Fitch Ratings has affirmed and withdrawn the long-term Issuer
Default Ratings at 'A' for Cullen/Frost Bankers, Inc. (CFR), and
its subsidiary Frost Bank. In addition, Fitch has affirmed and
withdrawn the ratings for Cullen/Frost Capital Trust II. The Rating
Outlook is Stable. Fitch has decided to discontinue the rating,
which is uncompensated. A full list of rating actions is at the end
of this release.
KEY RATING DRIVERS - IDRs, VRs, AND SENIOR DEBT
Today's affirmation is supported by CFR's stable earnings,
strong funding and capital profile, solid asset quality, and low
credit costs through the cycle. Though still lagging pre-crisis
levels, reported earnings remain stable and above mid-tier regional
bank averages in terms of return on average assets (ROAA) and
efficiency. Given CFR's conservative profile, liquidity remains
strong with a third quarter 2014 (3Q'14) loan-to-deposit (LTD)
ratio of just 46%. Sustained low funding costs will support loan
growth, which Fitch expects to pick-up as the economy improves
enabling CFR to take advantage of more attractive lending
opportunities and bumping up its LTD (yet remaining below industry
averages). Nonperforming assets as a percentage of total loans and
other real estate owned was just 0.59% for the recent quarter and
is comfortably below the Fitch-rated mid-tier regional bank peer
average of 2.01% for the same period. Capital levels are
appropriate in light of CFR's risk profile while net charge-off
also remain consistently below mid-tier regional bank averages.
CFR's C&I and CRE portfolios since 3Q'13 have exhibited
robust growth relative to the state of Texas and national GDP.
Year-over-year loan growth in CFR's C&I portfolio totalled
14.6% at Sept. 30, 2014, while the CRE portfolio recorded loan
growth of 19.3% for the same period. The 2Q'14 acquisition of WNB
of Bancshares, Inc. accounts for a majority of growth within the
C&I portfolio. It is Fitch's expectation that management has
maintained its conservative underwriting standards during this
period of growth.
CFR's exposure to the energy industry is among the highest in
the Fitch-rated universe, accounting for 14.9% of total loans at
the end of 3Q'14. Recent declines in the price of oil opens the
door to potential losses associated with energy loans and, if
sustained, can also have an impact on the company's loans to
consumers and businesses operating within energy-dependent regions.
Similar to Fitch's expectations regarding management's handling of
C&I and CRE growth, Fitch believes the company is positioned
via risk management and continued conservative underwriting such
that the impact of a short-to-intermediate oil price correction
will not have any material effect on the company.
Fitch notes that municipal holdings in CFR's securities
portfolio remain elevated (highest of Fitch-rated mid-tier banks),
accounting for 53% of total securities and 19% of total assets.
Most of the municipal holdings are either guaranteed by the Texas
Permanent School Fund (TSPF), which is 'AAA' rated by Fitch, or
secured by U.S. Treasury securities via defeasance of the debt by
the issuers. While CFR's municipal portfolio has historically
performed well, Fitch notes there exists a degree of concentration
risk despite the highly rated issuers making up a majority of the
municipal book.
RATING SENSITIVITIES - IDRs, VRs, AND SENIOR DEBT
Rating sensitivities are no longer needed given today's rating
withdrawal.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID
SECURITIES
CFR's subordinated debt and preferred stock are rated one and
five notches below CFR's Viability Rating (VR), respectively. The
notching reflects loss severity and an assessment of increment
non-performance risk.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID
SECURITIES
Rating sensitivities are no longer needed given today's rating
withdrawal.
SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS
CFR's IDR and VR are equalized with those of its subsidiary
bank, Frost Bank, reflecting its role as the bank holding company,
which is mandated in the U.S. to act as a source of strength for
its bank subsidiaries. Ratings are also equalized reflecting the
very close correlation between holding company and subsidiary
default probabilities.
SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES
Rating sensitivities are no longer needed given today's rating
withdrawal.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
CFR's Support Rating and Support Rating Floor of '5' and 'NF'
reflect Fitch's view that the company is unlikely to procure
extraordinary support should support be needed.
KEY RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING
FLOOR
Rating sensitivities are no longer needed given today's rating
withdrawal.
Fitch has affirmed and withdrawn the following ratings:
Cullen/Frost Bankers, Inc.
--Long-Term IDR at 'A';
--Short-Term IDR at 'F1';
--Viability Rating at 'a';
--Preferred Stock at 'BB+';
--Subordinated Notes at 'A-';
--Support Floor at 'NF';
--Support at '5'.
Frost Bank
--Long-Term IDR at 'A';
--Long-Term Deposits at 'A+';
--Short-Term IDR at 'F1';
--Short-Term Deposits at 'F1';
--Viability Rating at 'a';
--Support Floor at 'NF';
--Support at '5'.
Cullen/Frost Capital Trust II
--Trust Preferred Stock at 'BBB-'.
Additional information is available on www.fitchratings.com. THE
ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS, OR PROVIDE
ADDITIONAL INFORMATION, BEYOND THE ISSUER'S AVAILABLE PUBLIC
DISCLOSURE.
Applicable Criteria and Related Research:
--'2015 Outlook: U.S. Banks';
--'U.S. Banks: Liquidity and Deposit Funding';
--'U.S. Banks: Interest Rate Risks (What Happens When Rates
Rise)';
--'U.S. Bank Mergers and Acquisitions -- When Will The Catalysts
Kick In?';
--'Fitch Fundamentals Index';
--'Global Financial Institutions Rating Criteria;
--Assessing and Rating Bank Subordinated and Hybrid Securities
Criteria';
--'Rating FI Subsidiaries and Holding Companies';
--'Banks Lifted by Energy Boom Facing Risk in Oil's Slide'.
Applicable Criteria and Related Research:
2015 Outlook: U.S. Banks (Growth in a Challenging Rate
Environment)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228
U.S. Banks: Liquidity and Deposit Funding
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196
U.S. Banks: Interest Rate Risks (What Happens When Rates
Rise)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Assessing and Rating Bank Subordinated and Hybrid Securities
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
U.S. Bank Mergers and Acquisitions -- When Will The Catalysts
Kick In?
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539
Fitch Fundamentals Index
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729196
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959897
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY,
CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER
RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE
OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD
ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Fitch RatingsPrimary AnalystJulie SolarSenior Director+1
312-368-5472Fitch Ratings, Inc.70 West Madison StreetChicago, IL
60602orSecondary AnalystBain RumohrDirector+1
312-368-3153orCommittee ChairpersonJoo-Yung LeeManaging Director+1
212-908-0560orMedia Relations:Brian Bertsch, +1
212-908-0549brian.bertsch@fitchratings.com