Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996 Commission file number 0-7275
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-1751768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. Houston Street, San Antonio, Texas 78205
(Address of principal executive offices) (Zip code)
(210) 220-4011
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At November 8, 1996, there
were 22,468,412 shares of Common Stock, $5 par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30 September 30
-------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $47,229 $39,721 $135,080 $110,467
Securities:
Taxable 24,451 24,951 75,405 73,813
Tax-exempt 81 84 244 258
------- ------- ------- -------
Total Securities 24,532 25,035 75,649 74,071
Time Deposits 10
Federal funds sold and securities
purchased under resale agreements 1,475 1,660 4,888 4,781
------- ------- ------- -------
Total Interest Income 73,236 66,416 215,627 189,319
INTEREST EXPENSE
Deposits 25,962 23,476 77,025 64,484
Federal funds purchased and securities
sold under repurchase agreements 1,517 3,506 5,350 11,731
Long-term notes payable and other borrowings 307 296 760 403
------- ------- ------- -------
Total Interest Expense 27,786 27,278 83,135 76,618
------- ------- ------- -------
Net Interest Income 45,450 39,138 132,492 112,701
Provision for possible loan losses 2,300 1,500 5,500 4,772
------- ------- ------- -------
Net Interest Income After Provision
For Possible Loan Losses 43,150 37,638 126,992 107,929
NON-INTEREST INCOME
Trust fees 8,652 7,720 25,368 23,841
Service charges on deposit accounts 9,825 7,548 28,266 22,086
Other service charges, collection and
exchange charges, commissions and fees 2,053 2,900 6,835 8,096
Net gain (loss) on securities transactions 1 (997) 93
Other 2,648 2,898 11,074 10,109
------- ------- ------- -------
Total Non-Interest Income 23,179 21,066 70,546 64,225
NON-INTEREST EXPENSE
Salaries and wages 18,086 15,094 53,073 43,026
Pension and other employee benefits 3,764 2,609 11,720 7,786
Net occupancy of banking premises 4,736 4,532 14,262 13,438
Furniture and equipment 2,895 2,780 8,587 7,890
Provision for real estate losses 100 600
Intangible amortization 2,857 2,124 8,375 5,952
Other 12,279 13,070 38,340 41,319
------- ------- ------- -------
Total Non-Interest Expense 44,617 40,309 134,357 120,011
------- ------- ------- -------
Income Before Income Taxes 21,712 18,395 63,181 52,143
Income Taxes 7,727 6,442 22,603 18,328
------- ------- ------- -------
Net Income $13,985 $11,953 $40,578 $33,815
======= ======= ======= =======
Net Income per common share:
Primary $ .61 $ .53 $ 1.77 $ 1.49
Dividends per share .21 .18 .60 .40
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
September 30 December 31 September 30
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 442,706 $ 533,333 $ 365,435
Time deposits 64 11
Securities held to maturity 183,829 210,731 968,956
Securities available for sale 1,304,698 1,325,836 590,768
Federal funds sold and securities
purchased under resale agreements 108,625 100,550 105,667
Loans, net of unearned discount of $1,585 at
September 30, 1996; $1,337 at December 31, 1995
and $1,728 at September 30, 1995 2,182,938 1,816,762 1,761,272
Less: Allowance for possible loan losses (36,230) (31,577) (30,600)
---------- ---------- ----------
Net Loans 2,146,708 1,785,185 1,730,672
Banking premises and equipment 101,820 89,493 90,673
Accrued interest and other assets 168,191 155,019 150,605
---------- ---------- ----------
Total Assets $4,456,577 $4,200,211 $4,002,787
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 870,253 $ 792,879 $ 724,313
Correspondent banks 171,076 127,549 92,026
Public funds 57,494 71,581 41,511
---------- ---------- ----------
Total demand deposits 1,098,823 992,009 857,850
Time Deposits:
Savings and Interest-on-Checking 694,895 718,582 711,096
Money market deposit accounts 835,784 711,865 684,385
Time accounts 1,053,330 998,738 1,053,116
Public funds 201,517 224,539 163,250
---------- ---------- ----------
Total time deposits 2,785,526 2,653,724 2,611,847
---------- ---------- ----------
Total deposits 3,884,349 3,645,733 3,469,697
Federal funds purchased and securities
sold under repurchase agreements 115,893 111,395 119,547
Accrued interest and other liabilities 94,961 101,619 83,393
---------- ---------- ----------
Total Liabilities 4,095,203 3,858,747 3,672,637
Shareholders' Equity
Common stock, par value $5 per share 112,286 55,997 55,904
Shares authorized: 30,000,000
Shares outstanding: 22,457,313;
22,398,900; and 22,361,644
Surplus 63,077 118,418 117,912
Retained earnings 185,760 158,563 149,930
Unrealized gain on securities available
for sale, net of tax 251 8,486 6,404
---------- ---------- ----------
Total Shareholders' Equity 361,374 341,464 330,150
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,456,577 $4,200,211 $4,002,787
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Unrealized
Gain (Loss)
on Securities
Common Retained Available
Stock Surplus Earnings for Sale Total
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $55,615 $116,362 $126,038 $(2,578) $295,437
Net income for the year ended
December 31, 1995 46,279 46,279
Exercise of employee stock
options and related tax benefit 250 978 (34) 1,194
Issuance of restricted stock 132 1,078 1,210
Restricted stock plan deferred
compensation expense, net (997) (997)
Adjustment to 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
Net income for the nine months
ended September 30, 1996 40,578 40,578
Exercise of employee stock
options and related tax benefit 191 757 (381) 567
Restricted stock plan deferred
compensation expense 352 352
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax ( 8,235) ( 8,235)
Cash dividend (13,352) (13,352)
Two for one stock split 56,098 (56,098)
-------- -------- -------- ------- --------
Balance at September 30, 1996 $112,286 $ 63,077 $185,760 $ 251 $361,374
======== ======== ======== ======= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Nine Months Ended
September 30
------------------
1996 1995
------- -------
<S> <C> <C>
Operating Activities
Net income $ 40,578 $ 33,815
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 5,500 4,772
Provision for real estate losses 600
(Credit) provision for deferred taxes (3,763) (843)
Accretion of discounts on loans (1,257) (1,535)
Accretion of securities' discounts (11,948) (12,796)
Amortization of securities' premiums 2,203 1,691
Net (gain) loss on securities transactions 997 (93)
Net gain on sale of assets (1,358) (2,473)
Depreciation and amortization 16,794 13,720
Increase in interest receivable (2,882) (2,974)
Increase in interest payable 365 1,957
Net change in other assets and liabilities 9,827 23,368
--------- --------
Net cash provided by operating activities 55,056 59,209
Investing Activities
Proceeds from maturities of securities held to maturity 26,695 81,828
Purchases of securities held to maturity (833)
Proceeds from sales of securities available for sale 103,026 28,412
Proceeds from maturities of securities available for sale 474,074 475,110
Purchases of securities available for sale (483,667) (488,810)
Net increase in loans (160,776) (153,671)
Net increase in bank premises and equipment (9,533) (4,658)
Proceeds from sales of repossessed properties 724 1,081
Net cash and cash equivalents received (paid) from
bank acquisitions/exchange 19,198 8,734
--------- ---------
Net cash used by investing activities (30,259) (52,807)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 56,245 75,282
Net increase (decrease) in certificates of deposits (155,284) 122,707
Net increase (decrease) in short-term borrowings 4,498 (259,413)
Proceeds from employee stock purchase
plan and options 480 1,585
Dividends paid (13,352) (8,804)
--------- --------
Net cash used by financing activities (107,413) (68,643)
--------- --------
(Decrease) in cash and cash equivalents (82,616) (62,241)
Cash and cash equivalents at beginning of year 633,947 533,354
--------- --------
Cash and cash equivalents at the end
of the period $551,331 $471,113
========= ========
Supplemental information:
Interest paid $ 27,420 $ 74,661
Loans originated to facilitate the sale
of repossessed properties 848 351
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been audited by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K for
the year ended December 31, 1995. The balance sheet at December 31, 1995 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan losses
is presented below. The amount charged to operating expense is based on
management's assessment of the adequacy of the allowance to absorb future
possible loan losses.
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
(in thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $31,577 $25,741
Provision for possible loan losses 5,500 4,772
Net charge-offs:
Losses charged to the allowance (6,967) (4,373)
Recoveries 6,120 4,460
------- -------
Net (charge-offs) recoveries (847) 87
------- -------
Balance at the end of period $36,230 $30,600
======= =======
</TABLE>
Impaired Loans
A loan within the scope of SFAS No. 114 is considered impaired when, based
on current information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the
loan agreement, including scheduled principal and interest payments. At
September 30, 1996, the majority of the impaired loans were real estate loans
and collectibility was measured based on the fair value of the collateral.
Interest payments on impaired loans are typically applied to principal unless
collectibility of the principal amount is fully assured, in which case interest
is recognized on the cash basis. No interest revenue was recognized on
impaired loans for the third quarter of 1996 or 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.
The following is a summary of loans considered to be impaired:
<TABLE>
<CAPTION>
September 30 December 31 September 30
(in thousands) 1996 1995 1995
- --------------------------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Impaired loans with no valuation reserve $3,513 $4,565 $5,308
Impaired loans with a valuation reserve 2,137 4,547 2,701
------ ------ ------
Total recorded investment in impaired loans $5,650 $9,112 $8,009
====== ====== ======
Valuation reserve 1,300 712 502
</TABLE>
<PAGE>
The average recorded investment in impaired loans was $6,716,000 and $8,051,000
during the third quarter and for the year ended September 30, 1996,
respectively, and $8,734,000 and $8,595,000 during the same periods a year ago.
Earnings Per Common Share
On June 21, 1996, the Corporation completed the previously announced two-
for-one stock split. As a result of the split, $56,098,000 was transferred
from surplus to common stock. All related "share" amounts have been restated
to make prior periods comparable. The weighted average number of shares used
to compute per common share earnings, including common stock equivalents where
applicable, were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Primary 22,917,828 22,728,194 22,871,025 22,633,086
Fully Diluted 22,956,738 22,746,316 22,954,535 22,739,108
</TABLE>
Income Taxes
The tax expense for the third quarter of 1996 was $7,727,000. This amount
consisted of current tax expense of $9,283,000 and deferred tax benefit of
$1,556,000. Year-to-date tax expense in 1996 is $22,603,000, consisting of
current tax expense of $26,366,000 and deferred tax benefit of $3,763,000. Net
deferred tax assets were $15,052,000 with no valuation allowance. The deferred
tax assets were supported by taxes paid in prior years and the future reversal
of existing taxable temporary differences. Year-to-date tax expense in 1995
was $18,328,000, consisting of current tax expense of $19,171,000 and deferred
tax benefit of $843,000. The tax expense for the third quarter of 1995 was
$6,442,000. Income tax payments for the first nine months of 1996 and 1995
were $23,440,000 and $17,936,000, respectively.
Acquisitions
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. The Corporation acquired loans of approximately
$51 million and deposits of approximately $112 million. On February 15, 1996,
the Corporation paid approximately $33.5 million to acquire Park National Bank
in Houston, Texas. The Corporation acquired loans of approximately $157
million and deposits of approximately $225 million. The acquisitions did not
have a material impact on the third quarter net income and are not expected to
have a material impact on the Corporation's 1996 net income.
On April 4, 1995, the Corporation acquired Valley Bancshares, Inc.,
including its subsidiary, Valley National Bank in McAllen, Texas. The
Corporation acquired loans of approximately $28 million and deposits of
approximately $49 million. On May 19, 1995, the Corporation acquired National
Commerce Bank in Houston, Texas. The Corporation acquired loans of
approximately $95 million and deposits of approximately $101 million. 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.
Pending Acquisitions
On September 30, 1996, the Corporation entered into a definitive agreement
to acquire Corpus Christi Bancshares, Inc., which owns the $180 million-deposit
Citizens State Bank, based in Corpus Christi, Texas. The Corporation is
expected to pay approximately $33 million, assuming the exercise of all
outstanding options. At the completion of the acquisition, which is expected
to be in the first quarter of 1997 following normal shareholder action and
regulatory review, the former Citizens branch offices will become part of the
Corporation's lead bank, Frost National Bank. This transaction will be
accounted for as a purchase with total cash consideration being funded through
internal sources.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
The results of operations are included in the material that follows. The
Corporation completed two acquisitions during the first quarter of 1996 and
three for the entire year of 1995. These acquisitions, which are outlined in
the footnotes to the financial statements on page seven, were accounted for as
purchase transactions, and as such, their related results of operations are
included in the financial information that follows from the date of
acquisition.
During the second quarter of 1996, the board of directors declared and
paid a two for one stock split. Previous quarters have been restated to give
effect to the split. Certain reclassifications have been made to make prior
quarters comparable. All balance sheet figures are presented in averages
unless otherwise noted.
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------------------
Three Months Ended
Nine Months Ended ----------------------------
September 30 1996 1995
------------------ ------------------ -------
1996 1995 Sept 30 June 30 Sept 30
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $133,226 $113,332 $45,688 $44,624 $39,401
Taxable-equivalent adjustment 734 631 238 250 263
------- ------- ------- ------- -------
Net interest income 132,492 112,701 45,450 44,374 39,138
Provision for possible
loan losses 5,500 4,772 2,300 1,325 1,500
Non-Interest income:
Net gain (loss) on securities
transactions (997) 93 1 (903)
Other 71,543 64,132 23,178 25,544 21,066
------- ------- ------- ------- -------
Total non-interest income 70,546 64,225 23,179 24,641 21,066
Non-Interest expense:
Intangible amortization 8,375 5,952 2,857 2,903 2,124
Other 125,982 114,059 41,760 43,692 38,185
------- ------- ------- ------- -------
Total non-interest expense 134,357 120,011 44,617 46,595 40,309
------- ------- ------- ------- -------
Income before income taxes 63,181 52,143 21,712 21,095 18,395
Income Taxes 22,603 18,328 7,727 7,577 6,442
------- ------- ------- ------- -------
Net Income $40,578 $33,815 $13,985 $13,518 $11,953
======= ======= ======= ======= =======
Cash earnings* $46,569 $37,909 $16,039 $15,602 $13,457
Net Income per common share $ 1.77 $ 1.49 $ .61 $ .59 $ .53
Cash earnings per common share 2.04 1.67 .70 .68 .59
Return on Average Assets 1.22% 1.16% 1.24% 1.21% 1.18%
Cash earnings ROA 1.42 1.32 1.44 1.42 1.34
Return on Average Equity 15.33 14.20 15.55 15.41 14.43
Cash earnings ROE 22.05 19.10 21.94 22.39 19.92
* Net income before intangible amortization (goodwill and core deposit intangibles, net of
tax)
</TABLE>
<PAGE>
Cullen/Frost Bankers, Inc. reported net income of $13,985,000 or $.61 per
common share for the quarter ended September 30, 1996 compared to $11,953,000
or $.53 per common share for the third quarter of 1995 and net income of
$13,518,000 or $.59 per common share for the second quarter of 1996. Net
income for the nine months ended September 30, 1996 was $40,578,000 or $1.77
per common share compared to $33,815,000 or $1.49 per common share for the same
period of 1995. Return on average assets for the quarter was 1.24 percent
compared to 1.18 percent for the third quarter last year and 1.21 percent for
the second quarter of 1996.
As noted in more detail in the footnotes to the financial statements, the
Corporation has historically used the purchase method in accounting for its
acquisitions which has resulted in the creation of intangible assets. These
intangible assets are deducted from capital in the determination of regulatory
capital. Thus, "cash" or "tangible" earnings represents the regulatory capital
generated during the quarter and can be viewed as net income excluding
intangible amortization. While the definition of "cash" or "tangible" earnings
may vary by company, we believe this definition is appropriate as it measures
the per share growth of regulatory capital, which impacts the amount available
for dividends, stock repurchases and acquisitions. The following table
reconciles reported earnings to net income excluding intangible amortization
("cash" earnings) for the quarter ended September 30, 1996:
<TABLE>
<CAPTION>
Quarter ended
(in thousands, except per share amounts) September 30, 1996
- ---------------------------------------------------------------------------
Reported Intangible "Cash"
earnings Amortization earnings
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income before taxes $21,712 $2,857 $24,569
Income tax expense 7,727 803 8,530
-------- ------- -------
Net income $13,985 $2,054 $16,039
======= ====== =======
Per common share $ .61 $ .09 $ .70
"Cash" earnings return on assets and return on equity excluding intangible
amortization for the quarter ended September 30, 1996, were calculated as
follows:
"Cash" earnings Return on assets : A*/B = 1.44%
"Cash" earnings Return on equity : A*/C = 21.94
(A) Net income before intangible amortization (goodwill and
core deposit intangibles, net of tax) $ 16,039
(B) Total average assets less average intangible assets
(average goodwill and average core deposit intangible,
net of tax) 4,419,832
(C) Shareholders' equity excluding the SFAS 115 market value
adjustment less intangible assets, net of tax 290,893
* Annualized
</TABLE>
Net Interest Income
Net interest margin, which represents the average net effective yield on
earning assets calculated as net interest income on a taxable-equivalent basis
expressed as a percentage of average total earning assets, was 4.83 percent for
the third quarter of 1996 compared to 4.74 percent and 4.58 percent for the
second quarter of 1996 and third quarter of 1995, respectively. The increase
in net interest income and net interest margin from the second quarter of 1996
is reflective of higher loan volumes. Higher loan volumes and lower deposit
costs were responsible for the increase from the third quarter last year. Net
interest spread of 4.03 percent increased six basis points from the second
quarter of 1996 and 22 basis points from the third quarter of 1995. The net
interest spread increased primarily because the Corporation was able to
maintain its earnings on funds with higher loan volumes and the favorable
impact of the acquisitions, while deposit costs decreased when compared to the
third quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
Change in Net Interest Income
------------------------------------------------------------------
Third Quarter Third Quarter Year-to-Date
1996 1996 1996
vs. vs. vs.
Third Quarter Second Quarter Year-to-Date
1995 1996 1995
------------------------------------------------------------------
Percentage of Percentage of Percentage of
Amount Total Change Amount Total Change Amount Total Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due to volume $ 5,830 92.73% $ 857 80.55% $17,758 89.26%
Due to interest rate
spread 457 7.27 207 19.45 2,136 10.74
------- ------- ------- ------- ------- -------
$ 6,287 100.00% $1,064 100.00% $19,894 100.00%
======= ======= ====== ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 ------------------------------
------------------ 1996 1995
-------------------- -------
Non-Interest Income 1996 1995 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $25,368 $23,841 $ 8,652 $ 8,384 $ 7,720
Service charges on deposit accounts 28,266 22,086 9,825 9,656 7,548
Other service charges, collection
and exchange charges, commissions
and fees 6,835 8,096 2,053 2,154 2,900
Net gain (loss) on securities
transactions (997) 93 1 (903)
Other 11,074 10,109 2,648 5,350 2,898
------- ------- -------- ------- -------
Total $70,546 $64,225 $23,179 $24,641 $21,066
======= ======= ======== ======= =======
</TABLE>
For the third quarter 1996...
Total non-interest income was down $1.5 million or 5.9 percent, compared
to the second quarter of 1996 and up $2.1 million or 10 percent compared to the
third quarter of 1995.
Trust fee income increased 3.2 percent compared to last quarter and
increased 12.1 percent from the third quarter of 1995. The increase compared
to both periods can be attributed to higher investment, personal, and employee
benefit trust fees.
Service charges on deposit accounts increased 1.8 percent from the second
quarter of this year and increased 30.2 percent from the third quarter of 1995.
The increase from both periods is a result from increased volumes processed for
correspondent banks. The increase from the third quarter of last year also
resulted from the impact of the acquisitions. Service charges from
acquisitions represented approximately one-third of the increase compared to
the same quarter one year ago.
Other service charges were down 4.7 percent and 29.2 percent compared to
the second quarter of 1996 and the third quarter of 1995, respectively. The
decrease from both quarters is primarily due to lower income from bankcard
discounts as a result of the Corporation's outsourcing of its bankcard
processing operations, which was completed in May 1996.
Other non-interest income decreased $2.7 million or 50.5 percent from the
second quarter of this year and decreased $250,000 or 8.6 percent compared to
the third quarter of 1995. The decrease from the second quarter is primarily
due to the gains recorded in the second quarter on the disposition of certain
loans and foreclosed assets and the gain recognized from the outsourcing of the
Corporation's bankcard processing operations. Most of the decrease from the
third quarter of 1995 is due to gains on the disposition of certain loans.
<PAGE>
For the nine months ended September 30, 1996...
Non-interest income rose $6.3 million or 9.8 percent compared to the same
period last year. Trust income increased $1.5 million or 6.4 percent due to
higher investment, employee benefit trust, and personal trust fees which offset
lower corporate trust income. Service charges on deposit accounts increased
$6.2 million or 28.0 percent compared to the same period one year ago. The
increase is mainly due to higher volumes, primarily processing for
correspondent banks, service charges on retail deposits and acquisitions, which
account for approximately one-third of the increase. Other service charges and
fees decreased $1.3 million or 15.6 percent mostly due to lower income from
bankcard discounts as a result of the Corporation's outsourcing of its bankcard
processing operations which was completed in May 1996. During the second
quarter of 1996, the Corporation restructured a portion of its available for
sale investment portfolio resulting in losses of $903,000. This portfolio
restructuring of replacing lower-yielding securities with higher-yielding
securities should have a favorable impact on net interest income in the future.
Other income is up $965,000 or 9.5 percent compared to the same period last
year primarily as a result of gains on the disposition of certain loans,
acquisitions and the gain recognized from the outsourcing of the Corporation's
bankcard processing operations during the second quarter of 1996.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
Nine Months Ended ------------------------------
September 30 1996 1995
------------------ -------------------- -------
Non-Interest Expense 1996 1995 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $ 53,073 $ 43,026 $18,086 $18,350 $15,094
Pension and other employee benefits 11,720 7,786 3,764 4,498 2,609
Net occupancy of banking premises 14,262 13,438 4,736 4,665 4,532
Furniture and equipment 8,587 7,890 2,895 2,811 2,780
Intangible amortization 8,375 5,952 2,857 2,903 2,124
Other 38,340 41,319 12,279 13,368 13,070
------- ------- ------- ------- -------
134,357 119,411 44,617 46,595 40,209
Provision for real estate losses 600 100
------- ------- ------- ------- -------
Total $134,357 $120,011 $44,617 $46,595 $40,309
======= ======= ======= ======= =======
</TABLE>
For the third quarter 1996..
Non-interest expense was down $2.0 million or 4.2 percent compared to last
quarter and increased $4.3 million or 10.7 percent compared to the third
quarter of 1995. The $1.6 million early retirement charge and higher sundry
losses recorded in the second quarter of 1996 were the primary reason for the
decrease from the second quarter. The primary reason for the increase in non-
interest expenses from the third quarter a year ago was due to the
acquisitions.
Salaries and wages decreased 1.4 percent compared with the second quarter
of 1996 and increased 19.8 percent from the third quarter of 1995. The
increase from the third quarter of 1995 is primarily a result of the
acquisitions. Pension and employee benefits decreased 16.3 percent compared to
last quarter primarily due to the second quarter's early retirement charge and
increased 44.3 percent compared to the third quarter of 1995 mostly because of
acquisitions. Also contributing to the increase from the third quarter of 1995
is a premium adjustment related to workers' compensation insurance and higher
payroll tax and medical insurance expense.
Net occupancy of banking premises expense was flat when compared to the
second quarter of 1996 and increased 4.5 percent from the third quarter of
1995. The increase from the third quarter of 1995 primarily results from
higher lease, building maintenance, and property tax expenses related to the
acquisitions.
Amortization of intangibles was steady when compared to the second quarter
of 1996 and increased 34.5 percent from the third quarter of 1995 due to the
acquisitions.
Other non-interest expenses decreased 8.1 percent from the second quarter
mainly due to fewer sundry losses, lower advertising and printing and other
professional expenses. Other non-interest expenses were down 6.1 percent
compared to the third quarter of 1995, primarily due to decreases in FDIC
insurance, sundry losses, federal reserve service charges franchise taxes and
other professional expenses.
<PAGE>
For the nine months ended September 30, 1996
Total non-interest expense was up $14.3 million or 12.0 percent compared
to the same period one year ago. Salaries and wages were up $10.0 million or
23.4 percent compared to the same period one year ago primarily because of the
acquisitions. Pension and other benefits increased $3.9 million or 50.5
percent from the same period last year due to higher retirement plan expense,
payroll tax, and medical insurance expense related to the acquisitions and the
impact of the early retirement charge. In addition, a premium adjustment
related to workers' compensation insurance added to the increase from the same
period one year ago. Net occupancy of banking premises increased $824,000, or
6.1 percent, primarily due to higher lease, building maintenance, and property
tax expense related to the acquisitions. Furniture and equipment expense
increased $697,000, or 8.8 percent, mostly due to higher depreciation expense
associated with the acquisitions. Intangible amortization increased $2.4
million or 40.7 percent from the same period one year ago due to acquisitions.
Other non-interest expenses decreased $3.0 million or 7.2 percent, primarily
due to decreases in FDIC insurance, franchise taxes, and federal reserve
service charges. The efficiency ratio measures what percentage of bank revenue
is absorbed by non-interest expense. The Corporation's year-to-date efficiency
ratio was 65.6 percent compared to 67.3 percent in 1995.
Income Taxes
Tax expense for the third quarter of 1996 was $7,727,000. This compares
to tax expense of $6,442,000 for the third quarter of 1995. The Corporation
has an effective tax rate for 1996 and 1995 which approximates the statutory
rate of 35 percent.
Balance Sheet
Average assets of $4,494,317,000 were flat when compared with the second
quarter of 1996 and increased 11.5 percent from the third quarter of 1995
principally because of the acquisitions. Total deposits averaged
$3,905,479,000 for the current quarter, flat when compared to the previous
quarter and up 16.4 percent from the third quarter of 1995.
Loans
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Loan Portfolio Percentage
Period-End Balances September 30 of Total December 31 September 30
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 632,435 29.0% $ 508,990 $ 506,116
Consumer 465,574 21.3 402,169 380,559
Real estate 1,017,419 46.6 837,905 810,188
Other 69,095 3.2 69,035 66,137
Unearned discount (1,585) (.1) (1,337) (1,728)
---------- ------ ---------- ----------
Total Loans $2,182,938 100.0% $1,816,762 $1,761,272
========== ====== ========== ==========
</TABLE>
Average loans for the third quarter of 1996 were $2,142,038,000. This
represents an increase in average loans of 4.1 percent from the second quarter
of 1996 and an increase of 22.6 percent from the third quarter of last year.
At September 30, 1996, period-end loans totaled $2,182,938,000 up 3.6 percent
from the previous quarter and up 23.9 percent from the same period last year.
Approximately, 49 percent of the increase in loans from a year ago resulted
from acquisitions.
Real Estate Loans
Real estate loans at September 30, 1996, were $1,017,419,000 or 46.6
percent of period-end loans, compared to 46.0 percent a year ago. Residential
permanent mortgage loans at September 30, 1996, were $415,452,000 compared to
$403,489,000 at June 30, 1996, and $332,469,000 at September 30, 1995. Real
estate loans classified as "other" are essentially amortizing commercial and
industrial loans with maturities of less than five years secured by real
property.
At September 30, 1996, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $2,772,000, compared with $3,461,000 at
June 30, 1996, and $3,858,000 at September 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
1996 1995
--------------------- --------
Real Estate Loans Percentage
Period-End Balances Sept 30 of Total Sept 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 66,747 6.5% $ 45,329
Land 47,577 4.7 39,988
Permanent mortgages:
Commercial 233,623 23.0 200,519
Residential 415,452 40.8 332,469
Other 254,020 25.0 191,883
---------- ------ --------
$1,017,419 100.0% $810,188
========== ====== ========
Non-accrual and restructured $ 6,919 .7% $ 12,606
</TABLE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$16,310,000 in loans secured by assets held in the United States, totaled
$30,434,000 at September 30, 1996, or 1.4 percent of total loans up from
$25,345,000 and $25,262,000 at June 30, 1996 and September 30, 1995,
respectively. 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 88 percent are related to companies exporting from Mexico. As of
September 30, 1996, none of the Mexican related loans were on non-performing
status.
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
-------------------------
Real
September 30, 1996 Estate Other Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $6,919 $4,248 $11,167
Foreclosed assets 1,291 662 1,953
------ ------ -------
Total $8,210 $4,910 $13,120
====== ====== =======
As a percentage of total
non-performing assets 62.6% 37.4% 100.0%
</TABLE>
Non-performing assets totaled $13,120,000 at September 30, 1996 down 12.4
percent and 23.5 percent, respectively, from $14,977,000 at June 30, 1996 and
$17,155,000 at September 30, 1995. Non-performing assets as a percentage of
total loans and foreclosed assets decreased to .60 percent at September 30,
1996 from .97 percent one year ago.
Foreclosed assets consist of property which has been formally repossessed.
Foreclosed assets are valued at the lower of the loan balance or estimated fair
value, less estimated selling costs, at the time of foreclosure. Write-downs
occurring at acquisition are charged against the allowance for possible loan
losses. On an ongoing basis, properties are appraised as required by market
indications and applicable regulations. Write-downs are provided for
subsequent declines in value. Expenses related to maintaining foreclosed
properties are included in other non-interest expense.
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $203,000 or $.01 per common share for
the third quarter of 1996, compared to approximately $231,000 or $.01 per
common share for the second quarter of 1996 and $278,000 or $.01 per common
share for the third quarter of 1995. For the nine months ended September 30,
1996, the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $673,000 or $.03 per common share, compared with approximately
$861,000 or $.04 per common share for the comparable period last year. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$5,497,000 at September 30, 1996, compared to $5,693,000 at June 30, 1996, and
$5,964,000 at September 30, 1995.
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses was $36,230,000 at September 30,
1996, compared to $35,035,000 at June 30, 1996 and $30,600,000 at September 30,
1995. The allowance for possible loan losses as a percentage of non-accrual
and restructured loans was 324.4 percent at September 30, 1996, compared to
257.8 percent at June 30, 1996 and 219.7 percent at the end of the third
quarter of 1995.
The Corporation recorded a $2,300,000 provision for possible loan losses
during the third quarter of 1996. This compares to $1,325,000 provision for
possible loan losses during the second quarter of 1996 and $1,500,000 for the
third quarter of 1995. The allowance for possible loan losses was maintained
at 1.66 percent of period-end loans. Net charge-offs in the third quarter of
1996 totaled $1,105,000, compared to a net recoveries of $481,000 for the
second quarter of 1996 and $214,000 for the third quarter of 1995.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
---------------------------
1996 1995
----------------- -------
Third Second Third
Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ (414) $(1,306) $ (118)
Commercial and industrial 1,345 401 (690)
Consumer 288 424 608
Other, including foreign (114) (14)
------- ------- ------
$ 1,105 $ (481) $ (214)
======== ======= =======
Provision for possible loan losses $ 2,300 $ 1,325 $ 1,500
Allowance for possible loan losses 36,230 35,035 30,600
</TABLE>
Capital and Liquidity
At September 30, 1996, shareholders' equity was $361,374,000 compared to
$347,850,000 at June 30, 1996 and $330,150,000 at September 30, 1995. The
Corporation had an unrealized gain on securities available for sale, net of
deferred taxes, of $251,000 as of September 30, 1996 compared to a $6.4 million
unrealized gain as of September 30, 1995, reflecting a change of $6.2 million.
The decrease in the unrealized gain since a year ago is primarily due to the
increase in market interest rates in 1996. 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 cash dividend of $.21 per common share in the third
and second quarters of 1996 compared to $.18 per common share for the third
quarter a year ago. This equates to a dividend payout ratio of 33.7 percent,
34.9 percent and 32.7 percent for the third and second quarters of 1996 and the
third quarter of 1995, respectively.
The Federal Reserve Board (the "Board") utilizes capital guidelines
designed to measure Tier 1 and Total Capital and take into consideration the
risk inherent in both on-balance sheet and off-balance sheet items.
The following table summarizes Tier 1 and Total Capital information for
the Corporation at September 30, 1996 and 1995. As a result of the
acquisitions, all the regulatory capital ratios are down when compared to the
third quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 294,211 11.84% $ 269,969 13.03%
Tier 1 Capital Minimum requirement 99,373 4.00 82,905 4.00
Total Capital $ 325,329 13.10% $ 295,935 14.28%
Total Capital Minimum requirement 198,745 8.00 165,810 8.00
Risk-adjusted assets, net of goodwill $2,484,315 $2,072,629
Leverage ratio 6.65% 6.80%
Average equity as a percentage
of average assets 7.96 8.19
</TABLE>
The FDIC Improvement Act of 1991 ("FDICIA") established five capital tiers
for depository institutions and final rules relating to these tiers were
adopted by the federal banking agencies. At September 30, 1996, 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 leverage ratio of 5.0 percent or greater, and the institution is
not subject to an order, written agreement, capital directive or prompt
corrective action directive to meet and maintain a specific level for any
capital measure.
Funding sources available at the holding company level include a
$7,500,000 short-term line of credit. There were no borrowings outstanding from
this source at September 30, 1996.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. These include cash, time
deposits in banks, securities available for sale, maturities and cash flow from
securities held to maturity, and Federal funds sold and securities purchased
under resale agreements. Liability liquidity is provided by access to funding
sources, principally core deposits and Federal funds purchased. Additional
sources of liability liquidity include brokered deposits and securities sold
under agreement to repurchase. The liquidity position of the Corporation is
continuously monitored and adjustments are made to the balance between sources
and uses of funds as deemed appropriate.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-Year-to-Date
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1996 September 30, 1995
------------------------ --------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ------ -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 20 $ 1 3.50% $ 17 3.88%
Securities:
U.S. Treasury 287,358 11,421 5.31 235,723 $ 10,583 6.00
U.S. Government agencies
and corporations 1,277,994 63,680 6.64 1,308,612 62,711 6.39
States and political subdivisions 5,478 388 9.45 5,952 412 9.22
Other 6,830 292 5.69 10,441 504 6.43
--------- ------- --------- ------
Total securities 1,577,660 75,781 6.41 1,560,728 74,210 6.34
Federal funds sold and securities
purchased under resale agreements 122,653 4,888 5.24 110,208 4,781 5.72
Loans, net of unearned discount 2,045,473 135,691 8.86 1,649,910 110,959 8.99
--------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 3,745,806 216,361 7.71 3,320,863 189,950 7.64
Cash and due from banks 482,272 365,313
Allowance for possible loan losses (34,337) (27,602)
Banking premises and equipment 99,648 90,653
Accrued interest and other assets 166,821 140,033
--------- ----------
Total Assets $4,460,210 $3,889,260
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 820,404 $ 688,880
Correspondent banks 189,710 124,648
Public funds 43,966 35,301
--------- ---------
Total demand deposits 1,054,080 848,829
Time deposits:
Savings and Interest-on-Checking 729,156 7,499 1.37 727,069 9,931 1.83
Money market deposit accounts 793,210 23,193 3.91 587,775 16,704 3.80
Time accounts 1,050,864 38,488 4.89 944,952 34,888 4.94
Public funds 236,075 7,845 4.44 93,696 2,961 4.23
--------- ------- --------- -------
Total Time deposits 2,809,305 77,025 3.66 2,353,492 64,484 3.66
--------- ---------
Total Deposits 3,863,385 3,202,321
Federal funds purchased and securities
sold under repurchase agreements 145,862 5,350 4.82 294,642 11,731 5.25
Other borrowings 19,509 760 5.21 9,988 403 5.40
--------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,974,676 83,135 3.73 2,658,122 76,618 3.85
--------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 77,814 63,895
--------- ----------
Total Liabilities 4,106,570 3,570,846
SHAREHOLDERS' EQUITY 353,640 318,414
--------- ----------
Total Liabilities and
Shareholders' Equity $4,460,210 $3,889,260
========== ==========
Net interest income $133,226 $113,332
======= =======
Net interest spread 3.98% 3.79%
===== =====
Net interest income to total average earning assets 4.75% 4.56%
===== =====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1996 June 30, 1996
-----------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 21 $ 1 3.50%
Securities:
U.S. Treasury $ 273,301 $ 3,692 5.37% 301,233 3,899 5.21
U.S. Government agencies
and corporations 1,235,556 20,660 6.69 1,287,518 21,316 6.62
States and political subdivisions 5,457 129 9.45 5,480 129 9.45
Other 6,672 95 5.67 6,235 91 5.86
--------- ------- --------- -------
Total securities 1,520,986 24,576 6.46 1,600,466 25,435 6.36
Federal funds sold and securities
purchased under resale agreements 107,189 1,475 5.38 122,940 1,472 4.73
Loans, net of unearned discount 2,142,038 47,423 8.81 2,057,029 45,473 8.89
--------- ------- --------- -------
Total Earning Assets and
Average Rate Earned 3,770,213 73,474 7.76 3,780,456 72,381 7.68
Cash and due from banks 486,938 486,828
Allowance for possible loan losses (35,541) (35,067)
Banking premises and equipment 101,290 99,984
Accrued interest and other assets 171,417 177,254
--------- ---------
Total Assets $4,494,317 $4,509,455
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 844,418 $ 839,300
Correspondent banks 208,050 193,535
Public funds 46,949 40,138
---------- ----------
Total demand deposits 1,099,417 1,072,973
Time deposits:
Savings and Interest-on-Checking 711,562 2,373 1.33 732,882 2,499 1.37
Money market deposit accounts 824,565 8,321 4.01 796,624 7,787 3.93
Time accounts 1,062,842 12,938 4.84 1,055,894 12,696 4.84
Public funds 207,093 2,330 4.48 252,071 2,826 4.51
---------- ------- ---------- -------
Total time deposits 2,806,062 25,962 3.68 2,837,471 25,808 3.66
---------- ------- ---------- -------
Total deposits 3,905,479 3,910,444
Federal funds purchased and securities
sold under repurchase agreements 127,292 1,517 4.66 150,965 1,728 4.53
Other borrowings 23,376 307 5.23 16,936 221 5.25
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,956,730 27,786 3.73 3,005,372 27,757 3.71
---------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 80,427 78,243
---------- ----------
Total Liabilities 4,136,574 4,156,588
SHAREHOLDERS' EQUITY 357,743 352,867
---------- ----------
Total Liabilities and
Shareholders' Equity $4,494,317 $4,509,455
========== ==========
Net interest income $45,688 $44,624
======= =======
Net interest spread 4.03% 3.97%
==== ====
Net interest income to total average earning assets 4.83% 4.74%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1996 December 31, 1995
-------------------------- -------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
--------- -------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 27 3.50% $ 20 $ 2 3.51%
Securities:
U.S. Treasury 287,694 $ 3,829 5.35 248,598 3,559 5.68
U.S. Government agencies
and corporations 1,311,374 21,705 6.62 1,287,154 21,054 6.54
States and political subdivisions 5,497 130 9.45 5,603 131 9.40
Other 7,585 106 5.57 5,971 89 6.01
--------- ------ ---------- -------
Total securities 1,612,150 25,770 6.40 1,547,326 24,833 6.41
Federal funds sold and securities
purchased under resale agreements 138,001 1,941 5.57 137,784 1,951 5.54
Loans, net of unearned discount 1,936,289 42,795 8.89 1,779,371 40,238 8.97
--------- ------ --------- ------
Total Earning Assets and
Average Rate Earned 3,686,467 70,506 7.67 3,464,501 67,024 7.69
Cash and due from banks 453,391 430,154
Allowance for possible loan losses (32,390) (31,040)
Banking premises and equipment 97,654 90,738
Accrued interest and other assets 165,830 154,668
--------- ---------
Total Assets $4,370,952 $4,109,021
========= =========
LIABILITIES
Demand deposits:
Commercial and individual $ 777,229 $ 719,105
Correspondent banks 167,345 151,021
Public funds 44,780 41,139
--------- ---------
Total demand deposits 989,354 911,265
Time deposits:
Savings and Interest-on-Checking 743,216 2,628 1.42 700,966 2,729 1.54
Money market deposit accounts 758,097 7,085 3.76 703,450 6,971 3.93
Time accounts 1,033,725 12,853 5.00 1,024,321 13,136 5.09
Public funds 249,378 2,689 4.34 221,741 2,489 4.45
--------- ------ --------- -------
Total time deposits 2,784,416 25,255 3.65 2,650,478 25,325 3.79
--------- ------ --------- -------
Total deposits 3,773,770 3,561,743
Federal funds purchased and securities
sold under repurchase agreements 159,535 2,105 5.22 123,052 1,565 4.98
Other borrowings 18,173 232 5.14 20,010 330 6.55
--------- ------ --------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,962,124 27,592 3.74 2,793,540 27,220 3.86
--------- ------ ---- --------- ------- ----
Accrued interest and other liabilities 69,209 66,463
--------- ---------
Total Liabilities 4,020,687 3,771,268
SHAREHOLDERS' EQUITY 350,265 337,753
--------- ---------
Total Liabilities and
Shareholders' Equity $4,370,952 $4,109,021
========= =========
Net interest income $42,914 $ 39,804
======= ========
Net interest spread 3.93% 3.83%
===== =====
Net interest income to total average earning assets 4.67% 4.58%
===== =====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1995
---------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
-------- ------- -----
<S> <C> <C> <C>
ASSETS
Time deposits $ 15 3.52%
Securities:
U.S. Treasury 255,079 $ 3,848 5.99
U.S. Government agencies
and corporations 1,301,094 21,001 6.46
States and political subdivisions 5,647 134 9.49
Other 6,447 97 6.03
--------- -------
Total securities 1,568,267 25,080 6.39
Federal funds sold and securities
purchased under resale agreements 114,483 1,660 5.67
Loans, net of unearned discount 1,747,810 39,939 9.07
--------- -------
Total Earning Assets and
Average Rate Earned 3,430,575 66,679 7.73
Cash and due from banks 392,513
Allowance for possible loan losses (29,708)
Banking premises and equipment 92,132
Accrued interest and other assets 146,414
---------
Total Assets $4,031,926
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 705,914
Correspondent banks 134,085
Public funds 37,277
----------
Total demand deposits 877,276
Time deposits:
Savings and Interest-on-Checking 720,160 2,908 1.60
Money market deposit accounts 638,351 6,238 3.88
Time accounts 1,006,887 13,061 5.15
Public funds 113,599 1,269 4.43
---------- -------
Total time deposits 2,478,997 23,476 3.76
---------- -------
Total Deposits 3,356,273
Federal funds purchased and securities
sold under repurchase agreements 258,409 3,506 5.31
Other borrowings 21,818 296 5.38
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,759,224 27,278 3.92
---------- ------- ----
Accrued interest and other liabilities 66,878
----------
Total Liabilities 3,703,378
SHAREHOLDERS' EQUITY 328,548
----------
Total Liabilities and
Shareholders' Equity $4,031,926
==========
Net interest income $39,401
=======
Net interest spread 3.81%
====
Net interest income to total average earning assets 4.58%
====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Earnings per Share
27 Statement regarding Financial Data Schedule (EDGAR Version)
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cullen/Frost Bankers, Inc.
(Registrant)
Date: November 14, 1996 By:/s/Phillip D. Green
-----------------------
Phillip D. Green
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Accounting Officer)
<PAGE>
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
11 Statement re: Computation of Earnings per Share
27 Statement re: Financial Data Schedule (EDGAR Version)
Exhibit 11
Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------- -------------------
Primary Earnings per Share 1996 1995 1996 1995
- -------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income applicable to common stock $40,578 $33,815 $13,985 $11,953
======= ======= ======= =======
Weighted average shares outstanding 22,435 22,284 22,451 22,306
Addition from assumed exercise of
stock options 436 349 467 422
------- ------- ------- -------
Weighted average number of common
shares outstanding 22,871 22,633 22,918 22,728
======= ======= ======= =======
Primary earnings per common share $ 1.77 $ 1.49 $ .61 $ .53
Nine Months Ended Three Months Ended
September 30 September 30
------------------- -------------------
Fully Diluted Earnings per Share 1996 1995 1996 1995
- -------------------------------- ------- ------- ------- -------
Net income applicable to common stock $40,578 $33,815 $13,985 $11,953
======= ======= ======= =======
Weighted average shares outstanding 22,435 22,284 22,451 22,306
Addition from assumed exercise of
stock options 520 455 506 440
------- ------- ------- ------
Weighted average number of common
shares outstanding 22,955 22,739 22,957 22,746
======= ======= ======= ======
Fully diluted earnings per common share $ 1.77 $ 1.49 $ .61 $ .53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 442,706
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 108,625
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,304,698
<INVESTMENTS-CARRYING> 183,829
<INVESTMENTS-MARKET> 186,415
<LOANS> 2,182,938
<ALLOWANCE> 36,230
<TOTAL-ASSETS> 4,456,577
<DEPOSITS> 3,884,349
<SHORT-TERM> 115,893
<LIABILITIES-OTHER> 94,961
<LONG-TERM> 0
0
0
<COMMON> 112,286
<OTHER-SE> 249,088
<TOTAL-LIABILITIES-AND-EQUITY> 4,456,577
<INTEREST-LOAN> 135,080
<INTEREST-INVEST> 75,649
<INTEREST-OTHER> 4,898
<INTEREST-TOTAL> 215,627
<INTEREST-DEPOSIT> 77,025
<INTEREST-EXPENSE> 83,135
<INTEREST-INCOME-NET> 132,492
<LOAN-LOSSES> 5,500
<SECURITIES-GAINS> (997)
<EXPENSE-OTHER> 134,357
<INCOME-PRETAX> 63,181
<INCOME-PRE-EXTRAORDINARY> 63,181
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,578
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 7.71
<LOANS-NON> 11,167
<LOANS-PAST> 5,497
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,762
<ALLOWANCE-OPEN> 31,577
<CHARGE-OFFS> (6,967)
<RECOVERIES> 6,121
<ALLOWANCE-CLOSE> 36,230
<ALLOWANCE-DOMESTIC> 36,086
<ALLOWANCE-FOREIGN> 144
<ALLOWANCE-UNALLOCATED> 1,526
</TABLE>
