Fitch Affirms Cullen/Frost Bankers, Inc. at 'A/F1' Following Mid-Tier Regional Peer Review

  Fitch Affirms Cullen/Frost Bankers, Inc. at 'A/F1' Following Mid-Tier
  Regional Peer Review

Business Wire

CHICAGO -- February 14, 2013

Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings
(IDRs) of Cullen/Frost Bankers, Inc., and its subsidiaries at 'A/F1'. The
Outlook remains Stable. A full list of ratings follows at the end of this
release.

Fitch reviewed Cullen/Frost Bankers, Inc. as part of a peer review that
included 16 mid-tier regional banks. The banks in the peer review include:
Associated Banc-Corp., Bank of Hawaii Corporation, BOK Financial Corporation,
Cathay General Bancorp, Cullen/Frost Bankers, Inc., East West Bancorp, Inc.,
First Horizon National Corporation, First National of Nebraska, Inc., First
Niagara Financial Group, Inc., Fulton Financial Corporation, Hancock Holding
Company, People's United Financial, Inc., Synovus Financial Corp., TCF
Financial Corporation, UMB Financial Corp., Webster Financial Corporation.
Refer to the release titled 'Fitch Takes Rating Actions on Its Mid-Tier
Regional Bank Group Following Industry Peer Review' for a discussion of rating
actions taken on the entire mid-tier regional banks group.

The mid-tier regional group is comprised of banks with total assets ranging
from $10 billion to $36 billion. IDRs for this group is relatively dispersed
with a low of 'BB-' and a high of 'A+'. Mid-tier regional banks typically lag
their large regional bank counterparts by asset size, geographic footprint and
product/revenue diversification. As such mid-tier regional banks are more
susceptible to idiosyncratic risks such as geographic or single name
concentrations.

Fitch's mid-tier regional bank group has fairly homogenous business
strategies. The institutions are mostly reliant on spread income from loans
and investments. With limited opportunity to improve fee-based income in the
near term, Fitch expects that mid-tier banks will continue to face greater
earnings headwinds in 2013 than larger institutions with greater revenue
diversification.

Share repurchases is common theme amongst the mid-tier banks. As mid-tier
banks face earnings headwinds, institutions have begun repurchasing common
shares to improve shareholder returns. Fitch anticipates continued repurchase
activity in 2013 as the return on equity lags historical norms for the group.

In addition to share repurchases, Fitch has observed that some mid-tier banks
have looked to their investment portfolio to improve returns. Most notably,
CLOs and CMBS have become more popular amongst mid-tier banks. Although such
securities are beneficial to yields and returns, Fitch notes that such
purchases can be a negative ratings driver if the risks are not properly
measured, monitored and controlled.

Asset quality continues to improve throughout the banking sector. Both
nonperforming assets (NPAs) and net charge-offs (NCOs) are down significantly
year over year. Fitch anticipates further asset quality improvement as
nonperforming loan (NPL) inflow slows. Reserve levels have also declined as
asset quality improves, which has been beneficial to earnings in 2012. Fitch
expects further reserve releases in 2013 but at a slower pace.

RATING ACTION AND RATIONALE

Cullen/Frost Bankers' (CFR) ratings were affirmed at 'A'. The Outlook remains
Stable. The affirmation of ratings reflects the company's solid and consistent
earnings performance, strong funding and capital profiles, and nominal credit
costs through the cycle. CFR has demonstrated consistent earnings through the
cycle, and although reported earnings are below pre-crisis levels, they remain
above peer averages. As is typical for CFR, liquidity remains very strong.
With a loan-to-deposit ratio below 50%, the company has ample low cost funding
to support loan growth. Fitch expects that this ratio will increase when the
economy improves and CFR takes advantage of more attractive lending
opportunities, but that it will always remain below industry averages. Capital
remains appropriate in light of CFR's risk profile, and NCOs continue to
remain well below peer averages.

Fitch continues to highlight CFR's portfolio of state and municipal bond
securities, which represents approximately 12% of assets. Most of these
securities are guaranteed by the Texas Permanent School Fund (TPSF), which is
rated 'AAA' by Fitch. While these bonds have historically performed well, CFR
does have a concentration with one guarantor, albeit highly rated. Fitch views
a downgrade or nonperformance of the TPSF as remote, but one that would have
meaningful consequences for CFR.

RATING DRIVERS AND SENSITIVITIES - IDRs and VRs

Fitch views an upgrade from CFR's current ratings as unlikely as CFR is one of
the highest rated banks in the U.S. Conversely, a downgrade could occur if
there is material deterioration in asset quality, earnings or capital, though
given CFR's consistency and track record through the most recent crisis, this
is also viewed as unlikely.

RATING DRIVERS AND SENSITIVITIES - Support Ratings and Support Floor Ratings:

All of the mid-tier regional banks in the peer group have Support Ratings of
'5' and Support Floor Ratings of 'NF'. In Fitch's view, the mid-tier banks are
not considered systemically important and therefore, Fitch believes the
probability of support is unlikely. IDRs and VRs do not incorporate any
government support for any of the banks in the mid-tier regional bank peer
group.

RATING DRIVERS AND SENSITIVITIES - Subordinated Debt and Other Hybrid
Securities:

Subordinated debt and hybrid capital instruments issued by the banks are
notched down from the issuers' VRs in accordance with Fitch's assessment of
each instrument's respective non-performance and relative loss severity risk
profiles, which vary considerably. The ratings of subordinated debt and hybrid
securities are sensitive to any change in the banks' VRs or to changes in the
banks' propensity to make coupon payments that are permitted but not
compulsory under the instruments' documentation.

RATING DRIVERS AND SENSITIVITIES - Holding Company:

All of the entities reviewed in the mid-tier regional bank group have a bank
holding company structure with the bank as the main subsidiary. All
subsidiaries are considered core to parent holding company supporting
equalized ratings between bank subsidiaries and bank holding companies. IDRs
and VRs are equalized with those of its operating companies and banks
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.

RATING DRIVERS AND SENSITIVITIES - Subsidiary and Affiliated Company Rating:

All of the entities reviewed in the mid-tier regional bank group factor in a
high probability of support from parent institutions to its subsidiaries. This
reflects the fact that performing parent banks have very rarely allowed
subsidiaries to default. It also considers the high level of integration,
brand, management, financial and reputational incentives to avoid subsidiary
defaults.

Fitch has affirmed the following ratings:

Cullen/Frost Bankers, Inc.

--Long-term IDR at 'A'; Rating Outlook Stable;

--Short-term IDR at 'F1';

--Viability at 'a';

--Subordinated debt at 'A-';

--Support at '5';

--Support floor at 'NF'.

Frost National Bank

--Long-term IDR at 'A'; Rating Outlook Stable;

--Short-term IDR at 'F1';

--Long-term deposits at 'A+';

--Short-term deposits at 'F1';

--Viability at 'a';

--Support at '5';

--Support floor at 'NF'.

Cullen/Frost Capital Trust II

--Preferred stock at 'BBB-'.

Additional information is available at www.fitchratings.com. The ratings above
were unsolicited by and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Risk Radar' (Jan. 16, 2013);

--'U.S. Banks: Rationalizing the Branch Network (Witness the Incredible
Shrinking Branch Network)' (Sept. 17, 2012);

--'U.S. Banks: Mortgage Representations and Warranties (Banks Increase
Reserves; Uncertainty Remains)' (Aug. 20, 2012)

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal
(Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)'
(Aug. 7, 2012);

--'Basel III: Return and Deleveraging Pressures' (May 17, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05,
2012).

Applicable Criteria and Related Research:

Risk Radar Update

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699014

U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking
Branch Network)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688330

U.S. Banks: Mortgage Representations and Warranties (Banks Increase Reserves;
Uncertainty Remains)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684038

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal
(Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685638

Basel III: Return and Deleveraging Pressures

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678273

Assessing and Rating Bank Subordinated and Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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Contact:

Fitch Ratings
Primary Analyst
Julie Solar, +1-312-368-5472
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bain K. Rumohr, CFA, +1-312-368-3153
Associate Director
or
Committee Chairperson
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Media Relations
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brian.bertsch@fitchratings.com