CFR Cullen Frost Bankers Inc

- Surpassing $16 billion in assets - Deposit growth remains robust - Capital levels continue to be strong SAN ANTONIO, Oct. 21 /PRNewswire-FirstCall/ -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported earnings for the third quarter of 2009 of $44.7 million, a decrease of 8.2 percent compared to the $49.0 million reported for the same period in 2008. On a per-share basis, net income for the quarter was $.75 per diluted common share, compared to the $.83 per diluted common share reported a year earlier. (Logo: http://www.newscom.com/cgi-bin/prnh/20030109/CFRLOGO) Return on average assets and return on average equity for the third quarter of 2009 were 1.11 percent and 9.7 percent, respectively, compared to 1.44 percent and 12.39 percent for the same quarter in 2008. The provision for possible loan losses was $16.9 million, compared to $18.9 million reported a year earlier, while the allowance for possible loan losses as a percentage of loans increased to 1.45 percent from 1.25 percent for the same quarter of 2008. For the third quarter of 2009, net interest income on a tax-equivalent basis increased 3.8 percent to $144.9 million, compared to the $139.7 million reported for the same quarter of 2008. Average loans for the third quarter of 2009 rose slightly to $8.6 billion, compared to the $8.4 billion reported for the third quarter a year earlier, but were down compared to the $8.8 billion reported in the second quarter, as both business and consumer customers respond to the recession. Average deposits for the quarter were $12.8 billion, $613 million over the previous quarter, and an increase of 23.0 percent over the $10.4 billion reported for the third quarter of 2008. "Cullen/Frost continues to navigate through a challenging environment, preparing our company for the economic rebound," said Cullen/Frost CEO Dick Evans. "Texas went into the recession later than the rest of the nation, in November of 2008. Today, businesses and consumers are conserving cash and reining in spending, as you would expect. Amid current economic conditions, charge-offs and the provision for loan losses remain at elevated levels. While some measure of volatility is inevitable in this type of credit environment, I feel confident that our credit quality levels continue to be manageable." "Since the beginning of the fourth quarter of 2008, we have seen robust growth in deposits from both consumers and businesses moving their money and relationships to Frost, bringing in an additional $2.4 billion in average deposits, including $613 million this quarter. We are helping our customers get through this cycle and will be there for them when they are ready to reinvest in the economy. "This quarter we completed construction on the $50 million Frost Technology Center, a new, state-of-the-art facility that will ensure our ability and capacity to meet our future data and information technology needs. Designed with reinforced mission-critical equipment areas and improved workflow and communications, the center will significantly strengthen the company's technology infrastructure. "Our commitment to Texas remains strong. The Texas markets Frost serves appear in several studies and publications as cities poised to do well coming out of a recession. And we continue to grow, opening three new financial centers in Austin, Houston and the Dallas region during the third quarter. I remain confident in our future. "It has been almost a year since Cullen/Frost announced we would turn down federal TARP bailout funds. Our capital levels were strong then, and are even stronger now. It was a good decision for our company, allowing us to focus on growing new relationships, taking good care of existing customers and preparing Texas to be among the first wave of states to come out of recession. Going forward, our success will be based not only on financial capital, but also human capital, and I appreciate our employees' continued efforts to help this company perform well in this environment," Evans said. For the first nine months of 2009, earnings were $127.5 million down 17.3 percent, compared to $154.3 million reported for the same period of 2008. On a per-share basis, earnings for the year to date were $2.14 per diluted common share, compared to $2.61 per diluted common share, for the same period in 2008. Returns on average assets and equity for the first nine months of 2009 were 1.10 percent and 9.45 percent respectively, compared to 1.53 percent and 13.23 percent for the same period a year earlier. Noted financial data for the third quarter of 2009 follows. -- Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the third quarter of 2009 were 11.49 percent and 13.72 percent, respectively and are in excess of well capitalized levels. The tangible common equity ratio was 8.70 percent at the end of the third quarter of 2009 compared to 7.83 percent for the same quarter last year. -- Net-interest income on a taxable equivalent basis for the third quarter totaled $144.9 million, an increase of 3.8 percent compared to $139.7 million for the same period a year ago. This increase primarily resulted from an increase in the average volume of earning assets and was partly offset by a decrease in the net interest margin. The net interest margin was 4.12 percent for the third quarter of 2009, compared to 4.74 percent for the third quarter of 2008, and 4.28 percent for the second quarter of 2009. -- Non-interest income for the third quarter of 2009 totaled $69.5 million, compared to $77.3 million reported for the third quarter of 2008. Trust fee income was $16.8 million, compared to $19.7 million a year earlier. Most of this decrease relates to lower oil and gas trust management fees, down $1.9 million from last year's third quarter. Oil and natural gas prices have decreased impacting the amount of royalties received. Investment fees, which represent approximately 73 percent of total trust fees, are also down. Investment fees are generally assessed based on the market value of trust assets, which were $22.3 billion at the end of the third quarter, compared to $23.1 billion for the third quarter a year ago. This market value includes both assets that are managed and those held in custody. Service charges on deposit accounts were $26.4 million, up $3.8 million, or 16.6 percent, compared to $22.6 million for the third quarter of 2008. Impacting this rise was a $3.1 million increase in service charges on commercial accounts, resulting from higher treasury management fees. A drop in the earnings credit rate for commercial accounts, compared to a year earlier, impacted treasury management fees. When interest rates are lower, customers earn less credit for their deposit balances, and this, in turn, increases the amount of service charges to be paid for through fees. Other charges, commissions and fees were $6.8 million for the third quarter of 2009, down $3.9 million, from last year's third quarter of $10.7 million. Money market fees for the quarter were down $1.0 million compared to the same quarter a year ago. Last year's third quarter included a $2.6 million investment banking fee. Other non-interest income was $11.0 million, down $4.9 million, compared to the $15.9 million reported for the same quarter a year earlier. Most of this decrease is due to income of $2.2 million recognized in the third quarter of last year for the collection of loan interest and other charges written off in previous years. Also impacting the decrease was a $1.0 million gain on sale of assets recorded in last year's third quarter. -- Non-interest expense was $132.2 million for the quarter, up $9.3 million, or 7.5 percent, from the $123.0 million reported a year earlier. A large part of this increase is due to an increase in FDIC insurance expense of $2.8 million from the third quarter of 2008. Total salaries rose $788 thousand or 1.4 percent to $58.6 million, and were impacted by normal annual merit increases and an increase in the number of employees, which was offset, in part, by a decrease in incentive compensation. Employee benefits were up $2.8 million or 25.9 percent, primarily due to increases in expenses related to the company's medical costs, 401(k) and profit sharing plans, and retirement plan. Net occupancy expense was $11.1 million, an increase of $769 thousand from the third quarter last year due mainly to increases in lease expense for new locations. Furniture and equipment was $11.1 million, which was up $1.5 million from the same quarter last year. This increase occurred due to increases in depreciation expense related to furniture and fixtures, primarily for new locations, amortized software and software maintenance expense. Other expenses rose $1.1 million, from the third quarter last year. Most of this increase was due to the recognition of losses from the sale/write-down of foreclosed assets. -- For the third quarter of 2009, the provision for possible loan losses was $16.9 million, compared to net charge-offs of $16.3 million. For the third quarter of 2008, the provision for possible loan losses was $18.9 million, compared to net charge-offs of $6.4 million. Approximately $10 million of the provision for possible loan losses for the third quarter of 2008 was related to Hurricane Ike, which impacted the Corporation's operations in Houston and Galveston during the third quarter of 2008. The allowance for possible loan losses as a percentage of total loans was 1.45 percent at September 30, 2009, compared to 1.25 percent at the end of the third quarter last year and 1.42 percent at the end of the second quarter of 2009. Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 21, 2009, at 10:00 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. Digital playback of the conference call will be available after 2:00 p.m. CT until midnight Sunday, October 25, 2009 at 800-642-1687 with Conference ID # of 34963885. The call will also be available by webcast at the URL listed below and available for playback after 2:00 p.m. CT. After entering the Web site, http://www.frostbank.com/, go to "About Frost" on the top navigation bar, then click on Investor Relations. Cullen/Frost Bankers, Inc. (NYSE:CFR) is a financial holding company, headquartered in San Antonio, with assets of $16.2 billion at September 30, 2009. The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Frost operates more than 110 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost is the largest Texas-based banking organization that operates only in Texas, with a legacy of helping clients with their financial needs during three centuries. 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 the Corporation's future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Corporation 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 or services; (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 the Corporation and its customers and the Corporation's assessment of that impact. -- Volatility and disruption in national and international financial markets. -- Government intervention in the U.S. financial system. -- Changes in 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. -- Political instability. -- 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 the Corporation's borrowers. -- Technological changes. -- Acquisitions and integration of acquired businesses. -- The ability to increase market share and control expenses. -- Changes in the competitive environment among financial holding companies and other financial service providers. -- The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Corporation and its subsidiaries must comply. -- 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 Corporation's organization, compensation and benefit plans. -- The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews. -- Greater than expected costs or difficulties related to the integration of new products and lines of business. -- The Corporation's 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. The Corporation undertakes no 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. Greg Parker Investor Relations 210/220-5632 or Renee Sabel Media Relations 210/220-5416 Cullen/Frost Bankers, Inc. CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) (In thousands, except per share amounts) 2009 2008 ----------------------------- ------------------ 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr ------- ------- ------- ------- ------- CONDENSED INCOME STATEMENTS ---------------- Net interest income $133,989 $134,464 $129,632 $138,081 $134,736 Net interest income(1) 144,915 144,325 137,733 143,707 139,655 Provision for possible loan losses 16,940 16,601 9,601 8,550 18,940 Non-interest income: Trust fees 16,755 16,875 15,969 17,483 19,749 Service charges on deposit accounts 26,395 25,152 24,910 23,697 22,642 Insurance commissions and fees 8,505 7,106 10,751 6,470 8,261 Other charges, commissions and fees 6,845 6,288 6,762 8,407 10,723 Net gain (loss) on securities transactions -- 49 -- (133) 78 Other 10,991 12,536 11,472 13,274 15,862 ------- ------- ------- ------- ------- Total non-interest income 69,491 68,006 69,864 69,198 77,315 Non-interest expense: Salaries and wages 58,591 56,540 56,776 58,468 57,803 Employee benefits 13,445 13,783 15,240 10,517 10,677 Net occupancy 11,111 10,864 10,690 10,384 10,342 Furniture and equipment 11,133 10,662 10,363 10,010 9,657 Deposit insurance 4,643 11,667 4,376 1,785 1,859 Intangible amortization 1,564 1,719 1,781 1,929 1,976 Other 31,747 31,054 30,273 30,450 30,658 ------- ------- ------- ------- ------- Total non-interest expense 132,234 136,289 129,499 123,543 122,972 ------- ------- ------- ------- ------- Income before income taxes 54,306 49,580 60,396 75,186 70,139 Income taxes 9,607 11,721 15,414 22,223 21,174 ------- ------- ------- ------- ------- Net income $44,699 $37,859 $44,982 $52,963 $48,965 ======= ======= ======= ======= ======= PER SHARE DATA -------------- Net income - basic $0.75 $0.64 $0.76 $0.89 $0.83 Net income - diluted 0.75 0.63 0.76 0.89 0.83 Cash dividends 0.43 0.43 0.42 0.42 0.42 Book value at end of quarter 31.80 30.12 30.34 29.68 27.16 OUTSTANDING SHARES ------------------ Period-end shares 59,929 59,653 59,423 59,416 59,299 Weighted-average shares - basic 59,537 59,331 59,189 59,171 58,932 Dilutive effect of stock compensation 91 119 75 311 298 Weighted-average shares - diluted 59,628 59,450 59,264 59,482 59,230 SELECTED ANNUALIZED RATIOS ------------------- Return on average assets 1.11% 0.98% 1.23% 1.47% 1.44% Return on average equity 9.70 8.35 10.33 12.79 12.39 Net interest income to average earning assets(1) 4.12 4.28 4.33 4.60 4.74 (1) Taxable-equivalent basis assuming a 35% tax rate. Cullen/Frost Bankers, Inc. CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) 2009 2008 ------------------------------ ------------------ 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr ------- ------- ------- ------- ------- BALANCE SHEET SUMMARY --------------------- ($in millions) Average Balance: Loans $8,582 $8,784 $8,809 $8,712 $8,434 Earning assets 14,121 13,632 12,942 12,435 11,712 Total assets 16,047 15,519 14,881 14,347 13,486 Non-interest-bearing demand deposits 4,343 4,138 3,971 3,803 3,605 Interest-bearing deposits 8,453 8,045 7,487 7,106 6,797 Total deposits 12,796 12,183 11,458 10,909 10,402 Shareholders' equity 1,829 1,818 1,766 1,647 1,573 Period-End Balance: Loans $8,519 $8,644 $8,779 $8,844 $8,596 Earning assets 14,436 13,855 13,530 13,001 11,984 Goodwill and intangible assets 549 549 551 551 553 Total assets 16,158 15,785 15,331 15,034 14,061 Total deposits 12,922 12,497 12,033 11,509 10,618 Shareholders' equity 1,906 1,797 1,803 1,764 1,611 Adjusted shareholders' equity(1) 1,709 1,675 1,650 1,626 1,593 ASSET QUALITY ------------- ($in thousands) Allowance for possible loan losses $123,122 $122,501 $114,168 $110,244 $107,109 as a percentage of period-end loans 1.45% 1.42% 1.30% 1.25% 1.25% Net charge-offs $16,319 $8,268 $5,677 $5,415 $6,351 Annualized as a percentage of average loans 0.75% 0.38% 0.26% 0.25% 0.30% Non-performing assets: Non-accrual loans $191,754 $168,805 $114,233 $65,174 $45,475 Foreclosed assets 29,112 21,478 13,533 12,866 9,683 -------- -------- -------- ------- ------- Total $220,866 $190,283 $127,766 $78,040 $55,158 As a percentage of: Total loans and foreclosed assets 2.58% 2.20% 1.45% 0.88% 0.64% Total assets 1.37 1.21 0.83 0.52 0.39 CONSOLIDATED CAPITAL RATIOS --------------------------- Tier 1 Risk-Based Capital Ratio 11.49% 10.91% 10.64% 10.30% 10.33% Total Risk-Based Capital Ratio 13.72 13.34 12.98 12.58 12.67 Leverage Ratio 8.47 8.50 8.70 8.80 9.04 Equity to Assets Ratio (period-end) 11.80 11.38 11.76 11.73 11.46 Equity to Assets Ratio (average) 11.40 11.72 11.87 11.48 11.66 (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, 2009 2008 ---- ---- CONDENSED INCOME STATEMENTS --------------------------- Net interest income $398,085 $395,944 Net interest income(1) 426,972 410,647 Provision for possible loan losses 43,142 29,273 Non-interest income Trust fees 49,599 57,071 Service charges on deposit accounts 76,457 63,869 Insurance commissions and fees 26,362 26,434 Other charges, commissions and fees 19,895 27,150 Net gain (loss) on securities transactions 49 (26) Other 34,999 43,626 ------- ------- Total non-interest income 207,361 218,124 Non-interest expense Salaries and wages 171,907 167,475 Employee benefits 42,468 36,702 Net occupancy 32,665 30,080 Furniture and equipment 32,158 27,789 Deposit insurance 20,686 2,812 Intangible amortization 5,064 5,977 Other 93,074 92,267 -------- -------- Total non-interest expense 398,022 363,102 Income before income taxes 164,282 221,693 Income taxes 36,742 67,401 -------- -------- Net income $127,540 $154,292 -------- -------- PER SHARE DATA -------------- Net income - basic $2.14 $2.62 Net income - diluted 2.14 2.61 Cash dividends 1.28 1.24 Book value at end of period 31.80 27.16 OUTSTANDING SHARES ------------------ Period-end shares 59,929 59,299 Weighted-average shares - basic 59,353 58,736 Dilutive effect of stock compensation 69 361 Weighted-average shares - diluted 59,422 59,097 SELECTED ANNUALIZED RATIOS -------------------------- Return on average assets 1.10% 1.53% Return on average equity 9.45 13.23 Net interest income to average earning assets(1) 4.24 4.69 (1) Taxable-equivalent basis assuming a 35% tax rate. Cullen/Frost Bankers, Inc. CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) As of or for the Nine Months Ended September 30, 2009 2008 ---- ---- BALANCE SHEET SUMMARY --------------------- ($in millions) Average Balance: Loans $8,724 $8,181 Earning assets 13,569 11,678 Total assets 15,488 13,463 Non-interest-bearing demand deposits 4,152 3,551 Interest-bearing deposits 7,999 6,853 Total deposits 12,151 10,404 Shareholders' equity 1,805 1,558 Period-End Balance: Loans $8,519 $8,596 Earning assets 14,436 11,984 Goodwill and intangible assets 549 553 Total assets 16,158 14,061 Total deposits 12,922 10,618 Shareholders' equity 1,906 1,611 Adjusted shareholders' equity(1) 1,709 1,593 ASSET QUALITY ------------- ($in thousands) Allowance for possible loan losses $123,122 $107,109 As a percentage of period-end loans 1.45% 1.25% Net charge-offs: $30,264 $14,503 Annualized as a percentage of average loans 0.46% 0.24% Non-performing assets: Non-accrual loans $191,754 $45,475 Foreclosed assets 29,112 9,683 -------- ------- Total $220,866 $55,158 As a percentage of: Total loans and foreclosed assets 2.58% 0.64% Total assets 1.37 0.39 CONSOLIDATED CAPITAL RATIOS --------------------------- Tier 1 Risk-Based Capital Ratio 11.49% 10.33% Total Risk-Based Capital Ratio 13.72 12.67 Leverage Ratio 8.47 9.04 Equity to Assets Ratio (period-end) 11.80 11.46 Equity to Assets Ratio (average) 11.65 11.57 (1) Shareholders' equity excluding accumulated other comprehensive income (loss). http://www.newscom.com/cgi-bin/prnh/20030109/CFRLOGO http://photoarchive.ap.org/ DATASOURCE: Cullen/Frost Bankers, Inc. CONTACT: Investor Relations, Greg Parker, +1-210-220-5632, or Media Relations, Renee Sabel, +1-210-220-5416, both of Cullen/Frost Bankers, Inc. Web Site: http://www.frostbank.com/

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