March 16 - Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) for Cullen/Frost Bankers, Inc. (CFR) and its banking subsidiary Frost National Bank at 'A' and short-term IDR at 'F1'. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release. Fitch affirmed the ratings primarily on the relative strength of CFR's earnings performance, strong funding profile, solid capital position, and manageable credit costs with the expectation that these strengths will be maintained. CFR's financial performance continues to be good relative to peers, a highlight in an otherwise difficult operating environment. Performance is aided by a strong and stable net interest margin (NIM), good levels of fee income and relatively modest credit costs. Return on assets (ROA) was down from historical averages to 1.17% in 2011, but remains good despite the challenging economic environment. As is typical for CFR, liquidity is very strong. With a loan-to-deposit ratio below 50%, the company has ample low cost funding to support loan growth. Fitch expects that this ratio will increase when the economy improves and CFR takes advantage of more attractive lending opportunities, but that will always remain below industry averages. The company's considerable core deposit franchise provides low cost funding and supports the good NIM. Regulatory capital ratios remain solid, and are in line with similarly rated peers. CFR also operates with a strong TCE/TA ratio. Fitch believes the company's strong capital position may lead management to pursue highly opportunistic acquisitions, consistent with its traditional strategy of buying companies with similar balance sheets and a strong cultural affinity with CFR. Although Texas continues to perform better than many more hard hit states, CFR has not been immune to asset quality deterioration. Nonperforming assets (NPAs) are elevated from historical averages, but still very manageable and below peer averages. Fitch expects that credit costs will remain manageable in light of CFR's core earnings potential. Fitch also highlights that CFR's portfolio of state and municipal bond securities is outsized relative to industry averages. Most of these securities are guaranteed by the Texas Permanent School Fund, rated 'AAA' by Fitch. While these bonds have historically performed very well, CFR does have a concentration to one guarantor, albeit highly rated, which Fitch views with caution. Fitch views a downgrade or nonperformance of the Texas Permanent School Fund as remote, but one that would have meaningful consequences for CFR. Fitch views an upgrade from CFR's current ratings as very unlikely. Conversely, a downgrade could occur if there is material deterioration in asset quality, earnings or capital. Fitch has affirmed the following ratings with a Stable Outlook: Cullen/Frost Bankers, Inc. --Long-term Issuer Default Rating (IDR) at 'A'; --Short-term IDR at 'F1'; --Viability at 'a'; --Subordinated debt at 'A-'; --Support '5'; --Support floor 'NF'. Frost National Bank --Long-term IDR at 'A'; --Short-term IDR at 'F1'; --Long-term deposits at 'A+'; --Short-term deposits at 'F1'; --Viability at 'a'; --Support '5'; --Support floor 'NF'. Cullen/Frost Capital Trust II --Preferred stock at 'BBB-'.