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, 1995
___ 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
(with attached rights)
--------------------------
(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 to file 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 $532,348,838 based on the closing price of such stock as of
March 25, 1996.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class March 25, 1996
-------------------------- --------------
Common Stock, $5 par value 11,213,693
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the Year Ended December 31, 1995 (Parts I
& II)
(2) Proxy Statement for Annual Meeting of Shareholders to be held May 29, 1996
(Part III)
<PAGE>
TABLE OF CONTENTS
PART I Page
- ------ ----
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS *
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE *
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11
ITEM 11. EXECUTIVE COMPENSATION 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 12
* 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 BHC Act") and as such is registered with the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). The New Galveston Company,
incorporated under the laws of Delaware, is a wholly owned second tier bank
holding company subsidiary which owns all banking and non-banking subsidiaries.
At December 31,1995, Cullen/Frost's principal assets consisted of all of the
capital stock of two national banks. Including acquisitions completed in the
first quarter of 1996, Cullen/Frost had 46 offices in six Texas banking markets
with 18 locations in San Antonio, 14 in the Houston/Galveston area, five in
Austin, five in the Corpus Christi area, three in San Marcos and one in
McAllen. At December 31, 1995, Cullen/Frost had consolidated total assets of
$4,200,211,000 and total deposits of $3,645,733,000. Based on information from
the Federal Reserve Board, at December 31, 1995, Cullen/Frost was the largest
of the 97 unaffiliated bank holding companies headquartered in Texas.
Cullen/Frost provides policy direction to the Cullen/Frost subsidiary
banks in, among others, the following areas: (i) asset and liability
management; (ii) accounting, budgeting, planning and insurance; (iii)
capitalization; (iv) 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, 1995, Frost Bank, which accounted for approximately 97 percent
of consolidated assets, loans, and deposits of Cullen/Frost, was the largest
bank headquartered in San Antonio and South Texas.
The following table provides information as of December 31, 1995, 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 $4,079,624,000 $1,760,242,000 $3,525,602,000
United States National Bank of Galveston
Galveston, Texas 137,505,000 56,113,000 125,470,000
</TABLE>
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, accounts receivable,
leverage buyouts and recapitalizations and turnaround situations. Frost Bank
provides financial services to business clients on both a national and interna-
tional basis.
1
<PAGE>
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 19,20 and 25 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1995, 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, 1995, trust assets with a market value of
approximately $6.9 billion were being administered by the subsidiary banks.
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
Frost Brokerage Services 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. Frost Brokerage Services 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 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.
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 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 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.
2
<PAGE>
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 certain assets of any company (including a bank) or to merge
or consolidate with another bank holding company.
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.
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.
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 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.
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 undivided
profits less certain bad debts. Although not necessarily indicative of amounts
available to be paid in future periods, Cullen/Frost's subsidiary banks had
approximately $18,846,000 available for payment of dividends at
December 31, 1995.
3
<PAGE>
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 allowance for
loan and lease loss.
In addition, bank regulators have 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 bank regulators
have not advised Cullen/Frost or any bank subsidiary 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 26 of
the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31,
1995, which discussion is incorporated herein by reference.
FDICIA
The Federal Deposit Insurance Corporation Improvements Act of 1991
("FDICIA"), among other things, requires the Federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA established five capital tiers:
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". Under the
final rules adopted by the Federal banking regulators relating to these capital
tiers, an 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; 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 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, 1995, 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, 1995, the subsidiary banks
capital ratios were as follows:
<TABLE>
<CAPTION>
Leverage Tier 1 Capital Total Capital
Ratio Ratio Ratio
-------- -------------- -------------
<S> <C> <C> <C>
Frost Bank 5.58% 10.43% 11.68%
U. S. National Bank 8.06 16.39 17.66
4
</TABLE>
<PAGE>
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. Undercapitalized institutions are subject to
growth limitations and are required 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.
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
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 have issued standards establishing loan-to-value
limitations on real estate lending. These standards have not had a significant
effect on Cullen/Frost and are not expected to have a significant effect in the
future.
Any equity loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
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 risk-based assessment system
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. For the second half of 1995, the FDIC
assessment rate imposed on banks ranged from four 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). This was a decrease
from the previous assessment range of 23 cents to 31 cents for those respective
categories for each $100 of domestic deposits. For 1996, the FDIC Board
reduced the insurance premiums to range from zero, with a minimum of $2,000 per
year for banks in the lowest risk category, to 27 cents for each $100 of
domestic deposits. However, various legislative proposals are being considered
which could result in banks paying a higher rate reported to be approximately
2.4 cents per $100 of domestic deposits to help address the shortfall in the
savings and loan insurance fund.
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.
5
<PAGE>
Depositor Preference
- --------------------
Deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution are 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 or bank
holding company. 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.
Interstate Banking and Branching Legislation
- --------------------------------------------
The Riegle-Neal Interstate Branching Efficiency Act of 1994 ("IBBEA"),
authorizes interstate acquisitions of banks and bank holding companies without
geographic limitation beginning one year after enactment. In addition,
beginning June 1, 1997, IBBEA authorizes a bank to merge with a bank in another
state long as long as neither of the states has opted out of interstate
branching between the date of enactment of IBBEA and May 31, 1997. IBBEA
further provides that states may enact laws permitting interstate bank merger
transactions prior to June 1, 1997. A bank may establish a de novo branch in a
state in which the bank does not maintain a branch if the state expressly
permits de novo branching. Once a bank has established branches in a state
through an interstate merger transaction, the bank may establish and acquire
additional branches at any location in the state where any bank involved in the
merger transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state
in the same manner and to the same extent as a bank having a branch in such
state as a result of an interstate merger. If a state opts out of interstate
branching within the specified time period, no bank in any other state may
establish a branch in the opting out state, whether through an acquisition or
de novo. On August 28, 1995, Texas enacted legislation opting out of
interstate branching.
Regulatory Economic Policies
- ----------------------------
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.
6
<PAGE>
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 12 through 27,
pages 47 and 48 and pages 50 through 53 of the Cullen/Frost Annual Report to
Shareholders for the year ended December 31, 1995, which information is
incorporated herein by reference.
Employees
- ---------
At December 31, 1995, Cullen/Frost employed 2,019 full-time equivalent
employees. 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.
7
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
The names, ages, recent business experience and positions or offices held
by each of the executive officers during 1995 of Cullen/Frost are as follows:
Name and Positions or Offices Age as of 12/31/95 Recent Business Experience
- ----------------------------- ------------------ --------------------------
T.C. Frost 68 Officer and director of
Senior Chairman of the Board, Frost Bank since 1950.
Chief Executive Officer, Chairman of the Board
Director of Cullen/Frost 1973 to
October 1995. Member of
the Executive Committee
of Cullen/Frost 1973 to
present. Chief Executive
Officer of Cullen/Frost
July 1977 to present.
Senior Chairman of
Cullen/Frost from October
1995 to present.
Richard W. Evans, Jr. 49 Officer of Frost Bank
Chairman of the Board, Chief since 1973. Executive
Operating Officer, and Director Vice President of Frost
Bank from 1978 to April
1985. President of Frost
Bank from April 1985 to
August 1993. Chairman of
the Board and Chief
Executive Officer of Frost
Bank from August 1993 to
present. Director and
Member of the Executive
Committee of Cullen\Frost
from August 1993 to
present. Chairman of the
Board and Chief Operating
Officer of Cullen/Frost
from October 1995 to
present.
Robert S. McClane 56 Officer of Frost Bank
President and Director since 1962. Senior Vice
President of Cullen/Frost
from November 1973 to
April 1978, Secretary from
May 1973 to April 1985.
Executive Vice President
from April 1978 to April
1985. Chief Administrative
Officer of Cullen/Frost
from 1993 to October 1995.
President and Director of
Cullen/Frost from April
1985 to present.
Phillip D. Green 41 Officer of Frost Bank
Executive Vice President, since July 1980. Vice
and Chief Financial Officer President 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 Treasurer of
Cullen/Frost from July
1985 to April 1989.
Executive Vice President
and Treasurer of Cullen/
Frost from May 1989 to
October 1995. Executive
Vice President and Chief
Financial Officer of
Cullen/Frost from January
1996 to present.
Diane Jack, age 47, has been an officer of Frost Bank since 1984; Secretary of
Cullen/Frost from October 1993 to present.
8
<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 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.
9
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The information called for by Item 5 is incorporated herein by reference
to "Common Stock Market Prices and Dividends" on page 49 and "Note K-Dividends"
on page 37 of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1995.
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
The information called for by Item 6 is incorporated herein by reference
to "Selected Financial Data" on page 50 and "Consolidated Statements of
Operations" and "Consolidated Average Balance Sheets" on pages 51 through 53 of
the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31,
1995.
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 12 through 27, "Consolidated Statements of
Operations" and "Consolidated Average Balance Sheets" on pages 51 through 53 of
the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31,
1995.
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 28 through 46 and "Quarterly Results of Operations" on page
49, of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1995.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------
None.
10
<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 29, 1996.
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 29, 1996.
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 29, 1996.
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 29, 1996.
11
<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
-------
3.1 Restated Articles of Incorporation, as amended (1988 Form S-8,
Exhibit 4(a))(3)
3.2 Amended By-Laws of Cullen/Frost Bankers, Inc. (1994 Form 10-K,
Exhibit 3.2)(13)
4.1 Guaranty, dated April 27, 1981, by Cullen/Frost Bankers, Inc. to
Colonial/Citizens Associates (1985 Form S-8, Exhibit 4(e))(1)
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)(5)
10.1 1983 Non-qualified Stock Option Plan, as amended (1989 Form S-8,
Exhibit 4(g))(6)
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)(4)*
10.3 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)(2)
10.4 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)(2)
10.5 Form of Revised Change-In-Control Agreements with four Executive
Officers (1989 Form 10-K, Exhibit 10.13(a))(8)*
10.6 1988 Non-qualified Stock Option Plan (1989 Form S-8, Exhibit
4(g))(7)
10.7 The 401(k) Stock Purchase Plan for employees of Cullen/Frost
Bankers, Inc. and its Affiliates (1990 Form S-8, Exhibit 4(g))(9)*
10.8 1991 Thrift Incentive Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and its Affiliates (1991 Form S-8,
Exhibit 4(g))(10)*
10.9 Cullen/Frost Bankers, Inc. Restricted Stock Plan (1992 Form S-8,
Exhibit 4(d))(11)*
10.10 Cullen/Frost Bankers, Inc. 1992 Stock Plan (1992 Form S-8, Exhibit
4(d))(12)
10.11 Cullen/Frost Bankers, Inc. Supplemental Executive Retirement Plan
(1994 Form 10-K, Exhibit 10.13)(14)
10.12 Form of Revised Change-in-Control Agreements with one Executive
Officer (1994 Form 10-K, Exhibit 10.14)(14)
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1995 Annual Report to Shareholders for the Year
Ended December 31, 1995, (furnished for the information of the
Commission and not deemed to be "filed" except for the portion
expressly incorporated by reference)
19.1 Annual Report on Form 11-K for the Year Ended December 31, 1995,
for the 1991 Thrift Incentive Stock Purchase Plan (filed pursuant
to Rule 15d-21 of the Securities and Exchange Act of 1934)(15)
12
<PAGE>
19.2 Annual Report on Form 11-K for the Year Ended December 31, 1995,
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, 1995.
______________________
(1) 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)
(2) 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)
(3) 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)
(4) 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)
(5) 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)
(6) 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)
(7) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form S-8 filed September 5, 1989 (File No.
33-30777)
(8) 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)
(9) 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)
(10) 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)
(11) 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)
(12) 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)
(13) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Annual Report on Form 10-K for the Year-Ended December
31, 1994 (File No. 0-7275)
(14) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Annual Report on Form 10-K for the Year-Ended December
31, 1994 (File No. 0-7275)
(15) To be filed as an amendment.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1996 CULLEN/FROST BANKERS, INC.
(Registrant)
By:/s/ Phillip D. Green
------------------------
Phillip D. Green
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1996
Signatures Title Date
---------- ----- -----
Senior Chairman of the Board
and Director (Principal Executive
T.C. FROST* Officer)
- ------------------------
(T.C. Frost)
Chairman of the Board
RICHARD W. EVANS, Jr* and Director
- --------------------------
(Richard W. Evans, Jr.)
ROBERT S. McCLANE* President and Director
- ------------------------
(Robert S. McClane)
Director
- ------------------------
(Isaac Arnold, Jr.)
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)
14
<PAGE>
Signatures Title Date
---------- ----- -----
Director
- ------------------------
(Roy H. Cullen)
W.N. FINNEGAN III* Director
- ------------------------
(W.N. Finnegan III)
JAMES W. GORMAN, JR.* Director
- ------------------------
(James W. Gorman, Jr.)
JAMES L. HAYNE* Director
- ------------------------
(James L. Hayne)
RICHARD M. KLEBERG, III* Director
- ------------------------
(Richard M. Kleberg, III)
Director
- ------------------------
(W.B. Osborn, Jr.)
Director
- ------------------------
(Robert G. Pope)
Director
- ------------------------
(Herman J. Richter)
CURTIS VAUGHAN, JR.* Director
- ------------------------
(Curtis Vaughan, Jr.)
Executive Vice President
*By:/s/ Phillip D. Green and Treasurer March 29, 1996
- --------------------------
(Phillip D. Green)
[as Attorney-in-Fact for
the persons indicated]
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------------------------------------------
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1995 Annual Report to Shareholders for the Year Ended
December 31, 1995 (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 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, except per share amounts)
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------------
Primary Earnings Per Share 1995 1994 1993
- ------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Income before Cumulative effect of accounting change $46,279 $37,423 $38,797
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54
------- ------- -------
Income applicable to common stock before
cumulative effect of accounting change 46,279 37,423 38,851
Cumulative effect of accounting change 8,439
------- ------- -------
Net Income applicable to common stock $46,279 $37,423 $47,290
======= ======= =======
Weighted average share outstanding 11,154 11,059 10,922
Addition from assumed exercise of stock options 184 164 189
Addition from assumed conversion of 9.75%
convertible subordinated debentures due 1996 40
------- ------- -------
Weighted average number of common shares outstanding 11,338 11,223 11,151
======= ======= =======
Primary earnings per common share:
Income before cumulative effect of accounting change $4.08 $3.33 $3.48
Net income 4.08 3.33 4.24
</TABLE>
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------------
Fully Diluted Earnings Per Share 1995 1994 1993
- ------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Income before Cumulative effect of accounting change $46,279 $37,423 $38,797
Elimination of interest on 9.75% convertible
subordinated debentures due 1996, net of tax 54
------- ------- -------
Income applicable to common stock before
cumulative effect of accounting change 46,279 37,423 38,851
Cumulative effect of accounting change 8,439
------- ------- -------
Net Income applicable to common stock $46,279 $37,423 $47,290
======= ======= =======
Weighted average share outstanding 11,154 11,059 10,922
Addition from assumed exercise of stock options 236 164 189
Addition from assumed conversion of 9.75%
convertible subordinated debentures due 1996 40
------- ------- -------
Weighted average number of common shares outstanding 11,390 11,223 11,151
======= ======= =======
Primary earnings per common share:
Income before cumulative effect of accounting change $4.06 $3.33 $3.48
Net income 4.06 3.33 4.24
</TABLE>
EXHIBIT 13
The Cullen/Frost 1995 Annual Report to Shareholders for the
Year Ended December 31, 1995 (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 1993 through 1995. All
balance sheet amounts presented in the following financial review are averages
unless otherwise indicated. Certain reclassifications have been made to make
prior periods comparable. Taxable-equivalent adjustments assume a 35 percent
federal tax rate. Dollar amounts in tables are stated in thousands, except for
per share amounts.
RESULTS OF OPERATIONS
Pre-tax income for 1995 was $71.3 million, an all-time high in the 127-
year history of Cullen/Frost. This compares to $57.6 million for 1994. Net
income after taxes for 1995 was $46.3 million or $4.08 per common share,
compared with $37.4 million or $3.33 per common share for 1994, an increase of
23.7 percent. The Corporation's return on average assets was 1.17 percent
compared with 1.02 percent in 1994, while return on average equity was 14.32
percent compared with 13.04 percent in 1994.
Net income for 1993 was higher than 1995 and 1994 primarily due to the
one-time cumulative effect benefit of $8.4 million related to the adoption of
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109") in 1993
and the differences in the Corporation's effective tax rate. For 1995 and
1994, the Corporation recognized income tax expense that approximates the
statutory rate while in 1993 an income tax benefit of $735,000 was recognized.
See "Income Taxes" on page 17. Pretax income for 1993 was $38.1 million while
net income was $47.2 million or $4.24 per common share. Return on average
assets for 1993 was 1.34 percent and return on average equity was 19.0 percent.
ACQUISITIONS
On April 4, 1995, the Corporation entered the Rio Grande Valley area
completing the acquisition of Valley Bancshares, Inc., including its
subsidiary, Valley National Bank in McAllen, Texas ("Valley") with
approximately $49 million in deposits. On May 19, 1995, the acquisition of
National Commerce Bank in Houston ("NCB") with its three branch locations and
approximately $101 million in deposits was completed. On July 21, 1995, the
Corporation acquired the two San Antonio branches of Comerica Bank Texas with
approximately $34 million in deposits. These acquisitions were accounted for
as purchase transactions, and as such, the results of operations are included
in the financial information that follows from the date of acquisition. The
acquisitions did not have a material impact on the Corporation's 1995 net
income. In addition, during the third quarter of 1995, the Corporation entered
into definitive agreements to acquire S.B.T. Bancshares, Inc., which owns State
Bank and Trust Company, of San Marcos, Texas with approximately $112 million in
deposits and Park National Bank of Houston, Texas, with approximately $225
million in deposits. These acquisitions, which were accounted for as purchase
transactions, were completed in the first quarter of 1996 and are not expected
to have a material impact on the Corporation's 1996 net income.
During 1994, Cullen/Frost made two 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.
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.
<PAGE>
<TABLE>
<CAPTION>
1995 Change 1994 Change
Earnings Summary 1995 From 1994 1994 From 1993 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net interest income $153,136 $ 16,147 $136,989 $ 8,280 $128,709
Taxable-equivalent adjustment 881 239 642 (241) 883
-------- -------- -------- --------- --------
Net interest income 152,255 15,908 136,347 8,521 127,826
Provision (credit) for possible
loan losses 6,272 6,272 6,085 (6,085)
Non-interest income:
Net gain (loss) on securities
transactions (1,396) 2,642 (4,038) (5,471) 1,433
Other 89,139 8,286 80,853 6,057 74,796
-------- -------- -------- -------- ---------
Total non-interest income 87,743 10,928 76,815 586 76,229
Non-interest expense:
Provision for real estate losses 610 610 (1,445) 1,445
Restructuring costs 400 (430) 830 (9,455) 10,285
Other operating expenses 161,439 6,707 154,732 (5,616) 160,348
-------- -------- -------- -------- ---------
Total non-interest expense 162,449 6,887 155,562 (16,516) 172,078
-------- -------- -------- -------- ---------
Income before income taxes (credits) and
cumulative effect of accounting change 71,277 13,677 57,600 19,538 38,062
Income taxes (credits) 24,998 4,821 20,177 20,912 (735)
-------- -------- -------- -------- ---------
Income before cumulative effect of
accounting change 46,279 8,856 37,423 (1,374) 38,797
Cumulative effect of change in
accounting for income taxes (8,439) 8,439
-------- -------- -------- -------- ---------
Net income $ 46,279 $ 8,856 $ 37,423 $(9,813) $ 47,236
======== ======== ======== ======== =========
Per share
Net income-primary $ 4.08 $ .75 $ 3.33 $ (.91) $ 4.24
Net income-fully diluted 4.06 .73 3.33 (.91) 4.24
Return on Average Assets 1.17% .15% 1.02% (.32)% 1.34%
Return on Average Equity 14.32 1.28 13.04 (5.96) 19.00
</TABLE>
NET INTEREST INCOME
The increase in net interest income from 1994 is primarily due to
increased loan volumes and the favorable impact of the acquisitions. Average
loans for 1995 were 25.6 percent higher than in 1994. See "Loans" page 18.
The higher loan volumes favorably impacted the interest margin which was 4.56
percent for the year ended December 31, 1995, compared to 4.39 percent and 4.27
percent for the years 1994 and 1993, respectively. The net interest spread was
stable for 1995 at 3.80 percent. The net interest spread was 3.82 percent and
3.76 percent for 1994 and 1993, respectively. Net interest spread for 1994
increased six basis points compared to 1993 primarily because of yields on
earning assets rising faster than the cost of deposits.
The net interest spread as well as the net interest margin could be
impacted by future changes in short-and long-term interest rate levels.
<TABLE>
<CAPTION>
Net Interest Income and Net Interest Margin Net Interest Spread
($ in millions - taxable equivalent) (taxable-equivalent)
(Graphic Material omitted) (Graphic material omitted)
Year Net Interest Net Interest Year Earnings Cost of Net Interest
Ended Income Margin Ended on Funds Funds Spread
- ------ ------------ ----------- ----- ------ -------- ------------
<S> <C> <C> <S> <C> <C> <C>
1991 $111 4.07% 1991 8.57% 5.35% 3.22%
1992 118 4.43 1992 7.19 3.39 3.80
1993 129 4.27 1993 6.33 2.57 3.76
1994 137 4.39 1994 6.61 2.79 3.82
1995 153 4.56 1995 7.65 3.85 3.80
</TABLE>
<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 time periods of one year or less.
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>
December 31, 1995
------------------------------------------------------------------
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 >5 Years Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 852,994 $ 946,516 $1,214,710 $1,655,877 $160,885 $1,816,762
Securities 257,733 286,819 978,504 1,349,933 186,634 1,536,567
Federal funds
sold and other
short-term investments 100,614 100,614 100,614 100,614 100,614
---------- ---------- ---------- --------- -------- ----------
Total earning assets $1,211,341 $1,333,949 $2,293,828 $3,106,424 $347,519 $3,453,943
=========== ========== ========== ========== ======== ==========
Interest-Bearing
Liabilities:
Savings and Interest-
on-Checking $ 718,582 $ 718,582 $ 718,582 $ 718,582 $ 718,582
Money market deposit
accounts 711,865 711,865 711,865 711,865 711,865
Certificates of deposit
and other time accounts 341,108 649,997 1,061,558 1,156,701 $ 66,576 1,223,277
Federal funds purchased
and other borrowings 134,741 134,741 134,741 134,741 134,741
---------- ---------- ---------- ---------- -------- ----------
Total interest-bearing
liabilities $1,906,296 $2,215,185 $2,626,746 $2,721,889 $ 66,576 $2,788,465
========== =========== ========== ========== ======== ==========
Interest sensitivity gap$ (694,955) $ (881,236) $ (332,918)$ 384,535 $280,943 $ 665,478
========== =========== ========== ========== ======== ==========
Ratio of earning assets
to interest-bearing
liabilities .64 .60 .87 1.14
========== =========== ========== ==========
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.
Loans are included net of unearned discount of $1,337,000. 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
24.
</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 which 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>
NON-INTEREST INCOME
Non-interest income of $87,743,000 was reported for 1995, compared with
$76,815,000 for 1994 and $76,229,000 for 1993. Excluding securities
transactions, total non-interest income increased 10.2 percent from 1994.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------
1995 1994 1993
---------------- ------------------ ----------------
Percent Percent Percent
Non-Interest Income Amount Change Amount Change Amount Change
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust department $31,762 + 7.6% $29,529 + 12.4% $26,278 + 20.2%
Service charges on
deposit accounts 30,382 + 7.8 28,182 + 3.2 27,303 + 15.4
Other service charges,
collection and
exchange charges,
commissions and fees 11,055 + 18.0 9,366 + 17.5 7,972 + 28.9
Net gain(loss) on
securities transactions (1,396) - 65.4 (4,038) -381.8 1,433 +717.7
Other 15,940 + 15.7 13,776 + 4.0 13,243 + 28.1
------- -------- --------
Total $87,743 + 14.2 $76,815 + .8 $76,229 + 23.3
======= ======= =======
</TABLE>
Trust income was up 7.6 percent during 1995. This is attributable
primarily to improved financial market conditions and increased fee structures
that were implemented in the second quarter of 1994. Increased income from
investment fees, agency account fees and employee benefit trust fees helped
offset lower corporate trust income. The lower corporate trust income results
from the sale of the Corporation's municipal bond administration business to
The Bank of New York in the second quarter of 1995. At December 31, 1995, the
market value of trust assets totaled $6.9 billion compared to $10.4 billion, at
December 31, 1994, with the sale of the municipal bond administration business
being the reason for the decrease. The $10.4 billion in assets at December 31,
1994 included assets for which the Corporation acted as administrative agent.
The December 1995 trust assets were comprised of agencies of $3.0 billion,
personal assets of $2.2 billion, and employee benefits of $1.7 billion. The
12.4 percent increase in trust income from 1993 to 1994 reflects an increase in
investment fee income resulting from growth in the number of accounts and
increased fee structures.
Deposit service charges are up 7.8 percent from 1994 mostly as a result of
higher volumes. Other service charges increased 18.0 percent when compared to
1994. This is primarily due to fees associated with higher business volumes,
bankcard discount, fees from the sale of mutual funds and higher loan
prepayment fees. The 17.5 percent increase in other service charges from 1993
to 1994 is also primarily due to higher volumes and bankcard discount.
During the fourth quarter of 1995 and 1994, the Corporation restructured a
portion of its investment portfolio resulting in losses of approximately $1.5
million and $3.5 million, respectively. This portfolio restructuring of
replacing lower-yielding securities with higher-yielding securities should have
a favorable impact on net interest income in the future. See "Securities,"
page 23. 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 15.7 percent to $15,940,000 in 1995
compared to a 4.0 percent increase in 1994. The increase in 1995 is primarily
due to the gain recognized on the sale of the Corporation's municipal bond
administration business. The 1994 increase was primarily due to income from
other real estate related recoveries.
<TABLE>
<CAPTION>
Non-Interest Income
($ in thousands)
(Graphic material omitted)
Net Gain(Loss)
Year Service Other Service on Securities
Ended Trust Charges Charges Other Transactions
- ----- ---------- ------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
1991 $20,030 $20,455 $ 6,748 $ 8,227 $2,022
1992 21,861 23,663 6,183 10,338 (232)
1993 26,278 27,303 7,972 13,243 1,433
1994 29,529 28,182 9,366 13,776 (4,038)
1995 31,762 30,382 11,055 15,940 (1,396)
</TABLE>
<PAGE>
NON-INTEREST EXPENSE
Excluding the provision for real estate losses, non-interest expense was
$161,839,000 for 1995 compared with $155,562,000 for 1994 and $170,633,000 for
1993. Expenses 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) and $10.3 million in
restructuring costs.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1995 1994 1993
---------------- ------------------ ---------------
Percent Percent Percent
Non-Interest Expense Amount Change Amount Change Amount Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and wages $ 58,177 + 9.8% $ 52,986 - 1.2% $ 53,654 +16.2%
Pension and other
employee benefits 10,905 +10.0 9,910 - 17.8 12,052 +23.7
Net occupancy of
banking premises 17,992 +14.0 15,777 - 24.0 20,749 +22.3
Furniture and equipment 11,259 + 2.9 10,937 + 7.7 10,155 +22.4
Intangible amortization 8,124 + 6.5 7,627 + 10.9 6,877 +882.4
Restructuring costs 400 -51.8 830 - 91.9 10,285
Other 54,982 - 4.4 57,495 + 1.1 56,861 + 8.7
-------- -------- --------
161,839 + 4.0 155,562 - 8.8 170,633 +27.2
Provision for real
estate losses 610 1,445 -88.9
-------- -------- --------
Total $162,449 + 4.4 $155,562 - 9.6 $172,078 +16.9
======== ======== ========
</TABLE>
Salaries and wages increased by 9.8 percent during 1995 primarily because
of acquisitions. Pension and other employee benefits increased by 10.0 percent
during 1995 primarily due to an adjustment which lowered medical insurance
expense in 1994, higher retirement plan expense and the impact of acquisitions.
The 1994 adjustment to medical insurance, which was the result of implementing
a managed health care network and favorable claims experience, is also
responsible for the majority of the 17.8 percent decrease in the "Pension and
other employee benefits" category in 1994.
Net occupancy of banking premises increased 14.0 percent during 1995
primarily because of higher property taxes, increased lease expense as a result
of acquisitions, and building maintenance expenses. The 24.0 percent decrease
during 1994 is primarily due to 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.
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 incomplete portion of the 1993
restructuring plan deals principally with the sale of two properties with an
aggregate net carrying value of $1.4 million. These properties have been
written down to their net realizable value. The Corporation has marketing
plans in place to sell these properties.
Furniture and equipment costs increased 2.9 percent in 1995 as a result of
the acquisitions. The increase in furniture and equipment cost of 7.7 percent
in 1994 can be attributed to higher depreciation, service contracts, software
maintenance and amortization.
Intangible amortization of $8,124,000 increased $497,000 in 1995 due to
the acquisitions. During 1994, intangible amortization increased $750,000 as a
result of a full year's amortization of goodwill and other intangibles
associated with the acquisition of New First City during February 1993.
Other non-interest expense was down 4.4 percent in 1995 mostly due to
lower FDIC insurance premiums and the timing of charitable contributions. The
Corporation paid FDIC insurance premiums of $3.6 million in 1995 compared to
$6.9 million in 1994 and $6.8 million in 1993. For the second half of 1995,
the FDIC assessment rate imposed on banks ranged from 4 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). This was a decrease
from the previous assessment range of 23 cents to 31 cents for those respective
categories, for each $100 of domestic deposits. For 1996, the FDIC Board
reduced the insurance premiums to zero for banks in the lowest risk category.
However, various legislative proposals are pending which could result in banks
paying a higher rate, reported to be approximately up to 2.4 cents per $100 of
domestic deposits, to help address the shortfall in the savings and loan
insurance fund.
<PAGE>
Other non-interest expense in 1994 was flat when compared to 1993.
However, excluding those expenses associated with the acquisition of New First
City in 1993, other non-interest expense increased 8.1 percent in 1994, due to
the timing of charitable contributions, litigation expense (primarily a
settlement) and state sales taxes.
During 1995, the Corporation took a $610,000 provision for real estate
losses compared with no provision in 1994 and $1,445,000 in 1993.
The Corporation's efficiency ratio of 66.8 percent for 1995 improved from
71.4 percent for 1994 and 76.4 percent for 1993. The efficiency ratio measures
what percentage of bank revenue is absorbed by non-interest expense. For the
calculation of the 1993 ratio, the Corporation has excluded the $5.0 million in
transition costs associated with the New First City acquisition and $10.3
million in restructuring costs as these were not part of the Corporation's
normal operating costs.
<TABLE>
<CAPTION>
Non-Interest Expense
Excluding Non-recurring Items
($ in thousands)
(Graphic material omitted)
Net Occupancy Provision
Year Salaries, Wages & Furniture and for Real Estate
Ended and Benefits Equipment Other Losses
- ----- --------------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
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 26,714 65,122 0
1995 69,082 29,251 63,106 610
</TABLE>
INCOME TAXES
The Corporation recognized income tax expense of $24,998,000 in 1995,
$20,177,000 in 1994 and a tax benefit of $735,000 in 1993. 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 the tax benefit. The valuation allowance for deferred tax
assets was established at the beginning of 1993 with the adoption of Statement
of Financial Accounting Standards No. 109(SFAS No. 109), "Accounting for Income
Taxes." The one-time cumulative effect of adopting SFAS No. 109 was $8.4
million which favorably impacted net income for 1993. The Corporation's
effective tax rates for 1995 and 1994 approximate the statutory rate of 35
percent.
<PAGE>
SOURCES AND USES OF FUNDS
Average assets for 1995 of $3,944,026,000 increased by 7.8 percent from
1994 levels and increased 4.2 percent between 1993 and 1994. Funding sources
in 1995 were basically unchanged from the previous year, while the
Corporation's uses of funds changed significantly. Loans replaced securities
as the largest component of earning assets. This change reflects the increases
in loan volumes from a year ago.
<TABLE>
<CAPTION>
Percentage of Total Average Assets
----------------------------------
Sources and Uses of Funds 1995 1994 1993
- ------------------------- ------- ------ ------
<S> <C> <C> <C>
Sources of Funds:
Deposits:
Demand 21.9% 22.9% 23.2%
Time 61.6 62.4 64.6
Federal funds purchased 6.4 5.2 3.7
Equity capital 8.2 7.9 7.1
Borrowed funds .3 .1
Other liabilities 1.6 1.6 1.3
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
Uses of Funds:
Loans 42.7% 36.6% 33.4%
Securities 39.5 45.7 45.1
Federal funds sold 3.0 3.0 7.3
Non-earning assets 14.8 14.7 14.2
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
LOANS
Average loans for 1995 were $1,682,541,000, an increase of 25.6 percent
from 1994 while period-end loans increased to $1,816,762,000 at year-end 1995,
up 22.5 percent from the previous year. Most of the increase in period-end
loans is attributable to commercial and real estate loans which increased $134
million and $123 million, respectively. This was driven by continued improved
economic conditions in the Texas markets the Corporation serves. Approximately
one third of the increase in total loans from a year ago resulted from
acquisitions.
<TABLE>
<CAPTION>
Total Average Loans and Yields
($ in millions)
(Graphic material omitted)
Average Loan
Year Average Loans Yield
- ---- ------------- ------------
<S> <C> <C>
1991 $1,190 9.21%
1992 1,046 8.11
1993 1,172 7.79
1994 1,340 7.97
1995 1,683 8.99
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1995
-----------------------
Loan Portfolio
Analysis Percentage of
Period-End Balances Amount Total Loans 1994 1993 1992 1991
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Construction $ 54,168 3.0% $ 44,502 $ 32,297 $ 26,632 $ 24,620
Land 37,695 2.1 36,805 32,317 39,991 61,436
Permanent
Mortgages:
Commercial 198,276 10.9 177,223 144,122 77,347 64,605
Residential 339,576 18.7 277,725 276,165 253,471 258,303
Other 208,190 11.4 178,263 150,499 134,470 161,439
------- ---- ------- ------- ------- -------
Total Real estate 837,905 46.1 714,518 635,400 531,911 570,403
Commercial and
industrial 508,990 28.0 375,085 311,436 256,520 283,074
Consumer 402,169 22.2 331,039 268,331 217,232 198,521
Financial
institutions 10,409 .6 5,578 284 9,380 14,819
Foreign 43,847 2.4 45,290 31,763 17,871 31,988
Purchasing or
carrying
securities 1,711 .1 1,884 1,204 1,918 3,389
Other 13,068 .7 13,386 17,797 7,737 21,019
Unearned
discount (1,337) (.1) (3,487) (8,456) (12,632) (14,854)
----------- ------ ---------- ---------- ---------- ----------
Total $1,816,762 100.0% $1,483,293 $1,257,759 $1,029,937 $1,108,359
=========== ====== ========== ========== ========== ==========
Percent change
from previous
year +22.5% +17.9% +22.1% -7.1% -14.7%
</TABLE>
Total real estate loans at December 31, 1995 were $837,905,000 up 17.3
percent from year-end 1994. Amortizing permanent mortgages represented 64.2
percent of the total real estate loan portfolio at year end. Residential
mortgages increased $61,434,000 or 22.1 percent. Real estate loans categorized
as "other" are primarily amortizing commercial and industrial loans with
maturities of less than five years. Approximately two thirds of all real
estate loans are owner occupied or have a major tenant (National or Regional
company) with a low or manageable risk level.
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1995 1994
----------------------------------------------------
Real Estate Loans Percentage of Percentage of
Period-End Balances Amount Real Estate Loans Amount Real Estate Loans
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Construction $ 54,168 6.5% $44,502 6.2%
Land 37,695 4.5 36,805 5.2
Permanent mortgages:
Commercial 198,276 23.7 177,223 24.8
Residential 339,576 40.5 277,725 38.9
Other 208,190 24.8 178,263 24.9
-------- ------ -------- ------
Total $837,905 100.0% $714,518 100.0%
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------
1993
--------------------------
Real Estate Loans Percentage of
Period-End Balances Amount Real Estate Loans
- --------------------------------------------------
<S> <C> <C>
Construction $ 32,297 5.1%
Land 32,317 5.1
Permanent mortgages:
Commercial 144,122 22.7
Residential 276,165 43.4
Other 150,499 23.7
-------- ------
Total $635,400 100.0%
======== ======
</TABLE>
MEXICAN LOANS
At December 31, 1995, the Corporation's cross-border outstandings to
Mexico, excluding $13,261,000 in loans secured by liquid U.S. assets, totaled
$30,586,000 up from $24,023,000 last year. This growth reflects expansion in
trade-related debt in connection with increased commerce with Mexico. All of
the Corporation's Mexican loans are either secured by liquid U.S. assets or are
unsecured loans to major financial institutions to finance international trade
transactions. Of the trade related credits, approximately 94 percent are
related to companies exporting from Mexico. At December 31, 1995, none of the
Mexican related loans were on non-performing status.
<PAGE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1995
------------------------------------------
Percentage of Percentage of
Mexican Loans Amount Total Loans Total Assets
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Financial institutions $30,560 1.7% .7%
Commercial and industrial 26
------- ---- ----
Total $30,586 1.7% .7%
======= ==== ====
</TABLE>
<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%
======== ==== ====
The above table exclude $13,261,000, $21,267,000 and $16,326,000 in loans
secured by liquid assets held in the United States in 1995, 1994 and 1993,
respectively.
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets decreased 19.0 percent to $16,155,000 at December
31, 1995, compared with $19,938,000 at December 31, 1994 and $31,110,000 at
December 31, 1993. Non-performing assets as a percentage of total loans and
foreclosed assets decreased to .89 percent at December 31, 1995, down from 1.34
percent one year ago. Non-performing asset levels continued their steady
decline from their high in 1989, which resulted from the dramatic economic
downturn in Texas during the 1980's. The recovery of the Texas economy since
that period created a demand for real estate and improved financial conditions
in general enabling the Corporation to significantly reduce the levels of non-
performing assets. Since 1990, non-performing assets have been reduced by
charge-offs, sales of Other Real Estate Owned, and the resolution of problem
loans.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
Non-Performing Assets 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual and
restructured loans $14,646 $ 16,627 $ 27,677 $ 41,851 $ 71,447
Foreclosed assets 1,509 3,311 3,433 9,452 29,195
------- -------- -------- -------- -------
Total $16,155 $ 19,938 $ 31,110 $ 51,303 $100,642
======= ======== ======== ======== ========
As a percentage of
total assets .38% .53% .85% 1.63% 3.27%
As a percentage of
total loans plus
foreclosed assets .89% 1.34% 2.47% 4.94% 8.85%
After-tax impact of lost
interest per common share $ .10 $ .13 $ .20 $ .39 $ .78
Accruing loans 90 days
past due:
Consumer $ 1,276 $ 574 $ 765 $ 414 $ 1,378
All other 3,912 3,070 3,827 1,431 7,177
------- -------- -------- -------- -------
Total $ 5,188 $ 3,644 $ 4,592 $ 1,845 $ 8,555
======= ======== ======== ======== ========
Interest income that would have been recorded in 1995 on non-performing assets,
had such assets performed in accordance with their original contract terms, was
$1,403,000 on non-accrual and restructured loans and $290,000 on foreclosed
assets. No interest income was recorded on non-accrual and restructured loans
during 1995.
Loans 90 days past due include $50,000 in foreign loans.
</TABLE>
<TABLE>
<CAPTION>
Non-Performing Assets
($ in millions)
(Graphic material omitted)
Non-Accrual and Foreclosed
Year Restructured Loans Assets
- ---- ------------------ ----------
<S> <C> <C>
1991 $ 72 $29
1992 42 9
1993 28 3
1994 17 3
1995 15 1
</TABLE>
<PAGE>
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. 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. Classification of an asset in the non-performing
category does not preclude ultimate collection of loan principal or interest.
Consumer loan delinquencies have increased slightly from last year as a result
of the increased loan volumes; however, they remain below the national average.
At December 31, 1995, the Corporation had $13,594,000 in loans to
borrowers experiencing financial difficulties which had not been included in
either of the non-accrual, restructured or 90 days past due loan categories.
Management monitors such loans closely and reviews their performance on a
regular basis.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses was $31,577,000 or 1.74 percent of
period-end loans at December 31, 1995, compared to $25,741,000 or 1.74 percent
of period-end loans at year-end 1994. The allowance for possible loan losses
as a percentage of non-accrual and restructured loans was 215.6 percent at
December 31, 1995, up from 154.8 percent at December 31, 1994.
The Corporation recorded a $6,272,000 provision for possible loan losses
during 1995, compared to no provision recorded during 1994. The provision is
reflective of the continued growth in the loan portfolio. Despite the growth
in loans in 1994, no provision for possible loan losses was recorded 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.
The Corporation recorded net charge-offs of $436,000 for the year ended
December 31, 1995, compared to net recoveries of $2,127,000 and $486,000 for
the years ended December 31, 1994 and 1993, respectively. The Corporation's
charge-offs in 1995 consisted primarily of consumer loan charge-offs, which
increased to $3.8 million in 1995 from $2.4 million in 1994 primarily as a
result of the increased loan volumes.
<TABLE>
<CAPTION>
Year Ended December 31
Allowance for ------------------------------------------------------
Possible Loan Losses 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding
during year, net of
unearned discount $1,682,541 $1,339,656 $1,171,825 $1,045,883 $1,189,565
========== ========== ========== ========== ==========
Balance of allowance
for possible loan
losses at beginning
of year $ 25,741 $ 26,298 $ 31,897 $ 42,387 $ 45,604
Provision (credit) for
possible loan losses 6,272 (6,085) 5,498 23,166
Changes related to
disposition of bank
subsidiary (2,684)
Charge-offs:
Real estate (228) (1,349) (3,481) (11,073) (18,459)
Commercial and
industrial (654) (316) (1,287) (5,641) (10,955)
Consumer (3,797) (2,357) (3,369) (3,293) (3,395)
Other, including
foreign (2) (63) (3,828) (1,973)
----------- ---------- --------- ---------- ----------
Total charge-offs (4,681) (4,022) (8,200) (23,835) (34,782)
----------- ---------- --------- ---------- ----------
Recoveries:
Real estate 1,258 1,970 2,412 2,034 2,530
Commercial and
industrial 1,722 2,434 3,577 3,783 3,691
Consumer 1,211 1,692 2,237 1,852 1,389
Other, including
foreign 54 53 460 178 789
---------- ---------- ---------- ---------- ----------
Total recoveries 4,245 6,149 8,686 7,847 8,399
---------- ---------- ---------- ---------- ----------
Net (charge-offs) recoveries (436) 2,127 486 (15,988) (26,383)
---------- ---------- ---------- ---------- ----------
Balance of allowance for
possible loan losses
at end of year $ 31,577 $ 25,741 $ 26,298 $ 31,897 $ 42,387
========== ========= ========= ========= =========
Net (charge-offs) recoveries
as a percentage of average
loans outstanding during
the year, net of unearned
discount (.03)% .16% .04% (1.53)% (2.22)%
Allowance for possible loan
losses as a percentage of
year-end loans, net of
unearned discount 1.74 1.74 2.09 3.10 3.82
There were no foreign charge-offs in 1995-1993 or 1991. During 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 foreign charge-off of $3,677,000.
The 1994 allowance for possible loan losses includes a reduction of $2,684,000
related to the exchange of Cullen/Frost Bank in Dallas for Texas Commerce Bank-
Corpus Christi.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allowance for Possible Loan Losses and Allowance to Year-End Loans
($ 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>
1991 $42,387 3.82% 59.3%
1992 31,897 3.10 76.2
1993 26,298 2.09 95.0
1994 25,741 1.74 154.8
1995 31,577 1.74 215.6
</TABLE>
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosure" ("SFAS No. 118"). These standards specify how
allowances for certain impaired loans should be determined and the accounting
for in-substance foreclosures. Adoption of these standards did not have a
material impact on the Corporation's results of operations. Loans previously
classified as in-substance foreclosures but for which the Corporation had not
taken possession of the collateral have been reclassified to loans for all
periods presented.
The Corporation has certain lending policies and procedures in place which
are designed to maximize loan income within an acceptable level of risk. These
policies and procedures, some of which are described below, are reviewed
regularly by senior management. A reporting system supplements this review
process by providing management and the board of directors with frequent
reports related to loan production, loan quality, loan delinquencies and non-
performing and potential problem loans.
Commercial and industrial loans are a diverse group of loans to small,
medium and large businesses. The purpose of these loans vary from supporting
seasonal working capital needs to term financing of equipment. These loans are
underwritten after obtaining an understanding and analyzing the management and
the financial condition of the business, including its ability to generate
sufficient cash flow to repay the debt according to scheduled terms. While
some short-term loans may be made on an unsecured basis, most are secured by
the assets being financed with appropriate collateral margins.
Diversification in the loan portfolio is a means of managing risk
associated with fluctuations in economic conditions. At December 31, 1995, the
Corporation had no concentration of commercial and industrial loans in any
single industry that exceeded 10% of total loans.
The diversity of the commercial real estate portfolio allows the
Corporation to reduce the impact of a decline in a single market or industry.
In addition to monitoring and evaluating commercial real estate loans based on
collateral, geography and risk grade criteria, management closely tracks its
level of owner-occupied commercial real estate loans versus non-owner occupied
loans. Additionally, the bank utilizes the knowledge of third party experts to
provide insight and guidance about the economic conditions and dynamics of the
markets served by the Corporation. Within the commercial real estate loan
category, the Corporation's primary focus has been the growth of loans secured
by owner-occupied properties. At December 31, 1995, a majority of the
Corporation's commercial real estate loans were secured by owner-occupied
properties. These loans are viewed primarily as cash flow loans and
secondarily as loans secured by real estate. Consequently, these loans must
withstand the analysis of a commercial loan and the underwriting process of a
commercial real estate loan.
Loans secured by non-owner occupied commercial real estate are made to
developers and builders who have a relationship with the Corporation and who
have a proven record of success. These loans are underwritten through the use
of feasibility studies, independent appraisal reviews, sensitivity analysis of
absorption and lease rates and financial analysis of the developers and
property owners. Sources of repayment for these types of loans may be pre-
committed permanent loans from approved long-term lenders, sales of developed
property or an interim loan commitment from the Corporation. These loans are
closely monitored by on-site inspections and are considered more risky than the
other real estate loans due to their ultimate repayment being sensitive to
interest rate changes, general economic conditions and the availability of
long-term financing.
The consumer loan portfolio has three distinct segments. Indirect
consumer loans, which represent 62 percent of the consumer loan portfolio,
direct non-real estate consumer loans, which represent 26 percent of the
portfolio and direct real estate consumer loans, which represent 12 percent.
The indirect segment is composed almost exclusively of new and used automobile
financing. Non-real estate direct loans include automobile loans, unsecured
revolving credit products, personal loans secured by cash and cash equivalents,
and other similar types of credit facilities. The direct real estate loans are
primarily extended for home improvement purposes.
A computer based credit scoring analysis is used to supplement the
consumer loan underwriting process. To monitor and manage consumer loan risk,
policies and procedures are developed and modified, as needed, jointly by line
and staff personnel. This activity, coupled with relatively small loan amounts
that are spread across many individual borrowers, minimizes the risk of any
major charge-offs. Additionally, trend and outlook reports are provided to
senior management on a frequent basis to aid in planning.
<PAGE>
The Corporation has an independent Loan Review Division that reviews and
validates the credit risk program on a periodic basis. Results of these
reviews are presented to senior management and the board of directors. Loan
Review's function complements and reinforces the risk identification and
assessment decisions made by lenders and credit personnel as well as the
Corporation's policies and procedures.
Loans identified as losses by management, internal loan review and/or bank
examiners are charged-off. Furthermore, installment and credit card loans are
charged-off automatically 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.
<TABLE>
<CAPTION>
December 31
-----------------------
1995
-----------------------
Allowance As a
for Percentage
Possible of
Allocation of Allowance Loan Total
for Possible Loan Losses Losses Loans
- --------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 7,991 .44%
Real estate 9,076 .50
Consumer 12,110 .67
Purchasing or carrying securities 6
Financial institutions 32
Other, including foreign 167 .01
Not allocated 2,195 .12
------- -----
Total $31,577 1.74%
======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1994 1993
----------------------- ------------------------
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 $ 4,291 .29% $ 3,453 .27%
Real estate 8,584 .58 10,432 .83
Consumer 10,384 .70 6,756 .54
Purchasing or carrying securities 7 3
Financial institutions 28 8
Other, including foreign 160 .01 332 .03
Not allocated 2,287 .16 5,314 .42
------- ----- ------- -----
Total $25,741 1.74% $26,298 2.09%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1992 1991
----------------------- ------------------------
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 $ 3,752 .36% $ 4,970 .45%
Real estate 14,069 1.37 17,725 1.60
Consumer 5,238 .51 3,212 .29
Purchasing or carrying securities 59 .01 7
Financial institutions 123 .01 197 .02
Other, including foreign 498 .05 1,152 .10
Not allocated 8,158 .79 15,124 1.36
------- ---- ------- ----
Total $31,897 3.10% $42,387 3.82%
======= ==== ======= ====
</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
$1,536,567,000 at year-end 1995. During the fourth quarter of 1995, the
Financial Accounting Standards Board granted a one-time reassessment of the
classification of all securities. The Corporation took advantage of this
opportunity and reclassified $733,206,000 in securities from held to maturity
to available for sale. Subsequently, in December 1995, the Corporation sold
$79,075,000 in securities from its available for sale portfolio resulting in
securities losses of approximately $1.5 million. This portfolio restructuring
of replacing lower-yielding securities with higher-yielding securities should
have a favorable impact on net interest income in the future. Securities
available for sale totaled $1,325,836,000 at December 31, 1995, compared to
$542,797,000 at year-end 1994. These securities consist primarily of U.S.
Treasury securities and obligations of U.S. Government agencies. The
remaining securities, consisting primarily of 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, 1995 was 6.36 percent compared with 5.70 percent for 1994.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
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 $ 223,457 14.5% $ 241,625 15.2% $ 285,068 17.7%
U.S. Government
agencies and
corporations 1,301,731 84.7 1,325,070 83.1 1,280,915 79.5
States and political
subdivisions 5,527 .4 5,683 .3 7,216 .4
Other 5,852 .4 21,664 1.4 38,672 2.4
---------- ------ ---------- ------ ---------- ------
Total $1,536,567 100.0% $1,594,042 100.0% $1,611,871 100.0%
========== ====== ========== ====== ========== ======
Average yield
earned during
the year (taxable-
equivalent basis) 6.36% 5.70% 5.78%
</TABLE>
<PAGE>
INTEREST RATE SWAPS
During 1995, the Corporation continued its strategy of entering into off-
balance sheet interest rate swaps to hedge its interest rate risk by converting
fixed rate loans into synthetic variable rate instruments. The Corporation had
12 interest rate swaps at December 31, 1995. Seven swaps, with an original
total notional amount of $59 million, were each a hedge against a specific
commercial fixed rate loan. The remaining five swaps, with an original total
notional amount of $91 million, were each a hedge against a specific pool of
consumer fixed rate loans. These swaps are all amortizing swaps that amortize
in conjunction with the specific loan or specific pool of loans which have
lives ranging from two to ten years and were entered into with counterparts
which have a long-term debt rating that is investment grade. 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 were all amortizing swaps that amortized in conjunction
with the loans which had 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 1995 and 1994.
<TABLE>
<CAPTION>
DEPOSITS
Total Average Deposits
(Graphic material omitted)
Average Average Average
Year Demand Time Total Cost of Time
Ended Deposits Deposits Deposits Deposits
- ----- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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
1995 864,566 2,428,349 3,292,915 3.70
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ -------------------
Average Percent Average Percent Average Percent
Demand Deposits Balance Change Balance Change Balance Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
individual $696,499 +3.4% $673,764 + 6.7% $631,363 +27.5%
Correspondent
banks 131,295 +5.5 124,416 -13.0 143,008 + 4.8
Public funds 36,772 -4.6 38,531 - 8.4 42,075 +24.3
-------- -------- --------
Total $864,566 +3.3 $836,711 + 2.5 $816,446 +22.7
======== ======== ========
</TABLE>
<PAGE>
Total average time deposits increased 6.3 percent from 1994, with the
largest dollar increase coming from time accounts under $100,000. All other
categories of time deposits showed strong increases, except for savings and
Interest-on-Checking, which were down 9.5 percent with virtually all of the
decrease coming from passbook savings primarily due to the low rate
environment.
<TABLE>
<CAPTION>
1995 1994
------------------------ -----------------------
Average Percent Average Percent
Time Deposits Balance Change Cost Balance Change Cost
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings and Interest-
on-Checking $ 720,489 - 9.5% 1.76% $ 796,178 + 6.1% 1.81%
Money market
deposit accounts 616,931 +12.7 3.84 547,237 + 2.3 2.87
Time accounts of
$100,000 or more 450,959 +23.6 5.09 364,997 - 2.8 3.35
Time accounts under
$100,000 513,999 + 5.0 4.87 489,604 - 7.9 3.50
Public funds 125,971 +46.3 4.33 86,132 +14.9 2.90
---------- ----------
Total $2,428,349 + 6.3 3.70 $2,284,148 + .7 2.71
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993
-------------------------
Average Percent
Time Deposits Balance Change Cost
- -------------------------------------------------
<S> <C> <C> <C>
Savings and Interest-
on-Checking $ 750,386 +38.7% 1.98%
Money market
deposit accounts 534,814 +11.9 2.51
Time accounts of
$100,000 or more 375,322 -19.0 2.77
Time accounts under
$100,000 531,803 +10.1 3.25
Public funds 74,979 - 5.8 2.83
----------
Total $2,267,304 +10.9 2.56
==========
</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's
average foreign deposits declined 4.4 percent from 1994. The turbulent
economic conditions which started with the peso devaluation in December 1994
continued in 1995. The Mexican economy is expected to generate positive growth
in 1996; however, the country is not expected to fully regain the jobs and
production that were lost in 1995. Financial and political uncertainty, high
interest rates, reduced real wages, and financial system difficulties will
continue to restrain economic growth. This economic restraint is not expected
to have a significant impact on the Corporation's level of foreign deposits.
<TABLE>
<CAPTION>
Foreign Deposits 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Average balance $498,610 $521,413 $505,746
Percentage of total average deposits 15.1% 16.7% 16.4%
</TABLE>
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>
1995 1994 1993
---------------- ---------------- ----------------
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 $117,158 5.75% $108,762 3.81% $255,613 3.02%
Federal funds purchased
and securities sold
under repurchase
agreements 251,392 5.29 191,611 3.74 131,096 2.52
-------- -------- --------
Net funds position (134,234) $(82,849) $124,517
======== ======== ========
</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, 1995 and 1994.
<PAGE>
CAPITAL
At December 31, 1995, shareholders' equity reached the highest level in
the Corporation's history, $341,464,000, an increase of 15.6 percent from
$295,437,000 at December 31, 1994. The increase in 1995 was due primarily to
earnings growth and an $11.1 million change in unrealized gains, net of taxes,
on securities available for sale, partially offset by $12.7 million of
dividends paid. The Corporation had an unrealized gain on securities available
for sale, net of deferred taxes, of $8.5 million as of December 31, 1995
compared to a $2.6 million unrealized loss as of December 31, 1994, reflecting
the change of $11.1 million during 1995. The unrealized gain is primarily due
to the decline 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 $.22 per common share during
the first two quarters of 1995 increasing to $.35 per common share during the
third and fourth quarters. 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.
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, 1995 December 31, 1994
----------------- ------------------
Capital Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 281,334 13.07% $ 256,552 14.44%
Tier 1 Capital Minimum requirement 86,126 4.00 71,075 4.00
Total Capital $ 308,306 14.32% $ 278,806 15.69%
Total Capital Minimum requirement 172,252 8.00 142,149 8.00
Risk-adjusted assets, net of goodwill $2,153,155 $1,776,863
Leverage ratio 6.94% 6.99%
Average equity as a percentage
of average assets 8.20 7.85
</TABLE>
In December of 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") established five capital tiers for depository
institutions. Effective December 16, 1992, federal banking agencies adopted
final rules relating to these tiers. At December 31, 1995, the Corporation's
subsidiary banks were considered "well capitalized" as defined by FDICIA, the
highest rating, and the Corporation's capital ratios were in excess of "well
capitalized" levels. 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
Tier 1 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.
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 37.
Management fees are not assessed.
NON-BANKING SUBSIDIARIES
Cullen/Frost has three principal non-banking subsidiaries. Main Plaza
Corporation 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. 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.
<PAGE>
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 accordance with generally accepted accounting principles in all
material respects.
/s/ T.C. FROST
T.C. Frost
Senior Chairman and
Chief Executive Officer
/s/ RICHARD W. EVANS, JR.
Richard W. Evans, Jr.
Chairman and Chief Operating
Officer
/s/ PHILLIP D. GREEN
Phillip D. Green
Executive Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(dollars in thousands, except per share amounts)
Year Ended December 31
-----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans, including fees $150,497 $106,252 $ 90,756
Securities:
Taxable 98,521 94,760 90,447
Tax-exempt 341 349 698
-------- -------- --------
Total Securities 98,862 95,109 91,145
Time deposits 2 2 4
Federal funds sold and securities
purchased under resale agreements 6,732 4,146 7,714
-------- -------- --------
Total Interest Income 256,093 205,509 189,619
Interest expense:
Deposits 89,809 61,996 58,079
Federal funds purchased and securities
sold under repurchase agreements 13,296 7,166 3,304
Long-term notes payable and other borrowings 733 410
-------- -------- --------
Total Interest Expense 103,838 69,162 61,793
-------- -------- --------
Net Interest Income 152,255 136,347 127,826
Provision (credit) for possible loan losses 6,272 (6,085)
-------- -------- --------
Net Interest Income After Provision
(Credit) for Possible Loan Losses 145,983 136,347 133,911
Non-interest income:
Trust department 31,762 29,529 26,278
Service charges on deposit accounts 30,382 28,182 27,303
Other service charges, collection and
exchange charges, commissions and fees 11,055 9,366 7,972
Net gain (loss) on securities transactions (1,396) (4,038) 1,433
Other 15,940 13,776 13,243
-------- -------- --------
Total Non-Interest Income 87,743 76,815 76,229
Non-interest expense:
Salaries and wages 58,177 52,986 53,654
Pension and other employee benefits 10,905 9,910 12,052
Net occupancy of banking premises 17,992 15,777 20,749
Furniture and equipment 11,259 10,937 10,155
Provision for real estate losses 610 1,445
Restructuring costs 400 830 10,285
Other 63,106 65,122 63,738
-------- -------- --------
Total Non-Interest Expense 162,449 155,562 172,078
-------- -------- --------
Income Before Income Taxes (Credits) and
Cumulative Effect of Accounting Change 71,277 57,600 38,062
Income taxes (credits) 24,998 20,177 (735)
-------- -------- --------
Income before cumulative effect of accounting change 46,279 37,423 38,797
Cumulative effect of change in accounting for income taxes 8,439
-------- -------- --------
Net Income $ 46,279 $ 37,423 $ 47,236
======== ======== ========
Per Share
Income before cumulative effect of accounting change-
Primary $ 4.08 $ 3.33 $ 3.48
Fully diluted 4.06 3.33 3.48
Net income-
Primary 4.08 3.33 4.24
Fully diluted 4.06 3.33 4.24
Dividends 1.14 .67 .15
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(dollars in thousands, except per share amounts)
December 31
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 533,333 $ 365,792
Time deposits 64 12
Securities held to maturity (market value:
1995-$214,962; 1994-$981,801) 210,731 1,051,245
Securities available for sale 1,325,836 542,797
Federal funds sold and securities purchased under
resale agreements 100,550 167,550
Loans, net of unearned discount of $1,337 in 1995
and $3,487 in 1994 1,816,762 1,483,293
Less: Allowance for possible loan losses (31,577) (25,741)
---------- ----------
Net loans 1,785,185 1,457,552
Banking premises and equipment 89,493 88,667
Accrued interest and other assets 155,019 120,105
---------- ----------
Total Assets $4,200,211 $3,793,720
========== ==========
Liabilities
Demand deposits:
Commercial and individual $ 792,879 $ 710,138
Correspondent banks 127,549 77,425
Public funds 71,581 44,740
---------- ----------
Total demand deposits 992,009 832,303
Time deposits:
Savings and Interest-on-Checking 718,582 763,300
Money market deposit accounts 711,865 559,153
Time accounts 998,738 842,520
Public funds 224,539 90,686
---------- ----------
Total time deposits 2,653,724 2,255,659
---------- ----------
Total deposits 3,645,733 3,087,962
Federal funds purchased and securities sold under
repurchase agreements 111,395 370,235
Accrued interest and other liabilities 101,619 40,086
---------- ----------
Total Liabilities 3,858,747 3,498,283
Shareholders' Equity
Common stock, par value $5 per share 55,997 55,615
Shares authorized: 1995-30,000,000;1994-30,000,000
Shares outstanding: 1995-11,199,450;1994-11,123,062
Surplus 118,418 116,362
Retained earnings 158,563 126,038
Unrealized gain (loss) on securities available for sale,
net of tax 8,486 (2,578)
---------- ----------
Total Shareholders' Equity 341,464 295,437
---------- ----------
Total Liabilities and Shareholders' Equity $4,200,211 $3,793,720
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(dollars in thousands)
Year Ended December 31
------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 46,279 $ 37,423 $ 47,236
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (credit) for possible loan losses 6,272 (6,085)
Provision for real estate losses 610 1,445
Provision (credit) for deferred taxes (1,150) 2,106 (6,364)
Accretion of discounts on loans (1,870) (4,563) (8,615)
Accretion of securities' discounts (17,031) (11,624) (2,602)
Amortization of securities' premiums 2,248 3,385 5,678
Net realized loss(gain) on securities
transactions 1,396 4,038 (1,433)
Net gain on sale of assets (5,297) (2,074) (3,443)
Depreciation and amortization 18,825 18,448 16,766
(Increase )decrease in accrued interest
receivable (3,092) (2,603) 1,624
Increase in accrued interest payable 2,763 1,629 160
Restructuring accrual (561) (1,695) 7,715
Cumulative effect of change in accounting
principle (8,439)
Net change in other assets and liabilities 36,497 2,669 (634)
--------- --------- ----------
Net cash provided by operating activities 85,889 47,139 43,009
Investing Activities
Proceeds from sales of securities held to maturity 101,309
Proceeds from maturities of securities
held to maturity 106,424 145,609 483,153
Purchases of securities held to maturity (833) (209,773) (900,825)
Proceeds from sales of securities
available for sale 147,468 170,894 101,181
Proceeds from maturities of securities
available for sale 677,915 343,330 778,066
Purchases of securities available for sale (806,723) (451,883) (688,504)
Net increase in loan portfolio (208,107) (207,741) (64,638)
Proceeds from sales of equipment 31 4,458 4,167
Purchases of premises and equipment (6,352) (16,403) (13,326)
Proceeds from sales of repossessed properties 1,719 2,912 4,775
Net cash and cash equivalents received from
bank acquisition 8,734 (22,536) 183,131
--------- --------- ----------
Net cash used by investing activities (79,724) (241,133) (11,511)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 305,696 (34,165) 108,968
Net increase (decrease) in certificates of deposit 68,329 (25,210) (175,267)
Net increase (decrease) in Federal funds purchased
and securities sold under repurchase agreements (267,565) 206,116 43,605
Principal payments on long-term debt (3,400)
Proceeds from employee stock purchase plan
and options 691 3,061 2,154
Dividends paid (12,723) (7,415) (1,650)
--------- -------- ---------
Net cash provided (used) by financing
activities 94,428 142,387 (25,590)
--------- -------- ---------
Increase (decrease) in cash and
cash equivalents 100,593 (51,607) 5,908
Cash and cash equivalents at beginning of
year 533,354 584,961 579,053
--------- -------- ---------
Cash and cash equivalents at end of year $ 633,947 $ 533,354 $ 584,961
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<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, 1993 $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 expense (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 on securities
available for sale, net of tax (11,702) (11,702)
Cash dividend (7,415) (7,415)
------- ------- ------- ------ --------
Balance at December 31, 1994 55,615 116,362 126,038 (2,578) 295,437
Net Income for 1995 46,279 46,279
Proceeds from employee stock purchase
plan and options 250 475 (34) 691
Tax benefit related to exercise of 503 503
stock options
Issuance of restricted stock 132 1,078 1,210
Restricted stock plan deferred
compensation, net (997) (997)
Unrealized gain (loss) on securities
available for sale, net of tax 11,064 11,064
Cash dividend (12,723) (12,723)
------- -------- -------- ------ --------
Balance at December 31, 1995 $55,997 $118,418 $158,563 $8,486 $341,464
======= ======== ======== ====== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Cullen/Frost Bankers, Inc., ("Cullen/Frost" or "the Corporation") through
its wholly- owned subsidiary banks provides a broad array of products and
services throughout central and south Texas. In addition to general commercial
banking, other products and services offered include trust and investment
management, mortgage banking, asset based lending, treasury management and item
processing.
The accounting and reporting policies followed by Cullen/Frost are in
accordance with generally accepted accounting principles and conform to general
practices within the banking industry. The more significant accounting and
reporting policies are summarized below.
Basis of Presentation - The consolidated financial statements include the
accounts of Cullen/Frost and its wholly-owned subsidiaries. Condensed parent
company financial statements reflect investments in subsidiaries using the
equity method of accounting. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to make prior years comparable.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Securities - Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards ("SFAS") No. 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. During
the fourth quarter of 1995, the Financial Accounting Standards Board ("FASB")
granted a one-time reassessment of the classification of all securities.
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 but accrued interest is charged
to current year operations. Loans which are determined to be uncollectible are
charged to the allowance for possible loan losses. The collectability of loans
is continually reviewed by management.
Allowance for Possible Loan Losses - The allowance for possible loan
losses is established through a provision for possible loan losses charged to
current operations. The amount maintained in the allowance reflects
management's continuing assessment of the potential losses inherent in the
portfolio based on evaluations of industry concentrations, specific credit
risks, loan loss experience, current loan portfolio quality, and anticipated
economic, political and regulatory conditions. The Corporation adopted SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosure", effective January 1, 1995. As a result of applying the new
standard, the 1995 allowance for possible loan losses related to loans that are
identified in accordance with SFAS No. 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 and the income recognized in
accordance with SFAS No. 118 is based on the collectability of the principal
amount. The adoption of the standard did not have a material impact on the
Corporation's financial position or results of operation.
Foreclosed Assets - Foreclosed assets consist of property which has been
formally repossessed. Collateral obtained through foreclosure is 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. In
accordance with SFAS No. 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 No.
114, loans previously classified as in-substance foreclosure but for which the
Corporation had not taken possession of the collateral have been reclassified
to loans. Reclassifications related to in-substance have been made to make
prior years comparable. These reclassifications did not impact the Company's
financial condition or results of operations.
Banking Premises and Equipment - Banking premises and equipment are stated
at cost, less accumulated depreciation and amortization. Depreciation and
<PAGE>
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.
Intangible 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 forty years. Core deposit
and other intangibles are amortized on an accelerated basis over their
estimated remaining lives. Intangible assets are included in other assets.
All such intangible assets are periodically evaluated as to the recoverability
of their carrying value.
Federal Income Taxes - Cullen/Frost files a consolidated federal income
tax return which includes the taxable income of all of its principal
subsidiaries. Applicable federal income taxes of the individual subsidiaries
are generally determined on a separate return basis. Effective January 1, 1993,
deferred federal income taxes are recognized under SFAS No. 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.
Accounting Changes - The following is a brief discussion of the SFAS
pronouncements issued by the FASB in 1995 which apply to the Corporation.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of: In March 1995, the FASB issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the present value of expected future cash flows from the use
of the asset and its eventual disposition are less than the carrying amount of
the asset, an impairment loss is recognized. This statement will be adopted in
the first quarter of 1996. The adoption is not expected to have a material
impact on financial position or results of operations.
Accounting for Mortgage Servicing Rights: In May 1995, the FASB issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights." This statement
requires that corporations recognize rights to service mortgage loans for
others as separate assets, whether those rights are acquired through loan
origination activities or through purchase activities. Additionally, the
Corporation must periodically assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. This standard will be
adopted in the first quarter of 1996. The adoption is not expected to have a
material impact on financial position or results of operations.
Accounting for Stock-Based Compensation: In October 1995, the FASB issued
SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123,
effective for fiscal years beginning after December 31, 1995, defines a fair
value-based method of accounting and establishes financial accounting and
reporting standards for stock-based employee compensation plans. Under the
fair value-based method, compensation cost is measured at the grant date based
upon the value of the award and is recognized over the service period. SFAS
No. 123 allows for the election to continue to measure stock-based compensation
cost using the intrinsic value method of Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" (APB No. 25). The election
of this option requires a pro forma disclosure of net income and earnings per
share as if the fair value-based method of accounting, as defined by SFAS No.
123, had been applied. Currently, the Corporation expects to continue to
follow APB No. 25 and will adopt the required disclosures for financial
statements beginning in 1996.
NOTE B - ACQUISITIONS
The transactions listed below have been accounted for as purchase
transactions with the total cash consideration funded through internal sources.
The purchase price has been allocated to the underlying assets and liabilities
based on estimated fair value at the date of acquisition. Such estimates may
be subsequently revised. Results of operations are included from the date of
acquisition.
1996 ACQUISITIONS
S.B.T. Bancshares, Inc. - San Marcos
On January 5, 1996, the Corporation paid approximately $17.7 million to
acquire S.B.T. Bancshares, Inc., including its subsidiary, State Bank and Trust
Company in San Marcos, Texas. Goodwill associated with the transaction
amounted to approximately $6.6 million and will be amortized on a straight-line
method over a 15-year life. Approximately $4.6 million of other intangibles
associated with the acquisition will be amortized over their estimated lives
ranging from five to ten years on an accelerated method. The Corporation
acquired loans of approximately $51 million and deposits of approximately $112
million.
Park National Bank - Houston
On February 15, 1996, the Corporation paid approximately $33.5 million to
acquire Park National Bank in Houston, Texas. Goodwill associated with the
transaction amounted to approximately $9.9 million and will be amortized on a
straight-line method over a 15-year life. Approximately $7.6 million of other
intangibles associated with the acquisition will be amortized over their
estimated lives ranging from five to ten years on an accelerated method. The
Corporation acquired loans of approximately $157 million and deposits of
approximately $225 million.
1995 ACQUISITIONS
Valley Bancshares, Inc. - McAllen
On April 4, 1995, the Corporation paid approximately $9.2 million to
acquire Valley Bancshares, Inc., including its subsidiary, Valley National Bank
in McAllen, Texas. Goodwill associated with the transaction amounted to
approximately $1.7 million and
<PAGE>
is being amortized on a straight-line method over a 15-year life.
Approximately $3.3 million of other intangibles associated with the acquisition
are being amortized over their estimated lives ranging from six to ten years on
an accelerated method. The Corporation acquired loans of approximately $28
million and deposits of approximately $49 million. Cullen/Frost's results of
operation would not have been materially impacted if the Valley Bancshares
acquisition had occurred at the beginning of 1995 or 1994.
National Commerce Bank - Houston
On May 19, 1995, the Corporation paid approximately $24.2 million to
acquire National Commerce Bank in Houston, Texas. Goodwill associated with the
transaction amounted to approximately $9.6 million and is being amortized on a
straight-line method over a 15-year life. Approximately $6.3 million of other
intangibles associated with the acquisition are being amortized over their
estimated lives ranging from six to eleven years on an accelerated method. The
Corporation acquired loans of approximately $95 million and deposits of
approximately $101 million. Cullen/Frost's results of operations would not
have been materially impacted if the National Commerce acquisition had occurred
at the beginning of 1995 or 1994.
Comerica Bank branches - San Antonio
On July 21, 1995, the Corporation acquired the two San Antonio branches of
Comerica Bank Texas. The Corporation acquired loans of approximately $2
million and deposits of approximately $34 million.
1994 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, paid approximately $5.1
million to acquire 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. Goodwill recorded as a
result of the transaction approximated $2.3 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.
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 $37,397,000 for 1995 and $47,302,000
for 1994.
NOTE D - SECURITIES
Securities
A summary of the amortized cost and estimated fair value of securities is
presented below.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to
Maturity:
U.S. Treasury
U.S. Government
agencies and
corporations $ 205,364 $ 4,014 $ 79 $ 209,299
States and political
subdivisions 5,342 296 5,638
Other 25 25
--------- --------- ---------- ----------
Total $ 210,731 $ 4,310 $ 79 $ 214,962
========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available
for Sale:
U.S. Treasury $ 223,263 $ 194 $ 223,457
U.S. Government
agencies and
corporations 1,083,509 17,777 $ 4,919 1,096,367
States and political
subdivisions 184 3 2 185
Other 5,824 5 2 5,827
--------- --------- ---------- ----------
Total $1,312,780 $ 17,979 $ 4,923 $1,325,836
========= ========= ========== ==========
</TABLE>
<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
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------
Amortized Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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>
<PAGE>
The amortized cost and estimated fair value of securities at December 31, 1995
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, 1995
-------------------------------------------------------------
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 $ 50 $ 50 $ 223,488 $ 223,682
Due after one year through
five years 185 186 1,013 1,017
Due after five years through
ten years 723 743 34 34
Due after ten years 4,409 4,684 4,736 4,736
---------- ---------- ---------- ----------
5,367 5,663 229,271 229,469
Mortgage-backed securities and
collateralized mortgage 205,364 209,299 1,083,509 1,096,367
obligations ---------- ---------- ---------- ----------
Total $ 210,731 $ 214,962 $1,312,780 $1,325,836
========== ========== ========== ==========
</TABLE>
On November 15, 1995, the FASB staff issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in this report, the
Corporation took advantage of a one-time reassessment of the classification of
all securities and reclassified securities with an amortized cost of
$733,206,000 from the held to maturity category to the available for sale
category. The unrealized loss on those securities at the time of the transfer
was $2,351,000.
Proceeds from sales of securities available for sale during 1995 were
$147,468,000. During 1995, gross gains of $100,000 and gross losses of
$1,496,000 were realized on those sales. 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.
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 $342,003,000 at December 31, 1995 and
$833,034,000 at December 31, 1994.
NOTE E - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of loans outstanding follows:
<TABLE>
<CAPTION>
December 31
-------------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Real Estate:
Construction $ 54,168 $ 44,502
Land 37,695 36,805
Permanent mortgages:
Commercial 198,276 177,223
Residential 339,576 277,725
Other 208,190 178,263
Commercial and industrial 508,990 375,085
Consumer 402,169 331,039
Financial institutions 10,409 5,578
Foreign 43,847 45,290
Purchasing or carrying securities 1,711 1,884
Other 13,068 13,386
Unearned discount (1,337) (3,487)
---------- ----------
Total loans $1,816,762 $1,483,293
========== ==========
</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
<PAGE>
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 $631,887,000 and $39,911,000,
respectively, at December 31, 1995. Commitments to extend credit and standby
letters of credit amounted to $504,183,000 and $43,035,000, respectively, at
December 31, 1994. Commercial and industrial loan commitments represent
approximately 78 percent and 72 percent of the total loan commitments
outstanding at December 31, 1995 and 1994, respectively.
The majority of the Corporation's real estate loans are secured by real
estate in San Antonio. Mortgage loans of approximately $7.3 million and $4.9
million were held for sale by the Corporation and are included in residential
permanent mortgages at December 31, 1995 and 1994, 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 $57,692,000 and $33,802,000 at December 31, 1995 and 1994,
respectively. During 1995, additions to these loans amounted to $82,331,000,
repayments totaled $57,805,000 and other changes totaled $636,000. 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 $1,386,000 and
$1,363,000 at December 31, 1995 and 1994, respectively.
A summary of the changes in the allowance for possible loan losses
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year $25,741 $26,298 $31,897
Provision (credit) for possible loan losses 6,272 (6,085)
Changes related to disposition of bank
subsidiary (2,684)
Net charge-offs:
Losses charged to the allowance (4,681) (4,022) (8,200)
Recoveries 4,245 6,149 8,686
------- ------- -------
Net (charge-offs) recoveries (436) 2,127 486
------- ------- -------
Balance at the end of the year $31,577 $25,741 $26,298
======= ======= =======
</TABLE>
At December 31, 1995, the recorded investment in impaired loans totaled
$9,112,000, of which $4,565,000 related to loans with no valuation reserve and
$4,547,000 related to loans with a valuation reserve of $712,000. The majority
of the impaired loans were real estate loans and collectability was measured
based on the fair value of the collateral. The average recorded investment in
the impaired loans during 1995 was approximately $9,312,000. Interest payments
on impaired loans are typically applied to principal unless collectability of
the principal amount is fully assured, in which case interest is recognized on
the cash basis. There was no interest revenue recognized on impaired loans by
the Corporation during 1995. The total allowance for possible loan losses
includes activity related to allowances calculated in accordance with SFAS No.
114 and activity related to other loan loss allowances determined in accordance
with SFAS No. 5.
NOTE F - NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
December 31
---------------------
(in thousands) 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Non-accrual and restructured loans $14,646 $16,627
Foreclosed assets 1,509 3,311
------- -------
$16,155 $19,938
======= =======
</TABLE>
There was no interest income recognized on non-accrual and restructured
loans by Cullen/Frost in 1995. The Corporation recognized approximately $7,000
in interest income on non-accrual and restructured loans in 1994 compared with
approximately $57,000 in 1993. Had these reduced earning and non-earning loans
performed according to their original contract terms, Cullen/Frost would have
recognized interest income of approximately $1,403,000 in 1995, $1,082,000 in
1994 and $1,394,000 in 1993.
<PAGE>
NOTE G - BANKING PREMISES AND EQUIPMENT
A summary of banking premises and equipment follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------
1995 1994
----------------------------- ------------------------------
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 $ 35,468 $35,468 $ 34,319 $34,319
Buildings 40,443 $17,100 23,343 38,409 $17,680 20,729
Furniture and equipment 71,505 56,258 15,247 67,050 50,398 16,652
Leasehold improvements 29,776 15,950 13,826 26,150 12,600 13,550
Construction in progress 1,609 1,609 3,417 3,417
-------- ------- ------- ------- ------- -------
Total banking premises
and equipment $178,801 $89,308 $89,493 $169,345 $80,678 $88,667
======== ======= ======= ======== ======= =======
</TABLE>
NOTE H - DEPOSITS
A summary of deposits outstanding by category follows:
<TABLE>
<CAPTION>
December 31
----------------------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $ 992,009 $ 832,303
Savings and Interest-on-Checking 718,582 763,300
Money market deposit accounts 711,865 559,153
Time accounts of $100,000 or more 467,652 370,739
Time accounts under $100,000 531,086 471,781
Other 224,539 90,686
---------- ----------
Total deposits $3,645,733 $3,087,962
========== ==========
</TABLE>
Foreign deposits totaled $494,872,000 and $531,343,000 at December 31, 1995 and
1994, respectively.
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, 1995 and 1994.
NOTE J-COMMON STOCK AND EARNINGS PER COMMON SHARE
The weighted-average number of shares outstanding used to compute primary
and fully diluted earnings per common share were 11,337,824 and 11,389,830,
respectively, for the year ended December 31, 1995. The weighted-average
number 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.
Earnings per share calculations for the years ended December 31, 1995,
1994, and 1993 include the effect of common stock equivalents applicable to the
stock option contracts.
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 $18,846,000 available for the payment of dividends to
Cullen/Frost at December 31, 1995.
<PAGE>
NOTE L- LEASES AND RENTAL AGREEMENTS
Rental expense for all leases amounted to $9,842,000, $8,822,000 and
$11,699,000 for the years ended December 31, 1995, 1994 and 1993, 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 $4,404,000, $4,368,000 and $4,688,000 for 1995,
1994 and 1993, 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, 1995 follows:
<TABLE>
<CAPTION>
Total
(in thousands) Commitments
- ------------------------------------------------------------------------------
<S> <C>
1996 $10,902
1997 9,102
1998 8,355
1999 7,612
2000 4,780
Subsequent to 2000 18,424
-------
Total future minimum rental commitments $59,175
=======
</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>
The funded status of the plans and the amounts recognized in
Cullen/Frost's consolidated balance sheets at December 31, 1995 and 1994 are
presented below:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $25,441 in 1995 and $21,290 in 1994 $26,638 $21,991
======= =======
Projected benefit obligation for service rendered
to date $39,808 $31,659
Plan assets at fair value (primarily listed stocks and
U.S. and corporate bonds) 24,991 18,384
------- -------
Projected benefit obligation in excess of plan assets 14,817 13,275
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (7,775) (6,729)
Unrecognized prior service cost (5,407) (4,519)
Unrecognized net transitional asset 790 890
------- -------
Accrued pension cost included in other liabilities $ 2,425 $ 2,917
======= =======
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 1,731 $1,444 $1,172
Actual return on plan assets, net of expenses (3,837) 388 (567)
Interest cost on projected benefit obligation 2,607 2,306 2,135
Net amortization and deferral 2,788 (1,326) (345)
------- ------ ------
Net pension cost $ 3,289 $2,812 $2,395
======= ====== ======
</TABLE>
The weighted-average discount rate used for calculating the pension
obligation at December 31, 1994 and for calculating the net periodic pension
cost for 1995 was 8 percent; the assumed rate of future compensation increases
was 5 percent. The discount rate used for calculating the pension obligation
at December 31, 1995 was 7.5 percent, and the assumed rate of future
compensation increases was 5 percent; these assumptions will be used for
calculating the 1996 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
contributions up to 16% of eligible compensation. Cullen/Frost makes matching
contributions 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 55,434 during 1995, 62,626 during 1994 and 43,018 during 1993. The
Corporation's gross expenses related to the 401(k) Plan were $1,521,000 and
$1,296,000 for 1995, 1994 and 1993, respectively. During 1995 and 1994, the
Corporation utilized forfeitures of $1,439,000 and $539,000, respectively, to
offset this expense.
<PAGE>
The 1991 Thrift Incentive Stock Purchase Plan ("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 14,903 during 1995, 17,051 during 1994
and 17,909 during 1993. The Corporation's expenses related to the 1991 Stock
Plan were $595,000, $574,000 and $541,000 for 1995, 1994 and 1993,
respectively.
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 option 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, 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
Granted 102,000 45.75
Exercised 21,968 6.82- 14.09 17,326 6.03- 10.91 11,871 25.45- 36.25
Canceled 1,254 10.91 902 10.91 2,627 25.45- 35.50
------- ------------- ------- ----------- ------- -------------
Balance, Dec. 31, 1995 27,767 $ 6.82-$14.09 116,397 $6.03-$10.91 414,033 $25.45-$45.75
======= ============== ======= ============ ======= =============
</TABLE>
In 1995, restricted stock grants of 26,450 were awarded under the 1992
Stock Plan. Restricted stock grants awarded under the 1992 Stock Plan totaled
6,375 and 4,988 shares for 1994 and 1993, respectively. Deferred compensation
expense related to the restricted stock was $213,000 in 1995, $111,000 in 1994,
and $117,000 in 1993. 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 16 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 from 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 eight agreements,
each covered person could receive from 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
$8,458,000 at December 31, 1995.
The Corporation adopted SFAS 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 FASB issued SFAS 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>
NOTE N- INCOME TAXES
The following is an analysis of the Corporation's income taxes included in
the consolidated statements of operations for the years ended December 31,
1995, 1994, and 1993.
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- ---------------- ------- ------- ------
<S> <C> <C> <C>
Current income tax expense $26,148 $18,071 $ 5,629
Deferred income tax (1,150) 2,106 7,196
Decrease in deferred tax valuation
allowance (13,560)
-------- ------- -------
Income tax expense (credit) as
reported $24,998 $20,177 $ (735)
======= ======= ========
</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) 1995 1994 1993
- -------------- ------------------------------
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of accounting change $71,277 $57,600 $38,062
Statutory rate 35% 35% 35%
-------- ------- -------
Income tax expense at the statutory rate 24,947 20,160 13,322
Effect of tax-exempt interest (565) (406) (574)
Change in deferred tax valuation allowance (13,560)
Other 616 423 77
-------- ------- -------
Income tax expense (credit) as reported $24,998 $20,177 $ (735)
======== ======= =======
</TABLE>
Cullen/Frost adopted SFAS No. 109, "Accounting for Income Taxes," as of
January 1, 1993. As permitted by SFAS No. 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 $24,998,000 in 1995 compared to a
tax expense of $20,177,000 in 1994 and 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. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized. The
reduction of the valuation allowance was based mainly on the level of earnings
obtained in 1993 and projected future earnings. At December 31, 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 were 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. At December 31, 1995, no valuation reserve is necessary
because deferred tax assets are supported by $43,000,000 in recoverable taxes
paid in prior years and the future reversal of approximately $5,100,000 in
taxable temporary differences.
Cullen/Frost recognized a tax benefit of $489,000 and $1,413,000 related
to securities transactions in 1995 and 1994, respectively. Cullen/Frost
recognized a tax expense of $501,000 related to securities transactions in
1993.
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995, 1994 and
1993 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- ----------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $11,432 $ 9,010 $10,452
Other real estate and repossessed collateral 662 1,844 3,964
Building modification reserve 1,592 1,592 1,592
Gain on sale of assets 1,289 1,402 1,416
Intangibles 1,280 2,633 1,316
Net occupancy restructuring 1,197 1,988 2,334
Unrealized loss on securities available for sale 1,388
Other 996 1,338 2,943
------- ------- -------
Total gross deferred tax assets 18,448 21,195 24,017
Deferred tax liabilities:
Depreciation and amortization $ (871) $ (882) $(2,129)
Prepaid expenses (670) (631) (880)
Unrealized gain on securities available for sale (4,570) (4,913)
Other (700) (462) (1,070)
------- ------- -------
Total gross deferred tax liabilities (6,811) (1,975) (8,992)
------- ------- -------
Net deferred tax asset $11,637 $19,220 $15,025
======= ======= =======
</TABLE>
NOTE O- NON-INTEREST EXPENSE
Significant components of other non-interest expense for the years ended
December 31, 1995, 1994, and 1993 are presented below:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
Other Non-Interest Expense (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Outside computer service $ 8,108 $ 8,918 $10,611
FDIC insurance 3,624 6,926 6,793
Other professional expenses 2,729 2,920 3,953
Intangible amortization 4,339 4,381 3,865
Amortization of goodwill 3,785 3,246 3,012
Stationery printing and supplies 3,394 2,722 2,890
Other 37,127 36,009 32,614
------- ------- -------
Total $63,106 $65,122 $63,738
======= ======= =======
</TABLE>
NOTE P- CASH FLOW DATA
For purposes of reporting cash flow, cash and cash equivalents include the
following:
<TABLE>
<CAPTION>
December 31
------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $533,333 $365,792 $334,564
Time deposits 64 12 147
Federal funds sold and securities purchased
under resale agreements 100,550 167,550 250,250
-------- -------- --------
$633,947 $533,354 $584,961
======== ======== ========
</TABLE>
<PAGE>
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) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid:
Interest $101,075 $ 67,533 $ 61,633
Income Taxes 25,399 17,020 6,695
Non-cash items:
Loans originated to facilitate the sale of
foreclosed assets 2,059 1,717 5,275
Loan foreclosures 1,883 422 1,090
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
Fair Values of Financial Instruments - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
This disclosure does not and is not intended to represent the fair value of the
Corporation.
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
consolidated 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, 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 No. 107 defines the fair value of demand deposits as the amount
payable on demand, and prohibits adjusting fair value for any deposit base
intangible. The deposit base intangible is not considered in the fair value
amounts. 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>
The estimated fair values of the Corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
1995 1994
-------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 633,883 $ 633,883 $ 533,342 $ 533,342
Interest-bearing deposits in
other banks 64 64 12 12
Securities 1,536,567 1,540,798 1,594,042 1,524,598
Loans 1,816,762 1,822,864 1,483,293 1,458,160
Allowance for loan losses (31,577) (25,741) 1,458,160
----------- ---------- ---------- ----------
Net loans 1,785,185 1,822,864 1,457,552 1,458,160
Financial liabilities:
Deposits 3,645,733 3,645,935 3,087,962 3,081,447
Short-term borrowings 134,741 134,741 370,235 370,235
Off-balance sheet instruments:
Interest rate swaps (3,824) 492
</TABLE>
NOTE R - DERIVATIVE FINANCIAL INSTRUMENTS
During 1995, the Corporation continued its strategy of entering into off-
balance sheet interest rate swaps to hedge its interest rate risk by converting
fixed rate loans into synthetic variable rate instruments. The Corporation had
12 interest rate swaps at December 31, 1995. Seven swaps, with an original
total notional amount of $59 million, were each a hedge against a specific
commercial fixed rate loan. The remaining five swaps, with an original total
notional amount of $91 million, were each a hedge against a specific pool of
consumer fixed rate loans. These swaps are all amortizing swaps that amortize
in conjunction with the specific loan or specific pool of loans which have
lives ranging from two to ten years and were entered into with counterparts
which have a long-term debt rating that is investment grade. 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 were all amortizing swaps that amortized in conjunction
with the loans which had 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 1995 or 1994.
The Corporation's credit exposure on swaps is limited to the value of
interest rate swaps that have become favorable to the Corporation. At December
31, 1995, the Corporation had no credit exposure to our interest rate swap
counterparts.
NOTE S - CONTINGENCIES
Certain subsidiaries of Cullen/Frost are defendants in various matters of
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, 1995, the
accrual for leased space is $1.0 million. The reduction is due primarily to
lease payments, net of sublease payments, that were applied against the
restructuring accrual. The incomplete portion of the 1993 restructuring plan
deals principally with the sale of two properties with an aggregate net
carrying value of $1.4 million. These properties have been written down to
their net realizable values. The Corporation has marketing plans in place to
sell these properties.
<PAGE>
NOTE U - CONDENSED PARENT CORPORATION FINANCIAL STATEMENTS
Condensed financial information of the parent Corporation as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995 follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
Statement of Operations (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from second tier
bank holding company subsidiary $56,631 $21,373 $21,692
Interest and other 1,101 537 220
------- ------- --------
Total Income 57,732 21,910 21,912
Expenses:
Salaries and employee benefits 1,051 2,450 812
Interest 111
Other 1,375 2,025 1,553
------- ------- -------
Total Expenses 2,426 4,475 2,476
------- ------- -------
Income Before Income Tax Credits
and Equity in Undistributed Net
Income of Subsidiaries 55,306 17,435 19,436
Income tax credits 375 678 22,351
Equity in undistributed net income
of subsidiaries (9,402) 19,310 5,449
------- -------- -------
Net Income $46,279 $37,423 $47,236
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------
Balance Sheets (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and time deposits $ 350 $ 251
Securities purchased under resale agreements 54,300 18,400
Loans to non-bank subsidiaries 1,198 1,440
Investments in second tier bank holding company subsidiary 292,026 280,894
Other 1,308 1,495
-------- --------
Total Assets $349,182 $302,480
======== ========
Liabilities
Other $ 7,718 $ 7,043
-------- --------
Total Liabilities 7,718 7,043
Shareholders' Equity 341,464 295,437
-------- --------
Total Liabilities and Shareholders' Equity $349,182 $302,480
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
Statements of Cash Flows (in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 46,279 $ 37,423 $ 47,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Net income of subsidiaries (47,229) (40,683) (27,141)
Dividends from subsidiaries 56,631 21,373 21,692
Decrease (increase) in interest receivable 2 (59) 189
Decrease in interest payable (2) (83)
Net change in other liabilities and assets 1,576 2,954 (19,199)
-------- ------- -------
Net cash provided by operating activities 57,259 21,006 22,694
Investing Activities
Capital contributions to subsidiaries (9,470) (1,239) (33,025)
Net (increase) decrease in loans 242 758 (132)
-------- ------- -------
Net cash used by investing activities (9,228) (481) (33,157)
Financing Activities
Proceeds from employee stock purchase plans and options 691 3,061 2,154
Cash dividends (12,723) (7,415) (1,650)
-------- ------- -------
Net cash (used) provided by financing activities (12,032) (4,354) 504
-------- ------- -------
Increase (Decrease) in cash and cash equivalents 35,999 16,171 (9,959)
Cash and cash equivalents at beginning of year 18,651 2,480 12,439
-------- ------- -------
Cash and cash equivalents at end of year $ 54,650 $ 18,651 $ 2,480
======== ======= =======
</TABLE>
<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, 1995 and 1994,
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, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, 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, 1996
<PAGE>
FINANCIAL STATISTICS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands)
The following unaudited schedules and statistics are presented for
additional information and analysis.
<TABLE>
<CAPTION>
1995/1994
--------------------------------
Increase (Decrease)
Due to Change in Total
------------------- or Net
Average Average Increase
Rate/Volume Analysis Rate Balance (Decrease)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in interest earned on:
Time deposits $ 1 $ (1) $ 0
Securities:
U.S. Treasury 3,659 (1,680) 1,979
U.S. Government agencies and corporations 6,400 (3,588) 2,812
States and political subdivisions
Tax-exempt (14) (1) (15)
Taxable (5) (5)
Other 211 (1,236) (1,025)
Federal funds sold and securities purchased
under resale agreements 2,245 341 2,586
Loans 14,844 29,647 44,491
--------- --------- ---------
Total 27,346 23,477 50,823
Changes in interest paid on:
Savings, Interest-on-Checking 426 1,339 1,765
Money market deposits accounts (5,780) (2,186) (7,966)
Time accounts and public funds (16,010) (5,602) (21,612)
Federal funds purchased and securities sold
under repurchase agreements (3,497) (2,633) (6,130)
Long-term notes payable and other borrowings (733) (733)
--------- --------- ---------
Total (24,861) (9,815) (34,676)
--------- --------- ---------
Changes in net interest income $ 2,485 $ 13,662 $ 16,147
========= ========= =========
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.
</TABLE>
<TABLE>
<CAPTION>
1994/1993
--------------------------------
Increase (Decrease)
Due to Change in Total
------------------- 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.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
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 $ 53,814 $ 28,326 $ 9,723 $ 91,863
Other real estate loans 81,826 194,608 159,865 436,299
All other loans 365,497 173,210 39,318 578,025
-------- -------- -------- ----------
Total $501,137 $396,144 $208,906 $1,106,187
======== ======== ======== ==========
Loans with fixed interest rates $165,084 $146,178 $116,931 $ 428,193
Loans with floating interest rates 336,053 249,966 91,975 677,994
-------- -------- -------- ----------
Total $501,137 $396,144 $208,906 $1,106,187
======== ======== ======== ==========
Loans for 1-4 family housing totaling $309,743,000 and consumer loans totaling
$402,169,000 and unearned income of $1,337,000 are not included in the amounts
in the table.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maturity Distribution and Securities Portfolio Yields
(dollars in thousands) December 31, 1995
- ------------------------------------------------------------------------------------------
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
U.S. Government
agencies and
corporations $ 256 8.24%
States and
political
subdivisions $ 50 4.50% $ 160 4.50% 723 6.20
Other 25 8.25
-------- ----- ------- ---- -------- ----
Total securities
held to maturity $ 50 4.50% 185 5.01% $ 979 6.73%
======== ===== ======= ==== ======== ====
Available for sale:
U.S. Treasury $223,457 5.49%
U.S. Government
agencies and
corporations $235,050 5.54% $294,288 6.42%
States and
political
subdivisions 151 5.18 34 5.34
Other 225 5.27 866 5.59
-------- ---- ------- ---- -------- ----
Total securities
available for
sale $223,682 5.49% $236,067 5.54% $294,322 6.42%
======== ==== ======== ==== ======== ====
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, 1995
- -----------------------------------------------------------------
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. Government
agencies and
corporations $205,108 6.98% $ 205,364 6.98%
States and
political
subdivisions 4,409 6.36 5,342 6.26
Other 25 8.25
-------- ----- --------- ----
Total securities
held to maturity $209,517 6.96% $ 210,731* 6.96%
======== ===== ========== ====
Available for sale:
U.S. Treasury $ 223,457 5.49%
U.S. Government
agencies and
corporations $567,029 7.20% 1,096,367 6.63
States and
political
subdivisions 185 5.21
Other 4,736 6.00 5,827 5.91
-------- ----- --------- ----
Total securities
available for
sale $571,765 7.19% $1,325,836* 6.44%
======== ==== ========= ====
Weighted average yields have been computed on a fully taxable-equivalent basis
assuming a tax rate of 35%.
* Included in the totals are mortgage-backed securities and collateralized
mortgage obligations of $1,302,000 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 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $111,395 $370,235 $166,519
Maximum month-end balance 367,154 370,235 168,198
For the year:
Average daily balance 251,392 191,611 131,096
Average interest rate 5.29% 3.74% 2.52%
Weighted average daily interest rate 5.68 4.06 2.86
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------
1995 1994
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 $ 52,512 11.2% $ 46,581 12.6%
After three, within six months 123,588 26.4 129,560 34.9
After six, within twelve months 164,722 35.3 120,261 32.4
After twelve months 126,830 27.1 74,337 20.1
-------- ----- -------- -----
Total $467,652 100.0% $370,739 100.0%
======== ===== ======== =====
Percentage of total private time deposits 18.9% 17.1%
Other time deposits of $100,000 or more were $163,176,000 at December 31, 1995.
Of this amount 85.3 percent matures within three months, 7.0 percent matures
between three and six months and the remainder matures between six months and
one year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
Three Months Ended 1995
-------------------------------------
(in thousands, except per share amounts) Mar 31 June 30 Sept 30 Dec 31
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $58,988 $63,915 $66,416 $66,774
Interest expense 22,776 26,564 27,278 27,220
Net interest income 36,212 37,351 39,138 39,554
Provision for possible loan losses 500 2,772 1,500 1,500
Gain (loss) on securities transactions 93 (1,489)
Non-interest income 20,417 22,743 21,066 23,518
Restructuring costs 400
Non-interest expense 39,770 39,932 40,309 42,438
Income before income taxes 16,359 17,390 18,395 19,134
Income taxes 5,720 6,167 6,442 6,670
Net income 10,639 11,223 11,953 12,464
Net income per common share .94 .99 1.05 1.09
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended 1994
-------------------------------------
(in thousands, except per share amounts) Mar 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 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 13,864 14,203 14,772 14,761
Income taxes 4,766 4,961 5,278 5,172
Net income 9,098 9,242 9,494 9,589
Net income per common share .81 .82 .84 .85
</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 common stock at February 20,
1996 was 2,441.
<TABLE>
<CAPTION>
1995 1994
------------- ----------------
Market Price (per share) High Low High Low
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $37.00 $29.75 $36.25 $32.75
Second Quarter 40.75 35.25 39.25 33.75
Third Quarter 48.25 40.50 39.00 35.25
Fourth Quarter 51.50 45.75 38.13 28.50
</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) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter $ .22 $.15
Second Quarter .22 .15
Third Quarter .35 .15
Fourth Quarter .35 .22
----- ----
Total $1.14 $.67
===== ====
</TABLE>
The Corporation's management is committed to the continuation of the
payment of regular cash dividends, however there is no assurance as to future
dividends because they are dependent on future earnings, capital requirements
and financial conditions. See "Capital" section (page 26) in the Financial
Review for further discussion.
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(dollars in thousands, except per share amounts)
Year Ended December 31
---------------------------------------
1995 1994 1993
---------- ------------ ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 4,200,211 $ 3,793,720 $ 3,639,047
Long-term notes payable
Shareholders' equity 341,464 295,437 273,533
Average shareholders' equity to average
total assets 8.20% 7.85% 7.08%
Tier 1 capital ratio (1992 rules) 13.07 14.44 14.23
Total capital ratio (1992 rules) 14.32 15.69 15.49
Per Common Share Data
Net income (loss)* $ 4.08 $ 3.33 $ 4.24
Cash dividends paid 1.14 .67 .15
Shareholders' equity 30.49 26.56 24.85
Loan Performance Indicators
Non-performing assets $ 16,155 $ 19,938 $ 31,110
Non-performing assets to:
Total loans plus foreclosed assets .89% 1.34% 2.47%
Total assets .38 .53 .85
Allowance for possible loan losses $ 31,577 $ 25,741 $ 26,298
Allowance for possible loan losses
to period-end loans 1.74% 1.74% 2.09%
Net loan charge-offs (recoveries) $ 436 $ (2,127) $ (486)
Net loan charge-offs (recoveries) to
average loans .03% (.16)% (.04)%
Common Stock Data
Common shares outstanding at period end 11,199,450 11,123,062 11,009,198
Weighted average common and common
equivalent shares outstanding 11,337,824 11,222,911 11,150,788
Dividends as a percentage of net income 27.94% 20.12% 3.54%
Non-Financial Data
Number of employees 2,019 1,862 1,877
Shareholders of record 2,463 2,553 2,644
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1992 1991 1990
----------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data
Total assets $ 3,150,871 $ 3,078,986 $ 3,254,744
Long-term notes payable 13,400 14,668 16,280
Shareholders' equity 206,144 176,222 173,442
Average shareholders' equity to average
total assets 6.29% 5.67% 5.42%
Tier 1 capital ratio (1992 rules) 15.66 12.98 10.93
Total capital ratio (1992 rules) 17.52 15.04 13.05
Per Common Share Data
Net income (loss)* $ 2.26 $ .02 $ (.85)
Cash dividends paid
Shareholders' equity 19.80 17.55 17.79
Loan Performance Indicators
Non-performing assets $ 51,303 $ 100,642 $ 121,865
Non-performing assets to:
Total loans plus foreclosed assets 4.94% 8.85% 9.11%
Total assets 1.63 3.27 3.74
Allowance for possible loan losses $ 31,897 $ 42,387 $ 45,604
Allowance for possible loan losses
to period-end loans 3.10% 3.82% 3.51%
Net loan charge offs (recoveries) $ 15,988 $ 26,383 $ 29,551
Net loan charge-offs (recoveries) to
average loans 1.53% 2.22% 2.21%
Common Stock Data
Common shares outstanding at period end 10,412,184 10,043,844 9,751,234
Weighted average common and common
equivalent shares outstanding 10,974,329 10,075,263 9,651,942
Dividends as a percentage of net income
Non-Financial Data
Number of employees 1,754 1,737 1,755
Shareholders of record 2,824 3,547 4,136
* 1995 fully dilutive net income per share was $4.06. 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, 1995
----------------------------------
Total Total Total
Assets Loans Deposits
---------- ---------- ----------
<S> <C> <C> <C>
Frost National Bank $4,079,624 $1,760,242 $3,525,602
San Antonio, Houston, Austin and Corpus Christi
and McAllen
Main Office:
P. O. Box 1600, 100 West Houston Street
San Antonio, Texas 78296 (210)220-4011
United States National Bank 137,505 56,113 125,470
P. O. Box 179, 2201 Market Street
Galveston, Texas 77553 (409) 763-1151
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $150,497 $106,252 $ 90,756
Securities 98,862 95,109 91,145
Time deposits 2 2 4
Federal funds sold and securities purchased
under resale agreements 6,732 4,146 7,714
-------- -------- --------
Total Interest Income 256,093 205,509 189,619
Interest expense:
Deposits 89,809 61,996 58,079
Federal funds purchased and securities sold
under repurchase agreements 13,296 7,166 3,304
Long-term notes payable 733 410
Other borrowings
-------- -------- --------
Total Interest Expense 103,838 69,162 61,793
-------- -------- --------
Net Interest Income 152,255 136,347 127,826
Provision (credit) for possible loan losses 6,272 (6,085)
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 145,983 136,347 133,911
Non-interest income:
Trust department 31,762 29,529 26,278
Service charges on deposit accounts 30,382 28,182 27,303
Other service charges, collection and
exchange charges, commissions and fees 11,055 9,366 7,972
Net gain (loss) on securities transactions (1,396) (4,038) 1,433
Other 15,940 13,776 13,243
-------- ------- -------
Total Non-Interest Income 87,743 76,815 76,229
Non-interest expense:
Salaries and wages 58,177 52,986 53,654
Pension and other employee benefits 10,905 9,910 12,052
Net occupancy of banking premises 17,992 15,777 20,749
Furniture and equipment 11,259 10,937 10,155
Provision for real estate losses 610 1,445
Restructuring costs 400 830 10,285
Other 63,106 65,122 63,738
-------- ------- -------
Total Non-Interest Expense 162,449 155,562 172,078
-------- ------- -------
Income (Loss) Before
Income Taxes (Credits), Extraordinary
Credit and Cumulative Effect of
Accounting Change 71,277 57,600 38,062
Income taxes (credits) 24,998 20,177 (735)
-------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change 46,279 37,423 38,797
Extraordinary Credit-income tax benefit
Cumulative effect of change in accounting
for income taxes 8,439
-------- ------- -------
Net Income (Loss) $ 46,279 $37,423 $47,236
======== ======= =======
Net income (loss) per common share-primary $ 4.08 $ 3.33 $ 4.24
======== ======= =======
Return on average assets 1.17% 1.02% 1.34%
Return on average equity 14.32 13.04 19.00
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $ 84,074 $108,617 $134,217
Securities 99,188 111,132 115,452
Time deposits 8 13 82
Federal funds sold and securities purchased
under resale agreements 6,711 11,478 23,130
-------- -------- --------
Total Interest Income 189,981 231,240 272,881
Interest expense:
Deposits 68,807 115,286 147,399
Federal funds purchased and securities sold
under repurchase agreements 3,139 5,913 13,805
Long-term notes payable 1,378 1,502 1,630
Other borrowings 25 3
-------- -------- --------
Total Interest Expense 73,324 122,726 162,837
-------- -------- --------
Net Interest Income 116,657 108,514 110,044
Provision (credit) for possible loan losses 5,498 23,166 32,873
-------- -------- --------
Net Interest Income After
Provision (Credit) for Possible
Loan Losses 111,159 85,348 77,171
Non-interest income:
Trust department 21,861 20,030 18,777
Service charges on deposit accounts 23,663 20,455 16,412
Other service charges, collection and
exchange charges, commissions and fees 6,183 6,748 6,038
Net gain (loss) on securities transactions (232) 2,022 129
Other 10,338 8,227 9,236
------- ------- -------
Total Non-Interest Income 61,813 57,482 50,592
Non-interest expense:
Salaries and wages 46,184 44,154 43,019
Pension and other employee benefits 9,746 9,058 9,148
Net occupancy of banking premises 16,963 16,460 16,690
Furniture and equipment 8,295 7,726 8,067
Provision for real estate losses 12,963 7,653 10,292
Restructuring costs
Other 52,999 56,941 48,531
------- ------- -------
Total Non-Interest Expense 147,150 141,992 135,747
------- ------- -------
Income (Loss) Before Income Taxes
(Credits), Extraordinary Credit and
Cumulative Effect of Accounting Change 25,822 838 (7,984)
Income taxes (credits) 8,197 633 236
------- ------- -------
Income (Loss) before extraordinary credit
and cumulative effect of accounting change 17,625 205 (8,220)
Extraordinary Credit-income tax benefit 6,497
Cumulative effect of change in accounting for
income taxes
------- ------- -------
Net Income (Loss) $24,122 $ 205 $(8,220)
======== ======= =======
Net income (loss) per common share $ 2.26 $ .02 $ (.85)
======== ======= =======
Return on average assets .79% .01% N/M
Return on average equity 12.56 .12 N/M
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1995
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 18 $ 2 3.80%
Securities:
U.S. Treasury 238,968 14,142 5.92
U.S. Government agencies and corporations 1,303,204 83,765 6.43
States and political subdivisions:
Tax-exempt 5,864 543 9.27
Taxable
Other 9,314 593 6.37
---------- --------
Total securities 1,557,350 99,043 6.36
Federal funds sold and securities purchased
under resale agreements 117,158 6,732 5.75
Loans, net of unearned discount 1,682,541 151,197 8.99
---------- --------
Total Earning Assets and Average Rate Earned 3,357,067 256,974 7.65
Cash and due from banks 381,656
Allowance for possible loan losses (28,468)
Banking premises and equipment 90,674
Accrued interest and other assets 143,097
----------
Total Assets $3,944,026
==========
Liabilities:
Demand deposits:
Commercial and individual $ 696,499
Correspondent banks 131,295
Public funds 36,772
----------
Total demand deposits 864,566
Time deposits:
Savings and Interest-on-Checking 720,489 12,660 1.76
Money market deposit accounts 616,931 23,675 3.84
Time accounts 964,958 48,024 4.98
Public funds 125,971 5,450 4.33
---------- --------
Total time deposits 2,428,349 89,809 3.70
----------
Total deposits 3,292,915
Federal funds purchased and securities sold
under repurchase agreements 251,392 13,296 5.29
Long-term notes payable
Other borrowings 12,514 733 5.86
---------- --------
Total Interest-Bearing Funds and
Average Rate Paid 2,692,255 103,838 3.85
Accrued interest and other liabilities 63,917 -------- ----
----------
Total Liabilities 3,620,738
Shareholders' Equity 323,288
----------
Total Liabilities and Shareholders' Equity $3,944,026
==========
Net interest income $153,136
========
Net interest spread 3.80%
====
Net interest income to total average earning assets 4.56%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. 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
------------------------------
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 1,339,656 106,706 7.97
---------- -------
Total Earning Assets and Average Rate Earned 3,119,013 206,151 6.61
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 134,339
----------
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 3.82%
====
Net interest income to total average earning assets 4.39%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1993
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 147 $ 4 2.68%
Securities:
U.S. Treasury 495,760 22,386 4.52
U.S. Government agencies and corporations 1,021,083 65,155 6.38
States and political subdivisions:
Tax-exempt 11,078 1,093 9.86
Taxable 1,148 95 8.25
Other 54,333 2,792 5.14
---------- --------
Total securities 1,583,402 91,521 5.78
Federal funds sold and securities purchased
under resale agreements 255,613 7,714 3.02
Loans, net of unearned discount 1,171,825 91,263 7.79
---------- --------
Total Earning Assets and Average Rate Earned 3,010,987 190,502 6.33
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 129,864
----------
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 3.76%
====
Net interest income to total average earning assets 4.27%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES
(in thousands - taxable-equivalent basis)
Year Ended December 31
------------------------------
1992
------------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Time deposits $ 203 $ 8 4.10%
Securities:
U.S. Treasury 621,460 35,167 5.66
U.S. Government agencies and corporations 669,786 56,712 8.47
States and political subdivisions:
Tax-exempt 13,126 1,228 9.43
Taxable 11,600 736 6.35
Other 100,839 5,756 5.71
---------- --------
Total securities 1,416,811 99,599 7.03
Federal funds sold and securities purchased
under resale agreements 195,398 6,711 3.43
Loans, net of unearned discount 1,045,883 84,792 8.11
---------- --------
Total Earning Assets and Average Rate Earned 2,658,295 191,110 7.19
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 89,953
----------
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 3.80%
====
Net interest income to total average earning assets 4.43%
=====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. 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
------------------------------
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 1,189,565 109,597 9.21
---------- --------
Total Earning Assets and Average Rate Earned 2,721,806 233,380 8.57
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 102,904
----------
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 3.22%
====
Net interest income to total average earning assets 4.07%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. 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 1,339,421 135,451 10.11
---------- --------
Total Earning Assets and Average Rate Earned 2,897,862 275,760 9.52
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 104,025
----------
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 2.98%
====
Net interest income to total average earning assets 3.90%
====
The above information is shown on a taxable-equivalent basis assuming a 35
percent tax rate for 1995 through 1993 and a 34 percent tax rate for 1992
through 1990. Non-accrual loans are included in the average loan amounts
outstanding for these computations.
</TABLE>
EXHIBIT 21
Subsidiaries of Cullen/Frost
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
As of March 25, 1996, Cullen/Frost owned directly, or indirectly
through wholly owned subsidiaries, the following subsidiaries.
PERCENTAGE OF
ORGANIZED VOTING SECURITIES
UNDER OWNED BY
LAWS OF CULLEN/FROST
------------- -----------------
The Frost National Bank United States 100%
United States National Bank of Galveston United States 100%
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, 1996, included
in the 1995 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, 1996
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, 1995.
/s/ERNST & YOUNG LLP
----------------
ERNST & YOUNG LLP
San Antonio, Texas
March 27, 1996
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, Richard W. Evans, Jr. 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, 1995, 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
-------------------- -------------------------------- ----------------
Senior Chairman of the Board
and Director (Principal Executive
/s/T.C. FROST* Officer) February 1, 1996
- ------------------------ ----------------
(T.C. Frost)
Chairman of the Board
/s/RICHARD W. EVANS, Jr* and Director February 1, 1996
- --------------------------
(Richard W. Evans, Jr.)
/s/ROBERT S. McCLANE* President and Director February 1, 1996
- ------------------------
(Robert S. McClane)
Director February , 1996
- ------------------------
(Isaac Arnold, Jr.)
Director February , 1996
- ------------------------
(Royce S. Caldwell)
/s/RUBEN R. CARDENAS* Director February 1, 1996
- ------------------------
(Ruben R. Cardenas)
/s/HENRY E. CATTO* Director February 1, 1996
- ------------------------
(Henry E. Catto)
/s/HARRY H. CULLEN* Director February 1, 1996
- ------------------------
(Harry H. Cullen)
Director February , 1996
- ------------------------
(Roy H. Cullen)
/s/W.N. FINNEGAN III* Director February 1, 1996
- ------------------------
(W.N. Finnegan III)
<PAGE>
Signatures Title Date
-------------------- -------------------------------- ----------------
/s/JAMES W. GORMAN, JR.* Director February 1, 1996
- ------------------------
(James W. Gorman, Jr.)
/s/JAMES L. HAYNE* Director February 1, 1996
- ------------------------
(James L. Hayne)
/s/RICHARD M. KLEBERG, III* Director February 1, 1996
- ------------------------
(Richard M. Kleberg, III)
Director February , 1996
- ------------------------
(W.B. Osborn, Jr.)
Director February , 1996
- ------------------------
(Robert G. Pope)
Director February , 1996
- ------------------------
(Herman J. Richter)
/s/CURTIS VAUGHAN, JR.* Director February 1, 1996
- ------------------------
(Curtis Vaughan, Jr.)
Executive Vice President
/s/ Phillip D. Green and Treasurer February 1, 1996
- --------------------------
(Phillip D. Green)
[as Attorney-in-Fact for
the persons indicated]
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 533,333
<INT-BEARING-DEPOSITS> 64
<FED-FUNDS-SOLD> 100,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,325,836
<INVESTMENTS-CARRYING> 210,731
<INVESTMENTS-MARKET> 214,962
<LOANS> 1,816,762
<ALLOWANCE> 31,577
<TOTAL-ASSETS> 4,200,211
<DEPOSITS> 3,645,733
<SHORT-TERM> 111,395
<LIABILITIES-OTHER> 101,619
<LONG-TERM> 0
0
0
<COMMON> 55,997
<OTHER-SE> 285,467
<TOTAL-LIABILITIES-AND-EQUITY> 4,200,211
<INTEREST-LOAN> 150,497
<INTEREST-INVEST> 98,862
<INTEREST-OTHER> 6,734
<INTEREST-TOTAL> 256,093
<INTEREST-DEPOSIT> 89,809
<INTEREST-EXPENSE> 103,838
<INTEREST-INCOME-NET> 152,255
<LOAN-LOSSES> 6,272
<SECURITIES-GAINS> (1,396)
<EXPENSE-OTHER> 162,449
<INCOME-PRETAX> 71,277
<INCOME-PRE-EXTRAORDINARY> 71,277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,279
<EPS-PRIMARY> 4.08
<EPS-DILUTED> 4.06
<YIELD-ACTUAL> 7.65
<LOANS-NON> 14,646
<LOANS-PAST> 5,188
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13,594
<ALLOWANCE-OPEN> 25,741
<CHARGE-OFFS> (5,478)
<RECOVERIES> 5,042
<ALLOWANCE-CLOSE> 31,577
<ALLOWANCE-DOMESTIC> 31,437
<ALLOWANCE-FOREIGN> 140
<ALLOWANCE-UNALLOCATED> 1,472
</TABLE>
