Cullen/Frost Third Quarter Results Track With Texas Economy

- Surpassing $16 billion in assets - Deposit growth remains robust - Capital levels continue to be strong


SAN ANTONIO, Oct. 21  /PRNewswire-FirstCall/ -- Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported earnings for the third quarter of 2009 of $44.7 million, a decrease of 8.2 percent compared to the $49.0 million reported for the same period in 2008. On a per-share basis, net income for the quarter was $.75 per diluted common share, compared to the $.83 per diluted common share reported a year earlier.

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Return on average assets and return on average equity for the third quarter of 2009 were 1.11 percent and 9.7 percent, respectively, compared to 1.44 percent and 12.39 percent for the same quarter in 2008.

The provision for possible loan losses was $16.9 million, compared to $18.9 million reported a year earlier, while the allowance for possible loan losses as a percentage of loans increased to 1.45 percent from 1.25 percent for the same quarter of 2008.

For the third quarter of 2009, net interest income on a tax-equivalent basis increased 3.8 percent to $144.9 million, compared to the $139.7 million reported for the same quarter of 2008.  Average loans for the third quarter of 2009 rose slightly to $8.6 billion, compared to the $8.4 billion reported for the third quarter a year earlier, but were down compared to the $8.8 billion reported in the second quarter, as both business and consumer customers respond to the recession.  Average deposits for the quarter were $12.8 billion, $613 million over the previous quarter, and an increase of 23.0 percent over the $10.4 billion reported for the third quarter of 2008.

"Cullen/Frost continues to navigate through a challenging environment, preparing our company for the economic rebound," said Cullen/Frost CEO Dick Evans.  "Texas went into the recession later than the rest of the nation, in November of 2008.  Today, businesses and consumers are conserving cash and reining in spending, as you would expect. Amid current economic conditions, charge-offs and the provision for loan losses remain at elevated levels. While some measure of volatility is inevitable in this type of credit environment, I feel confident that our credit quality levels continue to be manageable."

"Since the beginning of the fourth quarter of 2008, we have seen robust growth in deposits from both consumers and businesses moving their money and relationships to Frost, bringing in an additional $2.4 billion in average deposits, including $613 million this quarter.   We are helping our customers get through this cycle and will be there for them when they are ready to reinvest in the economy.

"This quarter we completed construction on the $50 million Frost Technology Center, a new, state-of-the-art facility that will ensure our ability and capacity to meet our future data and information technology needs. Designed with reinforced mission-critical equipment areas and improved workflow and communications, the center will significantly strengthen the company's technology infrastructure.

"Our commitment to Texas remains strong.  The Texas markets Frost serves appear in several studies and publications as  cities poised to do well coming out of a recession.  And we continue to grow, opening three new financial centers in Austin, Houston and the Dallas region during the third quarter. I remain confident in our future.

"It has been almost a year since Cullen/Frost announced we would turn down federal TARP bailout funds. Our capital levels were strong then, and are even stronger now.  It was a good decision for our company, allowing us to focus on growing new relationships, taking good care of existing customers and preparing Texas to be among the first wave of states to come out of recession. Going forward, our success will be based not only on financial capital, but also human capital, and I appreciate our employees' continued efforts to help this company perform well in this environment," Evans said.

For the first nine months of 2009, earnings were $127.5 million down 17.3 percent, compared to $154.3 million reported for the same period of 2008. On a per-share basis, earnings for the year to date were $2.14 per diluted common share, compared to $2.61 per diluted common share, for the same period in 2008. Returns on average assets and equity for the first nine months of 2009 were 1.10 percent and 9.45 percent respectively, compared to 1.53 percent and 13.23 percent for the same period a year earlier.

  Noted financial data for the third quarter of 2009 follows.

  --  Tier 1 and Total Risk-Based Capital Ratios for the Corporation at the
      end of the third quarter of 2009 were 11.49 percent and 13.72 percent,
      respectively and are in excess of well capitalized levels.  The
      tangible common equity ratio was 8.70 percent at the end of the third
      quarter of 2009 compared to 7.83 percent for the same quarter last
      year.
  --  Net-interest income on a taxable equivalent basis for the third
      quarter totaled $144.9 million, an increase of 3.8 percent compared to
      $139.7 million for the same period a year ago. This increase primarily
      resulted from an increase in the average volume of earning assets and
      was partly offset by a decrease in the net interest margin.  The net
      interest margin was 4.12 percent for the third quarter of 2009,
      compared to 4.74 percent for the third quarter of 2008, and 4.28
      percent for the second quarter of 2009.

  --  Non-interest income for the third quarter of 2009 totaled $69.5
      million, compared to $77.3 million reported for the third quarter of
      2008.




Trust fee income was $16.8 million, compared to $19.7 million a year earlier. Most of this decrease relates to lower oil and gas trust management fees, down $1.9 million from last year's third quarter. Oil and natural gas prices have decreased impacting the amount of royalties received.   Investment fees, which represent approximately 73 percent of total trust fees,  are also down.  Investment fees are  generally assessed based on the market value of trust assets, which were $22.3 billion at the end of the third quarter, compared to $23.1 billion for the third quarter a year ago.  This market value includes both assets that are managed and those held in custody.

Service charges on deposit accounts were $26.4 million, up $3.8 million, or  16.6 percent, compared to $22.6 million for the third quarter of 2008. Impacting this rise was a $3.1 million increase in service charges on commercial accounts, resulting from higher treasury management fees.  A drop in the earnings credit rate for commercial accounts, compared to a year earlier, impacted treasury management fees.  When interest rates are lower, customers earn less credit for their deposit balances, and this, in turn, increases the amount of service charges to be paid for through fees.

Other charges, commissions and fees were $6.8 million for the third quarter of 2009, down $3.9 million, from last year's third quarter of $10.7 million. Money market fees for the quarter were down $1.0 million compared to the same quarter a year ago. Last year's third quarter included a $2.6 million investment banking fee. Other non-interest income was $11.0 million, down $4.9 million, compared to the $15.9 million reported  for the same quarter a year earlier. Most of this decrease is due to income of $2.2 million recognized in the third quarter of last year for the collection of loan interest and other charges written off in previous years. Also impacting the decrease was a $1.0 million gain on sale of assets recorded in last year's third quarter.

  --  Non-interest expense was $132.2 million for the quarter, up $9.3
      million, or 7.5 percent, from the $123.0 million reported a year
      earlier. A large part of this increase is due to an increase in FDIC
      insurance expense of $2.8 million from the third quarter of 2008. 
      Total salaries rose $788 thousand or 1.4 percent to $58.6 million, and
      were impacted by normal annual merit increases and an increase in the
      number of employees, which was offset, in part, by a decrease in
      incentive compensation.    Employee benefits were up $2.8 million or
      25.9 percent, primarily due to increases in expenses related to the
      company's medical costs, 401(k) and profit sharing plans, and
      retirement plan.  Net occupancy expense was $11.1 million, an increase
      of $769 thousand from the third quarter last year due mainly to
      increases in lease expense for new locations.  Furniture and equipment
      was $11.1 million, which was up $1.5 million from the same quarter
      last year. This increase occurred due to increases in depreciation
      expense related to furniture and fixtures, primarily for new
      locations, amortized software and software maintenance expense. Other
      expenses rose $1.1 million, from the third quarter last year. Most of
      this increase was due to the recognition of losses from the
      sale/write-down of foreclosed assets.

  --  For the third quarter of 2009, the provision for possible loan losses
      was $16.9 million, compared to net charge-offs of $16.3 million.  For
      the third quarter of 2008, the provision for possible loan losses was
      $18.9 million, compared to net charge-offs of $6.4 million. 
      Approximately $10 million of the provision for possible loan losses
      for the third quarter of 2008 was related to Hurricane Ike, which
      impacted the Corporation's operations in Houston and Galveston during
      the third quarter of 2008.  The allowance for possible loan losses as
      a percentage of total loans was 1.45 percent at September 30, 2009,
      compared to 1.25 percent at the end of the third quarter last year and
      1.42 percent at the end of the second quarter of 2009.




Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, October 21, 2009, 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 2:00 p.m. CT until midnight Sunday, October 25, 2009 at 800-642-1687 with Conference ID # of 34963885. The call will also be available by webcast at the URL listed below and available for playback after 2:00 p.m. CT. After entering the Web site, http://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 assets of $16.2 billion at September 30, 2009.  The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Frost operates more than 110 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost is the largest Texas-based banking organization that operates only in Texas, with a legacy of helping clients with their financial needs during three centuries.

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 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.
  --  Political instability.
  --  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.
  --  Changes in the competitive environment among financial holding
      companies and other financial service providers.
  --  The effect 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 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 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



                            Cullen/Frost Bankers, Inc.
                   CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
                    (In thousands, except per share amounts)

                                  2009                        2008
                      -----------------------------    ------------------
                      3rd Qtr    2nd Qtr    1st Qtr    4th Qtr    3rd Qtr
                      -------    -------    -------    -------    -------
  CONDENSED INCOME
   STATEMENTS
  ----------------

  Net interest
   income            $133,989   $134,464   $129,632   $138,081   $134,736
  Net interest
   income(1)          144,915    144,325    137,733    143,707    139,655
  Provision for
   possible loan
   losses              16,940     16,601      9,601      8,550     18,940
  Non-interest
   income:
   Trust fees          16,755     16,875     15,969     17,483     19,749
   Service charges
    on deposit
    accounts           26,395     25,152     24,910     23,697     22,642
   Insurance
    commissions and
    fees                8,505      7,106     10,751      6,470      8,261
   Other charges,
    commissions and
    fees                6,845      6,288      6,762      8,407     10,723
   Net gain (loss)
    on securities
    transactions           --         49         --       (133)        78
   Other               10,991     12,536     11,472     13,274     15,862
                      -------    -------    -------    -------    -------
  Total
    non-interest
    income             69,491     68,006     69,864     69,198     77,315

  Non-interest
   expense:
   Salaries and
    wages              58,591     56,540     56,776     58,468     57,803
   Employee benefits   13,445     13,783     15,240     10,517     10,677
   Net occupancy       11,111     10,864     10,690     10,384     10,342
   Furniture and
    equipment          11,133     10,662     10,363     10,010      9,657
   Deposit insurance    4,643     11,667      4,376      1,785      1,859
   Intangible
    amortization        1,564      1,719      1,781      1,929      1,976
   Other               31,747     31,054     30,273     30,450     30,658
                      -------    -------    -------    -------    -------
  Total
    non-interest
    expense           132,234    136,289    129,499    123,543    122,972
                      -------    -------    -------    -------    -------
  Income before
   income taxes        54,306     49,580     60,396     75,186     70,139
  Income taxes          9,607     11,721     15,414     22,223     21,174
                      -------    -------    -------    -------    -------
  Net income          $44,699    $37,859    $44,982    $52,963    $48,965
                      =======    =======    =======    =======    =======

  PER SHARE DATA
  --------------

  Net income -
   basic                $0.75      $0.64      $0.76      $0.89      $0.83
  Net income -
   diluted               0.75       0.63       0.76       0.89       0.83
  Cash dividends         0.43       0.43       0.42       0.42       0.42
  Book value at end
   of quarter           31.80      30.12      30.34      29.68      27.16

  OUTSTANDING SHARES
  ------------------

  Period-end shares    59,929     59,653     59,423     59,416     59,299
  Weighted-average
   shares - basic      59,537     59,331     59,189     59,171     58,932
  Dilutive effect
   of stock
   compensation            91        119         75        311        298
  Weighted-average
   shares - diluted    59,628     59,450     59,264     59,482     59,230

  SELECTED ANNUALIZED
   RATIOS
  -------------------

  Return on average
   assets                1.11%      0.98%      1.23%      1.47%      1.44%
  Return on average
   equity                9.70       8.35      10.33      12.79      12.39
  Net interest
   income to
   average earning
   assets(1)             4.12       4.28       4.33       4.60       4.74

  (1) Taxable-equivalent basis assuming a 35% tax rate.



                           Cullen/Frost Bankers, Inc.
                    CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

                                     2009                        2008
                        ------------------------------    ------------------
                        3rd Qtr     2nd Qtr    1st Qtr    4th Qtr    3rd Qtr
                        -------     -------    -------    -------    -------
  BALANCE SHEET SUMMARY
  ---------------------
    ($in millions)
  Average Balance:
    Loans                $8,582     $8,784     $8,809     $8,712     $8,434
    Earning assets       14,121     13,632     12,942     12,435     11,712
    Total assets         16,047     15,519     14,881     14,347     13,486
    Non-interest-bearing
     demand deposits      4,343      4,138      3,971      3,803      3,605
    Interest-bearing
     deposits             8,453      8,045      7,487      7,106      6,797
    Total deposits       12,796     12,183     11,458     10,909     10,402
    Shareholders'
     equity               1,829      1,818      1,766      1,647      1,573

  Period-End Balance:
    Loans                $8,519     $8,644     $8,779     $8,844     $8,596
    Earning assets       14,436     13,855     13,530     13,001     11,984
    Goodwill and
     intangible
     assets                 549        549        551        551        553
    Total assets         16,158     15,785     15,331     15,034     14,061
    Total deposits       12,922     12,497     12,033     11,509     10,618
    Shareholders'
     equity               1,906      1,797      1,803      1,764      1,611
    Adjusted
     shareholders'
     equity(1)            1,709      1,675      1,650      1,626      1,593

  ASSET QUALITY
  -------------
    ($in thousands)
  Allowance for
   possible loan
   losses              $123,122   $122,501   $114,168   $110,244   $107,109
    as a percentage
     of period-end
     loans                 1.45%      1.42%      1.30%      1.25%      1.25%

  Net charge-offs       $16,319     $8,268     $5,677     $5,415     $6,351
    Annualized as a
     percentage of
     average loans         0.75%      0.38%      0.26%      0.25%      0.30%


  Non-performing assets:
    Non-accrual loans  $191,754   $168,805   $114,233    $65,174    $45,475
    Foreclosed assets    29,112     21,478     13,533     12,866      9,683
                       --------   --------   --------    -------    -------
      Total            $220,866   $190,283   $127,766    $78,040    $55,158
    As a percentage of:
     Total loans and
      foreclosed assets    2.58%      2.20%      1.45%      0.88%      0.64%
     Total assets          1.37       1.21       0.83       0.52       0.39

  CONSOLIDATED CAPITAL RATIOS
  ---------------------------
  Tier 1 Risk-Based
   Capital Ratio          11.49%     10.91%     10.64%     10.30%     10.33%
  Total Risk-Based
   Capital Ratio          13.72      13.34      12.98      12.58      12.67
  Leverage Ratio           8.47       8.50       8.70       8.80       9.04
  Equity to Assets
   Ratio (period-end)     11.80      11.38      11.76      11.73      11.46
  Equity to Assets Ratio
   (average)              11.40      11.72      11.87      11.48      11.66

  (1) Shareholders' equity excluding accumulated other comprehensive income
      (loss).



                         Cullen/Frost Bankers, Inc.
                  CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
                   (In thousands, except per share amounts)

                                      Nine Months Ended
                                        September 30,
                                       2009      2008
                                       ----      ----
   CONDENSED INCOME STATEMENTS
   ---------------------------
   Net interest income              $398,085   $395,944
   Net interest income(1)            426,972    410,647
   Provision for possible loan
    losses                            43,142     29,273
   Non-interest income
      Trust fees                      49,599     57,071
      Service charges on deposit
       accounts                       76,457     63,869
      Insurance commissions and
       fees                           26,362     26,434
      Other charges, commissions
       and fees                       19,895     27,150
      Net gain (loss) on securities
       transactions                       49        (26)
      Other                           34,999     43,626
                                     -------    -------
      Total non-interest income      207,361    218,124

   Non-interest expense
      Salaries and wages             171,907    167,475
      Employee benefits               42,468     36,702
      Net occupancy                   32,665     30,080
      Furniture and equipment         32,158     27,789
      Deposit insurance               20,686      2,812
      Intangible amortization          5,064      5,977
      Other                           93,074     92,267
                                    --------   --------
      Total non-interest expense     398,022    363,102

   Income before income taxes        164,282    221,693
   Income taxes                       36,742     67,401
                                    --------   --------
   Net income                       $127,540   $154,292
                                    --------   --------

   PER SHARE DATA
   --------------
   Net income - basic                  $2.14      $2.62
   Net income - diluted                 2.14       2.61
   Cash dividends                       1.28       1.24
   Book value at end of period         31.80      27.16

   OUTSTANDING SHARES
   ------------------
   Period-end shares                  59,929     59,299
   Weighted-average shares -
    basic                             59,353     58,736
   Dilutive effect of stock
    compensation                          69        361
   Weighted-average shares -
    diluted                           59,422     59,097

   SELECTED ANNUALIZED RATIOS
   --------------------------
   Return on average assets             1.10%      1.53%
   Return on average equity             9.45      13.23
   Net interest income to average
    earning assets(1)                   4.24       4.69

  (1) Taxable-equivalent basis assuming a 35% tax rate.



                         Cullen/Frost Bankers, Inc.
                  CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

                                             As of or for the
                                             Nine Months Ended
                                               September 30,
                                              2009       2008
                                              ----       ----
   BALANCE SHEET SUMMARY
   ---------------------
     ($in millions)
   Average Balance:
     Loans                                   $8,724     $8,181
     Earning assets                          13,569     11,678
     Total assets                            15,488     13,463
     Non-interest-bearing demand deposits     4,152      3,551
     Interest-bearing deposits                7,999      6,853
     Total deposits                          12,151     10,404
     Shareholders' equity                     1,805      1,558

   Period-End Balance:
     Loans                                   $8,519     $8,596
     Earning assets                          14,436     11,984
     Goodwill and intangible assets             549        553
     Total assets                            16,158     14,061
     Total deposits                          12,922     10,618
     Shareholders' equity                     1,906      1,611
     Adjusted shareholders' equity(1)         1,709      1,593

   ASSET QUALITY
   -------------
     ($in thousands)
   Allowance for possible loan losses      $123,122   $107,109
       As a percentage of period-end loans     1.45%      1.25%

   Net charge-offs:                         $30,264    $14,503
       Annualized as a percentage of
        average loans                          0.46%      0.24%

   Non-performing assets:
     Non-accrual loans                     $191,754    $45,475
     Foreclosed assets                       29,112      9,683
                                           --------    -------
        Total                              $220,866    $55,158
     As a percentage of:
        Total loans and foreclosed assets      2.58%      0.64%
        Total assets                           1.37       0.39

   CONSOLIDATED CAPITAL RATIOS
   ---------------------------
   Tier 1 Risk-Based Capital Ratio            11.49%     10.33%
   Total Risk-Based Capital Ratio             13.72      12.67
   Leverage Ratio                              8.47       9.04
   Equity to Assets Ratio (period-end)        11.80      11.46
   Equity to Assets Ratio (average)           11.65      11.57

  (1) Shareholders' equity excluding accumulated other comprehensive income
      (loss).


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DATASOURCE: Cullen/Frost Bankers, Inc.



CONTACT:  Investor Relations, Greg Parker, [phone], or Media

Relations, Renee Sabel, [phone], both of Cullen/Frost Bankers, Inc.



Web Site:  http://www.frostbank.com/ 

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