expense was $203.2 million for the quarter, up $14.3 million, or 7.6 percent, compared to the $188.9 million reported for the second quarter a year earlier. Total salaries and wages rose $5.6 million, or 6.6 percent, to $90.8 million, primarily due to an increase in the number of employees and normal annual merit and market increases. Employee benefits expense increased $2.1 million, or 12.0 percent, compared to the second quarter of 2018. The increase was primarily related to increases in medical benefits expense (up $562,000), expenses related to our defined benefit retirement plans (up $585,000) and expenses related to our 401(k) plan (up $505,000). Other non-interest expense increased $5.4 million, or 13.2 percent, compared to the second quarter of 2018. The increase was mainly driven by increases in advertising and sponsorships (up $3.3 million); platform fees related to investment services (up $1.0 million); and travel, meals and entertainment expense (up $1.0 million). Second quarter net occupancy expense increased by $1.7 million, or 8.6 percent, compared to the same period in 2018, primarily driven by a $1.8 million increase in lease expenses impacted by our move in June to our new corporate headquarters building in San Antonio and other leases related to existing facilities and our expansion within the Houston market area. Technology, furniture and equipment expense for the second quarter increased by $1.7 million, or 8.3 percent, from the second quarter of 2018. The increase was primarily driven by a $1.5 million increase in software maintenance expense.
  • For the second quarter of 2019, the provision for loan losses was $6.4 million, compared to net charge-offs of $7.8 million. This compares with $11.0 million in provisions and $6.8 million in net charge-offs for the first quarter of 2019, and $8.3 million in provisions and $7.9 million in net charge-offs in the second quarter of 2018. The allowance for loan losses as a percentage of total loans was 0.93 percent at June 30, 2019 compared to 0.95 percent at the end of the first quarter of 2019 and 1.10 percent at the end of the second quarter of 2018. Non-performing assets were $76.4 million at the end of the second quarter of 2019, compared to $97.4 million at the end of the first quarter of 2019 and $122.8 million at the end of the second quarter of 2018.

The Cullen/Frost board declared a third-quarter cash dividend of $0.71 per common share, representing a 6.0 percent increase over the previous year's dividend, payable September 13, 2019 to shareholders of record on August 30 of this year. The board of directors declared a cash dividend of $.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 payable on September 16, 2019, to shareholders of record on August 30 of this year.

In addition, the Corporation's board of directors authorized a new $100.0 million stock repurchase plan. Under the plan, shares may be repurchased over a one-year period from time to time at various prices in the open market or through private transactions.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, July 25, 2019, 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, July 28, 2019 at 855-859-2056 with Conference ID # of 1479579. 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 $31.8 billion in assets at June 30, 2019. 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 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)












2019


2018


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

253,431



$

246,469



$

249,209



$

241,665



$

237,270


Net interest income (1)

277,751



271,179



273,810



265,687



260,531


Provision for loan losses

6,400



11,003



3,767



2,650



8,251


Non-interest income:










Trust and investment management fees

30,448



31,697



29,882



30,801



29,121


Service charges on deposit accounts

21,798



20,790



21,632



21,569



21,142


Insurance commissions and fees

10,118



18,406



11,394



11,037



10,556


Interchange and debit card transaction fees

3,868



3,280



3,774



3,499



3,446


Other charges, commissions and fees

8,933



9,062



9,371



9,580



9,273


Net gain (loss) on securities transactions

169





(43)



(34)



(60)


Other

7,304



13,550



11,108



11,205



11,588


Total non-interest income

82,638



96,785



87,118



87,657



85,066












Non-interest expense:










Salaries and wages

90,790



92,476



90,878



87,547



85,204


Employee benefits

20,051



23,526



19,066



18,355



17,907


Net occupancy

21,133



19,267



17,699



19,894



19,455


Technology, furniture and equipment

22,157



21,664



21,960



21,004



20,459


Deposit insurance

2,453



2,808



2,219



4,694



4,605


Intangible amortization

305



325



331



336



369


Other

46,320



41,734



47,544



41,838



40,909


Total non-interest expense

203,209



201,800



199,697



193,668



188,908


Income before income taxes

126,460



130,451



132,863



133,004



125,177


Income taxes

14,874



13,955



13,610



15,160



13,836


Net income

111,586



116,496



119,253



117,844



111,341


Preferred stock dividends

2,015



2,016



2,016



2,016



2,015


Net income available to common shareholders

$

109,571



$

114,480



$

117,237



$

115,828



$

109,326












PER COMMON SHARE DATA










Earnings per common share - basic

$

1.73



$

1.80



$

1.84



$

1.80



$

1.70


Earnings per common share - diluted

1.72



1.79



1.82



1.78



1.68


Cash dividends per common share

0.71



0.67



0.67



0.67



0.67


Book value per common share at end of quarter

57.42



54.68



51.19



49.49



49.53












OUTSTANDING COMMON SHARES










Period-end common shares

62,638



63,081



62,986



63,923



63,904


Weighted-average common shares - basic

62,789



63,009



63,441



63,892



63,837


Dilutive effect of stock compensation

765



819



811



1,022



1,062


Weighted-average common shares - diluted

63,554



63,828



64,252



64,914



64,899












SELECTED ANNUALIZED RATIOS










Return on average assets

1.40

%


1.48

%


1.48

%


1.49

%


1.43

%

Return on average common equity

12.60



14.08



14.85



14.40



14.03


Net interest income to average earning assets

3.85



3.79



3.72



3.66



3.64












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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2019


2018


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

$

14,375



$

14,205



$

13,949



$

13,683



$

13,537


Earning assets

29,114



28,954



29,153



28,796



28,647


Total assets

31,491



31,356



31,330



30,918



30,758


Non-interest-bearing demand deposits

10,148



10,193



10,740



10,690



10,629


Interest-bearing deposits

15,845



15,919



15,767



15,462



15,440


Total deposits

25,993



26,112



26,507



26,152



26,069


Shareholders' equity

3,632



3,441



3,277



3,335



3,270












Period-End Balance:










Loans

$

14,459



$

14,406



$

14,100



$

13,815



$

13,712


Earning assets

29,218



29,283



29,894



29,042



28,494


Goodwill and intangible assets

658



658



659



659



659


Total assets

31,819



31,665



32,293



31,223



30,687


Total deposits

25,985



26,295



27,149



26,349



25,996


Shareholders' equity

3,741



3,594



3,369



3,308



3,310


Adjusted shareholders' equity (1)

3,522



3,500



3,433



3,449



3,373












ASSET QUALITY










($ in thousands)










Allowance for loan losses:

$

134,929



$

136,350



$

132,132



$

137,578



$

150,226


As a percentage of period-end loans

0.93

%


0.95

%


0.94

%


1.00

%


1.10

%











Net charge-offs:

$

7,821



$

6,785



$

9,213



$

15,298



$

7,910


Annualized as a percentage of average loans

0.22

%


0.19

%


0.26

%


0.44

%


0.23

%











Non-performing assets:










Non-accrual loans

$

71,521



$

92,162



$

73,739



$

82,601



$

119,181


Restructured loans

3,973



4,028








Foreclosed assets

907



1,175



1,175



3,765



3,643


Total

$

76,401



$

97,365



$

74,914



$

86,366



$

122,824


As a percentage of:










Total loans and foreclosed assets

0.53

%


0.68

%


0.53

%


0.62

%


0.90

%

Total assets

0.24



0.31



0.23



0.28



0.40












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio (2)

12.29

%


12.34

%


12.27

%


12.56

%


12.33

%

Tier 1 Risk-Based Capital Ratio (2)

12.94



13.00



12.94



13.24



13.02


Total Risk-Based Capital Ratio (2)

14.60



14.68



14.64



14.99



14.85


Leverage Ratio

9.40



9.35



9.06



9.19



9.02


Equity to Assets Ratio (period-end)

11.76



11.35



10.43



10.60



10.78


Equity to Assets Ratio (average)

11.53



10.97



10.46



10.79



10.63












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


(2) After a review of risk-weight classifications during the first quarter of 2019, risk-weightings for certain loans were reclassified. Amounts reported prior to March 31, 2019 have been revised to reflect these reclassifications.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)








Six Months Ended








June 30,








2019


2018

CONDENSED INCOME STATEMENTS




















Net interest income







$

499,900



$

467,018


Net interest income (1)







548,930



513,067


Provision for loan losses







17,403



15,196


Non-interest income:










Trust and investment management fees







62,145



58,708


Service charges on deposit accounts







42,588



41,985


Insurance commissions and fees







28,524



26,536


Interchange and debit card transaction fees







7,148



6,604


Other charges, commissions and fees







17,995



18,280


Net gain (loss) on securities transactions







169



(79)


Other







20,854



24,477


Total non-interest income







179,423



176,511












Non-interest expense:










Salaries and wages







183,266



171,887


Employee benefits







43,577



39,902


Net occupancy







40,400



39,195


Furniture and equipment







43,821



40,138


Deposit insurance







5,261



9,484


Intangible amortization







630



757


Other (2)







88,054



84,156


Total non-interest expense (2)







405,009



385,519


Income before income taxes







256,911



242,814


Income taxes







28,829



24,993


Net income







228,082



217,821


Preferred stock dividends







4,031



4,031


Net income available to common shareholders







$

224,051



$

213,790












PER COMMON SHARE DATA










Earnings per common share - basic







$

3.53



$

3.33


Earnings per common share - diluted







3.51



3.30


Cash dividends per common share







1.38



1.24


Book value per common share at end of quarter







57.42



49.53












OUTSTANDING COMMON SHARES










Period-end common shares







62,638



63,904


Weighted-average common shares - basic







62,899



63,743


Dilutive effect of stock compensation







791



1,044


Weighted-average common shares - diluted







63,690



64,787












SELECTED ANNUALIZED RATIOS










Return on average assets







1.44

%


1.39

%

Return on average common equity







13.32



13.83


Net interest income to average earning assets (1)







3.82



3.58












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


 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)


















As of or for the








Six Months Ended








June 30,








2019


2018

BALANCE SHEET SUMMARY ($ in millions)










Average Balance:










Loans







$

14,291



$

13,416


Earning assets







29,035



28,824


Total assets







31,391



30,940


Non-interest-bearing demand deposits







10,170



10,799


Interest-bearing deposits







15,882



15,449


Total deposits







26,052



26,248


Shareholders' equity







3,537



3,263












Period-End Balance:










Loans







$

14,459



$

13,712


Earning assets







29,218



28,494


Goodwill and intangible assets







658



659


Total assets







31,819



30,687


Total deposits







25,985



25,996


Shareholders' equity







3,741



3,310


Adjusted shareholders' equity (1)







3,522



3,373












ASSET QUALITY ($ in thousands)










Allowance for loan losses:







$

134,929



$

150,226


As a percentage of period-end loans







0.93

%


1.10

%











Net charge-offs:







$

14,606



$

20,334


Annualized as a percentage of average loans







0.21

%


0.31

%











Non-performing assets:










Non-accrual loans







$

71,521



$

119,181


Restructured loans







3,973




Foreclosed assets







907



3,643


Total







$

76,401



$

122,824


As a percentage of:










Total loans and foreclosed assets







0.53

%


0.90

%

Total assets







0.24



0.40












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio (2)






12.29

%


12.33

%

Tier 1 Risk-Based Capital Ratio (2)







12.94



13.02


Total Risk-Based Capital Ratio (2)







14.60



14.85


Leverage Ratio







9.40



9.02


Equity to Assets Ratio (period-end)







11.76



10.78


Equity to Assets Ratio (average)







11.27



10.55












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


(2) After a review of risk-weight classifications during the first quarter of 2019, risk-weightings for certain loans were reclassified. Amounts reported prior to March 31, 2019 have been revised to reflect these reclassifications.

 

Cullen/Frost Bankers, Inc.

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



2019


2018


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

TAXABLE-EQUIVALENT YIELD/COST (1)










Earning Assets:










Interest-bearing deposits

2.64

%


2.50

%


2.35

%


2.05

%


1.93

%

Federal funds sold and resell agreements

2.48



2.58



2.41



2.14



1.92


Securities

3.42



3.37



3.39



3.41



3.36


Loans, net of unearned discounts

5.34



5.33



5.20



5.04



4.90


Total earning assets

4.33



4.27



4.15



4.04



3.93












Interest-Bearing Liabilities:










Interest-bearing deposits:










Savings and interest checking

0.08



0.09



0.08



0.09



0.08


Money market deposit accounts

1.03



1.09



1.00



0.93



0.74


Time accounts

1.66



1.43



1.14



0.87



0.66


Public funds

1.51



1.39



1.31



1.11



0.99


Total interest-bearing deposits

0.68



0.69



0.63



0.57



0.46












Total deposits

0.41



0.42



0.37



0.34



0.27












Federal funds purchased and repurchase agreements

1.69



1.72



1.56



0.90



0.25


Junior subordinated deferrable interest debentures

4.34



4.40



4.24



4.09



3.85


Subordinated notes payable and other notes

4.71



4.72



4.72



4.72



4.72


Total interest-bearing liabilities

0.80



0.81



0.74



0.64



0.50












Net interest spread

3.53



3.46



3.41



3.40



3.43


Net interest income to total average earning assets

3.85



3.79



3.72



3.66



3.64












AVERAGE BALANCES










($ in millions)










Assets:










Interest-bearing deposits

$

1,171



$

1,729



$

2,452



$

2,799



$

2,885


Federal funds sold and resell agreements

246



250



317



260



296


Securities

13,322



12,770



12,435



12,053



11,928


Loans, net of unearned discount

14,375



14,205



13,949



13,683



13,537


Total earning assets

$

29,114



$

28,954



$

29,153



$

28,796



$

28,647












Liabilities:










Interest-bearing deposits:










Savings and interest checking

$

6,774



$

6,774



$

6,673



$

6,675



$

6,688


Money market deposit accounts

7,588



7,696



7,792



7,620



7,578


Time accounts

970



895



836



799



787


Public funds

513



554



467



369



387


Total interest-bearing deposits

15,845



15,919



15,767



15,462



15,440












Total deposits

25,993



26,112



26,507



26,152



26,069












Federal funds purchased and repurchase agreements

1,242



1,180



1,138



1,011



1,020


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

$

17,322



$

17,334



$

17,140



$

16,708



$

16,695












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

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

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