CULLEN/FROST BANKERS, INC. - FORM 8-K - EX-99.1 - EX-99.1 2021 FIRST QUARTER EARNINGS RELEASE - April 29, 2021

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8-K - 8-K - FIRST QUARTER 2021 EARNINGS RELEASE - CULLEN/FROST BANKERS, INC.cfr-20210429.htm

Exhibit 99.1


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


FOR IMMEDIATE RELEASE    
April 29, 2021



CULLEN/FROST REPORTS FIRST QUARTER RESULTS
Board declares second quarter dividend on common and preferred stock




SAN ANTONIO -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported first quarter 2021 results.
Net income available to common shareholders for the first quarter of 2021 was $113.9 million, compared to $47.2 million in the first quarter of 2020. On a per-share basis, net income available to common shareholders for the first quarter of 2021 was $1.77 per diluted common share, compared to $0.75 per diluted common share reported a year earlier. Returns on average assets and average common equity were 1.09 percent and 11.13 percent, respectively, for the first quarter of 2021 compared to 0.57 percent and 4.88 percent, respectively, for the same period a year earlier.

For the first quarter of 2021, net interest income on a taxable-equivalent basis was $263.9 million, down 1.7 percent compared to the same quarter in 2020. Average loans for the first quarter of 2021 increased $2.7 billion, or 17.9 percent, to $17.7 billion, from the $15.0 billion reported for the first quarter a year earlier. Excluding PPP loans, first quarter average loans of $14.9 billion represented a 0.9 percent decrease compared to the first quarter of 2020. Average deposits for the quarter were $35.4 billion, up $8.0 billion, or 29.3 percent, compared to the $27.4 billion reported for last year's first quarter.




“Our first quarter results reflect the continued high level of effort put forth across our company,” said Phil Green, Cullen/Frost Chairman and CEO. “We were ready to respond when the federal government's Paycheck Protection Program restarted early in the quarter, and the hard work our bankers have put into helping customers get PPP loans is showing up in the increased number of customer relationships we've built, as well as in our net promoter scores and overall customer satisfaction levels. Our new locations in Houston are performing above our projections. All of this has positioned us well to respond to increased economic activity as the country emerges from the pandemic.”

Noted financial data for the first quarter of 2021 follows:

•The Common Equity Tier 1, Tier 1 and Total Risk-Based Capital Ratios at the end of the first quarter of 2021 were 13.45 percent, 14.07 percent and 16.07 percent, respectively, and continue to be in excess of well-capitalized levels and exceed Basel III minimum requirements.
•Net interest income on a taxable-equivalent basis was $263.9 million, a decrease of 1.7 percent compared to the prior year period. Net interest margin was 2.72 percent for the first quarter of 2021, down 10 basis points compared to the fourth quarter of 2020 net interest margin of 2.82 percent. Net interest margin decreased 84 basis points compared to 3.56 percent in the year-ago period.
•Non-interest income for the first quarter of 2021 totaled $93.2 million, a decrease of $119.7 million, from the $212.9 million reported for the first quarter of 2020. The first quarter of 2020 included $109.0 million in net gains on sales of securities, with $107.1 million of that related to the sale of approximately $500 million in 30-year U.S. Treasury securities. Excluding the total net gain on sale of securities, total non-interest income in the first quarter would have decreased approximately $10.7 million, or 10.3 percent, compared to the first quarter of 2020. Other non-interest income decreased $9.5 million compared to the first quarter of 2020. The primary driver of the decrease in other non-interest income was a $6.0 million gain realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million in the first quarter of 2020. Service charges on deposits decreased $2.7 million, or 11.7 percent, compared to the first quarter of 2020, mainly driven by a

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decrease in overdraft/insufficient funds charges, down $2.9 million. Other charges, commissions and fees decreased $1.1 million, or 11.3 percent, compared to the first quarter of 2020. The decrease was primarily related to a decrease in income from the placement of money market accounts (down $1.2 million), which was impacted by lower average market rates. These decreases were partly offset by increases in each of the following: trust and investment management fees, up $841,000; interchange and card transactions, up $838,000, and insurance commissions and fees, up $828,000 compared to the first quarter of 2020.
•Non-interest expense was $210.1 million for the quarter, down $14.0 million, or 6.3 percent, compared to the $224.2 million reported for the first quarter a year earlier. Other non-interest expense decreased $10.0 million, or 21.3 percent, compared to the first quarter of 2020. The decrease included decreases in advertising/promotions expense, down $3.0 million; travel, meals and entertainment expense, down $2.9 million; professional services expense, down $1.9 million; business development expense, down $1.2 million; and outside computer services expense, down $1.1 million, among other things. The decrease was also partly due to an increase in costs deferred as loan origination costs, up $1.2 million mainly in connection with the high volume of PPP loan originations during the first quarter of 2021. Included in other non-interest expense for the first quarter of 2021 was a $1.5 million contribution to the Frost Bank Charitable Foundation. Total salaries and wages decreased $5.4 million, or 5.4 percent, to $93.5 million, compared to the first quarter of 2020. The decrease was primarily related to an increase in salary costs deferred as loan origination costs, up $3.6 million, also impacted by the high volume of PPP loan originations during the first quarter of 2021. Employee benefits expense decreased by $2.4 million, or 9.5 percent, primarily driven by decreases in certain discretionary benefit plan expenses and expenses related to our defined benefit retirement plan. These decreases were partly offset by technology, furniture and equipment expense, which increased by $2.8 million, or 11.0 percent, compared to the first quarter of 2020. The increase was primarily related to increases in cloud services expense, up $2.2 million, and depreciation of furniture and equipment expense, up $656,000.
•For the first quarter of 2021, the company did not record a credit loss expense related to loans, and had net charge-offs of $1.9 million. This compares with $13.3 million in credit loss expense related to loans and $13.6 million in net charge-offs for the fourth quarter of 2020, and $172.9 million in credit loss

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expense related to loans and $38.6 million in net charge-offs in the first quarter of 2020. Our credit loss expense related to loans was elevated in the first quarter of 2020 as a result of COVID-19-related business closures and the challenges faced by our energy industry customers given the commodity price declines during that period. The allowance for credit losses on loans as a percentage of total loans was 1.46 percent at March 31, 2021, compared to 1.51 percent at the end of the fourth quarter of 2020 and 1.72 percent at the end of the first quarter of 2020. Excluding PPP loans, which carry a guarantee from the SBA, the allowance for credit losses on loans as a percentage of total loans was 1.77 percent at the end of the first quarter of 2021, compared to 1.75 percent at the end of the fourth quarter of 2020. Non-accrual loans were $51.0 million at the end of the first quarter of 2021, compared to $61.4 million at the end of the fourth quarter of 2020 and $66.7 million at the end of the first quarter of 2020. Credit loss expense related to off-balance-sheet credit exposures was $65,000 in the first quarter of 2021, compared to $2.3 million in the first quarter of 2020.

The Cullen/Frost board declared a second-quarter cash dividend of $0.72 per common share, payable June 15, 2021 to shareholders of record on May 28 of this year. The board of directors also declared a cash dividend of $11.125 per share of Series B Preferred Stock (or $0.278125 per depositary share). The depositary shares representing the Series B Preferred Stock are traded on the NYSE under the symbol "CFR PrB." The Series B Preferred Stock dividend is payable on June 15, 2021, to shareholders of record on May 28 of this year.

Cullen/Frost Bankers, Inc. will host a conference call on Thursday, April 29, 2021, at 1 p.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 or via webcast on our investor relations website linked below.
Playback of the conference call will be available after 2 p.m. CT on the day of the call until midnight Sunday, May 2, 2021 at 855-859-2056 with Conference ID # of 2745669. The call will also be available by webcast at the URL listed below after 5 p.m. CT on the day of the call.
Cullen/Frost investor relations website: https://investor.frostbank.com/


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Cullen/Frost Bankers, Inc. (NYSE: CFR) is a financial holding company, headquartered in San Antonio, with $44.0 billion in assets at March 31, 2021. 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.

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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”), including statements regarding the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations, 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 impact of the COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.
•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.
Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.
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.

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Cullen/Frost Bankers, Inc.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(In thousands, except per share amounts)
20212020
1st Qtr4th Qtr3rd Qtr2nd Qtr1st Qtr
CONDENSED INCOME STATEMENTS
Net interest income$240,881 $242,246 $243,423 $245,811 $244,521 
Net interest income (1)
263,949 265,721 267,041 269,722 268,453 
Credit loss expense63 13,756 20,302 31,975 175,197 
Non-interest income:
Trust and investment management fees35,314 32,270 31,469 31,060 34,473 
Service charges on deposit accounts19,993 20,830 19,812 17,580 22,651 
Insurance commissions and fees17,313 11,704 11,456 10,668 16,485 
Interchange and card transaction fees 4,093 3,746 3,503 2,966 3,255 
Other charges, commissions and fees8,304 9,427 8,370 7,663 9,365 
Net gain (loss) on securities transactions— — — — 108,989 
Other8,219 13,360 8,991 7,664 17,697 
Total non-interest income 93,236 91,337 83,601 77,601 212,915 
Non-interest expense:
Salaries and wages93,458 104,843 93,323 90,350 98,812 
Employee benefits22,536 15,852 16,074 18,861 24,889 
Net occupancy26,051 26,822 25,466 25,266 25,384 
Technology, furniture and equipment28,016 27,464 26,482 26,046 25,240 
Deposit insurance2,928 2,706 2,372 2,800 2,624 
Intangible amortization202 208 212 241 257 
Other 36,951 45,017 38,221 36,115 46,957 
Total non-interest expense 210,142 222,912 202,150 199,679 224,163 
Income before income taxes123,912 96,915 104,572 91,758 58,076 
Income taxes7,897 8,645 9,516 (1,314)3,323 
Net income116,015 88,270 95,056 93,072 54,753 
Preferred stock dividends2,151 — — — 2,016 
Redemption of preferred stock— — — — 5,514 
Net income available to common shareholders$113,864 $88,270 $95,056 $93,072 $47,223 
PER COMMON SHARE DATA
Earnings per common share - basic$1.78 $1.39 $1.50 $1.47 $0.75 
Earnings per common share - diluted1.77 1.38 1.50 1.47 0.75 
Cash dividends per common share0.72 0.72 0.71 0.71 0.71 
Book value per common share at end of quarter64.89 65.82 65.07 63.97 61.17 
OUTSTANDING COMMON SHARES
Period-end common shares63,532 63,011 62,782 62,670 62,553 
Weighted-average common shares - basic63,306 62,940 62,727 62,596 62,643 
Dilutive effect of stock compensation510 311 193 205 407 
Weighted-average common shares - diluted63,816 63,251 62,920 62,801 63,050 
SELECTED ANNUALIZED RATIOS
Return on average assets1.09 %0.86 %0.96 %0.99 %0.57 %
Return on average common equity11.13 8.55 9.30 9.60 4.88 
Net interest income to average earning assets 2.72 2.82 2.95 3.13 3.56 
(1) Taxable-equivalent basis assuming a 21% tax rate.

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Cullen/Frost Bankers, Inc.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
20212020
1st Qtr4th Qtr3rd Qtr2nd Qtr1st Qtr
BALANCE SHEET SUMMARY
($ in millions)
Average Balance:
Loans$17,684 $17,945 $18,149 $17,550 $14,995 
Earning assets39,804 38,262 36,749 35,128 30,804 
Total assets42,530 40,963 39,435 37,838 33,534 
Non-interest-bearing demand deposits15,309 15,119 14,585 13,785 10,737 
Interest-bearing deposits20,097 19,010 18,289 17,528 16,654 
Total deposits35,406 34,129 32,875 31,313 27,391 
Shareholders' equity4,295 4,175 4,065 3,899 4,009 
Period-End Balance:
Loans$17,890 $17,481 $18,224 $17,972 $15,338 
Earning assets41,380 39,648 37,482 36,613 31,440 
Goodwill and intangible assets656 657 657 657 657 
Total assets44,047 42,391 40,101 39,378 34,147 
Total deposits36,925 35,016 33,500 32,679 28,141 
Shareholders' equity4,268 4,293 4,085 4,009 3,827 
Adjusted shareholders' equity (1)
3,880 3,780 3,580 3,521 3,463 
ASSET QUALITY
($ in thousands)
Allowance for credit losses on loans:$261,258 $263,177 $263,475 $250,061 $263,881 
As a percentage of period-end loans1.46 %1.51 %1.45 %1.39 %1.72 %
Net charge-offs:$1,919 $13,565 $10,176 $41,048 $38,646 
Annualized as a percentage of average loans0.04 %0.30 %0.22 %0.94 %1.04 %
Non-accrual loans:$50,976 $61,449 $91,578 $79,461 $66,727 
As a percentage of total loans0.28 %0.35 %0.50 %0.44 %0.44 %
As a percentage of total assets0.12 0.14 0.23 0.20 0.20 
CONSOLIDATED CAPITAL RATIOS
Common Equity Tier 1 Risk-Based Capital Ratio13.45 %12.86 %12.71 %12.48 %12.02 %
Tier 1 Risk-Based Capital Ratio14.07 13.47 12.71 12.48 12.02 
Total Risk-Based Capital Ratio16.07 15.44 14.69 14.43 13.97 
Leverage Ratio7.97 8.07 7.85 8.01 8.84 
Equity to Assets Ratio (period-end)9.69 10.13 10.19 10.18 11.21 
Equity to Assets Ratio (average)10.10 10.19 10.31 10.30 11.95 
(1) Shareholders' equity excluding accumulated other comprehensive income (loss).


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Cullen/Frost Bankers, Inc.
TAXABLE-EQUIVALENT YIELD/COST (UNAUDITED)
20212020
1st Qtr4th Qtr3rd Qtr2nd Qtr1st Qtr
TAXABLE-EQUIVALENT YIELD/COST (1)
Earning Assets:     
Interest-bearing deposits0.10 %0.10 %0.10 %0.10 %1.24 %
Federal funds sold 0.24 0.31 0.18 0.18 1.17 
Resell agreements0.15 0.24 0.27 0.59 1.63 
Securities3.41 3.41 3.44 3.53 3.46 
Loans, net of unearned discounts3.87 3.74 3.73 3.95 4.65 
Total earning assets2.78 2.89 3.04 3.24 3.84 
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking0.01 0.02 0.02 0.02 0.02 
Money market deposit accounts0.07 0.07 0.09 0.09 0.50 
Time accounts0.53 0.82 1.11 1.40 1.67 
Public funds0.02 0.02 0.02 0.09 0.85 
Total interest-bearing deposits0.07 0.09 0.12 0.14 0.39 
Total deposits0.04 0.05 0.07 0.08 0.24 
Federal funds purchased0.08 0.08 0.08 0.07 1.15 
Repurchase agreements0.09 0.11 0.12 0.15 0.95 
Junior subordinated deferrable interest debentures1.89 1.96 2.05 2.90 3.54 
Subordinated notes payable and other notes4.70 4.70 4.70 4.71 4.71 
Federal Home Loan Bank advances— — — 0.29 — 
Total interest-bearing liabilities0.10 0.13 0.15 0.19 0.47 
Net interest spread2.68 2.76 2.89 3.05 3.37 
Net interest income to total average earning assets2.72 2.82 2.95 3.13 3.56 
(1) Taxable-equivalent basis assuming a 21% tax rate.













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Cullen/Frost Bankers, Inc.
AVERAGE BALANCES (UNAUDITED)
20212020
1st Qtr4th Qtr3rd Qtr2nd Qtr1st Qtr
AVERAGE BALANCES
($ in millions)
Assets:     
Interest-bearing deposits$9,865 $7,718 $5,888 $4,986 $2,586 
Federal funds sold5 2 11 72 231 
Resell agreements3 15 20 20 29 
Securities12,247 12,852 12,680 12,501 12,963 
Loans, net of unearned discount17,684 17,945 18,149 17,550 14,995 
Total earning assets$39,804 $38,262 $36,749 $35,128 $30,804 
Liabilities:
Interest-bearing deposits:
Savings and interest checking$9,094 $8,397 $8,077 $7,615 $7,030 
Money market deposit accounts9,192 8,884 8,555 8,230 7,874 
Time accounts1,133 1,133 1,120 1,118 1,109 
Public funds678 596 537 565 640 
Total interest-bearing deposits20,097 19,010 18,289 17,528 16,654 
Total deposits35,406 34,129 32,875 31,313 27,391 
Federal funds purchased41 38 34 33 27 
Repurchase agreements1,840 1,705 1,544 1,262 1,232 
Junior subordinated deferrable interest debentures136 136 136 136 136 
Subordinated notes payable and other notes99 99 99 99 99 
Federal Home Loan Bank advances— — — 440 — 
Total interest-bearing funds$22,213 $20,988 $20,103 $19,498 $18,149 

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CULLEN/FROST BANKERS, INC. Reports