March 16, 2012 / 4:10 PM / in 6 years

TEXT-Fitch affirms Cullen/Frost Bankers Inc

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
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 	
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-'.

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