Cullen/Frost Bankers(CFR) - 2021 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements for Cullen/Frost Bankers, Inc. as of March 31, 2021, with detailed notes on policies Consolidated Balance Sheets Total assets grew to $44.05 billion from $42.39 billion, driven by cash and loans; deposits increased Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $44,046,787 | $42,391,317 | | Total Cash and Cash Equivalents | $11,802,269 | $10,288,853 | | Net Loans | $17,628,393 | $17,218,132 | | Total Liabilities | $39,778,869 | $38,098,301 | | Total Deposits | $36,925,180 | $35,015,761 | | Total Shareholders' Equity | $4,267,918 | $4,293,016 | Consolidated Statements of Income Net income available to common shareholders significantly increased to $113.9 million in Q1 2021, primarily due to reduced credit loss expense Q1 2021 vs. Q1 2020 Income Statement (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net Interest Income | $240,881 | $244,521 | | Credit Loss Expense | $63 | $175,197 | | Total Non-interest Income | $93,236 | $212,915 | | Net Income | $116,015 | $54,753 | | Net Income Available to Common Shareholders | $113,864 | $47,223 | | Diluted EPS | $1.77 | $0.75 | - The significant year-over-year increase in net income was driven by a near-elimination of credit loss expense, which was exceptionally high in Q1 2020[15] - Non-interest income was lower in Q1 2021 due to a large net gain on securities transactions ($109.0 million) in the prior-year period[15] Notes to Consolidated Financial Statements Detailed disclosures cover accounting policies, financial instruments, credit quality, and capital adequacy, noting the adoption of CECL - On January 1, 2020, the company adopted ASU 2016-13 (CECL), resulting in an after-tax cumulative effect reduction to retained earnings of $29.3 million[34] Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial and industrial | $4,770,228 | $4,955,341 | | Energy | $1,102,209 | $1,235,198 | | Paycheck Protection Program | $3,129,244 | $2,433,849 | | Commercial real estate | $7,104,030 | $7,020,467 | | Consumer real estate | $1,322,154 | $1,330,774 | | Consumer and other | $461,786 | $505,680 | | Total Loans | $17,889,651 | $17,481,309 | Regulatory Capital Ratios | Ratio | March 31, 2021 (Actual) | Minimum Required | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Cullen/Frost | | | | | Common Equity Tier 1 | 13.45% | 7.00% | 6.50% | | Tier 1 Capital | 14.07% | 8.50% | 8.00% | | Total Capital | 16.07% | 10.50% | 10.00% | | Leverage Ratio | 7.97% | 4.00% | 5.00% | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2021 financial results, highlighting increased net income driven by reduced credit loss expense Results of Operations Net income available to common shareholders increased by 141.1% to $113.9 million in Q1 2021, primarily due to a $175.1 million decrease in credit loss expense - The primary driver for the significant increase in net income was a $175.1 million year-over-year decrease in credit loss expense[167] - Non-interest income decreased significantly, mainly because Q1 2020 results included a $109.0 million net gain on securities transactions[167][193] - Non-interest expense decreased by $14.0 million (6.3%) year-over-year, driven by lower salaries, wages, travel, and professional services expenses[208][209][215] Financial Condition The company maintained a strong financial condition with average assets increasing to $42.5 billion and robust capital and liquidity positions - Total loans increased to $17.9 billion at March 31, 2021, driven by Paycheck Protection Program (PPP) loans; excluding PPP loans, the portfolio decreased by $287.1 million[236] - Energy loans, the largest industry concentration, decreased by 10.8% during the quarter to $1.1 billion, representing 7.5% of total loans (excluding PPP)[239] - The allowance for credit losses on loans was $261.3 million, or 1.77% of total loans excluding PPP loans, deemed appropriate by management[256][276] - The company maintains a strong liquidity position with approximately $11.1 billion held at the Federal Reserve and $7.4 billion in unencumbered securities[287] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's balance sheet became more asset-sensitive, with a projected 3.4% increase in net interest income from a 100 basis point rate hike Interest Rate Sensitivity Analysis (Projected 12-Month NII Change) | Rate Shock | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | +200 bps | +8.6% | +6.2% | | +100 bps | +3.4% | +2.3% | | -25 bps | -1.8% | -1.8% | - The balance sheet became more asset-sensitive as of March 31, 2021, primarily due to a higher proportion of quickly repricing interest-bearing deposits at the Federal Reserve and federal funds sold[297] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[300] Part II - Other Information Legal Proceedings Management does not anticipate that the resolution of various claims and legal actions will materially impact the financial statements - Management does not expect the ultimate disposition of various claims and legal actions to have a material adverse impact on the financial statements[302] Risk Factors No material changes were reported in the risk factors from those disclosed in the company's 2020 Form 10-K - No material changes were reported in the risk factors from those disclosed in the 2020 Form 10-K[303] Unregistered Sales of Equity Securities and Use of Proceeds A new $100.0 million stock repurchase program was authorized, but no shares were repurchased under this plan in Q1 2021 - A new $100.0 million stock repurchase program was authorized on January 27, 2021, with no shares repurchased under this plan in Q1 2021[286][305] Other Information The company replaced existing change-in-control agreements with a new executive change-in-control severance plan effective April 28, 2021 - The company replaced its change-in-control agreements with a new executive change-in-control severance plan for certain executive officers, effective April 28, 2021[307] Exhibits This section lists the exhibits filed with the Form 10-Q, including the new Executive Change-in-Control Severance Plan and certifications