Cullen/Frost Reports Strong Second Quarter Results

SAN ANTONIO, July 27, 2011 /PRNewswire/ -- Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported strong results for the second quarter, as the Texas financial services leader continues to demonstrate its ability to operate effectively and increase revenue in a challenging economic and regulatory environment.

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Cullen/Frost reported net income for the second quarter of 2011 of $55.7 million, a 5.3 percent increase over second quarter 2010 earnings of $52.9 million. On a per-share basis, income was $0.91 per diluted common share, compared to $0.87 per diluted common share reported a year earlier. Returns on average assets and equity were 1.23 percent and 10.45 percent respectively, compared to 1.26 percent and 10.67 percent for the same period a year earlier.

"Our company's strong performance this quarter reflects our ability to operate well in a slowly recovering economy," said Dick Evans, Cullen/Frost chairman and CEO. "I was very pleased to see net income for the quarter rise to the second-highest level in company history and the best since the third quarter of 2007, which was before the financial crisis began. We continue to provide outstanding value to our customers, affirmed by the solid 7.4 percent growth in deposits and an 11.4 percent increase in trust income this quarter.

"Even as an ongoing lack of confidence among business owners continues to pressure lending, we are building new relationships and growing deposits through our focused and disciplined calling effort. Since the second quarter last year, much of our deposit growth came from new customers.

"New customer loans enabled us to maintain loan consistency, positioning us for stronger growth when confidence returns. Texans who trust our company's safety and soundness and respond to our value proposition continue to bring their money and their business to Frost.

"We are fortunate to be in Texas, which accounted for 43 percent of all net new jobs in the U.S. from June 2009 to May 2011," said Evans. "Projected job growth in Texas this year is 3 to 3.5 percent, a full 1.5 percent ahead of the nation, and unemployment remains a percentage point below the national average. With strong energy and high-tech sectors and stable housing markets that didn't go through boom-and-bust cycles, Texas continues to be one of the country's strongest states.

"As you know, the banking industry is facing far-reaching regulatory changes that will impact all financial institutions. At Frost, we are tackling these changes with confidence, and I am optimistic about our future. We believe now is an ideal time to expand our business even further. We increased our marketing budget and will soon launch a new campaign that underscores the Frost difference, which should attract more prospects. Building on the trust and respect we earned by publicly declining federal TARP bailout funds, and reinforced by our receiving J.D. Power and Associates'  highest customer satisfaction ranking in Texas retail banking two years in a row, we are now sharing the Frost message with more Texans.

"Our exceptional employees continue to add value to customers' relationships and provide an extraordinarily high level of service. I appreciate their continued commitment to our company and our culture," Evans continued.

For the second quarter of 2011, average total deposits were $14.8 billion, up 7.4 percent, or $1.0 billion, over the $13.8 billion reported for the second quarter a year ago. Average total loans for the quarter were $8.1 billion, flat compared to last year's second quarter.  

For the first six months of 2011, net income was $107.6 million, or $1.75 per diluted common share, compared to $100.7 million, or $1.66 per diluted common share, for the first six months of 2010. Returns on average assets and average equity for the first six months of 2011 were 1.21 percent and 10.29 percent, respectively, compared to 1.22 percent and 10.38 percent for the same period in 2010.

Other noted financial data for the second quarter follows:

• Tier 1 and Total Risk-Based Capital Ratios remained strong at 14.37 percent and 16.42 percent, respectively, at the end of the second quarter of 2011 and are  in excess of well capitalized levels. The tangible common equity ratio was 9.12 percent at the end of the second quarter of 2011 compared to 9.05 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 increased  $4.5 million, or 2.9 percent, to $159.5 million, from the $155.1 million reported a year earlier. This increase primarily resulted from an increase in the average volume of interest earning assets and was partly offset by a decrease in the net interest margin. Strong growth in deposits helped to fund the increase in the volume of earning assets.  The net interest margin was 3.95 percent for the second quarter, compared to 4.03 percent for the first quarter this year and 4.18 percent for the second quarter of 2010.
• Non-interest income for the second quarter of 2011 was $70.8 million, compared to the $69.9 million reported a year earlier. Trust fees were $19.0 million, up $1.9 million, or 11.4 percent, compared to $17.0 million in the second quarter 2010. Impacting trust fees was a $1.8 million increase in investment fees, which are generally assessed based on the market value of trust assets that are managed and held in custody.  These values were $25.3 billion at the end of the second quarter of 2011, compared to $22.2 billion at June 30, 2010. Other service charges and fees were $8.5 million, up $449,000, or 5.6 percent, when compared to $8.0 million reported in the same quarter a year earlier. The largest component of this increase was mutual fund management fees, up $400,000.  Insurance commissions and fees were $7.9 million, up $396,000, from the $7.5 million reported in last year's second quarter. Deposit service charges were down $1.3 million, or 5.2 percent, due to decreases in overdrafts/insufficient funds charges on both consumer and commercial accounts.
• Non-interest expense for the quarter was $136.8 million, an increase of $2.1 million and a rise of 1.6 percent, compared to the $134.7 million reported for the second quarter of last year. Total salaries rose $2.9 million or 5.0 percent, to $61.8 million and were impacted by normal annual merit increases. Employee benefits were up $375,000, or 3.0 percent. Furniture and fixtures increased $966,000, or 8.3 percent, from the same quarter last year, with most of the increase coming from software maintenance and amortized software. Other non-interest expense increased $691,000, or 2.1 percent, from a year earlier, primarily from increased advertising and brand promotion expense. This increase was partially offset by decreases in sundry losses from miscellaneous items. Deposit insurance expense for the quarter was $2.6 million, down $2.8 million from the second quarter of 2010. The decrease was related to a change in the deposit insurance assessment base and a change in the method by which the assessment rate is determined for large financial institutions.
• For the second quarter of 2011, the provision for possible loan losses was $9.0 million, compared to net charge-offs of $10.6 million. The loan loss provision for the second quarter of 2010 was $8.7 million, compared to net charge-offs of $8.6 million. Non-performing assets for the second quarter of 2011 were $161.4 million, compared to $154.7 million last quarter and $159.3 million a year earlier. The allowance for possible loan losses as a percentage of loans at June 30, 2011 was 1.52 percent, compared to 1.56 percent at the end of the second quarter of 2010.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, July 27, 2011, 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 p.m. CT until midnight Sunday, July 31, 2011, at 1-800-642-1687 or 1-706-645-9291 for international calls, with Conference ID # 83758312. The call will also be available by webcast at the URL listed below and available for playback after 2 p.m. CT. After entering the website, 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 $18.5 billion in assets  at June 30, 2011 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.
• 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.

Greg Parker
Investor Relations
210/220-5632
or
Renee Sabel
Media Relations
210/220-5416

SOURCE Cullen/Frost Bankers, Inc.