SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
FOR THE TRANSITION PERIOD FROM _______ to _______
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 220-4011
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5 Par Value
--------------------------
(Title of Class)
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 such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $384,304,372 based on the closing price of such stock
as of March 25, 1994.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class March 25, 1994
-------------------------- --------------
Common Stock, $5 par value 11,031,723
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the Year Ended December 31, 1993
(Parts I & II)
(2) Proxy Statement for Annual Meeting of Shareholders to be held May 17,1994
(Part III)
<PAGE>
TABLE OF CONTENTS
PART I Page
- ------ ----
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS *
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS 9
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE *
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 10
ITEM 11. EXECUTIVE COMPENSATION 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 11
* Not Applicable
<PAGE>
PART I
Item 1. BUSINESS
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General
Cullen/Frost Bankers, Inc. ("Cullen/Frost" or "Company"), a Texas
business corporation incorporated in 1977 and headquartered in San Antonio,
Texas, is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 ("the Bank Holding Company Act") and as such is
registered with the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). The New Galveston Company, incorporated under
the laws of Delaware, is a wholly owned second tier bank holding company
subsidiary which owns all banking and non-banking subsidiaries.
Cullen/Frost's principal assets consist of all the capital stock of three
national banks. At year end 1993, Cullen/Frost had 27 offices in five major
Texas banking markets with 16 locations in San Antonio, four in the
Houston/Galveston area, three in the Corpus Christi area, three in the Austin
area and one in Dallas.
At December 31, 1993, Cullen/Frost had consolidated total assets of
$3,639,047,000 and total deposits of $3,149,428,000. Based on information
from the Federal Reserve Board, as of September 30, 1993, Cullen/Frost was
the second largest of the 81 bank holding companies in Texas and the
seventh largest of 928 banking organizations in Texas.
Cullen/Frost provides policy direction to the Cullen/Frost subsidiary
banks in the following areas: (i) lending policies and techniques, loan
participation and credit administration; (ii) asset and liability
management; (iii) trust services; (iv) personnel management and
compensation; (v) accounting, budgeting, planning, operations, insurance
and auditing; (vi) capitalization; (vii) marketing programs and (viii)
regulatory compliance.
Cullen/Frost Subsidiary Banks
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Each of the Cullen/Frost subsidiary banks is a separate entity which
operates under the day-to-day management of its own board of directors and
officers. The largest of these banks is The Frost National Bank of San
Antonio ("Frost Bank"), the origin of which can be traced to a mercantile
partnership organized in 1868. Frost Bank was chartered as a national
banking association in 1899. At December 31, 1993, Frost Bank, which
accounted for approximately 92 percent of consolidated assets, 91 percent
of consolidated loans, and 92 percent of consolidated deposits of
Cullen/Frost, was the largest bank headquartered in San Antonio and South
Texas.
The following table provides information as of December 31, 1993, as
to total assets, total loans and total deposits of each of the Cullen/Frost
subsidiary banks:
<TABLE>
<CAPTION>
Name of Bank and Location Total Assets Total Loans Total Deposits
- ------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
The Frost National Bank,
San Antonio, Corpus Christi,
Austin, and Houston, Texas $3,344,678,000 $1,138,655,000 $2,894,302,000
Cullen/Frost Bank of Dallas, N.A.,
Dallas, Texas 178,167,000 58,252,000 155,436,000
United States National Bank of Galveston
Galveston, Texas 136,220,000 50,206,000 121,589,000
</TABLE>
During 1993, Cullen/Frost converted its Houston subsidiary bank, which
had three offices, into branches of Frost Bank. Early during 1994,
Cullen/Frost is expected to acquire Texas Commerce Bank in Corpus Christi
as a branch of Frost Bank in exchange for Cullen/Frost Bank of Dallas, N.A.
("Cullen/Frost Bank"). The banks being exchanged are comparable in asset
size.
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Services Offered by the Cullen/Frost Subsidiary Banks
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Commercial Banking
The subsidiary banks provide commercial services for corporations and
other business clients. Loans are made for a wide variety of purposes,
including interim construction financing on industrial and commercial
properties and financing on equipment, inventories and accounts receivable.
Frost Bank and Cullen/Frost Bank provide financial services to business
clients on both a national and international basis.
Consumer Services
The subsidiary banks provide a full range of consumer banking
services, including checking accounts, savings programs, automated teller
machines, installment and real estate loans, drive-in and night deposit
services, safe deposit facilities, credit card services and discount
brokerage services.
International Banking
Frost Bank and Cullen/Frost Bank provide international banking
services to customers residing in or dealing with businesses located in
Mexico. Such services consist of accepting deposits (in United States
dollars only), making loans (in United States dollars only), issuing
letters of credit, handling foreign collections, transmitting funds and, to
a limited extent, dealing in foreign exchange. Reference is made to pages
16 and 21 of the Cullen/Frost Annual Report to Shareholders for the Year
Ended December 31, 1993, which pages are incorporated herein by reference.
Trust Services
The subsidiary banks provide a wide range of trust, investment, agency
and custodial services for individual and corporate clients. These
services include the administration of estates and personal trusts and the
management of investment accounts for individuals, employee benefit plans
and charitable foundations. At December 31, 1993, trust assets with a
market value of approximately $11.1 billion were being administered by
these subsidiary banks. In addition, Frost Bank and United States National
Bank of Galveston ("U.S. National Bank") serve as transfer agents or
registrars for securities, as trustees of bond issues and as paying agents
for dividends and interest.
Correspondent Banking
Frost Bank and Cullen/Frost Bank act as correspondents for
approximately 299 financial institutions, primarily banks in Texas. These
banks maintain deposits with the subsidiary banks, which offer to the
correspondents a full range of services including check clearing, transfer
of funds, loan participations, and securities custody and clearance.
Discount Brokerage
Cullen/Frost Discount Brokers, Inc. was formed in March 1986 to
provide discount brokerage services and perform other transactions or
operations related to the sale and purchase of securities of all types.
Cullen/Frost Discount Brokers, Inc. is a subsidiary of Frost Bank.
Services Offered by the Cullen/Frost Non-Banking Subsidiaries
- -------------------------------------------------------------
Main Plaza Corporation ("Main Plaza") is a wholly owned non-banking
subsidiary. Main Plaza holds real estate for future expansion of certain of
the subsidiary banks and occasionally makes loans to qualified borrowers.
Loans are funded with borrowings against Cullen/Frost's current cash or
borrowings against credit lines.
In April 1981, Cullen/Frost acquired the capital stock of Daltex
General Agency, Inc. ("Daltex"), a wholly owned non-banking subsidiary. As
a managing general insurance agency, Daltex provides vendor's single
interest insurance for the subsidiary banks.
Competition
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The subsidiary banks encounter intense competition in their commercial
banking businesses, primarily from other banks located in their respective
service areas. The subsidiary bank also compete with insurance, finance
and mortgage companies, savings and loan institutions, credit unions, money
market funds, ans other financial institutions.
2
<PAGE>
In the case of some larger customers, competition exists with institutions
in other major metropolitan areas in Texas and in the remainder of the
United States, some of which are larger than the Cullen/Frost subsidiary
banks in terms of capital, resources and personnel.
Supervision and Regulation
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Cullen/Frost
Cullen/Frost is a legal entity separate and distinct from its bank
subsidiaries and is a registered bank holding company under the Bank
Holding Company Act (the "BHC Act"). The Bank Holding Company Act generally
prohibits Cullen/Frost from engaging in any business activity other than bank-
ing, managing and controlling banks, furnishing services to a bank which it
owns and controls or engaging in non-banking activities closely related to
banking.
As a bank holding company, Cullen/Frost is primarily regulated by the
Federal Reserve Board which has established guidelines with respect to the
maintenance of appropriate levels of capital and payment of dividends by
bank holding companies. Cullen/Frost is required to obtain prior approval
of the Federal Reserve Board for the acquisition of more than five percent
of the voting shares or substantially all of the assets of any company
(including a bank) or to merge or consolidate with another bank holding comp-
any. During 1986 the Texas Banking Code was amended by the Texas Legislature
authorizing the acquisition of Texas banks or bank holding companies by certain
out-of-state registered bank holding companies. A Texas bank holding company
would likewise be permitted to acquire a bank or bank holding company in
other states if the acquisition is permitted by the laws of the other
states.
The Federal Reserve Act and the Federal Deposit Insurance Act ("FDIA")
impose restrictions on loans by the subsidiary banks to Cullen/Frost and certain
of its subsidiaries, on investments in securities thereof and on the taking
of such securities as collateral for loans. Such restrictions generally
prevent Cullen/Frost from borrowing from the subsidiary banks unless the
loans are secured by marketable obligations. Also, such restrictions
prevent Cullen/Frost and certain other subsidiaries from borrowing from
Cullen/ Frost's bank subsidiaries unless the loans are secured. Further,
such secured loans, other transactions, and investments by each of such
bank subsidiaries are limited in amount as to Cullen/Frost or to certain
other subsidiaries to ten percent of the lending bank subsidiary's capital
and surplus and as to Cullen/Frost and all such subsidiaries to an
aggregate of 20 percent of the lending bank subsidiary's capital and
surplus.
Subsidiary Banks
The three subsidiary national banks are organized as national banking
associations under the National Bank Act and are subject to regulation and
examination by the Office of the Comptroller of the Currency (the
"Comptroller of the Currency").
Federal and state laws and regulations of general application to banks
have the effect, among others, of regulating the scope of the business of
the subsidiary banks, their investments, cash reserves, the purpose and
nature of loans, collateral for loans, the maximum interest rates
chargeable on loans, the amount of dividends that may be declared and
required capitalization ratios. Federal law imposes restrictions on
extensions of credit to, and certain other transactions with, Cullen/Frost
and other subsidiaries, on investments in stock or other securities thereof
and on the taking of such securities as collateral for loans to other
borrowers.
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, Frost Bank and U.S. National Bank have registered with the
Comptroller of the Currency as transfer agents and are subject to certain
reporting requirements of and regulatory control by the Comptroller of the
Currency. The bond department of Frost Bank is subject to regulation under
the Texas Securities Act.
The Comptroller of the Currency with respect to Cullen/Frost's
national bank subsidiaries has authority under the Financial Institutions
Supervisory Act to prohibit a bank from engaging in what, in such agency's
opinion, constitutes an unsafe or unsound practice in conducting its
business. It is possible, depending upon the financial condition of the
bank in question and other factors, that such agency could claim that the
payment of dividends or other payments might, under some circumstances, be
such an unsafe or unsound practice.
3
<PAGE>
The principal source of Cullen/Frost's cash revenues is dividends from
its bank subsidiaries, and there are certain limitations on the payment of
dividends to Cullen/Frost by such bank subsidiaries. The prior approval of
the Comptroller of the Currency is required if the total of all dividends
declared by a national bank in any calendar year would exceed the bank's
net profits, as defined, for that year combined with its retained net
profits for the preceding two calendar years less any required transfers to
surplus. Although not necessarily indicative of amounts available to be
paid in future periods, under the most restrictive possible interpretation
of these requirements, Cullen/Frost's subsidiary banks had approximately
$23,951,000 available for payment of dividends at December 31, 1993.
Capital Adequacy
Bank regulators have adopted risk-based capital guidelines for bank holding
companies and banks. The minimum ratio of qualifying total capital to risk-
weighted assets (including certain off-balance sheet items) is 8%. At least
half of the total capital is to be comprised of common stock, retained earnings,
noncumulative perpetual preferred stocks minority interests and for bank holding
companies, a limited amount of qualifying cumulative perpetual preferred stock,
less certain intangibles including goodwill ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of other preferred stock, certain other instru-
ments, and limited amounts of subordinated debt and the loan and lease loss
allowance.
In addition, the Federal Reserve Board has established minimum Leverage
Ratio (Tier 1 capital to average total assets) guidelines for bank holding
companies and banks. These guidelines provide for a minimum leverage ratio
of 3% for bank holding companies and banks that meet certain specified
criteria, including that they have the highest regulatory rating. All other
banking organizations will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Futhermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "Tangible Tier 1 Leverage Ratio" in evaluating proposals
for expansion or new activities. The Tangible Tier 1 Leverage Ratio is the
ratio of Tier 1 capital, less intangibles not deducted from Tier 1 capital,
to average total assets. The Federal Reserve Board has not advised Cullen/Frost
of any specific minimum leverage ratio applicable to it. For information
concerning Cullen/Frost's capital ratios, see the discussion under the caption
"Capital" on page 22 of the Cullen/Frost Annual Report to Shareholders for
the Year Ended December 31, 1993, which discussion is incorporated herein
by reference.
Federal banking agencies have proposed regulations that would modify exist-
ing rules related to risk-based and leverage capital ratios. Cullen/Frost does
not believe that the aggregate impact of these modifications would have a sig-
nificant impact on its capital position.
Bank regulators contiue to indicate their desire to raise capital require-
ments applicable to banking organizations beyond their current levels. However,
management is unable to predict whether and when higher capital requirements
would be imposed and, if so, at what level and on what schedule.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation
Improvements Act of 1991 ("FDICIA") was enacted, which substantially
revises the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and makes revisions to several other Federal banking
statutes. Among other things, FDICIA requires the Federal banking agencies
to take "prompt corrective action" in respect of depository institutions
that do not meet minimum capital requirements. FDICIA establishes five
capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" and "critically
undercapitalized". Federal banking agencies have adopted final rules,
effective December 16, 1992, relating to these capital tiers.
Under the final rules, an institution will be 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 capital level for any capital measure; adequately capitalized if
the institution has a total risk-based capital ratio of 8.0 percent or
greater, a Tier 1 risk-based capital ratio of 4.0 percent or greater, and a
4
<PAGE>
leverage ratio of 4.0 percent or greater (or a leverage ratio of 3.0
percent for bank holding companies which meet certain specified criteria,
including having the highest regulatory rating); undercapitalized if the
institution has a total risk-based capital ratio that is less than 8.0
percent, a Tier 1 risk-based capital ratio less than 4.0 percent or a
leverage ratio less than 4.0 percent (or a leverage ratio less than 3.0
percent if the institution is rated composite 1 in its most recent report
of examination, subject to appropriate Federal banking agency guidelines);
significantly undercapitalized if the institution has a total risk-based
capital ratio less than 6.0 percent, a Tier 1 risk-based capital ratio less
than 3.0 percent, or a leverage ratio less than 3.0 percent; and critically
undercapitalized if the institution has a ratio of tangible equity to total
assets equal to or less than 2.0 percent.
At December 31, 1993, all three subsidiaries of Cullen/Frost that are
insured depository institutions -- Frost Bank, Cullen/Frost Bank and U.S.
National Bank -- were considered "well capitalized". At December 31, 1993,
the subsidiary banks capital ratios were as follows:
Tier 1 Capital Total Capital Leverage
Ratio Ratio Ratio
-------------- ------------- ----------
Frost Bank 13.11% 14.85% 5.76%
Cullen/Frost Bank 23.52 24.36 10.25
U.S. National Bank 13.84 14.85 9.26
FDICIA generally prohibits a depository institution from making any
capital distributions (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Federal banking agencies subject
undercapitalized institutions to growth limitations and require such
institutions to submit a capital restoration plan. The agencies may not
accept such a plan without determining, among other things, that the plan
is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital restoration
plan to be acceptable, the depository institution's parent holding company
must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became undercapitalized and (ii)
the amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the
plan. If a depository institution fails to submit an acceptable plan, it
is treated as if it is significantly undercapitalized.
FDICIA also contains a variety of other provisions that may affect the
operations of Cullen/Frost, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, and the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch. The
Federal regulatory agencies issued a final rule on real estate lending
standards which became effective March 19, 1993. These standards establish
loan-to-value ("LTV") limitations on real estate lending. The LTV limitations
range from 50 percent for raw land loans to 95 percent for loans on one to four
family residential properties, subject to certain exceptions and limitations.
These new standards will not have a significant effect on Cullen/Frost.
Deposit Insurance
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Cullen/Frost's subsidiary banks are subject to FDIC deposit insurance
assessments and to certain other statutory and regulatory provisions applicable
to FDIC-insured depository institutions. The FDIC adopted in 1993 a risk-based
assessment system to replace the previous flat-rate system. The new system
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. Under this risk-based system, the assess-
ment rate imposed on banks ranges from 23 cents for each $100 of domestic
deposits (for well capitalized banks in the highest of three supervisory rating
categories) to 31 cents (for inadequately capitalized banks in the lowest
of the three supervisory rating categories.) Cullen/Frost's rate is 23
cents for each $100 of domestic deposits as compared to a rate of 29 cents
for $100 of domestic deposits under the flat-rate system; this change in
rates did not have a material impact on the results of operations.
5
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A depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled, FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Acquisitions
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The BHC Act generally limits acquisitions by Cullen/Frost to commercial
banks and companies engaged in activities that the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. Cullen/Frost's direct activities are generally limited to furnishing
to its subsidiaries services that qualify under the "closely related" and
"proper incident" tests. Prior Federal Reserve Board approval is required
under the BHC Act for new activities and acquisitions of most nonbanking
companies.
The BHC Act, the Federal Bank Merger Act, and the Texas Banking Code
regulate the acquisition of commercial banks. The BHC Act requires the
prior approval of the Federal Reserve Board for the direct or indirect
acquisition of more than five percent of the voting shares of a commercial
bank. The BHC Act generally prohibits the acquisition of a domestic bank
located outside Cullen/Frost's state of principal operations, Texas, unless
authorized by the law of the state of the target bank. With respect to
Cullen/Frost's subsidiary banks, the approval of the Comptroller of the
Currency is required for branching, purchasing the assets of other banks
and for bank mergers in which the continuing bank is a national bank.
In reviewing bank acquisition and merger applications, the bank re-
gulatory authorities will consider, among other things, the competitive
effect and public benefits of the transactions, the capital position of
the combined organization, and the applicant's record under the Community
Reinvestment Act.
Under Federal Reserve Board policy, Cullen/Frost is expected to act as a
source of financial strength to its banks and to commit resources to support
such banks in circumstances where it might not do so absent such policy.
In addition, any loans by Cullen/Frost to its banks would be subordinate in
right of payment to deposits and to certain other indebtedness of its banks.
Economic Environment
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The earnings of the subsidiary banks are affected not only by general
economic conditions but also by the policies of various governmental
regulatory authorities. The Federal Reserve Board regulates the supply of
credit in order to influence general economic conditions, primarily through
open market operations in United States government obligations, varying the
discount rate on financial institution borrowings, varying reserve
requirements against financial institution deposits and restricting certain
borrowings by such financial institutions and their subsidiaries. The
deregulation of interest rates has had and is expected to continue to have
an impact on the competitive environment in which the subsidiary banks
operate.
Governmental policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do
so in the future. However, Cullen/Frost cannot accurately predict the
nature or extent of any effect such policies may have on its future
business and earnings.
Statistical Information
- -----------------------
Statistical and other information is included on pages 9 through 23,
pages 43 and 44 and pages 46 through 49 of the Cullen/Frost Annual Report
to Shareholders for the year ended December 31, 1993, which information is
incorporated herein by reference.
Employees
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At December 31, 1993, Cullen/Frost employed 1,877 persons. Employees
of Cullen/ Frost enjoy a variety of employee benefit programs, including a
retirement plan, stock purchase plans, various comprehensive medical,
accident and group life insurance plans and paid vacations. Cullen/Frost
considers its employee relations to be good.
6
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Executive Officers of the Registrant
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The names, ages, recent business experience and positions or offices
held by each of the principal executive officers during 1993 of
Cullen/Frost are as follows:
Age as of
Name and Positions or Offices 12/31/93 Recent Business Experience
- ----------------------------- ---------- --------------------------
T.C. Frost 66 Officer and/or director of various
Chairman of the Board subsidiary banks, including Frost
and Chief Executive Officer, Bank, and Cullen/Frost Bank of
Director, and Member of the Dallas, since 1950. Chairman of
Executive Committee the Board and Member of the Exec-
utive Committee of Cullen/Frost
from 1973 to present.
Robert S. McClane 54 Officer of Frost Bank since 1962.
President and Chief Senior Vice President of Cullen/
Administrative Officer, Frost from November 1973 to April
Director and Member of the 1978, Secretary from May 1973 to
Executive Committee April 1985. Executive Vice Pres-
ident from April 1978 to April
1985. President, Director and
Member of the Executive Committee
of Cullen/Frost from April 1985
to present.
Richard W. Evans, Jr. 47 Officer of Frost Bank since 1973.
Chief Banking Officer of Executive Vice President of Frost
Cullen/Frost, Chairman of the Bank from 1978 to April 1985.
Board and Chief Executive President of Frost Bank from April
Officer of Frost Bank, Director, 1985 to August 1993. Chairman of
and Member of the Executive the Board of Frost Bank, Director,
Committee of Cullen/Frost and Member of the Executive Com-
mittee from August 1993 to
present.
J. Gordon Muir, Jr. 52 President of Cullen/Frost Bank
Vice Chairman, Director, and from September 1978 to June 1983.
Member of the Executive Committee Director of Cullen/Frost and
Member of the Executive Committee
since 1979. Chairman of the Board
and Chief Executive Officer of
Cullen Bank from June 1983 to
August 1993. Vice Chairman of
Cullen/Frost from November 1993
to present.
Kenneth A. Trapp 52 Officer of Frost Bank since
Executive Vice President, 1968. Executive Vice President
Retail Banking of Frost of Frost Bank from 1978 to July
Bank of 1985. Executive Vice President
of Cullen/Frost from April 1985 to
August 1993. Executive Vice
President of Frost Bank from
August 1993 to present.
Phillip D. Green 39 Officer of Frost Bank since July
Executive Vice President 1980. Vice President and Control-
and Treasurer ler of Frost Bank from January
1981 to January 1983. Senior Vice
President and Controller of Frost
Bank from January 1983 to July
1985. Senior Vice President and
Treasurer of Cullen/Frost from
July 1985 to April 1989.
Executive Vice President and
Treasurer of Cullen/Frost from May
1989 to present.
Diane Jack, age 45, has been an officer of Frost Bank since 1984; Secretary
of Cullen/Frost from October 1993 to present.
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There are no arrangements or understandings between any executive officer
of Cullen/Frost and any other person pursuant to which he was or is to be
selected as an officer.
Item 2. PROPERTIES
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The executive offices of Cullen/Frost, as well as the principal
banking quarters of Frost Bank, are housed in a 21-story office tower
located on approximately two acres of land in downtown San Antonio.
Cullen/Frost and Frost Bank lease approximately 50 percent of the office
tower. Frost Bank also leases space in a seven-story parking garage and a
nine-story office building adjacent to the banking quarters.
In June 1987 Frost Bank consummated the sale of its office tower and
leased back a portion of the premises under a 13-year primary lease term
with options allowing for occupancy up to 50 years. The Bank also sold its
related parking garage facility and leased back space in that structure
under a 12-year primary lease term with options allowing for occupancy up
to 50 years.
The principal offices of Frost Bank in Houston are located in downtown
Houston with leased facilities in three buildings within the Cullen Center
complex. The remainder of the subsidiary banks located in Dallas and
Galveston are housed in modern facilities which, together with tracts of
adjacent land used for parking and drive-in facilities, are either owned or
leased by the particular subsidiary bank.
Item 3. LEGAL PROCEEDINGS
- --------------------------
Certain subsidiaries of Cullen/Frost are defendants in various matters
in litigation which have arisen in the ordinary course of conducting a
commercial banking business. In the opinion of management, the judicial
disposition of such pending litigation will not have a material effect on
Cullen/Frost's consolidated financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
8
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The information called for by Item 5 is incorporated herein by
reference to "Common Stock Market Prices and Dividends" on page 45 and
"Note K-Dividends" on page 34 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1993.
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
The information called for by Item 6 is incorporated herein by
reference to "Selected Financial Data" on page 46 and "Consolidated
Statements of Operations" and "Consolidated Average Balance Sheets" on
pages 47 through 49 of the Cullen/Frost Annual Report to Shareholders for
the Year Ended December 31, 1993.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------
The information called for by Item 7 is incorporated herein by
reference to "Financial Review" on pages 9 through 23, "Consolidated
Statements of Operations" and "Consolidated Average Balance Sheets" on
pages 47 through 49 of the Cullen/Frost Annual Report to Shareholders for
the Year Ended December 31, 1993.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information called for by Item 8 is incorporated herein by
reference to the consolidated financial statements and report of
independent auditors included on pages 24 through 42 and "Quarterly Results
of Operations" on page 45, of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1993.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------
None.
9
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information regarding directors and executive officers called for
by Item 10 is incorporated herein by reference to Cullen/Frost's Proxy
Statement for its Annual Meeting of Shareholders to be held May 17, 1994.
The additional information regarding executive officers called for by
Item 10 is included in Part I, Item 1 of this document under the heading
"Executive Officers of the Registrant".
Item 11. EXECUTIVE COMPENSATION
- --------------------------------
The information called for by Item 11 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 17, 1994.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information called for by Item 12 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 17, 1994.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information called for by Item 13 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 17, 1994.
10
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Financial Statements -- Reference is made to Part II, Item 8, of this
Annual Report on Form 10-K.
2. The Financial Statement Schedules are omitted, as the required
information is not applicable.
3. Exhibits -- The following exhibits are filed as a part of this Annual
Report on Form 10-K:
Exhibit
Number
-------
2.1 Purchase and Assumption Agreement dated as of February 13, 1993
among the FDIC - receiver of New First City, Texas - Austin, N.A.,
the FDIC and Frost Bank. (1993 Form 8-K, Exhibit 2.1)(14)
2.2 Purchase and Assumption Agreement dated as of February 13, 1993
among the FDIC - receiver of New First City, Texas - San Antonio,
N.A., the FDIC and Frost Bank. (1993 Form 8-K, Exhibit 2.2)(14)
2.3 Agreement and Plan of Merger among Texas Commerce Bancshares,
Inc., Texas Commerce Equity Holdings, Inc., Texas Commerce Bank,
N.A., Texas Commerce Bank - Corpus Christi, N.A., Cullen/Frost
Bankers, Inc., The New Galveston Company, The Frost National Bank of
San Antonio and Cullen/Frost Bank of Dallas, N.A. dated August
26, 1993. (1993 Form 8-K, Exhibit 10)(15)
3.1 Restated Articles of Incorporation, as amended (1988 Form S-8,
Exhibit 4(a))(4)
3.2 Amended By-Laws of Cullen/Frost Bankers, Inc.
4.1 Guaranty, dated April 27, 1981, by Cullen/Frost Bankers, Inc. to
Colonial/Citizens Associates (1985 Form S-8, Exhibit 4(e))(2)
4.2 Shareholder Protection Rights Agreement dated as of July 25, 1989
between Cullen/Frost Bankers, Inc. and The Bank of New York, as
Rights Agent (1989 Form 8-K, Exhibit 1)(6)
10.1 1983 Non-qualified Stock Option Plan, as amended (1989 Form S-8,
Exhibit 4(g))(7)
10.2 Restoration of Retirement Income Plan for Participants in the
Retirement Plan for Employees of Cullen/Frost Bankers, Inc. and its
Affiliates (as amended and restated)(1988 Form 10-K, Exhibit 10.4)
(5)*
10.3 Pension Benefit Contract (1984 Form 10-K, Exhibit 10.8)(1)*
10.4 Contract of Sale, dated June 9, 1987, between The Frost National
Bank of San Antonio and Tower Investors, Ltd. for the sale of the
Frost Bank Tower (1987 Form 10-K, Exhibit 10.10)(3)
10.5 Master Lease, dated June 9, 1987, between The Frost National Bank
of San Antonio and Tower Investments, Ltd. for the lease of the
Frost Bank Tower (1987 Form 10-K, Exhibit 10.11)(3)
10.6 Agreement dated September 30, 1988, among Electronic Data Systems
Corporation, The Frost National Bank of San Antonio and Cullen/Frost
Bankers, Inc. for the sale of rights to revenues of data processing
services (1988 Form 10-K, Exhibit 10.12)(5)
10.7(a) Form of Revised Change-In-Control Agreements with six Executive
Officers (1989 Form 10-K, Exhibit 10.13(a))(9)*
10.7(b) Form of Revised Change-in-Control Agreement with one Executive
Officer (1989 Form 10-K, Exhibit 10.13(b))(9)*
10.8 1988 Non-qualified Stock Option Plan (1989 Form S-8, Exhibit
4(g))(8)
10.9 The 401(k) Stock Purchase Plan for employees of Cullen/Frost
Bankers, Inc. and its Affiliates (1990 Form S-8, Exhibit 4(g))(10)*
10.10 1991 Thrift Incentive Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and its Affiliates (1991 Form S-8,
Exhibit 4(g))(11)*
10.11 Cullen/Frost Bankers, Inc. Restricted Stock Plan (1992 Form S-8,
Exhibit 4(d))(12)*
10.12 Cullen/Frost Bankers, Inc. 1992 Stock Plan (1992 Form S-8,
Exhibit 4(d))(13)
11 Statement re: computation of earnings per share
11
<PAGE>
13 The Cullen/Frost 1993 Annual Report to Shareholders for the Year
Ended December 31, 1993, (furnished for the information of the
Commission and not deemed to be "filed" except for the portion
expressly incorporated by reference)
21 Subsidiaries of Cullen/Frost
23 Consent of Independent Auditors
24 Power of Attorney
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 601 of Regulation S-K.
(b) Reports on Form 8-K -- During the quarter ended December 31, 1993, a
Report on Form 8-K dated October 27, 1993, was filed in respect of the
Cullen/Frost Bankers, Inc. press release dated October 26, 1993 announcing
Registrant's declaration of a cash dividend.
___________________
(1) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1984 (File No. 0-7275)
(2) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed December 18, 1985
(File No. 33-2271)
(3) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1987 (File No. 0-7275)
(4) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed June 24, 1988
(File No. 33-22758)
(5) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1988 (File No. 0-7275)
(6) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-K dated July 25, 1989
(File No. 0-7275)
(7) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed September 5, 1989
(File No. 33-30776)
(8) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed September 5, 1989
(File No. 33-30777)
(9) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1989 (File No. 0-7275)
(10) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 31, 1990
(File No. 33-37500)
(11) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed March 18, 1991
(File No. 33-39478)
(12) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 20, 1992
(File No. 33-53492)
(13) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 23, 1992
(File No. 33-53622)
(14) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-K dated February 13, 1993
(File No. 0-7275)
(15) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-K dated August 26, 1993
(File No. 0-7275)
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 29, 1994 CULLEN/FROST BANKERS, INC.
(Registrant)
By: /s/ ROBERT S. McCLANE
Robert S. McClane
President and Chief Administrative
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1994.
Signatures Title Date
---------- ----- -----
Chairman of the Board
and Director (Principal Executive
T.C. FROST* Officer)
- ------------------------
(T.C. Frost)
Executive Vice President and
Treasurer (Principal Accounting
/s/ PHILLIP D. GREEN Officer) March 29, 1994
- ------------------------
(Phillip D. Green)
ISAAC ARNOLD, JR.* Director
- ------------------------
(Isaac Arnold, Jr.)
HENRY E. CATTO* Director
- ------------------------
(Henry E. Catto)
HARRY H. CULLEN* Director
- ------------------------
(Harry H. Cullen)
ROY H. CULLEN* Director
- ------------------------
(Roy H. Cullen)
RICHARD W. EVANS, JR.* Director
- ------------------------
(Richard W. Evans, Jr.)
W.N. FINNEGAN III* Director
- ------------------------
(W.N. Finnegan III)
13
<PAGE>
Signatures Title Date
---------- ----- -----
JOSEPH H. FROST* Director
- ------------------------
(Joseph H. Frost)
JAMES W. GORMAN, JR.* Director
- ------------------------
(James W. Gorman, Jr.)
JAMES L. HAYNE* Director
- ------------------------
(James L. Hayne)
HARRIS L. KEMPNER, JR.* Director
- ------------------------
(Harris L. Kempner, Jr.)
RICHARD M. KLEBERG, III* Director
- ------------------------
(Richard M. Kleberg, III)
QUINCY LEE* Director
- ------------------------
(Quincy Lee)
ROBERT S. McCLANE * Director
- ------------------------
(Robert S. McClane)
J. GORDON MUIR, JR.* Director
- ------------------------
(J. Gordon Muir, Jr.)
W.B. OSBORN, JR.* Director
- ------------------------
(W.B. Osborn, Jr.)
ROBERT G. POPE* Director
- ------------------------
(Robert G. Pope)
HERMAN J. RICHTER* Director
- ------------------------
(Herman J. Richter)
14
<PAGE>
Signatures Title Date
---------- ----- -----
A. FRANK SMITH, JR.* Director
- ------------------------
(A. Frank Smith, Jr.)
CURTIS VAUGHAN, JR.* Director
- ------------------------
(Curtis Vaughan, Jr.)
*By: /s/ ROBERT S. McCLANE March 29, 1994
- ------------------------
(Robert S. McClane)
[as Attorney-in-Fact for
the persons indicated]
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------------------------------------------
3.2 Amended By-Laws of Cullen/Frost Bankers, Inc.
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1993 Annual Report to Shareholders for the Year
Ended December 31, 1993 (furnished for the information of the Commission
and not deemed to be "filed" except for the portion expressly
incorporated by reference)
21 Subsidiaries of Cullen/Frost
23 Consent of Independent Auditors
24 Power of Attorney
EXHIBIT 3.2
Amended By-Laws of Cullen/Frost Bankers, Inc.
<PAGE>
BYLAWS
OF
CULLEN/FROST BANKERS, INC.
ARTICLE I - OFFICES
-------------------
SECTION 1.1 - REGISTERED OFFICE: The registered office of the corporation
shall be at 100 W. Houston Street, San Antonio, Texas.
SECTION 1.2 - EXECUTIVE OFFICES: The executive offices of the corporation
shall be at 100 W. Houston Street, San Antonio, Texas.
SECTION 1.3 - OTHER OFFICES: The corporation may also have offices at such
other places as the Board of Directors may from time to time determine or
the business of the corporation may require.
ARTICLE II - STOCKHOLDERS
-------------------------
SECTION 2.1 - ANNUAL MEETING: The annual meeting of the stockholders for
the purpose of electing Directors shall be on the third Tuesday in May each
year if not a legal holiday, and, if a legal holiday, then on such other
date as shall be fixed by the Board of Directors. Any business may be
transacted at an annual meeting, except as otherwise provided by law or by
the Bylaws.
SECTION 2.2 - SPECIAL MEETING: A special meeting of the stockholders may
be called at any time by the holders of at least ten percent (10%) of the
outstanding stock entitled to be voted at such meeting or by the Board of
Directors or by the Chairman of the Board or by the President. Only such
business shall be transacted at a special meeting as may be stated or
indicated in the notice of such meeting.
SECTION 2.3 - PLACE: The annual meeting and any special meeting of the
stockholders shall be held at 100 W. Houston Street, San Antonio, Texas,
unless another place is designated by the Board of Directors.
SECTION 2.4 - NOTICE: Written or printed notice stating the place, day and
hour of each meeting of stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, to each stockholder of record
entitled to vote at such meeting.
SECTION 2.5 - QUORUM: The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented
by proxy, shall be requisite and shall constitute a quorum at all meetings
of the stockholders for the transaction of business except as otherwise
provided by statute, by the articles of incorporation or by these bylaws.
If, however, such quorum shall not be present or represented at any meeting
of the stockholders, the stockholders entitled to vote thereat, present in
person or by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified. When a
quorum is present at any meeting, the vote of the holders of a majority of
the shares having voting power present in person or represented by proxy
shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the articles
of incorporation or of these bylaws, a different vote is required in which
case such express provision shall govern and control the decision of such
question. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6 - PROXIES: At all meetings of stockholders, a stockholder may
vote either in person or by proxy executed in writing by the stockholder or
by his duly authorized attorney-in-fact. Such proxies shall be filed with
the Secretary of the corporation before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable, and unless
otherwise made irrevocable by law.
SECTION 2.7 - VOTES PER SHARE AND CUMULATIVE VOTING: Each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders, except to the extent that
the voting rights of the shares of any class or classes are limited or
denied by the articles of incorporation, or as otherwise provided by the
Texas Business Corporation Act. At each election of Directors every
stockholder entitled to vote at such election shall have the right to vote,
in person or by proxy, the number of shares owned by him for as many
persons as there are Directors to be elected and for whose election he has
a right to vote. It is expressly prohibited for any stockholder to
cumulate his votes in any election of Directors for any other purpose.
SECTION 2.8 - PRESIDING OFFICERS: The Chairman of the Board shall preside
at and the Secretary shall keep the records of each meeting of
stockholders, and in the absence of the Chairman, his duties shall be
performed by the President. In the absence of the Secretary, his duties
shall be performed by the Assistant Secretary.
SECTION 2.9 - LIST OF STOCKHOLDERS: A complete list of stockholders
entitled to vote at each stockholders' meeting, arranged in alphabetical
order, with the address of and number of shares held by each, shall be
prepared by the Secretary and filed at the registered office and the
executive offices of the corporation and subject to inspection by any
stockholder during usual business hours for a period of ten (10) days prior
to such meeting. Such list shall be produced and subject to inspection by
any stockholder during such meeting.
ARTICLE III - BOARD OF DIRECTORS
---------------------------------
SECTION 3.1 - POWERS: The business and property of the corporation shall
be managed by the Board of Directors, and subject to the restrictions
imposed by law, by the articles of incorporation, or by these bylaws, they
may exercise all the powers of the corporation.
SECTION 3.2 - NUMBER: The Board of Directors shall consist of not less
than five nor more than twenty Directors, as so determined from time to
time by resolution of the Board of Directors. Within the above limits, the
number of directors may be increased or decreased (provided such decrease
does not shorten the term of any incumbent director) from time to time by
resolution of the Board of Directors.
SECTION 3.3 - TERM: Each Director shall hold office for the term for which
he is elected and until his successor shall have been elected and
qualified. Directors need not be stockholders nor residents of Texas. Any
Director may be removed either for or without cause, at any special meeting
of stockholders by the affirmative vote of a majority in number of shares
of the stockholders present in person or by proxy at such meeting and
entitled to vote for the election of such Director, if notice of the
intention to act upon such matter shall have been given in the notice
calling such meeting.
SECTION 3.4 - VACANCY: Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor
in office. In case of any increase in the number of Directors, the
additional Directors shall be elected at an annual meeting or at a special
meeting of stockholders called for that purpose.
SECTION 3.5 - MEETING OF DIRECTORS: The Directors may hold their meetings
and may have an office and keep the books of the corporation, except as
otherwise provided by statute, in such place or places, as the Board of
Directors may from time to time determine.
SECTION 3.6 - ORGANIZATIONAL MEETING: Other than the first meeting of the
initial Board of Directors, each newly elected Board of Directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place
as the annual meeting of the stockholders, and no notice of such meeting
shall be necessary.
SECTION 3.7 - ELECTION OF OFFICERS: At the first meeting of the Board of
Directors in each year at which a quorum shall be present, held next after
the annual meeting of stockholders, the Board of Directors shall proceed to
the election of the officers of the corporation.
SECTION 3.8 - REGULAR MEETINGS: Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated, from time to
time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
SECTION 3.9 - SPECIAL MEETINGS: Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on three days'
notice to each Director, either personally or by mail, or by telegram or
such special meetings may be called by the President or Secretary in like
manner and on like notice on the written request of two Directors. Neither
the business to be transacted at, nor the purpose of, any special meeting
need be specified in a notice or waiver of notice except where expressly
provided by statute, the articles of incorporation or by these bylaws.
SECTION 3.10 - NOTICE: The Secretary shall give notice of each special
meeting in person, or by mail, telegraph, or facsimile at least three (3)
days before the meeting to each Director. The attendance of a Director at
any meeting shall constitute a waiver of notice of such meeting, except
where a Director attends a meeting for the express purpose of objecting to
the transaction of any business on the grounds that the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
SECTION 3.11 - FULL DIRECTORS' MEETINGS: At any meeting at which every
Director shall be present, even though without any notice, any business may
be transacted.
SECTION 3.12 - QUORUM: A majority of the Directors fixed in the manner
provided in these bylaws shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there be less
than a quorum present, a majority of those present or any Director solely
present may adjourn the meeting from time to time without further notice.
The act of a majority of the Directors present at a meeting at which a
quorum is in attendance shall be the act of the Board of Directors, unless
the act of a greater number is required by the articles of incorporation or
by these bylaws.
SECTION 3.13 - ORDER OF BUSINESS: At meetings of the Board of Directors,
business shall be transacted in such order as from time to time the Board
may determine.
SECTION 3.14 - COMPENSATION: Directors as such shall not receive any
stated salary for their service, but by resolution of the Board a fixed sum
and expense of attendance, if any, may be allowed for attendance at such
regular or special meetings of the Board; provided that nothing contained
herein shall be construed to preclude any Director from serving the
corporation in any other capacity or receiving compensation therefor.
SECTION 3.15 - PRESUMPTION OF ASSENT: A Director of the corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless
he shall file his written dissent to such action with the person acting as
Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Director who voted in favor of such action.
SECTION 3.16 - EXECUTIVE COMMITTEE AND OTHER COMMITTEES: The Board of
Directors by resolution adopted by a majority of the full Board of
Directors, may designate from among its members an Executive Committee and
one or more other committees, each of which, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board
of Directors except that no committee shall have the authority of the Board
of Directors in those matters specifically prohibited by Art. 2.36 of the
Texas Business Corporation Act. The designation of any such committee and
the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors at the Board's next meeting.
ARTICLE IV - OFFICERS
---------------------
SECTION 4.1 - NUMBER, TITLE AND TERM OF OFFICE: The officers of the
corporation shall be the Chairman of the Board, a President, a Vice-
Chairman of the Board, one or more Vice-Presidents, a Secretary, a
Treasurer, and such other officers as the Board of Directors may from time
to time elect or appoint. Each officer shall hold office until his
successor shall have been duly elected and qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided. One person may hold more than one office, except that the
President shall not hold the office of Secretary. None of the officers
need be a Director, except the Chairman of the Board, the President, and
the Vice-Chairman of the Board, who must be Directors.
SECTION 4.2 - REMOVAL: Any officer, or member of any committee, or agent,
elected or appointed by the Board of Directors may be removed by the Board
of Directors whenever in its judgment the best interests of the corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights.
SECTION 4.3 - VACANCIES: A vacancy in the office of any officer may be
filled by vote of a majority of the Directors for the unexpired portion of
the term.
SECTION 4.4 - THE CHAIRMAN OF THE BOARD - POWERS AND DUTIES: The Chairman
of the Board shall preside at all meetings of the stockholders and the
Board of Directors at which he shall be present. He shall perform all of
the duties incident to the office of Chairman of the Board of Directors of
a corporation and such other duties as from time to time, may be assigned
to him by the Board of Directors. The Chairman of the Board shall be the
chief executive officer of the corporation and shall have all powers and
authority of the President.
SECTION 4.5 - PRESIDENT - POWERS AND DUTIES: The President shall have
general executive charge, management and control of the properties and
operations of the corporation in the ordinary course of its business with
all such powers with respect to such properties and operations as may be
reasonably incident to such responsibilities.
SECTION 4.6 - VICE-CHAIRMAN OF THE BOARD - POWERS AND DUTIES: The Vice-
Chairman of the Board shall exercise such powers and perform such duties
as, from time to time, may be assigned to him by the Board of Directors.
SECTION 4.7 - VICE-PRESIDENTS - POWERS AND DUTIES: Each Vice-President
shall have such powers and duties as may be assigned to him by the Board of
Directors and shall exercise the powers of the President during that
officer's absence or inability to act. Any action taken by a Vice-
President in the performance of the duties of the President shall be
conclusive evidence of the absence or inability to act of the President at
the time such action was taken.
SECTION 4.8 - TREASURER - POWERS AND DUTIES: The Treasurer shall have
custody of all the funds and securities of the corporation which come into
his hands. He shall perform all acts incident to the position of Treasurer
subject to the control of the Board of Directors, and give such bond for
the faithful discharge of his duties in such form as the Board of Directors
may require.
SECTION 4.9 - ASSISTANT TREASURER - POWERS AND DUTIES: Each Assistant
Treasurer shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
Board of Directors. The Assistant Treasurer shall exercise the powers of
the Treasurer during that officer's absence or inability to act.
SECTION 4.10 - SECRETARY - POWERS AND DUTIES: The Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders, in books provided for that purpose. He shall
have charge of the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to the inspection of any
Director upon application at the executive offices of the corporation
during business hours, and he shall in general perform all duties incident
to the office of Secretary, subject to the control of the Board of
Directors.
SECTION 4.11 - ASSISTANT SECRETARY - POWERS AND DUTIES: Each Assistant
Secretary shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
Board of Directors or the Secretary. The Assistant Secretary shall
exercise the powers of the Secretary during that officer's absence or
inability to act.
ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 5.1 - IN GENERAL: The corporation shall, to the fullest extent to
which it is empowered to do so by the Texas Business Corporation Act and
any other applicable laws as may from time to time be in effect, indemnify
any person who was, is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
she is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietory, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, trust
or other enterprise, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding. The
corporation's obligations under this section include, but are not limited
to, the convening of any meeting, and the consideration of any matter
thereby, required by statute in order to determine the eligibility of an
officer or director for indemnification. Reasonable expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of (i) a written affirmation by the director,
officer, employee or agent who may be entitled to such indemnification of
his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification under the applicable statute, and (ii) a
written undertaking by or behalf of the director, officer, employee or
agent who may be entitled to such indemnification, to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. The corporation's obligation to indemnify
and to prepay expenses under this Section 5.1 shall arise, and all rights
granted to directors, officers, employees or agents hereunder shall vest,
at the time of the occurrence of the transaction or event to which such
action, suit or proceeding relates, or at the time that the action or
conduct to which such action, suit or proceeding relates was first taken or
engaged (or omitted to be taken or engaged in), regardless of when such
action, suit or proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of these bylaws or the Articles of
Incorporation of the corporation, no action taken by the corporation,
either by amendment of the bylaws or the Articles of Incorporation of the
corporation or otherwise, shall diminish or adversely affect any rights to
indemnification or prepayment of expenses granted under this Section 5.1
which shall have become vested as aforesaid prior to the date that such
amendment or other corporate action is taken. Further, if any provision of
this Section 5.1 shall be held to be invalid or unenforceable, the validity
and enforceability of the remaining provisions shall not in any way be
affected or impaired.
ARTICLE VI - CAPITAL STOCK
SECTION 6.1 - CERTIFICATES OF SHARES: The certificates for shares of the
capital stock of the corporation shall be in such form as shall be approved
by the Board of Directors. The certificates shall be signed by the
Chairman of the Board and the President or a Vice-President, and also by
the Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer and may be sealed with the seal of this corporation or a
facsimile thereof. They shall be consecutively numbered and shall be
entered in the books of the corporation as they are issued and shall
exhibit the holder's name and the number of shares.
SECTION 6.2 - TRANSFER OF SHARES: The shares of stock of the corporation
shall be transferable only on the books of the corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares.
SECTION 6.3 - REGULATIONS: The Board of Directors shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of the capital stock of the corporation.
ARTICLE VII - MISCELLANEOUS PROVISIONS
SECTION 7.1 - FISCAL YEAR: The fiscal year of the corporation shall be
such as the Board of Directors shall by resolution, establish.
SECTION 7.2 - SEAL: The seal of the corporation shall be such as from time
to time may be approved by the Board of Directors.
SECTION 7.3 - NOTICE AND WAIVER OF NOTICE: Whenever any notice whatsoever
is required to be given under the provisions of these bylaws, said notice
shall be deemed to be sufficient if given by depositing the same in a post
office box in a sealed postpaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the books of the
corporation, and such notice shall be deemed to have been given on the day
of such mailing. A waiver of notice, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of such notice.
SECTION 7.4 - RESIGNATIONS: Any Director or officer may resign at any
time. Such resignations shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided
in the resignation.
SECTION 7.5 - SECURITIES OF OTHER CORPORATIONS: The President (or any Vice-
President) of the corporation shall have power and authority to transfer,
endorse for transfer, vote, consent and take any other action with respect
to any securities of another issuer which may be held or owned by the
corporation and to make, execute and deliver any waiver, proxy or consent
with respect to any such securities.
SECTION 7.6 - DIVIDENDS: Dividends upon the outstanding shares of the
corporation, subject to the provision of the articles of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, property, or in shares of the
corporation, subject to the provisions of the Texas Business Corporation
Act, and the articles of incorporation.
SECTION 7.7 - CONTRACTS: The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 7.8 - LOANS: No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
SECTION 7.9 - BYLAWS: These bylaws may be altered, amended, or repealed
and new bylaws may be adopted by the Board of Directors, subject to repeal
or change by action of the stockholders.
_______________________________________
EXHIBIT 11
Statement re: Computation of Earnings Per Share
<PAGE>
<TABLE>
<CAPTION>
CULLEN/FROST BANKERS, INC.
Computation of Earnings per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands)
December 31,
----------------------------
Primary Earnings per Share 1993 1992 1991
- ------------------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Income before extraordinary credit and
cumulative effect of accounting change $ 38,797 $17,625 $ 205
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54 643
-------- ------- -------
Income applicable to common stock before
extraordinary credit and cumulative effect of
accounting change 38,851 18,268 205
Extraordinary credit 6,497
Cumulative effect of accounting change 8,439
------- ------- -------
Net income applicable to common stock $47,290 $24,765 $ 205
======= ======= =======
Weighted average shares outstanding 10,922 10,175 9,897
Addition from assumed exercise of stock
options 189 284 178
Addition of assumed conversion of 9.75%
convertible subordinated debentures due 1996 40 515
------- ------- -------
Weighted average number of common shares
outstanding 11,151 10,974 10,075
======= ======= =======
Primary earnings per common share:
Income before extraordinary credit and
cumulative effect of accounting change $3.48 $1.66 $0.02
Net income 4.24 2.26 0.02
December 31,
----------------------------
Fully Diluted Earnings per Share 1993 1992 1991
- ------------------------------------------------ -------- ------- -------
Income before extraordinary credit and
cumulative effect of accounting change $38,797 $17,625 $ 205
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54 643
------- ------- ------
Income applicable to common stock before
extraordinary credit and cumulative effect of
accounting change 38,851 18,268 205
Extraordinary credit 6,497
Cumulative effect of accounting change 8,439
------- ------- ------
Net income applicable to common stock $47,290 $24,765 $ 205
======= ======= ======
Weighted average shares outstanding 10,922 10,175 9,897
Addition from assumed exercise of stock options 189 325 178
Addition of assumed conversion of 9.75%
convertible subordinated debentures due 1996 40 515
------- ------- ------
Weighted average number of common shares
outstanding 11,151 11,015 10,075
======= ======= ======
Fully diluted earnings per common share:
Income before extraordinary credit and
cumulative effect of accounting change $3.48 $1.66 $0.02
Net income 4.24 2.25 0.02
</TABLE>
EXHIBIT 13
The Cullen/Frost 1993 Annual Report to Shareholders for the
Year Ended December 31, 1993 (furnished for the information of
the Commission and not deemed to be "filed" except for the
portion expressly incorporated by reference)
<PAGE>
GRAPHICS APPENDIX LIST
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
1993 Form 10-K, Exhibit 13 -- 1993 Form 10-K, Exhibit 13 --
(Selected Portions of CFBI's (Selected Portions of CFBI's
1993 Annual Report to Stockholders) 1993 Annual Report to Stockholders)
Page 10 -- One line graph omitted Page 10 -- One line graph with two
lines depicting Net Interest Income
and Net Interest Margin, respective-
ly. (The text and numbers used in
this graph appear in the text of the
EDGAR Version).
Page 10 -- One combination bar-line Page 10 -- One combination bar-line
graph omitted graph with two lines and five bars
depicting Cost of Funds, Earnings on
Funds and Net Interest Spread, re-
spectively. (The text and numbers
used in this graph appear in the text
of the EDGAR Version).
Page 12 -- One bar graph omitted Page 12 -- One bar graph depicting a
comparison of Non-Interest income
categorized into Trust, Service
Charges, Other Service Charges, Other
and Net Gain (Loss) on Securities
Transactions. (The text and numbers
used in this graph appear in the text
of the EDGAR Version).
Page 13 -- One bar graph omitted Page 13 -- One bar graph depicting a
comparison of Non-Interest expense
excluding non-recurring items cate-
gorized into Salaries, Wages & Pen-
sions, Net Occupancy & Furniture and
Equipment, Other, and Provision for
Real Estate Losses. (The text and
numbers used in this graph appear in
the text of the EDGAR Version).
Page 14 -- One line graph omitted Page 14 -- One line graph with two
lines depicting Average Loans and
Average Loan Yield, respectively.
(The text and numbers used in this
graph appear in the text of the
EDGAR Version).
Page 16 -- One bar graph omitted Page 16 -- One bar graph depicting the
combined Foreclosed Assets and Non-
Accrual and Restructured Loans, re-
spectively. (The text and numbers
used in this graph appear in the text
of the EDGAR Version).
Page 19 -- One combination bar-line Page 19 -- One combination bar-line
graph omitted graph with one line and five bars
depicting Allowance to year-end loans
and Allowance for possible loan
losses, respectively. (The text and
numbers used in this graph appear in
the text of the EDGAR Version).
Page 21 -- One combination bar-line Page 21 -- One combination bar-line
gragh omitted graph with one line and five bars
depicting Cost of Time deposits,
Average Demand and Average Time de-
posits, respectively. (The text and
numbers used in this graph appear in
the text of the EDGAR Version).
<PAGE>
FINANCIAL REVIEW
Cullen/Frost Bankers, Inc. and Subsidiaries
The accompanying audited consolidated financial statements of
Cullen/Frost Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the
"Corporation") present the Corporation's results of operations for the
years 1991 through 1993. All balance sheet amounts presented in the
following financial review are averages unless otherwise indicated.
Earnings and other per share amounts have been restated to give effect to a
ten percent stock dividend declared and paid by the Corporation during the
first quarter of 1993. Taxable-equivalent adjustments assume a 35 percent
federal tax rate for 1993 and a 34 percent federal income tax rate for 1992
and 1991. Dollar amounts in tables are stated in thousands, except for per
share amounts.
Amounts reported for 1993 include the February 13, 1993 acquisition,
from the Federal Deposit Insurance Corporation, of New First City offices
in San Antonio and Austin, Texas which added approximately $458 million in
assets. The acquisition was accounted for as a purchase and as such 1993
includes results of operations from the date of acquisition.
RESULTS OF OPERATIONS
For the year ended December 31, 1993, the Corporation reported net
income of $47,236,000 or $4.24 per common share, compared with $24,122,000
or $2.26 per common share for 1992 and $205,000 or $.02 per common share
for 1991. The improved 1993 results were heavily impacted by an
improvement in asset quality which resulted in a combined credit for
possible loan and real estate losses of $4.6 million in 1993 compared to a
net expense for these combined provisions of $18.5 million in 1992. The
1993 results also include the operating impact of the acquisition and non-
recurring items including: (i) $6.7 million in restructuring costs related
to bank premises resulting from downsizing of office space and valuations
on owned buildings resulting from the decision to sell, (ii) $3.6 million
in combined early retirement incentive and job restructuring costs, (iii)
$5.0 million in non-recurring costs related to the acquisition of the New
First City locations, and (iv) a one-time benefit of $8.4 million related
to a required change in the method of accounting for income taxes. During
1993, the Corporation reached agreement to acquire Texas Commerce Bank-
Corpus Christi in exchange for Cullen/Frost Bank of Dallas, N.A. This
transaction is subject to regulatory approval and is expected to be
completed during April 1994. No gain or loss is expected from this
transaction.
The 1992 results include an increase of $8.1 million in net interest
income, a decrease of $12.4 million in the combined provisions for real
estate and loan losses and a $4.3 million increase in non-interest income.
During 1992, the Corporation recorded an extraordinary credit for
utilization of net operating loss carryforwards of $6.5 million.
<TABLE>
<CAPTION>
1993 Change 1992 Change
EARNINGS SUMMARY 1993 from 1992 1992 from 1991 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net interest income $128,709 $ 10,923 $117,786 $7,132 $110,654
Taxable-equivalent adjustment 883 (246) 1,129 (1,011) 2,140
-------- -------- -------- ------ --------
Net interest income 127,826 11,169 116,657 8,143 108,514
Provision (credit) for possible
loan losses (6,085) (5,235) (850) (10,870) 10,020
Non-interest income:
Net gain (loss) on securities
transactions 1,433 1,665 (232) (2,254) 2,022
Other 74,796 12,751 62,045 6,585 55,460
-------- -------- -------- -------- --------
Total non-interest income 76,229 14,416 61,813 4,331 57,482
Non-interest expense:
Provision for real estate losses 1,445 (17,866) 19,311 (1,488) 20,799
Restructuring costs 10,285 10,285
Other operating expenses 160,348 26,161 134,187 (152) 134,339
-------- -------- -------- -------- --------
Total non-interest expense 172,078 18,580 153,498 (1,640) 155,138
-------- -------- -------- -------- --------
Income before income taxes (credits),
extraordinary credit and cumulative
effect of accounting change 38,062 12,240 25,822 24,984 838
Income taxes (credits) (735) (8,932) 8,197 7,564 633
-------- -------- -------- -------- --------
Income before extraordinary credit
and cumulative effect of
accounting change 38,797 21,172 17,625 17,420 205
Extraordinary Credit - income
tax benefit (6,497) 6,497 6,497
Cumulative effect of change in
accounting for income taxes 8,439 8,439
-------- -------- -------- -------- --------
Net income $ 47,236 $ 23,114 $24,122 $23,917 $ 205
======== ======== ======== ======== ========
Per share
Net income-primary $ 4.24 $ 1.98 $ 2.26 $2.24 $ .02
Net income-fully diluted 4.24 1.99 2.25 2.23 .02
</TABLE>
Page 9
<PAGE>
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $128,709,000 for
the year ended December 31, 1993, compared with $117,786,000 and
$110,654,000 for 1992 and 1991, respectively. Increases in demand deposits
and larger business volumes resulting from the New First City acquisition
were the primary reasons for the increase in net interest income from 1992.
Net interest margin was 4.29 percent for the year ended December 31, 1993,
compared to 4.47 percent and 4.13 percent for the years ended December 31,
1992 and 1991, respectively. Net interest spread for 1993 declined 8 basis
points to 3.78 percent. Net interest spread was 3.86 percent and 3.35
percent for 1992 and 1991, respectively. The decline in net interest margin
and net interest spread in 1993 is primarily due to lower yields on
securities. Higher-yielding securities continue to mature and, given the
current rate environment, are being replaced with lower-yielding
securities. Net interest income has been favorably impacted by the
significant decrease in non-performing assets during 1993 and 1992. Net
interest income increased during 1992 compared to 1991 primarily due to an
increase in demand deposits and lower rates on interest bearing accounts.
During 1993, yields on earning assets declined 90 basis points while
the cost of funds decreased 82 basis points from 1992. The net interest
spread as well as the net interest margin could be impacted by future
changes in short and long-term interest rate levels.
<TABLE>
<CAPTION>
Net Interest Income and Net Interest Margin Net Interest Spread
($ in millions - taxable-equivalent) (taxable-equivalent)
(Graphic Material omitted) (Graphic material omitted)
Year Net Interest Net Interest Year Earnings Cost of Net Interest
Ended Income Margin Ended on Funds Funds Spread
- ------ ------------ ----------- ----- -------- -------- ------------
<S> <C> <C> <S> <C> <C> <C>
1989 $111 3.60% 1989 9.87% 7.17% 2.70%
1990 113 3.93 1990 9.60 6.54 3.06
1991 111 4.13 1991 8.70 5.35 3.35
1992 118 4.47 1992 7.25 3.39 3.86
1993 129 4.29 1993 6.35 2.57 3.78
</TABLE>
INTEREST RATE SENSITIVITY
The Corporation's interest rate sensitivity and liquidity are
monitored by its Asset/Liability Management Committee on an ongoing basis.
The Committee seeks to avoid fluctuating net interest margins and to
enhance consistent growth of net interest income through periods of
changing interest rates. As the accompanying interest rate sensitivity
table indicates, the Corporation is liability sensitive on a cumulative
basis at both the three month and one year time periods.
The Corporation continuously monitors and manages the balance between
interest rate-sensitive assets and liabilities. The Corporation's
objective is to confine the impact of fluctuating market rates on net
interest income within acceptable levels of risk.
Page 10
<PAGE>
<TABLE>
<CAPTION>
Immediately Non-Rate
CUMULATIVE Rate Sensitive Rate Sensitive Within Sensitive
INTEREST RATE -------------- ------------------------------ ---------
SENSITIVITY 0-30 days 90 days One Year Five Years >5Years Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 566,394 $ 621,980 $ 827,068 $1,181,033 $66,776 $1,247,809
Securities 247,298 315,943 1,144,919 1,457,611 154,260 1,611,871
Federal funds
sold and other
short-term investments 250,397 250,397 250,397 250,397 250,397
---------- ---------- ---------- --------- -------- ----------
Total earning assets $1,064,089 $1,188,320 $2,222,384 $2,889,041 $221,036 $3,110,077
=========== ========== ========== ========== ======== ==========
Interest-Bearing
Liabilities:
Savings and Interest-
on-Checking $ 800,161 $ 800,161 $ 800,161 $ 800,161 $800,161
Money market deposit
accounts 527,230 527,230 527,230 527,230 527,230
Certificates of deposit
and other time accounts 240,998 501,509 827,301 893,631 $47,314 940,945
Federal funds purchased
and other borrowings 166,519 166,519 166,519 166,519 166,519
---------- ---------- ---------- ---------- -------- ----------
Total interest-bearing
liabilities $1,734,908 $1,995,419 $2,321,211 $2,387,541 $47,314 $2,434,855
========== =========== ========== ========== ======== ==========
Interest sensitivity gap$ (670,819) $ (807,099) $ (98,827)$ 501,500 $173,722 $ 675,222
========== =========== ========== ========== ======== ==========
Ratio of earning assets
to interest-bearing
liabilities .61 .60 .96 1.21
========== =========== ========== ==========
</TABLE>
In developing the classifications used for this analysis, it was necessary
to make certain assumptions and approximations in assigning assets and
liabilities to different maturity categories. For example, savings and
Interest-on-Checking are subject to immediate withdrawal and as such are
presented as repricing within the earliest period presented even though
their balances have historically not shown significant sensitivity to
changes in interest rates.
Unearned discounts on loans in the amount of $8,456,000 are excluded from
the balances of loans in the above table. Consumer loans are distributed
in the immediately rate- sensitive category for those tied to market rates
or to other categories according to the repayment schedule.
LIQUIDITY
Asset liquidity is provided by cash and assets which are readily
marketable or pledgeable or which will mature in the near future. Liquid
assets include cash, short-term investments in time deposits in banks,
Federal funds sold and securities purchased under resale agreements and
securities available for sale.
Liquidity is also provided by access to core funding sources. These
include core depositors and correspondent banks in the Corporation's
natural trade area which maintain accounts with and sell Federal funds to
subsidiary banks of the Corporation. The Corporation does not solicit
brokered deposits.
NON-INTEREST INCOME
Non-interest income of $76,229,000 was reported for 1993, compared
with $61,813,000 for 1992 and $57,482,000 for 1991. Excluding securities
transactions, total non-interest income increased 20.6 percent from 1992.
All categories of non-interest income increased before the additional
volumes added by the acquisition.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1993 1992 1991
---------------- ------------------ ------------------
Percent Percent Percent
Non-Interest Income Amount Change Amount Change Amount Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust department $ 26,278 + 20.2% $21,861 + 9.1% $20,030 + 6.7%
Service charges on
deposit accounts 25,386 + 15.6 21,958 + 16.1 18,915 + 24.9
Other service charges,
collection and
exchange charges,
commissions and fees 9,889 + 25.4 7,888 - 4.8 8,288 + 13.5
Net gain(loss) on
securities transactions 1,433 +717.7 (232) - 111.5 2,022 +1,467.4
Other 13,243 + 28.1 10,338 + 25.7 8,227 - 10.9
------- ------- ------
Total $76,229 + 23.3 $61,813 + 7.5 $57,482 + 13.6
======= ======= =======
</TABLE>
Page 11
<PAGE>
Trust income was up 20.2 percent during 1993. This is attributable to
an increase in the number of accounts held and assets under management
primarily due to the acquisition of additional trust customers from New
First City, Texas-Austin. At December 31, 1993, the market value of trust
assets totaled $11.1 billion compared to $8.6 billion at December 31, 1992.
The 9.1 percent increase in trust income from 1991 to 1992 was due to an
increase in the number of accounts.
Service charges on deposit accounts and other service charges
increased 15.6 percent and 25.4 percent respectively when compared to 1992.
Deposit service charges and other service charges were both impacted by an
increase in activity levels and additional volumes resulting from the
acquisition. During 1992, service charges on deposit accounts increased
16.1 percent because of increased activity and lower earnings rates on
commercial checking accounts which resulted in more payments for services
through fees rather than through keeping balances.
In anticipation of implementing Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Corporation sold certain investment securities in December
1993 resulting in a gain of $1.4 million. Securities gains of $2.0 million
were realized in 1991 as $45 million in long duration mortgage pass-through
securities were sold. This allowed the Corporation to restructure a
portion of its securities portfolio into shorter term securities which have
less price sensitivity to interest rate fluctuations.
Other non-interest income increased 28.1 percent to $13,243,000 in
1993 compared to a 25.7 percent increase in 1992. The increase from 1992
was primarily due to gains on the sale of foreclosed assets and increased
brokerage commissions resulting from greater sales of mutual funds. The
25.7 percent increase in 1992 is primarily due to higher gains and income
from foreclosed assets. During 1991, other non-interest income decreased
10.9 percent from 1990 due to lower fees from third party data processing
customers and lower gains on sales of assets.
<TABLE>
<CAPTION>
Non-Interest Income
($ in thousands)
(Graphic material omitted)
Net Gain(Loss)
Year Trust Service Other Service Other on Securities
Ended Department Charges Charges Transactions
- ----- ---------- ------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
1989 $16,211 $13,290 $6,293 $14,170 $ 516
1990 18,777 15,146 7,304 9,236 129
1991 20,030 18,915 8,288 8,227 2,022
1992 21,861 21,958 7,888 10,338 (232)
1993 26,278 25,386 9,889 13,243 1,433
</TABLE>
NON-INTEREST EXPENSE
Excluding the provision for real estate losses, non-interest expense
was $170,633,000 for 1993 compared with $134,187,000 for 1992 and
$134,339,000 for 1991. This 27.2 percent increase in non-interest expense
is primarily due to a higher expense base as a result of the New First City
acquisition and $10.3 million in restructuring charges recorded during
1993. These costs include $6.7 million in net-occupancy restructuring
costs related to office downsizing and valuations of banking premises owned
resulting from the decision to sell and $3.6 million related to an early
retirement incentive program and costs related to job restructurings.
The acquisition of New First City added $5.0 million in non-recurring
costs including costs of interim data processing services, temporary
staffing and related costs.
The restructure of banking offices reflects primarily the conversion
to branching which has been put into place over the last several years
following changes in Texas banking law. The $3.6 million charge in
salaries and benefits is related to $1.9 million early retirement incentive
program costs and severance associated with job eliminations and
restructurings. The occupancy and job restructurings are expected to
reduce annual operating costs beginning in 1994 by approximately $6
million.
Page 12
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1993 1992 1991
---------------- ------------------ ---------------
Percent Percent Percent
Non-Interest Expense Amount Change Amount Change Amount Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and wages $ 53,654 + 16.2% $ 46,184 + 4.6% $ 44,154 + 2.6%
Pension and other
employee benefits 12,052 + 23.7 9,746 + 7.6 9,058 - 1.0
Net occupancy of
banking premises 21,307 + 23.2 17,294 + 2.9 16,807 - 2.1
Furniture and equipment 10,155 + 22.4 8,295 + 7.4 7,726 - 4.2
Intangible amortization 6,877 +882.4 700 +17.3 597 - 27.6
Restructuring costs 10,285 +100.0
Other 56,303 + 8.3 51,968 - 7.2 55,997 + 18.6
-------- -------- --------
170,633 +27.2 134,187 - .1 134,339 + 7.1
Provision for real
estate losses 1,445 -92.5 19,311 - 7.2 20,799 + 86.2
-------- -------- --------
Total $172,078 +12.1 $153,498 - 1.1 $155,138 + 13.5
======== ======== ========
</TABLE>
Combined salaries and employee benefits increased 17.5 percent
during 1993, excluding the $3.6 million restructuring charge. The number
of full time equivalent employees increased 7 percent primarily because of
staff needed to support the acquired customer base. Pension and other
employee benefits increased during 1993 and 1992 due to higher expenses
related to payroll taxes, medical insurance and retirement expenses. The
Corporation adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," in
the first quarter of 1993. This statement did not have a material impact
on the financial position or operations of the Corporation.
Net occupancy of banking premises increased by 23.2 percent during
1993. The increase is primarily due to costs of operating the additional
locations obtained in the acquisition. The acquisition required re-
equipping of all work stations in the additional offices. This was a
principal cause of furniture and equipment costs increasing 22.4 percent
during 1993. For 1992 net occupancy of banking premises increased 2.9
percent and furniture and equipment costs increased 7.4 percent. The
increase in furniture and equipment costs during 1992 resulted from higher
depreciation and software expense.
The provision for real estate losses was $1,445,000 in 1993, compared
with $19,311,000 and $20,799,000 in 1992 and 1991, respectively. This
reduction is due to improving asset quality and a declining volume of
foreclosed assets. See "Non-Performing Assets", page 16.
Other non-interest expense and intangible amortization increased 20.0
percent in 1993. Excluding the operating expenses of the New First City
offices and non-recurring costs incurred in acquiring these locations,
other non-interest expenses were flat when compared to 1992. An increase
in amortization of goodwill and other intangibles of $6.2 million, created
by the acquisition, was offset by lower expenses of operating foreclosed
properties and lower expenses spread throughout various categories
including insurance, attorneys' expenses, and consulting costs.
Other non-interest expense and intangible amortization decreased 6.9
percent in 1992. Excluding a $5.4 million litigation settlement in the
second quarter of 1991, other non-interest expense increased $1.5 million,
or 2.9 percent in 1992. The primary reasons for the increase were outside
computer services, FDIC insurance, and trust investment advisory
fees which were partially offset by lower attorney and other professional
expenses.
<TABLE>
<CAPTION>
Non-Interest Expense
Excluding Non-recurring Items
($ in thousands)
(Graphic material omitted)
Net Occupancy Provision
Year Salaries, Wages & Furniture and for Real Estate
Ended and Pensions Equipment Other Losses
- ----- --------------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
1989 $51,928 $25,060 $40,546 $ 8,131
1990 52,167 25,238 48,050 11,172
1991 53,212 24,533 51,194 20,799
1992 55,930 25,589 52,668 19,311
1993 64,494 31,462 59,492 1,445
</TABLE>
Page 13
<PAGE>
INCOME TAXES
Effective January 1, 1993, Cullen/Frost adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS
109 permits the recognition of deferred tax assets to a greater extent than
previously permitted. The one-time cumulative effect of adopting FAS 109
increased income by $8.4 million.
The Corporation recorded a tax benefit in 1993 of $735,000. The
effective tax rate in 1993 was affected by the reduction of the valuation
allowance for deferred tax assets established at the beginning of 1993 by
$13.5 million. The reduction of the valuation allowance was based mainly
on the level of earnings obtained in 1993, projected future earnings, and
the increase in deferred tax credits resulting from the adoption of FAS 115
at the end of 1993. No valuation allowance was considered necessary because
Cullen/Frost has $5,600,000 in recoverable taxes paid in prior years, the
future reversal of approximately $22,900,000 in taxable temporary
differences, and future income. During 1993, the Omnibus Budget
Reconciliation Act increased the corporate tax rate from 34 percent to 35
percent. The Corporation is projecting an effective tax rate for 1994
which approximates the statutory rate.
Cullen/Frost recorded income tax expense of $8,197,000 in 1992.
Additionally, the Corporation reported an extraordinary credit from
utilizing net operating loss carryforwards of $6,497,000. This resulted in
income tax expense net of the extraordinary credit of $1,700,000 for 1992.
In 1991, Cullen/Frost recorded income tax expense of $633,000.
SOURCES AND USES OF FUNDS
Average assets for 1993 of $3,512,163,000 increased by 15.0 percent
from 1992 levels and declined 1.6 percent between 1991 and 1992. Funding
sources changed little in 1993. A shift from time deposits to demand
deposits continued, and borrowed funds decreased from 1992 levels primarily
due to the conversion of $10,000,000 in subordinated debentures in February
1993.
<TABLE>
<CAPTION>
Percentage of Total Average Assets
Sources and Uses of Funds 1993 1992 1991
- ------------------------- ------- ------ ------
<S> <C> <C> <C>
Sources of Funds:
Deposits:
Demand 23.2% 21.8% 19.3%
Time 64.6 66.9 69.5
Federal funds purchased 3.7 3.4 3.8
Equity capital 7.1 6.3 5.7
Borrowed funds .1 .5 .5
Other liabilities 1.3 1.1 1.2
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
Uses of Funds:
Loans 33.0% 33.5% 37.0%
Securities 45.1 46.4 43.0
Federal funds sold 7.3 6.4 6.4
Non-earning assets 14.6 13.7 13.6
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
LOANS
Average loans for 1993 were $1,158,057,000, an increase of 13.0
percent from 1992. The increase results primarily from the first quarter
acquisition of New First City. In addition, period-end loans increased 6.3
percent between the third and fourth quarters of 1993. A several-year
decline in loan volume was reversed during 1993.
<TABLE>
<CAPTION>
Total Average Loans and Yields
($ in millions)
(Graphic material omitted)
Average Loan
Year Average Loans Yield
- ---- ------------- ------------
<S> <C> <C>
1989 $1,407 10.81%
1990 1,315 10.30
1991 1,149 9.54
1992 1,025 8.27
1993 1,158 7.88
</TABLE>
Page 14
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1993
-----------------------
Loan Portfolio
Analysis Percentage of
Period-End Balances Amount Total Loans 1992 1991 1990 1989
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Construction $ 32,297 2.6% $ 26,632 $ 24,620 $ 39,316 $ 36,289
Land 22,990 1.8 21,288 26,474 62,850 77,358
Permanent
Mortgages:
Commercial 144,122 11.6 77,347 64,605 86,934 95,193
Residential 276,148 22.1 253,471 258,303 246,101 238,838
Other 150,499 12.1 134,470 161,439 192,330 216,672
Commercial and
Industrial:
Energy 24,548 2.0 52,345 41,894 49,077 60,769
Other 286,282 22.9 204,175 241,180 305,059 361,236
Consumer 268,331 21.5 217,232 198,521 215,231 190,158
Financial
institutions 284 9,380 14,819 18,056 25,313
Foreign 31,763 2.6 17,871 31,988 29,647 29,188
Purchasing or
carrying
securities 1,204 .1 1,918 3,389 5,127 14,983
Other 17,797 1.4 7,737 21,019 35,350 38,001
Unearned
discount (8,456) (.7) (12,632) (14,854) (16,858) (14,133)
----------- ------ ---------- ---------- ---------- ----------
Total $1,247,809 100.0% $1,011,234 $1,073,397 $1,268,220 $1,369,865
=========== ====== ========== ========== ========== ==========
Percent change
from previous
year +23.4% -5.8% -15.4% -7.4% -12.4%
</TABLE>
Total real estate loans at December 31, 1993 were $626,056,000, up
22.0 percent from year-end 1992. Commercial mortgages increased
$66,775,000 or 86.3 percent. Real estate loans categorized as "other" are
primarily amortizing commercial and industrial loans with maturities less
than five years. Most are collateralized by completed, owner occupied
commercial real estate properties.
As part of the acquisition, certain commercial and commercial real
estate loans of the Austin operation are protected by a loss-sharing
arrangement with the Federal Deposit Insurance Corporation (the "FDIC").
Losses are shared 80 percent to the FDIC and 20 percent to the Corporation.
At December 31, 1993 these loans approximated $42 million.
Of the real estate loans outstanding at year end, the geographic
concentrations were San Antonio, 68 percent; Houston/Galveston, 16 percent;
Austin, 10 percent; and Dallas, 5 percent. Amortizing permanent mortgages
represented 67.1 percent of the total real estate loan portfolio at year
end.
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1993 1992
----------------------------------------------------
Real Estate Loans Percentage of Percentage of
Period-End Balances Amount Real Estate Loans Amount Real Estate Loans
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Construction $ 32,297 5.2% $ 26,632 5.2%
Land 22,990 3.7 21,288 4.1
Permanent mortgages:
Commercial 144,122 23.0 77,347 15.1
Residential 276,148 44.1 253,471 49.4
Other 150,499 24.0 134,470 26.2
-------- ------ -------- ------
Total $626,056 100.0% $513,208 100.0%
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------
1991
--------------------------
Real Estate Loans Percentage of
Period-End Balances Amount Real Estate Loans
- --------------------------------------------------
<S> <C> <C>
Construction $ 24,620 4.6%
Land 26,474 4.9
Permanent mortgages:
Commercial 64,605 12.1
Residential 258,303 48.2
Other 161,439 30.2
-------- ------
Total $535,441 100.0%
======== ======
</TABLE>
Page 15
<PAGE>
MEXICAN LOANS
At December 31, 1993, the Corporation's cross-border outstandings,
excluding $16,326,000 in loans secured by liquid U.S. assets, totaled
$15,437,000 up from $1,301,000 last year. This increase reflects the
expansion in trade-related debt in connection with the continuing
confidence in the Mexican economy.
During the first quarter of 1992, the Corporation sold its $9,694,000
par bonds which had been received in 1990 under the Brady Mexican debt
exchange. The par bonds were sold for $6,017,000 and resulted in a charge-
off of $3,677,000.
<TABLE>
<CAPTION>
December 31
------------------------------------------
1993
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $ 15,384 1.2% .4%
Commercial and industrial 53
-------- ---- ----
Total $ 15,437 1.2% .4%
======== ==== ====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1992
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $1,000 .1% %
Commercial and industrial 301
------ --- ---
Total $1,301 .1% %
======= === ===
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1991
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $1,500 .2% .1%
Commercial and industrial 410
------ --- ---
Total $1,910 .2% .1%
====== === ===
</TABLE>
The above tables exclude $16,326,000, $16,570,000 and $20,384,000 in loans
secured by liquid assets held in the United States in 1993, 1992 and 1991,
respectively.
NON-PERFORMING ASSETS
Non-performing assets were down 39.4 percent to $31,110,000 at
December 31, 1993, compared with $51,303,000 at December 31, 1992 and
$100,642,000 at December 31, 1991. Non-performing assets as a percentage
of total loans and foreclosed assets decreased to 2.47 percent at December
31, 1993 down from 4.94 percent one year ago.
As part of the acquisition of New First City-Austin, 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 December 31, 1993, non-performing assets covered by the
loss-sharing arrangement totaled $1,503,000. These assets are included in
total non-performing assets at $128,000 which represents the carrying value
net of loss-sharing coverage and associated discount.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
NON-PERFORMING ASSETS 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $17,171 $ 23,117 $ 36,172 $ 52,557 $ 59,223
Restructured loans 556 31 313 178 17,170
Foreclosed assets 13,383 28,155 64,157 69,130 55,340
------- -------- -------- -------- -------
Total $31,110 $ 51,303 $100,642 $121,865 $131,733
======= ======== ======== ======== ========
As a percentage of
total assets .85% 1.63% 3.27% 3.74% 3.76%
As a percentage of
total loans plus
foreclosed assets 2.47% 4.94% 8.85% 9.11% 9.24%
After-tax impact of lost
interest per common share $ .20 $ .39 $ .78 $ .92 $ .99
Accruing loans 90 days
past due:
Consumer $ 765 $ 414 $ 1,378 $ 1,403 $ 1,706
All other 3,827 1,431 7,177 4,410 7,502
------- -------- -------- -------- -------
Total $ 4,592 $ 1,845 $ 8,555 $ 5,813 $ 9,208
======= ======== ======== ======== ========
</TABLE>
Interest income that would have been recorded in 1993 on non-performing
assets, had such assets performed in accordance with their original contract
terms, was $1,394,000 on non-accrual and restructured loans and $2,487,000
on foreclosed assets. During 1993, the amount of interest income actually
recorded on non-accrual and restructured loans was $57,000 and $315,000 on
foreclosed assets.
<TABLE>
<CAPTION>
Non-Performing Assets
($ in millions)
(Graphic material omitted)
Non-Accrual and Foreclosed
Year Restructured Assets
- ---- --------------- ----------
<S> <C> <C>
1989 $77 $55
1990 53 69
1991 37 64
1992 23 28
1993 18 13
</TABLE>
Page 16
<PAGE>
<TABLE>
<CAPTION>
Changes in Non-Performing Assets December 31, 1993
- -----------------------------------------------------------------------
<S> <C>
Balance at beginning of period $ 51,303
Additions 5,080
Payments and sales (20,983)
Provision for real estate losses (1,375)
Loan charge-offs (2,245)
Other (670)
---------
Net Change (20,193)
---------
Balance at end of period $ 31,110
=========
</TABLE>
Real estate related non-performing assets were $28,938,000 (93.0
percent of total non-performing assets) at December 31, 1993, compared with
$47,029,000 (91.7 percent of total non-performing assets) at December 31,
1992. Non-performing real estate assets represented 4.5 percent of all
real estate loans and foreclosed real estate assets at December 31, 1993
compared to 8.7 percent at the end of 1992.
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------
Non-Performing Assets
Classified by Industry Real Estate Other Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual $15,109 $2,062 $17,171
Restructured loans 496 60 556
Foreclosed assets 13,333 50 13,383
------- ------ -------
Total $28,938 $2,172 $31,110
======= ====== =======
Accruing loans 90 days past due $ 3,283 $1,309 $ 4,592
</TABLE>
Loans 90 days past due in the "other" category include $89,000 in foreign
loans. Foreclosed assets include $9,950,000 of in-substance foreclosures
at December 31, 1993.
Loans to a customer whose financial condition has deteriorated are
considered for non-accrual status whether or not the loan is 90 days or
more past due. All non-consumer loans 90 days or more past due are
classified as non-accrual unless the loan is well secured and in the
process of collection. When a loan is placed on non-accrual status,
interest income is not recognized until collected, and any previously
accrued but uncollected interest is reversed. Classification of an asset
in the non-performing category does not preclude ultimate collection of
loan principal or interest.
Restructured loans have been modified as to original terms, resulting
in a reduction or deferral of principal and/or interest as a concession to
the debtor and are accounted for in accordance with Statement of Financial
Accounting Standards No. 15.
Foreclosed assets consist of property which has been formally
repossessed and those considered in-substance foreclosed even though formal
repossession has not occurred. An in-substance foreclosure will generally
occur when all of the following conditions are met:(1) the debtor has
little or no equity in the collateral, (2) repayment proceeds can only be
expected from the operation or sale of the collateral, and (3) the debtor
has either formally or effectively abandoned control of the collateral or
it is doubtful the debtor will be able to build equity in the collateral or
otherwise repay the loan.
When property is acquired through foreclosure, it is valued at the
lower of the loan balance or its estimated fair value less estimated costs
to sell. Write-downs occurring at acquisition are charged against the
allowance for possible loan losses. On an on-going basis, properties are
appraised as required by applicable regulations. Write-downs or allowances
are provided for subsequent declines in value.
The provision for real estate losses was $1,445,000 for the year ended
December 31, 1993 compared with $19,311,000 and $20,799,000 for 1992 and
1991, respectively. Expenses related to maintaining foreclosed properties
are included in non-interest expense.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Foreclosed Assets 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Foreclosed assets $ 13,383 $28,155 $64,157
Provision for real estate losses 1,445 19,311 20,799
Foreclosed assets expense 3,102 5,666 5,209
</TABLE>
Foreclosed assets expenses include operating expenses such as property
taxes, insurance, maintenance costs, and allocations for salaries and
benefits, net occupancy, and furniture and fixtures.
At December 31, 1993, the Corporation had $3,497,000 in loans to
borrowers experiencing financial difficulties which had not been included
in either non-accrual, restructured or 90 days past due loans. Management
monitors such loans closely and reviews their performance on a regular
basis.
Page 17
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At December 31, 1993, the allowance for possible loan losses was
$26,298,000 or 2.11 percent of period-end loans compared with $31,897,000
or 3.15 percent of period-end loans at year-end 1992. The allowance for
possible loan losses as a percentage of non-accrual and restructured loans
was 148.3 percent at December 31, 1993, up from 137.8 percent at December
31, 1992.
During 1993, the Corporation recorded a credit to the provision for
possible loan losses of $6,085,000 primarily reflecting improvements in
credit quality and better real estate market conditions. This compares to
a credit to the provision for possible loan losses of $850,000 during 1992
and a provision for possible loan losses of $10,020,000 for 1991. In 1992,
the negative provision for possible loan losses occurred because of
decreases in net charge-offs and improvements in asset quality.
The Corporation recorded net recoveries of $486,000 for the year
ended December 31, 1993, compared to net charge-offs of $9,640,000 for 1992
and $13,237,000 for 1991. During the first quarter of 1992, the
Corporation sold $9.7 million of par bonds received during the 1990 Brady
Mexican debt exchange. The sale resulted in a charge-off of $3,677,000
which is included in the "other" category.
<TABLE>
<CAPTION>
Year Ended December 31
Allowance for ------------------------------------------------------
Possible Loan Losses 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding
during year, net of
unearned discount $1,158,057 $1,024,885 $1,149,233 $1,314,907 $1,406,773
========== ========== ========== ========== ==========
Balance of allowance
for possible loan
losses at beginning
of year $ 31,897 $ 42,387 $ 45,604 $ 42,282 $ 40,702
Allowance of acquired
banks 810
Provision (credit) for
possible loan losses (6,085) (850) 10,020 31,993 28,902
Charge-offs:
Real estate (3,481) (6,381) (10,587) (12,664) (17,148)
Commercial and
industrial (1,287) (4,057) (5,625) (13,499) (8,497)
Energy (4) (56) (2,380)
Consumer (3,369) (3,217) (3,395) (3,602) (3,411)
Other, including
foreign (63) (3,828) (1,973) (5,230) (3,518)
---------- ---------- --------- ---------- ----------
Total charge-offs (8,200) (17,487) (21,636) (34,995) (34,954)
---------- ---------- --------- ---------- ----------
Recoveries:
Real estate 2,412 2,034 2,530 1,641 1,109
Commercial and
industrial 3,567 3,634 3,633 2,182 3,093
Energy 10 149 58 722 1,288
Consumer 2,237 1,852 1,389 1,147 1,084
Other, including
foreign 460 178 789 632 248
---------- ---------- ---------- ---------- ----------
Total recoveries 8,686 7,847 8,399 6,324 6,822
---------- ---------- ---------- ---------- ----------
Net (charge-offs) recoveries 486 (9,640) (13,237) (28,671) (28,132)
---------- ---------- ---------- ---------- ----------
Balance of allowance for
possible loan losses
at end of year $ 26,298 $ 31,897 $ 42,387 $ 45,604 $ 42,282
========== ========= ========= ========== =========
Net (charge-offs) recoveries
as a percentage of average
loans outstanding during
the year, net of unearned
discount .04% (0.94)% (1.15)% (2.18)% (2.00)%
Allowance for possible loan
losses as a percentage of
year-end loans, net of
unearned discount 2.11% 3.15% 3.95% 3.60% 3.09%
</TABLE>
There were no foreign charge-offs in 1993 or 1991. There were $3,677,000
in foreign charge-offs in 1992 all relating to Brady Bonds (see page 16).
Foreign activity includes net recoveries of $379,000 in 1990 and net charge-
offs of $1,339,000 in 1989. Other charge-offs for 1990 of $5,230,000
included $4,833,000 in bank stock charge-offs.
Page 18
<PAGE>
<TABLE>
<CAPTION>
Allowance for Possible Loan Losses and Allowance to Year-End Loans
($ in thousands)
(Graphic material omitted)
Year Allowance For Possible Allowance to Allowance to Non-
Ended Loan Losses Year-End Loans Performing Loans
- ----- ---------------------- --------------- -----------------
<S> <C> <C> <C>
1989 $42,282 3.09% 55.3%
1990 45,604 3.60 86.5
1991 42,387 3.95 116.2
1992 31,897 3.15 137.8
1993 26,298 2.11 148.3
</TABLE>
The combined net provision for possible loan losses and real estate
losses for 1993 was a credit of $4,640,000 compared with a provision of
$18,461,000 and $30,819,000 for the years ended December 31, 1992 and 1991,
respectively.
<TABLE>
<CAPTION>
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Provision (credit) for possible loan losses $ (6,085) $ (850) $10,020
Provision for real estate losses 1,445 19,311 20,799
-------- ------- -------
Total provisions (credits) $ (4,640) $18,461 $30,819
======== ======= =======
</TABLE>
The provision for possible loan losses has continued to decline as
trends in the loan portfolio have improved. The provision for real estate
losses decreased $17,866,000 or 92.5 percent from 1992. During 1993, the
provision for real estate losses decreased significantly because the number
and dollar value of foreclosed properties had been reduced. Additionally,
real estate values began to stabilize.
During May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan." The standard addresses the accounting
for impairment of loans by specifying how allowances for certain loans
should be determined and the accounting for in-substance foreclosures.
This standard is effective for fiscal years beginning after December 15,
1994. The Corporation has not yet determined the impact the adoption of
this standard will have on its financial statements.
Management has established credit policies and procedures designed to
manage exposure to credit risks. These are monitored through periodic
reviews of individual credits in light of economic conditions, business
trends, and the risks in specific industries and individual loans. Formal
internal loan review examinations are also conducted by the Corporation.
Compliance with concentration levels and standards, policies and procedures
is also monitored.
Loans identified as losses by management, internal loan review and/or
bank examiners are charged-off. Exceptions are installment and credit card
loans which are charged-off based on past-due status.
An allowance for possible loan losses is maintained at each bank in an
amount which, in management's judgment, provides an adequate reserve to
absorb possible loan losses. Industry concentrations, specific credit
risks, loan loss experience, current loan portfolio quality, economic,
political and regulatory conditions and other pertinent factors are all
considered in determining the adequacy of the allowance.
Page 19
<PAGE>
An audit committee of non-management directors reviews the adequacy of
the allowance for possible loan losses quarterly. The following table
reflects the consolidated allocation of the allowance by loan type.
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1993 1992
----------------------- ------------------------
Allowance As a Allowance As a
for Percentage for Percentage
Possible of Possible of
Allocation of Allowance Loan Total Loan Total
for Possible Loan Losses Losses Loans Losses Loans
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial,
including energy $ 3,453 .28% $ 3,752 .37%
Real estate 10,432 .84 14,069 1.39
Consumer 6,756 .54 5,238 .52
Purchasing or carrying securities 3 59
Financial institutions 8 123 .01
Other, including foreign 332 .03 498 .05
Not allocated 5,314 .42 8,158 .81
---------- ----- ------- -----
Total $26,298 2.11% $31,897 3.15%
========== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1991 1990
----------------------- ------------------------
Allowance As a Allowance As a
for Percentage for Percentage
Possible of Possible of
Allocation of Allowance Loan Total Loan Total
for Possible Loan Losses Losses Loans Losses Loans
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial,
including energy $ 4,970 .46% $11,238 .89%
Real estate 17,725 1.65 13,985 1.10
Consumer 3,212 .30 5,284 .42
Purchasing or carrying securities 7 201 .02
Financial institutions 197 .02 1,300 .10
Other, including foreign 1,152 .11 364 .03
Not allocated 15,124 1.41 13,232 1.04
------- ----- ------- -----
Total $42,387 3.95 $45,604 3.60%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1989
-----------------------
Allowance As a
for Percentage
Possible of
Allocation of Allowance Loan Total
for Possible Loan Losses Losses Loans
- --------------------------------------------------------
<S> <C> <C>
Commercial and industrial,
including energy $10,799 .79%
Real estate 14,791 1.08
Consumer 2,563 .19
Purchasing or carrying securities 1,110 .08
Financial institutions 4,178 .30
Other, including foreign 5,475 .40
Not allocated 3,366 .25
------- -----
Total $42,282 3.09
======= =====
</TABLE>
Allocation of a portion of the allowance does not preclude its
availability to absorb losses in other categories. The unallocated portion
of the allowance represents an additional amount, beyond that specifically
reserved for identified risk, available to absorb unidentified losses in
the current loan portfolio.
SECURITIES
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. The adoption of this standard did not
impact earnings but had the effect of increasing shareholders' equity by
$9.1 million.
As loan volumes declined, securities became the largest component of
earning assets. Total securities including securities available for sale
were $1,611,871,000 at year-end 1993. Securities available for sale
totaled $614,476,000 at December 31, 1993. The securities available for
sale consist primarily of U.S. Treasury securities and obligations of U.S.
Government agencies. The remaining securities, also consisting primarily
of U.S. Treasury and U.S. Government agency obligations, are classified as
securities held for investment and are carried at amortized cost.
Debt securities are classified as held to maturity when the
Corporation has the positive intent and ability to hold the securities to
maturity. Held to maturity securities are stated at amortized cost.
Securities not classified as held to maturity are classified as available
for sale. Available for sale securities are stated at fair value, with
unrealized gains and losses, net of tax, reported in a separate component
of shareholders' equity.
The average yield of the securities portfolio for the year ended
December 31, 1993 was 5.78 percent compared with 7.03 percent for 1992.
Higher-yielding securities continue to mature and, given the current rate
environment, are being replaced with lower- yielding securities.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1993 1992 1991
--------------------- --------------------- ---------------------
Period-end Percentage Period-end Percentage Period-end Percentage
Securities Balance of Total Balance of Total Balance of Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 285,068 17.7% $ 666,133 47.1% $ 511,994 35.5%
U.S. Government
agencies and
corporations 1,280,915 79.5 665,222 47.0 761,372 52.9
States and political
subdivisions 7,216 .4 13,670 1.0 44,252 3.1
Other 38,672 2.4 68,940 4.9 121,807 8.5
---------- ------ ---------- ------ ---------- ------
Total $1,611,871 100.0% $1,413,965 100.0% $1,439,425 100.0%
========== ====== ========== ====== ========== ======
Average yield
earned during
the year (taxable-
equivalent basis) 5.78% 7.03% 8.41%
</TABLE>
Page 20
<PAGE>
DEPOSITS
Total deposits for 1993 averaged $3,083,750,000, up 13.8 percent from
the average for 1992. The increase in average total deposits results from
the first quarter acquisition and strong growth trends in demand deposits.
Total average demand deposits increased 22.7 percent from 1992. Deposits
from public funds and commercial and individual increased 24.3 percent and
27.5 percent from 1992, respectively.
<TABLE>
<CAPTION>
Total Deposits
($ in millions)
(Graphic material omitted)
Average Average Average
Year Demand Time Total Cost of Time
Ended Deposits Deposits Deposits Deposits
- ----- -------- -------- ---------- ------------
<S> <C> <C> <C> <C>
1989 $542,125 $2,320,415 $2,862,540 6.92%
1990 576,348 2,291,367 2,867,715 6.43
1991 599,439 2,158,481 2,757,920 5.34
1992 665,528 2,045,169 2,710,697 3.36
1993 816,446 2,267,304 3,083,750 2.56
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
------------------ ------------------ -------------------
Average Percent Average Percent Average Percent
Demand Deposits Balance Change Balance Change Balance Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
individual $631,363 +27.5% $495,199 + 8.3% $457,266 + .4%
Correspondent
banks 143,008 + 4.8 136,487 +22.4 111,542 +10.9
Public Funds 42,075 +24.3 33,842 +10.5 30,631 +49.6
-------- -------- --------
Total $816,446 +22.7 $665,528 +11.0 $599,439 + 4.0
======== ======== ========
</TABLE>
Total average time deposits increased 10.9 percent from 1992 with the
largest dollar increase coming from savings and Interest-on-Checking. Time
accounts of $100,000 or more continued to decrease, down 19.0 percent from
1992 due to the continued low rate environment.
<TABLE>
<CAPTION>
1993 1992 1991
------------------ ------------------ -------------------
Average Percent Average Percent Average Percent
Time Deposits Balance Change Balance Change Balance Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings and Interest-
on-Checking $ 750,386 +38.7% $ 541,191 +14.3% $ 473,485 + 9.5%
Money market
deposit accounts 534,814 +11.9 477,877 +10.8 431,141 - 1.0
Time accounts of
$100,000 or more 375,322 -19.0 463,509 -21.7 591,701 - 17.4
Time accounts under
$100,000 531,803 +10.1 482,971 -12.8 554,024 - 3.6
Public funds 74,979 - 5.8 79,621 -26.4 108,130 - 18.8
---------- ---------- ----------
Total $2,267,304 +10.9 $2,045,169 - 5.2% $2,158,481 - 5.8%
========== ========== ==========
</TABLE>
Mexico is a part of the natural trade territory of the banking
subsidiaries of Cullen/Frost; thus foreign deposits from Mexican sources
have traditionally been a significant source of funding. These balances
have decreased as the investment climate in Mexico has improved.
<TABLE>
<CAPTION>
Foreign Deposits 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Average balance $505,746 $529,018 $613,672
Percentage of total average deposits 16.4% 19.5% 22.3%
</TABLE>
Page 21
<PAGE>
SHORT-TERM BORROWINGS
The Corporation's primary source of short-term borrowings is Federal
funds purchased from correspondent banks and securities sold under
repurchase agreements in the natural trade territories of the Cullen/Frost
subsidiary banks. These funds are generally resold in the national Federal
funds market.
<TABLE>
<CAPTION>
1993 1992 1991
---------------- ---------------- ----------------
Average Average Average Average Average Average
Federal Funds Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and
securities purchased
under resale agreements $255,613 3.02% $195,398 3.43% $197,467 5.81%
Federal funds purchased
and securities sold
under repurchase
agreements 131,096 2.52 102,550 3.06 116,281 5.08
-------- -------- --------
Net funds sold position $124,517 $ 92,848 $ 81,186
======== ======== ========
</TABLE>
Other funding sources include a $7,500,000 short-term line of credit
to the parent Corporation used for short-term liquidity needs. There were
no borrowings outstanding from this source at December 31, 1993 and 1992.
CAPITAL
At December 31, 1993, shareholders' equity reached the highest level
in the Corporation's history, $273,533,000, an increase of 32.7 percent
from $206,144,000 at December 31, 1992. In addition to earnings growth,
this is partially due to the first quarter conversion of the Corporation's
9.75 percent convertible subordinated debentures, which increased equity
capital by $10,000,000. Also, on December 31, 1993, the Corporation
adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (See page 20).
Conforming to this accounting standard had the effect of increasing
shareholders' equity by $9.1 million.
During the first quarter of 1993, the Corporation paid a 10% stock
dividend and in the fourth quarter paid a cash dividend of $.15 per common
share. Cash dividends had been suspended since the first quarter of 1987.
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 December 31, 1993 and December 31, 1992.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- ------------------
Risk-Based Capital Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 221,436 14.23% $ 199,936 15.66%
Tier 1 Capital Minimum requirement 62,232 4.00 51,075 4.00
Total Capital $ 240,968 15.49% $ 223,738 17.52%
Total Capital Minimum requirement 124,463 8.00 102,149 8.00
Risk-adjusted assets, net of goodwill $1,555,789 $1,276,865
Leverage Ratio 6.24% 6.43%
</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 6.24 percent and 6.43 percent at December 31, 1993 and
December 31, 1992, respectively.
In December of 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") established five capital tiers.
Effective December 16, 1992, federal banking agencies adopted final rules
relating to these tiers. At December 31, 1993 the Corporation was "well
capitalized" as defined by FDICIA, the highest rating. 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 capital level for any capital measure.
Page 22
<PAGE>
PARENT CORPORATION
Historically, a large portion of the parent Corporation's income which
provides funds for the payment of dividends to shareholders and for other
corporate purposes has been derived from Cullen/Frost's investments in
subsidiaries. Dividends received from the subsidiaries are based upon each
bank's earnings and capital position. See Note K-Dividends on page 34.
Management fees are not assessed.
NON-BANKING SUBSIDIARIES
Cullen/Frost has two principal non-banking subsidiaries. Main Plaza
Corporation holds real estate for future expansion of Cullen/Frost's bank
subsidiaries and occasionally makes loans to qualified borrowers. Such
loans are typically funded with borrowings against Cullen/Frost's current
cash or borrowing against credit lines. Daltex General Agency, Inc., a
managing general insurance agency, provides vendor's single interest
insurance for Cullen/Frost subsidiary banks.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Cullen/Frost Bankers, Inc. is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and include amounts based on management's estimates and judgment
where appropriate. Financial information appearing throughout this annual
report is consistent with the financial statements.
In meeting its responsibility both for the integrity and fairness of
these financial statements and information, management depends on the
accounting systems and related internal accounting controls that are
designed to provide reasonable assurances that transactions are authorized
and recorded in accordance with established procedures and that assets are
safeguarded and that proper and reliable records are maintained.
The concept of reasonable assurance is based on the recognition that
the cost of a system of internal controls should not exceed the related
benefits. As an integral part of the system of internal controls,
Cullen/Frost maintains an internal audit staff which monitors compliance
with and evaluates the effectiveness of the system of internal controls and
coordinates audit coverage with the independent auditors.
The Audit Committee of Cullen/Frost's Board of Directors, which is
composed entirely of directors independent of management, meets regularly
with management, regulatory examiners, internal auditors, the asset review
staff and independent auditors to discuss financial reporting matters,
internal controls, internal auditing and the nature, scope and results of
the audit efforts. Internal Audit and Asset Review report directly to the
Audit Committee. The banking regulators, internal auditors and independent
auditors have direct access to the Audit Committee.
The consolidated financial statements have been audited by Ernst &
Young, independent auditors, who render an independent opinion on
management's financial statements. Their appointment was recommended by
the Audit Committee and approved by the Board of Directors and by the
shareholders. The audit by the independent auditors provides an additional
assessment of the degree to which Cullen/Frost's management meets its
responsibility for financial reporting. Their opinion on the financial
statements is based on auditing procedures, which include their
consideration of the internal control structure and performance of selected
tests of transactions and records, as they deem appropriate. These
auditing procedures are designed to provide an additional reasonable level
of assurance that the financial statements are fairly presented in all
material respects.
/s/ T.C. FROST /s/ ROBERT S. McCLANE
T.C. Frost Robert S. McClane
Chairman President and Chief
Administrative Officer
/s/ RICHARD W. EVANS, JR. /s/ PHILLIP D. GREEN
Richard W. Evans, Jr. Phillip D. Green
Chief Banking Officer Executive Vice President
and Treasurer
Page 23
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
Year Ended December 31
-----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 90,756 $ 84,074 $108,617
Securities:
Taxable 90,447 98,389 108,881
Tax-exempt 698 799 2,251
-------- -------- --------
Total securities 91,145 99,188 111,132
Time deposits 4 8 13
Federal funds sold and securities
purchased under resale agreements 7,714 6,711 11,478
-------- -------- --------
Total Interest Income 189,619 189,981 231,240
Interest expense:
Deposits 58,079 68,807 115,286
Federal funds purchased and securities
sold under repurchase agreements 3,304 3,139 5,913
Long-term notes payable and other borrowings 410 1,378 1,527
-------- -------- --------
Total Interest Expense 61,793 73,324 122,726
-------- -------- --------
Net Interest Income 127,826 116,657 108,514
Provision (credit) for possible loan losses (6,085) (850) 10,020
-------- -------- --------
Net Interest Income After Provision
(Credit) For Possible Loan Losses 133,911 117,507 98,494
Non-interest income:
Trust department 26,278 21,861 20,030
Service charges on deposit accounts 25,386 21,958 18,915
Other service charges, collection and
exchange charges, commissions and fees 9,889 7,888 8,288
Net gain (loss) on securities transactions 1,433 (232) 2,022
Other 13,243 10,338 8,227
-------- -------- --------
Total Non-Interest Income 76,229 61,813 57,482
Non-interest expense:
Salaries and wages 53,654 46,184 44,154
Pension and other employee benefits 12,052 9,746 9,058
Net occupancy of banking premises 21,307 17,294 16,807
Furniture and equipment 10,155 8,295 7,726
Provision for real estate losses 1,445 19,311 20,799
Restructuring costs 10,285
Other 63,180 52,668 56,594
-------- -------- --------
Total Non-Interest Expense 172,078 153,498 155,138
-------- -------- --------
Income Before Income Taxes (Credits),
Extraordinary Credit and Cumulative
Effect of Accounting Change 38,062 25,822 838
Income taxes (credits) (735) 8,197 633
-------- -------- --------
Income before extraordinary credit and cumulative
effect of accounting change 38,797 17,625 205
Extraordinary Credit-income tax benefit 6,497
Cumulative effect of change in accounting
for income taxes 8,439
-------- -------- --------
Net Income $ 47,236 $ 24,122 $ 205
======== ======== ========
Per share
Income before extraordinary credit and
cumulative effect of accounting change-
Primary $ 3.48 $ 1.66 $ .02
Fully diluted 3.48 1.66 .02
Net income-
Primary 4.24 2.26 .02
Fully diluted 4.24 2.25 .02
See notes to consolidated financial statements.
</TABLE>
Page 24
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
December 31
-----------------------
1993 1992
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 334,564 $ 296,270
Time deposits 147 153
Securities held to maturity (market value:
1993-$1,013,712;1992-$1,085,174) 997,395 1,045,554
Securities available for sale 614,476 368,411
Federal funds sold and securities purchased under
resale agreements 250,250 282,630
Loans, net of unearned discount of $8,456 in 1993
and $12,632 in 1992 1,247,809 1,011,234
Less: Allowance for possible loan losses (26,298) (31,897)
---------- ----------
Net loans 1,221,511 979,337
Banking premises and equipment 86,676 82,372
Accrued interest and other assets 134,028 96,144
---------- ----------
Total Assets $3,639,047 $3,150,871
========== ==========
Liabilities
Demand deposits:
Commercial and individual $ 705,786 $ 599,078
Correspondent banks 129,106 125,216
Public funds 46,200 41,909
---------- ----------
Total demand deposits 881,092 766,203
Time deposits:
Savings and Interest-on-Checking 800,161 612,137
Money market deposit accounts 527,230 492,882
Time accounts 860,642 857,819
Public funds 80,303 40,451
---------- ----------
Total time deposits 2,268,336 2,003,289
---------- ----------
Total deposits 3,149,428 2,769,492
Federal funds purchased and securities sold under
repurchase agreements 166,519 122,221
Long-term notes payable -- 13,400
Accrued interest and other liabilities 49,567 39,614
---------- ----------
Total Liabilities 3,365,514 2,944,727
Shareholders' Equity
Common stock, par value $5 per share 55,046 52,061
Shares authorized: 1993-30,000,000;1992-30,000,000
Shares outstanding: 1993-11,009,198;1992-10,412,184
Surplus 113,385 102,042
Retained earnings 95,978 52,041
Unrealized gain on securities available for sale 9,124 --
---------- ----------
Total Shareholders' Equity 273,533 206,144
---------- ----------
Total Liabilities and Shareholders' Equity $3,639,047 $3,150,871
========== ==========
See notes to consolidated financial statements.
</TABLE>
Page 25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Year Ended December 31
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 47,236 $ 24,122 $ 205
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (credit) for possible loan losses (6,085) (850) 10,020
Provision for real estate losses 1,445 19,311 20,799
Credit for deferred taxes (6,364) -- --
Extraordinary credit from utilization of net
operating loss carryforward (6,497)
Accretion of discounts on loans (8,615) (9,329) (10,420)
Accretion of securities' discounts (2,602) (2,853) (2,844)
Amortization of securities' premiums 5,678 5,819 3,602
Net realized loss(gain) on securities
transactions (1,433) 232 (2,022)
Net gain on sale of assets (3,443) (1,846) (832)
Depreciation and amortization 16,766 8,797 7,516
Decrease in accrued interest receivable 1,624 6,325 2,570
Increase (decrease)in accrued interest payable 160 (3,434) (3,538)
Restructuring accrual 7,715
Cumulative effect of change in accounting
principle (8,439)
Net change in other assets and
liabilities (634) 15,110 7,481
--------- --------- ---------
Net cash provided by operating activities 43,009 54,907 32,537
Investing Activities
Proceeds from sales of securities
held to maturity 101,309 62,846 75,960
Proceeds from maturities of securities
held to maturity 483,153 778,924 345,431
Purchases of securities
held to maturity (900,825) (819,507) (622,601)
Proceeds from sales of securities
available for sale 101,181
Proceeds from maturities of securities
available for sale 778,066
Purchases of securities available for sale (688,504)
Net (increase) decrease in loan portfolio (64,638) 60,155 144,183
Proceeds from sales of equipment 4,167 1,500 772
Purchases of premises and equipment (13,326) (11,679) (10,361)
Proceeds from sales of repossessed properties 4,775 6,594 11,520
Net cash and cash equivalents received from
bank acquisition 183,131 -- --
--------- --------- ---------
Net cash provided (used) by investing
activities (11,511) 78,833 (55,096)
Financing Activities
Net increase in demand deposits, IOC accounts,
and savings accounts 108,968 198,183 56,246
Net decrease in certificates of deposit (175,267) (194,725) (167,807)
Net increase (decrease) in Federal funds pur-
chased and securities sold under repurchase
agreements 43,605 34,165 (52,578)
Principal payments on long-term debt (3,400) (1,268) (1,612)
Proceeds from employee stock purchase plan
and options 2,154 3,875 2,312
Dividends paid (1,650)
--------- --------- ---------
Net cash provided (used) by financing
activities (25,590) 40,230 (163,439)
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents 5,908 173,970 (185,998)
Cash and cash equivalents at beginning of
year 579,053 405,083 591,081
--------- --------- ---------
Cash and cash equivalents at end of year $ 584,961 $ 579,053 $ 405,083
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
Page 26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
CULLEN/FROST BANKERS, INC.
(dollars in thousands)
Unrealized
Gain on
Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $44,324 $65,452 $63,666 $173,442
Net Income for 1991 205 205
Proceeds from employee stock purchase
plan and options 1,224 1,088 2,312
Loan payments from employee stock
ownership plan 200 200
Issuance of restricted stock 106 148 254
Restricted stock plan deferred
compensation, net (191) (191)
------- ------- ------- ------- -------
Balance at December 31, 1991 45,654 66,688 63,880 176,222
Net Income for 1992 24,122 24,122
Proceeds from employee stock purchase
plan and options 1,674 2,201 (69) 3,806
Tax benefit related to exercise of
stock options 1,680 1,680
Loan payments from employee stock
ownership plan 200 200
Restricted stock plan deferred
compensation expense 114 114
Effect of ten percent stock dividend 4,733 31,473 (36,206)
------- -------- ------- -------- -------
Balance at December 31, 1992 52,061 102,042 52,041 206,144
Net Income for 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
Issuance of restricted stock 25 152 177
Loan payments from employee stock
ownership plan 200 200
Restricted stock plan deferred
compensation, 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
======= ======== ======= ====== ========
See notes to consolidated financial statements.
</TABLE>
Page 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cullen/Frost Bankers, Inc. and Subsidiaries
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The accounting and reporting policies followed by Cullen/Frost
Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the "Corporation") are in
accordance with generally accepted accounting principles and conform to
general practices within the banking industry. The more significant
accounting and reporting policies are summarized below.
Basis of Presentation - The consolidated financial statements include
the accounts of Cullen/Frost and its wholly-owned subsidiaries. Condensed
parent company financial statements reflect investments in subsidiaries
using the equity method of accounting. All significant intercompany
balances and transactions have been eliminated in consolidation.
Securities - Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115 ("SFAS 115"). Under
this pronouncement, management determines the appropriate classification of
securities at the time of purchase and reevaluates such designation as of
each balance sheet date. If the securities are purchased with the intent
and the Corporation has the ability to hold the securities until maturity,
they are classified as securities held to maturity and carried at amortized
historical cost. Securities to be held for indefinite periods of time are
classified as available for sale and stated at fair value, with the
unrealized gains and losses net of tax, reported in a separate component of
shareholders' equity. The adjusted carrying value of the specific security
sold is used to compute gain or loss on the sale of securities. Prior to
the adoption of SFAS 115, securities available for sale were carried at the
lower of cost or market value.
Loans - Interest on loans is accrued and accreted to operations based
on the principal amount outstanding. Interest on certain consumer loans is
recognized over their respective terms using a method which approximates
the interest method. Generally, loans are placed on a non-accrual status
if principal or interest payments become 90 days past due and/or management
deems the collectability of the principal and/or interest to be in
question. Once interest accruals are discontinued, uncollected interest is
charged to current year operations. Loans which are determined to be
uncollectible are charged to the allowance for possible loan losses. The
collectability of loans is continually reviewed by management.
Allowance for Possible Loan Losses - The allowance for possible loan
losses is established through a provision for possible loan losses charged
to current operations. The amount maintained in the allowance reflects
management's continuing assessment of the potential losses inherent in the
portfolio based on evaluations of industry concentrations, specific credit
risks, loan loss experience, current loan portfolio quality, and antic-
ipated economic, political and regulatory conditions.
Foreclosed Assets - Foreclosed assets consist of property which has
been formally repossessed and that which is considered in-substance
foreclosed even though formal repossession has not occurred. An in-
substance foreclosure will occur when all of the following conditions are
met: (1) the debtor has little or no equity in the collateral, (2)
repayment proceeds can only be expected from the operation or sale of the
collateral, and (3) the debtor has either formally or effectively abandoned
control of the collateral or it is doubtful the debtor will be able to
build equity in the collateral or otherwise repay the loan. In-substance
foreclosures are accounted for in the same manner as property which has
been formally repossessed. Collateral obtained through foreclosure or
loans considered to be in-substance foreclosures are recorded at the lower
of fair value less estimated selling costs or the underlying loan amounts.
Write-downs or allowances are provided for subsequent declines in value.
Banking Premises and Equipment - Banking premises and equipment are
stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are generally computed on a straight-line
basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the term of the respective
leases or the estimated useful lives of the improvements.
Page 28
<PAGE>
Federal Income Taxes - Cullen/Frost files a consolidated federal
income tax return which includes the taxable income of all of its principal
subsidiaries. Applicable federal income taxes of the individual
subsidiaries are generally determined on a separate return basis. Effective
January 1, 1993, deferred federal income taxes are recognized under SFAS
109 which requires use of the liability method. The liability method
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
financial reporting bases and the tax bases of assets and liabilities. If
it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized. For 1992 and
prior years, the Corporation accounted for income taxes under APB 11.
Fair Values of Financial Instruments - FASB Statement No. 107,
"Disclosures about Fair Value of Financial Instruments" requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The
fair value disclosures are included throughout the footnotes. FASB
Statement No. 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements.
Stock Dividends - All share and per share amounts for 1992 and 1991
have been retroactively adjusted for a ten percent stock dividend paid
March 2, 1993.
NOTE B - ACQUISITIONS
Acquisition of New First City - San Antonio and New First City -
Austin
On February 13, 1993, the Corporation acquired certain assets and
assumed certain liabilities of New First City, Texas - San Antonio, N.A.
and New First City, Texas - Austin, N.A. (collectively referred to as
First City). These two First City banks were bridge banks established by
the Federal Deposit Insurance Corporation (FDIC) following the closing of
the banks owned by First City Bancorporation of Texas, Inc. Under the
terms of the acquisition agreement, the Corporation agreed to pay the FDIC
a $38 million premium over the book value of assets acquired less
liabilities assumed. This transaction was funded through internal sources.
The acquisition has been accounted for as a purchase, whereby the purchase
price has been allocated to the assets acquired and liabilities assumed
based on their respective fair values as of the date of acquisition.
Goodwill associated with the transaction amounted to approximately $23.2
million and is being amortized on accelerated and straight-line methods
over lives ranging from 9-15 years. Other intangibles associated with the
acquisition of approximately $20.2 million are being amortized over their
estimated lives ranging from five to ten years on an accelerated method.
The Corporation acquired loans of $158 million, investment securities and
Federal funds sold of $225 million, and deposits of $446 million. These
amounts represent the estimated fair values at New First City as of the
date of acquisition.
Under the acquisition agreement, during the first five years after
the acquisition by the Corporation, the FDIC is required to reimburse the
Corporation quarterly for 80 percent of all net charge-offs and certain
related expenses on commercial and certain real estate loans acquired by
the Corporation from New First City, Texas - Austin, N.A. This
reimbursement increases to 95 percent as to such charge-offs and certain
related expenses in excess of $5,344,000.
Pro-forma financial information has not been presented, as the
Corporation believes that such information would not be meaningful or
indicative of the operating results of the combined company. The First
City acquisition involved financial assistance from the FDIC. In addition,
there have been significant changes to the management structure, assets,
liabilities, and operations of First City subsequent to the acquisition.
Pending Acquisition
On August 26, 1993 the Corporation entered into an agreement with
Texas Commerce Bancshares whereby the Corporation will acquire Texas
Commerce Bank in Corpus Christi in exchange for Cullen/Frost Bank of Dallas
N.A. ("C/F Dallas"). The banks being exchanged are of comparable asset
size. C/F Dallas represents 4.9 percent of the Corporation's total assets
at December 31, 1993. This transaction is subject to regulatory approval
and is expected to be completed during April 1994. Upon consummation
of this transaction, no gain or loss will be recognized.
Page 29
<PAGE>
NOTE C - CASH AND DUE FROM BANKS
Cullen/Frost subsidiary banks are required to maintain reserves with
the Federal Reserve Bank which are equal to specified percentages of
deposits. The average amount of reserve balances were $45,783,000 for 1993
and $37,390,000 for 1992.
NOTE D - SECURITIES
At December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Under the new standard, debt securities that the
Corporation has both the positive intent and ability to hold to maturity
are carried at amortized cost. Debt securities that the Corporation does
not have the positive intent and ability to hold to maturity are classified
as available for sale or trading and carried at fair value. Unrealized
holding gains and losses on securities classified as available for sale are
carried, net of tax effect, as a separate component of shareholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings. In accordance with the Statement, prior
period financial statements have not been restated to reflect the change in
accounting principle. The adoption of this standard did not impact
earnings but had the effect of increasing shareholders' equity by $9.1
million.
A summary of the amortized cost and estimated fair value of
securities is presented below. Fair values are based on quoted market
prices, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar instruments.
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held for
Investment:
U.S. Treasury $ 6,080 $ 1 $ 6,081
U.S. Government
agencies and
corporations 964,483 17,527 $ 1,838 980,172
States and political
subdivisions 7,216 412 7,628
Other 19,616 216 1 19,831
--------- --------- ---------- -----------
Total $ 997,395 $ 18,156 $ 1,839 $1,013,712
========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available
for Sale
U.S. Treasury $ 277,955 $ 1,081 $ 48 $ 278,988
U.S. Government
agencies and 303,643 13,190 401 316,432
corporations
Other 18,840 216 19,056
--------- --------- ---------- -----------
Total $ 600,438 $ 14,487 $ 449 $ 614,476
========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held for
Investment:
U.S. Treasury $ 297,722 $ 6,126 $ 303,848
U.S. Government
agencies and
corporations 665,222 32,739 $140 697,821
States and political
subdivisions 13,670 94 17 13,747
Other 68,940 819 1 69,758
---------- ------- ---- ----------
Total $1,045,554 $39,778 $158 $1,085,174
========== ======= ==== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available
for Sale:
U.S. Treasury $368,411 $ 39 $ 25 $368,425
======== ======= ==== ========
</TABLE>
Page 30
<PAGE>
The amortized cost and estimated market value of securities at December
31, 1993 are presented below by contractual maturity. Actual maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------
Securities Held for Investment Securities Available for Sale
-------------------------------------------------------------
Amortized Estimated Amortized Estimated
(in thousands) Cost Market Value Cost Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,210 $ 6,211 $277,955 $278,988
Due after one year through
five years 15,526 15,744
Due after five years through
ten years 452 467
Due after ten years 7,758 8,152
-------- --------- -------- --------
29,946 30,574 277,955 278,988
Mortgage-backed securities and
collateralized mortgage 967,449 983,138 322,483 335,488
obligations -------- --------- -------- --------
Total $997,395 $1,013,712 $600,438 $614,476
========= ========== ======== ========
</TABLE>
Proceeds from sales of debt securities during 1993 and 1992 were
$202,490,000 and $62,846,000, respectively. During 1993, securities were
sold in anticipation of adopting Statement of Financial Accounting
Standards No. 115. During 1993, gross gains of $1,502,000 and gross losses
of $69,000 were realized on those sales. During 1992, gross gains of
$639,000 and gross losses of $871,000 were realized on those sales. During
1991, gross gains of $2,217,000 and gross losses of $195,000 were realized.
The amortized cost of securities pledged to secure public funds, trust
deposits, securities sold under repurchase agreements and for other
purposes as required or permitted by law amounted to $578,095,000 at
December 31, 1993 and $486,123,000 at December 31, 1992.
NOTE E - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of loans outstanding follows:
<TABLE>
<CAPTION>
December 31
-------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
Real estate:
Construction $ 32,297 $ 26,632
Land 22,990 21,288
Permanent mortgages:
Commercial 144,122 77,347
Residential 276,148 253,471
Other 150,499 134,470
Commercial and industrial:
Energy 24,548 52,345
Other 286,282 204,175
Consumer 268,331 217,232
Financial institutions 284 9,380
Foreign 31,763 17,871
Purchasing or carrying securities 1,204 1,918
Other 17,797 7,737
Unearned discount (8,456) (12,632)
---------- ----------
Total loans $1,247,809 $1,011,234
========== ==========
</TABLE>
In the normal course of business, in order to meet the financial
needs of its customers, the Corporation is a party to financial instruments
with off-balance sheet risk. These include commitments to extend credit
and standby letters of credit which commit the Corporation to make payments
on behalf of customers when certain specified future events occur. Both
arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Corporation's normal
credit policies. Collateral is obtained based on management's credit
assessment of the customer. No material losses are anticipated as a result
of these commitments. Commitments to extend credit and standby letters of
credit amounted to $381,386,000 and $31,322,000, respectively, at December
31, 1993. Commitments to extend credit and standby letters of credit
amounted to $356,601,000 and $24,747,000, respectively, at December 31,
1992. Commercial and industrial loan commitments represent approximately
74 percent and 82 percent of the total loan commitments outstanding at
December 31, 1993 and 1992, respectively. The majority of the
Corporation's real estate loans are secured by real estate in San Antonio
and Austin. At December 31, 1993, mortgage loans of approximately $9.0
million were held for sale by the Corporation and are included in
residential permanent mortgages. These loans are valued at the lower of
cost or market on an aggregate basis.
Page 31
<PAGE>
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair
value for other loans is estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. The fair value of loans was
estimated to be approximately $1,258,000,000 at December 31, 1993 and
$988,000,000 at December 31, 1992. The carrying amount of accrued interest
approximates its fair value. Cullen/Frost's off-balance sheet instruments
(lending commitments) have variable interest rates and "escape" clauses if
the customer's credit quality deteriorates. Therefore the amounts
committed approximate fair value.
In the normal course of business, Cullen/Frost subsidiary banks make
loans to directors and officers of both Cullen/Frost and its subsidiaries.
These loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons. Loans made to directors and executive
officers of Cullen/Frost and its significant subsidiaries, including loans
made to their associates, amounted to $44,985,000 and $51,635,000 at
December 31, 1993 and 1992, respectively. During 1993, additions to these
loans amounted to $51,908,000, repayments totaled $49,622,000
and other changes totaled $8,936,000. These other changes consist
primarily of changes in related-party status. Standby letters of credit
extended to directors and executive officers of Cullen/Frost and its
significant subsidiaries and their associates amounted to $1,611,000 and
$1,757,000 at December 31, 1993 and 1992, respectively.
A summary of the changes in the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year $ 31,897 $ 42,387 $ 45,604
Provision (credit) for possible loan losses (6,085) (850) 10,020
Net charge-offs:
Losses charged to the allowance (8,200) (17,487) (21,636)
Recoveries 8,686 7,847 8,399
-------- -------- --------
Net (charge-offs) recoveries 486 (9,640) (13,237)
-------- -------- --------
Balance at the end of the year $ 26,298 $ 31,897 $ 42,387
======== ======== ========
</TABLE>
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard addresses the accounting for
impairment of loans by specifying how allowances for certain loans should
be determined and for in-substance foreclosures. This standard is
effective for fiscal years beginning after December 15, 1994. The
Corporation has not yet determined the impact this standard will have on
its financial statements.
NOTE F - NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
December 31,
-------------------
(in thousands) 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual and restructured loans $17,727 $23,148
Foreclosed assets 13,383 28,155
------- -------
$31,110 $51,303
======= =======
</TABLE>
Cullen/Frost recognized interest income on non-accrual and
restructured loans of approximately $57,000, $117,000 and $542,000 in 1993,
1992 and 1991, respectively. Had these reduced earning and non-earning
loans performed according to their original contract terms, Cullen/Frost
would have recognized interest income of approximately $1,394,000 in 1993,
$2,818,000 in 1992 and $4,995,000 in 1991.
Income related to foreclosed assets approximated $1.2 million for
1993. Net expenses related to foreclosed assets amounted to approximately
$19.3 million and $23.0 million in 1992 and 1991, respectively. These
expenses include the provision for real estate losses, operating expenses
such as property taxes, insurance, maintenance costs and allocations for
salaries and benefits, net occupancy, and furniture and fixtures, net of
income and gains on foreclosed properties.
Page 32
<PAGE>
NOTE G - BANKING PREMISES AND EQUIPMENT
A summary of banking premises and equipment follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
1993 1992
----------------------------- ----------------------------
Accumulated Accumulated
Depreciation Net Depreciation Net
and Carrying and Carrying
(in thousands) Cost Amortization Value Cost Amortization Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land $30,581 $ 30,581 $ 30,226 $30,226
Buildings 42,668 $17,247 25,421 36,547 $12,935 23,612
Furniture and equipment 64,553 47,983 16,570 58,852 43,881 14,971
Leasehold improvements 24,543 11,112 13,431 19,800 9,937 9,863
Construction in progress 673 673 3,700 3,700
-------- ------- ------- -------- ------- -------
Total banking premises
and equipment $163,018 $76,342 $86,676 $149,125 $66,753 $82,372
======== ======= ======= ======== ======= =======
</TABLE>
NOTE H - DEPOSITS
FASB Statement No. 107 defines the fair value of demand deposits as
the amount payable on demand, and prohibits adjusting fair value for any
deposit base intangible. The deposit base intangible is not considered in
the fair value amounts below. The carrying amounts for variable-rate money
market accounts and fixed-term certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities.
The carrying amount and approximate fair value of deposits consisted
of the following at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------------------- -----------------------------
Approximate Approximate
(in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand deposits $ 881,092 $ 881,092 $ 766,203 $ 766,203
Savings and
Interest-on-Checking 800,161 800,161 612,137 612,137
Money market deposit
accounts 527,230 527,230 492,882 492,882
Time accounts of $100,000
or more 349,103 348,513 411,412 410,412
Time accounts under
$100,000 511,539 513,241 446,407 447,383
Other 80,303 80,303 40,451 40,451
---------- ---------- ---------- ----------
Total Deposits $3,149,428 $3,150,540 $2,769,492 $2,769,468
========== ========== ========== ==========
</TABLE>
Foreign deposits totaled $492,936,000 and $514,937,000 at December 31, 1993
and 1992, respectively.
Page 33
<PAGE>
NOTE I - BORROWED FUNDS
The carrying amounts of long-term borrowings consisted of the
following at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
December 31
-----------------
(in thousands) 1993 1992
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Convertible subordinated debentures of Cullen/Frost maturing in 1996 $ --- $10,000
Subordinated notes of Frost National Bank maturing in 1997 --- 3,400
-------- --------
Total long-term notes payable $ --- $13,400
======== ========
</TABLE>
During January 1993, Cullen/Frost called the $10,000,000 convertible
9.75 percent subordinated debentures which were scheduled to mature in
1996. On February 1, 1993, the holders chose to convert such debentures
into Cullen/Frost common stock. The debentures were converted into common
stock based on the original contractual terms at $21.37 per share and
resulted in the issuance of 467,836 additional shares of common stock.
During the fourth quarter of 1993, Frost National Bank ("Frost Bank")
made its required minimum annual payment of $600,000 and exercised its
option to prepay the remaining balance of the 8.75 percent subordinated
notes of $2,800,000.
Cullen/Frost has a $7,500,000 revolving credit facility with another
financial institution. The line of credit bears interest at prime. There
were no borrowings outstanding on this line at December 31, 1993 and 1992.
The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short-term borrowings approximate their
fair values. The fair values of Cullen/Frost's long-term borrowings (other
than deposits) are based on the Bank's current incremental borrowing rates
for similar types of borrowing arrangements. The fair value of borrowed
funds at December 31, 1992 was $13,641,000.
NOTE J - COMMON STOCK AND EARNINGS PER COMMON SHARE
The number of shares outstanding and related earnings per share
amounts for 1992 and 1991 have been restated to retroactively give effect
to a ten percent stock dividend declared and paid by the Corporation during
the first quarter of 1993. During the first quarter of 1993, the
Corporation's $10,000,000 convertible subordinated debentures were
converted into Cullen/Frost common stock resulting in the issuance of
467,836 additional shares of common stock. For purposes of calculating
1992 earnings per share, the convertible debentures were treated as common
stock equivalents and accordingly, the conversion had no effect on 1992
earnings per share calculations.
Earnings per share calculations for the years ended December 31, 1993
and 1992 include the effect of common stock equivalents applicable to the
convertible subordinated debentures and stock option contracts. Earnings
per share calculations for the year ended December 31, 1991 include the
effect of common stock equivalents applicable to the stock option
contracts.
The weighted average numbers of shares outstanding used to compute
primary and fully diluted earnings per share were 11,150,788 for the year
ended December 31, 1993. The weighted average number of shares outstanding
used to compute primary and fully diluted earnings per share were
10,974,329 and 11,015,590, respectively, for the year ended December 31,
1992. The weighted average numbers of shares outstanding used to compute
primary and fully diluted earnings per common share were 10,075,263 for the
year ended December 31, 1991.
NOTE K - DIVIDENDS
Cullen/Frost is primarily dependent upon dividends from its subsidiary
banks to provide funds for the payment of dividends to shareholders and to
provide for other cash requirements. The amount of dividends that
subsidiary banks may declare is subject to regulatory regulations. Under
the most restrictive interpretation of these regulatory requirements, the
subsidiary banks had approximately $23,951,000 available for the payment of
dividends to Cullen/Frost at December 31, 1993.
Page 34
<PAGE>
NOTE L - LEASES AND RENTAL AGREEMENTS
Rental expense for all leases amounted to $11,699,000, $8,850,000 and
$9,311,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
The Corporation's lead bank, Frost National Bank, leases an office
building and parking garage from separate partnerships in which a member of
a Bank director's immediate family is a principal investor. The Bank's
director has no financial interest in the transaction. The lease expense
for the building and parking garage was $4,688,000, $4,652,000 and
$4,616,000 for 1993, 1992 and 1991, respectively. The leases for the
building and garage expire in 2000 and 1999, respectively.
A summary of the total future minimum rental commitments due under non-
cancelable equipment leases and long-term agreements on banking premises at
December 31, 1993 follows:
<TABLE>
<CAPTION>
Total
(in thousands) Commitments
- ------------------------------------------------------------------------------
<S> <C>
1994 $10,232
1995 10,208
1996 9,557
1997 6,388
1998 5,690
Subsequent to 1998 14,188
-------
Total future minimum rental commitments $56,263
=======
</TABLE>
It is expected that certain leases will be renewed, or equipment
replaced with new leased equipment, as these leases expire.
NOTE M - EMPLOYEE BENEFIT PLANS
Retirement Plans-
Cullen/Frost has a non-contributory defined benefit plan which covers
substantially all employees who have completed at least one year of service
and have attained the age of 21. Defined benefits are provided based on an
employee's compensation, age at retirement and years of service.
Cullen/Frost's funding policy is to contribute quarterly an amount
necessary to satisfy the Employee Retirement Income Security Act (ERISA)
funding standards. An eligible employee's right to receive benefits under
the plan becomes fully vested upon the earlier of the date on which such
employee has completed five years of service or the date on which such
employee attains 65 years of age. Retirement benefits under the plan are
paid to vested employees upon their (i) normal retirement at age 65 or
later or (ii) early retirement at or after age 55, but before age 65. In
addition, Cullen/Frost has a Restoration of Retirement Income Plan
(providing benefits in excess of the limits under Section 415 of the
Internal Revenue Code of 1986, as amended) for eligible employees which is
designed to comply with the requirements of ERISA and the entire cost of
which is provided by Cullen/Frost contributions. Effective January 1,
1993, the Corporation amended its retirement plans including changing the
formula for determining monthly pension benefits. Both plans, as amended,
provide for the payment of monthly retirement income pursuant to a formula
based on an eligible employee's final average compensation during the last
ten years of employment.
The funded status of the plans and the amounts recognized in
Cullen/Frost's consolidated balance sheets at December 31, 1993 and 1992
are presented below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $20,295 in 1993 and $16,140 in 1992 $20,755 $16,322
======= =======
Projected benefit obligation for service rendered
to date $29,593 $19,280
Plan assets at fair value (primarily listed stocks and
U.S. and corporate bonds) 16,195 12,650
------- -------
Projected benefit obligation in excess of plan assets 13,398 6,630
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (5,943) (3,217)
Unrecognized prior service cost (4,965) (105)
Unrecognized net transitional asset 990 1,089
------- -------
Accrued pension cost included in other liabilities $ 3,480 $ 4,397
======= =======
</TABLE>
Page 35
<PAGE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 1,172 $2,073 $1,971
Actual return on plan assets, net of expenses (567) (260) (808)
Interest cost on project benefit obligation 2,135 1,431 884
Net amortization and deferral (345) (706) 35
------- ------ ------
Net pension cost $ 2,395 $2,538 $2,082
======= ====== ======
</TABLE>
The weighted-average discount rate used for calculating the pension
obligation at December 31, 1992 and for calculating the net periodic
pension cost for 1993 was 9 percent; the assumed rate of future
compensation increases was 6 percent. The discount rate used for calcu-
lating the pension obligation as of December 31, 1993 was 7.75 percent,
and the assumed rate of future compensation increases was 5 percent; these
assumptions will be used for calculating the 1994 net periodic pension
cost. The accumulated benefit obligation increased from 1992 primarily as
a result of reducing the discount rate to 7.75 percent. The projected
benefit obligation increased from 1992 as the reduction in the discount
rate and the plan changes each increased the projected benefit obligation
by approximately $5.8 million. The decrease in the projected rate of
future compensation increases to 5 percent had the effect of decreasing the
projected benefit obligation by approximately $3.1 million. The changes in
the unrecognized prior service cost and the service cost for 1993 are
primarily due to the plan changes. The expected long-term rate of return
on plan assets is 9 percent.
Savings Plans - The Corporation maintains a 401(k) stock purchase plan
(the "401(k) Plan"). The 401(k) Plan permits each participant to make
before-tax contributions up to 16% of eligible compensation. Cullen/Frost
makes matching contributions to the 401(k) Plan based on the amount of each
participant's contributions up to a maximum of six percent of eligible
compensation. All eligible employees as of December 31, 1990 became
participants in the 401(k) Plan and are 100 percent vested in the
Corporation's matching contributions. Eligible employees hired on or after
January 1, 1991 must complete 90 days of service to be eligible for
enrollment and vest in the Corporation's matching contributions over a five-
year period. Shares issued under the 401(k) Plan totaled 43,018 during
1993 and 55,910 during 1992.
Effective January 1, 1991, the 1986 Thrift Incentive Stock Purchase
Plan was amended and restated into the 1991 Thrift Incentive Stock Purchase
Plan ("1991 Stock Purchase Plan"). The 1991 Stock Purchase Plan was
adopted to offer those employees whose participation in the 401(k) Plan is
limited, an alternative means of receiving comparable benefits.
Cullen/Frost shares issued under this plan totaled 17,909 during 1993 and
25,105 during 1992.
Executive Stock Plans - The Corporation has four principal executive
stock plans, the 1983 Nonqualified Stock Option Plan ("1983 Plan"), the
1988 Nonqualified Stock Option Plan ("1988 Plan"), the Restricted Stock
Plan, and the 1992 Stock Plan. The 1992 Stock Plan is an all-inclusive
plan, with an aggregate of 880,000 shares of common stock authorized for
award. The 1992 Stock Plan has replaced all other previously approved
executive stock plans. These plans which were approved by shareholders
were established to enable the Corporation to retain and motivate key
employees. A committee of non-participating directors has sole authority
to select the employees, establish the awards to be issued, and approve the
terms and conditions of each award contract.
The 1992 Stock Plan allows the Corporation to grant restricted stock,
incentive stock options, nonqualified stock options, stock appreciation
rights, or any combination thereof to certain key executives of the
Corporation.
Page 36
<PAGE>
The following is a summary of options transactions in each of the last
three years.
<TABLE>
<CAPTION>
1983 Plan 1988 Plan 1992 Stock Plan
--------------------- ---------------------- -------------------
Option Price Option Price Option Price
Options Per Share Options Per Share Options Per Share
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1990 352,791 $ 6.03- 20.68 48,847 $ 6.03
Granted 39,620 10.91 168,710 10.91
Exercised 23,978 6.03- 6.82 1,359 6.03
Canceled 23,737 6.82- 20.68 154 6.03
------- ------------- ------- -------------
Balance, Dec. 31, 1991 344,696 6.03- 20.68 216,044 6.03- 10.91
Granted 62,948 $25.45
Exercised 270,271 6.03- 20.68 33,151 6.03- 10.91
Canceled 499 6.03
------- ------------- ------- ------------- ------ ------
Balance, Dec. 31, 1992 74,425 6.82- 14.09 182,394 6.03- 10.91 62,948 25.45
Granted 116,660 35.50
Exercised 11,404 6.82- 14.09 9,871 6.03- 10.91
Canceled 993 6.82 12,067 6.03- 10.91 4,036 25.45
------- ------------- ------- ----------- -------------
Balance, Dec. 31, 1993 62,028 $ 6.82-$14.09 160,456 $6.03-$10.91 175,572 $25.45-$35.50
======= ============= ======= =========== ======= =============
</TABLE>
The Restricted Stock Plan, approved by the Corporation's shareholders
in May of 1990, provides for periodic awards of Cullen/Frost Common Stock
to key employees, subject to certain transfer restrictions and forfeiture
provisions. Under this plan, an aggregate of 100,000 shares of common
stock may be awarded. Shares of common stock totaling 21,137 and 17,687
were awarded during 1991 and 1989, respectively. In 1993, restricted stock
grants were awarded under the 1992 Stock Plan totaling 4,988 shares.
Deferred compensation expense related to the restricted stock was $117,000
in 1993, $114,000 in 1992, and $63,000 in 1991. The market value of
restricted shares at the date of grant is expensed over the restriction
period.
The Corporation has change-in-control agreements with 15 of its
executives. Under these agreements, as revised, each covered person could
receive, in the event of a change in control, one-half of his base
compensation upon the effectiveness of the change in control, and one and
one-half times (2.49 times in the case of six key executives) of his
average annual W-2 compensation during the previous five years if such
person is constructively terminated or discharged for reasons other than
cause within two years following the change in control. The agreements, in
all events, limit payments to avoid being considered "parachute payments"
as defined by the Internal Revenue Code. The maximum contingent liability
under these agreements approximate $9,174,000 at December 31, 1993.
The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" on January 1, 1993. This statement did not have a material
impact on the financial position or operations of the Corporation.
The Financial Accounting Standards Board issued Statement of Financial
Standards No. 112, "Employers' Accounting for Post Employment Benefits"
effective for calendar year 1994. This statement requires accrual
accounting for certain benefits other than pensions that were previously
accounted for on a cash basis. Based on current circumstances, this
statement is not expected to have a material effect on the Corporation's
financial statements.
Page 37
<PAGE>
NOTE N - INCOME TAXES
The Corporation adopted as of January 1, 1993, Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
implementation of SFAS 109 changes the Corporation's method of accounting
for income taxes from the deferred method (APB 11) to the liability method.
The liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the financial reporting bases and the tax bases of
assets and liabilities.
As permitted by SFAS 109, the Corporation has elected not to restate
the financial statements of any prior years. The cumulative effect of the
change increased net income $8,439,000 or $.76 per share.
The Corporation recorded a tax benefit in 1993 of $735,000. The
effective tax rate was affected by the reduction of the valuation allowance
for deferred tax assets established at the beginning of 1993 by $13.5
million. The reduction of the valuation allowance was based mainly on the
level of earnings obtained in 1993, projected future earnings, and the
increase in deferred tax credits resulting from the adoption of SFAS 115 at
the end of 1993. No valuation allowance was considered necessary because
Cullen/Frost has $5,600,000 in recoverable taxes paid in prior years, the
future reversal of approximately $22,900,000 in taxable temporary
differences, and future income. The Corporation recorded an extraordinary
credit of $6,497,000 for the year ended December 31, 1992. This credit
represents the utilization of net operating loss carryforwards for
financial reporting purposes.
The following is an analysis of the Corporation's income taxes
included in the consolidated statements of operations for the years ended
December 31, 1993, 1992, and 1991.
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------- ------ ------ ------
<S> <C> <C> <C>
Current income tax expense $5,629 $4,114 $2,336
Deferred income tax (credit) 7,196 4,083 (1,703)
Decrease in deferred tax valuation
allowance (13,560) - -
-------- ------- -------
Income tax expense (credit) as reported ($735) $8,197 633
======= ======= =======
</TABLE>
The following is a reconciliation of the difference between income tax
expense as reported and the amount computed by applying the statutory
income tax rate to income before income taxes, extraordinary credit, and
cumulative effect of accounting change:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1993 1992 1991
- -------------- -------------------------------
<S> <C> <C> <C>
Income before income taxes, extraordinary credit,
and cumulative effect of accounting change $ 38,062 $25,822 $ 838
Statutory rate 35% 34% 34%
-------- ------- -------
Income tax expense at the statutory rate 13,322 8,780 285
Effect of tax-exempt interest (574) (745) (1,380)
Change in deferred tax valuation allowance (13,560) - -
Net operating loss carryforwards - - 1,187
Other 77 162 541
-------- ------- -------
Income tax expense (credit) as reported ($ 735) $ 8,197 $ 633
======== ======= =======
</TABLE>
Cullen/Frost recognized a tax expense of $501,000 and a tax benefit
of $79,000 related to securities transactions in 1993 and 1992,
respectively. There were no income taxes related to securities
transactions in 1991.
Page 38
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1993 are
presented below:
<TABLE>
<CAPTION>
(in thousands) 1993
- -------------- --------
<S> <C>
Deferred tax assets:
Allowance for possible loan losses $10,452
Other real estate and repossessed collateral 3,964
Building modification reserve 1,592
Gain on sale of assets 1,416
Amortization of intangibles 1,316
Net occupancy restructuring 2,334
Other 2,943
-------
Total gross deferred tax assets 24,017
Deferred tax liabilities:
Depreciation and amortization ($2,129)
Prepaid expenses (880)
Unrealized gain on securities available for sale (4,913)
Other (1,070)
-------
Total gross deferred tax liabilities (8,992)
-------
Net deferred tax asset $15,025
=======
</TABLE>
The components of the provision for deferred income taxes for the years
ended December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1992 1991
- -------------- ------ ------
<S> <C> <C>
Deferred federal income taxes:
Unrecognized timing differences $ - $2,530
Provision (credit) for possible loan losses 3,925 1,104
Gain on sale of assets 152 288
Contributions (89) 192
Retirement plan contributions 331 228
Depreciation and amortization (309) (684)
Repossessed collateral adjustments 73 (5,361)
------ ------
Provision for deferred income taxes $4,083 ($1,703)
====== ======
</TABLE>
NOTE 0 - NON-INTEREST EXPENSE
Significant components of other non-interest expense for the years
ended December 31, 1993, 1992, and 1991 are presented below:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
Other Non-Interest Expense (in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Outside computer service $10,611 $ 7,403 $ 6,498
FDIC insurance 6,793 6,115 5,768
Other professional expenses 3,953 2,852 4,159
Intangible amortization 3,865 270 151
Amortization of goodwill 3,012 430 446
Stationery printing and supplies 2,890 2,349 2,681
Attorneys' expenses 1,787 2,131 3,035
Other non-interest expense 30,269 31,118 33,856
------- ------- -------
Total $63,180 $52,668 $56,594
======= ======= =======
</TABLE>
During the second quarter of 1991, the Corporation's lead bank settled
a foreclosure-related lawsuit. The suit was originated in 1982 against the
bank. A Texas Court of Appeals reaffirmed a lower court decision which
awarded the Plaintiff $2.5 million in damages, plus interest, for a total
award of approximately $5.8 million. The Corporation settled this lawsuit
for $5.4 million.
Page 39
<PAGE>
NOTE P - CASH FLOW DATA
For purposes of reporting cash flow, cash and cash equivalents include
the following:
<TABLE>
<CAPTION>
December 31
------------------------------
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $334,564 $296,270 $306,422
Time deposits 147 153 266
Federal funds sold and securities purchased
under resale agreements 250,250 282,630 98,395
-------- -------- --------
$584,961 $579,053 $405,083
======== ======== ========
</TABLE>
Generally, Federal funds are sold for one-day periods and securities
purchased under resale agreements are held for less than thirty-five days.
The carrying amounts reported on the balance sheet for cash and short-term
investments approximate their fair value.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash piad:
Interest $ 61,633 $ 76,758 $126,264
Income Taxes 6,695 2,675 2,005
Non-cash items:
Loans originated to facilitate the sale of
foreclosed assets 5,275 9,037 3,872
Loan foreclosures (including in-substance
foreclosures) 1,440 10,934 61,281
Conversion of long-term debt to common stock 10,000
Unrealized gains on securities available for sale 14,037
</TABLE>
NOTE Q - CONTINGENCIES
Certain subsidiaries of Cullen/Frost are defendants in various matters
in litigation which have arisen in the normal course of conducting a
commercial banking business. In the opinion of management, the disposition
of such pending litigation will not have a material effect on
Cullen/Frost's consolidated financial position.
NOTE R - CONDENSED PARENT CORPORATION FINANCIAL STATEMENTS
Condensed financial information of the parent Corporation as of
December 31, 1993 and 1992 and for each of the three years in the period
ended December 31, 1993 follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Statement of Operations (in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $21,692 $ 3,388 $ 6,678
Interest and other 220 631 326
------- ------- -------
Total Income 21,912 4,019 7,004
Expenses:
Salaries and employee benefits 812 897 1,012
Interest 111 975 1,001
Other 1,553 1,679 1,250
------- ------- -------
Total Expenses 2,476 3,551 3,263
Income Before Income Taxes (Credits)
and Equity in Undistributed Net
(Income) Losses of Subsidiaries 19,436 468 3,741
Income taxes (credits) (22,351) (3,388) 793
Equity in undistributed net (income) losses
of subsidiaries (5,449) (20,266) 2,743
------- -------- -------
Net Income $47,236 $ 24,122 $ 205
======= ======== =======
</TABLE>
Page 40
<PAGE>
<TABLE>
<CAPTION>
December 31
------------------------
Balance Sheets (in thousands) 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and time deposits $ 180 $ 219
Securities purchased under resale agreements 2,300 12,220
Loans to non-bank subsidiaries 2,028 1,696
Investments in subsidiaries 272,047 224,449
Other 2,484 956
-------- --------
Total Assets $279,039 $239,540
======== ========
Liabilities
Long-term notes payable $ 10,000
Other $ 5,506 23,396
-------- --------
Total Liabilities 5,506 33,396
Shareholders' Equity 273,533 206,144
-------- --------
Total Liabilities and Shareholders' Equity $279,039 $239,540
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Statements of Cash Flows (in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 47,236 $ 24,122 $ 205
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net(income)losses of subsidiaries (5,449) (20,266) 2,743
Decrease (increase) in interest receivable 189 (136) 63
Decrease in interest payable (83) (3) (9)
Net change in other liabilities and assets (19,199) (1,007) 1,975
-------- ------- --------
Net cash provided by operating activities 22,694 2,710 4,977
Investing Activities
Capital contributions to subsidiaries (33,025) (625) (6,090)
Net (increase) decrease in loans (132) 263 (470)
-------- -------- -------
Net cash used by investing activities (33,157) (362) (6,560)
Financing Activities
Cash dividends (1,650)
Proceeds from employee stock purchase plans and options 2,154 3,875 2,312
-------- ------- -------
Net cash provided by financing activities 504 3,875 2,312
-------- ------- -------
Increase (Decrease) in cash and cash equivalents (9,959) 6,223 729
Cash and equivalents at beginning of year 12,439 6,216 5,487
-------- ------- -------
Cash and cash equivalents at end of year $ 2,480 $ 12,439 $ 6,216
======== ======== ========
</TABLE>
NOTE S - RESTRUCTURING CHARGES
During 1993, the Corporation recorded restructuring charges of $10.3
million. Included in the charges are $6.7 million related to downsizing
office space used to provide banking services, $1.9 million for a
retirement incentive program and $1.7 million in related job eliminations
and restructurings. Of the $6.7 million net occupancy restructuring
charge, a portion is for leased space and a portion is for valuations on
owned buildings resulting from the decision to sell.
Page 41
<PAGE>
REPORT OF ERNST & YOUNG
INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CULLEN/FROST BANKERS, INC.
We have audited the accompanying consolidated balance sheets of
Cullen/Frost Bankers, Inc. and Subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cullen/Frost Bankers, Inc. and Subsidiaries at December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Notes D and N to the financial statements, in 1993 the
Corporation changed its method of accounting for certain investments in
debt securities and changed its method of accounting for income taxes.
/S/ ERNST & YOUNG
San Antonio, Texas
January 31, 1994
Page 42
<PAGE>
FINANCIAL STATISTICS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands)
The following unaudited schedules and statistics are presented for
additional information and analysis.
<TABLE>
<CAPTION>
1993/1992
--------------------------------
Increase (Decrease) Total
Due to Change in or Net
-------------------
Average Average Increase
Rate/Volume Analysis Rate Balance (Decrease)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in interest earned on:
Time deposits $ (2) $ (2) $ (4)
Securities:
U.S. Treasury (6,386) (6,395) (12,781)
U.S. Government agencies and corporations (16,316) 24,759 8,443
States and political subdivisions
Tax-exempt 63 (198) (135)
Taxable 173 (814) (641)
Other (527) (2,437) (2,964)
Federal funds sold and securities purchased
under resale agreements (885) 1,888 1,003
Loans (4,163) 10,634 6,471
--------- --------- ---------
Total (28,043) 27,435 (608)
Changes in interest paid on:
Savings, Interest-on-Checking 3,158 (4,512) (1,354)
Money market deposits accounts 3,049 (1,637) 1,412
Time accounts and public funds 8,989 1,681 10,670
Federal funds purchased and securities sold
under repurchase agreements 614 (779) (165)
Long-term notes payable 71 897 968
Other borrowings
--------- --------- ---------
Total 15,881 (4,350) 11,531
--------- --------- ---------
Changes in net interest income $(12,162) $ 23,085 $ 10,923
========= ========= =========
</TABLE>
The allocation of the rate/volume variance has been made on a pro-rata
basis assuming absolute values. The above information is shown on a
taxable-equivalent basis assuming a 35 percent tax rate in 1993 and a 34
percent tax rate in 1992 and 1991.
<TABLE>
<CAPTION>
1992/1991
--------------------------------
Increase (Decrease) Total
Due to Change in or Net
-------------------
Average Average Increase
Rate/Volume Analysis Rate Balance (Decrease)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in interest earned on:
Time deposits $ (4) $ (1) $ (5)
Securities:
U.S. Treasury (6,461) 16,142 9,681
U.S. Government agencies and corporations (4,407) (12,780) (17,187)
States and political subdivisions
Tax-exempt 62 (2,303) (2,241)
Taxable (258) (362) (620)
Other (1,741) (585) (2,326)
Federal funds sold and securities purchased
under resale agreements (4,648) (119) (4,767)
Loans (13,653) (11,152) (24,805)
--------- --------- ---------
Total (31,110) (11,160) (42,270)
Changes in interest paid on:
Savings, Interest-on-Checking 8,371 (2,480) 5,891
Money market deposits accounts 7,237 (1,998) 5,239
Time accounts and public funds 23,166 12,183 35,349
Federal funds purchased and securities sold
under repurchase agreements 2,139 635 2,774
Long-term notes payable (18) 142 124
Other borrowings 13 12 25
--------- --------- --------
Total 40,908 8,494 49,402
--------- --------- ---------
Changes in net interest income $ 9,798 $ (2,666) $ 7,132
========= ========= =========
</TABLE>
The allocation of the rate/volume variance has been made on a pro-rata
basis assuming absolute values. The above information is shown on a
taxable-equivalent basis assuming a 35 percent tax rate in 1993 and a 34
percent tax rate in 1992 and 1991.
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------
Due in After One, After
One Year but Within Five
Loan Maturity and Sensitivity or Less Five Years Years Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate construction and land loans $ 35,099 $ 16,769 $ 3,419 $ 55,287
Other real estate loans 79,089 146,969 91,062 317,120
All other loans 223,181 119,270 19,381 361,832
-------- -------- -------- --------
Total $337,369 $283,008 $113,862 $734,239
======== ======== ======== ========
Loans with fixed interest rates $105,318 $ 91,660 $ 74,860 $271,838
Loans with floating interest rates 232,051 191,348 39,002 462,401
-------- -------- -------- --------
Total $337,369 $283,008 $113,862 $734,239
======== ======== ======== ========
</TABLE>
Loans for 1-4 family housing totaling $253,649,000 and consumer loans
totaling $268,377,000 are not included in the amounts in the table.
Page 43
<PAGE>
<TABLE>
<CAPTION>
Maturity Distribution and Securities Portfolio Yields
(dollars in thousands) December 31, 1993
- ----------------------------------------------------------------------------------------------------------------------
Maturity
----------------------------------------------------------------------------------
Total
Within 1 Year 1-5 Years 5-10 Years After 10 Years Carrying Amount
---------------- --------------- ---------------- ---------------- ---------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yeild
------- ------- ------- ------- -------- ------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury $ 6,080 3.19% $ 6,080 3.19%
U.S. Government
agencies and
corporations $369,335 5.42% $595,148 5.64% 964,483 5.56
States and
political
subdivisions 120 6.87 $ 183 5.47% 410 5.98 6,503 6.62 7,216 6.56
Other 10 14.86 15,337 5.40 48 8.46 4,221 6.04 19,616 5.55
-------- ----- ------- ---- -------- ---- -------- ---- -------- ----
Total securities
held to maturity $ 6,210 3.28% 15,520 5.40% $369,793 5.42% $605,872 5.66% $997,395* 5.55%
======== ===== ======= ==== ======== ==== ======== ==== ======== ====
Available for sale:
U.S. Treasury $278,988 4.23% $278,988 4.23%
U.S. Government
agencies and
corporations $ 154 1.24% $ 33,440 6.68% $282,838 6.52% 316,432 6.53
Other 19,056 4.03 19,056 4.03
-------- ----- ------- ---- -------- ---- -------- ---- -------- ----
Total securities
available for
sale $278,988 4.23% $ 154 1.24% $ 33,440 6,68% $301,894 6.36% $614,476* 5.41%
======== ==== ======= ==== ======== ==== ======== ==== ======== ====
Weighted average yields have been computed on a fully taxable-equivalent
basis assuming a tax rate of 35%.
* Included in the totals are mortgage-backed securities and collateralized
mortgage obligations of $1,302,937 which are included in maturity
categories based on their stated maturity date.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
Federal Funds Purchased and Securities -----------------------------------
Sold Under Repurchase Agreements 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $166,519 $122,221 $ 88,056
Maximum month-end balance 168,198 126,230 159,493
For the year:
Average daily balance 131,096 102,550 116,281
Average interest rate 2.52% 3.06% 5.08%
Weighted average daily interest rate 2.86 3.32 5.45
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1993 1992
Remaining Maturity of Private ------------------- -------------------
Certificates of Deposit Percentage Percentage
of $100,000 or More Amount of Total Amount of Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months or less $ 58,314 16.7% $307,529 74.6%
After three, within six months 123,486 35.4 80,259 19.5
After six, within twelve months 108,643 31.1 22,741 5.5
After twelve months 58,660 16.8 1,813 .4
-------- ----- -------- -----
Total $349,103 100.0% $412,342 100.0%
======== ===== ======== =====
Percentage of total private time deposits 16.0% 21.0%
</TABLE>
Other time deposits of $100,000 or more were $41,274,000 at December 31,
1993. Of this amount 58.8 percent matures within three months, 3.9 percent
matures between three and six months and the remainder matures between six
months and one year.
Page 44
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
Three Months Ended 1993
(in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $46,155 $48,985 $47,095 $47,384
Interest expense 15,175 16,151 15,205 15,262
Net interest income 30,980 32,834 31,890 32,122
Provision (credit) for possible loan losses (590) -- (2,251) (3,244)
Gain (loss) on securities transactions 8 (3) 3 1,425
Non-interest income 17,683 18,822 18,846 20,878
Restructuring costs 1,958 -- 591 7,736
Non-interest expense 41,308 40,711 40,850 49,209
Income before income taxes (credits),
extraordinary credit and cumulative
effect of accounting change 7,945 10,945 12,137 7,035
Income taxes (credits) 160 218 160 (1,273)
Extraordinary credit
Cumulative effect of accounting change 8,439
Net income 16,224 10,727 11,977 8,308
Per share
Income before extraordinary credit and
cumulative effect of accounting change
Primary .71 .96 1.07 .74
Fully diluted .71 .96 1.07 .74
Net income -
Primary 1.47 .96 1.07 .74
Fully diluted 1.46 .96 1.07 .74
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended 1992
(in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $50,109 $48,273 $46,596 $45,003
Interest expense 21,284 19,379 17,345 15,316
Net interest income 28,825 28,894 29,251 29,687
Provision (credit) for possible loan losses (2,468) 418 1,000 200
Gain (loss) on securities transactions (366) 119 15
Non-interest income 14,103 15,549 15,911 16,250
Restructuring costs -- -- -- --
Non-interest expense 42,020 38,636 36,565 36,277
Income before income taxes and
extraordinary credit 3,376 5,389 7,597 9,460
Income taxes (credits) 845 1,800 2,377 3,175
Extraordinary credit 807 1,751 2,183 1,756
Net income 3,338 5,340 7,403 8,041
Per share
Income before extraordinary credit-
Primary .25 .34 .49 .58
Fully diluted .25 .34 .49 .58
Net income
Primary .32 .50 .69 .74
Fully diluted .32 .50 .69 .74
</TABLE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
Shares of Cullen/Frost Bankers common stock are traded in the over-the-
counter market under the symbol CFBI. The number of record holders of the
common stock at February 22, 1994 was 2,602.
<TABLE>
<CAPTION>
1993 1992
------------- ----------------
Market Price (per share)* High Low High Low
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $40.25 $29.50 $21.50 $13.50
Second Quarter 39.75 31.00 27.50 20.50
Third Quarter 39.25 33.75 30.25 22.00
Fourth Quarter 38.75 30.25 31.50 26.75
*Market prices have not been restated for effect of the ten percent stock
dividend.
</TABLE>
Market prices shown above are high and low sales prices as reported
through NASDAQ National Market System. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and represent
actual transactions.
<TABLE>
<CAPTION>
Cash Dividends (per share) 1993
- -------------------------------------------------------------------------------
<S> <C>
First Quarter --
Second Quarter --
Third Quarter --
Fourth Quarter $.15
----
Total $.15
====
</TABLE>
During the fourth quarter of 1993, the Company resumed its quarterly
dividend and paid $.15 per share on December 15, 1993. There were no cash
dividends paid during 1992. See "Capital" section (page 22) in the
Financial Review for further discussion.
Page 45
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
Year Ended December 31
--------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 3,639,047 $ 3,150,871 $ 3,078,986
Long-term notes payable -- 13,400 14,668
Shareholders' equity 273,533 206,144 176,222
Average shareholders' equity to average
total assets 7.08% 6.29% 5.67%
Tier 1 capital ratio (1992 rules) 14.23 15.66 12.98
Total capital ratio (1992 rules) 15.49 17.52 15.04
Per Common Share Data
Net income (loss)** $ 4.24 $ 2.26 $ .02
Cash dividends paid .15 - -
Shareholders' equity 24.85 19.80 17.55
Loan Performance Indicators
Non-performing assets $ 31,110 $ 51,303 $ 100,642
Non-performing assets to:
Total loans plus foreclosed assets 2.47% 4.94% 8.85%
Total assets .85 1.63 3.27
Allowance for possible loan losses $ 26,298 $ 31,897 $ 42,387
Allowance for possible loan losses
to period-end loans 2.11% 3.15% 3.95%
Net loan charge-offs (recoveries) $ (486) $ 9,640 $ 13,237
Net loan charge-offs (recoveries) to
average loans (.04)% .94% 1.15%
Common Stock Data
Common shares outstanding at period end 11,009,198 10,412,184 10,043,844
Weighted average common and common
equivalent shares outstanding 11,150,788 10,974,329 10,075,263
Dividends as a percentage of net income 3.54% -- --
Non-Financial Data
Number of employees 1,877 1,754 1,737
Shareholders of record 2,644 2,824 3,547
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1990 1989 1988
----------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 3,254,744 $ 3,505,038 $ 3,385,916
Long-term notes payable 16,280 17,450 18,616
Shareholders' equity 173,442 179,313 175,020
Average shareholders'equity to average
total assets 5.42% 5.14% 5.28%
Tier 1 capital ratio (1992 rules) 10.93 * *
Total capital ratio (1992 rules) 13.05 * *
Per Common Share Data
Net income (loss)** $ (.85) $ .28 $ .26
Cash dividends paid - - -
Shareholders' equity 17.79 18.92 18.80
Loan Performance Indicators
Non-performing assets $ 121,865 $ 131,733 $ 98,179
Non-performing assets to:
Total loans plus foreclosed assets 9.11% 9.24% 6.16%
Total assets 3.74 3.76 2.90
Allowance for possible loan losses $ 45,604 $ 42,282 $ 40,702
Allowance for possible loan losses
to period-end loans 3.60% 3.09% 2.60%
Net loan charge offs (recoveries) $ 28,671 $ 28,132 $ 22,276
Net loan charge-offs (recoveries) to
average loans 2.18% 2.00% 1.42%
Common Stock Data
Common shares outstanding at period end 9,751,234 9,479,026 9,307,199
Weighted average common and common
equivalent shares outstanding 9,651,942 9,516,321 9,297,586
Dividends as a percentage of net income -- -- --
Non-Financial Data
Number of employees 1,755 1,869 1,880
Shareholders of record 4,136 4,088 4,152
*Risk-based capital ratios are effective for years beginning December 31, 1990.
** 1993 primary and fully diluted earnings per share before extraordinary
credit was $1.66. Fully diluted net income per share for 1992 was $2.25.
</TABLE>
<TABLE>
<CAPTION>
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
Bank Subsidiaries
(in thousands)
- ---------------------------------------------------------------------------------------
December 31, 1993
----------------------------------
Total Total Total
Assets Loans Deposits
---------- ---------- ----------
<S> <C> <C> <C>
Frost National Bank $3,344,678 $1,138,655 $2,894,302
San Antonio, Houston, Austin and Corpus Christi
Main Office:
P. O. Box 1600, 100 West Houston Street
San Antonio, Texas 78296 (210)220-4011
Cullen/Frost Bank of Dallas, N.A. 178,167 58,252 155,436
P. O. Box 1649, 2001 Bryan Street at Harwood
Dallas, Texas 75221 (214) 979-2000
United States National Bank 136,220 50,206 121,589
P. O. Box 179, 2201 Market Street
Galveston, Texas 77553 (409) 763-1151
</TABLE>
Page 46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $ 90,756 $ 84,074 $108,617
Securities 91,145 99,188 111,132
Time deposits 4 8 13
Federal funds sold and securities purchased
under resale agreements 7,714 6,711 11,478
-------- -------- --------
Total Interest Income 189,619 189,981 231,240
Interest expense:
Deposits 58,079 68,807 115,286
Federal funds purchased and securities sold
under repurchase agreements 3,304 3,139 5,913
Long-term notes payable 410 1,378 1,502
Other borrowings 25
-------- -------- --------
Total Interest Expense 61,793 73,324 122,726
-------- -------- --------
Net Interest Income 127,826 116,657 108,514
Provision (credit) for possible loan losses (6,085) (850) 10,020
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 133,911 117,507 98,494
Non-interest income:
Trust department 26,278 21,861 20,030
Service charges on deposit accounts 25,386 21,958 18,915
Other service charges, collection and
exchange charges, commissions and fees 9,889 7,888 8,288
Net gain (loss) on securities transactions 1,433 (232) 2,022
Other 13,243 10,338 8,227
-------- ------- -------
Total Non-Interest Income 76,229 61,813 57,482
Non-interest expense:
Salaries and wages 53,654 46,184 44,154
Pension and other employee benefits 12,052 9,746 9,058
Net occupancy of banking premises 21,307 17,294 16,807
Furniture and equipment 10,155 8,295 7,726
Provision for real estate losses 1,445 19,311 20,799
Restructuring costs 10,285
Other 63,180 52,668 56,594
-------- ------- -------
Total Non-Interest Expense 172,078 153,498 155,138
-------- ------- -------
Income (Loss) Before
Income Taxes (Credits), Extraordinary
Credit and Cumulative Effect of
Accounting Change 38,062 25,822 838
Income taxes (735) 8,197 633
-------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change 38,797 17,625 205
Extraordinary Credit-income tax benefit 6,497
Cumulative effect of change in accounting
for income taxes 8,439
-------- ------- -------
Net Income (Loss) $ 47,236 $24,122 $ 205
======== ======= =======
Net income (loss) per common share $ 4.24 $ 2.26 $ .02
======== ======= =======
Return on average assets 1.34% .79% .01%
Return on average equity 19.00 12.56 .12
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $134,217 $150,550 $152,871
Securities 115,452 101,424 60,800
Time deposits 82 1,814 784
Federal funds sold and securities purchased
under resale agreements 23,130 45,578 46,774
-------- -------- --------
Total Interest Income 272,881 299,366 261,229
Interest expense:
Deposits 147,399 160,536 135,417
Federal funds purchased and securities sold
under repurchase agreements 13,805 27,892 23,565
Long-term notes payable 1,630 1,709 1,776
Other borrowings 3 2,269 2,548
-------- -------- --------
Total Interest Expense 162,837 192,406 163,306
-------- -------- --------
Net Interest Income 110,044 106,960 97,923
Provision (credit) for possible loan losses 31,993 28,902 27,224
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 78,051 78,058 70,699
Non-interest income:
Trust department 18,777 16,211 13,912
Service charges on deposit accounts 15,146 13,290 12,330
Other service charges, collection and
exchange charges, commissions and fees 7,304 6,293 5,577
Net gain (loss) on securities transactions 129 516 732
Other 9,236 14,170 20,746
------- ------- -------
Total Non-Interest Income 50,592 50,480 53,297
Non-interest expense:
Salaries and wages 43,019 43,361 43,499
Pension and other employee benefits 9,148 8,567 8,556
Net occupancy of banking premises 17,171 16,370 15,454
Furniture and equipment 8,067 8,690 10,591
Provision for real estate losses 11,172 8,131 6,633
Restructuring costs -- -- --
Other 48,050 40,546 36,660
------- ------- -------
Total Non-Interest Expense 136,627 125,665 121,393
Income (Loss) Before Income Taxes
(Credits), Extraordinary Credit and
Cumulative Effect of Accounting Change (7,984) 2,873 2,603
Income Taxes (credits) 236 200 200
------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change (8,220) 2,673 2,403
Extraordinary Credit-income tax benefit -- -- --
Cumulative effect of change in accounting for
income taxes -- -- --
------- ------- -------
Net Income (Loss) $(8,220) $ 2,673 $ 2,403
======== ======= =======
Net income (loss) per common share $ (.85) $ .28 $ .26
======== ======= =======
Return on average assets N/M .08% .07%
Return on average equity N/M 1.51 1.39
</TABLE>
Page 47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-----------------------------
1993
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 147 $ 4 2.68%
Securities:
U.S. Treasury 495,760 22,386 4.52
U.S. Government agencies and corporations 1,021,083 65,155 6.38
States and political subdivisions:
Tax-exempt 11,078 1,093 9.86
Taxable 1,148 95 8.25
Other 54,333 2,792 5.14
---------- -------
Total securities 1,583,402 91,521 5.78
Federal funds sold and securities purchased
under resale agreements 255,613 7,714 3.02
Loans, net of unearned discount 1,158,057 91,263 7.88
---------- -------
Total Earning Assets and Average Rate Earned 2,997,219 190,502 6.35
Cash and due from banks 315,354
Allowance for possible loan losses (31,127)
Banking premises and equipment 87,085
Accrued interest and other assets 143,632
----------
Total Assets $3,512,163
==========
Liabilities:
Demand deposits:
Commercial and individual $ 631,363
Correspondent banks 143,008
Public funds 42,075
----------
Total demand deposits 816,446
Time deposits:
Savings and Interest-on-Checking 750,386 14,840 1.98
Money market deposit accounts 534,814 13,426 2.51
Time accounts 907,125 27,693 3.05
Public funds 74,979 2,120 2.83
---------- -------
Total time deposits 2,267,304 58,079 2.56
----------
Total deposits 3,083,750
Federal funds purchased and securities sold
under repurchase agreements 131,096 3,304 2.52
Long-term notes payable 4,075 380 9.33
Other borrowings 508 30 5.91
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,402,983 61,793 2.57
------- ----
Accrued interest and other liabilities 44,184
----------
Total Liabilities 3,263,613
Shareholders' Equity 248,550
----------
Total Liabilities and Shareholders' Equity $3,512,163
==========
Net interest income $128,709
========
Net interest spread 3.78%
====
Net interest income to total average earning assets 4.29%
====
Net interest income to total average earning assets-
with federal funds net 4.49%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1992
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 203 $ 8 4.10%
Securities:
U.S. Treasury 621,460 35,167 5.66
U.S. Government agencies and corporations 669,786 56,712 8.47
States and political subdivisions:
Tax-exempt 13,126 1,228 9.43
Taxable 11,600 736 6.35
Other 100,839 5,756 5.71
---------- --------
Total securities 1,416,811 99,599 7.03
Federal funds sold and securities purchased
under resale agreements 195,398 6,711 3.43
Loans, net of unearned discount 1,024,885 84,792 8.27
---------- --------
Total Earning Assets and Average Rate Earned 2,637,297 191,110 7.25
Cash and due from banks 262,995
Allowance for possible loan losses (36,793)
Banking premises and equipment 80,794
Accrued interest and other assets 110,951
----------
Total Assets $3,055,244
==========
Liabilities:
Demand deposits:
Commercial and individual $ 495,199
Correspondent banks 136,487
Public funds 33,842
----------
Total demand deposits 665,528
Time deposits:
Savings and Interest-on-Checking 541,191 13,486 2.49
Money market deposit accounts 477,877 14,838 3.11
Time accounts 946,480 36,775 3.89
Public funds 79,621 3,708 4.66
---------- -------
Total time deposits 2,045,169 68,807 3.36
---------- -------
Total deposits 2,710,697
Federal funds purchased and securities sold
under repurchase agreements 102,550
Long-term notes payable 14,568 3,139 3.06
Other borrowings 1,378 9.46
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,162,287 73,324 3.39
------- ----
Accrued interest and other liabilities 35,398
----------
Total Liabilities 2,863,213
Shareholders' Equity 192,031
----------
Total Liabilities and Shareholders' Equity $3,055,244
==========
Net interest income $117,786
========
Net Interest spread 3.86%
====
Net interest income to total average earning assets 4.47%
====
Net interest income to total average earning assets-
with federal funds net 4.65%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
Page 48
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-----------------------------
1991
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 212 $ 13 6.30%
Securities:
U.S. Treasury 352,698 25,486 7.23
U.S. Government agencies and corporations 818,174 73,899 9.03
States and political subdivisions:
Tax-exempt 37,742 3,469 9.19
Taxable 16,717 1,356 8.11
Other 109,231 8,082 7.40
---------- --------
Total securities 1,334,562 112,292 8.41
Federal funds sold and securities purchased
under resale agreements 197,467 11,478 5.81
Loans, net of unearned discount 1,149,233 109,597 9.54
---------- --------
Total Earning Assets and Average Rate Earned 2,681,474 233,380 8.70
Cash and due from banks 250,412
Allowance for possible loan losses (44,483)
Banking premises and equipment 74,014
Accrued interest and other assets 143,236
----------
Total Assets $3,104,653
==========
Liabilities:
Demand deposits:
Commercial and individual $ 457,266
Correspondent banks 111,542
Public funds 30,631
----------
Total demand deposits 599,439
Time deposits:
Savings and Interest-on-Checking 473,485 19,377 4.09
Money market deposit accounts 431,141 20,077 4.66
Time accounts 1,145,725 68,528 5.98
Public funds 108,130 7,304 6.75
---------- -------
Total time deposits 2,158,481 115,286 5.34
----------
Total deposits 2,757,920
Federal funds purchased and securities sold
under repurchase agreements 116,281 5,913 5.08
Long-term notes payable 16,064 1,502 9.35
Other borrowings 266 25 9.54
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,291,092 122,726 5.35
------- ----
Accrued interest and other liabilities 38,123
----------
Total Liabilities 2,928,654
Shareholders' Equity 175,999
----------
Total Liabilities and Shareholders' Equity $3,104,653
==========
Net interest income $110,654
========
Net Interest spread 3.35%
====
Net interest income to total average earning assets 4.13%
====
Net interest income to total average earning assets-
with federal funds net 4.31%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-----------------------------
1990
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 878 $ 82 9.34%
Securities:
U.S. Treasury 211,096 18,384 8.71
U.S. Government angencies and corporations 874,229 82,118 9.39
States and political subdivisions:
Tax-exempt 54,078 4,935 9.13
Taxable 17,510 1,417 8.09
Other 119,022 10,243 8.61
---------- --------
Total securities 1,275,935 117,097 9.18
Federal funds sold and securities purchased
under resale agreements 281,628 23,130 8.21
Loans, net of unearned discount 1,314,907 135,451 10.30
---------- --------
Total Earning Assets and Average Rate Earned 2,873,348 275,760 9.60
Cash and due from banks 257,929
Allowance for possible loan losses (42,608)
Banking premises and equipment 71,902
Accrued interest and other assets 128,539
----------
Total Assets $3,289,110
==========
Liabilities:
Demand deposits:
Commercial and individual $ 455,325
Correspondent banks 100,542
Public funds 20,481
----------
Total demand deposits 576,348
Time deposits:
Savings and Interest-on-Checking 432,280 20,933 4.84
Money market deposit accounts 435,332 21,703 4.99
Time accounts 1,290,617 94,986 7.36
Public funds 133,138 9,777 7.34
---------- --------
Total time deposits 2,291,367 147,399 6.43
----------
Total deposits 2,867,715
Federal funds purchased and securities sold
under repurchase agreements 181,620 13,805 7.60
Long-term notes payable 17,424 1,630 9.35
Other borrowings 37 3 8.28
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,490,448 162,837 6.54
Accrued interest and other liabilities 44,003 -------- ----
----------
Total Liabilities 3,110,799
Shareholders' Equity 178,311
----------
Total Liabilities and Shareholders' Equity $3,289,110
==========
Net interest income $112,923
========
Net Interest spread 3.06%
====
Net interest income to total average earning assets 3.93%
====
Net interest income to total average earning assets-
with federal funds net 4.20%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-----------------------------
1989
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 19,407 $ 1,814 9.35%
Securities:
U.S. Treasury 253,326 21,058 8.31
U.S. Government agencies and corporations 676,778 61,865 9.14
States and political subdivisions:
Tax-exempt 68,234 6,133 8.99
Taxable 22,232 2,303 10.36
Other 132,745 12,150 9.15
---------- --------
Total securities 1,153,315 103,509 8.97
Federal funds sold and securities purchased
under resale agreements 491,073 45,578 9.28
Loans, net of unearned discount 1,406,773 152,051 10.81
---------- --------
Total Earning Assets and Average Rate Earned 3,070,568 302,952 9.87
Cash and due from banks 256,228
Allowance for possible loan losses (42,328)
Banking premises and equipment 67,061
Accrued interest and other assets 103,589
----------
Total Assets $3,455,118
==========
Liabilities:
Demand deposits:
Commercial and individual $ 442,697
Correspondent banks 83,194
Public funds 16,234
----------
Total demand deposits 542,125
Time deposits:
Savings and Interest-on-Checking 378,739 19,015 5.02
Money market deposit accounts 472,333 24,215 5.13
Time accounts 1,336,139 107,416 8.04
Public funds 133,204 9,890 7.42
---------- --------
Total time deposits 2,320,415 160,536 6.92
----------
Total deposits 2,862,540
Federal funds purchased and securities sold
under repurchase agreements 323,854 27,892 8.61
Long-term notes payable 18,536 1,709 9.22
Other borrowings 21,221 2,269 10.69
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,684,026 192,406 7.17
Accrued interest and other liabilities 51,452 -------- ----
----------
Total Liabilities 3,277,603
Shareholders' Equity 177,515
----------
Total Liabilities and Shareholders' Equity $3,455,118
==========
Net interest income $110,546
========
Net Interest spread 2.70%
====
Net interest income to total average earning assets 3.60%
====
Net interest income to total average earning assets-
with federal funds net 4.02%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-----------------------------
1988
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 10,683 $ 784 7.34%
Securities:
U.S. Treasury 257,472 18,850 7.32
U.S. Government agencies and corporations 329,881 28,941 8.77
States and political subdivisions:
Tax-exempt 70,247 7,010 9.98
Taxable 23,659 1,923 8.13
Other 79,907 6,234 7.80
---------- --------
Total securities 761,166 62,958 8.27
Federal funds sold and securities purchased
under resale agreements 608,870 46,774 7.68
Loans, net of unearned discount 1,566,663 154,503 9.86
---------- --------
Total Earning Assets and Average Rate Earned 2,947,382 265,019 8.99
Cash and due from banks 214,148
Allowance for possible loan losses (37,278)
Banking premises and equipment 65,381
Accrued interest and other assets 83,313
----------
Total Assets $3,272,946
==========
Liabilities:
Demand deposits:
Commercial and individual $ 411,505
Correspondent banks 70,372
Public funds 15,999
----------
Total demand deposits 497,876
Time deposits:
Savings and Interest-on-Checking 342,252 17,356 5.07
Money market deposit accounts 506,074 26,372 5.21
Time accounts 1,196,238 83,137 6.95
Public funds 134,444 8,552 6.36
---------- --------
Total time deposits 2,179,008 135,417 6.21
----------
Total deposits 2,676,884
Federal funds purchased and securities sold
under repurchase agreements 333,650 23,565 7.06
Long-term notes payable 19,931 1,776 8.91
Other borrowings 27,287 2,548 9.34
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,559,876 163,306 6.38
Accrued interest and other liabilities 42,393 -------- ----
----------
Total Liabilities 3,100,145
Shareholders' Equity 172,801
----------
Total Liabilities and Shareholders' Equity $3,272,946
==========
Net interest income $101,713
========
Net Interest spread 2.61%
====
Net interest income to total average earning assets 3.45%
====
Net interest income to total average earning assets-
with federal funds net 3.89%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988.
Non-accrual loans are included in the average loan amounts outstanding for
these computations.
</TABLE>
Page 49
EXHIBIT 21
Subsidiaries of Cullen/Frost
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
As of March 18, 1994, Cullen/Frost owned directly, or
indirectly through wholly owned subsidiaries, the following
subsidiaries.
PERCENTAGES OF
ORGANIZED VOTING SECURITIES
UNDER OWNED BY
LAWS OF CULLEN/FROST
---------- -----------------
The Frost National Bank of United States 100%
San Antonio
Cullen/Frost Bank of Dallas, N.A. United States 100%
United States National Bank United States 100%
of Galveston
Main Plaza Corporation Texas 100%
Daltex General Agency, Inc. Texas 100%
The New Galveston Company, Inc. Delaware 100%
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cullen/Frost Bankers, Inc. of our report dated January 31, 1994, included in
the 1993 Annual Report to Shareholders of Cullen/Frost Bankers, Inc.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-30776) pertaining to the Cullen/Frost Bankers,
Inc. 1983 Nonqualified Stock Option Plan, the Registration Statement (Form
S-8 No. 33-30777) pertaining to the Cullen/Frost Bankers, Inc. 1988
Nonqualified Stock Option Plan, the Registration Statement (Form S-8
No. 33-37500) pertaining to the 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and its Affiliates, the Registration Statement
(Form S-8 No. 33-39478) pertaining to the 1991 Thrift Incentive Stock
Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates,
the Registration Statement (Form S-8 No. 33-53492) pertaining to the
Cullen/Frost Bankers, Inc. Restricted Stock Plan, and the Registration
Statement (Form S-8 No. 33-53622) pertaining to the Cullen/Frost Bankers,
Inc. 1992 Stock Plan, of our report dated January 31, 1994 with respect
to the consolidated financial statements of Cullen/Frost Bankers, Inc.
incorporated by reference in this Annual Report (Form 10-K) for the year
ended December 31, 1993.
/s/ ERNST & YOUNG
-----------------
ERNST & YOUNG
San Antonio, Texas
March 29, 1994
EXHIBIT 24
Power of Attorney
<PAGE>
CULLEN/FROST BANKERS, INC.
OFFICERS' AND DIRECTORS' POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints T.C. Frost, Robert S. McClane and Phillip D.
Green, and each of them, his true and lawful attorneys-in-fact and agents,
and with power of substitution and resubstitution, for him and in his name,
place and stead, and in any and all capacities, to sign the Annual Report
on Form 10-K of Cullen/Frost Bankers, Inc. for the fiscal year ended
December 31, 1993, to sign any and all amendments thereto, and to file such
Annual Report and amendments, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or
either of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Signatures Title Date
- -------------------------- ------------------------ ----------------
Chairman of the Board
and Director (Principal)
/s/ T.C. FROST Executive Officer) February 1, 1994
- -------------------------- ----------------
(T.C. Frost)
President and
/s/ ROBERT S. McCLANE Director February 1, 1994
- -------------------------- ----------------
(Robert S. McClane
/s/ ISAAC ARNOLD, JR. Director February 1, 1994
- -------------------------- ----------------
(Isaac Arnold, Jr.)
/s/ HENRY E. CATTO Director February 1, 1994
- -------------------------- ----------------
(Henry E. Catto)
/s/ HARRY H. CULLEN Director February 1, 1994
- -------------------------- ----------------
(Harry H. Cullen)
/s/ ROY H. CULLEN Director February 1, 1994
- -------------------------- ----------------
(Roy H. Cullen)
/s/ RICHARD W. EVANS, JR. Director February 1, 1994
- -------------------------- ----------------
(Richard W. Evans, Jr.)
/s/ W. N. FINNEGAN, III Director February 1, 1994
- -------------------------- ----------------
(W. N. Finnegan, III)
/s/ JOSEPH H. FROST Director February 1, 1994
- -------------------------- ----------------
(Joseph H. Frost)
/s/ JAMES W. GORMAN, JR. Director February 1, 1994
- -------------------------- ----------------
(James W. Gorman, Jr.)
/s/ JAMES L.HAYNE Director February 1, 1994
- -------------------------- ----------------
(James L. Hayne)
/s/ HARRIS L. KEMPNER, JR. Director February 1, 1994
- -------------------------- ----------------
(Harris L. Kempner, Jr.)
/s/ RICHARD M. KLEBERG, III Director February 1,
1994
- -------------------------- ----------------
(Richard M. Kleberg, III)
Signatures Title Date
- -------------------------- ------------------------ ----------------
/s/ QUINCY LEE Director February 1, 1994
- -------------------------- ----------------
(Quincy Lee)
/s/ J. GORDON MUIR, JR. Director February 1, 1994
- -------------------------- ----------------
(J. Gordon Muir, Jr.)
/s/ W.B. OSBORN, JR. Director February 1, 1994
- -------------------------- ----------------
(W.B. Osborn, Jr.)
/s/ ROBERT G. POPE Director February 1, 1994
- -------------------------- ----------------
(Robert G. Pope)
/s/ HERMAN RICHTER Director February 1, 1994
- -------------------------- ----------------
(Herman Richter)
/s/ A. FRANK SMITH, JR. Director February 1, 1994
- -------------------------- ----------------
(A. Frank Smith, Jr.)
/s/ CURTIS VAUGHAN, JR. Director February 1, 1994
- -------------------------- ----------------
(Curtis Vaughan, Jr.)
Executive Vice
President and
/s/ PHILLIP D. GREEN Treasurer February 1, 1994
- -------------------------- ----------------
(Phillip D. Green)
