SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
FOR THE TRANSITION PERIOD FROM _______ to _______
Commission File Number 0-7275
CULLEN/FROST BANKERS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1751768
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. Houston Street
San Antonio, Texas 78205
------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 220-4011
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5 Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $381,504,617 based on the closing price of such stock
as of March 24, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class March 24, 1995
-------------------------- --------------
Common Stock, $5 par value 11,136,987
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the Year Ended December 31, 1994
(Parts I & II)
(2) Proxy Statement for Annual Meeting of Shareholders to be held May 16, 1995
(Part III)
<PAGE>
TABLE OF CONTENTS
PART I Page
------ ----
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS *
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS 9
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE *
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 10
ITEM 11. EXECUTIVE COMPENSATION 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 11
* Not Applicable
<PAGE>
PART I
Item 1. BUSINESS
------------------
General
Cullen/Frost Bankers, Inc. ("Cullen/Frost" or "Company"), a Texas
business corporation incorporated in 1977 and headquartered in San Antonio,
Texas, is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 ("the Bank Holding Company Act") and as such is registered
with the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). The New Galveston Company, incorporated under the laws of Delaware,
is a wholly owned second tier bank holding company subsedeary which owns all
banking and non-banking subsidiaries. Cullen/Frost's principal assets consist
of all the capital stock of two national banks. At year end 1994, Cullen/Frost
had 28 offices in four major Texas banking markets with 16 locations in San
Antonio, four in the Houston/Galveston area, five in the Corpus Christi area and
three in the Austin area. At December 31, 1994, Cullen/Frost had consolidated
assets of $3,793,720,000 and total deposits of $3,087,962,000. Based on
information from the Federal Reserve Board, at September 30, 1994, Cullen/Frost
was the largest of the 99 bank holding companies in Texas and the sixth largest
of 889 banking organizations in Texas.
Cullen/Frost provides policy direction to the Cullen/Frost subsidiary banks
in the following areas: (i) lending policies and techniques, loan participation
and credit administration; (ii) asset and liability management; (iii) trust
services; (iv) personnel management and compensation; (v) accounting,
budgeting, planning, operations, insurance and auditing; (vi) capitalization;
(vii) marketing programs and (viii) regulatory compliance.
Cullen/Frost Subsidiary Banks
-----------------------------
Each of the Cullen/Frost subsidiary banks is a separate entity which
operates under the day-to-day management of its own board of directors and
officers. The largest of these banks is The Frost National Bank ("Frost Bank"),
the origin of which can be traced to a mercantile partnership organized in 1868.
Frost Bank was chartered as a national banking association in 1899. At December
31, 1994, Frost Bank, which accounted for approximately 97 percent of
consolidated assets, 96 percent of consolidated loans, and 96 percent of
consolidated deposits of Cullen/Frost, was the largest bank headquartered in
San Antonio and South Texas.
The following table provides information as of December 31, 1994, as to
total assets, total loans and total deposits of each of the Cullen/Frost
subsidiary banks:
<TABLE>
<CAPTION>
Name of Bank and Location Total Assets Total Loans Total Deposits
------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
The Frost National Bank,
San Antonio, Corpus Christi,
Austin, and Houston, Texas $3,683,317,000 $1,424,062,000 $2,970,245,000
United States National Bank of Galveston
Galveston, Texas 138,222,000 53,703,000 125,904,000
</TABLE>
During April 1994, Cullen/Frost acquired Texas Commerce Bank in Corpus
Christi as a branch of Frost Bank in exchange for Cullen/Frost Bank of Dallas,
N.A. The banks exchanged were comparable in asset size.
1
<PAGE>
Services Offered by the Cullen/Frost Subsidiary Banks
-----------------------------------------------------
Commercial Banking
The subsidiary banks provide commercial services for corporations and other
business clients. Loans are made for a wide variety of purposes, including
interim construction financing on industrial and commercial properties and
financing on equipment, inventories and accounts receivable. Frost Bank provides
financial services to business clients on both a national and international
basis.
Consumer Services
The subsidiary banks provide a full range of consumer banking services,
including checking accounts, savings programs, automated teller machines,
installment and real estate loans, drive-in and night deposit services, safe
deposit facilities, credit card services and discount brokerage services.
International Banking
Frost Bank provides international banking services to customers residing
in or dealing with businesses located in Mexico. Such services consist of
accepting deposits (in United States dollars only), making loans (in United
States dollars only), issuing letters of credit, handling foreign collections,
transmitting funds and, to a limited extent, dealing in foreign exchange.
Reference is made to pages 15 and 21 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1994, which pages are incorporated
herein by reference.
Trust Services
The subsidiary banks provide a wide range of trust, investment, agency and
custodial services for individual and corporate clients. These services include
the administration of estates and personal trusts and the management of
investment accounts for individuals, employee benefit plans and charitable
foundations. At December 31, 1994, trust assets with a market value of
approximately $10.4 billion were being administered by the sub-sidiary banks.
In addition, both banks serve as transfer agents or registrars for securities,
as trustees of bond issues and as paying agents for dividends and interest.
Correspondent Banking
Frost Bank acts as correspondent for approximately 258 financial
institutions, primarily banks in Texas. These banks maintain deposits with
Frost Bank, which offers to the correspondents a full range of services
including check clearing, transfer of funds, loan participations, and
securities custody and clearance.
Discount Brokerage
Cullen/Frost Discount Brokers, Inc. was formed in March 1986 to provide
discount brokerage services and perform other transactions or operations related
to the sale and purchase of securities of all types. Cullen/Frost Discount
Brokers, Inc. is a subsidiary of Frost Bank.
Services Offered by the Cullen/Frost Non-Banking Subsidiaries
-------------------------------------------------------------
Main Plaza Corporation ("Main Plaza") is a wholly owned non-banking
subsidiary. Main Plaza holds real estate for future expansion of certain of the
subsidiary banks and occasionally makes loans to qualified borrowers.
Loans are funded with borrowings against Cullen/Frost's current cash or
borrowings against credit lines.
Daltex General Agency, Inc. ("Daltex"), a wholly owned non-banking
subsidiary, is a managing general insurance agency. Daltex provides
vendor's single interest insurance for the subsidiary banks.
Competition
-----------
The subsidiary banks encounter intense competition in their commercial
banking businesses, primarily from other banks located in their respective
service areas. The subsidiary banks also compete with insurance, finance and
mortgage companies, savings and loan institutions, credit unions, money market
funds and other financial institutions. In the case of some larger customers,
competition exists with institutions in other major
2
<PAGE>
metropolitan areas in Texas and in the remainder of the United States, some of
which are larger than the Cullen/Frost subsidiary banks in terms of capital,
resources and personnel.
Supervision and Regulation
--------------------------
Cullen/Frost
Cullen/Frost is a legal entity separate and distinct from its bank
subsidiaries and is a registered bank holding company under the Bank Holding
Company Act (the "BHC Act"). The BHC Act generally prohibits Cullen/Frost from
engaging in any business activity other than banking, managing and controlling
banks, furnishing services to a bank which it owns and controls or engaging in
non-banking activities closely related to banking.
As a bank holding company, Cullen/Frost is primarily regulated by the
Federal Reserve Board which has established guidelines with respect to the
maintenance of appropriate levels of capital and payment of dividends by bank
holding companies. Cullen/Frost is required to obtain prior approval of the
Federal Reserve Board for the acquisition of more than five percent of the
voting shares or substantially all of the assets of any company (including a
bank) or to merge or consolidate with another bank holding company. The Texas
Banking Code permits the acquisition of Texas banks or bank holding companies by
certain out-of-state registered bank holding companies. A Texas bank holding
company is likewise permitted to acquire a bank or bank holding company in other
states if the acquisition is permitted by the laws of the other states.
The Federal Reserve Act and the Federal Deposit Insurance Act ("FDIA")
impose restrictions on loans by the subsidiary banks to Cullen/Frost and certain
of its subsidiaries, on investments in securities thereof and on the taking of
such securities as collateral for loans. Such restrictions generally prevent
Cullen/Frost from borrowing from the subsidiary banks unless the loans are
secured by marketable obligations. Also, such restrictions prevent Cullen/Frost
and certain other subsidiaries from borrowing from Cullen/Frost's bank
subsidiaries unless the loans are secured. Further, such secured loans, other
transactions, and investments by each of such bank subsidiaries are limited in
amount as to Cullen/Frost or to certain other subsidiaries to ten percent of the
lending bank subsidiary's capital and surplus and as to Cullen/Frost and all
such subsidiaries to an aggregate of 20 percent of the lending bank subsidiary's
capital and surplus.
Subsidiary Banks
The two subsidiary national banks are organized as national banking
associations under the National Bank Act and are subject to regulation and
examination by the Office of the Comptroller of the Currency (the "Comptroller
of the Currency").
Federal and state laws and regulations of general application to banks
have the effect, among others, of regulating the scope of the business of the
subsidiary banks, their investments, cash reserves, the purpose and nature of
loans, collateral for loans, the maximum interest rates chargeable on loans, the
amount of dividends that may be declared and required capitalization ratios.
Federal law imposes restrictions on extensions of credit to, and certain other
transactions with, Cullen/Frost and other subsidiaries, on investments in stock
or other securities thereof and on the taking of such securities as collateral
for loans to other borrowers.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Frost Bank and United States National Bank of Galveston ("U.S. National
Bank") have registered with the Comptroller of the Currency as transfer agents
and are subject to certain reporting requirements of and regulatory control by
the Comptroller of the Currency. The bond department of Frost Bank is subject
to regulation under the Texas Securities Act.
The Comptroller of the Currency with respect to Cullen/Frost's bank
subsidiaries has authority under the Financial Institutions Supervisory Act to
prohibit a bank from engaging in what, in such agency's opinion, constitutes an
unsafe or unsound practice in conducting its business. It is possible,
depending upon the financial condition of the bank in question and other
factors, that such agency could claim that the payment of dividends or other
payments might, under some circumstances, be such an unsafe or unsound practice.
3
<PAGE>
The principal source of Cullen/Frost's cash revenues is dividends from its
bank subsidiaries, and there are certain limitations on the payment of dividends
to Cullen/Frost by such bank subsidiaries. The prior approval of the Comptroller
of the Currency is required if the total of all dividends declared by a national
bank in any calendar year would exceed the bank's net profits, as defined, for
that year combined with its retained net profits for the preceding two calendar
years less any required transfers to surplus. In addition, a national bank may
not pay dividends in an amount in excess of its net profits less an allowance
for bad debts. Although not necessarily indicative of amounts available to be
paid in future periods, Cullen/Frost's subsidiary banks had approximately
$45,095,000 available for payment of dividends at December 31, 1994.
Capital Adequacy
Bank regulators have adopted risk-based capital guidelines for bank holding
companies and banks. The minimum ratio of qualifying total capital to risk-
weighted assets (including certain off-balance sheet items) is 8 percent. At
least half of the total capital is to be comprised of common stock, retained
earnings, perpetual preferred stocks, minority interests and for bank holding
companies, a limited amount of qualifying cumulative perpetual preferred stock,
less certain intangibles including goodwill ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of other preferred stock, certain other
instruments, and limited amounts of subordinated debt and the loan and lease
loss allowance.
In addition, the Federal Reserve Board has established minimum Leverage
Ratio (Tier 1 capital to average total assets) guidelines for bank holding
companies and banks. These guidelines provide for a minimum leverage ratio of 3
percent for bank holding companies and banks that meet certain specified
criteria, including that they have the highest regulatory rating. All other
banking organizations will be required to maintain a leverage ratio of 3 percent
plus an additional cushion of at least 100 to 200 basis points. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "Tangible Tier 1 Leverage Ratio" in evaluating proposals
for expansion or new activities. The Tangible Tier 1 Leverage Ratio is the
ratio of Tier 1 capital, less intangibles not deducted from Tier 1 capital, to
average total assets. The Federal Reserve Board has not advised Cullen/Frost of
any specific minimum leverage ratio applicable to it. For information concerning
Cullen/Frost's capital ratios, see the discussion under the caption "Capital" on
page 22 of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1994, which discussion is incorporated herein by reference.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted, which substantially revises the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and makes
revisions to several other Federal banking statutes. Among other things, FDICIA
requires the Federal banking agencies to take "prompt corrective action" in
respect of depository institutions that do not meet minimum capital require-
ments. FDICIA establishes five capital tiers: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically undercapitalized". Federal banking agencies have adopted final
rules, effective December 16, 1992, relating to these capital tiers.
Under the final rules, an institution will be deemed to be: well
capitalized if the institution has a total risk-based capital ratio of 10.0
percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater,
and a leverage ratio of 5.0 percent or greater, and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure; adequately capitalized if the institution has a total risk-based
capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of
4.0 percent or greater, and a leverage ratio of 4.0 percent or greater (or a
leverage ratio of 3.0 percent for bank holding companies which meet certain
specified criteria, including having the highest regulatory rating);
undercapitalized if the institution has a total risk-based capital ratio that is
less than 8.0 percent, a Tier 1 risk-based capital ratio less than 4.0 percent
or a leverage ratio less than 4.0 percent (or a leverage ratio less than 3.0
percent if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines);
significantly undercapitalized if the institution has a total risk-based capital
ratio less than 6.0 percent, a Tier 1 risk-based capital ratio less than 3.0
percent, or a leverage ratio less
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<PAGE>
than 3.0 percent; and critically undercapitalized if the institution has a
ratio of tangible equity to total assets equal to or less than 2.0 percent.
At December 31, 1994, the two subsidiaries of Cullen/Frost that are
insured depository institutions -- Frost Bank and U.S. National Bank --
were considered "well capitalized". At December 31, 1994, the subsidiary
banks capital ratios were as follows:
Tier 1 Capital Total Capital Leverage
Ratio Ratio Ratio
--------------- ------------- --------
Frost Bank 13.30% 14.55% 6.43%
U. S. National Bank 16.09 17.36 7.66
FDICIA generally prohibits a depository institution from making any
capital distributions (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Federal banking agencies subject undercapitalized institu-
tions to growth limitations and require such institutions to submit a capital
restoration plan. The agencies may not accept such a plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an amount equal to 5
percent of the depository institution's total assets at the time it became
undercapitalized and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is significantly undercapitalized.
FDICIA also contains a variety of other provisions that affect the
operations of Cullen/Frost, including reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, and the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch. The Federal
regulatory agencies issued a final rule on real estate lending standards which
became effective March 19, 1993. These standards establish loan-to-value
("LTV") limitations on real estate lending. The LTV limitations range from 50
percent for raw land loans to 95 percent for loans on one to four family
residential properties, subject to certain exceptions and limitations. These
standards have not had a significant effect on Cullen/Frost and are not expected
to have a significant effect in the future.
Deposit Insurance
-----------------
Cullen/Frost's subsidiary banks are subject to FDIC deposit insurance
assessments and to certain other statutory and regulatory provisions applicable
to FDIC-insured depository institutions. The FDIC adopted in 1993 a risk-based
assessment system to replace the previous flat-rate system. The new system
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. Under this risk-based system, the
assessment rate imposed on banks ranges from 23 cents for each $100 of domestic
deposits (for well capitalized banks in the highest of three supervisory rating
categories) to 31 cents (for inadequately capitalized banks in the lowest of the
three supervisory rating categories.) It should be noted, however, that the
FDIC is proposing to change assessment rates again. Under the latest proposal,
the range of the assessment rate would be from 4 cents for each $100 of
domestic deposits to 31 cents for each $100 of domestic deposits.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989, in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the FDIC
to a commonly controlled, FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver, and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the absence
of regulatory assistance.
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Depositor Preference
--------------------
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
Acquisitions
------------
The BHC Act generally limits acquisitions by Cullen/Frost to commercial
banks and companies engaged in activities that the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. Cullen/Frost's direct activities are generally limited to furnishing
to its subsidiaries services that qualify under the "closely related" and
"proper incident" tests. Prior Federal Reserve Board approval is required under
the BHC Act for new activities and acquisitions of most nonbanking companies.
The BHC Act, the Federal Bank Merger Act, and the Texas Banking Code
regulate the acquisition of commercial banks. The BHC Act requires the prior
approval of the Federal Reserve Board for the direct or indirect acquisition of
more than five percent of the voting shares of a commercial bank. The BHC Act
currently prohibits the acquisition of a domestic bank located outside
Cullen/Frost's state of principal operations, Texas, unless authorized by the
law of the state of the target bank. Effective September 27, 1995, this
prohibition has been recalled to permit bank holding companies generally to
acquire a bank located in any state. With respect to Cullen/Frost's subsidiary
banks, the approval of the Comptroller of the Currency is required for
branching, purchasing the assets of other banks and for bank mergers in which
the continuing bank is a national bank.
In reviewing bank acquisition and merger applications, the bank regulatory
authorities will consider, among other things, the competitive effect and public
benefits of the transactions, the capital position of the combined organization,
and the applicant's record under the Community Reinvestment Act and fair housing
laws.
Under Federal Reserve Board policy, Cullen/Frost is expected to act as a
source of financial strength to its banks and to commit resources to support
such banks in circumstances where it might not do so absent such policy. In
addition, any loans by Cullen/Frost to its banks would be subordinate in right
of payment to deposits and to certain other indebtedness of its banks.
Economic Environment
--------------------
The earnings of the subsidiary banks are affected not only by general
economic conditions but also by the policies of various governmental regulatory
authorities. The Federal Reserve Board regulates the supply of credit in order
to influence general economic conditions, primarily through open market
operations in United States government obligations, varying the discount rate on
financial institution borrowings, varying reserve requirements against financial
institution deposits and restricting certain borrowings by such financial
institutions and their subsidiaries. The deregulation of interest rates has had
and is expected to continue to have an impact on the competitive environment in
which the subsidiary banks operate.
Governmental policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future. However, Cullen/Frost cannot accurately predict the nature or
extent of any effect such policies may have on its future business and earnings.
Statistical Information
-----------------------
Statistical and other information is included on pages 8 through 23,
pages 43 and 44 and pages 46 through 49 of the Cullen/Frost Annual Report to
Shareholders for the year ended December 31, 1994, which information is
incorporated herein by reference.
Employees
---------
At December 31, 1994, Cullen/Frost employed 1,862 persons. Employees
of Cullen/Frost enjoy a variety of employee benefit programs, including a
retirement plan, 401(k) stock purchase plans, various comprehensive medical,
accident and group life insurance plans and paid vacations. Cullen/Frost
considers its employee relations to be good.
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Executive Officers of the Registrant
------------------------------------
The names, ages, recent business experience and positions or offices
held by each of the principal executive officers during 1994 of Cullen/Frost
are as follows:
Name and Positions or Offices Age as of 12/31/94 Recent Business Experience
----------------------------- ------------------ --------------------------
T.C. Frost 67 Officer and director of
Chairman of the Board Frost Bank since 1950.
and Chief Executive Officer, Chairman of the Board and
Director, and Member of the Member of the Executive
Executive Committee Committee of Cullen/Frost
from 1973 to present.
Robert S. McClane 55 Officer of Frost Bank since
President and Chief 1962. Senior Vice President
Administrative Officer, of Cullen/Frost from Novem-
Director, and Member of the ber 1973 to April 1978,
Executive Committee Secretary from May 1973 to
April 1985. Executive Vice
President from April 1978
to April 1985. President,
Director, and Member of the
Executive Committee of
Cullen/Frost from April
1985 to present.
Richard W. Evans, Jr. 48 Officer of Frost Bank since
Chief Banking Officer, Director, 1973. Executive Vice Pres-
and Member of the Executive ident of Frost Bank from
Committee. Chairman of the Board 1978 to April 1985. Pres-
and Chief Executive Officer of ident of Frost Bank from
Frost Bank. April 1985 to August 1993.
Chairman of the Board and
Chief Executive Officer of
Frost Bank from August 1993
to present. Chief Banking
Officer, Director, and Mem-
ber of the Executive Com-
mittee of Cullen/Frost from
August 1993 to present.
J. Gordon Muir, Jr. 53 President of Cullen/Frost
Vice Chairman and Director Bank from September 1978 to
June 1983 and from January
1994 to April 1994. Direc-
tor of Cullen/Frost from
1979 to present. Member of
the Executive Committee of
Cullen/Frost from 1979 to
October, 1994. Chairman of
the Board and Chief Execu-
tive Officer of Cullen Bank
from June 1983 to November
1993. Vice Chairman of
Cullen/Frost from November
1993 to present.
Phillip D. Green 40 Officer of Frost Bank since
Executive Vice President July 1980. Vice President
and Treasurer and Controller of Frost
Bank from January 1981 to
January 1983. Senior Vice
President and Controller of
Frost Bank from January
1983 to July 1985. Senior
Vice President and Treasur-
er of Cullen/Frost from
July 1985 to April 1989.
Executive Vice President
and Treasurer of Cullen/
Frost from May 1989 to
present.
Diane Jack, age 46, has been an officer of Frost Bank since 1984; Secretary
of Cullen/Frost from October 1993 to present.
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<PAGE>
There are no arrangements or understandings between any executive officer
of Cullen/Frost and any other person pursuant to which he was or is to be
selected as an officer.
Item 2. PROPERTIES
-------------------
The executive offices of Cullen/Frost, as well as the principal banking
quarters of Frost Bank, are housed in both a 21-story office tower and a nine-
story office building located on approximately 3.5 acres of land in downtown San
Antonio. Cullen/Frost and Frost Bank lease approximately 50 percent of the
office tower. The nine-story office building was purchased in April 1994. Frost
Bank also leases space in a seven-story parking garage adjacent to the banking
quarters.
In June 1987 Frost Bank consummated the sale of its office tower and leased
back a portion of the premises under a 13-year primary lease term with options
allowing for occupancy up to 50 years. The Bank also sold its related parking
garage facility and leased back space in that structure under a 12-year primary
lease term with options allowing for occupancy up to 50 years.
The subsidiary bank located in Galveston is housed in modern facilities
which, together with tracts of adjacent land used for parking and drive-in
facilities, are either owned or leased by the subsidiary bank.
Item 3. LEGAL PROCEEDINGS
--------------------------
Certain subsidiaries of Cullen/Frost are defendants in various matters
in litigation which have arisen in the ordinary course of conducting a
commercial banking business. In the opinion of management, the judicial
disposition of such pending litigation will not have a material effect on
Cullen/Frost's consolidated financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------------------
The information called for by Item 5 is incorporated herein by
reference to "Common Stock Market Prices and Dividends" on page 45 and
"Note K-Dividends" on page 34 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1994.
Item 6. SELECTED FINANCIAL DATA
--------------------------------
The information called for by Item 6 is incorporated herein by reference to
"Selected Financial Data" on page 46 and "Consolidated Statements of Operations"
and "Consolidated Average Balance Sheets" on pages 47 through 49 of the Cullen/
Frost Annual Report to Shareholders for the Year Ended December 31, 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-------------------------------
The information called for by Item 7 is incorporated herein by
reference to "Financial Review" on pages 8 through 23, "Consolidated Statements
of Operations" and "Consolidated Average Balance Sheets" on pages 47 through
49 of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1994.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The information called for by Item 8 is incorporated herein by reference to
the consolidated financial statements and report of independent auditors
included on pages 24 through 42 and "Quarterly Results of Operations" on page
45, of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1994.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
------------------------------
None.
9
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The information regarding directors and executive officers called for
by Item 10 is incorporated herein by reference to Cullen/Frost's Proxy
Statement for its Annual Meeting of Shareholders to be held May 16, 1995.
The additional information regarding executive officers called for by
Item 10 is included in Part I, Item 1 of this document under the heading
"Executive Officers of the Registrant".
Item 11. EXECUTIVE COMPENSATION
--------------------------------
The information called for by Item 11 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 16, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The information called for by Item 12 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 16, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The information called for by Item 13 is incorporated herein by
reference to Cullen/Frost's Proxy Statement for its Annual Meeting of
Shareholders to be held May 16, 1995.
10
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Financial Statements -- Reference is made to Part II, Item 8, of this
Annual Report on Form 10-K.
2. The Financial Statement Schedules are omitted, as the required
information is not applicable.
3. Exhibits -- The following exhibits are filed as a part of this Annual
Report on Form 10-K:
Exhibit
Number
-------
2.1 Agreement and Plan of Merger among Texas Commerce Bancshares,
Inc., Texas Commerce Equity Holdings, Inc., Texas Commerce Bank,
N.A., Texas Commerce Bank - Corpus Christi, N.A., Cullen/Frost
Bankers, Inc., The New Galveston Company, The Frost National Bank of
San Antonio and Cullen/Frost Bank of Dallas, N.A. dated August 26,
1993. (1993 Form 8-K, Exhibit 10)(14)
3.1 Restated Articles of Incorporation, as amended (1988 Form S-8,
Exhibit 4(a))(4)
3.2 Amended By-Laws of Cullen/Frost Bankers, Inc.
4.1 Guaranty, dated April 27, 1981, by Cullen/Frost Bankers, Inc.to
Colonial/Citizens Associates (1985 Form S-8, Exhibit 4(e))(2)
4.2 Shareholder Protection Rights Agreement dated as of July 25, 1989
between Cullen/Frost Bankers, Inc. and The Bank of New York, as
Rights Agent (1989 Form 8-K, Exhibit 1)(6)
10.1 1983 Non-qualified Stock Option Plan, as amended (1989 Form S-8,
Exhibit 4(g))(7)
10.2 Restoration of Retirement Income Plan for Participants in the
Retirement Plan for Employees of Cullen/Frost Bankers, Inc. and
its Affiliates (as amended and restated)(1988 Form 10-K, Exhibit
10.4)(5)*
10.3 Pension Benefit Contract (1984 Form 10-K, Exhibit 10.8)(1)*
10.4 Contract of Sale, dated June 9, 1987, between The Frost National
Bank of San Antonio and Tower Investors, Ltd. for the sale of the
Frost Bank Tower (1987 Form 10-K, Exhibit 10.10)(3)
10.5 Master Lease, dated June 9, 1987, between The Frost National Bank of
San Antonio and Tower Investments, Ltd. for the lease of the Frost
Bank Tower (1987 Form 10-K, Exhibit 10.11)(3)
10.6 Agreement dated September 30, 1988, among Electronic Data Systems
Corporation, The Frost National Bank of San Antonio and Cullen/Frost
Bankers, Inc. for the sale of rights to revenues of data processing
services (1988 Form 10-K, Exhibit 10.12)(5)
10.7 Form of Revised Change-In-Control Agreements with four Executive
Officers (1989 Form 10-K, Exhibit 10.13(a))(9)*
10.8 1988 Non-qualified Stock Option Plan (1989 Form S-8, Exhibit
4(g))(8)
10.9 The 401(k) Stock Purchase Plan for Employees of Cullen/Frost
Bankers, Inc. and its Affiliates (1990 Form S-8, Exhibit 4(g))(10)*
10.10 1991 Thrift Incentive Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and its Affiliates (1991 Form S-8,
Exhibit 4(g))(11)*
10.11 Cullen/Frost Bankers, Inc. Restricted Stock Plan (1992 Form S-8,
Exhibit 4(d))(12)*
10.12 Cullen/Frost Bankers, Inc. 1992 Stock Plan (1992 Form S-8,
Exhibit 4(d))(13)
10.13 Cullen/Frost Bankers, Inc. Supplemental Executive Retirement Plan
10.14 Form of Revised Change-In-Control Agreements with one Executive
Officer
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1994 Annual Report to Shareholders for the
Year Ended December 31, 1994, (furnished for the information of the
Commission and not deemed to be "filed" except for the portion
expressly incorporated by reference)
11
<PAGE>
19.1 Annual Report on Form 11-K for the Year Ended December 31, 1994, for
the 1991 Thrift Incentive Stock Purchase Plan (filed pursuant to
Rule 15d-21 of the Securities and Exchange Act of 1934)(15)
19.2 Annual Report on Form 11-K for the Year Ended December 31, 1994, for
the 401(k) Stock Purchase Plan (filed pursuant to Rule 15d-21 of the
Securities and Exchange Act of 1934)(15)
21 Subsidiaries of Cullen/Frost
23 Consent of Independent Auditors
24 Power of Attorney
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 601 of Regulation S-K.
(b) Reports on Form 8-K -- No such reports were filed during the quarter ended
December 31, 1994.
______________________
(1) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1984 (File No. 0-7275)
(2) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed December 18, 1985 (File No.
33-2271)
(3) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1987 (File No. 0-7275)
(4) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed June 24, 1988 (File No. 33-
22758)
(5) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1988 (File No. 0-7275)
(6) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-K dated July 25, 1989 (File
No. 0-7275)
(7) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed September 5, 1989 (File
No. 33-30776)
(8) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed September 5, 1989 (File
No. 33-30777)
(9) Incorporated herein by reference to the designated Exhibits to the
Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31,
1989 (File No. 0-7275)
(10) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 31, 1990 (File
No. 33-37500)
(11) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed March 18, 1991 (File
No. 33-39478)
(12) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 20, 1992 (File
No. 33-53492)
(13) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed October 23, 1992 (File
No. 33-53622)
(14) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-K dated August 26, 1993 (File
No. 0-7275)
(15) To be filed as an amendment.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1995 CULLEN/FROST BANKERS, INC.
(Registrant)
By:/s/ PHILLIP D. GREEN
------------------------
Phillip D. Green
Executive Vice President
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 1995
Signatures Title Date
---------- ----- -----
Chairman of the Board
and Director (Principal Executive
T.C. FROST* Officer)
------------------------
(T.C. Frost)
Robert S. McClane President and Chief Administrative
------------------------ Officer and Director
(Robert S. McClane)
ISAAC ARNOLD, JR.* Director
------------------------
(Isaac Arnold, Jr.)
ROYCE S.CALDWELL Director
------------------------
(Royce S. Caldwell)
RUBEN R. CARDENAS Director
------------------------
(Ruben R. Cardenas)
HENRY E. CATTO* Director
------------------------
(Henry E. Catto)
HARRY H. CULLEN* Director
------------------------
(Harry H. Cullen)
13
<PAGE>
Signatures Title Date
---------- ----- -----
ROY H. CULLEN* Director
------------------------
(Roy H. Cullen)
RICHARD W. EVANS, JR.* Director
------------------------
(Richard W. Evans, Jr.)
W.N. FINNEGAN III* Director
------------------------
(W.N. Finnegan III)
Director
------------------------
(Joseph H. Frost)
Director
------------------------
(James W. Gorman, Jr.)
JAMES L. HAYNE* Director
------------------------
(James L. Hayne)
Director
------------------------
(Harris L. Kempner, Jr.)
RICHARD M. KLEBERG, III* Director
------------------------
(Richard M. Kleberg, III)
QUINCY LEE* Director
------------------------
(Quincy Lee)
J. GORDON MUIR, JR.* Director
------------------------
(J. Gordon Muir, Jr.)
W.B. OSBORN, JR.* Director
------------------------
(W.B. Osborn, Jr.)
14
<PAGE>
Signatures Title Date
---------- ----- -----
ROBERT G. POPE* Director
------------------------
(Robert G. Pope)
Director
------------------------
(Herman J. Richter)
CURTIS VAUGHAN, JR.* Director
------------------------
(Curtis Vaughan, Jr.)
*By:/s/ PHILLIP D. GREEN March 30, 1995
--------------------------
(Phillip D. Green)
[as Attorney-in-Fact for
the persons indicated]
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------------------------------------------
10.13 Cullen/Frost Bankers, Inc. Supplemental Executive Retirement Plan
10.14 Form of Revised Change-in-Control Agreements with one Executive Officer
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1994 Annual Report to Shareholders for the YearEnded
December 31, 1994 (furnished for the information of the Commission and
not deemed to be "filed" except for the portion expressly incorporated by
reference)
21 Subsidiaries of Cullen/Frost
23 Consent of Independent Auditors
24 Power of Attorney
EXHIBIT 10.13
Cullen/Frost Bankers, Inc. Supplemental Executive Retirement Plan
<PAGE>
CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective as of January 1, 1994)
<PAGE>
CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective as of January 1, 1994)
TABLE OF CONTENTS
-----------------
Section Page
------- ----
Article I. Establishment and Purpose
-------------------------------------
1.1 Establishment of Plan 1
1.2 Purpose 1
1.3 Application of the Plan 1
Article II. Definitions and Construction
-----------------------------------------
2.1 Definitions 3
2.2 Gender and Number; Headings 4
2.3 Incorporation of the Retirement Plan
and the Restoration Plan 4
Article III. Eligibility and Participation
-------------------------------------------
3.1 Eligibility 5
3.2 Participation 5
Article IV. Benefits
---------------------
4.1 Amount of Benefits 6
4.2 Eligibility for Benefits 8
4.3 Payment of Benefits 10
Article V. Administration
--------------------------
5.1 Administration 12
5.2 Finality of Determination 12
5.3 Expenses 12
5.4 Indemnification and Exculpation 12
Article VI. Funding of the Plan
--------------------------------
6.1 Funding 14
Article VII. Amendment and Termination
---------------------------------------
7.1 Amendment and Termination 15
Article VIII. Adoption Procedure
---------------------------------
8.1 Adoption Procedure 16
8.2 Withdrawal of Participating Employer 16
-i-
<PAGE>
CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective as of January 1, 1994)
TABLE OF CONTENTS
(Continued)
Section Page
------- ----
Article IX. General Provisions
-------------------------------
9.1 Nonalienation 17
9.2 Effect on Other Benefit Plans 17
9.3 Severability 17
9.4 Applicable Law 17
9.5 Employer-Employee Relationship 18
9.6 Incompetence 18
9.7 Binding on Employer, Eligible
Participants and Their Successors 18
9.8 Tax Liability 19
9.9 Beneficiary Designation 19
Participating Employers under
the Cullen/Frost Bankers, Inc.
Supplemental Executive Retirement Plan 21
Appendix A 22
-ii-
<PAGE>
CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective as of January 1, 1994)
Article I. Establishment and Purpose
-------------------------------------
1.1. Establishment of Plan. Cullen/Frost Bankers, Inc. ("Company") hereby
establishes, effective as of January 1, 1994, an unfunded supplement executive
retirement plan to be known as the "Cullen/Frost Bankers, Inc. Supplemental
Executive Retirement Plan" ("Plan").
1.2 Purpose. The Plan is established and is intended as an unfunded plan
to be maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees within the
meaning of section 201(2) of the Employee Income Retirement Security Act of
1974, as amended ("ERISA"), and as such it is intended that the Plan be exempt
from the relevant requirements of Title I of ERISA. The Plan is not intended to
satisfy the qualification requirements of Code section 401.
1.3 Application of the Plan. The terms of this Plan are applicable only
to or with respect to those Eligible Participants who become Eligible Partici-
pants under this Plan on or after January 1, 1994.
-1-
<PAGE>
Article II. Definitions and Construction
-----------------------------------------
2.1 Definitions. All terms used in this Plan shall have the same meanings
assigned to them under the provisions of the Retirement Plan (as defined below),
unless otherwise qualified by the context hereof. Notwithstanding the prior
sentence, the following terms shall have the meanings set forth below, unless
their context clearly indicates to the contrary:
(a) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported (assuming such event has
not been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant
to Section 13 or 15(d) of the Exchange Act; provided that, without
limitation, such a Change in Control shall be deemed to have occurred
at such time as (a) any person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 20 percent or more of the combined voting power of the
Company's voting securities; or (b) individuals who constitute the
Board on the date thereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee
for director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person were a
member of the Incumbent Board. Notwithstanding anything in the
foregoing to the contrary, no Change in Control shall be deemed to
have occurred for purposes of this Plan by virtue of any transaction
which results in
-2-
<PAGE>
Eligible Participants, or a group of persons which includes Eligible
Participants, acquiring, directly or indirectly, 20 percent or more of
the combined voting power of the Company's voting securities.
(b) "Beneficiary" means the person, persons or trust designated by the
Eligible Participant, as provided in Section 9.9.
(c) "Eligible Employee" means an executive Employee of the Company, or
other Employer, who is designated as an "Eligible Employee" under this
Plan by the Board of Directors of the Company. All individuals who
are designated as "Eligible Employees" shall be listed on Appendix A
attached to the end of the basic Plan document.
(d) "Eligible Participant" means an Eligible Employee who satisfies the
conditions of Section 3.2.
(e) "Employer" means the Company and each other Employer who is a
participating Employer under the Retirement Plan and who has elected
to become a participating Employer under this Plan as provided in
Article VIII.
(f) "Restoration Plan" means the "Cullen/Frost Bankers, Inc. Restoration
Plan," as amended and restated effective as of January 1, 1989, and as
the same may thereafter be amended from time to time.
(g) "Plan" means the "Cullen/Frost Bankers, Inc. Supplemental Executive
Retirement Plan" as set forth in this document and as the same may be
amended from time to time.
(h) "Retirement Plan" means the "Retirement Plan for Employees of Cullen/
Frost Bankers, Inc., and Its Affiliates," as amended and restated
effective as of January 1, 1989, and as the same may thereafter be
amended from time to time.
2.2 Gender and Number; Headings. Except when otherwise indicated by the
context, any masculine terminology when used in
-3-
<PAGE>
this Plan shall also include the feminine gender, and the definition of any
term in the singular shall also include the plural. Headings of Articles and
Sections herein are included solely for convenience, and if there is any
conflict between such headings and the text of the Plan, the text shall
control.
2.3 Incorporation of the Retirement Plan and the Restoration Plan. The
Retirement Plan and the Restoration Plan are hereby incorporated by reference
into and shall form a part of this Plan as fully as if set forth herein
verbatim. Any amendment made to the Retirement Plan or the Restoration Plan
shall also be incorporated by reference into and form a part of this Plan,
effective as of the effective date of such amendment. The Retirement Plan (or
the Restoration Plan), whenever referred to in this Plan, shall mean the
Retirement Plan (or the Restoration Plan) as amended, as such plan exists as of
the date any determination is made of benefits payable under this Plan.
-4-
<PAGE>
Article III. Eligibility and Participation
-------------------------------------------
3.1 Eligibility. Each Employee who is an "Eligible Employee" shall be
eligible to participate in the Plan, and shall become an Eligible Participant
in the Plan as described in Section 3.2. For purposes of this Plan, an
"Eligible Employee" means an executive Employee of the Employer who has been
designated by the Board of Directors of the Company as eligible for participa-
tion under the Plan. Such Employee shall continue as an Eligible Employee so
long as he remains employed as an Employee of the Employer and the Committee
continues his designated eligibility status under the Plan. All determinations
as to an Employee's status as an Eligible Employee shall be made by the
Committee, whose determinations shall be final and binding on all Employees.
The Committee shall provide each Eligible Employee with notice of his status as
an Eligible Employee. Such notice may be given at such time and in such manner
as the Committee may determine from time to time.
3.2 Participation. Each Eligible Employee shall become an Eligible
Participant under the Plan as of the date of his designation as an Eligible
Employee, but in no event earlier than January 1, 1994. Such Eligible Employee
shall continue as an Eligible Participant under the Plan so long as he remains
employed as an Eligible Employee. An Eligible Employee who has become an
Eligible Participant and who later terminates employment as an Employee, or who
otherwise ceases to be designated as an Eligible Employee, shall continue to be
an Eligible Participant under the Plan so long as he has an accrued benefit
under the Plan.
-5-
<PAGE>
Article IV. Benefits
---------------------
4.1 Amount of Benefits.
(a) Amount. The benefit shall be a single sum amount which is the
actuarial equivalent of the Eligible Participant's expected monthly
benefit payable as a single life annuity for the life of the Eligible
Participant. Actuarial equivalent amounts hereunder shall be
computed using the same actuarial factors and assumptions used to
compute the benefit payable under the Retirement Plan. Except as
provided in Section 4.2, such monthly benefit shall be equal to the
difference between the amount in paragraph (1) and the amount in
paragraph (2) where--
(1) is the product of--
(A) the Applicable Percentage, and
(B) the Eligible Participant's Final Average
Monthly Compensation, and
(2) is the sum of--
(A) the Annuity Value of the Retirement Plan,
(B) the Annuity Value of the Restoration Plan, and
(B) the Primary Social Security Benefit to which
the Eligible Participant is entitled.
(b) Definitions.
(1) "Annuity Value of the Restoration Plan" means the estimated
monthly benefit amount payable as a single life annuity, as
determined by the Committee, of the Eligible Participant's
accrued retirement benefit under the Restoration Plan (to the
extent it is restoring benefits limited under the Retirement
Plan) as of the earliest date for his benefit distribution as
determined under Section 4.3(b). If the benefit under the
Restoration Plan is not stated as a benefit payable at the same
time or in the same form as described in the preceding sentence,
then the amount of the
-6-
<PAGE>
benefit under the Restoration Plan shall be adjusted so that it
is stated as an actuarial equivalent of the benefit under this
Plan.
(2) "Annuity Value of the Retirement Plan" means the estimated
monthly benefit amount payable as a single life annuity, as
determined by the Committee, of the Eligible Participant's
accrued retirement benefit under the Retirement Plan as of
the earliest date for his benefit distribution as determined
under Section 4.3(b). If the benefit under the Retirement Plan
is not stated as a benefit payable at the same time or in the
same form as described in the preceding sentence, then the
amount of the benefit under the Retirement Plan shall be
adjusted so that it is stated as an actuarial equivalent of the
benefit under this Plan.
(3) "Applicable Percentage" means 60 percent; provided, however, for
any Eligible Participant who terminates employment with the
Employer and its Controlled Group Members before attaining age
60, then his Applicable Percentage shall be determined based on
his age as of the earliest date for his benefit distribution as
determined under Section 4.3(b) using the following table:
Age Applicable Percentage
--- ---------------------
59 57%
58 54%
57 51%
56 48%
55 45%
(4) "Primary Social Security Benefit" means the estimated monthly
primary insurance benefit that an Eligible Participant would be
entitled to be paid
-7-
<PAGE>
under the Social Security Act commencing at his earliest eligible
age on or after his termination of employment with the Employer
and its Controlled Group Members, whether or not such benefit
payment is delayed, suspended, forfeited or reduced on account of
a failure to apply, other work, excess earnings, taxation of
Social Security benefits or any similar reason, and such
estimated amount shall be based on the following assumptions:
(A) the Social Security Act as in effect on the January 1 of the
calendar year with respect to which benefits are calculated
under this Plan applies (regardless of any retroactive
changes made by legislation enacted after such January 1);
(B) the rate of the Eligible Participant's past wage increases
equaled the rate of the increases in the average national
wage as reported by the Social Security Administration; and
(C) no change occurs in the primary insurance benefit under the
Social Security Act (by amendment to the Act or by applica-
tion of the provisions of the Act) after termination of em-
ployment with the Employer or its Controlled Group Members.
4.2 Eligibility for Benefits.
(a) Termination of Employment. An Eligible Participant who terminates
employment with the Employer and its Controlled Group Members for a
reason other than death on or after attaining age 55 and completing
5 years of Vesting Service shall be entitled to receive his benefit
as determined under Section 4.1.
(b) Termination of Employment Following a Change in Control. An Eligible
Participant with at least 5 years of Vesting
-8-
<PAGE>
Service who terminates employment with the Employer and its
Controlled Group Members within 24 months following a Change in
Control shall be entitled to receive his benefit as determined under
Section 4.1; provided, however, that the Applicable Percentage shall
be 60 percent regardless of his age at termination.
(c) Termination of Eligible Employee Status. An Eligible Participant who
ceases to be an Eligible Employee on or after he has attained age 55
and completed 5 years of Vesting Service shall be entitled to receive
his benefit as determined under Section 4.1; provided, however, that
for purposes of determining his benefit under Section 4.1(a)(1), his
Final Average Monthly Compensation and Applicable Percentage shall be
determined as of the date he ceased to be an Eligible Employee.
(d) Termination of the Plan. In the event the Plan is terminated, an
Eligible Participant who is at least age 55 and has completed at
least 5 years of Vesting Service on the termination date shall be
entitled to receive his benefit determined under Section 4.1;
provided, however, that for purposes of determining his benefit under
Section 4.1(a)(1), his Final Average Monthly Compensation and
Applicable Percentage shall be determined as of the date he ceased
to be an Eligible Employee.
(e) Disability. An Eligible Participant who suffers total and permanent
Disability while he is an Eligible Employee and after he has complet-
ed 5 years of Vesting Service shall be entitled to receive his
benefit under Section 4.1; provided, however, that for purposes of
determining his benefit under Section 4.1(a)(1), his Final Average
Monthly Compensation and Applicable Percentage shall be determined
as of the date he incurred his Disability.
For purposes of this Plan, "Disability" means a physical or mental
condition of an Eligible Participant which, in
-9-
<PAGE>
the opinion of the Committee, and based on medical evidence
satisfactory to the Committee, renders him permanently unable to
perform the duties of his usual course of employment.
(f) Death Benefit. A Eligible Participant who dies while in active
employment with the Employer or its Controlled Group Members after
completing 5 years of Vesting Service shall be entitled to have 50
percent of his benefit as determined under Section 4.1 paid to his
Beneficiary. If an Eligible Participant who is eligible for a
benefit under this Plan dies after his termination of employment and
before he receives his distribution, his Beneficiary shall be
entitled to receive 100 percent of such benefit.
(g) No Benefit. An Eligible Participant who does not complete at least
5 years of Vesting Service and satisfy one of the eligibility
provisions of Section 4.2(a)-(f)above shall not be entitled to
receive any benefit under the Plan.
(h) Forfeiture for Misconduct. Notwithstanding any Plan provisions to
the contrary, an Eligible Participant (or his Beneficiary) shall have
no right to a benefit under this Plan if the Committee or the Company
determines that the Eligible Participant engaged in a willful,
deliberate, or gross act of commission or omission which is injurious
to the finances or reputation of the Company or any of its Controlled
Group Members.
4.3 Payment of Benefits.
(a) Form of Payment. An Eligible Participant or designated Beneficiary
who is eligible to receive a distribution as provided in Section 4.2
shall receive such distribution in the form of a lump sum payment.
(b) Distribution Date.
Any Eligible Participant who becomes eligible for a benefit as
determined under the provisions of Section
-10-
<PAGE>
4.2 shall receive a distribution of the balance credited to his
Account on or as soon as practicable following the date of his
termination of employment with the Employer and its Controlled Group
Members; provided, however, that no benefit shall be paid before the
Eligible Participant would have attained age 55 unless the distribu-
tion is triggered by a Change in Control as provided in Section
4.2(b).
-11-
<PAGE>
Article V. Administration
--------------------------
5.1 Administration. This Plan shall be administered by the Committee
appointed pursuant to the terms of the Retirement Plan. The Committee shall
administer this Plan in a manner consistent with the administration of the
Retirement Plan, except that this Plan shall be administered as an unfunded
plan which is not intended to meet the qualification requirements of Code
section 401. The Committee shall have the same rights and authority granted
to it under the Retirement Plan, which shall include the full power and
authority to interpret, construe and administer this Plan. The Committee shall
establish and maintain such accounts or records as the Committee may from time
to time consider necessary. Members of the Committee shall not participate
in any action or determination regarding their own benefits under the Plan.
5.2 Finality of Determination. The determination of the Committee
as to any disputed questions arising under this Plan, including questions of
construction and interpretation shall be final, binding, and conclusive upon
all persons.
5.3 Expenses. The expenses of administering this Plan shall be
borne by the Employers in the proportions determined by the Committee.
5.4 Indemnification and Exculpation. The members of the Committee, its
agents, and officers, directors, and employees of the Company or any other
Employer shall be indemnified and held harmless by the Employer against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may
be involved by reason of any action taken or failure to act under this Plan and
against and from any and all amounts paid by them in settlement (with the
Company's written
-12-
<PAGE>
approval) or paid by them in satisfaction of a judgment in any such action,
suit, or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person's gross
negligence or willful mis conduct.
-13-
<PAGE>
Article VI. Funding of the Plan
--------------------------------
6.1 Funding. All amounts paid under this Plan shall be paid from the
general assets of the participating Employers. Benefits shall be reflected
on the accounting records of the Employers, but neither this Plan nor the
maintenance of such accounting records shall be construed to create, or require
the creation of a trust, custodial account, or escrow account with respect to
any Eligible Participant. No Eligible Participant shall have any right, title,
or interest whatsoever in or to any investment reserves, accounts, or funds,
that the Employers may purchase, establish, or accumulate to aid in providing
the unfunded benefit payments described in the Plan. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall create, or be
construed to create, a trust or fiduciary relationship of any kind between an
Employer or the Committee and an Eligible Participant or any other person.
Eligible Participants shall not acquire any interest under the Plan greater
than that of an unsecured general creditor of an Employer. The Trust Fund of
the Retirement Plan shall not be liable for any benefits accrued under this
Plan.
-14-
<PAGE>
Article VII. Amendment and Termination
---------------------------------------
7.1 Amendment and Termination. The Board of Directors of the Company may
amend, modify, or terminate this Plan at any time and in any manner. Such
actions by the Board of Directors of the Company shall be binding upon all
other Employers. In addition, this Plan shall automatically terminate at the
time of the termination of the Retirement Plan, and any benefit payment obli-
gation under this Plan shall be measured with respect to the benefits which are
payable from the Retirement Plan irrespective of whether such benefits are
actually paid due to an insufficiency of assets to pay such benefits. In the
event of a termination of the Plan pursuant to this Section 7.1, no further
benefits shall accrue under this Plan, and amounts which are then payable shall
continue to be an obligation of the Employer and shall be paid as scheduled;
provided, however, that the Company reserves the right, in its sole discretion,
to accelerate payments to the affected Eligible Participants in the event of a
complete or partial termination of the Plan.
Notwithstanding any Plan provision to the contrary, in the event of a Change in
Control, the Plan may not be amended, or otherwise changed, with respect to
current Eligible Participants, during the two-year period that commences with
the Change in Control, except to--
(a) comply with the law in a manner which has the least adverse impact
upon Eligible Participants;
(b) increase the Plan's benefit accrual levels or accelerate the rate
of benefit accrual under the Plan;
(c) add Plan provisions which will apply only at the individual Eligible
Participant's election; or
(d) execute a Plan amendment authorized prior to the Change in Control.
-15-
<PAGE>
Article VIII. Adoption Procedure
---------------------------------
8.1 Adoption Procedure. With the consent of the Company, any other
organization which satisfies the definition of Employer under the Retirement
Plan and this Plan and which is eligible by the law to do so may adopt this
Plan for the benefit of its Employees who are or who become Eligible
Participants under the Retirement Plan, on express condition that the Company
assumes no liability as a result of any such adoption of this Plan by any
other organization. Such other organization may adopt this Plan by--
(a) executing an adoption instrument adopting the Plan, and agreeing to
be bound as a participating Employer by all the terms, provisions,
conditions, and limitations of the Plan; and
(b) compiling and submitting all information required by the Company with
reference to persons in its employment eligible for membership in the
Plan. The participating Employers under the Plan shall be listed at
the end of the Plan.
The adoption instrument shall specify the effective date of such adoption of
the Plan and shall become, as to such organization and persons in its
employment, a part of this Plan. The participating Employers under the Plan
shall be listed at the end of the Plan.
8.2 Withdrawal of Participating Employer. Any participating Employer may
withdraw from the Plan by giving 60 days' notice in writing of its intention to
withdraw to the Company, unless a shorter notice shall be agreed to by the
Company.
-16-
<PAGE>
Article IX. General Provisions
-------------------------------
9.1 Nonalienation. No benefit payable at any time under the Plan shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, garnishment, or encumbrance of any kind, and shall not be subject
to or reached by any legal or equitable process (including execution, garnish-
ment, attachment, pledge, or bankruptcy) in satisfaction of any debt,
liability, or obligation, prior to receipt. Any attempt to alienate, sell,
transfer, assign, pledge, or otherwise encumber any such benefit, whether
presently or thereafter payable, shall be void. Notwithstanding the foregoing
provisions of this Section 9.1, no benefit amount payable under the Plan
shall be payable until and unless any and all amounts representing debts or
other obligations owed to the Company or other Employer by the Eligible
Participant with respect to whom such amount would otherwise be payable shall
have been fully paid.
9.2 Effect on Other Benefit Plans. Amounts credited or paid under this
Plan shall not be considered to be compensation for the purposes of the
Retirement Plan or any other plans maintained by an Employer. The treatment of
such amounts under other employee benefit plans shall be determined pursuant to
the provisions of such plans.
9.3 Severability. In the event any provision of this Plan shall be held
invalid or illegal for any reason, any illegality or invalidity shall not
affect the remaining parts of this Plan, but this Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted, and
the Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.
9.4 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas.
-17-
<PAGE>
9.5 Employer-Employee Relationship. The establishment of this Plan shall
not be construed as conferring any legal or other rights upon any Employee or
any person for a continuation of employment, nor shall it interfere with the
rights of an Employer to discharge any Employee or otherwise act with relation
to the Employee. An Employer may take any action (including discharge) with
respect to any Employee or other person and may treat such person without
regard to the effect which such action or treatment might have upon such person
as an Eligible Participant under this Plan.
9.6 Incompetence. Every person receiving or claiming benefits under the
Plan shall be conclusively presumed to be mentally competent until the date on
which the Committee receives a written notice, in a form and manner acceptable
to the Committee, that such person is incompetent, and that a guardian,
conservator, or other person legally vested with the care of such person's
person or estate has been appointed; provided, however, that if the Committee
shall find that any person to whom a benefit is payable under the Plan is
unable to care for such person's affairs because of incompetency, any payment
due (unless a prior claim therefor shall have been made by a duly appointed
legal representative) may be paid as provided in the Retirement Plan. Any such
payment so made shall be a complete discharge of liability therefor under the
Plan.
9.7 Binding on Employer, Eligible Participants and Their Successors.
This Plan shall be binding upon and inure to the benefit of the Employers,
their successors and assigns and the Eligible Participants, their heirs,
executors, administrators and legal representatives. The provisions of this
Plan shall be applicable with respect to each Employer separately, and amounts
payable hereunder shall be paid by the Employer of the particular Eligible
Participant. In the event any Eligible Participant becomes entitled to a
benefit under the Retirement Plan based on service with more than one Employer,
the benefit obligations
-18-
<PAGE>
under this Plan shall be apportioned among such Employers as determined by the
Committee.
9.8 Tax Liability. An Employer may withhold from any payment of benefits
hereunder any taxes required to be withheld and such sum as the Employer may
reasonably estimate to be necessary to cover any taxes for which the Employer
may be liable and which may be assessed with regard to such payment.
9.9 Beneficiary Designation. An Eligible Participant shall designate a
Beneficiary or Beneficiaries who, upon his death, are to receive payments that
otherwise would have been paid to him under the Plan. All Beneficiary
designations shall be in writing and on a form prescribed by the Committee for
such purpose, and any such designation shall only be effective if and when
delivered to the Committee during the lifetime of the Eligible Participant.
A Eligible Participant may from time to time during his lifetime change a
designated Beneficiary or Beneficiaries by filing a new Beneficiary designation
form with the Committee. If a designated Beneficiary dies after the Eligible
Participant, but before all death benefit payments relating to such Beneficiary
have been paid, the remainder of such death benefit payments shall be continued
to such Beneficiary's estate. In the event an Eligible Participant shall fail
to designate a Beneficiary or Beneficiaries with respect to any death benefit
payments, or if for any reason such designation shall be ineffective, in whole
or in part, or if no designated Beneficiary survives the Eligible Participant,
any payment that otherwise would have been paid to such Eligible Participant
shall be paid to his estate, and in such event, his estate shall be his
Beneficiary with respect to such payments.
* * * * * * * * * *
-19-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officers effective as of January 1, 1994.
CULLEN/FROST BANKERS, INC.
By:/s/Robert S. McClane
----------------------
ATTEST:
Its: President
-------------------
By:/s/Diane Jack
-----------------
Its: Secretary
--------------
-20-
<PAGE>
PARTICIPATING EMPLOYERS UNDER
THE CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following employers are participating Employers under the Cullen/Frost
Bankers, Inc. Supplemental Executive Retirement Plan as of January 1, 1994,
unless a later participation date is designated:
Cullen/Frost Bankers, Inc.
-21-
<PAGE>
APPENDIX A
TO THE
CULLEN/FROST BANKERS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following individuals are designated as "Eligible Employees"
in accordance with and under the Cullen/Frost Bankers, Inc.
Supplemental Executive Retirement Plan:
Richard W. Evans, Jr.
Robert S. McClane
-22-
EXHIBIT 10.14
Form of Revised Change-in-Control Agreement with one Executive Officer
<PAGE>
May 13, 1994
Mr. Phillip D. Green
Cullen/Frost Bankers, Inc.
100 West Houston Street
San Antonio, Texas 78205
Dear Phillip:
Cullen/Frost Bankers, Inc., a Texas corporation (the "Company"), considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interest of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a "Change in Control" (as
hereinafter defined) may arise and that such possibility, and the uncertainty
and questions which it may raise among management, may result in the departure
or distraction of management personnel to the detriment of the Company and its
shareholders. Accordingly, the Board of Directors of the Company (the "Board")
has determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the Company's management to
their assigned duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the Board
believes it important, should the Company or its shareholders receive a proposal
for transfer of control of the Company, that you be able to assess and advise
the Board whether such proposal would be in the best interests of the Company
and its shareholders and to take such other action regarding such proposal as
the Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this letter
agreement, which has been approved by the Board, sets forth the severance
benefits which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a Change in Control
of the Company under the circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
--------------------------------------------------
(i) Except as otherwise provided in paragraph (ii) below, the
Company or you may terminate your employment at any time,
subject to the Company's providing the benefits hereinafter
specified in accordance with the terms hereof.
<PAGE>
Mr. Phillip D. Green
Page 2
May 13, 1994
(ii) In the event a tender offer or exchange offer is made by a
Person (as hereinafter defined) for more than 20 percent of
the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections
of directors ("Voting Securities"), including shares of
Common Stock ($5 par value) of the Company (the "Company
Shares"), you agree that you will not leave the employ of
the Company (other than as a result of Disability or upon
Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this
Agreement until such tender offer or exchange offer has been
abandoned or terminated or a Change in Control of the
Company, as defined in Section 3 hereof, has occurred and
the Company agrees that it will not terminate your employ-
ment with the Company for any reason other than "Cause" as
hereinafter defined during that period. For purposes of
this Agreement, the term Person shall mean and include any
individual, corporation, partnership, group, association or
other person, as such term is used in Section 14(d) of the
Securities Exchange Act of 1934 (the Exchange Act), other
than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan(s) sponsored by the Company.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 1994; provided,
however, that commencing on January 1, 1995 and each January
thereafter, the term of this Agreement shall automatically be extended
for one additional year unless at least 90 days prior to such January
1st date, the Company or you shall have given notice that this
Agreement shall not be extended; and provided, further, that this
Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a Change in Control of the
Company, as defined in Section 3 hereof, shall have occurred during
such term. Notwithstanding anything in this Section 2 to the contrary,
this Agreement shall terminate if you or the Company terminate your
employment prior to a Change in Control of the Company, as defined in
Section 3 hereof.
3. Change in Control. For purposes of this Agreement, a Change in
Control of the Company shall mean a change in control of a nature that
would be required to be reported (assuming such event has not been
previously
<PAGE>
Mr. Phillip D. Green
Page 3
May 13, 1994
reported) in response to Item 1(a) of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; provided that, without limitation, such a Change
in Control shall be deemed to have occurred at such time as (a) any
Person is or becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 20 percent or
more of the combined voting power of the Company's Voting Securities;
or (b) individuals who constitute the Board on the date hereof (the
Incumbent Board) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least three quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
clause (b), considered as though such person were a member of the
Incumbent Board. Notwithstanding anything in the foregoing to the
contrary, no Change in Control shall be deemed to have occurred for
purposes of this Agreement by virtue of any transaction which results
in you, or a group of Persons which includes you, acquiring, directly
or indirectly, 20 percent or more of the combined voting power of the
Company's Voting Securities.
4. Termination Following Change in Control. If any of the events
described in Section 3 hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits
provided in paragraphs (iii) and (iv) of Section 5 hereof upon the
termination of your employment within twenty-four (24) months after
such event, unless such termination is (a) because of your death or
Retirement, (b) by the Company for Cause or Disability or (c) by you
other than for Good Reason (as all such capitalized terms are
hereinafter defined).
(i) Disability. Termination by the Company of your employment
based on Disability shall mean termination because of your
absence from your duties with the Company on a full time
basis for one hundred eighty (180) consecutive days as a
result of your incapacity due to
<PAGE>
Mr. Phillip D. Green
Page 4
May 13, 1994
physical or mental illness, unless within thirty (30) days
after Notice of Termination (as hereinafter defined) is
given to you following such absence you shall have returned
to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on Retirement shall mean termination on or
after your normal retirement date under the terms of the
Retirement Plan for Employees of Cullen/Frost Bankers, Inc.
and its Affiliates (or any successor or substitute defined
benefit pension plan or plans of the Company put into effect
prior to a Change in Control) or The 401(k) Stock Purchase
Plan for Employees of Cullen/Frost Bankers, Inc. and Its
Affiliates (or any successor or substitute defined contri-
bution pension plan or plans of the Company put into effect
prior to a Change in Control), if there is no defined
benefit pension plan in effect prior to a Change in Control
(the Retirement Plan).
(iii) Cause. Termination by the Company of your employment for
Cause shall mean termination upon (a) the willful and
continued failure by you to perform substantially your
duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental
illness) after a demand for substantial performance is
delivered to you by the Chairman of the Board or President
of the Company which specifically identifies the manner in
which such executive believes that you have not substantial-
ly performed you duties, or (b) the willful engaging by you
in illegal conduct which is materially and demonstrably
injurious to the Company. For purposes of this paragraph
(iii), no act, or failure to act, on your part shall be
considered willful unless done, or omitted to be done, by
you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best
interests of the Company. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted
by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or
omitted to be done, by you in good faith and in the best
interests of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you a
copy of a resolution duly adopted by the
<PAGE>
Mr. Phillip D. Green
Page 5
May 13, 1994
affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to
you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct
set forth above in (a) or (b) of this paragraph (iii) and
specifying the particulars thereof in detail.
(iv) Good Reason. For purposes of this Agreement, termination by
you of your employment for "Good Reason" shall mean, during
the ninety (90) day period following a Change in Control of
the Company, termination based on a good faith determination
by you that, as a result of such Change in Control, you are
not able to discharge your duties effectively. Also, for
purposes of this Agreement, termination by you of your em-
ployment for "Good Reason" shall mean termination based on:
(A) an adverse change in your status or position(s) as an
executive officer of the Company as in effect immedi-
ately prior to the Change in Control, including, with-
out limitation, any adverse change in your status or
position as a result of a material diminution in your
duties or responsibilities (other than, if applicable,
any such change directly attributable to the fact that
the Company is no longer publicly owned) or the assign-
ment to you of any duties or responsibilities which,
in any of such cases is inconsistent with such status
or position(s) in your reasonable judgment, or any
removal of you from or any failure to reappoint or
reelect you to such position(s) (except in connection
with the termination of your employment for Cause,
Disability or Retirement or as a result of your death
or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as in
effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect any
Plan (as hereinafter defined) in which you are par-
ticipating at the time of the Change in Control of the
Company (or Plans providing you
<PAGE>
Mr. Phillip D. Green
Page 6
May 13, 1994
with at least substantially similar benefits) other
than as a result of the normal expiration of any such
Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any
action, or the failure to act, by the Company which
would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control
or which would materially reduce your benefits in the
future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the
Change in Control;
(D) the failure by the Company to provide and credit you
with the number of paid vacation days to which you are
then entitled in accordance with the Company's normal
vacation policy as in effect immediately prior to the
Change in Control;
(E) the Company's requiring you to be based anywhere other
than where your office is located immediately prior to
the Change in Control except for required travel on the
Company's business to an extent substantially consis-
tent with the business travel obligations which you
undertook on behalf of the Company prior to the Change
in Control;
(F) the failure by the Company to obtain from any Successor
(as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof; or
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph
(v) below (and, if applicable, paragraph (iii) above);
and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this Agreement, Plan shall mean any compensation plan such as an
incentive, stock option or restricted stock plan or any employee benefit plan
such as a thrift, pension, profit sharing, medical, disability, accident, life
insurance plan or a relocation plan or policy or any other plan, program or
policy of the Company intended to benefit employees.
<PAGE>
Mr. Phillip D. Green
Page 7
May 13, 1994
(v) Notice of Termination. Any purported termination by the
Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a Notice of
Termination shall mean a notice which shall indicate the
specific termination provision in this Agreement relied
upon.
(vi) Date of Termination. Date of Termination following a Change
in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have re-
turned to the performance of your duties on a full-time
basis during such thirty (30) day period), (b) if your
employment is to be terminated by the Company for Cause or
by you pursuant to Sections 4(iv)(F) and 6 hereof or for any
other Good Reason, the date specified in the Notice of
Termination, which in no event shall be a date earlier than
the date on which a Notice of Termination is given, or (c)
if your employment is to be terminated by the Company for
any reason other than Cause, the date specified in the
Notice of Termination, which in no event shall be a date
earlier than ninety (90) days after the date on which a
Notice of Termination is given, unless an earlier date has
been expressly agreed to by you in writing either in advance
of, or after, receiving such Notice of Termination. In the
case of termination by the Company of your employment for
Cause, if you have not previously expressly agreed in
writing to the termination, then within thirty (30) days
after receipt by you of the Notice of Termination with
respect thereto, you may notify the Company that a dispute
exists concerning the termination, in which event the Date
of Termination shall be the date set either by mutual
written agreement of the parties or by the arbitrators in a
proceeding as provided in Section 13 hereof. During the
pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the
dispute is resolved in accordance with Section 13.
5. Compensation Upon Termination or During Disability; Other Agreements.
---------------------------------------------------------------------
(i) During any period following a Change in Control that you
fail to
<PAGE>
Mr. Phillip D. Green
Page 8
May 13, 1994
perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive
your salary at the rate then in effect and any benefits or
awards under any Plans shall continue to accrue during such
period, to the extent not inconsistent with such Plans,
until your employment is terminated pursuant to and in
accordance with paragraphs 4(i) and 4(vi) hereof.
Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a
Change in Control of the Company, the Company shall pay you
your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is
given plus any benefits or awards (including both the cash
and stock components) which pursuant to the terms of any
Plans have been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-four (24)
months after a Change in Control of the Company shall have
occurred, as defined in Section 3 above, your employment by
the Company shall be terminated (a) by the Company other
than for Cause, Disability or Retirement, or (b) by you for
Good Reason then, by no later than the fifth day following
the Date of Termination (except as otherwise provided), you
shall be entitled, without regard to any contrary provisions
of any Plan, to the benefits as provided below:
(A) the Company shall pay your salary through the Date of
Termination at the rate in effect just prior to the
time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock compo-
nents) which pursuant to the terms of any Plans have
been earned or become payable, but which have not yet
been paid to you (including amounts which previously
had been deferred at your request); and
(B) as severance pay and in lieu of any further salary for
periods subsequent to the Date of Termination, the
Company shall pay to you an amount in cash equal to two
and 99/100 (2.99) times
<PAGE>
Mr. Phillip D. Green
Page 9
May 13, 1994
your annualized includible compensation for the base
period (as defined in Section 280G(d)(1) of the
Internal Revenue Code of 1986 (the Code) and any
regulations issued thereunder).
(iv) Following a Change in Control of the Company, unless you are
terminated for Cause, Disability or Retirement or you
terminate your employment other than for Good Reason, the
Company shall maintain in full force and effect, for the
continued benefit of you, your spouse, and your dependents
for a period terminating on the earliest of (a) the
commencement date of equivalent benefits from a new employer
or (b) your normal retirement date under the terms of the
Retirement Plan, all insured and self-insured employee
welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination,
provided that your continued participation is possible under
the general terms and provisions of such Plans (and any
applicable funding media) and you continue to pay an amount
equal to your regular contribution under such Plans for such
participation as adjusted for any increases in contributions
or premiums in the same manner as other participants in the
Plans. If you reach your normal retirement date as defined
in the Retirement Plan and you have not previously received
or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at its sole cost and
expense, to enable you to convert your, your spouse's, and
your dependents' coverage under such Plans to individual
policies or programs upon the same terms as employees of the
Company may apply for such conversions. In the event that
your participation in any such Plan is barred, the Company,
at its sole cost and expense, shall arrange to have issued
for the benefit of you, your spouse, and your dependents
individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those which
you otherwise would have been entitled to receive under such
Plans pursuant to this paragraph (iv) or, if such insurance
is not available at a reasonable cost to the Company, the
Company shall otherwise provide you and your dependents
equivalent benefits (on an after-tax basis). You shall not
be required to pay any premiums or other charges in an
amount greater than that which you would have
<PAGE>
Mr. Phillip D. Green
Page 10
May 13, 1994
paid in order to participate in such Plans as adjusted to
reflect increased charges in the same manner as adjusted
for other participants in the Plans.
(v) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall
not be reduced, offset or subject to recovery by the Company
by reason of any compensation earned by you as the result of
employment by another employer after the Date of Termina-
tion, or otherwise.
6. Successors; Binding Agreement.
------------------------------
(i) Upon your written request, the Company will seek to have any
Successor (as hereinafter defined), by agreement in form and
substance satisfactory to you, assent to the fulfillment by
the Company of its obligations under this Agreement.
Failure of such Person to furnish such assent by the later
of (A) three business days prior to the time such Person
becomes a Successor or (B) two business days after such
Person receives a written request to so assent shall
constitute Good Reason for termination by you of your
employment and, if a Change in Control of the Company occurs
or has occurred, shall entitle you immediately to the
benefits provided in paragraphs (iii) and (iv) of Section 5
hereof upon delivery by you of a Notice of Termination. For
purposes of this Agreement, Successor shall mean any Person
that succeeds to, or has the practical ability to control
(either immediately or with the passage of time), the
Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's Voting Securities,
all or substantially all of its assets, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforce-
able by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees
and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to
live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there be
no such designee, to your estate.
<PAGE>
Mr. Phillip D. Green
Page 11
May 13, 1994
(iii) For purposes of this Agreement, the Company shall include
any corporation or other entity which is the surviving or
continuing entity in respect of any merger, consolidation or
form of business combination in which the Company ceases to
exist.
7. Fees and Expenses; Mitigation.
------------------------------
(i) The Company shall pay all reasonable legal fees and related
expenses incurred by you in connection with the Agreement
following a Change in Control of the Company, including,
without limitation, (a) all such fees and expenses, if any,
incurred in contesting or disputing any such termination or
incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to
obtain or enforce any right or benefit provided by this
Agreement; provided, however, you shall be required to repay
any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous
or advanced by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment
or otherwise.
8. Taxes.
------
(i) All payments to be made to you under this Agreement will be
subject to required withholding of federal, state and local
income and employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary,
if any of the payments provided for in this Agreement,
together with any other payments which you have the right to
receive from the Company or any corporation which is a
member of an affiliated group (as defined in Section 1504(a)
of the Code without regard to Section 1504(b) of the Code)
of which the Company is a member, would constitute a
parachute payment (as defined in Section 280G(b)(2) of the
Code), the payments pursuant to this Agreement shall be
reduced (reducing first
<PAGE>
Mr. Phillip D. Green
Page 12
May 13, 1994
the payments under Section 5(iii) (B)) to the largest amount
as will result in no portion of such payments being subject
to the excise tax imposed by Section 4999 of the Code;
provided, however, that the determination as to whether any
reduction in the payments under this Agreement pursuant to
this proviso is necessary shall be made by you in good
faith, and such determination shall be conclusive and
binding on the Company with respect to its treatment of the
payment for tax reporting purposes.
9. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14
of this Agreement shall survive any termination of this Agreement
following a Change in Control.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed
to in writing signed by you and the Chairman of the Board or President
of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
Notwithstanding any provisions to the contrary, the Board
<PAGE>
Mr. Phillip D. Green
Page 13
May 13, 1994
reserves the right to provide you with additional benefits, including,
but not limited to, providing benefits hereunder in excess of the
limitations described in Section 8, which the Board determines are
appropriate in its sole discretion. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Texas.
12. Governing Law; Validity. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connec-
tion with this Agreement shall be settled exclusively by arbitration
in the nearest local office of the American Arbitration Association
(AAA) in accordance with the rules of the AAA then in effect or by
three arbitrators who have been selected by mutual agreement of the
parties who proceed in accordance with the rules of the AAA then in
effect. Judgment may be entered on the arbitrators' award in any
court having jurisdiction; provided, however, that you shall be
entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The
Company shall bear all costs and expenses arising in connection with
any arbitration proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or
disclose to any unauthorized person without the written consent of the
Company, any proprietary processes of the Company or any subsidiary or
other confidential information concerning their business, affairs,
products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of the Company
and its subsidiaries, taken as a whole; it being understood, however,
that the obligations of this Section 14 shall not apply to the extent
that the aforesaid matters (a) are disclosed in circumstances where
you are legally required to do so or (b) become generally known to and
available for use by the public otherwise than by your wrongful act or
omission. The intent of this Section 14 is not to create a non-compe-
tition agreement but to protect the rights of the Company as provided
above.
<PAGE>
Mr. Phillip D. Green
Page 14
May 13, 1994
15. Related Agreements. To the extent that any provision of any other
agreement between the Company or any of its subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agree-
ment, then for purposes of this Agreement, while the same shall remain
in force, the provision of this Agreement shall control and such
provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other
agreement had been formally amended to the extent necessary to
accomplish such purpose.
16. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. TERMINATION OF PRIOR LETTER AGREEMENT. THIS AGREEMENT IS INTENDED TO
REPLACE IN ITS ENTIRETY THE LETTER AGREEMENT DATED MARCH 2, 1990
("PRIOR AGREEMENT") REGARDING A CHANGE IN CONTROL OF THE COMPANY. BY
MUTUAL AGREEMENT, THE PRIOR AGREEMENT IS HEREBY DECLARED NULL AND
VOID. THE RESPECTIVE OBLIGATIONS AND THE BENEFITS PROVIDED IN THE
PRIOR AGREEMENT ARE TERMINATED.
<PAGE>
Mr. Phillip D. Green
Page 15
May 13, 1994
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
Cullen/Frost Bankers, Inc.
By:/s/ Robert S. McClane
---------------------
Robert S. McClane
President
Agreed to this 23 day
of May 1994.
/s/ Phillip D. Green
--------------------
Employee Signature
Printed Name: Phillip D. Green
-----------------------
Address: 4 Inwood Knoll
-----------------------
San Antonio, Tx. 78248
-----------------------
EXHIBIT 11
Statement re: Computation of Earnings Per Share
<PAGE>
CULLEN/FROST BANKERS, INC.
Computation of Earnings per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
December 31
----------------------------
Primary Earnings per Share 1994 1993 1992
------------------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Income before extraordinary credit and
cumulative effect of accounting change $ 37,423 $38,797 $17,625
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54 643
-------- ------- -------
Income applicable to common stock before
extraordinary credit and cumulative effect of
accounting change 37,423 38,851 18,268
Extraordinary credit 6,497
Cumulative effect of accounting change 8,439
------- ------- -------
Net income applicable to common stock $37,423 $47,290 $24,765
======= ======= =======
Weighted average shares outstanding 11,059 10,922 10,175
Addition from assumed exercise of stock options 164 189 284
Addition of assumed conversion of 9.75%
convertible subordinated debentures due 1996 40 515
------- ------- -------
Weighted average number of common shares
outstanding 11,223 11,151 10,974
======= ======= =======
Primary earnings per common share:
Income before extraordinary credit and
cumulative effect of accounting change $3.33 $3.48 $1.66
Net income 3.33 4.24 2.26
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------
Fully Diluted Earnings per Share 1994 1993 1992
------------------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Income before extraordinary credit and
cumulative effect of accounting change $37,423 $38,797 $17,625
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54 643
------- ------- ------
Income applicable to common stock before
extraordinary credit and cumulative effect of
accounting change 37,423 38,851 18,268
Extraordinary credit 6,497
Cumulative effect of accounting change 8,439
------- ------- ------
Net income applicable to common stock $37,423 $47,290 $24,765
======= ======= =======
Weighted average shares outstanding 11,059 10,922 10,175
Addition from assumed exercise of stock options 164 189 325
Addition of assumed conversion of 9.75%
convertible subordinated debentures due 1996 40 515
------- ------- ------
Weighted average number of common shares
outstanding 11,223 11,151 11,015
======= ======= =======
Fully diluted earnings per common share:
Income before extraordinary credit and
cumulative effect of accounting change $3.33 $3.48 $1.66
Net income 3.33 4.24 2.25
</TABLE>
EXHIBIT 13
The Cullen/Frost 1994 Annual Report to Shareholders for the
Year Ended December 31, 1994 (furnished for the information of
the Commission and not deemed to be "filed" except for the
portion expressly incorporated by reference)
<PAGE>
FINANCIAL REVIEW
Cullen/Frost Bankers, Inc. and Subsidiaries
The accompanying audited consolidated financial statements of
Cullen/Frost Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the
"Corporation") present the Corporation's results of operations for the
years 1992 through 1994. All balance sheet amounts presented in the
following financial review are averages unless otherwise indicated.
Earnings and other per share amounts have been restated to give effect to a
ten percent stock dividend declared and paid by the Corporation during the
first quarter of 1993. Taxable-equivalent adjustments assume a 35 percent
federal tax rate for 1994 and 1993 and a 34 percent federal income tax rate
for 1992. Dollar amounts in tables are stated in thousands, except for per
share amounts.
Amounts reported for 1993 include the February 13, 1993 acquisition,
from the Federal Deposit Insurance Corporation, of New First City offices
in San Antonio and Austin, Texas which added approximately $458 million in
assets and $446 million in deposits. The acquisition was accounted for as
a purchase, and as such the results of operations are included from the
date of acquisition.
RESULTS OF OPERATIONS
Pre-tax income for 1994 was $57.6 million, compared to $38.1
million for 1993, an all-time high in the 126-year history of Cullen/Frost.
Despite the improvement in pre-tax operating earnings, net income after
taxes for 1994 was $37,423,000 or $3.33 per common share, compared with
$47,236,000 or $4.24 per common share for 1993 and $24,122,000 or $2.26 per
common share for 1992. Net income for 1994 was lower than 1993 net income
primarily due to the significant differences in the Corporation's effective
tax rate and because of the cumulative effect benefit of $8.4 million
related to the adoption of Statement of Financial Accounting Standards No.
109 ("SFAS 109"). For 1994, the Corporation recognized income tax expense
that approximates the statutory rate. At the beginning of 1993, the
Corporation had a valuation allowance for deferred tax assets of $13.6
million. This valuation allowance was reduced to zero by the end of 1993
and resulted in an income tax benefit of $735,000 for 1993 compared with
income tax expense of $20,177,000 for 1994. The 1994 improved operating
results include an increase of $8.5 million in net interest income, a
decrease of $16.5 million in non-interest expense and no provision for
possible loan losses or real estate losses.
During 1994, Cullen/Frost made or agreed to make several
acquisitions. In April 1994, the Corporation acquired Texas Commerce Bank-
Corpus Christi in exchange for Cullen/Frost Bank of Dallas, N.A. No gain
or loss resulted from this transaction. The Corporation expanded its
product line in December 1994 with the acquisition of Creekwood Capital
Corporation, an asset-based lender headquartered in Houston. Cullen/Frost
will enter the Rio Grande Valley area with the November 1994 agreement to
acquire Valley Bancshares, Inc. and its Valley National Bank in McAllen,
Texas. In December 1994, Cullen/Frost agreed to acquire the two Comerica
Bank Texas branches in San Antonio and agreed to purchase National Commerce
Bank, which has three locations in Houston. These three pending
acquisitions will add a total of approximately $204 million in deposits and
$122 million in loans. They are expected to be completed in mid-1995
following shareholder action and regulatory approval and are not expected
to have a material impact on the Corporation's 1995 operating results.
The results for 1993 when compared to 1992 were impacted by an
improvement in asset quality which resulted in a net credit for possible
loan and real estate losses of $4.6 million in 1993 compared to a net
expense for these combined provisions of $18.5 million in 1992. The 1993
results also include the operating impact of the New First City acquisition
and non-recurring items: (i) $6.7 million in restructuring costs related to
bank premises resulting from downsizing of office space and valuations on
owned buildings, resulting from the decision to sell, (ii) $3.6 million in
combined early retirement incentive and job restructuring costs, (iii) $5.0
million in non-recurring costs related to the acquisition of New First City
offices, and (iv) a one-time benefit of $8.4 million related to a
required change in the method of accounting for income taxes.
PAGE 8
<PAGE>
<TABLE>
<CAPTION>
1994 Change 1993 Change
Earnings Summary 1994 From 1993 1993 From 1992 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net interest income $136,989 $ 8,280 $128,709 $ 10,923 $117,786
Taxable-equivalent adjustment 642 (241) 883 (246) 1,129
------- ------- ------- -------- -------
Net interest income 136,347 8,521 127,826 11,169 116,657
Provision (credit) for possible
loan losses --- 6,085 (6,085) (5,235) (850)
Non-interest income:
Net gain (loss) on securities
transactions (4,038) (5,471) 1,433 1,665 (232)
Other 80,853 6,057 74,796 12,751 62,045
-------- -------- -------- -------- ---------
Total non-interest income 76,815 586 76,229 14,416 61,813
Non-interest expense:
Provision for real estate losses --- (1,445) 1,445 (17,866) 19,311
Restructuring costs 830 (9,455) 10,285 10,285
Other operating expenses 154,732 (5,616) 160,348 26,161 134,187
-------- -------- -------- -------- ---------
Total non-interest expense 155,562 (16,516) 172,078 18,580 153,498
-------- -------- -------- -------- ---------
Income before income taxes (credits),
extraordinary credit and cumulative
effect of accounting change 57,600 19,538 38,062 12,240 25,822
Income taxes (credits) 20,177 20,912 (735) (8,932) 8,197
-------- -------- -------- -------- ---------
Income before extraordinary credit
and cumulative effect of
accounting change 37,423 (1,374) 38,797 21,172 17,625
Extraordinary Credit - income
tax benefit --- --- --- (6,497) 6,497
Cumulative effect of change in
accounting for income taxes --- (8,439) 8,439 8,439
-------- -------- -------- -------- ---------
Net income $ 37,423 $ (9,813) $47,236 $23,114 $ 24,122
======== ======== ======== ======= ========
Per share
Net income-primary $ 3.33 $ (.91) $ 4.24 $ 1.98 $ 2.26
Net income-fully diluted 3.33 (.91) 4.24 1.99 2.25
</TABLE>
NET INTEREST INCOME
The increase in net interest income from 1993 is primarily due to
increased loan volumes. Average loans for 1994 were 15.0 percent higher
than in 1993. Net interest margin was 4.40 percent for the year ended
December 31, 1994, compared to 4.29 percent and 4.47 percent for the years
1993 and 1992, respectively. Net interest spread for 1994 increased five
basis points to 3.83 percent. Net interest spread was 3.78 percent and
3.86 percent for 1993 and 1992, respectively. The increase in net interest
spread for 1994 is primarily due to yields on earning assets rising faster
than the cost of deposits. Net interest spread for 1993 declined eight
basis points compared to 1992 primarily because of lower yields on
securities. Net interest income has been favorably impacted by the
significant decrease in non-performing assets during 1994 and 1993. Net
interest income increased during 1993 compared to 1992 primarily related to
an increase in demand deposits and larger business volumes resulting from
the New First City acquisition.
The net interest spread as well as the net interest margin could be
impacted by future changes in short-and long-term interest rate levels.
<TABLE>
<CAPTION>
Net Interest Income and Net Interest Margin Net InterestSpread
($ in millions - taxable-equivalent) (taxable-equivalent)
(Graphic Material omitted) (Graphicmaterial omitted)
Year Net Interest Net Interest Year Earnings Cost of Net Interest
Ended Income Margin Ended on Funds Funds Spread
------ ------------ ----------- ----- -------- -------- ------------
<S> <C> <C> <S> <C> <C> <C>
1990 $ 113 3.93% 1990 9.60 % 6.54 % 3.06 %
1991 111 4.13 1991 8.70 5.35 3.35
1992 118 4.47 1992 7.25 3.39 3.86
1993 129 4.29 1993 6.35 2.57 3.78
1994 137 4.40 1994 6.62 2.79 3.83
</TABLE>
PAGE 9
<PAGE>
INTEREST RATE SENSITIVITY
The Corporation's interest rate sensitivity and liquidity are
monitored by its Asset/Liability Management Committee on an ongoing basis.
The Committee seeks to avoid fluctuating net interest margins and to
maintain consistent growth of net interest income through periods of
changing interest rates. As the accompanying table indicates, the
Corporation is liability sensitive on a cumulative basis at both the three-
month and one- year time periods.
The Corporation continuously monitors and manages the balance between
interest rate-sensitive assets and liabilities. The Corporation's
objective is to manage the impact of fluctuating market rates on net
interest income within acceptable levels.
<TABLE>
<CAPTION>
Immediately Non-Rate
Cumulative Interest Rate Sensitive Rate Sensitive Within Sensitive
Rate Sensitivity -------------- ------------------------------ ---------
(Period-End Balances) 0-30 Days 90 Days One Year Five Years >Five Years Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 663,989 $ 754,475 $ 980,356 $1,330,299 $147,670 $1,477,969
Securities 203,202 309,342 993,245 1,258,315 335,727 1,594,042
Federal funds
sold and other
short-term investments 167,550 167,562 167,562 167,562 167,562
---------- ---------- ---------- --------- --------- ----------
Total earning assets $1,034,741 $1,231,379 $2,141,163 $2,756,176 $483,397 $3,239,573
=========== ========== ========== ========== ======== ==========
Interest-Bearing
Liabilities:
Savings and Interest-
on-Checking $ 763,300 $ 763,300 $ 763,300 $ 763,300 $ 763,300
Money market deposit
accounts 559,153 559,153 559,153 559,153 559,153
Certificates of deposit
and other time accounts 229,390 512,672 811,735 876,451 $ 56,755 933,206
Federal funds purchased
and other borrowings 370,235 370,235 370,235 370,235 370,235
---------- ---------- ---------- ---------- --------- ---------
Total interest-bearing
liabilities $1,922,078 $2,205,360 $2,504,423 $2,569,139 $ 56,755 $2,625,894
========== =========== ========== ========== ======== ==========
Interest sensitivity gap$ (887,337) $ (973,981) $ (363,260)$ 187,037 $426,642 $ 613,679
========== =========== ========== ========== ======== ==========
Ratio of earning assets
to interest-bearing
liabilities .54 .56 .85 1.07
========== =========== ========== ==========
In developing the classifications used for this analysis, it was necessary
to make certain assumptions and approximations in assigning assets and
liabilities to different maturity categories. For example, savings and
Interest-on-Checking are subject to immediate withdrawal and as such are
presented as repricing within the earliest period presented even though
their balances have historically not shown significant sensitivity to
changes in interest rates.
Consumer loans are included net of unearned discount of $3,487,000.
Consumer loans are distributed in the immediately rate-sensitive
category for those tied to market rates or to other categories
according to the repayment schedule.
The above table does not reflect interest rate swaps further discussed on
page 20.
</TABLE>
LIQUIDITY
Asset liquidity is provided by cash and assets which are readily
marketable or pledgeable or which will mature in the near future. Liquid
assets include cash, short-term investments in time deposits in banks,
Federal funds sold and securities purchased under resale agreements and
securities available for sale.
Liquidity is also provided by access to funding sources. These
include core depositors and correspondent banks in the Corporation's
natural trade area which maintain accounts with and sell Federal funds to
subsidiary banks of the Corporation, as well as brokered deposits and
Federal funds purchased and securities sold under repurchase agreements
from upstream banks.
PAGE 10
<PAGE>
NON-INTEREST INCOME
Non-interest income of $76,815,000 was reported for 1994, compared
with $76,229,000 for 1993 and $61,813,000 for 1992. Excluding securities
transactions, total non-interest income increased 8.1 percent from 1993.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1994 1993 1992
---------------- ------------------ ------------------
Percent Percent Percent
Non-Interest Income Amount Change Amount Change Amount Change
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust department $29,529 + 12.4% $26,278 + 20.2% $21,861 + 9.1%
Service charges on
deposit accounts 25,890 + 2.0 25,386 + 15.6 21,958 + 16.1
Other service charges,
collection and
exchange charges,
commissions and fees 11,658 + 17.9 9,889 + 25.4 7,888 - 4.8
Net gain(loss) on
securities transactions (4,038) -381.8 1,433 +717.7 (232) -111.5
Other 13,776 + 4.0 13,243 + 28.1 10,338 + 25.7
------- -------- --------
Total $76,815 + .8 $76,229 + 23.3 $61,813 + 7.5
======= ======= =======
</TABLE>
Trust income was up 12.4 percent during 1994. This is attributable
primarily to an increase in investment fee income resulting from growth in
the number of accounts and increased fee structure. At December 31, 1994,
the market value of trust assets totaled $10.4 billion compared to $11.1
billion at December 31, 1993. The December 1994 trust assets were
comprised of corporate assets of $5.0 billion, agencies of $2.4 billion,
personal assets of $1.8 billion, and employee benefits of $1.2 billion. The
20.2 percent increase in trust income from 1992 to 1993 reflects the
increase in the number of accounts held and assets under management and the
acquisition of additional trust customers from New First City, Texas-
Austin.
Other service charges increased 17.9 percent when compared to 1993.
This is primarily due to fees associated with greater business volumes and
bankcard discount. In 1993, deposit service charges, up 15.6 percent, and
other service charges, up 25.4 percent, were both impacted by an increase
in activity levels and additional volumes resulting from the New First City
acquisition.
During the fourth quarter of 1994, the Corporation restructured a
portion of its available for sale securities portfolio resulting in a $3.5
million loss on the transactions. Certain lower-yielding securities were
sold and replaced with higher-yielding investments which will enhance
future earnings.
In anticipation of implementing Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Corporation sold certain securities in December 1993
resulting in a gain of $1.4 million.
Other non-interest income increased 4.0 percent to $13,776,000 in 1994
compared to a 28.1 percent increase in 1993. The increase in 1994 is
primarily due to income related to other real estate related recoveries.
The 1993 increase was primarily due to gains on the sale of foreclosed
assets and commissions for sales of mutual funds.
<TABLE>
<CAPTION>
Non-Interest Income
($ in thousands)
(Graphic material omitted)
Net Gain(Loss)
Year Trust Service Other Service Other on Securities
Ended Department Charges Charges Transactions
----- ---------- ------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
1990 $18,777 $15,146 $ 7,304 $ 9,236 $ 129
1991 20,030 18,915 8,288 8,227 2,022
1992 21,861 21,958 7,888 10,338 (232)
1993 26,278 25,386 9,889 13,243 1,433
1994 29,529 25,890 11,658 13,776 (4,038)
</TABLE>
PAGE 11
<PAGE>
NON-INTEREST EXPENSE
Excluding the provision for real estate losses, non-interest expense
was $155,562,000 for 1994 compared with $170,633,000 for 1993 and
$134,187,000 for 1992. Results in 1993 include non-recurring charges of
$5.0 million relating to the acquisition of New First City (costs of
interim data processing services, temporary staffing and related costs).
In addition, restructuring charges in 1993 totaled $10.3 million. These
costs included $6.7 million in net-occupancy restructuring related to
banking office downsizing and valuations of certain banking premises owned
resulting from the decision to sell such premises and $3.6 million related
to an early retirement incentive program and job restructurings.
The restructure of banking offices reflects primarily the conversion
to branching which has been put into place following changes in Texas
banking law. The $3.6 million charge in salaries and benefits includes
$1.9 million for an early retirement incentive program and severance
associated with job eliminations and restructurings. Both the retirement
incentive program and job restructurings portions were paid and completed
by December 31, 1994. During the fourth quarter of 1993, the Corporation
accrued $2.4 million for leases to be abandoned. At December 31, 1994,
this accrual balance was $2.0 million. The decrease is primarily due to
lease payments, net of sub-lease payments, that were applied against the
restructuring accrual. The incomplete portions of the restructuring plan
deal principally with the sale of three buildings with an aggregate net
carrying value of $3.4 million. These buildings have been written down to
their net realizable values. The Corporation has active marketing plans in
place to sell these buildings.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1994 1993 1992
---------------- ------------------ ---------------
Percent Percent Percent
Non-Interest Expense Amount Change Amount Change Amount Change
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and wages $ 52,986 - 1.2% $ 53,654 + 16.2% $ 46,184 + 4.6%
Pension and other
employee benefits 9,910 - 17.8 12,052 + 23.7 9,746 + 7.6
Net occupancy of
banking premises 15,777 - 24.0 20,749 + 22.3 16,963 + 3.1
Furniture and equipment 10,937 + 7.7 10,155 + 22.4 8,295 + 7.4
Intangible amortization 7,627 + 10.9 6,877 +882.4 700 +17.3
Restructuring costs 830 - 91.9 10,285
Other 57,495 + 1.1 56,861 + 8.7 52,299 - 7.2
-------- -------- --------
155,562 - 8.8 170,633 + 27.2 134,187 - .1
Provision for real
estate losses --- 1,445 - 92.5 19,311 - 7.2
-------- -------- --------
Total $155,562 - 9.6 $172,078 + 12.1 $153,498 - 1.1
======== ======== ========
</TABLE>
Salaries and wages decreased by 1.2 percent primarily because of the
restructuring actions taken in 1993. Combined salaries and employee
benefits increased 17.5 percent during 1993, excluding the $3.6 million
restructuring charge. The number of full time equivalent employees
increased seven percent during 1993 when compared to 1992, primarily
because of staff needed to support the acquired New First City customer
base. Pension and other employee benefits decreased by 17.8 percent during
1994 primarily due to an adjustment to medical insurance expense, the
result of implementing a managed health care network and favorable claims
experience. The pension and other employee benefits increase during 1993
was related to higher expenses for payroll taxes, medical insurance and
retirement expenses. The Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," in the first quarter of 1993. The adoption
of this statement did not have a material impact on the financial position
or operations of the Corporation.
Net occupancy of banking premises decreased 24.0 percent during 1994
primarily because of the restructuring actions taken in 1993 and decreases
in building lease expense related to renegotiated and canceled leases
primarily related to the New First City acquisition. During 1994, the
Corporation recorded an additional $830,000 restructuring charge, primarily
an adjustment to market valuations associated with banking premises held
for sale. Net occupancy increased 22.3 percent in 1993 due to costs of
operating the additional locations obtained in the New First City
acquisition. Furniture and equipment costs increased 7.7 percent in 1994.
This increase resulted from higher depreciation, service contracts, and
software maintenance and amortization. The increase in furniture and
equipment of 22.4 percent in 1993 can be attributed to the increase in
depreciation expense relating to the New First City acquisition which
required the re-equipping of work stations in the additional offices.
PAGE 12
<PAGE>
No provision for real estate losses was necessary for the year ended
December 31, 1994, compared with $1,445,000 and $19,311,000 in 1993 and
1992, respectively. The reductions are driven by improving asset quality,
a declining volume of foreclosed assets and improving real estate values.
See "Non-Performing Assets," page 16.
Other non-interest expense was flat when compared with December 31,
1993. Excluding those expenses associated with the acquisition of New
First City in 1993, other non-interest expense increased 8.1 percent in
1994. This is due to the timing of charitable contributions, litigation
expense (primarily a settlement) and state sales and use taxes. Other non-
interest expense increased 8.7 percent in 1993. Excluding the acquisition
and operating expenses of the New First City offices and non-recurring
costs incurred in acquiring these locations, other non-interest expenses
were flat when compared to 1992.
Intangible amortization increased $750,000 and $6.2 million in 1994
and 1993, respectively. This results from a full year's amortization of
goodwill and other intangibles associated with the acquisition of New First
City during February 1993.
<TABLE>
<CAPTION>
Non-Interest Expense
Excluding Non-recurring Items
($ in thousands)
(Graphic material omitted)
Net Occupancy Provision
Year Salaries, Wages & Furniture and for Real Estate
Ended and Pensions Equipment Other Losses
----- --------------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
1990 $52,167 $24,757 $48,531 $11,172
1991 53,212 24,186 51,541 20,799
1992 55,930 25,258 52,999 19,311
1993 64,494 30,904 60,050 1,445
1994 62,896 25,884 63,722 ---
</TABLE>
INCOME TAXES
The Corporation recognized income tax expense of $20,177,000 in 1994
compared to an income tax benefit of $735,000 in 1993. The effective rate
for 1993 was affected by the $13.6 million reduction of the valuation
allowance for deferred tax assets established at the beginning of 1993 with
the adoption of Statement of Financial Accounting Standards No. 109 (FAS
109), "Accounting for Income Taxes." The one-time cumulative effect of
adopting FAS 109 was $8.4 million which favorably impacted net income for
1993. The Corporation's effective tax rate for 1994 approximates the
statutory rate of 35 percent.
PAGE 13
<PAGE>
SOURCES AND USES OF FUNDS
Average assets for 1994 of $3,658,187,000 increased by 4.2 percent
from 1993 levels and increased 15.0 percent between 1992 and 1993. Funding
sources in 1994 changed little from the previous year except for a shift of
approximately 2.2 percent from time deposits to federal funds purchased and
equity capital. Securities continue to be the largest component of earning
assets; however, loans increased 3.4 percent from 1993 levels due to
greater loan volumes.
<TABLE>
<CAPTION>
Percentage of Total Average Assets
----------------------------------
Sources and Uses of Funds 1994 1993 1992
------------------------- ------- ------ ------
<S> <C> <C> <C>
Sources of Funds:
Deposits:
Demand 22.9% 23.2% 21.8%
Time 62.4 64.6 66.9
Federal funds purchased 5.2 3.7 3.4
Equity capital 7.9 7.1 6.3
Borrowed funds --- .1 .5
Other liabilities 1.6 1.3 1.1
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
Uses of Funds:
Loans 36.4% 33.0% 33.5%
Securities 45.7 45.1 46.4
Federal funds sold 3.0 7.3 6.4
Non-earning assets 14.9 14.6 13.7
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
LOANS
Average loans for 1994 were $1,331,793,000, an increase of 15.0
percent from 1993. Loan volume increased to $1.48 billion at year-end
1994, up 18.4 percent from the previous year. This was driven by continued
improvements in economic activity in the cities the Corporation serves.
<TABLE>
<CAPTION>
Total Average Loans and Yields
($ in millions)
(Graphic material omitted)
Average Loan
Year Average Loans Yield
---- ------------- ------------
<S> <C> <C>
1990 $1,315 10.30%
1991 1,149 9.54
1992 1,025 8.27
1993 1,158 7.88
1994 1,332 8.01
</TABLE>
PAGE 14
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1994
-----------------------
Loan Portfolio
Analysis Percentage of
Period-End Balances Amount Total Loans 1993 1992 1991 1990
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Construction $ 44,502 3.0% $ 32,297 $ 26,632 $ 24,620 $ 39,316
Land 31,481 2.1 22,990 21,288 26,474 62,850
Permanent mortgages:
Commercial 177,223 12.0 144,122 77,347 64,605 86,934
Residential 277,725 18.8 276,148 253,471 258,303 246,101
Other 178,263 12.1 150,499 134,470 161,439 192,330
------- ---- ------- ------- ------- -------
Total real estate 709,194 48.0 626,056 513,208 535,441 627,531
Commercial and
industrial 375,085 25.4 310,830 256,520 283,074 354,136
Consumer 331,039 22.4 268,331 217,232 198,521 215,231
Financial
institutions 5,578 .4 284 9,380 14,819 18,056
Foreign 45,290 3.0 31,763 17,871 31,988 29,647
Purchasing or
carrying
securities 1,884 .1 1,204 1,918 3,389 5,127
Other 13,386 .9 17,797 7,737 21,019 35,350
Unearned
discount (3,487) (.2) (8,456) (12,632) (14,854) (16,858)
----------- ------ ---------- ---------- ----------- --------
Total $1,477,969 100.0% $1,247,809 $1,011,234 $1,073,397 $1,268,220
=========== ====== ========== ========== ========== ==========
Percent change
from previous
year +18.4% +23.4% -5.8% -15.4% -7.4%
</TABLE>
Total real estate loans at December 31, 1994 were $709,194,000 up 13.3
percent from year-end 1993. Commercial mortgages increased $33,101,000 or
23 percent. Real estate loans categorized as "other" are primarily
amortizing commercial and industrial loans with maturities of less than
five years. Most are collateralized by completed, owner-occupied
commercial real estate properties.
As part of the New First City acquisition, certain commercial and
commercial real estate loans of the Austin operation are protected by a
loss-sharing arrangement with the Federal Deposit Insurance Corporation
(the "FDIC"). Losses are shared 80 percent to the FDIC and 20 percent to
the Corporation. At December 31, 1994, these loans approximated $24
million.
Of the real estate loans outstanding at year end, the geographic
concentrations were San Antonio, 73 percent; Houston/Galveston, 14 percent;
Austin, 7 percent; and Corpus Christi, 6 percent. Amortizing permanent
mortgages represented 64.2 percent of the total real estate loan portfolio
at year end.
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1994 1993
----------------------------------------------------
Real Estate Loans Percentage of Percentage of
Period-End Balances Amount Real Estate Loans Amount Real Estate Loans
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Construction $ 44,502 6.3% $ 32,297 5.2%
Land 31,481 4.4 22,990 3.7
Permanent mortgages:
Commercial 177,223 25.0 144,122 23.0
Residential 277,725 39.2 276,148 44.1
Other 178,263 25.1 150,499 24.0
-------- ------ -------- ------
Total $709,194 100.0% $626,056 100.0%
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------
1992
--------------------------
Real Estate Loans Percentage of
Period-End Balances Amount Real Estate Loans
--------------------------------------------------
<S> <C> <C>
Construction $ 26,632 5.2%
Land 21,288 4.1
Permanent mortgages:
Commercial 77,347 15.1
Residential 253,471 49.4
Other 134,470 26.2
-------- ------
Total $513,208 100.0%
======== ======
</TABLE>
MEXICAN LOANS
At December 31, 1994, the Corporation's cross-border outstandings,
excluding $21,267,000 in loans secured by liquid U.S. assets, totaled
$24,023,000 up from $15,437,000 last year. This growth reflects expansion
in trade-related debt in connection with increased commerce with Mexico.
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 February 28, 1995, none of the
Mexican related loans were on non-performing status.
PAGE 15
<PAGE>
During the first quarter of 1992, the Corporation sold its $9,694,000
par bonds which had been received in 1990 under the Brady Mexican debt
exchange. The par bonds were sold for $6,017,000 and resulted in a charge-
off of $3,677,000.
<TABLE>
<CAPTION>
December 31
------------------------------------------
1994
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $23,999 1.6% .6%
Commercial and industrial 24
------ --- ---
Total $24,023 1.6% .6%
====== === ===
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1993
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $ 15,384 1.2% .4%
Commercial and industrial 53
-------- ---- ----
Total $ 15,437 1.2% .4%
======== ==== ====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1992
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
----------------------------------------------------------------------
<S> <C> <C>
Financial institutions $ 1,000 .1%
Commercial and industrial 301
------- --- ---
Total $ 1,301 .1%
======== === ===
</TABLE>
The above tables exclude $21,267,000, $16,326,000 and $16,570,000 in loans
secured by liquid assets held in the United States in 1994, 1993 and 1992,
respectively.
NON-PERFORMING ASSETS
Non-performing assets decreased 35.9 percent to $19,938,000 at
December 31, 1994, compared with $31,110,000 at December 31, 1993. The
balance at December 31, 1992 was $51,303,000. Non-performing assets as a
percentage of total loans and foreclosed assets decreased to 1.34 percent
at December 31, 1994, down from 2.47 percent one year ago.
As part of the acquisition of New First City-Austin, certain
commercial and commercial real estate loans of that bank are protected by a
loss-sharing arrangement with the FDIC whereby losses are shared 80 percent
to the FDIC and 20 percent to the Corporation. At December 31, 1994, non-
performing assets covered by the loss-sharing arrangement totaled
$2,001,000. These assets are included in total non-performing assets at
$306,000 which represents the carrying value net of loss-sharing coverage
and associated discounts.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
Non-Performing Assets 1994 1993 1992 1991 1990
-----------------------------------------------------------------------------
<s > <C> <C> <C> <C> <C>
Non-accrual and
restructured loans $11,303 $ 17,727 $ 23,148 $ 36,485 $ 52,735
Foreclosed assets 8,635 13,383 28,155 64,157 69,130
------- -------- -------- -------- -------
Total $19,938 $ 31,110 $ 51,303 $100,642 $121,865
======= ======== ======== ======== ========
As a percentage of
total assets .53% .85% 1.63% 3.27% 3.74%
As a percentage of
total loans plus
foreclosed assets 1.34% 2.47% 4.94% 8.85% 9.11%
After-tax impact of lost
interest per common share $ .13 $ .20 $ .39 $ .78 $ .92
Accruing loans 90 days
past due:
Consumer $ 574 $ 765 $ 414 $ 1,378 $ 1,403
All other 3,070 3,827 1,431 7,177 4,410
------- -------- -------- -------- -------
Total $ 3,644 $ 4,592 $ 1,845 $ 8,555 $ 5,813
======= ======== ======== ======== ========
Interest income that would have been recorded in 1994 on non-performing
assets had such assets performed in accordance with their original contract
terms, was $1,082,000 on non-accrual and restructured loans and $1,187,000
on foreclosed assets. During 1994, the amount of interest income actually
recorded on non-accrual and restructured loans was $7,000.
</TABLE>
<TABLE>
<CAPTION>
Non-Performing Assets
($ in millions)
(Graphic material omitted)
Non-Accrual and Foreclosed
Year Restructured Assets
---- --------------- ----------
<S> <C> <C>
1990 $ 53 $69
1991 37 64
1992 23 28
1993 18 13
1994 11 9
</TABLE>
PAGE 16
<PAGE>
Real estate related non-performing assets were $18,245,000 (91.5
percent of total non-performing assets) at December 31, 1994, compared with
$28,938,000 (93.0 percent of total non-performing assets) at December 31,
1993. Non-performing real estate assets represented 2.5 percent of all
real estate loans and foreclosed real estate assets at December 31, 1994
compared to 4.5 percent at the end of 1993.
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
Non-Performing Assets
Classified by Industry Real Estate Other Total
----------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 9,637 $1,666 $11,303
Foreclosed assets 8,608 27 8,635
------- ------ -------
Total $18,245 $1,693 $19,938
======= ====== =======
Accruing loans 90 days past due $ 2,412 $1,232 $ 3,644
Loans 90 days past due in the "other" category include $117,000 in foreign
loans. Foreclosed assets include $5,324,000 of in-substance foreclosures
at December 31, 1994.
</TABLE>
Loans to a customer whose financial condition has deteriorated are
considered for non-accrual status whether or not the loan is 90 days or
more past due. All non-consumer loans 90 days or more past due are
classified as non-accrual unless the loan is well secured and in the
process of collection. When a loan is placed on non-accrual status,
interest income is not recognized until collected, and any previously
accrued but uncollected interest is reversed. Classification of an asset
in the non-performing category does not preclude ultimate collection of
loan principal or interest.
Restructured loans have been modified as to original terms, resulting
in a reduction or deferral of principal and/or interest as a concession to
the debtor and are accounted for in accordance with Statement of Financial
Accounting Standards No. 15.
Foreclosed assets consist of property which has been formally
repossessed and those considered in-substance foreclosed even though formal
repossession has not occurred. An in-substance foreclosure will generally
occur when all of the following conditions are met:(1) the debtor has
little or no equity in the collateral, (2) repayment proceeds can only be
expected from the operation or sale of the collateral, and (3) the debtor
has either formally or effectively abandoned control of the collateral or
it is doubtful the debtor will be able to build equity in the collateral or
otherwise repay the loan. Beginning in 1995, the Corporation adopted
Statement of Financial Accounting Standards No. 114, as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114 and 118). In accordance with
the SFAS 114 and 118, a loan is classified in-substance foreclosure when
the Corporation has taken possession of the collateral regardless of
whether formal foreclosure proceedings take place. Loans previously
classified as in-substance foreclosure but for which the Corporation had
not taken possession of the collateral will be reclassified to loans.
When property is acquired through foreclosure, it is valued at the
lower of the loan balance or its estimated fair value less estimated costs
to sell. Write-downs occurring at acquisition are charged against the
allowance for possible loan losses. On an on-going basis, properties are
appraised as required by applicable regulations. Write-downs are provided
for subsequent declines in value.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
Foreclosed Assets 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Foreclosed assets $ 8,635 $13,383 $28,155
Provision for real estate losses --- 1,445 19,311
Foreclosed assets expense 1,454 3,102 5,666
Foreclosed assets expenses include operating expenses such as property
taxes, insurance, maintenance costs, and allocations for salaries and
benefits, net occupancy, and furniture and fixtures and are included in non-
interest expense.
</TABLE>
At December 31, 1994, the Corporation had $5,199,000 in loans to
borrowers experiencing financial difficulties which had not been included
in either non-accrual, restructured or 90 days past due loans. Management
monitors such loans closely and reviews their performance on a regular
basis.
PAGE 17
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Despite the growth in loans, no provision for possible loan losses
was recorded during 1994 due to continued improvements in economic activity
in the cities served by the Corporation, improved credit quality and real
estate values and net recoveries of $2.1 million. In 1993, the Corporation
booked a credit to the provision for possible loan losses of $6,085,000
primarily reflecting improvements in credit quality and better real estate
market conditions. In 1992, a credit of $850,000 was recorded because of
decreases in net charge-offs and improvements in asset quality.
The Corporation recorded net recoveries of loans previously charged
off of $2,127,000 for the year ended December 31, 1994, compared to net
recoveries of $486,000 for 1993, and net charge-offs of $9,640,000 for
1992.
<TABLE>
<CAPTION>
Year Ended December 31
Allowance for ------------------------------------------------------
Possible Loan Losses 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding
during year, net of
unearned discount $1,331,793 $1,158,057 $1,024,885 $1,149,233 $1,314,907
========== ========== ========== ========== ==========
Balance of allowance
for possible loan
losses at beginning
of year $ 26,298 $ 31,897 $ 42,387 $ 45,604 $ 42,282
Provision (credit) for
possible loan losses --- (6,085) (850) 10,020 31,993
Changes related to
disposition of bank
subsidiary (2,684)
Charge-offs:
Real estate (1,349) (3,481) (6,381) (10,587) (12,664)
Commercial and
industrial (316) (1,287) (4,057) (5,625) (13,499)
Energy (4) (56)
Consumer (2,357) (3,369) (3,217) (3,395) (3,602)
Other, including
foreign (63) (3,828) (1,973) (5,230)
----------- ---------- --------- ---------- ----------
Total charge-offs (4,022) (8,200) (17,487) (21,636) (34,995)
----------- ---------- --------- ---------- ----------
Recoveries:
Real estate 1,970 2,412 2,034 2,530 1,641
Commercial and
industrial 2,434 3,567 3,634 3,633 2,182
Energy 10 149 58 722
Consumer 1,692 2,237 1,852 1,389 1,147
Other, including
foreign 53 460 178 789 632
---------- ---------- ---------- ---------- ----------
Total recoveries 6,149 8,686 7,847 8,399 6,324
---------- ---------- ---------- ---------- ----------
Net (charge-offs) recoveries 2,127 486 (9,640) (13,237) (28,671)
---------- ---------- ---------- ---------- ----------
Balance of allowance for
possible loan losses
at end of year $ 25,741 $ 26,298 $ 31,897 $ 42,387 $ 45,604
========== ========= ========= ========== =========
Net (charge-offs) recoveries
as a percentage of average
loans outstanding during
the year, net of unearned
discount .16% .04% (0.94)% (1.15)% (2.18)%
Allowance for possible loan
losses as a percentage of
year-end loans, net of
unearned discount 1.74% 2.11% 3.15% 3.95% 3.60%
There were no foreign charge-offs in 1994, 1993 or 1991. There were
$3,677,000 in foreign charge-offs in 1992 all relating to Brady Bonds (see
page 16). Foreign activity includes net recoveries of $379,000 in 1990.
Other charge-offs for 1990 of $5,230,000 included $4,833,000 in bank stock
charge-offs.
The 1994 allowance for possible loan losses includes a reduction of
$2,684,000 related to the exchange of Cullen/Frost Bank in Dallas for Texas
Commerce Bank-Corpus Christi.
</TABLE>
PAGE 18
<PAGE>
<TABLE>
<CAPTION>
Allowance for Possible Loan Losses and Allowance to Year-End Loans
($ in thousands)
(Graphic material omitted)
Year Allowance For Possible Allowance to Allowance to Non-
Ended Loan Losses Year-End Loans Performing Loans
----- ---------------------- --------------- -----------------
<S> <C> <C> <C>
1990 $45,604 3.60% 86.5%
1991 42,387 3.95 116.2
1992 31,897 3.15 137.8
1993 26,298 2.11 148.3
1994 25,741 1.74 227.7
</TABLE>
There were no provision expenses for possible loan losses and real
estate valuations made during 1994. The combined net provision for
possible loan losses and real estate losses for 1993 was a credit of
$4,640,000 compared with a provision of $18,461,000 for the year ended
December 31, 1992.
During 1993, the provision for real estate losses decreased
$17,866,000 or 92.5 percent from 1992 because the number and dollar value
of foreclosed properties had been reduced. Additionally, real estate
values began to stabilize.
During May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan." These standards specify how
allowances for certain impaired loans should be determined and the
accounting for in-substance foreclosures. These standards are effective
for fiscal years beginning after December 15, 1994. The Corporation has
adopted these standards effective January 1, 1995. Adoption of these
standards did not have a material impact on the Corporation's financial
statements.
Management has established credit policies and procedures designed to
manage exposure to credit risks. These are monitored through periodic
reviews of individual credits in light of economic conditions, business
trends, and the risks in specific industries and individual loans. Formal
internal loan review examinations are also conducted by the Corporation.
Compliance with concentration levels and standards, policies and procedures
is also monitored.
Loans identified as losses by management, internal loan review and/or
bank examiners are charged-off. Exceptions are installment and credit card
loans which are charged-off based on past-due status.
An allowance for possible loan losses is maintained in an amount
which, in management's judgment, provides an adequate reserve to absorb
possible loan losses. Industry concentrations, specific credit risks, loan
loss experience, current loan portfolio quality, the impact of rising
interest rates, experience level and effectiveness of employees, economic,
political and regulatory conditions and other pertinent factors are all
considered in determining the adequacy of the allowance.
An audit committee of non-management directors reviews the adequacy of
the allowance for possible loan losses quarterly.
PAGE 19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------
Allowance As a
for Percentage
Possible of
Allocation of Allowance Loan Total
for Possible Loan Losses Losses Loans
--------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 4,291 .29%
Real estate 8,584 .58
Consumer 10,384 .70
Purchasing or carrying securities 7
Financial institutions 28
Other, including foreign 160 .01
Not allocated 2,287 .16
------- -----
Total $25,741 1.74%
======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1993 1992
----------------------- ------------------------
Allowance As a Allowance As a
for Percentage for Percentage
Possible of Possible of
Allocation of Allowance Loan Total Loan Total
for Possible Loan Losses Losses Loans Losses Loans
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 3,453 .28% $ 3,752 .37%
Real estate 10,432 .84 14,069 1.39
Consumer 6,756 .54 5,238 .52
Purchasing or carrying securities 3 59
Financial institutions 8 123 .01
Other, including foreign 332 .03 498 .05
Not allocated 5,314 .42 8,158 .81
--------- ------ -------- -----
Total $26,298 2.11% $31,897 3.15%
========= ====== ======== =====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1991 1990
----------------------- ------------------------
Allowance As a Allowance As a
for Percentage for Percentage
Possible of Possible of
Allocation of Allowance Loan Total Loan Total
for Possible Loan Losses Losses Loans Losses Loans
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 4,970 .46% $11,238 .89%
Real estate 17,725 1.65 13,985 1.10
Consumer 3,212 .30 5,284 .42
Purchasing or carrying securities 7 201 .02
Financial institutions 197 .02 1,300 .10
Other, including foreign 1,152 .11 364 .03
Not allocated 15,124 1.41 13,232 1.04
------- ----- ------- -----
Total $42,387 3.95% $45,604 3.60%
======= ===== ======= =====
</TABLE>
Allocation of a portion of the allowance does not preclude its
availability to absorb losses in other categories. The unallocated portion
of the allowance represents an additional amount beyond that specifically
reserved for specific risks available to absorb unidentified losses in the
current loan portfolio.
SECURITIES
Total securities including securities available for sale were
$1,594,042,000 at year-end 1994. Securities available for sale totaled
$542,797,000 at December 31, 1994. These securities consist primarily of
U.S. Treasury securities and obligations of U.S. Government agencies. The
remaining securities, also consisting primarily of U.S. Treasury and U.S.
Government agency obligations, are classified as securities held to
maturity and are carried at amortized cost.
Debt securities are classified as held to maturity when the
Corporation has the positive intent and ability to hold the securities to
maturity. Available for sale securities are stated at fair value, with
unrealized gains and losses, net of tax, reported as a separate component
of shareholders' equity.
The average yield of the securities portfolio for the year ended
December 31, 1994 was 5.70 percent compared with 5.78 percent for 1993.
At December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The standard addresses the accounting for and
reporting of investments in debt securities and requires classification and
accounting treatment for securities as held to maturity, trading securities
and securities available for sale. The adoption of this standard did not
impact earnings but had the effect of increasing shareholders' equity by
$9.1 million at December 31, 1993.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1994 1993 1992
--------------------- --------------------- ---------------------
Period-end Percentage Period-end Percentage Period-end Percentage
Securities Balance of Total Balance of Total Balance of Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 241,625 15.2% $ 285,068 17.7% $ 666,133 47.1%
U.S. Government
agencies and
corporations 1,325,070 83.1 1,280,915 79.5 665,222 47.0
States and political
subdivisions 5,683 .3 7,216 .4 13,670 1.0
Other 21,664 1.4 38,672 2.4 68,940 4.9
---------- ------ ---------- ------ ---------- ------
Total $1,594,042 100.0% $1,611,871 100.0% $1,413,965 100.0%
========== ====== ========== ====== ========== ======
Average yield
earned during
the year (taxable-
equivalent basis) 5.70% 5.78% 7.03%
</TABLE>
INTEREST RATE SWAPS
During 1994, the Corporation entered into several off-balance sheet
interest rate swaps to hedge its interest rate risk by converting fixed
rate loans into synthetic variable rate instruments. At December 31, 1994,
the Corporation had five interest rate swaps, each as a hedge against a
specific fixed rate loan, with an original total notional amount of $39.8
million. These swaps are all amortizing swaps that amortize in conjunction
with the loans which have lives ranging from five to ten years. The net
amount payable or receivable from interest rate swap agreements is accrued
as an adjustment to interest income and was not material in 1994.
PAGE 20
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
Total Average Deposits
($ in millions)
(Graphic material omitted)
Average Average Average
Year Demand Time Total Cost of Time
Ended Deposits Deposits Deposits Deposits
----- -------- -------- ---------- ------------
<S> <C> <C> <C> <C>
1990 $576,348 $2,291,367 $2,867,715 6.43%
1991 599,439 2,158,481 2,757,920 5.34
1992 665,528 2,045,169 2,710,697 3.36
1993 816,446 2,267,304 3,083,750 2.56
1994 836,711 2,284,148 3,120,859 2.71
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ -------------------
Average Percent Average Percent Average Percent
Demand Deposits Balance Change Balance Change Balance Change
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
individual $673,764 + 6.7% $631,363 +27.5% $495,199 + 8.3%
Correspondent
banks 124,416 -13.0 143,008 + 4.8 136,487 +22.4
Public funds 38,531 - 8.4 42,075 +24.3 33,842 +10.5
-------- -------- --------
Total $836,711 + 2.5 $816,446 +22.7 $665,528 +11.0
======== ======== ========
</TABLE>
Correspondent bank deposits have decreased 13 percent from 1993. In
the rising interest rate environment, account analysis earnings credit
rates have increased resulting in lower balances required to pay for
services provided to correspondent banks.
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ -------------------
Average Percent Average Percent Average Percent
Time Deposits Balance Change Balance Change Balance Change
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings and Interest-
on-Checking $ 796,178 + 6.1% $ 750,386 +38.7% $ 541,191 +14.3%
Money market
deposit accounts 547,237 + 2.3 534,814 +11.9 477,877 +10.8
Time accounts of
$100,000 or more 364,997 - 2.8 375,322 -19.0 463,509 -21.7
Time accounts under
$100,000 489,604 - 7.9 531,803 +10.1 482,971 -12.8
Public funds 86,132 +14.9 74,979 - 5.8 79,621 -26.4
---------- ---------- ----------
Total $2,284,148 + .7 $2,267,304 +10.9 $2,045,169 - 5.2
========== ========== ==========
</TABLE>
Mexico is a part of the natural trade territory of the banking offices
of Cullen/Frost; thus dollar-denominated foreign deposits from Mexican
sources have traditionally been a significant source of funding. The
Corporation does not anticipate any negative impact on foreign deposits due
to the recent devaluation of the peso which has led to turbulent economic
conditions in Mexico. It is expected that higher interest rates and
increasing inflation in Mexico will result in reduced real wage earnings
for the Mexican people and slow its economic growth. However, those
businesses engaged in exports should benefit. The Corporation's Mexican
deposit levels are stable and have historically increased during economic
crises in Mexico.
<TABLE>
<CAPTION>
Foreign Deposits 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
Average balance $521,413 $505,746 $529,018
Percentage of total average deposits 16.7% 16.4% 19.5%
</TABLE>
PAGE 21
<PAGE>
SHORT-TERM BORROWINGS
The Corporation's primary source of short-term borrowings is Federal
funds purchased from correspondent banks and securities sold under
repurchase agreements in the natural trade territories of the Cullen/Frost
subsidiary banks, as well as from upstream banks.
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
Average Average Average Average Average Average
Federal Funds Balance Rate Balance Rate Balance Rate
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and
securities purchased
under resale agreements $108,762 3.81% $255,613 3.02% $195,398 3.43%
Federal funds purchased
and securities sold
under repurchase
agreements 191,611 3.74 131,096 2.52 102,550 3.06
-------- -------- --------
Net funds position $(82,849) $124,517 $ 92,848
======== ======== ========
</TABLE>
Other funding sources include a $7,500,000 short-term line of credit
to the parent Corporation used for short-term liquidity needs. There were
no borrowings outstanding from this source at December 31, 1994 and 1993.
CAPITAL
At December 31, 1994, shareholders' equity reached the highest level
in the Corporation's history, $295,437,000, an increase of 8.0 percent from
$273,533,000 at December 31, 1993. The increase in 1994 was due primarily
to earnings growth, partially offset by an $11.7 million change in
unrealized losses, net of taxes, on securities available for sale, and $7.4
million of dividends paid. The Corporation had an unrealized loss on
securities available for sale, net of deferred taxes, of $2.6 million as of
December 31, 1994 compared to a $9.1 million unrealized gain as of December
31, 1993, reflecting a change of $11.7 million during 1994. This unrealized
loss is primarily due to an increase in market interest rates. Currently,
under regulatory requirements, the unrealized gain or loss on securities
available for sale is not included in the calculation of risk-based capital
and leverage ratios.
The Corporation paid a quarterly dividend of $.15 per common share
during the first three quarters of 1994 increasing to $.22 per common share
during the fourth quarter. During the first quarter of 1993, the Corporation
paid a 10% stock dividend and in the fourth quarter of 1993 paid a cash dividend
of $.15 per common share. Cash dividends had been suspended since the first
quarter of 1987.
The Federal Reserve Board ("the Board") utilizes capital guidelines
designed to measure Tier 1 and Total Capital and take into consideration
the risk inherent in both on-balance sheet and off-balance sheet items.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
----------------- ------------------
Risk-Based Capital Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 256,552 14.44% $ 221,436 14.23%
Tier 1 Capital Minimum requirement 71,075 4.00 62,232 4.00
Total Capital $ 278,806 15.69% $ 240,968 15.49%
Total Capital Minimum requirement 142,149 8.00 124,463 8.00
Risk-adjusted assets, net of goodwill $1,776,863 $1,555,789
Leverage ratio 6.99% 6.24%
</TABLE>
The Federal Reserve Board guidelines also require a leverage capital
ratio which measures Tier 1 capital against quarterly average total assets,
net of goodwill. A leverage ratio of 3.0 percent is the minimum
requirement for only the most highly rated banking organizations and all
other institutions are required to maintain a leverage ratio of 3 to 5
percent. The leverage ratio for the Corporation was 6.99 percent and 6.24
percent at December 31, 1994 and December 31, 1993, respectively.
In December of 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") established five capital tiers.
Effective December 16, 1992, federal banking agencies adopted final rules
relating to these tiers. At December 31, 1994 the Corporation was "well
capitalized" as defined by FDICIA, the highest rating. A financial
institution is deemed to be well capitalized if the institution has a total
risk-based capital ratio of 10.0 percent or greater, a Tier 1 risk-based
capital ratio of 6.0 percent or greater, and a leverage ratio of 5.0
percent or greater, and the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive to meet
and maintain a specific capital level for any capital measure.
PAGE 22
<PAGE>
PARENT CORPORATION
Historically, a large portion of the parent Corporation's income which
provides funds for the payment of dividends to shareholders and for other
corporate purposes has been derived from Cullen/Frost's investments in
subsidiaries. Dividends received from the subsidiaries are based upon each
bank's earnings and capital position. See Note K-Dividends on page 34.
Management fees are not assessed.
NON-BANKING SUBSIDIARIES
Cullen/Frost has three principal non-banking subsidiaries. Main Plaza
Corporation holds real estate for future expansion of Cullen/Frost's bank
subsidiaries and occasionally makes loans to qualified borrowers. Such
loans are typically funded with borrowings against Cullen/Frost's current
cash or borrowing against credit lines. Daltex General Agency, Inc., a
managing general insurance agency, provides vendor's single interest
insurance for Cullen/Frost subsidiary banks. The New Galveston Company is
a wholly-owned second tier bank holding company subsidiary which holds all
shares of each banking and non-banking subsidiary.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Cullen/Frost Bankers, Inc. is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and include amounts based on management's estimates and judgment
where appropriate. Financial information appearing throughout this annual
report is consistent with the financial statements.
In meeting its responsibility both for the integrity and fairness of
these financial statements and information, management depends on the
accounting systems and related internal accounting controls that are
designed to provide reasonable assurances that transactions are authorized
and recorded in accordance with established procedures and that assets are
safeguarded and that proper and reliable records are maintained.
The concept of reasonable assurance is based on the recognition that
the cost of a system of internal controls should not exceed the related
benefits. As an integral part of the system of internal controls,
Cullen/Frost maintains an internal audit staff which monitors compliance
with and evaluates the effectiveness of the system of internal controls and
coordinates audit coverage with the independent auditors.
The Audit Committee of Cullen/Frost's Board of Directors, which is
composed entirely of directors independent of management, meets regularly
with management, regulatory examiners, internal auditors, the asset review
staff and independent auditors to discuss financial reporting matters,
internal controls, regulatory reports, internal auditing and the nature,
scope and results of the audit efforts. Internal Audit and Asset Review
report directly to the Audit Committee. The banking regulators, internal
auditors and independent auditors have direct access to the Audit
Committee.
The consolidated financial statements have been audited by Ernst &
Young LLP, independent auditors, who render an independent opinion on
management's financial statements. Their appointment was recommended by
the Audit Committee and approved by the Board of Directors and by the
shareholders. The audit by the independent auditors provides an additional
assessment of the degree to which Cullen/Frost's management meets its
responsibility for financial reporting. Their opinion on the financial
statements is based on auditing procedures, which include their
consideration of the internal control structure and performance of selected
tests of transactions and records, as they deem appropriate. These
auditing procedures are designed to provide an additional reasonable level
of assurance that the financial statements are fairly presented in all
material respects.
/s/ T.C. FROST /s/ ROBERT S. McCLANE
T.C. Frost Robert S. McClane
Chairman President and Chief
Administrative Officer
/s/ RICHARD W. EVANS, JR. /s/ PHILLIP D. GREEN
Richard W. Evans, Jr. Phillip D. Green
Chief Banking Officer Executive Vice President and Treasurer
and Chairman, Frost National Bank
PAGE 23
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
Year Ended December 31
-----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans, including fees $106,252 $ 90,756 $ 84,074
Securities:
Taxable 94,760 90,447 98,389
Tax-exempt 349 698 799
-------- -------- --------
Total Securities 95,109 91,145 99,188
Time deposits 2 4 8
Federal funds sold and securities
purchased under resale agreements 4,146 7,714 6,711
-------- -------- --------
Total Interest Income 205,509 189,619 189,981
Interest expense:
Deposits 61,996 58,079 68,807
Federal funds purchased and securities
sold under repurchase agreements 7,166 3,304 3,139
Long-term notes payable and other borrowings --- 410 1,378
-------- -------- --------
Total Interest Expense 69,162 61,793 73,324
-------- -------- --------
Net Interest Income 136,347 127,826 116,657
Provision (credit) for possible loan losses --- (6,085) (850)
-------- -------- --------
Net Interest Income After Provision
(Credit) For Possible Loan Losses 136,347 133,911 117,507
Non-interest income:
Trust department 29,529 26,278 21,861
Service charges on deposit accounts 25,890 25,386 21,958
Other service charges, collection and
exchange charges, commissions and fees 11,658 9,889 7,888
Net gain (loss) on securities transactions (4,038) 1,433 (232)
Other 13,776 13,243 10,338
-------- -------- --------
Total Non-Interest Income 76,815 76,229 61,813
Non-interest expense:
Salaries and wages 52,986 53,654 46,184
Pension and other employee benefits 9,910 12,052 9,746
Net occupancy of banking premises 15,777 20,749 16,963
Furniture and equipment 10,937 10,155 8,295
Provision for real estate losses --- 1,445 19,311
Restructuring costs 830 10,285
Other 65,122 63,738 52,999
-------- -------- --------
Total Non-Interest Expense 155,562 172,078 153,498
-------- -------- --------
Income Before Income Taxes (Credits),
Extraordinary Credit and Cumulative Effect
of Accounting Change 57,600 38,062 25,822
Income taxes (Credits) 20,177 (735) 8,197
-------- -------- --------
Income before extraordinary credit and cumulative
effect of accounting change 37,423 38,797 17,625
Extraordinary Credit-income tax benefit 6,497
Cumulative effect of change in accounting
for income taxes --- 8,439
-------- -------- --------
Net Income $ 37,423 $ 47,236 $ 24,122
======== ======== ========
Per share
Income before extraordinary credit and
cumulative effect of accounting change-
Primary $ 3.33 $ 3.48 $ 1.66
Fully diluted 3.33 3.48 1.66
Net income-
Primary 3.33 4.24 2.26
Fully diluted 3.33 4.24 2.25
See notes to consolidated financial statements.
</TABLE>
PAGE 24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
December 31
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 365,792 $ 334,564
Time deposits 12 147
Securities held to maturity (market value:
1994-$981,801;1993-$1,013,712) 1,051,245 997,395
Securities available for sale 542,797 614,476
Federal funds sold and securities purchased under
resale agreements 167,550 250,250
Loans, net of unearned discount of $3,487 in 1994
and $8,456 in 1993 1,477,969 1,247,809
Less: Allowance for possible loan losses (25,741) (26,298)
---------- ----------
Net loans 1,452,228 1,221,511
Banking premises and equipment 88,667 86,676
Accrued interest and other assets 125,429 134,028
---------- ----------
Total Assets $3,793,720 $3,639,047
========== ==========
Liabilities
Demand deposits:
Commercial and individual $ 710,138 $ 705,786
Correspondent banks 77,425 129,106
Public funds 44,740 46,200
---------- ----------
Total demand deposits 832,303 881,092
Time deposits:
Savings and Interest-on-Checking 763,300 800,161
Money market deposit accounts 559,153 527,230
Time accounts 842,520 860,642
Public funds 90,686 80,303
---------- ----------
Total time deposits 2,255,659 2,268,336
---------- ----------
Total deposits 3,087,962 3,149,428
Federal funds purchased and securities sold under
repurchase agreements 370,235 166,519
Accrued interest and other liabilities 40,086 49,567
---------- ---------
Total Liabilities 3,498,283 3,365,514
Shareholders' Equity
Common stock, par value $5 per share 55,615 55,046
Shares authorized: 1994-30,000,000;1993-30,000,000
Shares outstanding: 1994-11,123,062;1993-11,009,198
Surplus 116,362 113,385
Retained earnings 126,038 95,978
Unrealized gain (loss) on securities available for sale (2,578) 9,124
---------- ----------
Total Shareholders' Equity 295,437 273,533
---------- ----------
Total Liabilities and Shareholders' Equity $3,793,720 $3,639,047
========== ==========
See notes to consolidated financial statements.
</TABLE>
PAGE 25
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Year Ended December 31
------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net Income $ 37,423 $ 47,236 $ 24,122
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (credit) for possible loan losses (6,085) (850)
Provision for real estate losses 1,445 19,311
Provision (credit) for deferred taxes 2,106 (6,364)
Extraordinary credit from utilization of net
operating loss carryforward --- (6,497)
Accretion of discounts on loans (4,563) (8,615) (9,329)
Accretion of securities' discounts (11,624) (2,602) (2,853)
Amortization of securities' premiums 3,385 5,678 5,819
Net realized loss(gain) on securities
transactions 4,038 (1,433) 232
Net gain on sale of assets (2,074) (3,443) (1,846)
Depreciation and amortization 18,448 16,766 8,797
(Increase) decrease in accrued
interest receivable (2,603) 1,624 6,325
Increase (decrease)in accrued interest payable 1,629 160 (3,434)
Restructuring accrual (1,695) 7,715
Cumulative effect of change in accounting
principle (8,439)
Net change in other assets and
liabilities 2,669 (634) 15,110
--------- --------- ---------
Net cash provided by operating activities 47,139 43,009 54,907
Investing Activities
Proceeds from sales of securities
held to maturity 101,309 62,846
Proceeds from maturities of securities
held to maturity 145,609 483,153 778,924
Purchases of securities held to maturity (209,773) (900,825) (819,507)
Proceeds from sales of securities
available for sale 170,894 101,181
Proceeds from maturities of securities
available for sale 343,330 778,066
Purchases of securities available for sale (451,883) (688,504)
Net (increase) decrease in loan portfolio (207,741) (64,638) 60,155
Proceeds from sales of equipment 4,458 4,167 1,500
Purchases of premises and equipment (16,403) (13,326) (11,679)
Proceeds from sales of repossessed properties 2,912 4,775 6,594
Net cash and cash equivalents received from
acquisition (22,536) 183,131
--------- --------- ---------
Net cash provided (used) by investing
activities (241,133) (11,511) 78,833
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts (34,165) 108,968 198,183
Net decrease in certificates of deposit (25,210) (175,267) (194,725)
Net increase in Federal funds purchased
and securities sold under repurchase
agreement 206,116 43,605 34,165
Principal payments on long-term debt (3,400) (1,268)
Proceeds from employee stock purchase plan
and options 3,061 2,154 3,875
Dividends paid (7,415) (1,650)
--------- --------- ---------
Net cash provided (used) by financing
activities 142,387 (25,590) 40,230
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents (51,607) 5,908 173,970
Cash and cash equivalents at beginning of
year 584,961 579,053 405,083
--------- --------- ---------
Cash and cash equivalents at end of year $ 533,354 $ 584,961 $ 579,053
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
PAGE 26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement 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, 1992 $45,654 $ 66,688 $63,880 $176,222
Net Income for 1992 24,122 24,122
Proceeds from employee stock purchase
plan and options 1,674 2,201 (69) 3,806
Tax benefit related to exercise of
stock options 1,680 1,680
Loan payments from employee stock
ownership plan 200 200
Restricted stock plan deferred
compensation expense 114 114
Effect of ten percent stock dividend 4,733 31,473 (36,206)
------- -------- ------- ------- --------
Balance at December 31, 1992 52,061 102,042 52,041 206,144
Net Income for 1993 47,236 47,236
Proceeds from employee stock purchase
plan and options 387 1,767 2,154
Tax benefit related to exercise of stock
options 207 207
Issuance of restricted stock 25 152 177
Loan payments from employee stock
ownership plan 200 200
Restricted stock plan deferred
compensation, net (59) (59)
Conversion of subordinated debentures 2,339 7,661 10,000
Unrealized gain on securities available
for sale, net of tax $ 9,124 9,124
Cash dividend (1,650) (1,650)
Effect of ten percent stock dividend 234 1,556 (1,790)
------- -------- ------- ------ --------
Balance at December 31, 1993 55,046 113,385 95,978 9,124 273,533
Net Income for 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
Issuance of restricted stock 32 168 200
Loan payments from employee stock
ownership plan 170 170
Restricted stock plan deferred
compensation, net (89) (89)
Unrealized gain (loss) 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
======= ======== ======= ======== =========
See notes to consolidated financial statements.
</TABLE>
PAGE 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cullen/Frost Bankers, Inc. and Subsidiaries
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The accounting and reporting policies followed by Cullen/Frost
Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the "Corporation") are in
accordance with generally accepted accounting principles and conform to
general practices within the banking industry. The more significant
accounting and reporting policies are summarized below.
Basis of Presentation
The consolidated financial statements include the accounts of Cullen/Frost
and its wholly-owned subsidiaries. Condensed parent company financial state-
ments reflect investments in subsidiaries using the equity method of accounting.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to make prior years
comparable.
Securities
Effective December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"). Under this pronouncement, management
determines the appropriate classification of securities at the time of purchase
and reevaluates such designation as of each balance sheet date. If the
securities are purchased with the intent and the Corporation has the ability to
hold the securities until maturity, they are classified as securities held to
maturity and carried at amortized cost. Securities to be held for indefinite
periods of time are classified as available for sale and stated at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. The adjusted carrying value of the specific
security sold is used to compute gain or loss on the sale of securities.
Declines in value other than temporary declines are adjusted against the
security with a charge to operations. Prior to the adoption of SFAS 115,
securities available for sale were carried at the lower of cost or market value.
The adoption of this standard did not impact earnings but had the effect of
increasing shareholders' equity by $9.1 million at December 31, 1993.
Loans
Interest on loans is accrued and accreted to operations based on the
principal amount outstanding. Interest on certain consumer loans is recognized
over their respective terms using a method which approximates the interest
method. Generally, loans are placed on a non-accrual status if principal or
interest payments become 90 days past due and/or management deems the
collectability of the principal and/or interest to be in question. Once
interest accruals are discontinued, uncollected interest is charged to current
year operations. Loans which are determined to be uncollectible are charged to
the allowance for possible loan losses. The collectability of loans is
continually reviewed by management.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through a provision
for possible loan losses charged to current operations. The amount maintained
in the allowance reflects management's continuing assessment of the potential
losses inherent in the portfolio based on evaluations of industry concentra-
tions, specific credit risks, loan loss experience, current loan portfolio
quality, and anticipated economic, political and regulatory conditions. The
Corporation adopted Statement of Financial Accounting Standards No. 114
("SFAS 114"), "Accounting by Creditors for Impairment of a Loan," as amended
by SFAS 118 effective January 1, 1995. As a result of applying the new
standard, the 1995 allowance for possible loan losses related to impaired loans
that are identified in accordance with SFAS 114 will be based on discounted cash
flows using the loan's effective interest rate or the fair value of the
collateral for certain collateral dependent loans. The adoption of the
standard did not have a material impact on the Corporation's financial
position or results of operations.
Foreclosed Assets
Foreclosed assets consist of property which has been formally repossessed
and that which is considered in-substance foreclosed even though formal
repossession has not occurred. An in-substance foreclosure will occur when all
of the following conditions are met: (1) the debtor has little or no equity in
the collateral, (2) repayment proceeds can only be expected from the operation
or sale of the collateral, and (3) the debtor has either formally or effectively
abandoned control of the collateral or it is doubtful the debtor will be able to
build equity in the collateral or otherwise repay the loan. In-substance
foreclosures are accounted for in the same manner as property which has been
formally repossessed. Collateral obtained through foreclosure or loans
considered to be in-substance foreclosures are recorded at the lower of fair
value less estimated selling costs or the underlying loan amounts. Write-downs
are provided for subsequent declines in value. The Corporation adopted SFAS 114
effective January 1, 1995. In accordance with SFAS 114, 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, loans previously classified as in-substance
foreclosure but for which the Corporation had not taken possession of the
collateral will be reclassified to loans effective January 1, 1995. This
reclassification will not impact the Company's financial condition or results
of operations.
PAGE 28
<PAGE>
Banking Premises and Equipment
Banking premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are generally
computed on a straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are generally amortized over the lesser of the term of
the respective leases or the estimated useful lives of the improvements.
Iintangible Assets
The excess of cost over fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line and accelerated basis (as
appropriate) over periods not exceeding fifteen years. Core deposit and other
intangibles are amortized on an accelerated basis over the estimated remaining
lives.
Federal Income Taxes
Cullen/Frost files a consolidated federal income tax return which includes
the taxable income of all of its principal subsidiaries. Applicable federal
income taxes of the individual subsidiaries are generally determined on a
separate return basis. Effective January 1, 1993, deferred federal income taxes
are recognized under Statement of Financial Accounting Standards No. 109 ("SFAS
109") which requires use of the liability method. The liability method requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the financial reporting bases
and the tax bases of assets and liabilities. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized. For 1992 and prior years, the Corporation accounted
for income taxes under APB 11.
Stock Dividends
All share and per share amounts for 1992 have been retroactively adjusted
for a ten percent stock dividend paid March 2, 1993.
NOTE B - ACQUISITIONS
Texas Commerce Bank-Corpus Christi
On April 15, 1994, the Corporation acquired Texas Commerce Bank in
Corpus Christi in exchange for Cullen/Frost Bank of Dallas, N.A. ("C/F
Dallas"). The banks exchanged were of comparable asset size. C/F Dallas
represented 4.6 percent of the Corporation's total assets at March 31,
1994. No gain or loss was recognized on this transaction. The exchange did
not have a material effect on the operating results of the Corporation.
Creekwood Capital Corporation - Houston
Frost National Bank, lead bank of Cullen/Frost, acquired all of the
capital stock of Creekwood Capital Corporation ("Creekwood") on December 2,
1994. Creekwood provides financing to small-and medium-sized companies in
the form of senior, asset-based loans. This transaction added
approximately $23 million in loans. The transaction was accounted for as a
purchase with the total cash consideration and direct acquisition costs
being funded through internal sources. Goodwill recorded as a result of
the transaction approximated $2.2 million and will be amortized over ten
years using the straight-line method. Cullen/Frost's results of operations
would not have been materially impacted if the Creekwood acquisition had
occurred at the beginning of 1994 or 1993.
Acquisition of New First City - San Antonio and New First City - Austin
On February 13, 1993, the Corporation acquired certain assets and
assumed certain liabilities of New First City, Texas - San Antonio, N.A.
and New First City, Texas - Austin, N.A. (collectively referred to as
First City). These two First City banks were bridge banks established by
the Federal Deposit Insurance Corporation (FDIC) following the closing of
the banks owned by First City Bancorporation of Texas, Inc. Under the
terms of the acquisition agreement, the Corporation agreed to pay the FDIC
a $38 million premium over the book value of assets acquired less
liabilities assumed. This transaction was funded through internal sources.
The acquisition has been accounted for as a purchase, whereby the purchase
price has been allocated to the assets acquired and liabilities assumed
based on their respective fair values as of the date of acquisition.
Goodwill associated with the transaction amounted to approximately $23.2
million and is being amortized on accelerated and straight-line methods
over lives ranging from 9-15 years. Other intangibles associated with the
acquisition of approximately $20.2 million are being amortized over their
estimated lives ranging from five to ten years on an accelerated method.
The Corporation acquired loans of $158 million, investment securities and
Federal funds sold of $225 million, and deposits of $446 million. These
amounts represent the estimated fair values at First City as of the date of
acquisition.
Under the acquisition agreement, during the first five years after
the acquisition by the Corporation, the FDIC is required to reimburse the
Corporation quarterly for 80 percent of all net charge-offs and certain
related expenses on commercial and certain real estate loans acquired by
the Corporation from New First City, Texas - Austin, N.A. This
reimbursement increases to 95 percent as to such charge-offs and certain
related expenses in excess of $5,344,000.
Pro-forma financial information has not been presented, as the
Corporation believes that such information would not be meaningful or
indicative of the operating results of the combined company. The First
City acquisition involved financial assistance from the FDIC. In addition,
there have been significant changes to the management structure, assets,
liabilities, and operations of First City subsequent to the acquisition.
PAGE 29
<PAGE>
PENDING ACQUISITIONS
Valley Bancshares, Inc. - McAllen
On November 17, 1994, the Corporation entered into a definitive
agreement to acquire Valley Bancshares, Inc., which owns the $50 million-
deposit Valley National Bank in McAllen, Texas. This acquisition is
expected to be completed in the first half of 1995 following normal
shareholder action and regulatory review and will become branch offices of
the Corporation's lead bank, Frost National Bank. This transaction will be
accounted for as a purchase with the total cash consideration being funded
through internal sources.
National Commerce Bank - Houston
On December 20, 1994, Cullen/Frost Bankers, Inc. entered into a
definitive agreement to acquire National Commerce Bank in Houston, Texas.
National Commerce Bank is a $115 million-deposit bank with three locations.
This acquisition is expected to be completed in mid-1995 following normal
shareholder action and regulatory review and will become branch offices of
the Corporation's lead bank, Frost National Bank. This transaction will be
accounted for as a purchase with the total cash consideration being funded
through internal sources.
Comerica Bank branches - San Antonio
On December 21, 1994, Frost National Bank entered into a definitive
agreement to acquire the two San Antonio branches of Comerica Bank Texas.
This acquisition is expected to be completed in mid-1995 following regulatory
review. This transaction is expected to add approximately $37 million in
deposits. This transaction will be accounted for as a purchase with the
total cash consideration being funded through internal sources.
NOTE C - CASH AND DUE FROM BANKS
Cullen/Frost subsidiary banks are required to maintain reserves with
the Federal Reserve Bank which are equal to specified percentages of
deposits. The average amounts of reserve balances were $47,302,000 for
1994 and $45,783,000 for 1993.
NOTE D - SECURITIES
Securities
A summary of the amortized cost and estimated fair value of securities
is presented below.
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to
Maturity:
U.S. Treasury $ 660 $ 660
U.S. Government
agencies and
corporations 1,038,890 $ 3,353 $ 72,677 969,566
States and political
subdivisions 5,683 10 79 5,614
Other 6,012 28 79 5,961
--------- --------- ---------- -----------
Total $1,051,245 $ 3,391 $ 72,835 $ 981,801
========= ========= ========== ===========
Securities Available
for Sale:
U.S. Treasury $ 241,186 $ 36 $ 257 $ 240,965
U.S. Government
agencies and
corporations 290,019 2,561 6,400 286,180
Other 15,558 100 6 15,652
--------- --------- ---------- -----------
Total $ 546,763 $ 2,697 $ 6,663 $ 542,797
========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to
Maturity:
U.S. Treasury $ 6,080 $ 1 $ 6,081
U.S. Government
agencies and
corporations 964,483 17,527 $ 1,838 980,172
States and political
subdivisions 7,216 412 7,628
Other 19,616 216 1 19,831
---------- ------- ------- ----------
Total $ 997,395 $18,156 $ 1,839 $1,013,712
========== ======= ======== ==========
Securities Available
for Sale:
U.S. Treasury $ 277,955 $ 1,081 $ 48 $ 278,988
U.S Government
agencies and
corporations 303,643 13,190 401 316,432
Other 18,840 216 19,056
-------- ------- ------- --------
Total $ 600,438 $14,487 $ 449 $ 614,476
======== ======= ======= ========
</TABLE>
PAGE 30
<PAGE>
The amortized cost and estimated fair value of securities at December
31, 1994 are presented below by contractual maturity. Actual maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------
Securities Held to Maturity Securities Available for Sale
-------------------------------------------------------------
Amortized Estimated Amortized Estimated
(in thousands) Cost Fair Value Cost Fair Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 710 $ 710 $241,186 $240,965
Due after one year through
five years 6,386 6,325
Due after five years through
ten years 830 825
Due after ten years 4,429 4,375 4,460 4,460
---------- --------- -------- --------
12,355 12,235 245,646 245,425
Mortgage-backed securities and
collateralized mortgage 1,038,890 969,566 301,117 297,372
obligations --------- --------- -------- --------
Total $1,051,245 $ 981,801 $546,763 $542,797
========== ========== ======== ========
</TABLE>
Proceeds from sales of securities available for sale during 1994 were
$170,894,000. During 1994, gross gains of $226,000 and gross losses of
$4,264,000 were realized on those sales. Proceeds from sales of debt
securities during 1993 were $202,490,000. During 1993, securities were
sold in anticipation of adopting Statement of Financial Accounting
Standards No. 115. During 1993, gross gains of $1,502,000 and gross
losses of $69,000 were realized on those sales. Proceeds from sales of
debt securities during 1992 were $62,846,000. During 1992, gross gains of
$639,000 and gross losses of $871,000 were realized.
The carrying value of securities pledged to secure public funds, trust
deposits, securities sold under repurchase agreements and for other
purposes as required or permitted by law amounted to $833,034,000 at
December 31, 1994 and $578,095,000 at December 31, 1993.
NOTE E - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of loans outstanding follows:
<TABLE>
<CAPTION>
December 31
-------------------------
(in thousands) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Real Estate:
Construction $ 44,502 $ 32,297
Land 31,481 22,990
Permanent mortgages:
Commercial 177,223 144,122
Residential 277,725 276,148
Other 178,263 150,499
Commercial and industrial 375,085 310,830
Consumer 331,039 268,331
Financial institutions 5,578 284
Foreign 45,290 31,763
Purchasing or carrying securities 1,884 1,204
Other 13,386 17,797
Unearned discount (3,487) (8,456)
---------- ----------
Total loans $1,477,969 $1,247,809
========== ==========
</TABLE>
In the normal course of business, in order to meet the financial
needs of its customers, the Corporation is a party to financial instruments
with off-balance sheet risk. These include commitments to extend credit
and standby letters of credit which commit the Corporation to make payments
on behalf of customers when certain specified future events occur. Both
arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Corporation's normal
credit policies. Collateral is obtained based on management's credit
assessment of the customer. No material losses are anticipated as a result
of these commitments. Commitments to extend credit and standby letters of
credit amounted to $504,183,000 and $43,035,000, respectively, at December
31, 1994. Commitments to extend credit and standby letters of credit
amounted to $381,386,000 and $31,322,000, respectively, at December 31,
1993. Commercial and industrial loan commitments represent approximately
72 percent and 74 percent of the total loan commitments outstanding at
December 31, 1994 and 1993, respectively.
PAGE 31
<PAGE>
The majority of the Corporation's real estate loans are secured by
real estate in San Antonio and Austin. Mortgage loans of approximately
$4.9 million and $9.0 million were held for sale by the Corporation and are
included in residential permanent mortgages at December 31, 1994 and 1993,
respectively. These loans are valued at the lower of cost or market on an
aggregate basis.
In the normal course of business, Cullen/Frost subsidiary banks make
loans to directors and officers of both Cullen/Frost and its subsidiaries.
These loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons. Loans made to directors and executive
officers of Cullen/Frost and its significant subsidiaries, including loans
made to their associates, amounted to $33,802,000 and $44,985,000 at
December 31, 1994 and 1993, respectively. During 1994, additions to these
loans amounted to $54,338,000, repayments totaled $54,429,000 and other
changes totaled $11,092,000. These other changes consist primarily of
changes in related-party status. Standby letters of credit extended to
directors and executive officers of Cullen/Frost and its significant
subsidiaries and their associates amounted to $1,363,000 and $1,611,000 at
December 31, 1994 and 1993, respectively.
A summary of the changes in the allowance for possible loan losses
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
(in thousands) 1994 1993 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year $ 26,298 $ 31,897 $ 42,387
Provision (credit) for possible loan losses --- (6,085) (850)
Changes related to disposition of bank
subsidiary (2,684)
Net charge-offs:
Losses charged to the allowance (4,022) (8,200) (17,487)
Recoveries 6,149 8,686 7,847
-------- -------- --------
Net (charge-offs) recoveries 2,127 486 (9,640)
-------- -------- --------
Balance at the end of the year $ 25,741 $ 26,298 $ 31,897
======== ======== ========
</TABLE>
The Corporation adopted 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
Disclosures" ("SFAS 118"), effective January 1, 1995. Under the new
standards, subsequent to January 1, 1995, the allowance for possible loan losses
related to impaired loans that are identified in accordance with SFAS 114 is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans. The
total allowance for possible loan losses will include activity related to
allowances calculated in accordance with SFAS 114 and activity related to other
loan loss allowances determined in accordance with Statement of Financial
Accounting Standards No. 5. The adoption of this standard did not have a
material impact on the Corporation's financial position or the results of
operations.
NOTE F - NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
December 31,
-------------------
(in thousands) 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual and restructured loans $11,303 $17,727
Foreclosed assets 8,635 13,383
------- -------
$19,938 $31,110
======= =======
</TABLE>
Cullen/Frost recognized interest income on non-accrual and
restructured loans of approximately $7,000, $57,000 and $117,000 in 1994,
1993 and 1992, respectively. Had these reduced earning and non-earning
loans performed according to their original contract terms, Cullen/Frost
would have recognized interest income of approximately $1,082,000 in 1994,
$1,394,000 in 1993 and $2,818,000 in 1992.
Net income (expense) related to foreclosed assets approximated $1.1
million, $1.2 million and ($19.3) million for 1994, 1993 and 1992,
respectively. These expenses include the provision for real estate losses,
operating expenses such as property taxes, insurance, maintenance costs and
allocations for salaries and benefits, net occupancy, and furniture and
fixtures.
PAGE 32
<PAGE>
NOTE G - BANKING PREMISES AND EQUIPMENT
A summary of banking premises and equipment follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
Accumulated Accumulated
Depreciation Net Depreciation Net
and Carrying and Carrying
(in thousands) Cost Amortization Value Cost Amortization Value
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land $ 34,319 --- $34,319 $ 34,918 $34,918
Buildings 38,409 $17,680 20,729 38,663 $17,495 21,168
Furniture and equipment 67,050 50,398 16,652 64,553 47,983 16,570
Leasehold improvements 26,150 12,600 13,550 24,211 10,864 13,347
Construction in progress 3,417 --- 3,417 673 673
-------- ------- ------- -------- ------- -------
Total banking premises
and equipment $169,345 $80,678 $88,667 $163,018 $76,342 $86,676
======== ======= ======= ======== ======= =======
</TABLE>
NOTE H - DEPOSITS
A summary of deposits outstanding by category follows:
<TABLE>
<CAPTION>
December 31
(in thousands) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $ 832,303 $ 881,092
Savings and Interest-on-Checking 763,300 800,161
Money market deposit accounts 559,153 527,230
Time accounts of $100,000 or more 370,739 349,103
Time accounts under $100,000 471,781 511,539
Other 90,686 80,303
----------- ----------
Total deposits $3,087,962 $3,149,428
========== ==========
Foreign deposits totaled $531,343,000 and $492,936,000 at December 31, 1994
and 1993, respectively.
</TABLE>
NOTE I- BORROWED FUNDS
Cullen/Frost has a $7,500,000 revolving credit facility with another
financial institution. The line of credit bears interest at prime. There
were no borrowings outstanding on this line at December 31, 1994 and 1993.
During January 1993, Cullen/Frost called its $10,000,000 convertible
9.75 percent subordinated debentures which were scheduled to mature in
1996. On February 1, 1993, the holders chose to convert such debentures
into Cullen/Frost common stock. The debentures were converted into common
stock based on the original contractual terms at $21.37 per share and
resulted in the issuance of 467,836 additional shares of common stock.
During the fourth quarter of 1993, Frost National Bank ("Frost Bank")
made its required minimum annual payment of $600,000 and exercised its
option to prepay the remaining balance of its 8.75 percent subordinated
notes of $2,800,000.
NOTE J-COMMON STOCK AND EARNINGS PER COMMON SHARE
The weighted average numbers of shares outstanding used to compute
primary and fully diluted earnings per share were 11,222,911 and 11,150,788
for the years ended December 31, 1994 and 1993, respectively. The weighted
average numbers of shares outstanding used to compute primary and fully
diluted earnings per common share were 10,974,329 and 11,015,590,
respectively, for the year ended December 31, 1992.
Earnings per share calculations for the years ended December 31, 1994
and 1993 and 1992 include the effect of common stock equivalents applicable
to the convertible subordinated debentures and stock option contracts,
where applicable.
The number of shares outstanding and related earnings per share
amounts for 1992 have been restated to retroactively give effect to a ten
percent stock dividend declared and paid by the Corporation during the
first quarter of 1993. During the first quarter of 1993, the Corporation's
$10,000,000 convertible subordinated debentures were converted into
Cullen/Frost common stock resulting in the issuance of 467,836 additional
shares of common stock. For purposes of calculating 1992 earnings per
share, the convertible debentures were treated as common stock equivalents
and accordingly, the conversion had no effect on 1992 earnings per share
calculations.
PAGE 33
<PAGE>
NOTE K- DIVIDENDS
Cullen/Frost is primarily dependent upon dividends from its subsidiary
banks to provide funds for the payment of dividends to shareholders and to
provide for other cash requirements. The amount of dividends that
subsidiary banks may declare is subject to regulatory regulations. The
subsidiary banks had approximately $45,095,000 available for the payment of
dividends to Cullen/Frost at December 31, 1994.
NOTE L- LEASES AND RENTAL AGREEMENTS
Rental expense for all leases amounted to $8,822,000, $11,699,000 and
$8,850,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
The Corporation's lead bank, Frost National Bank, leases an office
building and parking garage from separate partnerships in which a member of
a Bank director's immediate family is a principal investor. The Bank's
director has no direct financial interest in the transaction. The lease
expense for the building and parking garage was $4,368,000, $4,688,000 and
$4,652,000 for 1994, 1993 and 1992, respectively. The leases for the
building and garage expire in 2000 and 1999, respectively.
A summary of the total future minimum rental commitments due under non-
cancelable equipment leases and long-term agreements on banking premises at
December 31, 1994 follows:
<TABLE>
<CAPTION>
Total
(in thousands) Commitments
------------------------------------------------------------------------------
<S> <C>
1995 $ 9,650
1996 9,895
1997 7,843
1998 7,598
1999 7,223
Subsequent to 1999 22,698
-------
Total future minimum rental commitments $64,907
=======
</TABLE>
It is expected that certain leases will be renewed, or equipment
replaced with new leased equipment, as these leases expire.
NOTE M- EMPLOYEE BENEFIT PLANS
Retirement Plans
Cullen/Frost has a non-contributory defined benefit plan which covers
substantially all employees who have completed at least one year of service
and have attained the age of 21. Defined benefits are provided based on an
employee's final average compensation, age at retirement and years of
service. Cullen/Frost's funding policy is to contribute quarterly an
amount necessary to satisfy the Employee Retirement Income Security Act
(ERISA) funding standards. An eligible employee's right to receive
benefits under the plan becomes fully vested upon the earlier of the date
on which such employee has completed five years of service or the date on
which such employee attains 65 years of age. Retirement benefits under the
plan are paid to vested employees upon their (i) normal retirement at age
65 or later or (ii) early retirement at or after age 55, but before age 65.
In addition, Cullen/Frost has a Restoration of Retirement Income Plan
(providing benefits in excess of the limits under Section 415 of the
Internal Revenue Code of 1986, as amended) for eligible employees which is
designed to comply with the requirements of ERISA and the entire cost of
which is provided by Cullen/Frost contributions. Effective January 1,
1993, the Corporation amended its retirement plans including changing the
formula for determining monthly pension benefits. Both plans, as amended,
provide for the payment of monthly retirement income pursuant to a formula
based on an eligible employee's highest three consecutive years of final
average compensation during the last ten consecutive years of employment.
PAGE 34
<PAGE>
The funded status of the plans and the amounts recognized in
Cullen/Frost's consolidated balance sheets at December 31, 1994 and 1993
are presented below:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $ 21,290 in 1994 and $20,295 in 1993 $21,991 $20,755
======= =======
Projected benefit obligation for service rendered
to date $31,659 $29,593
Plan assets at fair value (primarily listed stocks and
U.S. and corporate bonds) 18,384 16,195
------- -------
Projected benefit obligation in excess of plan assets 13,275 13,398
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (6,729) (5,943)
Unrecognized prior service cost (4,519) (4,965)
Unrecognized net transitional asset 890 990
------- -------
Accrued pension cost included in other liabilities $ 2,917 $ 3,480
======= =======
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 1,444 $1,172 $2,073
Actual return on plan assets, net of expenses 388 (567) (260)
Interest cost on projected benefit obligation 2,306 2,135 1,431
Net amortization and deferral (1,326) (345) (706)
------- ------ -------
Net pension cost $ 2,812 $2,395 $2,538
======= ====== =======
</TABLE>
The weighted-average discount rate used for calculating the pension
obligation at December 31, 1993 and for calculating the net periodic
pension cost for 1994 was 7.75 percent; the assumed rate of future
compensation increases was 5 percent. The discount rate used for
calculating the pension obligation at December 31, 1994 was 8 percent, and
the assumed rate of future compensation increases was 5 percent; these
assumptions will be used for calculating the 1995 net periodic pension
cost. The expected long-term rate of return on plan assets is 9 percent.
Effective January 1, 1994, the Corporation adopted a supplemental
executive retirement plan ("SERP") for certain key executives. The plan
provides for target retirement benefits, as a percentage of pay, beginning
at age 55. The target percentage is 45 percent of pay at age 55,
increasing to 60 percent 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.
Savings Plans
The Corporation maintains a 401(k) stock purchase plan (the "401(k) Plan").
The 401(k) Plan permits each participant to make before- or after-tax contribu-
tions up to 16% of eligible compensation. Cullen/Frost makes matching contribu-
tions to the 401(k) Plan based on the amount of each participants' contributions
up to a maximum of six percent of eligible compensation. All eligible
employees as of December 31, 1990 became participants in the 401(k) Plan and are
100 percent vested in the Corporation's matching contributions. Eligible
employees hired on or after January 1, 1991 must complete 90 days of service to
be eligible for enrollment and vest in the Corporation's matching contributions
over a five-year period. Shares issued under the 401(k) Plan totaled 62,626
during 1994 and 43,018 during 1993. The Corporation's expenses related to the
401(k) Plan were $1,296,000 and $1,244,000 and $982,000 for 1994, 1993 and
1992, respectively.
Effective January 1, 1991, the 1986 Thrift Incentive Stock Purchase
Plan was amended and restated into the 1991 Thrift Incentive Stock Purchase
Plan ("1991 Stock Purchase Plan"). The 1991 Stock Purchase Plan was
adopted to offer those employees whose participation in the 401(k) Plan is
limited, an alternative means of receiving comparable benefits.
Cullen/Frost shares issued under this plan totaled 17,051 during 1994 and
17,909 during 1993. The Corporation's expenses related to the 1991 Stock
Plan were $574,000, $541,000 and $545,000 for 1994, 1993 and 1992,
respectively.
PAGE 35
<PAGE>
Executive Stock Plans
The Corporation has four principal executive stock plans, the 1983
Nonqualified Stock Option Plan ("1983 Plan"), the 1988 Nonqualified Stock
Option Plan ("1988 Plan"), the Restricted Stock Plan, and the 1992 Stock Plan.
The 1992 Stock Plan is an all-inclusive plan, with an aggregate of 880,000
shares of common stock authorized for award. The 1992 Stock Plan has replaced
all other previously approved executive stock plans. These plans which were
approved by shareholders were established to enable the Corporation to retain
and motivate key employees. A committee of non-participating directors has sole
authority to select the employees, establish the awards to be issued, and
approve the terms and conditions of each award contract.
The 1992 Stock Plan allows the Corporation to grant restricted stock,
incentive stock options, nonqualified stock options, stock appreciation
rights, or any combination thereof to certain key executives of the
Corporation.
The following is a summary of options transactions in each of the last
three years.
<TABLE>
<CAPTION>
1983 Plan 1988 Plan 1992 Stock Plan
--------------------- ---------------------- --------------------
Option Price Option Price Option Price
Options Per Share Options Per Share Options Per Share
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1991 344,696 $6.03-$20.68 216,044 $6.03-$10.91
Granted 62,948 $25.45
Exercised 270,271 6.03- 20.68 33,151 6.03- 10.91
Canceled 499 6.03
------- ------------- ------- ------------- ------- -------------
Balance, Dec. 31, 1992 74,425 6.82- 14.09 182,394 6.03- 10.91 62,948 25.45
Granted 116,660 35.50
Exercised 11,404 6.82- 14.09 9,871 6.03- 10.91
Canceled 993 6.82 12,067 6.03- 10.91 4,036 25.45
------- ------------- ------- ----------- ------- -------------
Balance, Dec. 31, 1993 62,028 6.82- 14.09 160,456 6.03- 10.91 175,572 25.45-$35.50
Granted 160,500 31.38- 36.25
Exercised 11,039 6.82- 14.09 16,884 6.03- 10.91 1,369 25.45
Canceled 8,947 6.03- 10.91 8,172 25.45- 35.50
------- ------------- ------- ----------- ------- -------------
Balance, Dec. 31, 1994 50,989 $6.82-$14.09 134,625 $6.03-$10.91 326,531 $25.45-$36.25
======= ============= ======= =========== ======= =============
</TABLE>
The Restricted Stock Plan, approved by the Corporation's shareholders
in May of 1990, provides for periodic awards of Cullen/Frost Common Stock
to key employees, subject to certain transfer restrictions and forfeiture
provisions. Under this plan, an aggregate of 100,000 shares of common
stock may be awarded. Shares of common stock totaling 21,137 and 17,687
were awarded during 1991 and 1989, respectively. In 1994, restricted stock
grants of 6,375 were awarded under the 1992 Stock Plan. In 1993,
restricted stock grants were awarded under the 1992 Stock Plan totaling
4,988 shares. Deferred compensation expense related to the restricted
stock was $111,000 in 1994, $117,000 in 1993, and $114,000 in 1992. The
market value of restricted shares at the date of grant is expensed over the
restriction period.
The Corporation has change-in-control agreements with 13 of its
executives. Under eight of these agreements, as revised, each covered
person could receive in the event of a change in control, one-half of his
base compensation upon the effectiveness of the change in control, and one
and one-half times up to 2.49 times (depending on the executive) of his
average annual W-2 compensation during the previous five years if such
person is constructively terminated or discharged for reasons other than
cause within two years following the change in control. Under the
remaining five agreements, each covered person could receive two times up
to 2.99 times (depending on the executive) of his average W-2 compensation
during the previous five years if such person is constructively terminated
or discharged for reasons other than cause within two years following the
change in control. These agreements, other than certain instances of stock
appreciation and SERPS, limit payments to avoid being considered "parachute
payments" as defined by the Internal Revenue Code. The maximum contingent
liability under these agreements approximated $6,884,000 at December 31,
1994.
The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" on January 1, 1993. The adoption of this statement did not have
a material impact on the financial position or operations of the
Corporation. The Financial Accounting Standards Board issued Statement of
Financial Standards No. 112, "Employers' Accounting for Post Employment
Benefits" effective for calendar year 1994. This statement requires
accrual accounting for certain benefits other than pensions that were
previously accounted for on a cash basis. The adoption of this statement
did not have a material effect on the Corporation's financial statements.
PAGE 36
<PAGE>
NOTE N- INCOME TAXES
Cullen/Frost adopted as of January 1, 1993, Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
As permitted by SFAS 109, Cullen/Frost elected not to restate the financial
statements for years prior to adoption. The cumulative effect of the
change increased net income $8,439,000 in 1993.
The Corporation recorded tax expense of $20,177,000 in 1994 compared
to a tax benefit of $735,000 in 1993. The effective tax rate in 1993 was
affected by the reduction of the valuation allowance for deferred tax
assets established at the beginning of 1993 by $13.6 million. The
reduction of the valuation allowance was based mainly on the level of
earnings obtained in 1993 and projected future earnings. In 1993, no
valuation allowance was considered necessary because Cullen/Frost had
$5,600,000 in recoverable taxes paid in prior years, the future reversal of
approximately $8,900,000 in taxable temporary differences, and future
income. At December 31, 1994, no valuation allowance for deferred tax
assets was necessary because they are supported by $20,900,000 in
recoverable taxes paid in prior years and the future reversal of
approximately $4,300,000 in taxable temporary differences. The Corporation
recorded an extraordinary credit of $6,497,000 for the year ended December 31,
1992. This credit represents the utilization of net operating loss
carryforwards for financial reporting purposes.
The following is an analysis of the Corporation's income taxes
included in the consolidated statements of operations for the years ended
December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
-------------- ------ ------ ------
<S> <C> <C> <C>
Current income tax expense $18,071 $5,629 $4,114
Deferred income tax 2,106 7,196 4,083
Decrease in deferred tax valuation
allowance --- (13,560) ---
------- ------- -------
Income tax expense (credit) as
reported $20,177 $ (735) $8,197
======= ======= =======
</TABLE>
The following is a reconciliation of the difference between income tax
expense as reported and the amount computed by applying the statutory
income tax rate to income before income taxes, extraordinary credit and
cumulative effect of accounting change:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1994 1993 1992
-------------- -------------------------------
<S> <C> <C> <C>
Income before income taxes, extraordinary credit,
and cumulative effect of accounting change $ 57,600 $38,062 $25,822
Statutory rate 35% 35% 34%
-------- ------- -------
Income tax expense at the statutory rate 20,160 13,322 8,780
Effect of tax-exempt interest (406) (574) (745)
Change in deferred tax valuation allowance --- (13,560) ---
Other 423 77 162
-------- ------- -------
Income tax expense (credit) as reported $ 20,177 $ (735) $ 8,197
======== ======== =======
</TABLE>
Cullen/Frost recognized a tax benefit of $1,413,000 related to
securities transactions in 1994. Cullen/Frost recognized a tax expense of
$501,000 and a tax benefit of $79,000 related to securities transactions in
1993 and 1992, respectively.
PAGE 37
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1994 and
1993 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
-------------- -------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 9,010 $10,452
Other real estate and repossessed collateral 1,844 3,964
Building modification reserve 1,592 1,592
Gain on sale of assets 1,402 1,416
Amortization of intangibles 2,633 1,316
Net occupancy restructuring 1,988 2,334
Unrealized loss on securities available for sale 1,388 ---
Other 1,338 2,943
------- -------
Total gross deferred tax assets 21,195 $24,017
Deferred tax liabilities:
Depreciation and amortization $ (882) $(2,129)
Prepaid expenses (631) (880)
Unrealized gain on securities available for sale --- (4,913)
Other (462) (1,070)
------- --------
Total gross deferred tax liabilities (1,975) (8,992)
------- --------
Net deferred tax asset $19,220 $15,025
======= ========
</TABLE>
The components of the provision for deferred income taxes for the year
ended December 31, 1992 are as follows:
<TABLE>
<CAPTION>
(in thousands)
-------------- 1992
------
<S> <C>
Deferred federal income taxes:
Provision for possible loan losses $3,925
Gain on sale of assets 152
Contributions (89)
Retirement plan contributions 331
Depreciation and amortization (309)
Repossessed collateral adjustments 73
------
Provision for deferred income taxes $4,083
=======
</TABLE>
NOTE O- NON-INTEREST EXPENSE
Significant components of other non-interest expense for the years
ended December 31, 1994, 1993 and 1992 are presented below:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
Other Non-Interest Expense (in thousands) 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outside computer service $ 8,918 $10,611 $ 7,403
FDIC insurance 6,926 6,793 6,115
Other professional expenses 2,920 3,953 2,852
Intangible amortization 4,381 3,865 270
Amortization of goodwill 3,246 3,012 430
Stationery printing and supplies 2,722 2,890 2,349
Attorneys' expenses 1,683 1,787 2,131
Other 34,326 30,827 31,449
------- ------- -------
Total $65,122 $63,738 $52,999
======= ======= =======
</TABLE>
PAGE 38
<PAGE>
NOTE P- CASH FLOW DATA
For purposes of reporting cash flow, cash and cash equivalents include
the following:
<TABLE>
<CAPTION>
December 31
------------------------------
(in thousands) 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $365,792 $334,564 $296,270
Time deposits 12 147 153
Federal funds sold and securities purchased
under resale agreements 167,550 250,250 282,630
-------- -------- --------
$533,354 $584,961 $579,053
======== ======== ========
</TABLE>
Generally, Federal funds are sold for one-day periods and securities
purchased under resale agreements are held for less than thirty-five days.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
(in thousands) 1994 1993 1992
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid:
Interest $ 67,533 $ 61,633 $ 76,758
Income Taxes 17,020 6,695 2,675
Non-cash items:
Loans originated to facilitate the sale of
foreclosed assets 1,717 5,275 9,037
Loan foreclosures (including in-substance
foreclosures) 1,777 1,440 10,934
Conversion of long-term debt to common stock 10,000
Swap of C/F Dallas for Texas Commerce Bank-
Corpus Christi 2,599
</TABLE>
NOTE Q-FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments" requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. SFAS
107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amounts reported on the
balance sheet for cash and short-term investments approximate their fair
value.
Interest-bearing deposits in other banks: The carrying amount
reported on the balance sheet approximates the estimated fair value.
Securities: Estimated fair values are based on quoted market prices,
if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair
value for other loans is estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. The carrying amount of accrued
interest approximated its fair value.
Deposits: SFAS 107 defines the fair value of demand deposits as the
amount payable on demand, and prohibits adjusting fair value for any
deposit base intangible. The deposit base intangible is not considered in
the fair value amounts. The carrying amounts for variable-rate money
market accounts approximate their fair value. Fixed-term certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities.
Short-term borrowings: The carrying amount reported in the
consolidated balance sheet approximates the estimated fair value.
Loan commitments, standby and commercial letters of credit: The
Corporation's lending commitments have variable interest rates and "escape"
clauses if the customer's credit quality deteriorates. Therefore the
amounts committed approximate fair value.
Interest rate swaps: The estimated fair value is based on the cost to
enter into a similar agreement.
PAGE 39
<PAGE>
The estimated fair values of the Corporation's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------------
1994 1993
--------------------------------------------------------------- ------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 533,342 $ 533,342 $ 584,814 $ 584,814
Interest-bearing deposits in
other banks 12 12 147 147
Securities 1,594,042 1,524,598 1,611,871 1,628,188
Loans 1,477,969 1,453,328 1,247,809 1,258,000
Financial liabilities:
Deposits 3,087,962 3,081,447 3,149,428 3,150,540
Short-term borrowings 370,235 370,235 166,519 166,519
Off-balance-sheet instruments:
Loan commitments 504,183 504,183 381,386 381,386
Standby letters of credit 43,035 43,035 31,322 31,322
Interest rate swaps --- 492 --- ---
</TABLE>
NOTE R - DERIVATIVE FINANCIAL INSTRUMENTS
During 1994, the Corporation entered into several off-balance sheet
interest rate swaps to hedge its interest rate risk by converting fixed rate
loans into synthetic variable rate instruments. At December 31, 1994, the
Corporation had five interest rate swaps each as a hedge against a specific
fixed rate loan, with an original total notional amount of $39.8 million. These
swaps are all amortizing swaps that amortize in conjunction with the loans which
have lives ranging from five to ten years. The net amount payable or
receivable from interest-rate swap agreements is accrued as an adjustment
to interest income and was not material in 1994.
The Corporation's current credit exposure on swaps is limited to the
value of interest-rate swaps that have become favorable to the Corporation.
NOTE S - CONTINGENCIES
Certain subsidiaries of Cullen/Frost are defendants in various matters
in litigation which have arisen in the normal course of conducting a
commercial banking business. In the opinion of management, the disposition
of such pending litigation will not have a material effect on
Cullen/Frost's consolidated financial position.
NOTE T - RESTRUCTURING CHARGES
During 1993, the Corporation recorded restructuring charges of $10.3
million. Included in the charges were $6.7 million related to downsizing
office space used to provide banking services, $1.9 million for a
retirement incentive program and $1.7 million in related job eliminations
and restructurings. Of the $6.7 million net occupancy restructuring
charge, a portion ($2.4 million) was for leased space and the remainder for
valuations on owned buildings resulting from the decision to sell. At
December 31, 1994, the accrual for leased space is $2.0 million. The
reduction is due primarily to lease payments, net of sub-lease payments,
that were applied against the restructuring accrual. The Corporation has
three buildings held for sale with a net carrying value of $3.4 million.
These buildings have been written down to their net realizable values. The
Corporation has active marketing plans in place to sell these buildings.
The retirement incentive program was paid and completed in 1993. The job
restructurings were paid and completed in 1994.
During 1994, the Corporation recorded an additional $830,000
restructuring charge, primarily an adjustment to market valuations
associated with banking premises held for sale.
PAGE 40
<PAGE>
NOTE U - CONDENSED PARENT CORPORATION FINANCIAL STATEMENTS
Condensed financial information of the parent Corporation as of
December 31, 1994 and 1993 and for each of the three years in the period
ending December 31, 1994 follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Statement of Operations (in thousands) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $21,373 $21,692 $ 3,388
Interest and other 537 220 631
------- ------- -------
Total Income 21,910 21,912 4,019
Expenses:
Salaries and employee benefits 2,450 812 897
Interest --- 111 975
Other 2,025 1,553 1,679
------- ------- -------
Total Expenses 4,475 2,476 3,551
Income Before Income Tax Credits
and Equity in Undistributed Net
Income of Subsidiaries 17,435 19,436 468
Income tax credits 678 22,351 3,388
Equity in undistributed net income
of subsidiaries 19,310 5,449 20,266
------- -------- -------
Net Income $37,423 $47,236 $24,122
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------
Balance Sheets (in thousands) 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and time deposits $ 251 $ 180
Securities purchased under resale agreements 18,400 2,300
Loans to non-bank subsidiaries 1,440 2,028
Investments in subsidiaries 280,894 272,047
Other 1,495 2,484
-------- --------
Total Assets $302,480 $279,039
======== ========
Liabilities
Other $ 7,043 $ 5,506
-------- --------
Total Liabilities 7,043 5,506
Shareholders' Equity 295,437 273,533
-------- --------
Total Liabilities and Shareholders' Equity $302,480 $279,039
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Statements of Cash Flows (in thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 37,423 $ 47,236 $ 24,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiaries (19,310) (5,449) (20,266)
Decrease (increase) in interest receivable (59) 189 (136)
Decrease in interest payable (2) (83) (3)
Net change in other liabilities and assets 2,954 (19,199) (1,007)
-------- ------- -------
Net cash provided by operating activities 21,006 22,694 2,710
Investing Activities
Capital contributions to subsidiaries (1,239) (33,025) (625)
Net (increase) decrease in loans 758 (132) 263
-------- ------- -------
Net cash used by investing activities (481) (33,157) (362)
Financing Activities
Proceeds from employee stock purchase plans and options 3,061 2,154 3,875
Cash dividends (7,415) (1,650)
-------- ------- -------
Net cash (used)provided by financing activities (4,354) 504 3,875
-------- ------- -------
Increase (Decrease) in cash and cash equivalents 16,171 (9,959) 6,223
Cash and equivalents at beginning of year 2,480 12,439 6,216
-------- ------- -------
Cash and cash equivalents at end of year $ 18,651 $ 2,480 $ 12,439
======== ======== ========
</TABLE>
PAGE 41
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CULLEN/FROST BANKERS, INC.
We have audited the accompanying consolidated balance sheets of
Cullen/Frost Bankers, Inc. and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cullen/Frost Bankers, Inc. and Subsidiaries at December 31, 1994 and 1993
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes A and N to the financial statements, in 1993 the
Corporation changed its method of accounting for certain investments in
debt securities and changed its method of accounting for income taxes.
ERNST & YOUNG LLP
San Antonio, Texas
January 31, 1995
PAGE 42
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATISTICS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands)
The following unaudited schedules and statistics are presented for
additional information and analysis.
1994/1993
--------------------------------
Increase (Decrease) Total
Due to Change in or Net
-------------------
Average Average Increase
Rate/Volume Analysis Rate Balance (Decrease)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in interest earned on:
Time deposits $ 1 $ (3) $ (2)
Securities:
U.S. Treasury (338) (9,885) (10,223)
U.S. Government agencies and corporations (4,714) 20,512 15,798
States and political subdivisions
Tax-exempt (37) (498) (535)
Taxable (11) (79) (90)
Other 208 (1,382) (1,174)
Federal funds sold and securities purchased
under resale agreements 1,664 (5,232) (3,568)
Loans 1,545 13,898 15,443
--------- --------- --------
Total (1,682) 17,331 15,649
Changes in interest paid on:
Savings, Interest-on-Checking 1,289 (874) 415
Money market deposits accounts (1,965) (318) (2,283)
Time accounts and public funds (3,198) 1,149 (2,049)
Federal funds purchased and securities sold
under repurchase agreements (1,976) (1,886) (3,862)
Long-term notes payable and other borrowings 205 205 410
--------- --------- --------
Total (5,645) (1,724) (7,369)
--------- --------- --------
Changes in net interest income $ (7,327) $ 15,607 $ 8,280
========= ========= ========
The allocation of the rate/volume variance has been made on a pro-rata
basis assuming absolute values. The above information is shown on a
taxable-equivalent basis assuming a 35 percent tax rate for 1994 and 1993
and a 34 percent tax rate in 1992.
</TABLE>
<TABLE>
<CAPTION>
1993/1992
--------------------------------
Increase (Decrease) Totsl
Due to Change in or Net
--------------------
Average Average Increase
Rate/Volume Analysis Rate Balance (Decrease)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in interest earned on:
Time deposits $ (2) $ (2) $ (4)
Securities:
U.S. Treasury (6,386) (6,395) (12,781)
U.S. Government agencies and corporations (16,316) 24,759 8,443
States and political subdivisions
Tax-exempt 63 (198) (135)
Taxable 173 (814) (641)
Other (527) (2,437) (2,964)
Federal funds sold and securities purchased
under resale agreements (885) 1,888 1,003
Loans (4,163) 10,634 6,471
--------- --------- ---------
Total 28,043 27,435 (608)
Changes in interest paid on:
Savings, Interest-on-Checking 3,158 (4,512) (1,354)
Money market deposits accounts 3,049 (1,637) 1,412
Time accounts and public funds 8,989 1,681 10,670
Federal funds purchased and securities sold
under repurchase agreements 614 (779) (165)
Long-term notes payable and other borrowings 71 897 968
--------- --------- ---------
Total 15,881 (4,350) 11,531
--------- --------- ---------
Changes in net interest income $(12,162) $ 23,085 $ 10,923
========= ========= =========
The allocation of the rate/volume variance has been made on a pro-rata
basis assuming absolute values. The above information is shown on a
taxable-equivalent basis assuming a 35 percent tax rate in 1994 and 1993
and a 34 percent tax rate in 1992 and 1991.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------
Due in After One, After
One Year but Within Five
Loan Maturity and Sensitivity or Less Five Years Years Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate construction and land loans $ 53,968 $ 16,321 $ 5,745 $ 76,034
Other real estate loans 86,221 157,408 142,850 386,479
All other loans 280,717 134,701 24,351 439,769
-------- -------- -------- --------
Total $420,906 $308,430 $172,946 $902,282
======== ======== ======== ========
Loans with fixed interest rates $136,900 $108,925 $113,947 $359,772
Loans with floating interest rates 284,006 199,505 58,999 542,510
-------- -------- -------- --------
Total $420,906 $308,430 $172,946 $902,282
======== ======== ======== ========
Loans for 1-4 family housing totaling $248,118,000 and consumer loans
totaling $331,056,000 are not included in the amounts in the table.
</TABLE>
PAGE 43
<PAGE>
<TABLE>
<CAPTION>
Maturity Distribution and Securities Portfolio Yields
(dollars in thousands) December 31, 1994
------------------------------------------------------------------------------------------
Maturity
----------------------------------------------------------------------
Within 1 Year 1-5 Years 5-10 Years
--------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Amount Average Yield Amount Average Yield Amount Average Yield
-------- ------------- -------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury $ 660 5.36%
U.S. Government
agencies and
corporations --- --- $ 169 5.31% $523,009 5.66%
States and
political
subdivisions 50 4.74 $ 400 4.86 805 6.09
Other --- --- 5,987 5.28 25 7.50
-------- ----- ------- ---- -------- ----
Total securities
held to maturity $ 710 5.32% $ 6,556 5.26% $523,839 5.66%
======== ===== ======= ==== ======== ====
Available for sale:
U.S. Treasury $240,965 5.21%
U.S. Government
agencies and
corporations --- --- $ 148 8.42% $ 44,877 7.51%
Other
-------- ----- ------- ---- -------- ----
Total securities
available for
sale $240,965 5.21% $ 148 8.42% $ 44,877 7.51%
======== ==== ======= ==== ======== ====
Weighted average yields have been computed on a fully taxable-equivalent
basis assuming a tax rate of 35%.
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution and Securities Portfolio Yields
(dollars in thousands) December 31, 1994
-----------------------------------------------------------------
Maturity
---------------------------------------------
After 10 Years Total Carrying Amount
--------------------- ----------------------
Weighted Weighted
Amount Average Yield Amount Average Yield
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury $ 660 5.36%
U.S. Government
agencies and
corporations $515,712 6.06% 1,038,890 5.86
States and
political
subdivisions 4,428 6.36 5,683 6.20
Other 6,012 5.29
-------- ----- --------- ----
Total securities
held to maturity $520,140 6.07% $1,051,245* 5.86%
======== ===== ========== ====
Available for sale:
U.S. Treasury $ 240,965 5.21%
U.S. Government
agencies and
corporations $241,155 6.84% 286,180 6.95
Other 15,652 6.11 15,652 6.11
-------- ----- --------- ----
Total securities
available for
sale $256,807 6.80% $ 542,797* 6.15%
======== ==== ========= ====
Weighted average yields have been computed on a fully taxable-equivalent
basis assuming a tax rate of 35%.
* Included in the totals are mortgage-backed securities and collateralized
mortgage obligations of $1,336,263 which are included in maturity
categories based on their stated maturity date.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
Federal Funds Purchased and Securities ----------------------------------
Sold Under Repurchase Agreements 1994 1993 1992
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $370,235 $166,519 $122,221
Maximum month-end balance 370,235 168,198 126,230
For the year:
Average daily balance 191,611 131,096 102,550
Average interest rate 3.74% 2.52% 3.06%
Weighted average daily interest rate 4.06 2.86 3.32
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1994 1993
Remaining Maturity of Private ------------------- -------------------
Certificates of Deposit Percentage Percentage
of $100,000 or More Amount of Total Amount of Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months or less $ 46,581 12.6% $ 58,314 16.7%
After three, within six months 129,560 34.9 123,486 35.4
After six, within twelve months 120,261 32.4 108,643 31.1
After twelve months 74,337 20.1 58,660 16.8
-------- ----- -------- -----
Total $370,739 100.0% $349,103 100.0%
======== ===== ======== =====
Percentage of total private time deposits 17.1% 16.0%
Other time deposits of $100,000 or more were $39,512,000 at December 31,
1994. Of this amount 40.1 percent matures within three months, 10.6
percent matures between three and six months and the remainder matures
between six months and one year.
</TABLE>
PAGE 44
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
Three Months Ended 1994
(in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $47,741 $50,037 $52,670 $55,061
Interest expense 14,793 16,179 17,867 20,323
Net interest income 32,948 33,858 34,803 34,738
Provision (credit) for possible loan losses --- --- --- ---
Gain (loss) on securities transactions 6 (446) 51 (3,547)
Non-interest income 19,336 18,951 21,453 17,075
Restructuring costs --- --- 830 ---
Non-interest expense 38,420 38,606 41,484 37,052
Income before income taxes (credits) and
cumulative effect of accounting change 13,864 14,203 14,722 14,761
Income taxes (credits) 4,766 4,961 5,278 5,172
Net income 9,098 9,242 9,494 9,589
Per share
Income before cumulative effect of
accounting change--
Primary .81 .82 .84 .85
Fully diluted .81 .82 .84 .85
Net income--
Primary .81 .82 .84 .85
Fully diluted .81 .82 .84 .85
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended 1993
(in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $46,155 $48,985 $47,095 $47,384
Interest expense 15,175 16,151 15,205 15,262
Net interest income 30,980 32,834 31,890 32,122
Provision (credit) for possible loan losses (590) --- (2,251) (3,244)
Gain (loss) on securities transactions 8 (3) 3 1,425
Non-interest income 17,683 18,822 18,846 20,878
Restructuring costs 1,958 -- 591 7,736
Non-interest expense 41,308 40,711 40,850 49,209
Income before income taxes (credits) 7,945 10,945 12,137 7,035
Income taxes (credits) 160 218 160 (1,273)
Cumulative effect of accounting change 8,439
Net income 16,224 10,727 11,977 8,308
Per share
Income before cumulative effect of
accounting change-
Primary .71 .96 1.07 .74
Fully diluted .71 .96 1.07 .74
Net income
Primary 1.47 .96 1.07 .74
Fully diluted 1.46 .96 1.07 .74
</TABLE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock trades on The NASDAQ Stock Market under the
symbol: CFBI. The number of record holders of the common stock at February
21, 1995 was 2,548.
<TABLE>
<CAPTION>
1994 1993
------------- ----------------
Market Price (per share)* High Low High Low
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $36.25 $32.75 $40.25 $29.50
Second Quarter 39.25 33.75 39.75 31.00
Third Quarter 39.00 35.25 39.25 33.75
Fourth Quarter 38.13 28.50 38.75 30.25
*Market prices have not been restated for effect of the ten percent stock
dividend.
</TABLE>
Market prices shown above are high and low sales prices as reported
through NASDAQ National Market System. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and represent
actual transactions.
<TABLE>
<CAPTION>
Cash Dividends (per share) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $.15 --
Second Quarter .15 --
Third Quarter .15 --
Fourth Quarter .22 $.15
----- -----
Total $.67 $.15
===== =====
</TABLE>
During the fourth quarter of 1993 the Company resumed its quarterly
dividend and paid $.15 per share on December 15, 1993. See "Capital"
section (page 22) in the Financial Review for further discussion.
PAGE 45
<PAGE>
SELECTED FINANCIAL DATA
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1994 1993 1992
---------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 3,793,720 $ 3,639,047 $ 3,150,871
Long-term notes payable --- --- 13,400
Shareholders' equity 295,437 273,533 206,144
Average shareholders' equity to average
total assets 7.85% 7.08% 6.29%
Tier 1 capital ratio (1992 rules) 14.44 14.23 15.66
Total capital ratio (1992 rules) 15.69 15.49 17.52
Per Common Share Data
Net income (loss)** $ 3.33 $ 4.24 $ 2.26
Cash dividends paid .67 .15 -
Shareholders' equity 26.56 24.85 19.80
Loan Performance Indicators
Non-performing assets $ 19,938 $ 31,110 $ 51,303
Non-performing assets to:
Total loans plus foreclosed assets 1.34% 2.47% 4.94%
Total assets .53 .85 1.63
Allowance for possible loan losses $ 25,741 $ 26,298 $ 31,897
Allowance for possible loan losses
to period-end loans 1.74% 2.11% 3.15%
Net loan charge-offs (recoveries) $ (2,127) $ (486) $ 9,640
Net loan charge-offs (recoveries) to
average loans (.16)% (.04)% .94%
Common Stock Data
Common shares outstanding at period end 11,123,062 11,009,198 10,412,184
Weighted average common and common
equivalent shares outstanding 11,222,911 11,150,788 10,974,329
Dividends as a percentage of net income 20.12% 3.54% --
Non-Financial Data
Number of employees 1,862 1,877 1,754
Shareholders of record 2,553 2,644 2,824
*Risk-based capital ratios are effective for years beginning December 31, 1990.
** 1993 primary and fully diluted earnings per share before cumulative effect of
an accounting change was $3.48. 1992 primary and fully diluted earnings per
share before extraordinary credit was $1.66. Fully diluted net income per share
for 1992 was $2.25.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1991 1990 1989
----------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 3,078,986 $ 3,254,744 $ 3,505,038
Long-term notes payable 14,668 16,280 17,450
Shareholders' equity 176,222 173,442 179,313
Average shareholders'equity to average
total assets 5.67% 5.42% 5.14%
Tier 1 capital ratio (1992 rules) 12.98 10.93 *
Total capital ratio (1992 rules) 15.04 13.05 *
Per Common Share Data
Net income (loss)** $ .02 $ (.85) $ .28
Cash dividends paid - - -
Shareholders' equity 17.55 17.79 18.92
Loan Performance Indicators
Non-performing assets $ 100,642 $ 121,865 $ 131,733
Non-performing assets to:
Total loans plus foreclosed assets 8.85% 9.11% 9.24%
Total assets 3.27 3.74 3.76
Allowance for possible loan losses $ 42,387 $ 45,604 $ 42,282
Allowance for possible loan losses
to period-end loans 3.95% 3.60% 3.09%
Net loan charge offs (recoveries) $ 13,237 $ 28,671 $ 28,132
Net loan charge-offs (recoveries) to
average loans 1.15% 2.18% 2.00%
Common Stock Data
Common shares outstanding at period end 10,043,844 9,751,234 9,479,026
Weighted average common and common
equivalent shares outstanding 10,075,263 9,651,942 9,516,321
Dividends as a percentage of net income -- -- --
Non-Financial Data
Number of employees 1,737 1,755 1,869
Shareholders of record 3,547 4,136 4,088
*Risk-based capital ratios are effective for years beginning December 31, 1990.
** 1993 primary and fully diluted earnings per share before cumulative effect of
an accounting change was $3.48. 1992 primary and fully diluted earnings per
share before extraordinary credit was $1.66. Fully diluted net income per share
for 1992 was $2.25.
</TABLE>
<TABLE>
<CAPTION>
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
Bank Subsidiaries
(in thousands)
---------------------------------------------------------------------------------------
December 31, 1994
----------------------------------
Total Total Total
Assets Loans Deposits
---------- ---------- ----------
<S> <C> <C> <C>
Frost National Bank $3,683,317 $1,424,062 $2,970,245
San Antonio, Houston, Austin and Corpus Christi
Main Office:
P. O. Box 1600, 100 West Houston Street
San Antonio, Texas 78296 (210)220-4011
United States National Bank 138,222 53,703 125,904
P. O. Box 179 2201 Market Street
Galveston, Texas 77553 (409)763-1151
</TABLE>
PAGE 46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $106,252 $ 90,756 $ 84,074
Securities 95,109 91,145 99,188
Time deposits 2 4 8
Federal funds sold and securities purchased
under resale agreements 4,146 7,714 6,711
-------- -------- --------
Total Interest Income 205,509 189,619 189,981
Interest expense:
Deposits 61,996 58,079 68,807
Federal funds purchased and securities sold
under repurchase agreements 7,166 3,304 3,139
Long-term notes payable --- 410 1,378
Other borrowings --- --- ---
-------- -------- --------
Total Interest Expense 69,162 61,793 73,324
-------- -------- --------
Net Interest Income 136,347 127,826 116,657
Provision (credit) for possible loan losses --- (6,085) (850)
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 136,347 133,911 117,507
Non-interest income:
Trust department 29,529 26,278 21,861
Service charges on deposit accounts 25,890 25,386 21,958
Other service charges, collection and
exchange charges, commissions and fees 11,658 9,889 7,888
Net gain (loss) on securities transactions (4,038) 1,433 (232)
Other 13,776 13,243 10,338
-------- ------- -------
Total Non-Interest Income 76,815 76,229 61,813
Non-interest expense:
Salaries and wages 52,986 53,654 46,184
Pension and other employee benefits 9,910 12,052 9,746
Net occupancy of banking premises 15,777 20,749 16,963
Furniture and equipment 10,937 10,155 8,295
Provision for real estate losses --- 1,445 19,311
Restructuring costs 830 10,285 ---
Other 65,122 63,738 52,999
-------- ------- -------
Total Non-Interest Expense 155,562 172,078 153,498
-------- ------- -------
Income (Loss) Before
Income Taxes (Credits), Extraordinary
Credit and Cumulative Effect of
Accounting Change 57,600 38,062 25,822
Income Taxes 20,177 (735) 8,197
-------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change 37,423 38,797 17,625
Extraordinary Credit-income tax benefit --- --- 6,497
Cumulative effect of change in accounting
for income taxes --- 8,439 ---
-------- ------- -------
Net Income (Loss) $ 37,423 $47,236 $24,122
======== ======= =======
Net income (loss) per common share $ 3.33 $ 4.24 $ 2.26
======== ======= =======
Return on average assets 1.02% 1.34% .79%
Return on average equity 13.04 19.00 12.56
</TABLE>
PAGE 47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $108,617 $134,217 $150,550
Securities 111,132 115,452 101,424
Time deposits 13 82 1,814
Federal funds sold and securities purchased
under resale agreements 11,478 23,130 45,578
-------- -------- --------
Total Interest Income 231,240 272,881 299,366
Interest expense:
Deposits 115,286 147,399 160,536
Federal funds purchased and securities sold
under repurchase agreements 5,913 13,805 27,892
Long-term notes payable 1,502 1,630 1,709
Other borrowings 25 3 2,269
-------- -------- --------
Total Interest Expense 122,726 162,837 192,406
-------- -------- --------
Net Interest Income 108,514 110,044 106,960
Provision (credit) for possible loan losses 10,020 31,993 28,902
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 98,494 78,051 78,058
Non-interest income:
Trust department 20,030 18,777 16,211
Service charges on deposit accounts 18,915 15,146 13,290
Other service charges, collection and
exchange charges, commissions and fees 8,288 7,304 6,293
Net gain (loss) on securities transactions 2,022 129 516
Other 8,227 9,236 14,170
------- ------- -------
Total Non-Interest Income 57,482 50,592 50,480
Non-interest expense:
Salaries and wages 44,154 43,019 43,361
Pension and other employee benefits 9,058 9,148 8,567
Net occupancy of banking premises 16,460 16,690 16,080
Furniture and equipment 7,726 8,067 8,690
Provision for real estate losses 20,799 11,172 8,131
Restructuring costs -- -- --
Other 56,941 48,531 40,836
------- ------- -------
Total Non-Interest Expense 155,138 136,627 125,665
------- ------- -------
Income (Loss) Before Income Taxes
(Credits), Extraordinary Credit and
Cumulative Effect of Accounting Change 838 (7,984) 2,873
Income Taxes (credits) 633 236 200
------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change 205 (8,220) 2,673
Extraordinary Credit-income tax benefit -- -- --
Cumulative effect of change in accounting for
income taxes -- -- --
------- ------- -------
Net Income (Loss) $ 205 $(8,220) $ 2,673
======== ======= =======
Net income (loss) per common share $ .02 $ (.85) $ .28
======== ======= =======
Return on average assets .01% N/M .08%
Return on average equity .12 N/M 1.51
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
-------------------------------
1994
-------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 60 $ 2 3.43%
Securities:
U.S. Treasury 273,556 12,163 4.45
U.S. Government agencies and corporations 1,361,893 80,953 5.94
States and political subdivisions:
Tax-exempt 5,860 558 9.52
Taxable 70 5 7.13
Other 29,156 1,618 5.55
---------- -------
Total securities 1,670,535 95,297 5.70
Federal funds sold and securities purchased
under resale agreements 108,762 4,146 3.81
Loans, net of unearned discount 1,331,793 106,706 8.01
---------- -------
Total Earning Assets and Average Rate Earned 3,111,150 206,151 6.62
Cash and due from banks 341,547
Allowance for possible loan losses (26,142)
Banking premises and equipment 89,430
Accrued interest and other assets 142,202
----------
Total Assets $3,658,187
==========
Liabilities:
Demand deposits:
Commercial and individual $ 673,764
Correspondent banks 124,416
Public funds 38,531
----------
Total demand deposits 836,711
Time deposits:
Savings and Interest-on-Checking 796,178 14,425 1.81
Money market deposit accounts 547,237 15,709 2.87
Time accounts 854,601 29,364 3.44
Public funds 86,132 2,498 2.90
---------- -------
Total time deposits 2,284,148 61,996 2.71
----------
Total deposits 3,120,859
Federal funds purchased and securities sold
under repurchase agreements 191,611 7,166 3.74
Long-term notes payable
Other borrowings
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,475,759 69,162 2.79
------- ----
Accrued interest and other liabilities 58,712
----------
Total Liabilities 3,371,182
Shareholders' Equity 287,005
----------
Total Liabilities and Shareholders' Equity $3,658,187
==========
Net interest income $136,989
========
Net interest spread 3.83%
====
Net interest income to total average earning assets 4.40%
====
Net interest income to total average earning assets-
with federal funds net 4.56%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1993
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 147 $ 4 2.68%
Securities:
U.S. Treasury 495,760 22,386 4.52
U.S. Government agencies and corporations 1,021,083 65,155 6.38
States and political subdivisions:
Tax-exempt 11,078 1,093 9.86
Taxable 1,148 95 8.25
Other 54,333 2,792 5.14
---------- --------
Total securities 1,583,402 91,521 5.78
Federal funds sold and securities purchased
under resale agreements 255,613 7,714 3.02
Loans, net of unearned discount 1,158,057 91,263 7.88
---------- --------
Total Earning Assets and Average Rate Earned 2,997,219 190,502 6.35
Cash and due from banks 315,354
Allowance for possible loan losses (31,127)
Banking premises and equipment 87,085
Accrued interest and other assets 143,632
----------
Total Assets $3,512,163
==========
Liabilities:
Demand deposits:
Commercial and individual $ 631,363
Correspondent banks 143,008
Public funds 42,075
----------
Total demand deposits 816,446
Time deposits:
Savings and Interest-on-Checking 750,386 14,840 1.98
Money market deposit accounts 534,814 13,426 2.51
Time accounts 907,125 27,693 3.05
Public funds 74,979 2,120 2.83
---------- -------
Total time deposits 2,267,304 58,079 2.56
---------- -------
Total deposits 3,083,750
Federal funds purchased and securities sold
under repurchase agreements 131,096 3,304 2.52
Long-term notes payable 4,075 380 9.33
Other borrowings 508 30 5.91
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,402,983 61,793 2.57
------- ----
Accrued interest and other liabilities 44,184
----------
Total Liabilities 3,263,613
Shareholders' Equity 248,550
----------
Total Liabilities and Shareholders' Equity $3,512,163
==========
Net interest income $128,709
========
Net Interest spread 3.78%
====
Net interest income to total average earning assets 4.29%
====
Net interest income to total average earning assets-
with federal funds net 4.49%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
PAGE 48
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1992
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 203 $ 8 4.10%
Securities:
U.S. Treasury 621,460 35,167 5.66
U.S. Government agencies and corporations 669,786 56,712 8.47
States and political subdivisions:
Tax-exempt 13,126 1,228 9.43
Taxable 11,600 736 6.35
Other 100,839 5,756 5.71
---------- --------
Total securities 1,416,811 99,599 7.03
Federal funds sold and securities purchased
under resale agreements 195,398 6,711 3.43
Loans, net of unearned discount 1,024,885 84,792 8.27
---------- --------
Total Earning Assets and Average Rate Earned 2,637,297 191,110 7.25
Cash and due from banks 262,995
Allowance for possible loan losses (36,793)
Banking premises and equipment 80,794
Accrued interest and other assets 110,951
----------
Total Assets $3,055,244
==========
Liabilities:
Demand deposits:
Commercial and individual $ 495,199
Correspondent banks 136,487
Public funds 33,842
----------
Total demand deposits 665,528
Time deposits:
Savings and Interest-on-Checking 541,191 13,486 2.49
Money market deposit accounts 477,877 14,838 3.11
Time accounts 946,480 36,775 3.89
Public funds 79,621 3,708 4.66
---------- --------
Total time deposits 2,045,169 68,807 3.36
----------
Total deposits 2,710,697
Federal funds purchased and securities sold
under repurchase agreements 102,550 3,139 3.06
Long-term notes payable 14,568 1,378 9.46
Other borrowings
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,162,287 73,324 3.39
Accrued interest and other liabilities 35,398 -------- ----
----------
Total Liabilities 2,863,213
Shareholders' Equity 192,031
----------
Total Liabilities and Shareholders' Equity $3,055,244
==========
Net interest income $117,786
========
Net Interest spread 3.86%
====
Net interest income to total average earning assets 4.47%
====
Net interest income to total average earning assets-
with federal funds net 4.65%
====
The above information is shown on a taxable-equivalent basis assuming
a 35 percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1991
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 212 $ 13 6.30%
Securities:
U.S. Treasury 352,698 25,486 7.23
U.S. Government agencies and corporations 818,174 73,899 9.03
States and political subdivisions:
Tax-exempt 37,742 3,469 9.19
Taxable 16,717 1,356 8.11
Other 109,231 8,082 7.40
---------- --------
Total securities 1,334,562 112,292 8.41
Federal funds sold and securities purchased
under resale agreements 197,467 11,478 5.81
Loans, net of unearned discount 1,149,233 109,597 9.54
---------- --------
Total Earning Assets and Average Rate Earned 2,681,474 233,380 8.70
Cash and due from banks 250,412
Allowance for possible loan losses (44,483)
Banking premises and equipment 74,014
Accrued interest and other assets 143,236
----------
Total Assets $3,104,653
==========
Liabilities:
Demand deposits:
Commercial and individual $ 457,266
Correspondent banks 111,542
Public funds 30,631
----------
Total demand deposits 599,439
Time deposits:
Savings and Interest-on-Checking 473,485 19,377 4.09
Money market deposit accounts 431,141 20,077 4.66
Time accounts 1,145,725 68,528 5.98
Public funds 108,130 7,304 6.75
---------- -------
Total time deposits 2,158,481 115,286 5.34
----------
Total deposits 2,757,920
Federal funds purchased and securities sold
under repurchase agreements 116,281 5,913 5.08
Long-term notes payable 16,064 1,502 9.35
Other borrowings 266 25 9.54
---------- -------
Total Interest-Bearing Funds and
Average Rate Paid 2,291,092 122,726 5.35
------- ----
Accrued interest and other liabilities 38,123
----------
Total Liabilities 2,928,654
Shareholders' Equity 175,999
----------
Total Liabilities and Shareholders' Equity $3,104,653
==========
Net interest income $110,654
========
Net Interest spread 3.35%
====
Net interest income to total average earning assets 4.13%
====
Net interest income to total average earning assets-
with federal funds net 4.31%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1990
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 878 $ 82 9.34%
Securities:
U.S. Treasury 211,096 18,384 8.71
U.S. Government agencies and corporations 874,229 82,118 9.39
States and political subdivisions:
Tax-exempt 54,078 4,935 9.13
Taxable 17,510 1,417 8.09
Other 119,022 10,243 8.61
---------- --------
Total securities 1,275,935 117,097 9.18
Federal funds sold and securities purchased
under resale agreements 281,628 23,130 8.21
Loans, net of unearned discount 1,314,907 135,451 10.30
---------- --------
Total Earning Assets and Average Rate Earned 2,873,348 275,760 9.60
Cash and due from banks 257,929
Allowance for possible loan losses (42,608)
Banking premises and equipment 71,902
Accrued interest and other assets 128,539
----------
Total Assets $3,289,110
==========
Liabilities:
Demand deposits:
Commercial and individual $ 455,325
Correspondent banks 100,542
Public funds 20,481
----------
Total demand deposits 576,348
Time deposits:
Savings and Interest-on-Checking 432,280 20,933 4.84
Money market deposit accounts 435,332 21,703 4.99
Time accounts 1,290,617 94,986 7.36
Public funds 133,138 9,777 7.34
---------- --------
Total time deposits 2,291,367 147,399 6.43
----------
Total deposits 2,867,715
Federal funds purchased and securities sold
under repurchase agreements 181,620 13,805 7.60
Long-term notes payable 17,424 1,630 9.35
Other borrowings 37 3 8.28
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,490,448 162,837 6.54
Accrued interest and other liabilities 44,003 -------- ----
----------
Total Liabilities 3,110,799
Shareholders' Equity 178,311
----------
Total Liabilities and Shareholders' Equity $3,289,110
==========
Net interest income $112,923
========
Net Interest spread 3.06%
====
Net interest income to total average earning assets 3.93%
====
Net interest income to total average earning assets-
with federal funds net 4.20%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1989
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 19,407 $ 1,814 9.35%
Securities:
U.S. Treasury 253,326 21,058 8.31
U.S. Government agencies and corporations 676,778 61,865 9.14
States and political subdivisions:
Tax-exempt 68,234 6,133 8.99
Taxable 22,232 2,303 10.36
Other 132,745 12,150 9.15
---------- --------
Total securities 1,153,315 103,509 8.97
Federal funds sold and securities purchased
under resale agreements 491,073 45,578 9.28
Loans, net of unearned discount 1,406,773 152,051 10.81
---------- --------
Total Earning Assets and Average Rate Earned 3,070,568 302,952 9.87
Cash and due from banks 256,228
Allowance for possible loan losses (42,328)
Banking premises and equipment 67,061
Accrued interest and other assets 103,589
----------
Total Assets $3,455,118
==========
Liabilities:
Demand deposits:
Commercial and individual $ 442,697
Correspondent banks 83,194
Public funds 16,234
----------
Total demand deposits 542,125
Time deposits:
Savings and Interest-on-Checking 378,739 19,015 5.02
Money market deposit accounts 472,333 24,215 5.13
Time accounts 1,336,139 107,416 8.04
Public funds 133,204 9,890 7.42
---------- --------
Total time deposits 2,320,415 160,536 6.92
----------
Total deposits 2,862,540
Federal funds purchased and securities sold
under repurchase agreements 323,854 27,892 8.61
Long-term notes payable 18,536 1,709 9.22
Other borrowings 21,221 2,269 10.69
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,684,026 192,406 7.17
Accrued interest and other liabilities 51,452 -------- ----
----------
Total Liabilities 3,277,603
Shareholders' Equity 177,515
----------
Total Liabilities and Shareholders' Equity $3,455,118
==========
Net interest income $110,546
========
Net Interest spread 2.70%
====
Net interest income to total average earning assets 3.60%
====
Net interest income to total average earning assets-
with federal funds net 4.02%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1994 and 1993 and a 34 percent tax rate for 1992
through 1989. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
PAGE 49
EXHIBIT 21
Subsidiaries of Cullen/Frost
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
As of March 24, 1995, Cullen/Frost owned directly, or
indirectly through wholly owned subsidiaries, the following
subsidiaries.
PERCENTAGES OF
ORGANIZED VOTING SECURITIES
UNDER OWNED BY
LAWS OF CULLEN/FROST
---------- -----------------
The Frost National Bank of United States 100%
San Antonio
United States National Bank United States 100%
of Galveston
Main Plaza Corporation Texas 100%
Daltex General Agency, Inc. Texas 100%
The New Galveston Company, Inc. Delaware 100%
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cullen/Frost Bankers, Inc. of our report dated January 31, 1995,
included in the 1994 Annual Report to Shareholders of Cullen/Frost Bankers,
Inc.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-30776) pertaining to the Cullen/Frost Bankers,
Inc. 1983 Nonqualified Stock Option Plan, the Registration Statement (Form
S-8 No. 33-30777) pertaining to the Cullen/Frost Bankers, Inc. 1988
Nonqualified Stock Option Plan, the Registration Statement (Form S-8 (No.
33-37500) pertaining to the 401(k) Stock Purchase Plan for employees of
Cullen/Frost Bankers, Inc. and its Affiliates, the Registration Statement
(Form S-8 No. 33-39478) pertaining to the 1991 Thrift Incentive Stock
Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its
Affiliates, the Registration Statement (Form S-8 No. 33-53492) pertaining
to the Cullen/Frost Bankers, Inc. Restricted Stock Plan,, and the
Registration Statement (Form S-8 No. 33-53622) pertaining to the
Cullen/Frost Bankers, Inc. 1992 Stock Plan, of our report dated January 31,
1994 with respect to the consolidated financial statements of Cullen/Frost
Bankers, Inc. incorporated by reference in this Annual Report (Form 10-K)
for the year ended December 31, 1994.
/s/ ERNST & YOUNG
-------------------
ERNST & YOUNG
San Antonio, Texas
March 30, 1995
EXHIBIT 24
Power of Attorney
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints T.C. Frost, Robert S. McClane and Phillip D.
Green, and each of them, his true and lawful attorneys-in-fact and agents,
and with power of substitution and resubstitution, for him and in his name,
place and stead, and in any and all capacities, to sign the Annual Report
on Form 10-K of Cullen/Frost Bankers, Inc. for the fiscal year ended
December 31, 1994, to sign any and all amendments thereto, and to file such
Annual Report and amendments, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or
either of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
<PAGE>
Signatures Title Date
-------------------------- ------------------------ ----------------
Chairman of the Board
and Director (Principal)
/s/ T.C. FROST Executive Officer) February 7, 1995
-------------------------- ----------------
(T.C. Frost)
President and
/s/ ROBERT S. McCLANE Director February 7, 1995
-------------------------- ----------------
(Robert S. McClane
/s/ ISAAC ARNOLD, JR. Director February 7, 1995
-------------------------- ----------------
(Isaac Arnold, Jr.)
/s/ ROYCE S. CALDWELL Director February 7, 1995
-------------------------- ----------------
(Royce S. Caldwell)
/s/ RUBEN R. CARDENAS Director February 7, 1995
-------------------------- ----------------
(Ruben R. Cardenas)
/s/ HENRY E. CATTO Director February 7, 1995
-------------------------- ----------------
(Henry E. Catto)
/s/ HARRY H. CULLEN Director February 7, 1995
-------------------------- ----------------
(Harry H. Cullen)
/s/ ROY H. CULLEN Director February 7, 1995
-------------------------- ----------------
(Roy H. Cullen)
/s/ RICHARD W. EVANS, JR. Director February 7, 1995
-------------------------- ----------------
(Richard W. Evans, Jr.)
/s/ W. N. FINNEGAN, III Director February 7, 1995
-------------------------- ----------------
(W. N. Finnegan, III)
<PAGE>
Signatures Title Date
-------------------------- --------------------- -----------------
Director
--------------------------
(Joseph H. Frost)
Director
--------------------------
(James W. Gorman, Jr.)
/s/ JAMES L.HAYNE Director February 7, 1995
-------------------------- ----------------
(James L. Hayne)
Director
--------------------------
(Harris L. Kempner, Jr.)
/s/ RICHARD M. KLEBERG, III Director February 7, 1995
-------------------------- ----------------
(Richard M. Kleberg, III)
/s/ QUINCY LEE Director February 7, 1995
-------------------------- ----------------
(Quincy Lee)
/s/ J. GORDON MUIR, JR. Director February 7, 1995
-------------------------- ----------------
(J. Gordon Muir, Jr.)
/s/ W.B. OSBORN, JR. Director February 7, 1995
-------------------------- ----------------
(W.B. Osborn, Jr.)
/s/ ROBERT G. POPE Director February 7, 1995
-------------------------- ----------------
(Robert G. Pope)
Director
--------------------------
(Herman Richter)
<PAGE>
Signature Title Date
-------------------------- ------------------------ -------------------
/s/ CURTIS VAUGHAN, JR. Director February 7, 1995
-------------------------- ----------------
(Curtis Vaughan, Jr.)
Executive Vice
/s/ PHILLIP D. GREEN President and February 7, 1995
-------------------------- Treasurer ----------------
(Phillip D. Green)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 365,792
<INT-BEARING-DEPOSITS> 12
<FED-FUNDS-SOLD> 167,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 542,797
<INVESTMENTS-CARRYING> 1,051,245
<INVESTMENTS-MARKET> 981,800
<LOANS> 1,477,969
<ALLOWANCE> (25,741)
<TOTAL-ASSETS> 3,793,720
<DEPOSITS> 3,087,962
<SHORT-TERM> 370,235
<LIABILITIES-OTHER> 40,086
<LONG-TERM> 0
<COMMON> 55,615
0
0
<OTHER-SE> 239,822
<TOTAL-LIABILITIES-AND-EQUITY> 3,793,720
<INTEREST-LOAN> 106,252
<INTEREST-INVEST> 95,109
<INTEREST-OTHER> 4,148
<INTEREST-TOTAL> 205,509
<INTEREST-DEPOSIT> 61,996
<INTEREST-EXPENSE> 69,162
<INTEREST-INCOME-NET> 136,347
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (4,038)
<EXPENSE-OTHER> 155,562
<INCOME-PRETAX> 57,600
<INCOME-PRE-EXTRAORDINARY> 57,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,423
<EPS-PRIMARY> 3.33
<EPS-DILUTED> 3.33
<YIELD-ACTUAL> 6.62
<LOANS-NON> 11,303
<LOANS-PAST> 3,644
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,199
<ALLOWANCE-OPEN> 26,298
<CHARGE-OFFS> (4,022)
<RECOVERIES> 6,149
<ALLOWANCE-CLOSE> 25,741
<ALLOWANCE-DOMESTIC> 25,595
<ALLOWANCE-FOREIGN> 146
<ALLOWANCE-UNALLOCATED> 2,287
</TABLE>
