CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed and withdrawn the long-term Issuer Default Ratings at 'A' for Cullen/Frost Bankers, Inc. (CFR), and its subsidiary Frost Bank. In addition, Fitch has affirmed and withdrawn the ratings for Cullen/Frost Capital Trust II. The Rating Outlook is Stable. Fitch has decided to discontinue the rating, which is uncompensated. A full list of rating actions is at the end of this release.
KEY RATING DRIVERS - IDRs, VRs, AND SENIOR DEBT
Today's affirmation is supported by CFR's stable earnings, strong funding and capital profile, solid asset quality, and low credit costs through the cycle. Though still lagging pre-crisis levels, reported earnings remain stable and above mid-tier regional bank averages in terms of return on average assets (ROAA) and efficiency. Given CFR's conservative profile, liquidity remains strong with a third quarter 2014 (3Q'14) loan-to-deposit (LTD) ratio of just 46%. Sustained low funding costs will support loan growth, which Fitch expects to pick-up as the economy improves enabling CFR to take advantage of more attractive lending opportunities and bumping up its LTD (yet remaining below industry averages). Nonperforming assets as a percentage of total loans and other real estate owned was just 0.59% for the recent quarter and is comfortably below the Fitch-rated mid-tier regional bank peer average of 2.01% for the same period. Capital levels are appropriate in light of CFR's risk profile while net charge-off also remain consistently below mid-tier regional bank averages.
CFR's C&I and CRE portfolios since 3Q'13 have exhibited robust growth relative to the state of Texas and national GDP. Year-over-year loan growth in CFR's C&I portfolio totalled 14.6% at Sept. 30, 2014, while the CRE portfolio recorded loan growth of 19.3% for the same period. The 2Q'14 acquisition of WNB of Bancshares, Inc. accounts for a majority of growth within the C&I portfolio. It is Fitch's expectation that management has maintained its conservative underwriting standards during this period of growth.
CFR's exposure to the energy industry is among the highest in the Fitch-rated universe, accounting for 14.9% of total loans at the end of 3Q'14. Recent declines in the price of oil opens the door to potential losses associated with energy loans and, if sustained, can also have an impact on the company's loans to consumers and businesses operating within energy-dependent regions. Similar to Fitch's expectations regarding management's handling of C&I and CRE growth, Fitch believes the company is positioned via risk management and continued conservative underwriting such that the impact of a short-to-intermediate oil price correction will not have any material effect on the company.
Fitch notes that municipal holdings in CFR's securities portfolio remain elevated (highest of Fitch-rated mid-tier banks), accounting for 53% of total securities and 19% of total assets. Most of the municipal holdings are either guaranteed by the Texas Permanent School Fund (TSPF), which is 'AAA' rated by Fitch, or secured by U.S. Treasury securities via defeasance of the debt by the issuers. While CFR's municipal portfolio has historically performed well, Fitch notes there exists a degree of concentration risk despite the highly rated issuers making up a majority of the municipal book.
RATING SENSITIVITIES - IDRs, VRs, AND SENIOR DEBT
Rating sensitivities are no longer needed given today's rating withdrawal.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
CFR's subordinated debt and preferred stock are rated one and five notches below CFR's Viability Rating (VR), respectively. The notching reflects loss severity and an assessment of increment non-performance risk.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Rating sensitivities are no longer needed given today's rating withdrawal.
SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS
CFR's IDR and VR are equalized with those of its subsidiary bank, Frost Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.
SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES
Rating sensitivities are no longer needed given today's rating withdrawal.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
CFR's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should support be needed.
KEY RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
Rating sensitivities are no longer needed given today's rating withdrawal.
Fitch has affirmed and withdrawn the following ratings:
Cullen/Frost Bankers, Inc.
--Long-Term IDR at 'A';
--Short-Term IDR at 'F1';
--Viability Rating at 'a';
--Preferred Stock at 'BB+';
--Subordinated Notes at 'A-';
--Support Floor at 'NF';
--Support at '5'.
Frost Bank
--Long-Term IDR at 'A';
--Long-Term Deposits at 'A+';
--Short-Term IDR at 'F1';
--Short-Term Deposits at 'F1';
--Viability Rating at 'a';
--Support Floor at 'NF';
--Support at '5'.
Cullen/Frost Capital Trust II
--Trust Preferred Stock at 'BBB-'.
Additional information is available on www.fitchratings.com. THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS, OR PROVIDE ADDITIONAL INFORMATION, BEYOND THE ISSUER'S AVAILABLE PUBLIC DISCLOSURE.
Applicable Criteria and Related Research:
--'2015 Outlook: U.S. Banks';
--'U.S. Banks: Liquidity and Deposit Funding';
--'U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)';
--'U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?';
--'Fitch Fundamentals Index';
--'Global Financial Institutions Rating Criteria;
--Assessing and Rating Bank Subordinated and Hybrid Securities Criteria';
--'Rating FI Subsidiaries and Holding Companies';
--'Banks Lifted by Energy Boom Facing Risk in Oil's Slide'.
Applicable Criteria and Related Research:
2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228
U.S. Banks: Liquidity and Deposit Funding
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196
U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539
Fitch Fundamentals Index
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729196
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959897
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