Cullen/Frost Reports 4th Quarter, Annual 2010 Results

SAN ANTONIO, Jan. 26, 2011 /PRNewswire/ -- Cullen/Frost Bankers, Inc. today reported results for the fourth quarter and full year of 2010, as the Texas financial services leader continued to operate well in a challenging economy and extended low rate environment.

(Logo:  http://photos.prnewswire.com/prnh/20030109/CFRLOGO)

Cullen/Frost reported net income for the fourth quarter of 2010 of $53.1 million, or $.87 per diluted common share, compared to fourth quarter 2009 earnings of $51.5 million, or $.86 per diluted common share.  For the fourth quarter of 2010, returns on average assets and equity were 1.18 percent and 9.96 percent respectively, compared to 1.25 percent and 10.70 percent for the same period of 2009.  The company benefited in the fourth quarter of 2009 from a one-time $17.7 million gain from the termination of interest rate swaps related to Federal Home Loan Bank advances.  

The company also reported annual earnings for 2010 of $208.8 million, a rise of 16.6 percent over 2009 earnings of $179.0 million.  On a per-share basis, 2010 earnings were $3.44 per diluted common share, an increase of 14.7 percent compared to the $3.00 per diluted common share reported in 2009.  For the year, returns on average assets and equity were 1.21 percent and 10.30 percent respectively, compared to the 1.14 percent and 9.78 percent reported in 2009.

At the end of the fourth quarter of 2010, Cullen/Frost saw non-performing assets decline by $15.2  million from the fourth quarter of 2009 and $3.7 million from the previous quarter.

"Cullen/Frost turned in a strong performance in 2010 as the economy is starting to show some early signs of recovery," said Dick Evans, Cullen/Frost chairman and CEO.  "While we continue to experience a challenging lending environment, I was especially pleased to see a slight uptick in period-end loans, the first increase we've seen since the fourth quarter of 2008.  I believe we are beginning to see the results  of our disciplined calling effort, which has produced many new relationships. Today our capital levels continue to be strong – stronger, in fact, than before the economic crisis began. And deposits continue to rise, although at a slower pace, as customers continue to respond to our value proposition.  

"It was encouraging to see another decline in non-performing assets this quarter from both the same period a year ago and the previous quarter. This is a clear indication of continuing progress in our asset quality disciplines.  I am pleased to report that credit quality continues to be at manageable levels.  The provision for loan losses was down by $11 million from last year's fourth quarter," said Evans.

Evans said that economic uncertainty continued to affect the lending environment, noting that business owners have deleveraged, but remain cautious about putting capital to work. Although some uncertainty has been resolved with the extension of tax cuts, Evans said, broader economic uncertainty lingers.

"During the past year, we have worked harder than ever to increase the number of new relationships and expand existing ones.  We are well positioned to see the benefits of these efforts as the economy begins to grow once more.

"Many unknowns are yet to be resolved by the financial services industry as we all determine the impact of Dodd-Frank," Evans continued.  "Even with the challenges this legislation poses, at Cullen/Frost we are committed to continuing to deliver value to our customers and shareholders.

Evans said the company opened one new financial center in Houston in 2010 and relocated two older facilities to newer locations in Fort Worth and Dallas.  

Evans said. "As always, it is our outstanding people who make our success possible and bring the Frost culture to life with our customers every day.  I appreciate their commitment to our company and to taking great care of our customers."

For the year ended December 31, 2010, average annual total loans were $8.1 billion, compared to $8.7 billion for the previous year.  Average annual total deposits for 2010 rose to $14.0 billion, up 13.1 percent, or $1.6 billion, over the $12.4 billion reported in 2009.  Net interest income on a taxable-equivalent basis increased to $616.3 million, up 6.7 percent over the $577.7 million reported a year earlier, reflecting the impact of the increasing volume of earning assets.  For 2010, non-interest income was $282.0 million, compared to $293.7 million reported for 2009, while non-interest expense increased 0.6 percent over the previous year to $535.5 million.  

Noted financial data for the fourth quarter:

• Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the end of the fourth quarter of 2010 were 13.82 percent and 15.91 percent, respectively and are in excess of well capitalized levels.  The ratio of tangible common equity to tangible assets was 8.90 percent at the end of the fourth quarter of 2010, compared to 8.56 percent for the same quarter last year.  (The tangible common equity ratio, which is a non-GAAP financial measure is equal to end of period shareholders' equity less goodwill and intangible assets divided by end of period total assets less goodwill and intangible assets.)
• Net interest income on a taxable-equivalent basis for the fourth quarter totaled $155.2 million, compared to the $150.7 million reported for the fourth quarter of 2009.  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 3.93 percent for the fourth quarter, compared to 4.20 percent for the fourth quarter of 2009 and 4.04 percent for the third quarter of 2010.
• Non-interest income for the fourth quarter of 2010 was $70.3 million, down $16.1 million from the $86.3 million a year earlier.

Other income was $14.2 million, a decrease of $15.2 million from the $29.4 million reported in the fourth quarter of 2009, when the company realized a $17.7 million gain from the termination of  interest rate swaps associated with certain Federal Home Loan Bank advances.

Service charges on deposits were $24.1 million, down $1.9 million from the $26.0 million reported for the previous year's fourth quarter.  Most of this decrease is related to lower NSF and overdraft service charges, which were impacted by recent regulations passed during the third quarter of 2010.  Also impacting the decrease were lower commercial service charges from lower billable services.

• Non-interest expense for the fourth quarter of 2010 was $133.7 million, down $475,000 from the $134.2 million for the fourth quarter of 2009.  Salaries  were up $2 million, or 3.4 percent, over the same quarter a year earlier, as a result of normal annual merit and market increases and an increase in incentive compensation.  Other expense was $30.9 million, a $1.7 million decline from the $32.5 million reported for the fourth quarter of 2009.  Included in other expense for 2009 was a $1.4 million prepayment penalty on the early termination of certain Federal Home Loan Bank advances.
• For the fourth quarter of 2010, the provision for possible loan losses was $11.3 million, compared to net charge-offs of $11.1 million.  For the fourth quarter of 2009, the provision for possible loan losses was $22.3 million, compared to net charge offs of $20.1 million.  The allowance for possible loan losses as a percentage of total loans was 1.56 percent at December 31, 2010, compared to 1.50 percent at year-end 2009. Non-performing assets were $165.0 million at year-end, compared to $168.7 million the previous quarter, and $180.2 million at year-end 2009.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, January 26, 2011 at 10 am Central Time (CT) to discuss the results for the quarter and the year.  The media and other interested parties are invited to access the call in a "listen only" mode at 800-944-6430.  Digital playback of the conference call will be available after 12 pm CT until midnight Sunday, January 30, 2011 at 800-642-1687, with the Conference ID# of 36233865.  The call will also be available by webcast on the company's website, frostbank.com, and available for playback after 2 pm CT.  After entering the website, 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 $17.6 billion in assets at December 31, 2010, and more than 110 financial centers throughout Texas.  One of 24 U.S. banks included in the KBW Bank Index, Frost provides a wide range of banking, investments and insurance services to businesses and individuals in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, 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 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 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 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 effects 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 soundness of other financial institutions.
• Political instability.
• Impairment of the Corporation's 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 the Corporation's borrowers.
• Technological changes.
• Acquisitions and integration of acquired businesses.
• The ability to increase market share and control expenses.
• The Corporation's ability to attract and retain qualified employees.
• Changes in the competitive environment in the Corporation's 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 the Corporation's vendors, internal control systems or information systems.
• Changes in the Corporation's liquidity position.
• 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.

SOURCE Cullen/Frost Bankers, Inc.