Cullen/Frost Reports First Quarter Results and Timing of Earnings Conference Call

SAN ANTONIO, April 25 /PRNewswire-FirstCall/ -- Cullen/Frost Bankers, Inc. today reported first quarter 2007 net income of $47.3 million, compared to first quarter 2006 earnings of $46.7 million. On a per-share basis, earnings for the quarter were $.78 per diluted common share, down 6.0 percent compared to the $.83 per diluted common share reported a year earlier. As previously announced, the first quarter of 2007 results included $5.3 million in expenses relating to the early redemption of $100 million in trust preferred securities or $.06 per diluted common share after taxes. Returns on average assets and equity for the first quarter of 2007 were 1.47 percent and 13.78 percent, respectively, compared to 1.68 percent and 18.86 percent for the same quarter the previous year.

For the first quarter of 2007, net interest income on a taxable-equivalent basis increased 14.3 percent to $131.1 million, compared to the $114.7 million reported for the first quarter of 2006. Average loans were up 17.4 percent to $7.4 billion, from the $6.3 billion reported a year earlier. Average deposits for the quarter were $10.3 billion, up 14.0 percent over the $9.0 billion reported in the first quarter of 2006. These average loan and deposit growth rates were impacted by three acquisitions completed during 2006. Two were completed in February of 2006 and the most recent acquisition, of Summit Bancshares, Inc., was completed and fully converted to Frost systems in December of 2006.

"This quarter's results were impacted by expenses relating to the early redemption of trust preferred securities, as well as several other unusual income and expense items," said Dick Evans, chairman and CEO of Cullen/Frost. "Along with good increases in fee income from trust and insurance operations and a 14.3 percent increase in net interest income, we also saw an improvement in asset quality relative to the previous quarter. While loans and deposits were both up over the first quarter of 2006, organic loan growth has slowed, in part due to strong competition in loan structure and pricing. We are fortunate to operate in some of the best markets in the country, and also some of the most competitive. I wouldn't want to be anywhere else."

"Now in our 140th year as a Texas company, we remain confident in the Texas economy and steadfast in our commitment to providing the very best service and products to our customers, and to maintaining shareholder value. Our outstanding staff continues to meet challenges head-on, while taking good care of our customers. As always, I am grateful for their dedication and hard work."

Other noted financial data for the first quarter follows: All of the following comparisons to the first quarter of 2006 were impacted, in part, by two acquisitions completed during the first quarter of 2006 -- Texas Community Bancshares, Inc. in Dallas and Alamo Corporation of Texas in the Rio Grande Valley -- and one acquisition completed during the fourth quarter of 2006 - Summit Bancshares, Inc. in Fort Worth. -- Net interest income on a taxable-equivalent basis increased 14.3 percent to $131.1 million, from the $114.7 million reported a year earlier. This increase in net interest income was impacted in part by a 14.0 percent increase in average deposits from the first quarter of 2006, to $10.3 billion, which in turn contributed to a rise of $1.4 billion in average earning assets compared to the same period a year earlier. The net interest margin decreased one basis point from the first quarter last year to 4.65 percent, offsetting, in small part, the positive impact of the higher volume of earning assets. When compared to the fourth quarter of 2006, the net interest margin increased three basis points from 4.62 percent. -- Non-interest income for the first quarter of 2007 increased 9.9 percent to $67.1 million, from the $61.0 million reported a year earlier. Trust fees increased 7.3 percent to $16.9 million over the $15.8 million reported in the first quarter of 2006. The increase was primarily a result of increased levels of investment fees, which are assessed based on the market values of trust assets that are managed and held in custody. These values were $23.6 billion at the end of the first quarter of 2007. The Corporation also experienced an increase in the number of new trust accounts since last year. Insurance commissions and fees were $10.6 million for the quarter, an increase of 18.4 percent over the $9.0 million reported for a year earlier. This increase was due to higher contingent commissions (up $965 thousand) and commission income (up $688 thousand). Other income increased 25.8 percent from the first quarter of last year, to $13.8 million. The increase in other income this quarter was due in part to increases in sundry income from various unusual items during the first quarter of 2007, including $1.1 million in income recognized from the collection of interest and other charges on loans charged-off in prior years. Also impacting other income were increases in check card usage (up $649 thousand) and gain on sale of assets (up $596 thousand), primarily from a duplicate branch location sold in North Texas. Service charges on deposits were $18.8 million, down 1.4 percent compared to the same quarter a year ago. An increase in the earnings credit rate for commercial accounts, compared to a year earlier, impacted treasury management fees. When interest rates are higher, customers earn more credit for their deposit balances, and this, in turn, reduces the amount of service charges to be paid for through fees. -- Non-interest expense for the quarter was $122.1 million, up 21.5 percent over the $100.5 million reported for the first quarter of 2006. The increase in total salaries and related employee benefits was $6.9 million, or 11.6 percent, primarily the result of the three acquisitions completed during 2006, as well as the addition of new employees and normal annual merit increases. The recent acquisitions also impacted lease expense, utilities and depreciation expense related to buildings, resulting in a rise in net occupancy expenses of $1.2 million from the first quarter of 2006. Other non-interest expense for the quarter rose $11.9 million and included increases in sundry expenses for various unusual items, including approximately $5.3 million in expenses relating to the early redemption of $100 million in trust preferred securities. Also included in sundry expense was approximately $1.4 million in expense related to a contribution for previously unmatched employee contributions to the Corporation's 401(k) plan. In addition to these sundry expenses, there were other non-interest expenses, such as higher advertising expenses (up $1.3 million), losses on sales of foreclosed assets (up $829 thousand) and professional service expenses (up $756 thousand) that impacted the increase from the first quarter last year. -- For the first quarter of 2007, the provision for possible loan losses was $2.7 million, compared to net charge-offs for the quarter of $2.6 million. The loan loss provision for the first quarter of 2006 was $3.9 million, compared to net charge-offs of $2.5 million. Non-performing assets at quarter end were $50.5 million, compared to $40.8 million a year earlier and $57.7 million the previous quarter. The allowance for possible loan losses as a percentage of loans was 1.29 percent at both March 31, 2007 and March 31, 2006.

Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, April 25, 2007, 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, April 29, 2007 at 800-642-1687 with Conference ID # of 5811363. 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 website, http://www.frostbank.com/, go to "About Frost" on the top navigation bar, then click on Investor Relations.

Cullen/Frost Bankers, Inc. is a financial holding company, headquartered in San Antonio, with assets of $13.2 billion at March 31, 2007. The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Its subsidiary, Frost Bank, operates more than 100 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 one of the largest banks headquartered in Texas, with a legacy of helping Texans 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. -- 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 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.

Cullen/Frost Bankers, Inc. CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) (In thousands, except per share amounts) 2007 2006 ------- ------------------------------------- 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr ------- ------- ------- ------- ------- CONDENSED INCOME STATEMENTS --------------------------- Net interest income $127,833 $121,229 $118,526 $116,968 $112,440 Net interest income(1) 131,127 124,017 121,093 119,309 114,719 Provision for possible loan losses 2,650 3,400 1,711 5,105 3,934 Non-interest income: Trust fees 16,907 16,009 15,962 15,744 15,754 Service charges on deposit accounts 18,831 19,142 19,301 19,566 19,107 Insurance commissions and fees 10,628 5,907 7,204 6,144 8,975 Other charges, commissions and fees 6,858 6,009 7,228 8,681 6,187 Net gain (loss) on securities transactions --- --- --- --- (1) Other 13,848 11,333 10,871 10,615 11,009 ------ ------ ------ ------ ------ Total non-interest income 67,072 58,400 60,566 60,750 61,031 Non-interest expense: Salaries and wages 51,714 48,472 48,743 47,463 46,106 Employee benefits 14,426 10,739 10,882 11,434 13,176 Net occupancy 9,634 8,786 8,964 8,512 8,433 Furniture and equipment 6,928 7,081 6,553 6,357 6,302 Intangible amortization 2,326 1,671 1,293 1,358 1,306 Other 37,059 28,846 27,175 25,555 25,146 ------- ------- ------- ------- ------- Total non-interest expense 122,087 105,595 103,610 100,679 100,469 ------- ------- ------- ------- ------- Income before income taxes 70,168 70,634 73,771 71,934 69,068 Income taxes 22,889 22,272 23,769 23,384 22,391 ------- ------- ------- ------- ------- Net income $47,279 $48,362 $50,002 $48,550 $46,677 ======= ======= ======= ======= ======= PER SHARE DATA -------------- Net income - basic $0.79 $0.85 $0.90 $0.88 $0.86 Net income - diluted 0.78 0.84 0.88 0.86 0.83 Cash dividends 0.34 0.34 0.34 0.34 0.30 Book value at end of quarter 23.64 23.01 20.08 18.51 18.34 OUTSTANDING SHARES ------------------ Period-end shares 59,972 59,839 55,821 55,542 55,106 Weighted-average shares - basic 59,676 56,726 55,440 55,105 54,574 Dilutive effect of stock compensation 919 1,007 1,147 1,198 1,353 Weighted-average shares - diluted 60,595 57,733 56,587 56,303 55,927 SELECTED ANNUALIZED RATIOS -------------------------- Return on average assets 1.47% 1.59% 1.72% 1.70% 1.68% Return on average equity 13.78 16.04 18.56 19.02 18.86 Net interest income to average earning assets(1) 4.65 4.62 4.69 4.70 4.66 (1) Taxable-equivalent basis assuming a 35% tax rate. Cullen/Frost Bankers, Inc. CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) 2007 2006 ------ ------------------------------------- 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr ------- ------- ------- ------- ------- BALANCE SHEET SUMMARY --------------------- ($ in millions) Average Balance: Loans $7,404 $6,681 $6,565 $6,539 $6,307 Earning assets 11,349 10,629 10,181 10,090 9,906 Total assets 13,058 12,071 11,522 11,450 11,286 Non-interest-bearing

demand deposits 3,541 3,423 3,309 3,300 3,305

Interest-bearing deposits 6,711 6,107 5,829 5,769 5,691 Total deposits 10,252 9,530 9,138 9,069 8,996 Shareholders' equity 1,392 1,196 1,069 1,024 1,004 Period-End Balance: Loans $7,459 $7,373 $6,516 $6,577 $6,511 Earning assets 11,405 11,461 10,324 10,076 10,300 Goodwill and intangible assets 564 563 268 268 269 Total assets 13,176 13,224 11,647 11,403 11,579 Total deposits 10,280 10,388 9,270 9,078 9,292 Shareholders' equity 1,418 1,377 1,121 1,028 1,011 Adjusted shareholders' equity(1) 1,466 1,432 1,179 1,135 1,086 ASSET QUALITY ------------- ($ in thousands) Allowance for possible loan losses $96,144 $96,085 $85,667 $85,552 $84,142 as a percentage of period-end loans 1.29% 1.30% 1.31% 1.30% 1.29% Net charge-offs $2,591 $3,329 $1,596 $3,695 $2,490 Annualized as a percentage of average loans 0.14% 0.20% 0.10% 0.23% 0.16% Non-performing assets: Non-accrual loans $46,769 $52,204 $30,045 $30,824 $34,027 Foreclosed assets 3,715 5,545 4,971 6,461 6,766 ------- ------- ------- ------- ------- Total $50,484 $57,749 $35,016 $37,285 $40,793 As a percentage of: Total loans and foreclosed assets 0.68% 0.78% 0.54% 0.57% 0.63% Total assets 0.38 0.44 0.30 0.33 0.35 CONSOLIDATED CAPITAL RATIOS --------------------------- Tier 1 Risk-Based Capital Ratio 10.41% 11.25% 12.39% 12.00% 11.55% Total Risk-Based Capital Ratio 13.54 13.43 14.68 14.65 14.21 Leverage Ratio 8.31 9.56 9.76 9.36 9.12 Equity to Assets Ratio (period-end) 10.76 10.41 9.63 9.01 8.73 Equity to Assets Ratio (average) 10.66 9.91 9.28 8.94 8.89 (1) Shareholders' equity excluding accumulated other comprehensive income (loss). Greg Parker Investor Relations 210/220-5632 or Renee Sabel Media Relations 210/220-5416