Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1994 Commission file number 0-7275
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-1751768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. Houston Street, San Antonio, Texas 78205
(Address of principal executive offices) (Zip code)
(210) 220-4011
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X. No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At April 29, 1994 there were
11,041,751 shares of Common Stock, $5 par value, outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts) Three Months Ended
March 31
--------------------
1994 1993
-------- ------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $23,631 $21,594
Securities:
Taxable 22,411 22,494
Tax-exempt 96 184
------ -------
Total Securities
Time Deposits 1 1
Federal funds sold and securities purchased under resale agreements 1,602 1,882
------- -------
Total Interest Income 47,741 46,155
INTEREST EXPENSE
Deposits 13,720 14,138
Federal funds purchased and securities sold under repurchase
agreements 1,073 791
Long-term notes payable and other borrowings --- 246
------- -------
Total Interest Expense 14,793 15,175
------- -------
Net Interest Income 32,948 30,980
Provision (credit) for possible loan losses --- (590)
------- -------
Net Interest Income After Provision (Credit)
For Possible Loan Losses 32,948 31,570
NON-INTEREST INCOME
Trust department 7,282 6,237
Service charges on deposit accounts 6,295 5,857
Other service charges, collection and exchange charges,
commissions and fees 2,678 2,157
Net gain on securities transactions 6 8
Other 3,075 3,424
------- -------
Total Non-Interest Income 19,336 17,683
NON-INTEREST EXPENSE
Salaries and wages 13,015 13,167
Pension and other employee benefits 3,069 3,139
Net occupancy of banking premises 4,197 4,936
Furniture and equipment 2,572 2,286
Provision for real estate losses --- 913
Restructuring costs --- 1,958
Other 15,567 14,909
------- -------
Total Non-Interest Expense 38,420 41,308
Income Before Income Taxes and Cumulative
Effect of Accounting Change 13,864 7,945
Income Taxes 4,766 160
------- -------
Income Before Cumulative Effect of Accounting Change 9,098 7,785
Cumulative effect of change in accounting for income taxes --- 8,439
------- -------
Net Income $ 9,098 $16,224
======= =======
Per Share
Income before cumulative effect of accounting change-
Primary $ .81 $ .71
Fully diluted .81 .71
Net Income-
Primary .81 1.47
Fully diluted .81 1.46
Dividends per share .15 ---
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
March 31 December 31 March 31
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 308,923 $ 334,564 $ 353,913
Time deposits 254 147 146
Securities held to maturity 1,086,934 997,395 1,383,364
Securities available for sale 559,504 614,476 252,955
Federal funds sold and securities
purchased under resale agreements 182,273 250,250 166,453
Loans, net of unearned discount of $6,768 at
March 31, 1994, $8,456 at December 31, 1993
and $12,454 at March 31, 1993 1,282,811 1,247,809 1,175,621
Less: Allowance for possible loan losses (27,552) (26,298) (31,389)
---------- ---------- ----------
Net Loans 1,255,259 1,221,511 1,144,232
Banking premises and equipment 87,282 86,676 83,207
Accrued interest and other assets 135,343 134,028 153,046
---------- ---------- ----------
Total Assets $3,615,772 $3,639,047 $3,537,316
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 689,790 $ 705,786 $ 643,751
Correspondent banks 116,782 129,106 123,098
Public funds 34,494 46,200 62,416
---------- ---------- ----------
Total demand deposits 841,066 881,092 829,265
Time Deposits:
Savings and Interest-on-Checking 814,452 800,161 750,389
Money market deposit accounts 522,978 527,230 534,923
Time accounts 855,553 860,642 965,529
Public funds 86,595 80,303 46,167
---------- ---------- ----------
Total time deposits 2,279,578 2,268,336 2,297,008
---------- ---------- ---------
Total deposits 3,120,644 3,149,428 3,126,273
Federal funds purchased and securities
sold under repurchase agreements 167,969 166,519 126,486
Long-term notes payable --- --- 3,400
Accrued interest and other liabilities 50,125 49,567 48,202
---------- ---------- ----------
Total Liabilities 3,338,738 3,365,514 3,304,361
Shareholders' Equity
Common stock, par value $5 per share 55,162 55,046 54,720
Shares authorized: 30,000,000
Shares outstanding: 11,032,317;
11,009,198; and 10,943,947
Surplus 113,844 113,385 111,681
Retained earnings 103,500 95,978 66,554
Unrealized gain on securities available
for sale 4,528 9,124 ---
---------- ---------- ----------
Total Shareholders' Equity 277,034 273,533 232,955
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,615,772 $3,639,047 $3,537,316
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Unrealized
Gain(Loss)
on Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $52,061 $102,042 $52,041 $206,144
Net income for the year ended
December 31, 1993 47,236 47,236
Proceeds from employee stock
purchase plan and options 387 1,767 2,154
Tax benefit related to exercise
of stock options 207 207
Loan payments from employee stock
ownership plan 200 200
Issuance of restricted stock 25 152 177
Restricted stock plan deferred
compensation expense, net (59) (59)
Conversion of subordinated debentures 2,339 7,661 10,000
Unrealized gain on securities
available for sale, net of tax $9,124 9,124
Cash dividend (1,650) (1,650)
Effect of ten percent stock dividend 234 1,556 (1,790)
------- -------- ------- -------- --------
Balance at December 31, 1993 55,046 113,385 95,978 9,124 273,533
Net income for the three months ended
March 31, 1994 9,098 9,098
Proceeds from employee stock purchase
plan and options 116 459 575
Loan payments from employee stock
ownership plan 50 50
Restricted stock plan deferred
compensation expense 27 27
Adjustment to unrealized gain (loss)
on securities available for
sale, net of tax (4,596) (4,596)
Cash dividend (1,653) (1,653)
------- -------- -------- -------- --------
Balance at March 31, 1994 $55,162 $113,844 $103,500 $4,528 $277,034
======= ======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Three Months Ended
March 31
---------------------
1994 1993
--------- ----------
<S> <C> <C>
Operating Activities
Net income $ 9,098 $16,224
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision (credit) for possible loan losses --- (590)
Provision for real estate losses --- 913
(Provision) credit for deferred taxes (550) 1,086
Accretion of discounts on loans (1,445) (1,760)
Accretion of securities' discounts (2,043) (665)
Amortization of securities' premiums 1,098 1,370
Net gain on securities transactions (6) (8)
Net gain on sale of assets (957) (97)
Depreciation and amortization 4,469 2,787
Increase in interest receivable (1,155) (428)
Increase in interest payable 60 533
Net change in other assets and liabilities 1,086 (11,068)
--------- ---------
Net cash provided by operating activities 9,655 8,297
Investing Activities
Proceeds from sales of securities held to maturity --- 45
Proceeds from maturities of securities held to maturity 46,702 153,789
Purchases of securities held to maturity (139,041) (432,452)
Proceeds from sales of securities available for sale --- 69,878
Proceeds from maturities of securities available for sale 95,072 317,319
Purchases of securities available for sale (43,421) (271,738)
Net increase in loans (32,029) (3,451)
Net increase in bank premises and equipment (3,106) (2,936)
Proceeds from sales of repossessed properties 1,069 244
Net cash and cash equivalents received from
bank acquisition --- 187,838
--------- ---------
Net cash (used) provided by investing activities (74,754) 18,536
Financing Activities
Net decrease in demand deposits,
IOC accounts, and savings accounts (23,695) (19,074)
Net decrease in certificates of deposits (5,089) (70,380)
Net increase in short-term borrowings 1,450 3,572
Proceeds from employee stock purchase
plan and options 575 508
Dividends paid (1,653) ---
--------- ---------
Net cash used by financing activities (28,412) (85,374)
--------- ---------
Decrease in cash and cash equivalents (93,511) (58,541)
Cash and cash equivalents at beginning of year 584,961 579,053
--------- ---------
Cash and cash equivalents at the end
of the period $491,450 $520,512
========= ========
Supplemental information:
Interest paid $ 14,733 $ 14,642
Loans originated to facilitate the sale
of repossessed properties 328 797
Conversion of long-term debt to common stock 10,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been examined by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K
for the year ended December 31, 1993. The balance sheet at December 31, 1993
has been derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan
losses is presented below. The amount charged to operating expense is a
reflection of management's assessment of the adequacy of the allowance.
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
(in thousands) 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $26,298 $31,897
Provision (credit) for possible loan losses --- (590)
Net charge-offs:
Losses charged to the allowance (881) (1,779)
Recoveries 2,135 1,861
------- -------
Net (charge-offs) recoveries 1,254 82
------- -------
Balance at the end of period $27,552 $31,389
======= =======
</TABLE>
Earnings Per Common Share
Earnings per common share calculations for the three months ended March
31, 1994 and March 31, 1993 include the effect of common stock equivalents
applicable to the stock option contracts.
The weighted average numbers of shares used to compute primary per common
share earnings, including the common stock equivalents where applicable, were
11,187,748, and 11,102,284 for the three months ended March 31, 1994, and
1993, respectively.
Income Taxes
The tax expense for the first quarter of 1994 was $4,766,000. This
amount consisted of current tax expense of $4,216,000 and deferred tax
expense of $550,000. Net deferred tax assets were $16,951,000 with no
valuation allowance. The deferred tax assets were supported by taxes paid in
prior years, the future reversal of existing taxable temporary differences,
and future income. The tax expense for the first quarter of 1993 was
$160,000. Tax expense for the first quarter of 1993 was affected by a
reduction of $2.4 million in the valuation allowance for deferred tax
assets. A valuation allowance of $13.6 million was established at the
beginning of 1993. No income tax payments were made during the first three
months of 1994 or 1993.
Acquisition
On April 15, 1994, the Corporation acquired Texas Commerce Bank in
Corpus Christi in exchange for Cullen/Frost Bank of Dallas N.A., ("C/F
Dallas"). The banks exchanged were of comparable asset size. C/F Dallas
represented 4.6 percent of the Corporation's total assets at March 31, 1994.
No gain or loss was recognized on this transaction.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
Cullen/Frost Bankers, Inc. reported net income of $9,098,000 or $.81 per
common share for the quarter ended March 31, 1994 compared with $8,308,000 or
$.74 per common share for the fourth quarter of 1993. Net income for the
first quarter of 1993 was $7,785,000 before the cumulative effect of a change
in accounting for income taxes. The accounting change added $8,439,000 to
net income and resulted in reported earnings of $16,224,000. During the
first quarter of 1994, the Corporation received regulatory approval to
acquire Texas Commerce Bank-Corpus Christi in exchange for Cullen/Frost Bank
of Dallas, N.A. The consummation of this transaction was April 15.
The results of operations are included in the material that follows.
First quarter 1993 results include the impact of the New First City
acquisition since the closing date of that transaction, February 13, 1993.
All balance sheet figures are presented in averages unless otherwise noted.
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------
Three Months Ended
--------------------------------------
1994 1993
----------- ------------------------
March 31 December 31 March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net
interest income $33,104 $32,312 $31,216
Taxable-equivalent adjustment 156 190 236
------- ------- -------
Net interest income 32,948 32,122 30,980
Provision(credit) for possible
loan losses --- (3,244) (590)
Non-Interest income:
Net gain on securities transactions 6 1,425 8
Other 19,330 19,453 17,675
------- ------- -------
Total non-interest income 19,336 20,878 17,683
Non-Interest expense:
Restructuring costs --- 7,736 1,958
Provision for real estate losses --- 15 913
Other 38,420 41,458 38,437
------- ------- -------
Total non-interest expenses 38,420 49,209 41,308
Income before income taxes (credits)
and cumulative effect of accounting
change 13,864 7,035 7,945
Income Taxes (Credits) 4,766 (1,273) 160
------- ------- -------
Income before cumulative effect of
accounting change 9,098 8,308 7,785
Cumulative effect of change in
accounting for income taxes --- --- 8,439
------- ------- -------
Net Income $ 9,098 $ 8,308 $16,224
======= ======= =======
Per Share
Net income-primary .81 .74 1.47
Net income-fully diluted .81 .74 1.46
</TABLE>
Net Interest Income
The increase in net interest income from the fourth quarter of 1993 is
due to an increase in loan volumes. Net interest income increased 6.0
percent from the first quarter of 1993 primarily due to higher loan volumes
and the acquisition of New First City volumes for approximately one-half of
the first quarter of 1993. Net interest margin was 4.30 percent for the
first quarter of 1994 compared to 4.19 percent and 4.43 percent for the
fourth and first quarters of 1993, respectively. Net interest spread
increased nine basis points from the fourth quarter of 1993 to 3.79 percent.
Net interest spread was 3.90 percent for the first quarter of 1993. The net
interest spread increased from the fourth quarter primarily because of an
increase in investment securities.
<TABLE>
<CAPTION>
Change in Net Interest Income
------------------------------------
First Quarter First Quarter
1994 1994
vs. vs.
First Quarter Fourth Quarter
1993 1993
------------------------------------
Percentage of Percentage of
Amount Total Change Amount Total Change
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due to volume $ 5,921 59.48% $ 1,790 64.20%
Due to interest rate spread (4,033) 40.52 (998) 35.80
------- ------- ------- -------
$ 1,888 100.00% $ 792 100.00%
======= ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
1994 1993
--------- ---------------------
Non-Interest Income March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Trust department $ 7,282 $ 6,807 $ 6,237
Service charges on deposit accounts 6,295 6,408 5,857
Other service charges, collection
and exchange charges, commissions
and fees 2,678 2,716 2,157
Net gain on securities transactions 6 1,425 8
Other 3,075 3,522 3,424
-------- ------- -------
Total $19,336 $20,878 $17,683
======== ======= =======
</TABLE>
Excluding securities transactions, total non-interest income was flat
compared to the fourth quarter of 1993 and was up 9.4 percent from the first
quarter of 1993. At December 31, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The standard addresses the accounting for
and reporting of investments in debt securities and requires classification
and accounting treatment for securities as held to maturity, trading
securities and securities available for sale.
Trust income of $7,282,000 increased 16.8 percent and 7.0 percent from
the first and fourth quarters of 1993. This can be attributed to growth in
the number of accounts and assets under management. In addition, the New
First City acquisition added trust customers in Austin.
Service charges on deposit accounts totaled $6,295,000 for the quarter
ended March 31, 1994, an increase of 7.5 percent from the same quarter one
year ago. Other service charges increased 24.2 percent from the first
quarter of 1993 primarily due to ATM income and fees associated with
increased volumes.
Other non-interest income of $3,075,000 is lower than both the first and
fourth quarters of 1993 primarily due to less income from foreclosed assets.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
1994 1993
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and wages $13,015 $13,491 $13,167
Pension and other employee benefits 3,069 2,825 3,139
Net occupancy of banking premises 4,197 5,537 4,936
Furniture and equipment 2,572 2,868 2,286
Restructuring costs --- 7,736 1,958
Other 15,567 16,737 14,909
------- ------- -------
38,420 49,194 40,395
Provision for real estate losses --- 15 913
------- ------- -------
Total $38,420 $49,209 $41,308
======= ======= =======
</TABLE>
The 21.9 percent decrease in non-interest expense from the fourth
quarter results primarily from $7.7 million in restructuring charges taken
during the fourth quarter. These charges included $6.7 million in net-
occupancy related to office downsizing and valuations of banking premises
owned resulting from the decision to sell. These charges also included costs
related to job restructurings. The first quarter of 1993 also included
restructuring charges of $1.9 million related to a retirement incentive
program.
Salaries and wages were down 3.5 percent from the fourth quarter of 1993
and were flat with the first quarter of 1993. Pension and employee benefits
were up 8.6 percent from the fourth quarter primarily due to increased
payroll taxes and were down slightly from the first quarter of 1993. Net
occupancy of banking premises decreased 15.0 percent and 24.2 percent from
the first and fourth quarters of 1993, respectively. The decrease in net
occupancy and salaries primarily resulted from restructuring actions taken in
the fourth quarter of 1993. In addition, building maintenance expense was
lower during the first quarter of 1994, down from the fourth quarter of 1993.
Furniture and equipment expense decreased 10.3 percent from the fourth
quarter primarily due to lower equipment rental and service contracts. The
12.5 percent increase from the first quarter of 1993 is primarily due to
increased depreciation expense because of the New First City acquisition.
Other non-interest expense of $15,567,000 was up 4.4 percent from the
first quarter of 1993. This resulted primarily from amortization of goodwill
and other intangibles associated with the New First City acquisition, the
timing of donations and sundry losses. The first quarter of 1993 included
transition expenses associated with the acquisition of New First City
including outside computer service expenses. Other non-interest expense
declined 7.0 percent when compared to the fourth quarter of 1993 primarily
due to the timing of charitable contributions.
Income Taxes
Tax expense for the first quarter of 1994 was $4,766,000. This compares
to tax expense of $160,000 for the first quarter of 1993. The first quarter
1993 tax expense was affected by a reduction of $2.4 million in the valuation
allowance for deferred tax assets. A valuation allowance of $13.6 million
was established January 1, 1993 with the adoption of Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." The
one-time cumulative effect of adopting FAS 109 was $8.4 million which
favorably impacted the results of operations for the first quarter of 1993.
The Corporation has an effective tax rate for 1994 which approximates the
statutory rate.
Balance Sheet
Average assets of $3,628,094,000 increased 9.4 percent from the first
quarter of 1993 and were up slightly from fourth quarter of 1993. The New
First City acquisition on February 13, 1993 is the primary reason for the
average balance sheet increases from the first quarter of 1993. Total
deposits averaged $3,132,783,000 for the current quarter, increasing 7.6
percent from the first quarter of 1993 and were flat when compared to the
previous quarter.
Loans
<TABLE>
<CAPTION>
1994 1993
--------------------- -----------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 297,109 23.2% $ 286,282 $ 237,243
Energy 26,768 2.1 24,548 46,490
Consumer 275,710 21.5 268,331 249,777
Real estate 632,831 49.3 626,056 615,408
Other 57,161 4.4 51,048 39,156
Unearned discount (6,768) (.5) (8,456) (12,453)
---------- ------ ---------- ----------
Total Loans $1,282,811 100.0% $1,247,809 $1,175,621
========== ====== ========== ==========
</TABLE>
Average loans for the first quarter of 1994 were $1,267,379,000.
This represents a 16.1 percent increase from the comparable quarter of last
year and up 6.7 percent from the fourth quarter of 1993. The increase from
the first quarter of 1993 is primarily due to the acquisition of New First
City. The loan growth from the fourth quarter reflects improved economic
conditions in the Texas markets where the Corporation's presence is
concentrated. The growth was apparent in all categories of loans with the
largest increase being reflected in commercial loans which were up $10.8
million from the fourth quarter of 1993.
Real Estate Loans
Of the total real estate loans outstanding at March 31, 1994, 68 percent
were located in San Antonio, 16 percent in Houston/Galveston, 10 percent in
Austin, and 5 percent in Dallas. Residential permanent mortgage loans at
March 31, 1994 were $274,662,000 compared to $307,015,000 at March 31, 1993
and $276,148,000 at December 31, 1993. Real estate loans classified as
"other" are essentially amortizing commercial and industrial loans with
maturities of less than five years. Most are collateralized by completed and
occupied commercial real estate properties.
<TABLE>
<CAPTION>
1994 1993
--------------------- --------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 30,395 4.8% $ 18,663
Land 26,840 4.3 20,281
Permanent mortgages:
Commercial 145,758 23.0 131,459
Residential 274,662 43.4 307,015
Other 155,176 24.5 137,990
-------- ------ --------
$632,831 100.0% $615,408
======== ====== ========
Non-accrual and restructured $ 13,796 2.2% $ 20,233
</TABLE>
As part of the acquisition of New First City-Austin, certain commercial
and commercial real estate loans of that bank are protected by a loss-sharing
arrangement with the Federal Deposit Insurance Corporation (the "FDIC")
whereby losses are shared 80 percent to the FDIC and 20 percent to the
Corporation. At March 31, 1994, these loans approximated $37 million.
At March 31, 1994, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $4,082,000, compared with $1,120,000 at
March 31, 1993, and $3,283,000 at December 31, 1993.
Mexico
The Corporation's cross border outstandings, excluding $25,350,000 in
loans secured by assets held in the United States, totaled $19,393,000 at
March 31, 1994 or 1.5 percent of total loans.
<TABLE>
<CAPTION>
MEXICAN LOANS
----------------------------------------
March 31, 1994 Amount Percentage of Total Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $19,354 1.5%
Loans to private firms or individuals 39
------- ----
$19,393 1.5%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 1994 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual $13,796 $1,834 $15,630
Foreclosed assets* 11,463 40 11,503
------- ------ -------
$25,259 $1,874 $27,133
======== ====== =======
As a percentage of total
non-performing assets 93.1% 6.9% 100.0%
*Foreclosed assets include $9.2 million of in-substance foreclosures.
</TABLE>
Non-performing assets totaled $27,133,000 at March 31, 1994 down from
$50,629,000 at March 31, 1993 and $31,110,000 at December 31, 1993. Non-
performing assets as a percentage of total loans and foreclosed assets
decreased to 2.1 percent at March 31, 1994 from 4.2 percent one year ago. As
a part of the acquisition of New First City, certain commercial and
commercial real estate loans are protected by a loss-sharing arrangement with
the FDIC. (See "Loans") At March 31, 1994, non-performing assets covered by
the loss-sharing arrangement totaled $1,477,000. These assets are included
in total non-performing assets at $159,000 which represents the carrying
value net of loss-sharing coverage and associated discounts.
Foreclosed assets consist of both property which has been formally
repossessed and that which is considered in-substance foreclosed even though
formal repossession has not occurred. Foreclosed assets are valued at the
lower of the loan balance or estimated fair value, less estimated selling
costs, at the time of foreclosure. Write-downs occurring at acquisition are
charged against the allowance for possible loan losses. On an ongoing basis,
properties are appraised as required by applicable regulations. Write-downs
are provided for subsequent declines in value. Expenses related to
maintaining foreclosed properties are included in other non-interest expense.
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $382,000 or $.03 per common share for
the first quarter of 1994, compared to approximately $628,000 or $.06 per
common share for the first quarter of 1993 and $515,000 or $.04 per common
share for the fourth quarter of 1993. Total loans 90 days past due
(excluding non-accrual and restructured loans) were $4,975,000 at March 31,
1994, compared to $1,880,000 at March 31, 1993, and $4,592,000 at December
31, 1993.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $27,552,000 or 2.15 percent
of period-end loans at March 31, 1994, compared to $31,389,000 or 2.67
percent at March 31, 1993 and $26,298,000 or 2.11 percent for the fourth
quarter of 1993. The allowance for possible loan losses as a percentage of
non-accrual and restructured loans was 176.3 percent at March 31, 1994,
compared to 128.4 percent and 148.3 percent at the end of the first and
fourth quarters of 1993, respectively.
No provision for possible loan losses was recorded for the first quarter
of 1994. This compares to a credit to provision expense for possible loan
losses of $590,000 and $3,244,000 during the first and fourth quarters of
1993, respectively. Net recoveries in the first quarter totaled $1,254,000,
compared to net recoveries of $82,000 for the first quarter of 1993 and
$983,000 for the fourth quarter of 1993.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
--------------------------------
1994 1993
----------- -----------------
First Fourth First
Quarter Quarter Quarter
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ (575) $ 202 $ 484
Commercial and industrial (740) (1,292) (637)
Energy --- (1) (5)
Consumer 64 110 440
Other, including foreign (3) (2) (364)
---------- ------- ------
$(1,254) $ (983) $ (82)
========== ======= =======
Provision (credit) for possible loan losses $ --- $(3,244) $ (590)
Allowance for possible loan losses 27,552 26,298 31,389
</TABLE>
Capital and Liquidity
At March 31, 1994, shareholders' equity was $277,034,000 compared to
$232,955,000 at March 31, 1993 and $273,533,000 at December 31, 1993. The
Corporation paid a cash dividend of $.15 per common share in the first
quarter of 1994 and the fourth quarter of 1993. During the first quarter of
1993, the Corporation paid a 10 percent stock dividend.
The Federal Reserve Board (the "Board") utilizes capital guidelines
designed to measure Tier 1 and Total Capital and take into consideration the
risk inherent in both on-balance sheet and off-balance sheet items.
The following summarizes Tier 1 and Total Capital information for the
Corporation at March 31, 1994 and March 31, 1993.
<TABLE>
<CAPTION>
March 31, 1994 March 31, 1993
------------------- -------------------
Risk-Based Capital Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 231,184 14.45 $ 182,700 12.78%
Tier 1 Capital Minimum requirement 64,014 4.0 57,191 4.00
Total Capital $ 251,281 15.70% 202,378 14.15%
Total Capital Minimum requirement 128,028 8.00 114,382 8.00
Risk-adjusted assets, net of goodwill $1,600,354 $1,429,778
Leverage ratio 6.46% 5.56%
</TABLE>
The Board guidelines also require a leverage capital ratio which
measures Tier 1 Capital against quarterly average total assets, net of
goodwill. A leverage ratio of 3.0 percent is the minimum requirement for
only the most highly rated banking organizations. The leverage ratio for the
Corporation was 6.46 percent and 5.56 percent at March 31, 1994 and March 31,
1993, respectively.
In December of 1991, the FDIC Improvement Act of 1991 ("FDICIA")
established five capital tiers. Federal banking agencies adopted final rules
effective December 16, 1992 relating to these tiers. At March 31, 1994 the
Corporation and all of its subsidiary banks
were "well capitalized" as defined by FDICIA, the highest regulatory
category. A financial institution is deemed to be well capitalized if the
institution has a total risk-based capital ratio of 10.0 percent or greater,
a Tier 1 risk-based capital ratio of 6.0 percent or greater, and a leverage
ratio of 5.0 percent or greater, and the institution is not subject to an
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific level for any capital measure.
Funding sources available include a $7,500,000 short-term line of
credit. There were no borrowings outstanding from this source at March 31,
1994.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. These include cash, time
deposits in banks, securities available for sale, maturities and cash flow
from securities held to maturity, and Federal funds sold and securities
purchased under resale agreements. Liability liquidity is provided by access
to funding sources, principally deposits and Federal funds purchased. The
liquidity position of the Corporation is continuously monitored and
adjustments are made to the balance between sources and uses of funds as
deemed appropriate.
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31,1994 December 31, 1993
-----------------------------------------------------
Interest/ Interest/
Average Income Yield/ Average Income Yield
Balance Expense Cost Balance Expense Cost
ASSETS -------- ------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Time deposits $ 161 $ 1 3.37% $ 143 $ 1 2.47%
Securities:
U.S. Treasury 263,263 2,812 4.33 369,630 3,822 4.10
U.S. Government agencies
and corporations 1,317,513 19,132 5.81 1,170,032 17,381 5.94
States and political subdivisions 6,624 158 9.54 10,584 257 9.68
Other 35,932 457 5.16 43,089 557 5.12
---------- ------- ---------- -------
Total securities 1,623,332 22,559 5.57 1,593,335 22,017 5.52
Federal funds sold and securities
purchased under resale agreements 206,873 1,602 3.10 287,613 2,178 2.96
Loans, net of unearned discount 1,267,379 23,735 7.60 1,187,385 23,378 7.81
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 3,097,745 47,897 6.23 3,068,476 47,574 6.16
Cash and due from banks 337,582 318,947
Allowance for possible loan losses (27,056) (29,566)
Banking premises and equipment 87,222 89,677
Accrued interest and other assets 132,601 153,285
---------- ----------
Total Assets $3,628,094 $3,600,819
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 662,888 $ 658,800
Correspondent banks 138,533 130,175
Public funds 38,408 39,344
---------- ----------
Total demand deposits 839,829 828,319
Time deposits:
Savings and Interest-on-Checking 811,902 3,666 1.83 784,712 3,849 1.95
Money market deposit accounts 536,914 3,250 2.45 542,428 3,359 2.46
Time accounts 856,556 6,308 2.99 871,620 6,446 2.93
Public funds 87,582 496 2.30 101,099 586 2.30
---------- ------- ---------- -------
Total time deposits 2,292,954 13,720 2.43 2,299,859 14,240 2.46
---------- ------- ---------- -------
Total Deposits 3,132,783 3,128,178
Federal funds purchased
and other borrowings 164,534 1,073 2.61 155,266 1,022 2.58
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,457,488 14,793 2.44 2,455,125 15,262 2.46
---------- ------- ----- ---------- ------- -----
Accrued interest and other liabilities 50,701 52,399
---------- ----------
Total Liabilities 3,348,018 3,335,843
SHAREHOLDERS' EQUITY 280,076 264,976
---------- ----------
Total Liabilities and
Shareholders' Equity $3,628,094 $3,600,819
========== ==========
Net interest income $33,104 $32,312
======= =======
Net interest spread 3.79% 3.70%
==== ====
Net interest income to total average earning assets 4.30% 4.19%
==== ====
Net interest income to total average earning
assets- with federal funds net 4.54% 4.41%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1993 June 30, 1993
-------------------------- -------------------------
Interest/ Interest/
Average Income Yield/ Average Income Yield/
Balance Expense Cost Balance Expense Cost
ASSETS --------- -------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Time deposits $ 138 $ 1 2.64% $ 145 $ 1 2.80%
Securities:
U.S. Treasury 507,303 5,520 4.32 470,361 5,589 4.77
U.S. Government agencies
and corporations 1,065,008 16,488 6.19 1,068,412 17,139 6.42
States and political subdivisions 12,220 299 9.78 12,495 304 9.76
Other 51,295 648 5.02 58,309 740 5.09
--------- ------- ---------- -------
Total securities 1,635,826 22,955 5.60 1,609,577 23,772 5.91
Federal funds sold and securities
purchased under resale agreements 209,233 1,605 3.00 276,382 2,049 2.93
Loans, net of unearned discount 1,173,445 22,751 7.69 1,178,407 23,403 7.97
--------- ------ --------- ------
Total Earning Assets and
Average Rate Earned 3,018,642 47,312 6.23 3,064,511 49,225 6.43
Cash and due from banks 329,597 318,506
Allowance for possible loan losses (31,212) (31,394)
Banking premises and equipment 89,396 86,223
Accrued interest and other assets 142,326 141,304
---------- ----------
Total Assets $3,548,749 $3,579,150
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 660,265 $ 639,144
Correspondent banks 142,672 150,225
Public funds 43,790 33,348
--------- ---------
Total demand deposits 846,727 822,717
Time deposits:
Savings and Interest-on-Checking 773,906 3,859 1.98 768,678 3,815 1.99
Money market deposit accounts 538,869 3,392 2.50 543,633 3,464 2.56
Time accounts 901,681 6,644 2.92 938,902 7,437 3.18
Public funds 80,223 550 2.72 76,565 540 2.83
--------- ------- --------- -------
Total Time Deposits 2,294,679 14,445 2.50 2,327,778 15,256 2.63
--------- ------- --------- -------
Total Deposits 3,141,406 3,150,495
Federal funds purchased
and other borrowings 111,411 760 2.67 147,412 895 2.40
--------- ------- --------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,406,090 15,205 2.51 2,475,190 16,151 2.62
--------- ------- ---- --------- ------- ----
Accrued interest and other liabilities 44,078 40,429
--------- ---------
Total Liabilities 3,296,895 3,338,336
SHAREHOLDERS' EQUITY 251,854 240,814
--------- ---------
Total Liabilities and
Shareholders' Equity $3,548,749 $3,579,150
========== ==========
Net interest income $32,107 $33,074
======= ========
Net interest spread 3.72% 3.81%
===== =====
Net interest income to total average earning assets 4.24% 4.32%
===== =====
Net interest income to total average earning
assets - with federal funds net 4.39% 4.53%
===== =====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1993
---------------------------
Interest/
Average Income Yield/
Balance Expense Cost
ASSETS -------- ------- ------
<S> <C> <C> <C>
Time deposits $ 159 $ 1 2.79%
Securities:
U.S. Treasury 638,582 7,455 4.73
U.S. Government agencies
and corporations 776,066 14,147 7.29
States and political subdivisions 13,640 328 9.61
Other 64,901 847 5.29
------- -------
Total securities 1,493,189 22,777 6.13
Federal funds sold and securities
purchased under resale agreements 249,312 1,882 3.02
Loans, net of unearned discount 1,091,773 21,731 8.07
--------- ------
Total Earning Assets and
Average Rate Earned 2,834,433 46,391 6.60
Cash and due from banks 293,937
Allowance for possible loan losses (32,367)
Banking premises and equipment 82,944
Accrued interest and other assets 137,461
----------
Total Assets $3,316,408
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 565,904
Correspondent banks 149,173
Public funds 51,935
----------
Total demand deposits 767,012
Time deposits:
Savings and interest-on-Checking 672,761 3,317 2.00
Money market deposit accounts 513,967 3,211 2.53
Time accounts 916,851 7,166 3.17
Public funds 41,318 444 4.35
----------- ------
Total Time Deposits 2,144,897 14,138 2.67
----------- ------
Total Deposits 2,911,909
Federal funds purchased
and other borrowings 128,602 1,037 3.24
----------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,273,499 15,175 2.70
----------- ------ -----
Accrued interest and other liabilities 39,692
-----------
Total Liabilities 3,080,203
SHAREHOLDERS' EQUITY 236,205
----------
Total Liabilities and
Shareholders' Equity $3,316,408
==========
Net interest income $ 31,216
==========
Net interest spread 3.90%
=====
Net interest income to total average earning assets 4.43%
=====
Net interest income to total average earning
assets- with federal funds net 4.63%
=====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Earnings per Share
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cullen/Frost Bankers, Inc.
(Registrant)
Date: May 2, 1994 By:/s/Phillip D. Green
-----------------------
Phillip D. Green
Executive Vice President
and Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
<PAGE>
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
11 Statement re: Computation of Earnings per Share
<PAGE>
[TEXT]
<TABLE>
<CAPTION>
Exhibit 11 Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31
-----------------------
Primary Earnings per Share 1994 1993
---------------------
<S> <C> <C>
Income before cumulative effect of accounting change $ 9,098 $ 7,785
Elimination of interest on 9.75% convertible subordinated
debentures due 1996, net of tax 53
---------- -----------
Income applicable to common stock before
cumulative effect of accounting change 9,098 7,838
Cumulative effect of accounting change 8,439
----------- -----------
Net income applicable to common stock $ 9,098 $16,277
=========== ===========
Weighted average shares outstanding 11,019 10,758
Addition from assumed exercise of stock options 169 183
Addition of assumed conversion of 9.75% convertible
subordinated debentures due 1996 161
---------- -----------
Weighted average number of common shares outstanding 11,188 11,102
========== ===========
Primary earnings per common share:
Income before cumulative effect of accounting change $ .81 $ .71
Net Income .81 1.47
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
Fully Diluted Earnings per Share 1994 1993
----------- -----------
<S> <C> <C>
Income before cumulative effect of accounting change $ 9,098 $ 7,785
Elimination of interest on 9.5% convertible subordinated
debentures due 1996, net of tax 53
---------- ------------
Income applicable to common stock
cumulative effect of accounting change 9,098 7,838
Cumulative effect of accounting change 8,439
----------- -----------
Net income applicable to common stock $ 9,098 $16,227
=========== ===========
Weighted average shares outstanding 11,019 10,758
Addition from assumed exercise of stock options 170 194
Addition of assumed conversion of 9.75% convertible
subordinated debentures due 1996 161
---------- -------------
Weighted average number of common shares outstanding 11,189 11,113
=========== ===========
Fully diluted earnings per common share
Income before cumulative effect of accounting change $ .81 $ .71
Net income .81 1.46
</TABLE>
