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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CULLEN/FROST BANKERS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[CULLEN/FROST BANKERS, INC. LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 1995
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To the Shareholders of
CULLEN/FROST BANKERS, INC.:
The Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc.
("Cullen/Frost") will be held in the Commanders Room at The Frost National Bank,
100 West Houston Street, San Antonio, Texas, on Tuesday, May 16, 1995, at 10:00
a.m., San Antonio time, for the following purposes:
1. To elect 21 directors to serve during the ensuing year or until
their successors are elected and have qualified;
2. To consider and vote upon the selection of Ernst & Young LLP to act
as independent auditors of Cullen/Frost for the fiscal year that commenced
January 1, 1995, and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 24, 1995, are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES MUST BE PRESENT EITHER IN
PERSON OR BY PROXY IN ORDER TO HOLD THE MEETING. TO ENSURE YOUR REPRESENTATION
AT THE ANNUAL MEETING, PLEASE PROMPTLY MARK, SIGN, DATE, AND MAIL THE ENCLOSED
PROXY IN THE POSTAGE PREPAID ENVELOPE PROVIDED FOR THIS PURPOSE.
All shareholders are cordially invited to attend the annual meeting.
By Order of the Board of Directors
/s/ DIANE JACK
----------------------------------
DIANE JACK
Corporate Secretary
Dated: April 3, 1995
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[CULLEN/FROST BANKERS,INC. LOGO]
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PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 1995
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SOLICITATION AND REVOCATION OF PROXY
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cullen/Frost Bankers, Inc. ("Cullen/Frost" or the
"Company") of proxies to be used at the Annual Meeting of Shareholders. The
meeting is scheduled to be held on May 16, 1995, in accordance with the attached
notice. This Proxy Statement and the accompanying proxy card are being mailed to
shareholders beginning on or about April 3, 1995.
Cullen/Frost will bear the cost of solicitation of proxies for the Annual
Meeting. In addition to solicitation by mail, the directors, officers and
employees of Cullen/Frost may solicit proxies by telephone, telegram or in
person. Cullen/Frost also has retained Georgeson & Co., Inc. to assist in the
solicitation of proxies, for a fee of approximately $6,500 plus out-of-pocket
expenses. Brokers, nominees, fiduciaries and other custodians have been
requested to forward proxy soliciting material to the beneficial owners of
Cullen/Frost Common Stock, and Cullen/Frost will reimburse them for their
out-of-pocket expenses.
All shares of Cullen/Frost Common Stock represented by properly executed
proxies, if returned in time, will be voted at the meeting in accordance with
the instructions indicated thereon. If no direction is given, proxies will be
voted for the election as directors of the nominees referred to in Item 1 of the
Proxy Statement; in favor of the proposal described in Item 2 of it, and in the
discretion of persons named on the proxy in connection with any other business
that may properly come before the meeting. Shares represented by properly
executed proxies, if returned in time, will be counted for purposes of
determining the number of shares present and voted at the meeting, even if
authority to vote on any particular matter is withheld. A shareholder may revoke
a proxy at any time before it is voted by delivering a written revocation notice
at the Company's principal executive office to the Secretary of Cullen/Frost,
Ms. Diane Jack, 100 West Houston Street, San Antonio, Texas 78205. A shareholder
who attends the meeting may vote by ballot at the meeting if desired, and such
vote will cancel any proxy vote previously given.
VOTING OF SECURITIES
The only class of voting securities of Cullen/Frost outstanding and
entitled to vote at the meeting is Common Stock, par value $5.00 per share. On
March 24, 1995, the record date for determining shareholders of Cullen/Frost
entitled to vote at the meeting, there were outstanding 11,136,987 shares of
Common Stock, each entitled to one vote. Action to be taken on the above items
will be determined by a majority of the shares of Common Stock present and
voted. Proxies which are marked "abstain" will not be counted in determining
whether a majority vote was obtained.
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ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
A total of 21 directors are to be elected at the Annual Meeting of
Shareholders, each to hold office until the next Annual Meeting or until his
successor is elected and qualified. Unless otherwise indicated, the proxies will
be voted for the election of the nominees listed below. Although Cullen/Frost
management does not contemplate that any nominee will be unable to serve, if
such a situation arises prior to or at the meeting, the persons named in the
accompanying proxy will vote in accordance with their best judgment unless
otherwise instructed. All nominees are currently members of the Board.
Below is biographical information about each nominee, including his age,
recent business experience and/or position with the Company. Also included is
information on the nominees' ownership of Cullen/Frost Common stock.
<TABLE>
<CAPTION>
SHARES OWNED(1)
--------------------------
AMOUNT AND
NATURE
DIRECTOR OF BENEFICIAL PERCENT
NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP OF CLASS
- - - ------------------------- --- ------------------------------ ---- -------------- --------
<S> <C> <C> <C> <C> <C>
Isaac Arnold, Jr. ....... 59 Oil, real estate, investments 1977 25,178(5) .23
Royce S. Caldwell........ 56 President and CEO Southwestern 1994 200 .00
Bell Telephone Company
Ruben R. Cardenas........ 64 Attorney, Cardenas, Whitis & 1995 500(6) .00
Stephen, L.L.P
Henry E. Catto........... 64 Partner, Catto & Catto 1993 5,000 .04
Insurance Agency; former
Director, U.S. Information
Agency; former U.S. Ambassador
to Great Britain, and former
Vice Chairman, H&C
Communications
Harry H. Cullen.......... 59 Oil, real estate, investments 1993(2) 70,986(7) .64
Roy H. Cullen............ 65 Oil, real estate, investments 1977 28,549(8) .26
Richard W. Evans, Jr. ... 48 Chief Banking Officer of 1993 43,509(9) .39
Cullen/Frost; Chairman of the
Board and Chief Executive
Officer of Frost National
Bank, a Cullen/Frost
Subsidiary
W. N. Finnegan, III...... 69 Attorney; former President, R. 1977 11,013 .12
E. Smith Interests, Inc.
Joseph H. Frost.......... 54 Investments 1980 39,696 .36
T. C. Frost.............. 67 Chairman of the Board and 1966 344,566(9) 3.09
Chief Executive Officer of
Cullen/Frost
James W. Gorman, Jr...... 64 Oil, real estate, and 1987 6,000 .05
investments
James L. Hayne........... 61 Managing partner of Catto & 1977 4,899 .04
Catto (insurance agency)
</TABLE>
(Table continued on following page)
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2
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<TABLE>
<CAPTION>
SHARES OWNED(1)
--------------------------
AMOUNT AND
NATURE
DIRECTOR OF BENEFICIAL PERCENT
NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP OF CLASS
- - - ------------------------- --- ---------------------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Harris L. Kempner,
Jr. ................... 55 President of Kempner Capital 1983 73,557(10) .66
Management, Inc. (money
management services) and
Chairman Emeritus of the Board
of United States National Bank
of Galveston ("United States
National Bank", a Cullen/Frost
subsidiary)
Richard M. Kleberg,
III.................... 52 Investments 1992 1,100 .01
Quincy Lee............... 79 Real estate development and 1974(3) 256 .00
investments
Robert S. McClane........ 55 President and Chief 1985 46,986(9) .42
Administrative Officer of
Cullen/Frost
J. Gordon Muir, Jr....... 53 Vice Chairman of Cullen/Frost 1979 20,855(9) .19
William B. Osborn, Jr.... 75 Oil and gas producer 1977 5,562 .05
Robert G. Pope........... 59 Former Vice Chairman of 1993 500 .00
Southwestern Bell Corporation;
former President and Chief
Executive Officer of
Southwestern Bell Telephone
Company; former Director,
Boatmen's Bancshares
Herman J. Richter........ 77 Former Chairman of the Board 1978(4) 10,723(11) .10
of Richter's Bakery (wholesale
bakery)
Curtis Vaughan, Jr. ..... 67 Chairman of the Board of 1980 6,698 .06
Vaughan & Sons, Inc.
(manufacturer and distributor
of building materials and real
estate development)
</TABLE>
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(1) Unless otherwise indicated, beneficial ownership is as of December 31,
1994, and the owners have sole voting and investment power for the shares
of Cullen/Frost Common Stock reported. Beneficial ownership includes shares
which the individual had a right to acquire pursuant to employee stock
options exercisable within sixty (60) days from December 31, 1994, as
follows -- Mr. T. C. Frost 20,862, Mr. McClane 13,868, Mr. Evans 10,318,
and Mr. Muir 8,297. The number of shares of Cullen/Frost Common Stock
beneficially owned by all directors, nominees and named executive officers
as a group is disclosed on page 13 of this Proxy Statement.
(2) Also served as a director of Cullen Bank, a former Cullen/Frost subsidiary,
from 1969 to 1993.
(3) Also served as a director from 1968 to 1972.
(4) Also served as a director from 1971 to 1972.
(5) Includes 21,186 shares for which Mr. Arnold has shared voting and
investment power with others.
(6) Beneficial ownership is as of February 7, 1995.
(Notes continued on following page)
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(7) Includes 26,532 shares for which Mr. Harry Cullen has shared voting and
investment power with Mr. Roy Cullen and others.
(8) Includes 26,532 shares for which Mr. Roy Cullen has shared voting and
investment power with Mr. Harry Cullen and others. Also includes 1,304
shares for which Mr. Roy Cullen has shared voting and shared investment
power with others.
(9) Includes the following shares allocated under the 401(k) Stock Purchase
Plan for Employees of Cullen/Frost Bankers, Inc., for which the beneficial
owners have sole voting but no investment power -- Mr. T. C. Frost 9,543,
Mr. McClane 5,706, Mr. Evans 6,665, and Mr. Muir 5,342. In addition, the
number of shares reported for Mr. T. C. Frost includes 13,296 shares held
in the Pat and Tom Frost Foundation Trust for which Mr. T. C. Frost
disclaims beneficial ownership.
(10) Includes 73,557 shares for which Mr. Kempner, Jr. has shared voting and
investment power with others.
(11) Includes 5,162 shares for which Mr. Richter has shared voting and
investment power with others.
Except for the relationships noted in the preceding table or below, no
nominee has had any other principal occupation or employment with Cullen/Frost
or any of its subsidiaries within the last five years. Each nominee has been
engaged in the above principal occupations for at least five years.
The following are directorships held by nominees in companies (other than
Cullen/Frost) with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the requirements
of Section 15(d) of such Act or registered as an investment company under the
Investment Company Act of 1940, as amended; Mr. Arnold -- Nuevo Energy Company;
Mr. Cardenas -- SBC Communications Inc.; Mr. Harry Cullen -- Pennzoil Co.; Mr.
T. C. Frost -- SBC Communications Inc.; Mr. Kempner, Jr. -- American Indemnity
Financial Corporation, Imperial Holly Corporation and Texas-New Mexico Power
Company; and Mr. Kleberg -- Abraxas Petroleum Corporation.
Each Cullen/Frost director is scheduled to serve as such until the next
Annual Meeting of Shareholders or until his successor is elected and qualified.
There are no arrangements or understandings between any nominee or director of
Cullen/Frost and any other person pursuant to which he was or is to be selected
as a director nominee.
The only family relationships among the directors or executive officers of
Cullen/Frost which are first cousin or closer are those of Mr. Henry Catto and
Mrs. James L. Hayne, who are first cousins; Messrs. Harry Cullen and Roy Cullen
who are brothers; and the Cullen brothers and Mr. Arnold who are first cousins.
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
The Cullen/Frost Board of Directors has four regularly scheduled, quarterly
meetings each year. The Board has Executive, Audit, Compensation and Benefits,
and Strategic Planning Committees. The Committees' functions and current members
are:
Executive Committee: This Committee acts for the Board of Directors between
meetings of the Board, except to the extent limited by resolutions of the Board,
by the Bylaws of Cullen/Frost or Texas law. Current members are T. C. Frost,
Robert S. McClane, and Richard W. Evans, Jr.
Audit Committee: The Audit Committee is composed of outside (non-employee)
directors. It reviews the scope and results of the annual audit by the
independent auditors Ernst & Young LLP, and it also reviews their performance of
non-audit services and considers whether the performance of such services will
have any effect on their independence. The Committee recommends its choice for
independent auditors to the Board of Directors. The Committee also monitors
regulatory examinations, the level of criticized assets, adequacy of loan loss
reserves, and the reports of internal audit and loan review at each subsidiary
of Cullen/Frost. It also reviews the financial reporting practices and the
internal audit, loan review, compliance, and appraisal functions for
Cullen/Frost. Current members are Isaac Arnold, Jr., Royce S. Caldwell, W. N.
Finnegan, III, Richard M. Kleberg, III, and Herman Richter.
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Compensation and Benefits Committee: The Compensation and Benefits
Committee is composed of outside (non-employee) directors. It makes
recommendations to the Board of Directors about compensation for certain
officers of Cullen/Frost. (See the "Board Compensation and Benefits Committee
Report on Executive Annual Compensation" below). In addition, to ensure
consistent administration of company-wide employee benefit plans, the Committee
functions as the administrative committee of (i) the Retirement Plan, (ii) the
1983 and 1988 Non-qualified Stock Option Plans, (iii) the Restricted Stock Plan,
(iv) the 401(k) Stock Purchase Plan, (v) the 1991 Stock Purchase Plan, and (vi)
the 1992 Stock Plan, (vii) the Pre-Tax Benefit Plan, (viii) the Group Medical
and Life Insurance Plan. Current members are Roy H. Cullen, James W. Gorman,
Jr., and Curtis Vaughan, Jr., John C. Korbell, an Advisory Director of
Cullen/Frost, also serves as an Advisory Director to the Compensation and
Benefits Committee.
Strategic Planning Committee: The Strategic Planning Committee was
appointed to analyze strategic directions for Cullen/Frost in light of
competitive conditions, to monitor the corporate mission statement and capital
planning, and to review short- and long-term goals. Current members are T. C.
Frost, Isaac Arnold, Jr., Harris L. Kempner, Jr., Quincy Lee, and Curtis
Vaughan, Jr.
Directors' fees are paid by Cullen/Frost on the basis of an annual retainer
of $6,000 per calendar year, plus $750 for each meeting attended. Cullen/Frost
also pays a fee of $750 per director for participation in any meeting of a
committee to which he has been appointed, except for the Chairman of the Audit
Committee, who receives $1,500 for each Audit Committee meeting he attends.
Directors of Cullen/Frost who also are officers of Cullen/Frost or any of its
subsidiaries receive no fees for serving on the Board of Directors or any of its
committees.
During 1994, there were six meetings of the Board of Directors, three
meetings of the Executive Committee, four meetings of the Audit Committee, four
meetings of the Compensation and Benefits Committee, and four meetings of the
Strategic Planning Committee. During 1994, all of the directors attended at
least 75 percent of the aggregate of the meetings of the Board of Directors and
the committees on which they served except for Messrs. Isaac Arnold, Jr., Joseph
Frost, and Herman Richter.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
1. BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") is committed to maintaining compensation programs for the Company's
executive officers which further the Company's mission. We, therefore, adhere to
the following compensation policies which are intended to facilitate the
achievement of the Company's business strategies:
- Compensation levels for each element of pay should be targeted at rates
that are reflective of the median levels of current market practices
prevalent in comparable financial organizations. Offering
market-comparable pay opportunities allows the Company to attract and
maintain a stable, successful management team.
- Executives' total compensation packages should strengthen the
relationship between pay and performance with variable, at-risk
compensation that is dependent upon the level of success in meeting
specified Company and individual performance goals.
- Ownership of the Company's Common Stock by executives should be
encouraged to further align executives' interests with those of
shareholders and the Company and to promote a continuing focus on
building profitability and shareholder value.
- Sustained superior performance by individual executives over a period of
years, including actions to increase revenues, reduce expenses, enhance
service and product quality, improve market share and thereby enhancing
shareholder value, should be rewarded.
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<PAGE> 8
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To preserve objectivity in the achievement of its goals, the Committee is
comprised of three independent, non-employee directors and one independent,
non-employee advisory director. It is the Committee's overall goal to develop
compensation policies that are consistent with and linked to strategic business
objectives and Company values. The Committee approves the design of, assesses
the effectiveness of, and administers compensation programs in support of
compensation policies. The Committee also reviews all salary arrangements and
other remuneration for a group of senior executives, including all those named
in the Summary Compensation table on page 9.
Each year a comprehensive analysis of competitive market data is provided
by an independent compensation consultant engaged by, and responsible to, the
Committee. The data provided compares the Company's compensation practices and
programs to a group of comparator companies. This group of comparator companies
is comprised of companies who have business operations, total assets, market
capitalizations, and lines of business similar to those of the Company.
The Committee reviews the selection of companies used for compensation
comparison purposes.
These comparator companies include, but are not limited to, the companies
included in the Standard & Poor's (S&P's) Major Regional Bank Index. The
Committee has chosen not to use the S&P's Major Regional Bank Index as its
comparator group for compensation purposes since detailed data for all senior
executives at the banks comprising the index is not available. The S&P's Major
Regional Bank Index was used for comparison of total shareholder return shown in
the Performance Graph on page 14.
The key elements of the Company's executive compensation are base salary,
annual incentives, and long-term compensation. These key elements are addressed
separately below. In determining compensation, the Committee considers all
elements of an executive's total compensation package, including severance
plans, insurance, and other benefits.
BASE SALARIES
Base salaries constituted approximately 66% of total executive compensation
for 1994. The Committee believes that the demonstration of superior abilities
and performance by individual employees should be rewarded, in part, through
salary reviews. The Committee reviews the base salary of each of the five
highest-paid executives on an annual basis.
Base salaries may be adjusted after an evaluation of each executive's
performance in conjunction with a review of the median base pay received by
other individuals holding similar positions in the Company's comparator group.
Following the determination of the market-based pay, each officer's individual
performance, achievements, and contributions to the growth of the Company are
evaluated subjectively in determining the individual's salary. Finally, the
overall performance and needs of the Company are examined and salaries may be
adjusted in response to the need to attract and retain appropriate officers. The
Company places no specific weights on the factors used in determining base
salary levels.
Based on the factors listed above, base salaries approximated median market
levels of comparator companies in 1994, and merit increases were made at a rate
comparable to the increases provided at other companies.
Effective July 1, 1994, Mr. Frost activated his retirement benefits while
continuing as Chief Executive Officer of the Company. Accordingly, his base
salary was reduced from $400,000 to $140,000. In determining Mr. Frost's base
salary for 1995, the Committee considered the Company's overall financial
performance for the year, Mr. Frost's individual performance and long-term
contributions to the success of the Company, and base salaries of CEOs at
comparator companies. The Committee elected to maintain Mr. Frost's base salary
level of $140,000 which, in conjunction with his retirement income, results in a
comparable competitive level of base pay.
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<PAGE> 9
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ANNUAL INCENTIVES
Beginning in 1994, the Company maintained a formal annual incentive plan
for executives. Annual incentive payments accounted for approximately 16% of
total compensation earned by executives in 1994. The purpose of the annual
incentive program is to promote and reward teamwork as measured by overall
corporate performance while recognizing individual contributions. Overall
company financial performance determines the opportunity for a bonus payment, if
any, while business unit and individual contribution as measured by the
Committee determines the actual award level.
Based on competitive target incentives at comparator companies, the
Committee determined target incentives by position and initiated a three-year
phase-in to these levels. It is the intention of the Committee to gradually
increase the targets to competitive levels. The Company must achieve a
predetermined budget or target level of financial performance before any bonuses
are paid out. No bonus pool is established if performance is below the targeted
level, and only the target bonus is paid for performance at or above the
targeted level. The Committee has the authority to adjust results as measured
against financial objectives up or down by 20 percent.
The annual incentive target established for Mr. Frost is based on his
previous base salary of $400,000, which approximates the median base salary of
CEOs at comparable companies. In determining the annual incentive payment for
Mr. Frost for 1994, the Committee reviewed the financial results for the year
and determined that the budget level of performance, as measured by net income,
had been exceeded. The Committee then considered his leadership and
contributions to the success of the Company. They also took into account the
fact that his base salary did not increase for 1995, and awarded Mr. Frost a
bonus of $150,000.
All other proxy reported officers were awarded their targeted bonuses.
LONG-TERM INCENTIVES
The Committee believes that executive compensation should be dependent upon
the performance of the Company as a whole, as well as the performance of
individual executives. Long-term incentives are provided pursuant to the
Company's 1992 Stock Plan approved by the shareholders.
In keeping with the Company's commitment to provide a total compensation
package which includes at-risk components of pay, long-term incentives
constituted approximately 18% of an executive's total compensation package in
1994.
When awarding long-term incentives, the Committee considers executives'
levels of responsibility, prior experience, individual performance, and
compensation practices at comparator companies. The Committee's objective is to
provide executives with targeted long-term incentive award opportunities that
approximate median levels at comparator companies. Current stock holdings and
the magnitude of outstanding long-term incentives are not considered in making
current awards.
STOCK OPTIONS
Non-qualified stock options are granted at an option price not less than
the fair market value of the Common Stock on the date of grant. Accordingly, the
value of stock options is tied to appreciation in the stock price from the date
the options are granted. This design focuses executives on the creation of
shareholder value over the long term and encourages equity ownership in the
Company. Stock options are used as the primary long-term incentive vehicle.
The size of stock option grants is determined based on a percentage of
annualized base salary. The size of the award can be adjusted based on the
Committee's subjective valuation of individual factors and historical award
data. The Compensation and Benefits Committee's objective is to deliver a
competitive award
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<PAGE> 10
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opportunity based on the dollar value of the award granted. As a result, the
number of stock options awarded varies from year to year and is dependent on the
stock price on the date of grant.
In 1994, Mr. Frost received options to purchase 27,500 shares with an
exercise price of $36.25 as is detailed in the table on page 10. The grant
approximated the median level of comparator companies. Without giving effect to
such grants, Mr. Frost now has beneficial ownership of 344,566 shares of the
Company's common stock which includes 20,862 shares for which he has a right to
receive pursuant to presently exercisable employee stock options. With the 1994
grant, Mr. Frost holds options to purchase an additional 78,501 shares. Mr.
Frost's stock option grant was in keeping with the Committee's intent to place
emphasis on long-term compensation which is tied directly to the success of the
Company and, correspondingly, that of shareholders.
RESTRICTED STOCK
Restricted stock provides executives with an immediate link to shareholder
interests and, due to vesting requirements, enhances the Company's ability to
maintain a stable executive team, focused on the Company's long-term success.
The Company has historically granted restricted stock every other year and plans
to continue this policy.
In 1994, the Company did not grant any restricted stock to any
proxy-reported officers.
TAXATION PHILOSOPHY
Recently enacted Section 162(m) of the Internal Revenue Code generally
limits the corporate tax deduction for compensation paid to the Chief Executive
Officer and the four other most highly compensated executive officers unless the
compensation is performance-based. One condition to qualify compensation as
performance-based is to establish the amount of the award on an objective
formula that precludes any discretion.
The Committee continues to carefully review the impact of this new tax code
provision on the Company's incentive plans and has determined that Section
162(m) is currently inapplicable because no named executive officer receives
compensation in excess of $1 million. The Committee also believes it is the
Company's and shareholders' best interests to retain the discretionary
evaluation of individual performance as provided in the annual incentive plan.
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively and that the
various pay vehicles offered are appropriately balanced to provide increased
motivation for executives to contribute to the Company's overall future
successes, thereby enhancing the value of the Company for the shareholders'
benefit.
The Committee will continue to monitor the effectiveness of the Company's
total compensation program to meet the current needs of the Company.
Roy H. Cullen
James W. Gorman, Jr.
John C. Korbell (Advisory Director)
Curtis Vaughan, Jr.
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2. COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS.
During 1994, Frost National Bank, a subsidiary bank of Cullen/Frost, had
customary business and banking transactions, with Mr. Roy H. Cullen, a Company
director serving on the Compensation and Benefits Committee. The transaction was
as follows:
The principal offices of Frost National Bank's Cullen Center branch are
leased on a long-term basis from Cullen Center, Inc., and its motor bank
and convenience center are leased on a long-term basis from
Dresser-Cullen Venture, a Texas joint venture. During 1994, lease
payments of $1,485,379 and $185,421 were made to Cullen Center, Inc. and
Dresser-Cullen Venture, respectively. Cullen Center, Inc. is a 50
percent participant in Dresser-Cullen Venture. Mr. Roy Cullen, a
Cullen/Frost director, owns capital stock of approximately 13 percent in
Cullen Center, Inc.
The foregoing transactions were on substantially the same terms as those
prevailing at the time for comparable transactions with other persons and did
not present unfavorable features. Additional transactions in the future may be
expected to take place with the subsidiary banks in the ordinary course of
business.
Also, a loan originally established in the ordinary course of business with
a subsidiary bank and related to a director has subsequently been reclassified
as other assets. Summit Joint Venture II, of which Mr. Vaughan, a Cullen/Frost
director, is a limited partner, has debt to Frost National Bank which was
originated to finance the purchase and development of real estate. The largest
amount outstanding during 1994 was $3,239,218, and the balance was $1,727,956 as
of January 3, 1995. Interest charged is dependent upon debt repayment amounts.
Debt repayment is based on asset sales during the year.
In the opinion of management all of the above described transactions were
effected on terms comparable to those available to unaffiliated parties.
3. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Shown below is information about annual and long-term compensation for the
past three fiscal years for services in all capacities to Cullen/Frost and its
subsidiaries of the Chief Executive Officer and the other four most highly
compensated executive officers (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
OTHER RESTRICTED OPTIONS ALL OTHER
ANNUAL STOCK /SARS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (SHARES)(3) SATION(4)
- - - --------------------------------------- ---- -------- -------- --------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Frost 1994 $270,000 $150,000 $31,274 $ 0 27,500 $71,912
Chairman and CEO of 1993 $400,000 $ 0 $10,570 $ 55,380 14,300 $56,976
Cullen/Frost 1992 $372,917 $ 0 $10,876 $ 0 8,706 $55,351
Robert S. McClane 1994 $283,333 $ 75,000 $10,312 $ 0 15,000 $24,897
President and Chief Administrative 1993 $280,000 $ 30,000 $ 6,389 $ 39,050 9,300 $21,983
Officer of Cullen/Frost 1992 $247,917 $ 0 $ 6,152 $ 0 6,204 $19,478
Richard W. Evans, Jr. 1994 $283,333 $ 75,000 $11,504 $ 0 15,000 $20,274
Chief Banking Officer of Cullen/Frost 1993 $257,083 $ 30,000 $ 5,647 $ 39,050 9,300 $18,435
Chairman and CEO of Frost Bank 1992 $226,250 $ 0 $ 5,393 $ 0 4,191 $16,244
J. Gordon Muir, Jr. 1994 $220,000 $ 0 $ 6,203 $ 0 0 $17,284
Vice Chairman of Cullen/Frost 1993 $220,000 $ 0 $ 4,574 $ 0 2,500 $17,285
1992 $203,333 $ 20,000 $ 5,333 $ 0 2,541 $17,180
Phillip D. Green 1994 $151,667 $ 32,000 $ 3,281 $ 0 6,000 $10,330
Executive Vice President and Treasurer 1993 $150,000 $ 15,000 $ 2,305 $ 15,620 3,180 $ 9,920
of Cullen/Frost 1992 $133,333 $ 0 $ 2,420 $ 0 1,980 $ 8,850
</TABLE>
(Notes on following page)
- - - --------------------------------------------------------------------------------
9
<PAGE> 12
- - - --------------------------------------------------------------------------------
- - - ---------------
(1) Represents reimbursement for income taxes on contributions to Cullen/Frost's
1991 Thrift Incentive Stock Purchase Plan (1991 Thrift Plan). The 1991
Thrift Plan provides a comparable benefit to the Company's 401(k) Plan for
all employees whose participation in the 401(k) is limited by the IRS rules
(approximately 90 employees in 1994). Mr. Frost's values also include
$21,565 to reimburse him for Medicare and income taxes on life insurance
premiums paid for by the Company.
(2) Represents the dollar value of restricted stock awards, based on the closing
market price of Cullen/Frost stock on grant date. The total number of
restricted shares held and their aggregate market value at December 31, 1994
were: Mr. Frost, 2,855 shares valued at $88,163; Mr. McClane 1,932 shares
valued at $59,660; Mr. Evans, 1,582 shares valued at $48,852; Mr. Muir, 687
shares valued at $21,215; and Mr. Green, 777 shares valued at $23,993.
Aggregate market value is based on a fair market value of $30.88 at December
30, 1994. Dividends are paid on the restricted shares at the same time and
at the same rate as dividends paid to shareholders of unrestricted shares.
Stock awarded in 1993 vests over a four-year period, at 25 percent per year.
(3) 1992 awards adjusted to reflect 10% stock dividend in 1993.
(4) Represents total and/or imputed income from certain insurance premiums paid
by Cullen/Frost and the Company's contribution to the 1991 Thrift Plan. 1994
and 1993 amounts for insurance premiums and/or imputed income were $68,510
and $42,195 respectively. The Company's contribution to the 1991 Thrift Plan
was $76,187 in 1994 and $82,404 in 1993.
Cullen/Frost has employee stock option plans under which options to
purchase Common Stock are granted to executive officers and other key employees.
The table below shows grants during the past year of stock options under the
Cullen/Frost Bankers, Inc. 1992 Stock Plan to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS/SARS AS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS/SARS IN FISCAL EXERCISE EXPIRATION ---------------------------------
NAME GRANTED YEAR(1) PRICE DATE 0% 5% 10%
- - - --------------------- ------------ ------------ -------- ---------- --- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Frost.......... 27,500 17.1% $36.25(3) 10/14/2004 $ 0 $ 626,929 $ 1,588,762
Robert S. McClane.... 15,000 9.3% $36.25 10/14/2004 $ 0 $ 341,961 $ 866,597
Richard W. Evans,
Jr. ............... 15,000 9.3% $36.25 10/14/2004 $ 0 $ 341,961 $ 866,597
J. Gordon Muir,
Jr................. 0 0.0% $-- -- $ 0 $ 0 $ 0
Phillip D. Green..... 6,000 3.7% $36.25 10/14/2004 $ 0 $ 136,785 $ 346,639
All shareholders(2).... N/A N/A $36.25 N/A $ 0 $253,577,230 $642,614,487
</TABLE>
- - - ---------------
(1) Based on 160,500 options granted to all employees in 1994.
(2) Shows potential realizable value at assumed annual rates for all
shareholders based on 11,123,062 shares outstanding as of December 31, 1994.
(3) Gains on "All Shareholders" assume a base price of $36.25, the market price
of the options issued to the named officers.
- - - --------------------------------------------------------------------------------
10
<PAGE> 13
- - - --------------------------------------------------------------------------------
Shown below is information on stock options exercised during 1994 by each
of the named executive officers and the market value at fiscal year-end for
remaining options:
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES TOTAL VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT HELD AT FISCAL YEAR-
ACQUIRED FISCAL YEAR-END(#)(1) END($)(2)
ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ------------------------------ --- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Frost................... -- -- 20,862 57,639 $ 313,984 $ 297,460
Robert S. McClane............. -- -- 13,868 34,131 $ 211,318 $ 179,354
Richard W. Evans, Jr. ........ -- -- 10,318 31,423 $ 146,075 $ 142,820
J. Gordon Muir, Jr. .......... -- -- 8,297 9,391 $ 145,405 $ 125,423
Phillip D. Green.............. -- -- 4,383 12,115 $ 66,109 $ 54,039
</TABLE>
- - - ---------------
(1) Reflects adjustment for 10% stock dividend in 1993.
(2) Total value of options based on a fair market value of Company Stock of
$30.88 as of December 30, 1994.
4. OTHER PLANS AND AGREEMENTS
Retirement Plan and Restoration Plan
Cullen/Frost has a non-contributory Retirement Plan and Trust for Employees
of Cullen/Frost Bankers, Inc. and its Affiliates for eligible employees which is
designed to comply with the requirements of the Employee Retirement Income
Security Act of 1974. It also has a Restoration Plan which provides benefits in
excess of the limits under Section 415 of the Internal Revenue Code and in
excess of limits on eligible earnings set by the Tax Reform Act of 1986;
benefits are provided in connection with both the Retirement Plan and a previous
employee stock ownership plan. The entire cost of the Retirement and Restoration
Plans is provided by Cullen/Frost and its subsidiaries.
The table below shows the anticipated annual benefit, computed on a
straight line basis, payable under the Retirement Plan and Restoration Plan upon
the normal retirement of a vested executive officer of Cullen/Frost at age 65
after 15, 20, 25, 30, 35, 40 and 45 years of credited service at specified
annual compensation levels.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45
- - - --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $ 44,897 $ 51,644 $ 55,692 $ 60,571 $ 70,666 $ 77,541 $ 84,416
150,000 54,571 62,866 67,843 74,696 85,978 94,228 102,478
175,000 64,245 74,088 79,994 86,821 101,291 110,916 120,541
200,000 73,919 85,310 92,145 99,946 116,603 127,603 138,603
225,000 83,593 96,532 104,296 113,071 131,916 144,291 156,666
250,000 93,267 107,754 116,446 126,196 147,228 160,978 174,728
300,000 112,615 130,198 140,748 152,446 177,853 194,353 210,853
400,000 151,312 175,087 189,351 204,946 239,103 261,103 283,103
450,000 170,060 197,531 213,653 231,196 269,728 294,478 319,228
500,000 190,080 219,975 237,955 257,446 300,353 327,853 355,353
</TABLE>
- - - --------------------------------------------------------------------------------
11
<PAGE> 14
- - - --------------------------------------------------------------------------------
The Retirement Plan was revised effective January 1, 1993 to provide a
monthly benefit based on a percentage of an eligible employee's final average
Compensation and years of service. An eligible employee's Retirement Benefit
will be the greater of the employee's benefits accrued under the prior
provisions of the plan up to December 31, 1992 or the benefits determined by the
new formula effective January 1, 1993. Included in "Compensation" according to
the Retirement Plan are Salary, Overtime, Bonuses, Commissions and Wages
deferred for the Company 401(k) Plan or used to pay health care premiums and
expenses under the company Pre Tax Plan (IRS section 125 Plan). Participants in
the Plan are fully vested in their accrued benefits under the Plan upon
attaining age 65 or after five years of service, whichever occurs first. Death
benefits are provided to married participants who have completed five years of
service. Normal retirement is at age 65 but early retirement is available
starting at age 55. Early Retirement benefits are reduced on an actuarial basis.
The benefit amounts listed in the table represent amounts payable from the plans
and are not subject to any additional deduction for social security benefits or
other offset amounts.
The years of credited service under the Retirement Plan as of December 31,
1994 for each person named in the Summary Compensation Table on page 9 are: Mr.
T. C. Frost -- 45 years; Mr. McClane -- 32 years (41 years at age 65); Mr.
Evans -- 24 years (40 years at age 65); Mr. Muir -- 20 years(32 years at age
65); and Mr. Green -- 14 years (39 years at age 65). Mr. Frost activated his
retirement benefit effective July 1, 1994, but still remains an active employee.
Each year, his retirement benefits will be recalculated based on his earnings
for that year.
Effective January 1, 1994, the Company adopted a supplemental executive
retirement plan (SERP). The plan provides for target retirement benefits, as a
percentage of annual cash compensation, beginning at age 55. The target
percentage is 45% of annual cash compensation at age 55, increasing to 60% at
age 60 and later. Benefits under the SERP are reduced, dollar-for-dollar, by
benefits received under the Retirement and Restoration Plans, described above,
and any social security benefits. Current participants in the SERP are Messrs.
McClane and Evans. At current salary levels, at age 60, Mr. McClane would
receive $45,000 annually and Mr. Evans would receive $62,000 annually.
Change-in-Control Agreements
Cullen/Frost has change-in-control agreements with three of the five named
executives above and other key employees. The main purposes of these agreements
are (i) to help executives evaluate objectively whether a potential
change-in-control is in the best interests of shareholders, (ii) to help protect
against the departure of executives, thus assuring continuity of management, in
the event of an actual or threatened merger or change in control, and (iii) to
maintain compensation and benefits comparable to those available from competing
employers. "Change-in-control" is defined as an acquisition of 20 percent or
more of Cullen/Frost Common Stock by an individual, corporation, partnership,
group, association or other person; certain changes in the composition of the
Board of Directors by 50 percent or more; or certain changes in control which
must be reported to the Securities and Exchange Commission.
Messrs. McClane, Evans, and Green could receive 2.99 times their average
annual compensation during the previous five years if their position is
terminated within two years following the change-in-control either by
Cullen/Frost, if the termination is for reasons other than cause, disability or
retirement, or by the covered person if the covered person terminates his
employment for good reason. "Good reason" is defined as a significant reduction
or change in responsibility, involuntary transfer to a new location, a reduction
in compensation or benefits, the failure of any successor to Cullen/Frost to
assent to such change-in-control agreement, any purported termination by
Cullen/Frost of the covered person without providing such person a proper
written notice of termination or, in the case of the three executives, their
good faith determination, within 90 days of a change-in-control, that as a
result of the change-in-control they are not able to discharge their duties
effectively. The agreements also provide for a continuation of certain employee
benefits for qualifying executives upon a change-in-control.
- - - --------------------------------------------------------------------------------
12
<PAGE> 15
- - - --------------------------------------------------------------------------------
Assuming that a change-in-control of Cullen/Frost had occurred effective
December 31, 1994 and that termination of employment also had occurred on that
date, the maximum amounts that could be payable to the named executives are: Mr.
McClane $1,317,739; Mr. Evans $1,247,285; and Mr. Green $578,751; all named
executive officers as a group $3,143,775.
5. EXECUTIVE OWNERSHIP
The following table lists the number of shares of Cullen/Frost Common Stock
beneficially owned by each of the named executive officers and by all directors,
nominees and executive officers of Cullen/Frost as a group:
<TABLE>
<CAPTION>
SHARES OWNED(1)
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
OWNERSHIP(2) OF CLASS
------------ --------
<S> <C> <C>
T. C. Frost................................................... 344,566(3) 3.09%
Robert S. McClane............................................. 46,986 .42
Richard W. Evans, Jr. ........................................ 43,509 .39
J. Gordon Muir, Jr. .......................................... 20,855 .19
Phillip D. Green.............................................. 14,977 .13
All directors, nominees and executive officers
as group (23 persons)....................................... 767,747(4) 6.87
</TABLE>
- - - ---------------
(1) Beneficial ownership is as of December 31, 1994. Beneficial ownership
includes shares which the individual had a right to acquire pursuant to
employee stock options exercisable within sixty (60) days from December 31,
1994, as follows -- Mr. T. C. Frost 20,862, Mr. McClane 13,868, Mr. Evans
10,318, Mr. Muir 8,297, Mr. Green 4,383, and all executive officers and
directors as a group 57,728.
(2) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for which the beneficial owners have sole voting but no investment
power -- Mr. T. C. Frost 9,543, Mr. McClane 5,706, Mr. Evans 6,665, Mr. Muir
5,342, and Mr. Green 3,447.
(3) Includes 13,296 shares held in the Pat and Tom Frost Foundation Trust for
which Mr. T. C. Frost disclaims beneficial ownership.
(4) Includes 30,703 shares for which directors, nominees and named executive
officers have sole voting but no investment power, 126,437 shares with
shared voting and shared investment power with others, and 6,437 shares
owned by an advisory director, and 500 shares of beneficial ownership as of
February 7, 1995.
- - - --------------------------------------------------------------------------------
13
<PAGE> 16
- - - --------------------------------------------------------------------------------
PERFORMANCE GRAPH
Below is a performance graph comparing the cumulative total shareholder
return on Cullen/Frost Common Stock with the cumulative total return of
companies on the Standard & Poor's 500 Stock Index and the Standard & Poor's
Major Regional Banks Index.
<TABLE>
<CAPTION>
S&P Major
Measurement Period Cullen/Frost Regional Bank
(Fiscal Year Covered) Bankers, Inc. S&P 500 Index
<S> <C> <C> <C>
1989 100 100 100
1990 58 97 71
1991 138 126 128
1992 282 136 163
1993 354 150 172
1994 316 152 163
</TABLE>
ASSUMES $100 INVESTED ON 12/31/89. DIVIDENDS ARE REINVESTED.
- - - --------------------------------------------------------------------------------
14
<PAGE> 17
- - - --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
At December 31, 1994, the only shareholders known by the management of
Cullen/Frost to own beneficially more than five percent of the outstanding
shares of Cullen/Frost Common Stock were:
<TABLE>
<CAPTION>
AMOUNT, NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
----------------------------------------------------------- -------------- --------
<S> <C> <C>
Cullen/Frost Bankers, Inc.
P. O. Box 1600
San Antonio, Texas 78296................................... 1,128,112(1) 10.14%
GeoCapital Corporation
655 Madison Avenue
New York, New York 10021................................... 711,980(2) 6.40%
Luther King Capital Management
301 Commerce, Suite 1600
Fort Worth, Texas 76102.................................... 614,750(3) 5.53%
</TABLE>
- - - ---------------
(1) On December 31, 1994, Cullen/Frost owned no securities of Cullen/Frost for
its own account. However, Frost National Bank and United States National
Bank held of record in various fiduciary capacities an aggregate of
1,128,112 shares. Frost National Bank and United States National Bank had
sole voting power for 75,761 shares and 70,153 shares, respectively, and
shared voting power for 101,490 shares and 1,272 shares, respectively. Frost
National Bank and United States National Bank had sole investment power for
57,889 shares and 67,842 shares, respectively, and shared investment power
for 22,062 shares and 3,803 shares, respectively. Frost National Bank and
United States National Bank had both sole voting with investment power for
62,699 shares and 67,622 shares, respectively. All of the shares are held by
Cullen/Frost subsidiary banks, each of which has reported that the
securities, registered in its name as fiduciary or in the names of various
of its nominees, are owned by many separate accounts, each of which is
governed by a separate instrument which sets forth the powers of the
fiduciary with regard to the securities held.
(2) On December 31, 1994, GeoCapital Corporation held of record an aggregate of
711,980 shares of Cullen/Frost Common Stock with no voting power for any
shares and sole investment power for all the shares. GeoCapital has reported
that all the securities are held on behalf of its clients who are the actual
owners of the shares. (GeoCapital also has reported that, by virtue of their
ownership interest in GeoCapital, Messrs. Irwin Lieber and Barry Fingerhut,
Officers of GeoCapital, may be deemed to be indirect beneficial owners of
the shares which GeoCapital is deemed to own beneficially.)
(3) On December 31, 1994, Luther King Capital Management held of record an
aggregate of 614,750 shares of Cullen/Frost Common Stock with sole voting
power and sole investment power for all the shares.
On February 9, 1995, a Schedule 13G was filed by the Trustees of the
General Electric Pension Trust (GEPT), General Electric Investment Corporation
(GEIC) and GE Investment Management Incorporated (GEIM). According to the
Schedule 13G, none of these entities beneficially owns more than five percent of
the outstanding shares of Cullen/Frost Common Stock, but taken together, these
entities could be deemed to own as of December 31, 1994 an aggregate 563,941
shares of Cullen/Frost Common Stock, or 5.07% of the outstanding shares of the
Common Stock. GEPT, GEIC and GEIM have each reported that it disclaims
beneficial ownership of Common Stock owned of record by filing persons other
than itself. GEPT, GEIC and GEIM disclaim that they are members of a group for
purposes of Rule 13d-1 under the Securities Exchange Act of 1934. GEPT is a
pension fund subject to the provisions of the Employee Retirement Security Act
of 1974. Each of GEIC and GEIM is an investment adviser registered under the
Investment Advisers Act of 1940.
- - - --------------------------------------------------------------------------------
15
<PAGE> 18
- - - --------------------------------------------------------------------------------
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Since January 1, 1994, some of the executive officers and directors of
Cullen/Frost, and some of their associates, are and have been customers of one
or more of the Cullen/Frost subsidiary banks and have had transactions with
these banks in the ordinary course of business. Transactions involving Messrs.
Roy Cullen and Vaughan are described on page 9, "Compensation and Benefits
Committee Interlocks and Insider Participation in Compensation Decisions." Other
transactions have included, in addition to borrowings from the subsidiary banks,
the following:
1. The principal offices of Frost National Bank's Cullen Center branch
are leased on a long-term basis from Cullen Center, Inc., and its motor
bank and convenience center are leased on a long-term basis from
Dresser-Cullen Venture, a Texas joint venture. During 1994, lease payments
of $1,485,379 and $185,421 were made to Cullen Center, Inc. and
Dresser-Cullen Venture, respectively. Cullen Center, Inc. is a 50 percent
participant in Dresser-Cullen Venture. Mr. Arnold and Mr. Harry Cullen,
Cullen/Frost directors, own capital stock, approximately 4 and 13 percent
respectively, and are directors of Cullen Center, Inc.
2. Frost Bank leases its principal office building, known as Frost
Bank Tower, from Tower Investors, Ltd., the general partner of which is
controlled by Mr. Steve Lee. Also, Frost Bank leases office space in a
related parking garage from LSK Partners, Ltd., which is wholly-owned and
controlled by Mr. Steve Lee and his associates. During 1994, lease payments
of $3,919,532 including subleased space, and $448,172 were made to Tower
Investors, Ltd. and LSK Partners, Ltd. respectively. Mr. Steve Lee is the
son of Mr. Quincy Lee, a Cullen/Frost director, who has no financial
interest in the transactions.
3. Frost Bank's North Frost Center leases its banking premises from
Joint Venture Realty, a joint venture of which Mr. Osborn, a Cullen/Frost
director, and members of his family are co-venturers. The lease is for a
15-year term and the bank has options to extend the lease for up to three
additional five-year periods and options to lease additional space. During
1994, lease payments of $507,158 were made to Joint Venture Realty.
4. Cullen/Frost and some of its subsidiaries have policies of
insurance written through Catto & Catto, an insurance agency of which Mr.
Catto and Mr. Hayne, Cullen/Frost directors, are partners. Fees paid by
Cullen/Frost and its subsidiaries aggregated less than five percent of the
total gross revenues of Catto & Catto for its fiscal year ended December
31, 1994.
5. During 1994, United States National Bank paid to Kempner Capital
Management, Inc., an aggregate of $896,401 for investment advisory service.
Mr. Kempner, Jr., a Cullen/Frost director, is President of Kempner Capital
Management, Inc. and Chairman Emeritus and Advisor to the Board of United
States National Bank.
All of the foregoing transactions were on substantially the same terms,
including interest rates and collateral to the extent applicable, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than normal risk of collectibility or present other unfavorable
features. Additional transactions in the future may be expected to take place
with the subsidiary banks in the ordinary course of business.
Also, a loan originally established in the ordinary course of business with
a subsidiary bank and related to a director has subsequently been reclassified
as other assets. This transaction is described on page 9, "Compensation and
Benefits Committee Interlocks and Insider Participation in Compensation
Decisions."
In the opinion of management all of the above described transactions were
effected on terms comparable to those available to unaffiliated parties.
- - - --------------------------------------------------------------------------------
16
<PAGE> 19
- - - --------------------------------------------------------------------------------
SELECTION OF AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors desires to obtain from the shareholders an
indication of their approval of the selection of Ernst & Young LLP, certified
public accountants, as independent auditors of Cullen/Frost. Accordingly, upon
the affirmative vote of a majority of the shares of Cullen/Frost Common Stock
present and voted at the meeting, the Board of Directors will adopt a resolution
naming Ernst & Young LLP as independent auditors of Cullen/Frost for the fiscal
year which commenced January 1, 1995. Ernst & Young LLP has audited the
financial statements of Cullen/Frost since 1969.
In the opinion of Cullen/Frost management, the presence of Ernst & Young
LLP at the meeting is not necessary to present properly the results of
operations of Cullen/Frost. However, if any shareholder desires to submit a
question to the independent auditors, management will ensure that the question
is transmitted to them and that an appropriate response is made directly to the
shareholder.
SHAREHOLDER PROPOSALS
With respect to the 1996 Annual Meeting of Shareholders, any shareholder's
proposal for inclusion in the Proxy Statement for that meeting must be received
by Cullen/Frost at its principal offices not later than January 31, 1996.
OTHER MATTERS
Management of Cullen/Frost knows of no other business to be presented at
the meeting, but if other matters do properly come before the meeting, unless
otherwise instructed, it is intended that the persons named in the proxy will
vote shares according to their best judgment.
By Order of the Board of Directors
/s/ DIANE JACK
-----------------------------------
DIANE JACK
Corporate Secretary
Dated: April 3, 1995
- - - --------------------------------------------------------------------------------
17
<PAGE> 20
/ /
(1) ELECTION OF DIRECTORS
FOR all nominees WHIHHOLD AUTHORITY to vote
listed below / / for any nominees listed below / / *EXCEPTIONS / /
I. Arnold, Jr., R. S. Caldwell, R. R. Cardenas, H. E. Catto, H. H. Cullen,
R. H. Cullen, R. W. Evans, Jr., W. N. Finnegan III, J. H. Frost, T. C.
Frost, J. W. Gorman, Jr., J. L. Hayne, H. L. Kempner, Jr., Richard M.
Kleberg III, Q. Lee, R. S. McClane, J. G. Muir, Jr., W. B. Osborn, Jr.,
R. G. Pope, H. J. Richter, C. Vaughan, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
MARK THE "EXCEPTIONS" BOX, AND WRITE THE NOMINEE'S NAME IN THE SPACE BELOW.
*Exceptions _______________________________________________________________
(2) The approval of the selection of Ernst & Young as independent auditors of
Cullen/Frost for the fiscal year that commenced January 1, 1995.
FOR / / AGAINST / / ABSTAIN / /
(3) Upon such other business as may properly come before the Annual Meeting.
FOR / / AGAINST / / ABSTAIN / /
Address Change
and/or Comments Mark Here / /
Signature should correspond with
the printed name appearing hereon.
When signing in a fiduciary or
representative capacity, give full
title as such, or when more than
one owner, each should sign.
Dated: _______________________, 1995
____________________________________
(Signature of Shareholder)
____________________________________
(Signature of Shareholder)
Vote must be indicated
(x) In Black or Blue Ink. / /
PLEASE BE CERTAIN THAT YOU HAVE DATED AND SIGNED THIS PROXY.
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF CULLEN/FROST BANKERS, INC.
The undersigned hereby revoking all proxies previously granted, appoints ROY
H. CULLEN, T.C. FROST and ROBERT S. McCLANE, and each of them, with power of
substitution, as proxy of the undersigned, to attend the Annual Meeting of
Shareholders of Cullen/Frost Bankers, Inc. on May 16, 1995, and any
adjournments thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as designated on the reverse.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND IN
THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
(Continued and to be dated and signed on the reverse.)
CULLEN/FROST BANKERS, INC.
P.O. BOX 11100
NEW YORK, N.Y. 10203-0100
