Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995 Commission file number 0-7275
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-1751768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. Houston Street, San Antonio, Texas 78205
(Address of principal executive offices) (Zip code)
(210) 220-4011
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X. No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At April 28, 1995 there
were 11,137,782 shares of Common Stock, $5 par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts) Three Months Ended
March 31
---------------------
1995 1994
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $33,075 $23,631
Securities:
Taxable 24,336 22,411
Tax-exempt 84 96
------- -------
Total Securities 24,420 22,507
Time Deposits --- 1
Federal funds sold and securities purchased under resale agreements 1,493 1,602
------- -------
Total Interest Income 58,988 47,741
INTEREST EXPENSE
Deposits 18,385 13,720
Federal funds purchased and securities sold under repurchase
agreements 4,391 1,073
------- -------
Total Interest Expense 22,776 14,793
------- -------
Net Interest Income 36,212 32,948
Provision for possible loan losses 500 ---
------- -------
Net Interest Income After Provision
For Possible Loan Losses 35,712 32,948
NON-INTEREST INCOME
Trust department 8,051 7,282
Service charges on deposit accounts 7,054 6,808
Other service charges, collection and exchange charges,
commissions and fees 2,356 2,165
Net gain on securities transactions 93 6
Other 2,863 3,075
------- -------
Total Non-Interest Income 20,417 19,336
NON-INTEREST EXPENSE
Salaries and wages 13,537 13,015
Pension and other employee benefits 2,806 3,069
Net occupancy of banking premises 4,583 4,030
Furniture and equipment 2,560 2,572
Provision for real estate losses 500 ---
Restructuring costs 400 ---
Other 15,384 15,734
------- -------
Total Non-Interest Expense 39,770 38,420
------- -------
Income Before Income Taxes 16,359 13,864
Income Taxes 5,720 4,766
------- -------
Net Income $10,639 $ 9,098
======= =======
Net Income per common share $ .94 $ .81
Dividends per share .22 .15
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
March 31 December 31 March 31
1995 1994 1994
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 325,334 $ 365,792 $ 308,923
Time deposits 21 12 254
Securities held to maturity 1,030,071 1,051,245 1,086,934
Securities available for sale 529,366 542,797 559,504
Federal funds sold and securities
purchased under resale agreements 98,300 167,550 182,273
Loans, net of unearned discount of $2,780 at
March 31, 1995 $3,487 at December 31, 1994
and $ 6,768 at March 31, 1994 1,547,898 1,483,293 1,292,011
Less: Allowance for possible loan losses (26,885) (25,741) (27,552)
---------- ---------- ----------
Net Loans 1,521,013 1,457,552 1,264,459
Banking premises and equipment 86,844 88,667 87,282
Accrued interest and other assets 133,480 120,105 126,143
---------- ---------- ----------
Total Assets $3,724,429 $3,793,720 $3,615,772
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 665,901 $ 710,138 $ 689,790
Correspondent banks 70,468 77,425 116,782
Public funds 32,504 44,740 34,494
---------- ---------- ----------
Total demand deposits 768,873 832,303 841,066
Time Deposits:
Savings and Interest-on-Checking 722,352 763,300 814,452
Money market deposit accounts 549,418 559,153 522,978
Time accounts 886,239 842,520 855,553
Public funds 76,261 90,686 86,595
---------- ---------- ----------
Total time deposits 2,234,270 2,255,659 2,279,578
---------- ---------- ----------
Total deposits 3,003,143 3,087,962 3,120,644
Federal funds purchased and securities
sold under repurchase agreements 344,743 370,235 167,969
Accrued interest and other liabilities 66,604 40,086 50,125
---------- ---------- ----------
Total Liabilities 3,414,490 3,498,283 3,338,738
Shareholders' Equity
Common stock, par value $5 per share 55,685 55,615 55,162
Shares authorized: 30,000,000
Shares outstanding: 11,136,987;
11,123,062; and 11,032,317
Surplus 116,518 116,362 113,844
Retained earnings 134,258 126,038 103,500
Unrealized gain (loss) on securities available
for sale 3,478 (2,578) 4,528
---------- ---------- ----------
Total Shareholders' Equity 309,939 295,437 277,034
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,724,429 $3,793,720 $3,615,772
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Unrealized
Gain (Loss)
on Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $55,046 $113,385 $95,978 $ 9,124 $273,533
Net income for the year ended
December 31, 1994 37,423 37,423
Proceeds from employee stock
purchase plan and options 537 2,553 (29) 3,061
Tax benefit related to exercise
of stock options 256 256
Loan payments from employee stock
ownership plan 170 170
Issuance of restricted stock 32 168 200
Restricted stock plan deferred
compensation expense, net (89) (89)
Unrealized gain on securities
available for sale, net of tax (11,702) (11,702)
Cash dividend (7,415) (7,415)
------- -------- ------- --------- --------
Balance at December 31, 1994 55,615 116,362 126,038 (2,578) 295,437
Net income for the three months ended
March 31, 1995 10,639 10,639
Proceeds from employee stock purchase
plan and options 70 70 140
Tax benefit related to exercise
of stock options 86 86
Restricted stock plan deferred
compensation expense 30 30
Adjustment to unrealized gain (loss)
on securities available for
sale, net of tax 6,056 6,056
Cash dividend (2,449) (2,449)
------- -------- -------- -------- --------
Balance at March 31, 1995 $55,685 $116,518 $134,258 $ 3,478 $309,939
======= ======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Three Months Ended
March 31
---------------------
1995 1994
--------- --------
<S> <C> <C>
Operating Activities
Net income $10,639 $ 9,098
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 500 ---
Provision for real estate losses 500 ---
(Provision) credit for deferred taxes 227 (550)
Accretion of discounts on loans (571) (1,445)
Accretion of securities' discounts (4,004) (2,043)
Amortization of securities' premiums 516 1,098
Net gain on securities transactions (93) (6)
Net gain on sale of assets (250) (957)
Depreciation and amortization 4,513 4,469
Increase in interest receivable (997) (1,155)
Increase in interest payable 268 60
Restructuring accrual 202 (123)
Net change in other assets and liabilities 8,056 1,209
--------- ---------
Net cash provided by operating activities 19,506 9,655
Investing Activities
Proceeds from sales of securities held to maturity --- ---
Proceeds from maturities of securities held to maturity 21,608 46,702
Purchases of securities held to maturity (833) (139,041)
Proceeds from sales of securities available for sale 10,610 ---
Proceeds from maturities of securities available for sale 129,513 95,072
Purchases of securities available for sale (113,390) (43,421)
Net increase in loans (63,039) (32,029)
Net increase in bank premises and equipment (1,215) (3,106)
Proceeds from sales of repossessed properties 161 1,069
--------- ---------
Net cash used by investing activities (16,585) (74,754)
Financing Activities
Net decrease in demand deposits,
IOC accounts, and savings accounts (128,538) (23,695)
Net increase (decrease) in certificates of deposits 43,719 (5,089)
Net increase (decrease) in short-term borrowings (25,492) 1,450
Proceeds from employee stock purchase
plan and options 140 575
Dividends paid (2,449) (1,653)
--------- ---------
Net cash used by financing activities (112,620) (28,412)
--------- ---------
Decrease in cash and cash equvalents (109,699) (93,511)
Cash and cash equivalents at beginning of year 533,354 584,961
--------- ---------
Cash and cash equivalents at the end
of the period $423,655 $491,450
========= =========
Supplemental information:
Interest paid $ 22,508 $ 14,733
Loans originated to facilitate the sale
of repossessed properties 351 328
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been examined by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K
for the year ended December 31, 1994. The balance sheet at December 31, 1994
has been derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan
losses is presented below. The amount charged to operating expense is a
reflection of management's assessment of the adequacy of the allowance.
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
(in thousands) 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $25,741 $26,298
Provision for possible loan losses 500 ---
Net charge-offs:
Losses charged to the allowance (813) (881)
Recoveries 1,457 2,135
------- -------
Net recoveries 644 1,254
------- -------
Balance at the end of period $26,885 $27,552
======= =======
</TABLE>
Foreclosed Assets
The Corporation adopted Statement of Financial Accounting Standards No.
114("SFAS 114"), "Accounting by Creditors for Impairment of a Loan," as
amended by Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosure"
("SFAS 118"), effective January 1, 1995. In accordance with SFAS 114 and
118, a loan is classified as in-substance foreclosure when the Corporation
has taken possession of the collateral regardless of whether formal
foreclosure proceedings take place. In accordance with SFAS 114 and 118,
loans previously classified as in-substance foreclosure but for which the
Corporation had not taken possession of the collateral were reclassified to
loans. This reclassification will not materially impact the Company's
financial condition or results of operations.
Earnings Per Common Share
Earnings per common share calculations for the three months ended March
31, 1995 and March 31, 1994 include the effect of common stock equivalents
applicable to the stock option contracts.
The weighted average numbers of shares used to compute primary per common
share earnings, including the common stock equivalents where applicable, were
11,275,918, and 11,187,748 for the three months ended March 31, 1995, and
1994, respectively.
Income Taxes
The tax expense for the first quarter of 1995 was $5,720,000. This
amount consisted of current tax expense of $5,493,000 and deferred tax
expense of $227,000. Net deferred tax assets were $15,732,000 with no
valuation allowance. The tax expense for the first quarter of 1994 was
$4,766,000. This amount consisted of current tax expense of $4,216,000 and
deferred tax expense of $550,000. Net deferred tax assets were $16,951,000
with no valuation allowance. The net deferred tax assets for each first
quarter were supported by taxes paid in prior years and the future reversal
of existing taxable temporary differences. No income tax payments were made
during the first three months of 1995 or 1994.
<PAGE>
Acquisitions
On April 4, 1995, the Corporation acquired Valley Bancshares, Inc.,
which owns the $50 million-deposit Valley National Bank in McAllen, Texas.
In addition, the Corporation is awaiting final approval to acquire the $115
million-deposit National Commerce Bank in Houston, Texas and the two San
Antonio branches of Comerica Bank Texas, which is expected to add
approximately $37 million in deposits.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
Cullen/Frost Bankers, Inc. reported net income of $10,639,000 or $.94
per common share for the quarter ended March 31, 1995. This compares with
$9,589,000 or $.85 per common share and $9,098,000 or $.81 per common share
for the fourth and first quarters of 1994, respectively.
On April 4, 1995, the Corporation completed the acquisition of Valley
Bancshares, Inc., including its subsidiary, Valley National Bank in McAllen,
Texas. The acquisition was accounted for as a purchase, and as such, the
results of operations are not included in the financial information that
follows. In addition, the Corporation has received final regulatory approval
to acquire the $115 million-deposit National Commerce Bank in Houston, Texas
and the two San Antonio branches of Comerica Bank Texas, which are expected
to add approximately $37 million in deposits. They are expected to be
completed in mid-1995 and are not expected to have a material impact on the
Corporation's 1995 operating results.
The results of operations are included in the material that follows.
Certain balances have been reclassified as a result of the adoption of
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"), as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosure" ("SFAS 118"), effective January 1,
1995. The adoption of the standard did not have a material impact on the
Corporation's financial position or results of operations. Other
reclassifications have been made to make prior quarters comparable. All
balance sheet figures are presented in averages unless otherwise noted.
<PAGE>
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------
Three Months Ended
--------------------------------------
1995 1994
----------- ------------------------
March 31 December 31 March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net
interest income $36,390 $34,926 $33,104
Taxable-equivalent adjustment 178 188 156
------- ------- -------
Net interest income 36,212 34,738 32,948
Provision for possible
loan losses 500 --- ---
Non-Interest income:
Net gain (loss) on securities
transactions 93 (3,547) 6
Other 20,324 20,622 19,330
------- ------- -------
Total non-interest income 20,417 17,075 19,336
Non-Interest expense:
Restructuring costs 400 --- ---
Provision for real estate losses 500 --- ---
Other 38,870 37,052 38,420
------- ------- -------
Total non-interest expenses 39,770 37,052 38,420
------- ------- -------
Income before income taxes 16,359 14,761 13,864
Income Taxes 5,720 5,172 4,766
------- ------- -------
Net Income $10,639 $ 9,589 $ 9,098
======= ======= =======
Net Income per common share $ .94 $ .85 $ .81
Return on Average Assets 1.15% 1.03% 1.02%
Return on Average Equity 14.09 12.95 13.17
</TABLE>
Net Interest Income
The increase in net interest income from the fourth quarter and first
quarter of 1994 is reflective of increased loan volumes and improved net
interest spread. The net interest margin was 4.58 percent for the first
quarter of 1995 compared to 4.43 percent and 4.29 percent for the fourth and
first quarters of 1994, respectively. Net interest spread of 3.85 percent
increased seven basis points from the fourth and first quarters of 1994. The
net interest spread increased primarily because of improved spreads between
loan yields and deposit costs.
<PAGE>
<TABLE>
<CAPTION>
Change in Net Interest Income
------------------------------------
First Quarter First Quarter
1995 1995
vs. vs.
First Quarter Fourth Quarter
1994 1994
------------------------------------
Percentage of Percentage of
Amount Total Change Amount Total Change
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due to volume $ 2,025 61.63% $ 706 48.22%
Due to interest rate spread 1,261 38.37 758 51.78
------- ------- ------- -------
$ 3,286 100.00% $ 1,464 100.00%
======= ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
1995 1994
--------- ---------------------
Non-Interest Income March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Trust department $ 8,051 $ 7,505 $ 7,282
Service charges on deposit accounts 7,054 7,062 6,808
Other service charges, collection
and exchange charges, commissions
and fees 2,356 2,364 2,165
Net gain (loss) on securities transactions 93 (3,547) 6
Other 2,863 3,691 3,075
-------- ------- -------
Total $20,417 $17,075 $19,336
======== ======= =======
</TABLE>
Excluding securities transactions, total non-interest income was down
slightly compared to the fourth quarter of 1994 and was up 5.1 percent from
the first quarter of 1994. The decrease from the fourth quarter is primarily
due to lower income from loans previously acquired at a discount, while the
increase from the first quarter of 1994 is due to higher trust income.
Trust income increased 7.3 percent and 10.6 percent from the fourth and
first quarters of 1994, respectively. This can be attributed to improved
financial market conditions and a higher fee structure that was not in effect
for the same quarter last year.
Service charges on deposit accounts were flat compared to the previous
quarter and up 3.6 percent from the same quarter one year ago. Other service
charges remained constant compared to the fourth quarter of 1994 and
increased 8.8 percent from the first quarter of 1994 primarily due to
bankcard discounts.
Other non-interest income was 22.4 percent lower than the fourth
quarter of 1994 primarily due to income received from loans previously
acquired at a discount, in the fourth quarter of 1994. As compared to the
same quarter a year ago, other non-interest income was down 6.9 percent
mainly due to less income from foreclosed assets.
<PAGE>
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
1995 1994
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and wages $13,537 $13,550 $13,015
Pension and other employee benefits 2,806 1,219 3,069
Net occupancy of banking premises 4,583 3,840 4,030
Furniture and equipment 2,560 3,067 2,572
Restructuring costs 400 --- ---
Other 15,384 15,376 15,734
------- ------- -------
39,270 37,052 38,420
Provision for real estate losses 500 --- ---
------- ------- -------
Total $39,770 $37,052 $38,420
======= ======= =======
</TABLE>
Non-interest expense, excluding restructuring costs and the provision
for real estate losses, increased 4.9 percent from the fourth quarter and
were flat with the same quarter last year. The prior quarter includes a
reduction in medical insurance expense, the benefit of a managed health care
network and favorable claims experience.
Salaries and wages were flat from the fourth quarter of 1994 and were up
4.0 percent from the first quarter of 1994. Pension and employee benefits
were up significantly from the fourth quarter due to the reduction in medical
insurance expense previously mentioned. These expenses were down 8.6 percent
from the first quarter of 1994 because of lower medical expense. Net
occupancy of banking premises expense increased 19.3 percent and 13.7 percent
from the fourth and first quarters of 1994, respectively. Higher lease and
property tax expense accounts for 76.7 percent of the increase from last
quarter and 45.4 percent of the increase from the same quarter last year.
Building maintenance expense also represents 27.8 percent of the increase
from the first quarter of 1994.
Furniture and equipment expense decreased 16.5 percent from the fourth
quarter, primarily due to lower service contracts expense, and was flat
compared to the same quarter last year.
Other non-interest expense was flat compared to last quarter and down
2.2 percent from the same quarter last year.
The first quarter of 1995 included a $500,000 provision for real estate
losses and a $400,000 restructuring charge related to a market valuation of
bank premises available for sale. Foreclosed assets at March 31, 1995 were
$2.4 million, down from $3.3 million in the previous quarter.
Income Taxes
The Corporation's effective tax rate for the first quarter of 1995 and
the fourth and first quarters of 1994 approximated the statutory rate of 35
percent.
Balance Sheet
Average assets of $3,742,796,000 for the first quarter of 1995 were
flat compared with the fourth quarter of 1994 and reflected an increase of
3.2 percent from the first quarter of 1994. Total deposits averaged
$3,039,479,000 for the current quarter, down 2.3 percent when compared to the
previous quarter and decreased 3.0 percent from the first quarter of 1994.
<PAGE>
Loans
<TABLE>
<CAPTION>
1995 1994
--------------------- -----------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 433,436 28.0% $ 375,085 $ 323,877
Consumer 346,840 22.4 331,039 275,710
Real estate 713,759 46.1 714,518 642,031
Other 56,643 3.7 66,138 57,161
Unearned discount (2,780) (.2) (3,487) (6,768)
---------- ------ ---------- ----------
Total Loans $1,547,898 100.0% $1,483,293 $1,292,011
========== ====== ========== ==========
</TABLE>
Average loans for the first quarter of 1995 were $1,527,663,000.
This represents an increase of 8.0 percent and 19.7 percent from the fourth
and first quarters of 1994, respectively. The loan growth reflects improved
economic conditions in the Texas markets where the Corporation's presence is
concentrated. The growth was apparent in the commercial loan area, which was
up $58.4 million from the fourth quarter of 1994. On December 2, 1994, the
Corporation acquired Creekwood Capital Corporation ("Creekwood") which added
approximately $23 million in commercial loans.
Real Estate Loans
Of the total real estate loans outstanding at March 31, 1995, 72 percent
were located in San Antonio, 15 percent in Houston/Galveston, 7 percent in
Austin and 6 percent in Corpus Christi. Residential permanent mortgage loans
at March 31, 1995 were $281,052,000 compared to $274,662,000 at March 31,
1994 and $277,725,000 at December 31, 1994. Real estate loans classified as
"other" are essentially amortizing commercial and industrial loans with
maturities of less than five years secured by real property. Most are
collateralized by completed and occupied commercial real estate properties.
<TABLE>
<CAPTION>
1995 1994
--------------------- --------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 39,613 5.5% $ 30,395
Land 34,654 4.9 36,040
Permanent mortgages:
Commercial 194,474 27.2 145,758
Residential 281,052 39.4 274,662
Other 163,966 23.0 155,176
-------- ------ --------
$713,759 100.0% $642,031
======== ====== ========
Non-accrual and restructured $ 13,107 1.8% $ 22,996
</TABLE>
As part of the acquisition of New First City-Austin in 1993, certain
commercial and commercial real estate loans of that bank are protected by a
loss-sharing arrangement with the Federal Deposit Insurance Corporation
("FDIC") whereby losses are shared 80 percent to the FDIC and 20 percent to
the Corporation. At March 31, 1995, these loans approximated $20 million.
At March 31, 1995, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $1,137,000, compared with $2,412,000 at
December 31, 1994, and $4,082,000 at March 31, 1994.
<PAGE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$10,528,000 in loans secured by assets held in the United States, totaled
$25,314,000 at March 31, 1995 or 1.6 percent of total loans. The recent
devaluation of the peso will likely lower the demand for trade-related cross-
border loans, except for those Mexican companies dealing in export trade.
All of the Corporation's Mexican loans are either secured by liquid U.S.
assets or are used to finance international trade transactions. Of the trade-
related credits, approximately 75 percent are related to companies exporting
from Mexico. As of March 31, 1995, none of the Mexican related loans were on
non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
----------------------------------------
March 31, 1995 Amount Percentage of Total Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $25,287 1.6%
Loans to private firms or individuals 27
------- ----
$25,314 1.6%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 1995 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $13,107 $1,377 $14,484
Foreclosed assets 2,380 24 2,404
------- ------ -------
$15,487 $1,401 $16,888
======== ====== =======
As a percentage of total
non-performing assets 91.7% 8.3% 100.0%
</TABLE>
Non-performing assets totaled $16,888,000 at March 31, 1995 down from
$19,938,000 at December 31, 1994 and $27,133,000 at March 31, 1994. Non-
performing assets as a percentage of total loans and foreclosed assets
decreased to 1.1 percent at March 31, 1995 from 2.1 percent one year ago. As
a part of the acquisition of New First City, certain commercial and
commercial real estate loans are protected by a loss-sharing arrangement with
the FDIC (See "Loans"). At March 31, 1995, non-performing assets covered by
the loss-sharing arrangement totaled $1,689,000. These assets are included
in total non-performing assets at $261,000 which represents the carrying
value net of loss-sharing coverage and associated discounts.
Foreclosed assets consist of property which has been formally
repossessed. Foreclosed assets are valued at the lower of the loan balance
or estimated fair value, less estimated selling costs, at the time of
foreclosure. Write-downs occurring at acquisition are charged against the
allowance for possible loan losses. On an ongoing basis, properties are
appraised as required by applicable regulations. Write-downs are provided
for subsequent declines in value. Expenses related to maintaining foreclosed
properties are included in other non-interest expense.
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $296,000 or $.03 per common share for
the first quarter of 1995, compared to approximately $382,000 or $.03 per
common share for the first quarter of 1994 and $318,000 or $.03 per common
share for the fourth quarter of 1994. Total loans 90 days past due
(excluding non-accrual and restructured loans) were $3,266,000 at March 31,
1995, compared to $4,975,000 at March 31, 1994, and $3,644,000 at December
31, 1994.
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses was $26,885,000 or 1.74 percent
of period-end loans at March 31, 1995, compared to $25,741,000 or 1.74
percent for the fourth quarter of 1994 and $27,552,000 or 2.13 percent at
March 31, 1994. The allowance for possible loan losses as a percentage of
non-accrual and restructured loans was 185.6 percent at March 31, 1995,
compared to 154.8 percent and 111.0 percent at the end of the fourth and
first quarters of 1994, respectively.
The Corporation recorded a $500,000 provision for possible loan losses
during the first quarter of 1995. This compares to no provision for possible
loan losses recorded for all of 1994. The provision is reflective of the
growth in the loan portfolio. Net recoveries in the first quarter totaled
$644,000, compared to $274,000 for the fourth quarter of 1994 and $1,254,000
for the first quarter of 1994.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
--------------------------------
1995 1994
----------- -----------------
First Fourth First
Quarter Quarter Quarter
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ (671) $ (516) $ (575)
Commercial and industrial (347) (40) (740)
Consumer 412 291 64
Other, including foreign (38) (9) (3)
---------- ------- ------
$ (644) $ (274) $(1,254)
========== ======= =======
Provision for possible loan losses $ 500 $ --- $ ---
Allowance for possible loan losses 26,885 25,741 27,552
</TABLE>
Capital and Liquidity
At March 31, 1995, shareholders' equity was $309,939,000 compared to
$295,437,000 at December 31, 1994 and $277,034,000 at March 31, 1994. The
Corporation paid a cash dividend of $.22 per common share in the first
quarter of 1995 and fourth quarter of 1994 compared to $.15 per common share
for the same quarter a year ago. This equates to a dividend payout ratio of
23.9 percent, 25.9 percent and 18.5 percent for the first quarter of 1995 and
the fourth and first quarters of 1994, respectively.
The Federal Reserve Board (the "Board") utilizes capital guidelines
designed to measure Tier 1 and Total Capital and take into consideration the
risk inherent in both on-balance sheet and off-balance sheet items.
The following summarizes Tier 1 and Total Capital information for the
Corporation at March 31, 1995 and March 31, 1994.
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
------------------- -------------------
Risk-Based Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 266,687 14.56% $ 231,184 14.45%
Tier 1 Capital Minimum requirement 73,262 4.00 64,014 4.00
Total Capital $ 289,630 15.81% $ 251,281 15.70%
Total Capital Minimum requirement 148,523 8.00 128,028 8.00
Risk-adjusted assets, net of goodwill $1,831,542 $1,600,354
Leverage ratio 7.20% 6.46%
Average equity as a percentage
of average assets 8.18 7.72
</TABLE>
<PAGE>
The Board guidelines also require a leverage capital ratio which
measures Tier 1 Capital against quarterly average total assets, net of
certain intangibles. A leverage ratio of 3.0 percent is the minimum
requirement for only the most highly rated banking organizations and most
other banking organizations are expected to maintain a leverage ratio of at
least 4 to 5 percent. The leverage ratio for the Corporation was 7.20
percent and 6.46 percent at March 31, 1995 and March 31, 1994, respectively.
In December of 1991, the FDIC Improvement Act of 1991 ("FDICIA")
established five capital tiers. Federal banking agencies adopted final rules
effective December 16, 1992 relating to these tiers. At March 31, 1995, both
of the Corporation's subsidiary banks were considered "well capitalized" as
defined by FDICIA, the highest regulatory category. A financial institution
is deemed to be well capitalized if the institution has a total risk-based
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio
of 6.0 percent or greater, and a leverage ratio of 5.0 percent or greater,
and the institution is not subject to an order, written agreement, capital
directive or prompt corrective action directive to meet and maintain a specific
level for any capital measure.
Funding sources available at the holding company level include a
$7,500,000 short-term line of credit. There were no borrowings outstanding
from this source at March 31, 1995.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. These include cash, time
deposits in banks, securities available for sale, maturities and cash flow
from securities held to maturity, and Federal funds sold and securities
purchased under resale agreements. Liability liquidity is provided by access
to funding sources, principally core deposits and Federal funds purchased.
Additional sources of liability liquidity include brokered deposits and
securities sold under agreement to repurchase. The liquidity position of the
Corporation is continuously monitored and adjustments are made to the balance
between sources and uses of funds as deemed appropriate.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1995 December 31, 1994
-----------------------------------------------------
Interest/ Interest/
Average Income Yield/ Average Income Yield
Balance Expense Cost Balance Expense Cost
-------- ------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 15 $ 3.77% $ 17 $ 3.65%
Securities:
U.S. Treasury 224,345 3,246 5.87 263,293 3,193 4.81
U.S. Government agencies
and corporations 1,317,465 20,793 6.31 1,361,448 20,896 6.14
States and political subdivisions 5,659 134 9.48 5,680 134 9.47
Other 17,763 292 6.65 23,265 355 6.04
---------- ------- ---------- -------
Total securities 1,565,232 24,465 6.26 1,653,686 24,578 5.94
Federal funds sold and securities
purchased under resale agreements 104,418 1,493 5.72 76,802 1,101 5.61
Loans, net of unearned discount 1,527,663 33,208 8.82 1,414,415 29,570 8.29
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 3,197,328 59,166 7.47 3,144,920 55,249 6.99
Cash and due from banks 343,861 353,406
Allowance for possible loan losses (25,880) (25,763)
Banking premises and equipment 88,149 89,754
Accrued interest and other assets 139,338 145,624
---------- ----------
Total Assets $3,742,796 $3,707,941
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 675,170 $ 685,828
Correspondent banks 118,016 117,378
Public funds 36,423 37,876
---------- ----------
Total demand deposits 829,609 841,082
Time deposits:
Savings and Interest-on-Checking 734,161 3,461 1.91 757,568 3,556 1.86
Money market deposit accounts 560,032 5,057 3.66 567,203 4,703 3.29
Time accounts 833,435 9,090 4.42 846,069 8,432 3.95
Public funds 82,242 777 3.83 100,608 839 3.31
---------- ------- ---------- -------
Total time deposits 2,209,870 18,385 3.37 2,271,448 17,530 3.06
---------- ------- ---------- -------
Total Deposits 3,039,479 3,112,530
Federal funds purchased
and other borrowings 335,436 4,391 5.24 234,678 2,793 4.66
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,545,306 22,776 3.62 2,506,126 20,323 3.21
---------- ------- ----- ---------- ------- -----
Accrued interest and other liabilities 61,667 66,924
---------- ----------
Total Liabilities 3,436,582 3,414,132
SHAREHOLDERS' EQUITY 306,214 293,809
---------- ----------
Total Liabilities and
Shareholders' Equity $3,742,796 $3,707,941
========== ==========
Net interest income $36,390 $34,926
======= =======
Net interest spread 3.85% 3.78%
==== ====
Net interest income to total average earning assets 4.58% 4.43%
==== ====
Net interest income to total average earning
assets- with federal funds net 4.74% 4.54%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1994 June 30, 1994
-------------------------- -------------------------
Interest/ Interest/
Average Income Yield/ Average Income Yield/
Balance Expense Cost Balance Expense Cost
--------- -------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 15 $ --- 3.56% $ 51 $ 1 3.48%
Securities:
U.S. Treasury 284,653 3,047 4.25 282,892 3,112 4.41
U.S. Government agencies
and corporations 1,392,808 20,800 5.97 1,374,981 20,126 5.86
States and political subdivisions 5,689 135 9.48 5,738 135 9.43
Other 26,621 407 5.69 30,973 400 5.18
--------- ------- ---------- -------
Total securities 1,709,771 24,389 5.70 1,694,584 23,773 5.61
Federal funds sold and securities
purchased under resale agreements 51,091 506 3.87 102,345 937 6.62
Loans, net of unearned discount 1,351,462 27,932 8.20 1,314,318 25,467 7.77
--------- ------ --------- ------
Total Earning Assets and
Average Rate Earned 3,112,339 52,827 6.76 3,111,298 50,178 6.46
Cash and due from banks 333,469 341,648
Allowance for possible loan losses (25,763) (26,005)
Banking premises and equipment 90,840 89,859
Accrued interest and other assets 129,698 144,572
---------- ----------
Total Assets $3,640,583 $3,661,372
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 682,961 $ 663,025
Correspondent banks 113,604 128,499
Public funds 39,251 38,588
--------- ---------
Total demand deposits 835,816 830,112
Time deposits:
Savings and Interest-on-Checking 790,578 3,595 1.80 825,322 3,608 1.75
Money market deposit accounts 557,601 4,257 3.03 526,783 3,500 2.67
Time accounts 851,708 7,668 3.57 864,218 6,956 3.23
Public funds 77,021 608 3.13 79,273 555 2.81
--------- ------- --------- -------
Total Time Deposits 2,276,908 16,128 2.81 2,295,596 14,619 2.55
--------- ------- --------- -------
Total Deposits 3,112,724 3,125,708
Federal funds purchased
and other borrowings 182,217 1,739 3.73 184,348 1,560 3.35
--------- ------- --------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,459,125 17,867 2.88 2,479,944 16,179 2.61
--------- ------- ---- --------- ------- ----
Accrued interest and other liabilities 53,807 69,220
--------- ---------
Total Liabilities 3,348,748 3,379,276
SHAREHOLDERS' EQUITY 291,835 282,096
--------- ---------
Total Liabilities and
Shareholders' Equity $3,640,583 $3,661,372
========== ==========
Net interest income $34,960 $33,999
======= =======
Net interest spread 3.88% 3.85%
===== =====
Net interest income to total average earning assets 4.48% 4.38%
===== =====
Net interest income to total average earning
assets - with federal funds net 4.56% 4.53%
===== =====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1994
---------------------------
Interest/
Average Income Yield/
Balance Expense Cost
-------- ------- ------
<S> <C> <C> <C>
ASSETS
Time deposits $ 161 $ 1 3.37%
Securities:
U.S. Treasury 263,263 2,812 4.33
U.S. Government agencies
and corporations 1,317,513 19,132 5.81
States and political subdivisions 6,624 158 9.54
Other 35,932 457 5.16
--------- -------
Total securities 1,623,332 22,559 5.57
Federal funds sold and securities
purchased under resale agreements 206,873 1,602 3.10
Loans, net of unearned discount 1,276,740 23,735 7.54
--------- ------
Total Earning Assets and
Average Rate Earned 3,107,106 47,897 6.22
Cash and due from banks 337,582
Allowance for possible loan losses (27,056)
Banking premises and equipment 87,222
Accrued interest and other assets 123,240
----------
Total Assets $3,628,094
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 662,888
Correspondent banks 138,533
Public funds 38,408
----------
Total demand deposits 839,829
Time deposits:
Savings and Interest-on-Checking 811,902 3,666 1.83
Money market deposit accounts 536,914 3,250 2.45
Time accounts 856,556 6,308 2.99
Public funds 87,582 496 2.30
----------- ------
Total Time Deposits 2,292,954 13,720 2.43
----------- ------
Total Deposits 3,132,783
Federal funds purchased
and other borrowings 164,534 1,073 2.61
----------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,457,488 14,793 2.44
----------- ------ -----
Accrued interest and other liabilities 50,701
-----------
Total Liabilities 3,348,018
SHAREHOLDERS' EQUITY 280,076
----------
Total Liabilities and
Shareholders' Equity $3,628,094
==========
Net interest income $ 33,104
=========
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 4.52%
=====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Earnings per Share
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cullen/Frost Bankers, Inc.
(Registrant)
Date: April 28, 1995 By: /s/Phillip D. Green
-----------------------
Phillip D. Green
Executive Vice President
and Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
11 Statement re: Computation of Earnings per Share
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended
March 31
-----------------------
Primary Earnings per Share 1995 1994
---------- -----------
<S> <C> <C>
Net income applicable to common stock $10,639 $ 9,098
=========== ===========
Weighted average shares outstanding 11,130 11,019
Addition from assumed exercise of stock options 146 169
---------- -----------
Weighted average number of common shares outstanding 11,276 11,188
========== ===========
Primary earnings per common share:
Income before cumulative effect of accounting change $ .94 $ .81
Net Income .94 .81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 325,334
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 98,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 529,366
<INVESTMENTS-CARRYING> 1,030,071
<INVESTMENTS-MARKET> 1,003,351
<LOANS> 1,547,898
<ALLOWANCE> (26,885)
<TOTAL-ASSETS> 3,724,429
<DEPOSITS> 3,003,143
<SHORT-TERM> 344,743
<LIABILITIES-OTHER> 66,604
<LONG-TERM> 0
<COMMON> 55,685
0
0
<OTHER-SE> 254,254
<TOTAL-LIABILITIES-AND-EQUITY> 3,724,429
<INTEREST-LOAN> 33,075
<INTEREST-INVEST> 24,420
<INTEREST-OTHER> 1,493
<INTEREST-TOTAL> 58,988
<INTEREST-DEPOSIT> 18,385
<INTEREST-EXPENSE> 22,776
<INTEREST-INCOME-NET> 36,212
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 93
<EXPENSE-OTHER> 39,770
<INCOME-PRETAX> 16,359
<INCOME-PRE-EXTRAORDINARY> 16,359
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,639
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 7.47
<LOANS-NON> 14,484
<LOANS-PAST> 3,266
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,199
<ALLOWANCE-OPEN> 25,741
<CHARGE-OFFS> (813)
<RECOVERIES> 1,457
<ALLOWANCE-CLOSE> 26,885
<ALLOWANCE-DOMESTIC> 24,735
<ALLOWANCE-FOREIGN> 150
<ALLOWANCE-UNALLOCATED> 2,000
</TABLE>
