(For use by New York Times News Service clients)

(For use by New York Times News Service clients)

c.2013 San Antonio Express-News

By Patrick Danner

San Antonio Express-News

SAN ANTONIO -- Just as the sun rises every morning, San Antonio's Cullen/Frost Bankers Inc. can be counted on to produce steady results.

The third quarter was no different, with the parent of Frost Bank posting net income of 96 cents a share -- in line with expectations of analysts polled by Thomson Financial Network .

Overall, net income was $58.4 million in the three months ended Sept. 30 . That was virtually flat from the same period a year ago, when Cullen/Frost earned $58.7 million .

Rates for maturing securities and loans are lower now than before, Cullen/Frost Chairman and CEO Dick Evans said in an interview.

In "a zero interest rate environment, you've got to ride your bicycle pretty fast to stay flat," he said. "The prolonged zero interest rate with maturities causes you to squeeze the margins."

Frost is the largest regional bank based in San Antonio; it had about $23.5 billion in assets at the end of September.

While Cullen/Frost's loan pipeline is higher than a year ago, Evans said it is down from the second quarter because of " an across-the-board slowdown in requests.

"We believe the slowdown is related to the economic uncertainty caused by the turmoil in Washington," he said. "As long as Congress and the president continue to kick the debt-limit can down the road a few months at a time without taking steps to address spending, the deficit or the national debt, businesses will remain very cautious."

Since the start of the year, Evans said, Frost has grown loan commitments -- those prepared to borrow but not quite ready -- by $2 billion . Half of that amount has come from new customers, he said.

"You can lead a horse to water, and there's plenty of water in the trough -- we've got tons of liquidity. But I can't make them drink," Evans said during a conference call with analysts.

The company's loans averaged $9.25 billion in the third quarter, up 7 percent from $8.64 billion in the same period a year ago.

Cullen/Frost reported average total deposits of $19.5 billion in the latest quarter, an 11.5 percent increase from $17.5 billion in the third quarter of 2012 .

Since 2007 , before the start of the financial crisis, Frost's deposits have climbed $8.8 billion .

Cullen-Frost's loan-to-deposit ratio at the end of the third quarter was 46.6 percent, down from 48.3 percent in the year-earlier period. At the end of 2008 , the ratio was closer to 77 percent.

The rise in deposits continues to put pressure on net interest margin, Evans said. The margin is a measure of the difference between what a bank earns in interest on loans and what it pays in interest on deposits.

The margin dipped to 3.38 percent in the most recent quarter, off 16 basis points from a year ago and 5 basis points from the second quarter.

Gregory Lathrop , president of Lathrop Investment Management Corp. , which is based in Little Rock, Ark., and holds about 117,000 shares of Cullen/Frost stock, said he's not too concerned about the rise in deposits outpacing loans.

"Companies in Cullen/Frost's market are continuing to do business, albeit sort of at a slow pace -- (though) not as slow as other (markets)," Lathrop said. "Our economy generally is plugging along, but not ginning along. Until it gins a little more, there's not going to be a lot of loan demand, regardless of the interest rate."

Cullen/Frost's third-quarter was highlighted by the announcement that it would acquire Odessa-based WNB Banchares Inc. , parent of Western National Bank. The $1.4 billion bank operates in the heart of the oil- and gas-producing Permian Basin. It has one branch in San Antonio.

The WNB deal is expected to close early next year, Evans said.

Cullen/Frost remains an active looker for other banks to buy. Chatter has picked up on Texas banks seen as potential acquisition targets, Evans noted.

"Particularly (on) smaller banks," he said. It's difficult for banks with less than $1 billion in assets to have enough scale to deal with the costs of 2010's Dodd-Frank financial reform legislation, so that has sparked a lot of activity, he said.

Cullen/Frost had almost $5.4 million of bad debts charged off in the latest quarter, compared with $2.7 million in the same period last year.

The amount of nonperforming assets decreased significantly. Cullen/Frost reported $98.1 million in such loans in the latest period, compared with $124.9 million a year ago.

The company's Tier 1 leverage ratio, which measures financial strength, was 8.6 percent in the most recent quarter. That was virtually unchanged from a year ago. An institution that has a Tier 1 leverage ratio of at least 5 percent is considered "well-capitalized," according to the Federal Deposit Insurance Corp.

"Our capital levels and liquidity are stronger now than before (the) 2008 financial crisis," Evans said.

Cullen/Frost's shares rose 38 cents to close at $71.77 Wednesday.