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Cullen/Frost Reports Second Quarter Results

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

Board declares third quarter dividend on common stock

SAN ANTONIO , July 30, 2020 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported second quarter 2020 results. Net income available to common shareholders for the second quarter of 2020 was $93.1 million , compared to $109.6 million in the second quarter of 2019. On a per-share basis, net income available to common shareholders for the second quarter of 2020 was $1.47 per diluted common share, compared to $1.72 per diluted common share reported a year earlier. Returns on average assets and average common equity were 0.99 percent and 9.60 percent, respectively, for the second quarter of 2020 compared to 1.40 percent and 12.60 percent, respectively, for the same period a year earlier.

For the second quarter of 2020, net interest income on a taxable-equivalent basis was $269.7 million , down 2.9 percent compared to the same quarter in 2019. Average loans for the second quarter of 2020 increased $3.2 billion , or 22.1 percent, to $17.5 billion , from the $14.4 billion reported for the second quarter a year earlier. Excluding PPP loans, second quarter average loans of $15.1 billion represented a 4.7 percent increase compared to the second quarter of 2019. Average deposits for the quarter were $31.3 billion , up $5.3 billion , or 20.5 percent, compared to the $26.0 billion reported for last year's second quarter. 

"Our second quarter results demonstrate our continued commitment to serving our customers and our communities during these challenging times," said Phil Green , Cullen/Frost Chairman and CEO. "We finished the second quarter with approximately $3.2 billion in PPP loans outstanding. I'm extraordinarily proud that our company has been such a source of strength for our customers and our communities, and also a force for good in their lives."

For the first six months of 2020, net income available to common shareholders was $140.3 million , down 37.4 percent compared to $224.1 million for the first six months of 2019. Diluted EPS available to common shareholders for the first six months of 2020 was $2.21 compared to $3.51 in the year-earlier period, representing a decrease of 37.0 percent. Returns on average assets and average common equity for the first six months of 2020 were 0.79 percent and 7.24 percent, respectively, compared to 1.44 percent and 13.32 percent, respectively, for the same period in 2019.

Noted financial data for the second quarter of 2020 follows:

  • For the second quarter of 2020, credit loss expense related to loans was $27.2 million , compared to net charge-offs of $41.0 million . This compares with $172.9 million in credit loss expense related to loans and $38.6 million in net charge-offs for the first quarter of 2020, and $6.4 million in credit loss expense related to loans and $7.8 million in net charge-offs in the second quarter of 2019. The allowance for credit losses on loans as a percentage of total loans was 1.39 percent at June 30, 2020 , compared to 1.72 percent at the end of the first quarter of 2020 and 0.93 percent at the end of the second quarter of 2019. Excluding PPP loans which carry a guarantee from the SBA, the allowance for credit losses on loans as a percentage of total loans was 1.69 percent at the end of the second quarter of 2020. Non-performing assets were $85.2 million at the end of the second quarter of 2020, compared to $67.5 million at the end of the first quarter of 2020 and $76.4 million at the end of the second quarter of 2019. Credit loss expense related to off-balance-sheet credit exposures was $4.8 million in the second quarter of 2020, compared to $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 second quarter of 2020 were 12.48 percent, 12.48 percent and 14.43 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 $269.7 million , a decrease of 2.9 percent compared to the prior year period. The net interest margin was 3.13 percent for the second quarter of 2020, down 43 basis points compared to the first quarter of 2020 net interest margin of 3.56 percent. Net interest margin decreased 72 basis points compared to 3.85 percent in the year-ago period.

  • Non-interest income for the second quarter of 2020 totaled $77.6 million , a decrease of $5.0 million , or 6.1 percent, from the $82.6 million reported for the second quarter of 2019. Service charges on deposits for the second quarter decreased $4.2 million , or 19.4 percent, compared to the same period in 2019. The decrease was primarily related to decreases in overdraft/insufficient funds charges on consumer and commercial accounts. Overdraft/insufficient funds charges were impacted by lower volumes in the second quarter. Other charges, commissions and fees for the second quarter decreased $1.3 million , or 14.2 percent, compared to the second quarter of 2019. The decrease was driven by a decrease in sales of investment products and services, among other things. Interchange and debit card transaction fees decreased by $902,000 , or 23.3 percent, compared to the second quarter a year earlier. Revenue from interchange and debit card transactions was impacted by reduced transaction volumes resulting from the COVID-19 pandemic. Trust and investment management fees and insurance commissions and fees for the second quarter each increased by approximately $600,000 (2.0 percent and 5.4 percent, respectively) compared to the second quarter of 2019. The increase in trust investment fees was primarily related to an increase in the number of accounts. The increase in insurance commissions and fees was driven by increased commissions from commercial lines and, to a lesser extent, increased commissions on sales of personal lines property and casualty insurance.

  • Non-interest expense was $199.7 million for the quarter, down $3.5 million , or 1.7 percent, compared to the $203.2 million reported for the second quarter a year earlier. Other non-interest expense of $36.1 million represented a $10.2 million , or 22.0 percent, decrease compared to the second quarter of 2019. The decrease was driven by decreases in advertising/promotions expense (down $3.1 million ); travel, meals and entertainment expense (down $3.0 million ); and business development expense (down $806,000 ), among other things. Another driver of the decrease in other non-interest expense in the second quarter of 2020 was $1.8 million in PPP-related expense deferrals. Employee benefits expense for the second quarter of 2020 decreased $1.2 million , or 5.9 percent, compared to the same period in 2019. The decrease in employee benefits expense during the three months ended June 30, 2020 was primarily related to decreases in certain discretionary benefit plan expenses partly offset by an increase in medical benefits expense and payroll taxes. Salaries and wages expense was $90.4 million in the second quarter of 2020, down $440,000 or 0.5% compared to the second quarter of 2019. The decrease was primarily related to the deferral of some salary costs as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. PPP-related salary expense deferrals in the second quarter of 2020 were $5.5 million . Second quarter net occupancy expense increased by $4.1 million , or 19.6 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. Technology, furniture and equipment expense for the second quarter increased by $3.9 million or 17.6 percent from the second quarter of 2019. The increases were primarily related to increases in cloud services expense (up $2.4 million ), depreciation of furniture and equipment (up $961,000 ) and software maintenance expense (up $523,000 ).

The Cullen/Frost board declared a third-quarter cash dividend of $0.71 per common share, payable September 15, 2020 to shareholders of record on August 31 of this year.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, July 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, August 2, 2020 at 855-859-2056 with Conference ID # of 9885929. 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. (NYSE: CFR) is a financial holding company, headquartered in San Antonio , with $39.4 billion in assets at June 30, 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 ongoing 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 ongoing 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 ongoing 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


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

245,811



$

244,521



$

251,098



$

253,007



$

253,431


Net interest income (1)

269,722



268,453



275,038



276,618



277,751


Credit loss expense (2)

31,975



175,197



8,355



8,001



6,400


Non-interest income:










Trust and investment management fees

31,060



34,473



32,928



31,649



30,448


Service charges on deposit accounts

17,580



22,651



23,454



22,941



21,798


Insurance commissions and fees

10,668



16,485



12,138



11,683



10,118


Interchange and debit card transaction fees

2,966



3,255



3,608



4,117



3,868


Other charges, commissions and fees

7,663



9,365



9,020



10,108



8,933


Net gain (loss) on securities transactions



108,989



28



96



169


Other

7,664



17,697



14,079



8,630



7,304


  Total non-interest income

77,601



212,915



95,255



89,224



82,638












Non-interest expense:










Salaries and wages

90,350



98,812



97,951



93,812



90,790


Employee benefits

18,861



24,889



21,651



21,002



20,051


Net occupancy

25,266



25,384



24,864



24,202



21,133


Technology, furniture and equipment

26,046



25,240



25,759



22,415



22,157


Deposit insurance

2,800



2,624



2,374



2,491



2,453


Intangible amortization

241



257



264



274



305


Other

36,115



46,957



47,943



44,668



46,320


  Total non-interest expense

199,679



224,163



220,806



208,864



203,209


Income before income taxes

91,758



58,076



117,192



125,366



126,460


Income taxes

(1,314)



3,323



13,511



13,530



14,874


Net income

93,072



54,753



103,681



111,836



111,586


Preferred stock dividends



2,016



2,016



2,016



2,015


Redemption of preferred stock



5,514








Net income available to common shareholders

$

93,072



$

47,223



$

101,665



$

109,820



109,571












PER COMMON SHARE DATA










Earnings per common share - basic

$

1.47



$

0.75



$

1.61



$

1.74



$

1.73


Earnings per common share - diluted

1.47



0.75



1.60



1.73



1.72


Cash dividends per common share

0.71



0.71



0.71



0.71



0.71


Book value per common share at end of quarter

63.97



61.17



60.11



59.76



57.39












OUTSTANDING COMMON SHARES










Period-end common shares

62,670



62,553



62,669



62,537



62,638


Weighted-average common shares - basic

62,596



62,643



62,609



62,566



62,789


Dilutive effect of stock compensation

205



407



625



593



765


Weighted-average common shares - diluted

62,801



63,050



63,234



63,159



63,554












SELECTED ANNUALIZED RATIOS










Return on average assets

0.99

%


0.57

%


1.21

%


1.35

%


1.40

%

Return on average common equity

9.60



4.88



10.74



11.83



12.60


Net interest income to average earning assets

3.13



3.56



3.62



3.76



3.85












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

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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2020


2019


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

17,550



$

14,995



$

14,705



$

14,471



$

14,375


Earning assets

35,128



30,804



30,621



29,693



29,114


Total assets

37,838



33,534



33,314



32,248



31,491


Non-interest-bearing demand deposits

13,785



10,737



10,772



10,316



10,148


Interest-bearing deposits

17,528



16,654



16,414



16,036



15,845


Total deposits

31,313



27,391



27,186



26,352



25,993


Shareholders' equity

3,899



4,009



3,900



3,828



3,632












Period-End Balance:










Loans

$

17,972



$

15,338



$

14,750



$

14,635



$

14,459


Earning assets

36,613



31,440



31,281



30,358



29,216


Goodwill and intangible assets

657



657



657



658



658


Total assets

39,378



34,147



34,027



33,098



31,817


Total deposits

32,679



28,141



27,640



27,084



25,985


Shareholders' equity

4,009



3,827



3,912



3,881



3,739


Adjusted shareholders' equity (1)

3,521



3,463



3,644



3,576



3,520












ASSET QUALITY










($ in thousands)










Allowance for credit losses on loans:

$

250,061



$

263,881



$

132,167



$

136,559



$

134,929


As a percentage of period-end loans

1.39

%


1.72

%


0.90

%


0.93

%


0.93

%











Net charge-offs:

$

41,048



$

38,646



$

12,747



$

6,371



$

7,821


Annualized as a percentage of average loans

0.94

%


1.04

%


0.34

%


0.17

%


0.22

%











Non-performing assets:










Non-accrual loans

$

79,461



$

66,727



$

102,303



$

97,446



$

71,521


Restructured loans

4,932





6,098



6,160



3,973


Foreclosed assets

806



806



1,084



1,427



907


  Total

$

85,199



$

67,533



$

109,485



$

105,033



$

76,401


As a percentage of:










Total loans and foreclosed assets

0.47

%


0.44

%


0.74

%


0.72

%


0.53

%

Total assets

0.22



0.20



0.32



0.32



0.24












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio

12.48

%


12.02

%


12.36

%


12.35

%


12.29

%

Tier 1 Risk-Based Capital Ratio

12.48



12.02



12.99



12.99



12.94


Total Risk-Based Capital Ratio

14.43



13.97



14.57



14.63



14.60


Leverage Ratio

8.01



8.84



9.28



9.36



9.40


Equity to Assets Ratio (period-end)

10.18



11.21



11.50