U.S. Markets closed

Cullen/Frost Reports Third Quarter Results

Board declares fourth quarter dividend on common and preferred stock

SAN ANTONIO, Oct. 25, 2018 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (CFR) today reported third quarter 2018 results. Net income available to common shareholders for the third quarter of 2018 was $115.8 million, compared to $91.1 million in the third quarter of 2017, representing an increase of 27 percent. On a per-share basis, net income available to common shareholders for the third quarter of 2018 was $1.78 per diluted common share, compared to $1.41 per diluted common share reported a year earlier. Returns on average assets and average common equity were 1.49 percent and 14.40 percent, respectively, for the third quarter of 2018 compared to 1.19 percent and 11.71 percent, respectively, for the same period a year earlier.

For the third quarter of 2018, net interest income was $241.7 million, up 10.2 percent compared to the same quarter in 2017. Average loans for the third quarter of 2018 increased $1.1 billion, or 8.7 percent, to $13.7 billion, from the $12.6 billion reported for the third quarter a year earlier. Average deposits for the quarter were $26.2 billion compared to $25.7 billion reported for last year's third quarter, an increase of 1.6 percent.

For the first nine months of 2018, net income available to common shareholders was $329.6 million, up 28 percent compared to $257.6 million for the first nine months of 2017. Diluted EPS available to common shareholders for the first nine months was $5.08 compared to $3.98 in the year-earlier period, also up 28 percent. Returns on average assets and average common equity for the first nine months of 2018 were 1.42 percent and 14.02 percent, respectively, compared to 1.14 percent and 11.44 percent, respectively, for the same period in 2017.

"These robust earnings reflect our emphasis on sustainable, above-average organic growth," said Cullen/Frost Chairman and CEO Phil Green. "Texas remains a growing and attractive place to do business and we have ample opportunities for growth in the state."

Cullen/Frost Announces Houston Region Expansion

Separately, Cullen/Frost announced an expansion of its presence in the Houston region. Frost expects to open the first new branch associated with this expansion no later than early 2019, and over the course of 2019 and 2020 expects to open approximately one branch per month. Frost currently has less than 2 percent deposit market share in Houston. "We believe this underscores the size of our growth opportunity in the Houston region," Green said. "We are confident that by making prudent investments to expand our presence in the Houston region, we can meaningfully enhance our long-term growth trajectory in that market."

Frost has served the Houston community since 1977, and the Frost name is well-recognized in Houston. In September 2017, Frost announced a $1 million donation from the Frost Bank Charitable Foundation to nonprofits offering relief to those affected by Hurricane Harvey. By way of our planned Houston region expansion, we plan to continue and increase the role that Frost plays in the region's long term growth.

Noted financial data for the third quarter of 2018 follows:

  • The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios at the end of the third quarter of 2018 were 12.93 percent, 13.63 percent and 15.44 percent, respectively, and continue to be in excess of well-capitalized levels. Current capital ratios exceed Basel III fully phased-in requirements.
  • Net interest income of $241.7 million represented a 10.2 percent increase over the prior year period. Net interest margin was 3.66 percent for the third quarter of 2018, a 2 basis point increase over the second quarter of 2018 net interest margin of 3.64 percent. This compares to 3.73 percent in the third quarter of 2017 based on a 35 percent tax rate, and 3.41 percent had the current 21 percent tax rate been in place.
  • Non-interest income for the third quarter of 2018 totaled $87.7 million, an increase of $6.0 million, or 7.4 percent, compared to $81.6 million reported for the third quarter of 2017. Trust and investment management fees were $30.8 million, up $3.3 million, or 12.0 percent, from the third quarter of 2017. The increase was primarily driven by higher trust investment fees and oil and gas fees. The higher trust investment fees were driven by higher equity prices. The higher oil and gas fees were driven by higher energy prices and new business, which was partly related to enhancements to our service offering. The growth in overall non-interest income was impacted by a net loss on securities transactions of $4.9 million in the third quarter of 2017 associated with the sale of $750 million in available for sale U.S. Treasury securities. Adjusted for the year-ago net loss on securities transactions and adjusting year-ago interchange and debit card fees for the new accounting standard, non-interest income would have increased 5.0 percent in the third quarter of 2018 over the prior year period. See the last bullet in this section for more details.
  • Non-interest expense was $193.7 million for the third quarter of 2018, up $6.8 million or 3.7 percent compared to the $186.8 million reported for the third quarter a year earlier. Total salaries rose $3.2 million, or 3.7 percent, to $87.5 million, and were impacted by normal annual merit and market increases, as well as an increase in incentive compensation. Technology, furniture and equipment expense for the third quarter increased by $2.3 million, or 12.1 percent, from the third quarter of 2017. The increase was primarily related to increases in software maintenance, software amortization, and depreciation on furniture and equipment. Other non-interest expense was $41.8 million in the third quarter of 2018, an increase of $534 thousand, or 1.3 percent, from the third quarter a year earlier. An increase in advertising/promotions expense (up $2.9 million) was offset by a $3.0 million decrease in interchange-related network costs, which are now netted against interchange income. See the last bullet in this section for more details.
  • For the third quarter of 2018, the provision for loan losses was $2.7 million, while net charge-offs totaled $15.3 million. This compares with a provision for loan losses of $8.3 million and $7.9 million in net charge-offs for the second quarter of 2018, and a provision for loan losses of $11.0 million and $6.2 million in net charge-offs in the third quarter of 2017.
  • The allowance for loan losses as a percentage of total loans was 1.00 percent at September 30, 2018, compared to 1.10 percent at the end of the second quarter of 2018 and 1.21 percent at the end of the third quarter of 2017. Non-performing assets were $86.4 million at the end of the third quarter of 2018, compared to $122.8 million at the end of the second quarter of 2018 and $150.0 million at the end of the third quarter of 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 three months ended September 30, 2018, gross interchange and debit card transaction fees totaled $6.5 million while related network costs totaled $3.0 million. On a net basis, we reported $3.5 million as interchange and debit card transaction fees. See note 2 on page 7 of this release and our forthcoming Form 10-Q for more information on the effects of this and other accounting changes.

The Cullen/Frost board declared a fourth quarter cash dividend of $0.67 per common share, payable on December 14, 2018, to shareholders of record on November 30, 2018. The board of directors also declared a cash dividend of $0.3359375 per share of the Noncumulative Perpetual Preferred Stock, Series A, which trades on the NYSE under the symbol "CFR PrA." The Series A Preferred Stock dividend is payable on December 17, 2018, to shareholders of record on November 30, 2018.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, October 25, 2018, 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 via webcast on our investor relations website linked below, or by phone at 1-800-944-6430. A playback of the conference call will be available after 2 p.m. CT until midnight Sunday, October 28, 2018 at 855-859-2056 with Conference ID # of 6647169. 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 $31.2 billion in assets at September 30, 2018. One of the 50 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)












2018


2017


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr

CONDENSED INCOME STATEMENTS










Net interest income

$

241,665



$

237,270



$

229,748



$

223,914



$

219,211


Net interest income (1)

265,687



260,531



252,536



268,611



264,406


Provision for loan losses

2,650



8,251



6,945



8,102



10,980


Non-interest income:










Trust and investment management fees

30,801



29,121



29,587



28,985



27,493


Service charges on deposit accounts

21,569



21,142



20,843



21,248



20,967


Insurance commissions and fees

11,037



10,556



15,980



11,728



10,892


Interchange and debit card transaction fees (2)

3,499



3,446



3,158



6,082



5,884


Other charges, commissions and fees

9,580



9,273



9,007



9,948



10,493


Net gain (loss) on securities transactions

(34)



(60)



(19)



(24)



(4,867)


Other

11,205



11,588



12,889



12,108



10,753


Total non-interest income (2)

87,657



85,066



91,445



90,075



81,615












Non-interest expense:










Salaries and wages

87,547



85,204



86,683



89,173



84,388


Employee benefits

18,355



17,907



21,995



17,022



17,730


Net occupancy

19,894



19,455



19,740



18,190



19,391


Technology, furniture and equipment

21,004



20,459



19,679



19,352



18,743


Deposit insurance

4,694



4,605



4,879



4,781



4,862


Intangible amortization

336



369



388



402



405


Other (2)

41,838



40,909



43,247



47,360



41,304


Total non-interest expense (2)

193,668



188,908



196,611



196,280



186,823


Income before income taxes

133,004



125,177



117,637



109,607



103,023


Income taxes

15,160



13,836



11,157



9,083



9,892


Net income

117,844



111,341



106,480



100,524



93,131


Preferred stock dividends

2,016



2,015



2,016



2,016



2,016


Net income available to common shareholders

$

115,828



$

109,326



$

104,464



$

98,508



$

91,115












PER COMMON SHARE DATA










Earnings per common share - basic

$

1.80



$

1.70



$

1.63



$

1.54



$

1.43


Earnings per common share - diluted

1.78



1.68



1.61



1.53



1.41


Cash dividends per common share

0.67



0.67



0.57



0.57



0.57


Book value per common share at end of quarter

49.49



49.53



48.58



49.68



48.24












OUTSTANDING COMMON SHARES










Period-end common shares

63,923



63,904



63,794



63,476



63,114


Weighted-average common shares - basic

63,892



63,837



63,649



63,314



63,667


Dilutive effect of stock compensation

1,022



1,062



1,013



981



898


Weighted-average common shares - diluted

64,914



64,899



64,662



64,295



64,565












SELECTED ANNUALIZED RATIOS










Return on average assets

1.49

%


1.43

%


1.36

%


1.26

%


1.19

%

Return on average common equity

14.40



14.03



13.62



12.66



11.71


Net interest income to average earning assets (1)

3.66



3.64



3.52



3.70



3.73












(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 $2,904 and $3,233 in the third and fourth quarters of 2017, respectively.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)



2018


2017


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


3rd Qtr

BALANCE SHEET SUMMARY










($ in millions)










Average Balance:










Loans

$

13,683



$

13,537



$

13,295



$

12,879



$

12,587


Earning assets

28,796



28,647



29,002



29,012



28,342


Total assets

30,918



30,758



31,131



31,107



30,390


Non-interest-bearing demand deposits

10,690



10,629



10,972



11,098



10,756


Interest-bearing deposits

15,462



15,440



15,457



15,286



14,994


Total deposits

26,152



26,069



26,429



26,384



25,750


Shareholders' equity

3,335



3,270



3,255



3,232



3,232












Period-End Balance:










Loans

$

13,815



$

13,712



$

13,364



$

13,146



$

12,706


Earning assets

29,042



28,494



29,414



29,595



28,941


Goodwill and intangible assets

659



659



660



660



660


Total assets

31,223



30,687



31,459



31,748



30,990


Total deposits

26,349



25,996



26,678



26,872



26,403


Shareholders' equity

3,308



3,310



3,243



3,298



3,189


Adjusted shareholders' equity (1)

3,449



3,373



3,297



3,218



3,131












ASSET QUALITY










($ in thousands)










Allowance for loan losses:

$

137,578



$

150,226



$

149,885



$

155,364



$

154,303


As a percentage of period-end loans

1.00

%


1.10

%


1.12

%


1.18

%


1.21

%











Net charge-offs:

$

15,298



$

7,910



$

12,424



$

7,041



$

6,235


Annualized as a percentage of average loans

0.44

%


0.23

%


0.38

%


0.22

%


0.20

%











Non-performing assets:










Non-accrual loans

$

82,601



$

119,181



$

123,152



$

150,314



$

143,104


Restructured loans





12,058



4,862



4,815


Foreclosed assets

3,765



3,643



1,371



2,116



2,094


Total

$

86,366



$

122,824



$

136,581



$

157,292



$

150,013


As a percentage of:










Total loans and foreclosed assets

0.62

%


0.90

%


1.02

%


1.20

%


1.18

%

Total assets

0.28



0.40



0.43



0.50



0.48












CONSOLIDATED CAPITAL RATIOS










Common Equity Tier 1 Risk-Based Capital Ratio

12.93

%


12.69

%


12.69

%


12.42

%


12.38

%

Tier 1 Risk-Based Capital Ratio

13.63



13.40



13.42



13.16



13.14


Total Risk-Based Capital Ratio

15.44



15.29



15.36



15.15



15.19


Leverage Ratio

9.19



9.02



8.62



8.46



8.39


Equity to Assets Ratio (period-end)

10.60



10.78



10.31



10.39



10.29


Equity to Assets Ratio (average)

10.79



10.63



10.46



10.39



10.63












(1)

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

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)



Nine Months Ended



September 30,



2018


2017

CONDENSED INCOME STATEMENTS










Net interest income


$

708,683



$

642,508


Net interest income (1)


778,754



774,819


Provision for loan losses


17,846



27,358


Non-interest income:





Trust and investment management fees


89,509



81,690


Service charges on deposit accounts


63,554



62,934


Insurance commissions and fees


37,573



34,441


Interchange and debit card transaction fees (2)


10,103



17,150


Other charges, commissions and fees


27,860



29,983


Net gain (loss) on securities transactions


(113)



(4,917)


Other


35,682



25,114


Total non-interest income (2)


264,168



246,395







Non-interest expense:





Salaries and wages


259,434



247,895


Employee benefits


58,257



57,553


Net occupancy


59,089



57,781


Furniture and equipment


61,142



54,983


Deposit insurance


14,178



15,347


Intangible amortization


1,093



1,301


Other (2)


125,994



127,929


Total non-interest expense (2)


579,187



562,789


Income before income taxes


375,818



298,756


Income taxes


40,153



35,131


Net income


335,665



263,625


Preferred stock dividends


6,047



6,047


Net income available to common shareholders


$

329,618



$

257,578







PER COMMON SHARE DATA





Earnings per common share - basic


$

5.13



$

4.02


Earnings per common share - diluted


5.08



3.98


Cash dividends per common share


1.91



1.68


Book value per common share at end of quarter


49.49



48.24







OUTSTANDING COMMON SHARES





Period-end common shares


63,923



63,114


Weighted-average common shares - basic


63,794



63,822


Dilutive effect of stock compensation


1,037



957


Weighted-average common shares - diluted


64,831



64,779







SELECTED ANNUALIZED RATIOS





Return on average assets


1.42

%


1.14

%

Return on average common equity


14.02



11.44


Net interest income to average earning assets (1)


3.61



3.69







(1)

Taxable-equivalent basis assuming a 21% tax rate for 2018 and a 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 $8,056 for the nine months ended September 30, 2017.

 

Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)








As of or for the



Nine Months Ended



September 30,



2018


2017

BALANCE SHEET SUMMARY ($ in millions)





Average Balance:





Loans


$

13,506



$

12,319


Earning assets


28,814



28,139


Total assets


30,933



30,225


Non-interest-bearing demand deposits


10,762



10,726


Interest-bearing deposits


15,454



15,018


Total deposits


26,216



25,744


Shareholders' equity


3,287



3,154







Period-End Balance:





Loans


$

13,815



$

12,706


Earning assets


29,042



28,941


Goodwill and intangible assets


659



660


Total assets


31,223



30,990


Total deposits


26,349



26,403


Shareholders' equity


3,308



3,189


Adjusted shareholders' equity (1)


3,449



3,131







ASSET QUALITY ($ in thousands)





Allowance for loan losses:


$

137,578



$

154,303


As a percentage of period-end loans


1.00

%


1.21

%






Net charge-offs:


$

35,632



$

26,100


Annualized as a percentage of average loans


0.35

%


0.28

%






Non-performing assets:





Non-accrual loans


$

82,601



$

143,104


Restructured loans




4,815


Foreclosed assets


3,765



2,094


Total


$

86,366



$

150,013


As a percentage of:





Total loans and foreclosed assets


0.62

%


1.18

%

Total assets


0.28



0.48







CONSOLIDATED CAPITAL RATIOS





Common Equity Tier 1 Risk-Based Capital Ratio

12.93

%


12.38

%

Tier 1 Risk-Based Capital Ratio


13.63



13.14


Total Risk-Based Capital Ratio


15.44



15.19


Leverage Ratio


9.19



8.39


Equity to Assets Ratio (period-end)


10.60



10.29


Equity to Assets Ratio (average)


10.63



10.43







(1)

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

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

 

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

 

Cision

View original content to download multimedia:http://www.prnewswire.com/news-releases/cullenfrost-reports-third-quarter-results-300737548.html