CULLEN/FROST REPORTS SOLID THIRD QUARTER RESULTS

SAN ANTONIO – Cullen/Frost Bankers, Inc. (NYSE:CFR) today reported that strong loan and deposit growth contributed to solid third quarter 2012 results, as the Texas financial services leader continues to operate well in a slowly recovering economy.
Cullen/Frost’s net income for the third quarter of 2012 was $58.7 million, or $.95 per diluted common share, up 7.6 percent compared to third quarter 2011 earnings of $54.5 million, or $.89 per diluted common share. Returns on average assets and equity for the third quarter of 2012 were 1.11 percent and 9.75 percent, respectively, compared to 1.15 percent and 9.79 percent for the same period of 2011.

The provision for loan losses was $2.5 million, compared to $9.0 million reported a year earlier, while the allowance for loan losses as a percentage of loans decreased to 1.20 percent from 1.43 percent for the same quarter of 2011.
For the third quarter of 2012, net interest income on a tax-equivalent basis increased 4.2 percent to $167.3 million, compared to the $160.6 million reported for the same quarter of 2011. Average deposits

for the quarter were $17.5 billion, an increase of $568 million over the previous quarter, and $2.1 billion over the $15.4 billion reported for the third quarter of 2011. For the third quarter of 2012, average loans were $8.6 billion, an increase of $599 million, or 7.5 percent, compared to the $8.0 billion reported for the third quarter a year earlier, and up $367 million compared to the $8.3 billion reported in the second quarter of 2012.

“Cullen/Frost continues to generate solid results in an improving, but still sluggish economy and extended low interest rate environment,” said CEO Dick Evans. “I was pleased to see loans reach $8.6 billion, a growth of 7.5 percent over last year’s third quarter, as our disciplined calling and team selling efforts are starting to pay off.

“In a lending environment that remains both challenging and competitive, with businesses demonstrating caution and paying down debt, we are seeing the result of our work, both in loan growth and in the expansion of our customer base. Our credit quality levels remain manageable, capital levels remain very strong, and we have money to lend,” said Evans.

“We saw a good increase in net interest income for the quarter and a $2.1 billion increase in average deposits,” Evans said. “Since the financial crisis began, customers have responded to our company’s value proposition by bringing their deposits and their business to Frost. Since year-end 2007, average deposits have grown almost $7 billion, which we welcome. At the same time, the greater liquidity created by increased deposits continues to pressure the net interest margin, especially in this low rate environment.”

“We are blessed to be in Texas and fortunate to serve some of the strongest markets in the nation. Austin, Dallas, Fort Worth, Houston and San Antonio are mentioned in almost every article highlighting cities

that have weathered the recession well and are positioned to grow even stronger in the recovery. Texas continues to grow jobs at a higher rate than the nation.

“Four years ago the U.S. was on the brink of the greatest financial crisis since the 1930s. Decisions we made then have enabled us to perform well today. Frost was one of the first banks in the nation to turn down TARP bailout funds, a decision that ranks among the best in our 144-year history,” Evans said. “Not having to deal with the repercussions of repaying TARP allowed us to stay focused on building our business. We have consistently paid a shareholder dividend and, in fact, have increased the dividend annually for the past 18 years.
“Our outstanding employees make

Cullen/Frost’s success possible, and I appreciate their dedication and commitment to helping our company grow,” Evans said.
For the first nine months of 2012, earnings were $177.8 million, up 9.6 percent, compared to $162.1 million reported for the same period of 2011. Year-to-date earnings were $2.88 per diluted common share, compared to $2.64 per diluted common share for the same period in 2011. Returns on average assets and average equity for the first nine months of 2012 were 1.16 percent and 10.09 percent respectively, compared to 1.19 percent and 10.11 percent for the same period a year earlier.

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