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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CULLEN/FROST BANKERS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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(4) Proposed maximum aggregate value of transaction:
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing Party:
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(4) Date Filed:
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
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[CULLEN/FROST BANKERS, INC. LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1996
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To the Shareholders of
CULLEN/FROST BANKERS, INC.:
The Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc.
("Cullen/Frost") will be held in the Commanders Room at The Frost National Bank,
100 West Houston Street, San Antonio, Texas, on Wednesday, May 29, 1996, at
10:00 a.m., San Antonio time, for the following purposes:
1. To elect 18 directors who will be divided into three classes, with
terms expiring in 1997, 1998, and 1999, respectively;
2. To consider and vote upon the selection of Ernst & Young LLP to act
as independent auditors of Cullen/Frost for the fiscal year that commenced
January 1, 1996; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 31, 1996, are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES MUST BE PRESENT EITHER IN
PERSON OR BY PROXY IN ORDER TO HOLD THE MEETING. TO ENSURE YOUR REPRESENTATION
AT THE ANNUAL MEETING, PLEASE PROMPTLY MARK, SIGN, DATE, AND MAIL THE ENCLOSED
PROXY IN THE POSTAGE PREPAID ENVELOPE PROVIDED FOR THIS PURPOSE.
All shareholders are cordially invited to attend the annual meeting.
By Order of the Board of Directors
/s/ DIANE JACK
DIANE JACK
Corporate Secretary
Dated: April 26, 1996
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[CULLEN/FROST BANKERS, INC. LOGO]
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PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1996
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SOLICITATION AND REVOCATION OF PROXY
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cullen/Frost Bankers, Inc. ("Cullen/Frost" or the
"Company") of proxies to be used at the Annual Meeting of Shareholders. The
meeting is scheduled to be held on May 29, 1996, in accordance with the attached
notice. This Proxy Statement and the accompanying proxy card are being mailed to
shareholders beginning on or about April 26, 1996.
Cullen/Frost will bear the cost of solicitation of proxies for the Annual
Meeting. In addition to solicitation by mail, the directors, officers, and
employees of Cullen/Frost may solicit proxies by telephone, telegram or in
person. Cullen/Frost also has retained Georgeson & Co., Inc. to assist in the
solicitation of proxies, for a fee of approximately $6,500 plus out-of-pocket
expenses. Brokers, nominees, fiduciaries, and other custodians have been
requested to forward proxy soliciting material to the beneficial owners of
Cullen/Frost Common Stock, and Cullen/Frost will reimburse them for their
out-of-pocket expenses.
All shares of Cullen/Frost Common Stock represented by properly executed
proxies, if returned in time, will be voted at the meeting in accordance with
the instructions indicated thereon. If no direction is given, proxies will be
voted for the election as directors of the nominees referred to in Item 1 of the
Proxy Statement; in favor of the proposal to approve the selection of Ernst &
Young LLP as independent auditors described in Item 2 of the Proxy Statement;
and in the discretion of persons named on the proxy in connection with any other
business that may properly come before the meeting. Shares represented by
properly executed proxies, if returned in time, will be counted for purposes of
determining the number of shares present at the meeting, even if authority to
vote on any particular matter is withheld. A shareholder may revoke a proxy at
any time before it is voted by delivering a written revocation notice at the
Company's principal executive office to the Secretary of Cullen/Frost, Ms. Diane
Jack, 100 West Houston Street, San Antonio, Texas 78205. A shareholder who
attends the meeting may vote by ballot at the meeting if desired, and such vote
will cancel any proxy vote previously given.
VOTING OF SECURITIES
The only class of voting securities of Cullen/Frost outstanding and
entitled to vote at the meeting is Common Stock, par value $5.00 per share. On
March 31, 1996, the record date for determining shareholders of Cullen/Frost
entitled to vote at the meeting, there were outstanding 11,214,116 shares of
Common Stock, each entitled to one vote. Directors are elected by a plurality of
the votes cast by the holders of shares of Common Stock. Action to be taken on
Item 2 will be determined by a majority of the shares of Common Stock present.
Because abstentions are considered shares present, proxies which are marked
"abstain" will be the equivalent of a negative vote in determining whether a
majority vote was obtained for Item 2.
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ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
A total of 18 directors are to be elected at the Annual Meeting of
Shareholders. Unless otherwise indicated, the proxies will be voted for the
election of the nominees listed below. Although Cullen/Frost management does not
contemplate that any nominee will be unable to serve, if such a situation arises
prior to or at the meeting, the persons named in the accompanying proxy will
vote in accordance with their best judgment unless otherwise instructed. All
nominees are currently members of the Board except Eugene H. Dawson, Sr., Ruben
M. Escobedo, Ida Clement Steen, and Mary Beth Williamson. The latter four
nominees are currently members of The Frost National Bank Board.
Effective at this annual meeting, pursuant to a bylaw adopted by the Board,
directors will be divided into three classes, with the initial term of Class I
expiring at the 1997 Annual Meeting, the initial term of Class II expiring at
the 1998 Annual Meeting, and the initial term of Class III expiring at the 1999
Annual Meeting. Thereafter, directors will be elected for three year terms.
Below is biographical information about each nominee, including age, recent
business experience and/or position with the Company. Also included is the Class
in which such director will serve and information on the nominees' ownership of
Cullen/Frost Common stock.
<TABLE>
<CAPTION>
SHARES OWNED(1)
-------------------------
AMOUNT AND
NATURE OF
DIRECTOR BENEFICIAL
NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP PERCENT
- ------------------------- --- ------------------------------ ---- ------------- -------
<S> <C> <C> <C> <C> <C>
Class I:
- --------
Isaac Arnold, Jr......... 60 Oil, real estate, investments 1977 28,178(4) .25
Harry H. Cullen.......... 60 Oil, real estate, investments 1993(2) 70,987(5) .63
Roy H. Cullen............ 66 Oil, real estate, investments 1977 28,549(6) .25
James L. Hayne........... 62 Managing partner of Catto & 1977 4,899 .04
Catto (insurance agency)
Robert S. McClane........ 56 President of Cullen/Frost 1985 60,902(7) .54
Mary Beth Williamson..... 62 Education (Consultant) (3) 220 .00
Class II:
- ---------
Royce S. Caldwell........ 57 President, Southwestern Bell 1994 200 .00
Operations SBC Communications,
Inc.
Ruben R. Cardenas........ 65 Attorney, Cardenas, Whitis, & 1995 500 .00
Stephen, L.L.P.
Henry E. Catto........... 65 Partner, Catto & Catto 1993 5,500 .05
Insurance Agency; former
Director, U. S. Information
Agency; former U. S.
Ambassador to Great Britain,
and former Vice Chairman, H&C
Communications
</TABLE>
(Table continued on following page)
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2
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<TABLE>
<CAPTION>
SHARES OWNED(1)
-------------------------
AMOUNT AND
NATURE OF
DIRECTOR BENEFICIAL
NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP PERCENT
- ------------------------- --- ------------------------------ ---- ------------ -------
<S> <C> <C> <C> <C> <C>
Richard W. Evans, Jr..... 49 Chairman of the Board and 1993 55,721(7) .50
Chief Operating Officer of
Cullen/Frost; Chairman of the
Board and Chief Executive
Officer of Frost National
Bank, a Cullen/Frost
Subsidiary
James W. Gorman, Jr...... 65 Oil, real estate, and 1987 6,000 .05
investments
Richard M. Kleberg, 53 Investments 1992 2,100 .02
III....................
Class III:
- ----------
Eugene H. Dawson, Sr..... 61 President, Pape-Dawson (3) 6,600 .06
Consulting Engineers
Ruben M. Escobedo........ 58 Certified Public Accountant (3) 300 .00
W. N. Finnegan, III...... 70 Attorney; former President, R. 1977 11,013 .10
E. Smith Interests, Inc.
T. C. Frost.............. 68 Senior Chairman of the Board 1966 359,427(7) 3.20
and Chief Executive Officer of
Cullen/Frost
Ida Clement Steen........ 43 Investments (3) 220 .00
Curtis Vaughan, Jr....... 68 Chairman of the Board of 1980 5,678 .05
Vaughan & Sons, Inc.
(Manufacturer and distributor
of building materials and real
estate development)
</TABLE>
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(1) Unless otherwise indicated, beneficial ownership is as of December 31, 1995,
and the owners have sole voting and investment power for the shares of
Cullen/Frost Common Stock reported. Beneficial ownership includes shares
which the individual had a right to acquire pursuant to employee stock
options exercisable within sixty (60) days from December 31, 1995, as
follows Mr. T. C. Frost 37,700, Mr. Evans 19,250, and Mr. McClane 23,952 .
The number of shares of Cullen/Frost Common Stock beneficially owned by all
directors, nominees and named executive officers as a group is disclosed on
page 13 of this Proxy Statement.
(2) Also served as a director of Cullen Bank, a former Cullen/Frost subsidiary,
from 1969 to 1993.
(3) Mr. Dawson has served as a director of The Frost National Bank, a
Cullen/Frost Subsidiary, since 1989. Mr. Escobedo, Mrs. Steen, and Mrs.
Williamson have served as directors of The Frost National Bank since 1993.
(4) Includes 21,186 shares for which Mr. Arnold has shared voting and investment
power with others.
(5) Includes 26,532 shares for which Mr. Harry Cullen has shared voting and
investment power with Mr. Roy Cullen and others.
(6) Includes 26,532 shares for which Mr. Roy Cullen has shared voting and
investment power with Mr. Harry Cullen and others. Also includes 1,304
shares for which Mr. Roy Cullen has shared voting and shared investment
power with others.
(Notes continued on following page)
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(7) Includes the following shares allocated under the 401(k) Stock Purchase
Plan for Employees of Cullen/Frost Bankers, Inc., for which the
beneficial owners have sole voting but no investment power -- Mr. T. C.
Frost 9,996, Mr. Evans 7,084, and Mr. McClane 6,875. In addition, the
number of shares reported for Mr. T. C. Frost includes 11,296 shares held
in the Pat and Tom Frost Foundation Trust for which Mr. T. C. Frost
disclaims beneficial ownership.
Except for the relationships noted in the preceding table or below, no
nominee has had any other principal occupation or employment with Cullen/Frost
or any of its subsidiaries within the last five years. Each nominee has been
engaged in the above principal occupations for at least five years.
The following are directorships held by nominees in companies (other than
Cullen/Frost) with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the requirements
of Section 15(d) of such Act or registered as an investment company under the
Investment Company Act of 1940, as amended; Mr. Arnold -- Nuevo Energy Company;
Mr. Cardenas -- SBC Communications Inc.; Mr. Harry Cullen -- Pennzoil Co.; Mr.
Escobedo -- Valero Energy Corporation; Mr. T. C. Frost -- SBC Communications
Inc.; and Mr. Kleberg -- Abraxas Petroleum Corporation.
There are no arrangements or understandings between any nominee or director
of Cullen/Frost and any other person pursuant to which he was or is to be
selected as a director nominee.
The only family relationships among the directors or executive officers of
Cullen/Frost which are first cousin or closer are those of Mr. Henry Catto and
Mrs. James L. Hayne, who are first cousins; Messrs. Harry Cullen and Roy Cullen
who are brothers; and the Cullen brothers and Mr. Arnold who are first cousins.
At the meeting at which the bylaws were amended to classify the Board
effective at this Annual Meeting, the bylaws were amended in a number of
respects, including provisions which require advance notice of shareholder
proposals and director nominations, establish procedures for shareholders
calling special meetings, provide that directors are removable only for cause by
a two-thirds shareholder vote, and require a vote of the majority of the
directors or three-quarters of the outstanding shares to amend the bylaws.
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
The Cullen/Frost Board of Directors has four regularly scheduled, quarterly
meetings each year. The Board has Executive, Audit, Compensation and Benefits,
and Strategic Planning Committees. The Committees' functions and current members
are:
Executive Committee: This Committee acts for the Board of Directors between
meetings of the Board, except to the extent limited by resolutions of the Board,
by the Bylaws of Cullen/Frost, or Texas law. Current members are T. C. Frost and
Richard W. Evans, Jr.
Audit Committee: The Audit Committee is composed of outside (non-employee)
directors. It reviews the scope and results of the annual audit by the
independent auditors Ernst & Young LLP, and it also reviews their performance of
non-audit services and considers whether the performance of such services will
have any effect on their independence. The Committee recommends its choice for
independent auditors to the Board of Directors. The Committee also monitors
regulatory examinations, the level of criticized assets, adequacy of loan loss
reserves, and the reports of internal audit and loan review at each subsidiary
of Cullen/Frost. It also reviews the financial reporting practices and the
internal audit, loan review, compliance, and appraisal functions for
Cullen/Frost. Current members are Isaac Arnold, Jr., Royce S. Caldwell, Ruben R.
Cardenas, W. N. Finnegan, III, and Richard M. Kleberg, III. In addition, there
is one member, Eugene H. Dawson, Sr., from The Frost National Bank Board, who
participates and votes on committee matters.
Compensation and Benefits Committee: The Compensation and Benefits
Committee is composed of outside (non-employee) directors. It makes
recommendations to the Board of Directors about compensation for certain
officers of Cullen/Frost. (See the "Board Compensation and Benefits Committee
Report on
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Executive Compensation" below). In addition, to ensure consistent administration
of company-wide employee benefit plans, the Committee functions as the
administrative committee of (i) the Retirement Plan, (ii) the 1983 and 1988
Non-qualified Stock Option Plans, (iii) the Restricted Stock Plan, (iv) the
401(k) Stock Purchase Plan, (v) the 1991 Stock Purchase Plan, (vi) the 1992
Stock Plan, (vii) the Pre-Tax Benefit Plan, and (viii) the Group Medical and
Life Insurance Plan. Current members are Roy H. Cullen, James W. Gorman, Jr.,
and Curtis Vaughan, Jr. In addition, there are two members, Ruben M. Escobedo
and David Straus, from The Frost National Bank Board, who participate and vote
on committee matters. John C. Korbell, an Advisory Director of Cullen/Frost,
also serves as an Advisory Director to the Compensation and Benefits Committee.
Strategic Planning Committee: The Strategic Planning Committee was
appointed to analyze strategic directions for Cullen/Frost in light of
competitive conditions, to monitor the corporate mission statement and capital
planning, and to review short- and long-term goals. Current members are T. C.
Frost, Isaac Arnold, Jr., Richard W. Evans, Jr., James L. Hayne, and Curtis
Vaughan, Jr.
Directors' fees are paid by Cullen/Frost on the basis of an annual retainer
of $5,000 per calendar year, plus $1,250 for each meeting attended. Cullen/Frost
also pays a fee of $750 per director for participation in any meeting of a
committee to which he has been appointed, except for the Chairman of the Audit
Committee, W. N. Finnegan, III, who receives $1,500 for each Audit Committee
meeting he attends. Directors of Cullen/Frost who also are officers of
Cullen/Frost or any of its subsidiaries receive no fees for serving on the Board
of Directors or any of its committees.
During 1995, there were six meetings of the Board of Directors, four
meetings of the Executive Committee, four meetings of the Audit Committee, three
meetings of the Compensation and Benefits Committee, and four meetings of the
Strategic Planning Committee. During 1995, all of the current directors attended
at least 75 percent of the aggregate of the meetings of the Board of Directors
and the committees on which they served except for Messrs. Harry H. Cullen, Roy
H. Cullen, and James W. Gorman, Jr.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
1. BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") is committed to maintaining compensation programs for the Company's
executive officers which further the Company's mission. We, therefore, adhere to
the following compensation policies which are intended to facilitate the
achievement of the Company's business strategies:
o Compensation levels for each element of pay should be targeted at rates
that are reflective of the median levels of current market practices
prevalent in comparable financial organizations. Offering
market-comparable pay opportunities allows the Company to attract and
maintain a stable, successful management team.
o Executives' total compensation packages should strengthen the
relationship between pay and performance with variable, at-risk
compensation that is dependent upon the level of success in meeting
specified Company and individual performance goals.
o Ownership of the Company's Common Stock by executives should be
encouraged to further align executives' interests with those of
shareholders and the Company and to promote a continuing focus on building
profitability and shareholder value.
o Sustained superior performance by individual executives over a period of
years, including actions to increase revenues, reduce expenses, enhance
service and product quality, improve market share and thereby enhancing
shareholder value, should be rewarded.
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To preserve objectivity in the achievement of its goals, the Committee is
comprised of five independent, non-employee directors and one independent,
non-employee advisory director. It is the Committee's overall goal to develop
compensation policies that are consistent with and linked to strategic business
objectives and Company values. The Committee approves the design of, assesses
the effectiveness of, and administers compensation programs in support of
compensation policies. The Committee also reviews all salary arrangements and
other remuneration for a group of senior executives, including all those named
in the Summary Compensation table on pages 9-10.
Each year a comprehensive analysis of competitive market data is provided
by an independent compensation consultant engaged by, and responsible to, the
Committee. The data provided compares the Company's compensation practices and
programs to a group of comparator companies. This group of comparator companies
is comprised of companies who have business operations, total assets, market
capitalizations, and lines of business similar to those of the Company.
These companies include, but are not limited to, the companies included in
the Standard & Poor's (S&P's) Major Regional Bank Index. The Committee has
chosen not to use the S&P's Major Regional Bank Index as its comparator group
for compensation purposes since detailed data for all senior executives at the
banks comprising the index is not available. The S&P's Major Regional Bank Index
was used for comparison of total shareholder return shown in the Performance
Graph on page 14.
The key elements of the Company's executive compensation are base salary,
annual incentives, and long-term compensation. These key elements are addressed
separately below. In determining compensation, the Committee considers all
elements of an executive's total compensation package, including severance
plans, insurance, and other benefits.
BASE SALARIES
Base salaries constituted approximately 69% of total executive compensation
for 1995. The Committee believes that the demonstration of superior abilities
and performance by individual employees should be rewarded, in part, through
salary reviews. The Committee reviews the base salary of each of the five
highest-paid executives on an annual basis.
Base salaries may be adjusted after an evaluation of each executive's
performance in conjunction with a review of the median base pay received by
other individuals holding similar positions in the Company's comparator group.
Following the determination of the market-based pay, each officer's individual
performance, achievements, and contributions to the growth of the Company are
evaluated subjectively in determining the individual's base salary. Finally, the
overall performance and needs of the Company are examined and salaries may be
adjusted in response to the need to attract and retain appropriate officers. The
Company places no specific weights on the factors used in determining base
salary levels.
Based on the factors listed above, base salaries approximated median market
levels of comparator companies in 1995, and merit increases were made at a rate
comparable to the increases provided at other companies.
Effective July 1, 1994, Mr. Frost activated his retirement benefits while
continuing as Chief Executive Officer of the Company. Accordingly, his base
salary was reduced from $400,000 to $140,000. In determining Mr. Frost's base
salary for 1996, the Committee considered the Company's overall financial
performance for the year, Mr. Frost's individual performance and long-term
contributions to the success of the Company, and base salaries of CEOs at
comparator companies. The Committee elected to maintain Mr. Frost's base salary
of $140,000 which, in conjunction with his retirement income, results in a
slightly less than competitive level of base pay.
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ANNUAL INCENTIVES
Beginning in 1994, the Company initiated a formal annual incentive plan for
executives. Based on competitive target incentives at comparator companies, the
Committee determined target incentives by position and initiated a three-year
phase-in to these levels. The year 1995 was the second year of the three-year
plan. The Company must achieve a predetermined budget or target level of
financial performance before any bonuses are paid out. No bonus pool is
established if performance is below the targeted level, and only the target
bonus is paid for performance at or above the targeted level. The Committee has
the authority to adjust results as measured against financial objectives up or
down by 20 percent.
In 1995, annual incentives accounted for approximately 11% of total
compensation earned by executives. The purpose of the annual incentive is to
promote and reward teamwork as measured by overall corporate performance while
recognizing individual contributions.
The annual incentive target established for Mr. Frost is based on his
previous base salary of $400,000, which is slightly below the median base salary
of CEOs at comparator companies. In determining the annual incentive payment for
Mr. Frost for 1995, the Committee reviewed the financial results for the year
and determined that the budgeted level of performance, as measured by net
income, had been exceeded. The Committee then considered his leadership and
contributions to the success of the Company. They also took into account the
fact that his base salary has not increased for several years and is slightly
below the competitive market for CEO s, and awarded Mr. Frost a bonus of
$170,000.
All other proxy reported officers were awarded their target bonuses.
LONG-TERM INCENTIVES
The Committee believes that executive compensation should be dependent upon
the performance of the Company as a whole, as well as the performance of
individual executives. Long-term incentives are provided pursuant to the
Company's 1992 Stock Plan approved by the shareholders.
In keeping with the Company's commitment to provide a total compensation
package which includes at-risk components of pay, long-term incentives
constituted approximately 20% of an executive's total compensation package in
1995.
When awarding long-term incentives, the Committee considers executives'
levels of responsibility, prior experience, individual performance, and
compensation practices at comparator companies. The Committee's objective is to
provide executives with targeted long-term incentive opportunities that
approximate median levels at comparator companies. Current stock holdings and
the magnitude of outstanding long-term incentives are not considered in making
current awards.
STOCK OPTIONS
Non-qualified stock options are granted at an option price not less than
the fair market value of the Common Stock on the date of grant. Accordingly, the
value of stock options is tied to appreciation in the stock price from the date
the options are granted. This design focuses executives on the creation of
shareholder value over the long term and encourages equity ownership in the
Company. Stock options are used as the primary long-term incentive vehicle.
The size of stock option grants is determined based on a percentage of
annualized base salary. The size of the award can be adjusted based on the
Committee's subjective valuation of individual factors and historical award
data. The Compensation and Benefits Committee's objective is to deliver a
competitive award opportunity based on the dollar value of the award granted. As
a result, the number of stock options awarded varies from year to year and is
dependent on the stock price on the date of grant.
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In 1995, Mr. Frost received options to purchase 17,000 shares with an
exercise price of $45.75 as is detailed in the table on page 10. Together with
the restricted Stock award described below, the grant approximated the median
level of comparator companies. Without giving effect to such grants, Mr. Frost
now has beneficial ownership of 359,427 shares of the Company's common stock
which includes 37,700 shares for which he has a right to receive pursuant to
presently exercisable employee stock options. With the 1995 grant, Mr. Frost
holds options to purchase an additional 57,801 shares. Mr. Frost's stock option
grant was in keeping with the Committee's intent to place emphasis on long-term
compensation which is tied directly to the success of the Company and,
correspondingly, that of shareholders.
RESTRICTED STOCK
Restricted stock provides executives with an immediate link to shareholder
interests and, due to vesting requirements, enhances the Company's ability to
maintain a stable executive team, focused on the Company's long-term success.
The Company has historically granted restricted stock every other year, and has
continued that policy by granting restricted stock in 1995. The last grant of
restricted stock was in 1993.
Mr. Frost received a grant of 5,000 restricted shares in 1995. As mentioned
previously, this grant, together with the grant of stock options, resulted in a
long-term incentive award which approximated the median level for CEO's of
comparator companies.
TAXATION PHILOSOPHY
Section 162(m) of the Internal Revenue Code generally limits the corporate
tax deduction for compensation paid to the Chief Executive Officer and the four
other most highly compensated executive officers unless the compensation is
performance-based. One condition to qualify compensation as performance-based is
to establish the amount of the award on an objective formula that precludes any
discretion.
The Committee continues to carefully review the impact of this tax code
provision on the Company's incentive plans and has determined that Section
162(m) is currently inapplicable because no named executive officer receives
compensation in excess of $1 million. The Committee also believes it is the
Company's and shareholders' best interests to retain the discretionary
evaluation of individual performance as provided in the annual incentive plan.
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively and that the
various pay vehicles offered are appropriately balanced to provide increased
motivation for executives to contribute to the Company's overall future
successes, thereby enhancing the value of the Company for the shareholders'
benefit.
The Committee will continue to monitor the effectiveness of the Company's
total compensation program to meet the current needs of the Company.
Roy H. Cullen
Ruben M. Escobedo (Member of The Frost National Bank Board)
James W. Gorman, Jr.
John C. Korbell (Advisory Director)
David Straus (Member of The Frost National Bank Board)
Curtis Vaughan, Jr., Chairman
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2. COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS.
During 1995, Frost National Bank, a subsidiary bank of Cullen/Frost, had
customary business and banking transactions, with Mr. Roy H. Cullen, a Company
director serving on the Compensation and Benefits Committee. The transaction was
as follows:
The principal offices of Frost National Bank's Cullen Center branch
are leased on a long-term basis from Cullen Center, Inc., and its motor
bank and convenience center are leased on a long-term basis from
Dresser-Cullen Venture, a Texas joint venture. During 1995, lease payments
of $1,449,880 and $184,256 were made to Cullen Center, Inc. and
Dresser-Cullen Venture, respectively. Cullen Center, Inc. is a 50 percent
participant in Dresser-Cullen Venture. Mr. Roy Cullen, a Cullen/Frost
director, owned capital stock of approximately 8 percent in Cullen Center,
Inc. through June 23, 1995.
The foregoing transactions were on substantially the same terms as those
prevailing at the time for comparable transactions with other persons and did
not present unfavorable features. Additional transactions in the future may be
expected to take place with the subsidiary banks in the ordinary course of
business.
Also, a loan originally established in the ordinary course of business with
a subsidiary bank and related to a director has subsequently been reclassified
as other assets. Summit Joint Venture II, of which Mr. Vaughan, a Cullen/Frost
director, is a limited partner, has debt to Frost National Bank which was
originated to finance the purchase and development of real estate. The largest
amount outstanding during 1995 was $1,727,956, and the balance was $1,727,956 as
of December 31, 1995. Interest charged is dependent upon debt repayment amounts.
Debt repayment is based on asset sales during the year.
In the opinion of management all of the above described transactions were
effected on terms comparable to those available to unaffiliated parties.
3. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Shown below is information about annual and long-term compensation for the
past three fiscal years for services in all capacities to Cullen/Frost and its
subsidiaries of the Chief Executive Officer and the other three most highly
compensated executive officers (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
OTHER RESTRICTED OPTIONS ALL OTHER
ANNUAL STOCK /SARS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (SHARES) SATION(3)
- --------------------------------------- ---- -------- -------- --------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Frost 1995 $140,000 $170,000 $40,372 $228,750 17,000 $49,234
Senior Chairman and CEO of 1994 $270,000 $150,000 $31,274 $ 0 27,500 $71,912
Cullen/Frost 1993 $400,000 0 $10,570 $ 55,380 14,300 $56,976
Richard W. Evans, Jr. 1995 $300,000 $ 90,000 $12,367 $114,375 8,500 $21,260
Chairman of the Board and Chief 1994 $283,333 $ 75,000 $11,504 $ 0 15,000 $20,274
Operating Officer of Cullen/Frost 1993 $257,083 $ 30,000 $ 5,647 $ 39,050 9,300 $18,435
Robert S. McClane 1995 $300,000 $ 90,000 $12,293 $114,375 8,500 $25,860
President of Cullen/Frost 1994 $283,333 $ 75,000 $10,312 $ 0 15,000 $24,897
1993 $280,000 $ 30,000 $ 6,389 $ 39,050 9,300 $21,983
Phillip D. Green 1995 $161,667 $ 42,500 $ 4,659 $ 38,888 3,500 $10,942
Executive Vice President and Chief 1994 $151,667 $ 32,000 $ 3,281 $ 0 6,000 $10,330
Financial Officer of Cullen/Frost 1993 $150,000 $ 15,000 $ 2,305 $ 15,620 3,180 $ 9,920
</TABLE>
(Notes on following page)
- --------------------------------------------------------------------------------
9
<PAGE> 12
- --------------------------------------------------------------------------------
- ---------------
(1) Represents payments to compensate the employee for income taxes on elective
deferrals and Company matching contributions to Cullen/Frost's 1991 Thrift
Incentive Stock Purchase Plan (1991 Thrift Plan) comparable benefit to the
Company's 401(k) Plan for all employees whose participation in the 401(k) is
limited by the IRS rules, which is approximately 101 employees in 1995. Mr.
Frost's values also include $21,565 to reimburse him for Medicare and income
taxes on life insurance premiums paid for by the Company.
(2) Represents the dollar value of restricted stock awards, based on the closing
market price of Cullen/Frost stock on grant date. The total number of
restricted shares held and their aggregate market value at December 29, 1995
were: Mr. Frost, 5,780 shares valued at $289,000; Mr. Evans, 3,050 shares
valued at $152,500; Mr. McClane 3,050 shares valued at $152,500; and Mr.
Green, 1,070 shares valued at $53,500. Aggregate market value is based on a
fair market value of $50.00 at December 29, 1995. Dividends are paid on the
restricted shares at the same time and at the same rate as dividends paid to
shareholders of unrestricted shares. Stock awarded in 1993 vests over a
four-year period, at 25 percent per year. Stock awarded in 1995 vests at the
end of 3 years.
(3) Represents total and/or imputed income from certain insurance premiums paid
by Cullen/Frost and Company's contributions to the 1991 Thrift Plan. The
amounts for insurance premiums and/or imputed income for 1995 and 1994 were
$53,729 and $66,695, respectively. The Company's contribution to the 1991
Thrift Plan was $63,440 in 1995 and $69,568 in 1994.
Cullen/Frost has employee stock option plans under which options to
purchase Common Stock are granted to executive officers and other key employees.
The table below shows grants during the past year of stock options under the
Cullen/Frost Bankers, Inc. 1992 Stock Plan to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS/SARS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS/SARS IN FISCAL EXERCISE EXPIRATION ---------------------------------
NAME GRANTED YEAR(1) PRICE(3) DATE 0% 5% 10%
- ----------------------------------- ------------ -------- ---------- --- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Frost............ 17,000 16.7% $45.75 9/28/2005 $ 0 $ 489,123 $ 1,239,533
Richard W. Evans,
Jr................... 8,500 8.3% $45.75 9/28/2005 $ 0 $ 244,561 $ 619,767
Robert S. McClane...... 8,500 8.3% $45.75 9/28/2005 $ 0 $ 244,561 $ 619,767
Phillip D. Green....... 3,500 3.4% $45.75 9/28/2005 $ 0 $ 100,702 $ 255,198
All shareholders(2).... N/A N/A $45.75 N/A $ 0 $322,229,455 $816,593,561
</TABLE>
- ---------------
(1) Based on 102,000 options granted to all employees in 1995.
(2) Shows potential realizable value at assumed annual rates for all
shareholders based on 11,199,450 shares outstanding as of December 29, 1995.
(3) Gains on "All Shareholders" assume a base price of $45.75, the market price
of the options issued to the named officers.
- --------------------------------------------------------------------------------
10
<PAGE> 13
- --------------------------------------------------------------------------------
Shown below is information on stock options exercised during 1995 by each
of the named executive officers and the market value at fiscal year-end for
remaining options:
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES
TOTAL VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT
SHARES FISCAL YEAR-END(1) HELD AT FISCAL YEAR-END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Frost....................... -- -- 37,700 57,801 $ 1,122,836 $ 848,056
Richard W. Evans, Jr.............. -- -- 19,250 30,991 $ 549,970 $ 449,622
Robert S. McClane................. -- -- 23,952 32,547 $ 722,280 $ 498,742
Phillip D. Green.................. -- -- 7,806 12,192 $ 228,974 $ 174,580
</TABLE>
- ---------------
(1) Reflects adjustment for 10% stock dividend in 1993.
(2) Total value of options based on a fair market value of Company Stock of
$50.00 as of December 29, 1995.
4. OTHER PLANS AND AGREEMENTS
Retirement Plan and Restoration Plan
Cullen/Frost has a non-contributory Retirement Plan and Trust for Employees
of Cullen/Frost Bankers, Inc. and its Affiliates for eligible employees which is
designed to comply with the requirements of the Employee Retirement Income
Security Act of 1974. It also has a Restoration Plan which provides benefits in
excess of the limits under Section 415 of the Internal Revenue Code and in
excess of limits on eligible earnings set by the Tax Reform Act of 1986;
benefits are provided in connection with both the Retirement Plan and a previous
employee stock ownership plan. The entire cost of the Retirement and Restoration
Plans is provided by Cullen/Frost and its subsidiaries.
The table below shows the anticipated annual benefit, computed on a
straight line basis, payable under the Retirement Plan and Restoration Plan upon
the normal retirement of a vested executive officer of Cullen/Frost at age 65
after 15, 20, 25, 30, 35, 40, 45 and 50 years of credited service at specified
annual compensation levels.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45 50
- ------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$125,000 $ 39,004 $ 46,102 $ 50,361 $ 60,170 $ 70,198 $ 77,073 $ 83,948 $ 90,823
150,000 47,401 56,141 61,386 73,295 85,510 93,760 102,010 110,260
175,000 55,797 66,180 72,411 86,420 100,823 110,448 120,073 129,698
200,000 64,193 76,220 83,436 99,545 116,135 127,135 138,135 149,135
225,000 72,590 86,259 94,460 112,670 131,448 143,823 156,198 168,573
250,000 80,986 96,298 105,485 125,795 146,760 160,510 174,260 188,010
300,000 97,779 116,377 127,535 152,045 177,385 193,885 210,385 226,885
400,000 131,364 156,533 171,635 204,545 238,635 260,635 282,635 304,635
450,000 148,157 176,612 193,685 230,795 269,260 294,010 318,760 343,510
500,000 164,949 196,690 215,735 257,045 299,885 327,385 354,885 382,385
</TABLE>
The Retirement Plan was revised effective January 1, 1993 to provide a
monthly benefit based on a percentage of an eligible employee's final average
Compensation based on the highest three years of compensation during the last
ten years of service and years of service. An eligible employee's Retirement
- --------------------------------------------------------------------------------
11
<PAGE> 14
- --------------------------------------------------------------------------------
Benefit will be the greater of the employee's benefits accrued under the prior
provisions of the plan up to December 31, 1992 or the benefits determined by the
new formula effective January 1, 1993. Included in "Compensation" according to
the Retirement Plan are Salary, Overtime, Bonuses, Commissions and Wages
deferred for the Company 401(k) Plan or used to pay health care premiums and
expenses under the company Pre Tax Plan (IRS section 125 Plan). Participants in
the Plan are fully vested in their accrued benefits under the Plan upon
attaining age 65 or after five years of service, whichever occurs first. Death
benefits are provided to married participants who have completed five years of
service. Normal retirement is at age 65 but early retirement is available
starting at age 55. Early Retirement benefits are reduced on an actuarial basis.
The benefit amounts listed in the table represent amounts payable from the plans
and are not subject to any additional deduction for social security benefits or
other offset amounts.
The years of credited service under the Retirement Plan as of December 31,
1995 for each person named in the Summary Compensation Table on pages 10-11 are:
Mr. T. C. Frost -- 46 years; Mr. Evans 25 -- years (40 years at age 65); Mr.
McClane -- 33 years (41 years at age 65); and Mr. Green -- 15 years (39 years at
age 65). Mr. Frost activated his retirement benefit effective July 1, 1994, but
still remains an active employee. Each year, his retirement benefits will be
recalculated based on his earnings for that year.
Effective January 1, 1994, the Company adopted a supplemental executive
retirement plan (SERP). The plan provides for target retirement benefits, as a
percentage of annual cash compensation, beginning at age 55. The target
percentage is 45% of annual cash compensation at age 55, increasing to 60% at
age 60 and later. Benefits under the SERP are reduced, dollar-for-dollar, by
benefits received under the Retirement and Restoration Plans, described above,
and any social security benefits. Current participants in the SERP are Messrs.
Evans and McClane. At current salary levels, at age 60, Mr. Evans would receive
$65,000 annually and Mr. McClane would receive $54,000 annually.
Change-in-Control Agreements
Cullen/Frost has change-in-control agreements with three of the four named
executives above and other key employees. The main purposes of these agreements
are (i) to help executives evaluate objectively whether a potential
change-in-control is in the best interests of shareholders, (ii) to help protect
against the departure of executives, thus assuring continuity of management, in
the event of an actual or threatened merger or change in control, and (iii) to
maintain compensation and benefits comparable to those available from competing
employers. "Change-in-control" is defined as an acquisition of 20 percent or
more of Cullen/Frost Common Stock by an individual, corporation, partnership,
group, association or other person; certain changes in the composition of the
Board of Directors by 50 percent or more; or certain changes in control which
must be reported to the Securities and Exchange Commission.
Messrs. Evans, McClane and Green could receive 2.99 times their average
annual compensation during the previous five years if their position is
terminated within two years following the change-in-control either by
Cullen/Frost, if the termination is for reasons other than cause, disability or
retirement, or by the covered person if the covered person terminates his
employment for good reason. "Good reason" is defined as a significant reduction
or change in responsibility, involuntary transfer to a new location, a reduction
in compensation or benefits, the failure of any successor to Cullen/Frost to
assent to such change-in-control agreement, any purported termination by
Cullen/Frost of the covered person without providing such person a proper
written notice of termination or, in the case of the three executives, their
good faith determination, within 90 days of a change-in-control, that as a
result of the change-in-control they are not able to discharge their duties
effectively. The agreements also provide for a continuation of certain employee
benefits for qualifying executives upon a change-in-control.
Assuming that a change-in-control of Cullen/Frost had occurred effective
December 31, 1995 and that termination of employment also had occurred on that
date, the maximum amounts that could be payable to the named executives are: Mr.
Evans $1,390,984; Mr. McClane $1,462,284; and Mr. Green $652,149; all named
executive officers as a group $3,505,417.
- --------------------------------------------------------------------------------
12
<PAGE> 15
- --------------------------------------------------------------------------------
5. EXECUTIVE OWNERSHIP
The following table lists the number of shares of Cullen/Frost Common Stock
beneficially owned by each of the named executive officers and by all directors,
nominees and executive officers of Cullen/Frost as a group:
<TABLE>
<CAPTION>
SHARES OWNED(1)
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP(2) PERCENT
------------ --------
<S> <C> <C>
T. C. Frost..................................................... 359,427(3) 3.20%
Richard W. Evans, Jr. .......................................... 55,721 .50
Robert S. McClane............................................... 60,902 .54
Phillip D. Green................................................ 19,839 .18
All directors, nominees and executive officers
as group (21 persons, including two advisory directors)....... 746,826(4) 6.62
</TABLE>
- ---------------
(1) Beneficial ownership is as of December 31, 1995. Beneficial ownership
includes shares for which the individual had a right to acquire pursuant to
employee stock options exercisable within sixty (60) days from December 31,
1995, as follows -- Mr. T. C. Frost 37,700, Mr. Evans 19,250, Mr. McClane
23,952, Mr. Green 7,806, and all executive officers and directors as a group
88,708.
(2) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for which the beneficial owners have sole voting but no investment
power -- Mr. T. C. Frost 9,996, Mr. Evans 7,084, Mr. McClane 6,875, and Mr.
Green 3,933.
(3) Includes 11,296 shares held in the Pat and Tom Frost Foundation Trust for
which Mr. T. C. Frost disclaims beneficial ownership.
(4) Includes 27,888 shares for which directors, nominees and named executive
officers have sole voting but no investment power, 47,718 shares with shared
voting and shared investment power with others, and 79,994 shares owned by
two advisory directors.
- --------------------------------------------------------------------------------
13
<PAGE> 16
- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
Below is a performance graph comparing the cumulative total shareholder
return on Cullen/Frost Common Stock with the cumulative total return of
companies on the Standard & Poor's 500 Stock Index and the Standard & Poor's
Major Regional Banks Index.
<TABLE>
<CAPTION>
S&P Major
Measurement Period Cullen/Frost Regional Bank
(Fiscal Year Covered) Bankers, Inc. S&P 500 Index
<S> <C> <C> <C>
1990 100 100 100
1991 237 130 179
1992 486 140 228
1993 611 154 241
1994 546 156 228
1995 907 215 359
</TABLE>
ASSUMES $100 INVESTED ON 12/31/90. DIVIDENDS ARE REINVESTED.
- --------------------------------------------------------------------------------
14
<PAGE> 17
- --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
At December 31, 1995, the only shareholders known by the management of
Cullen/Frost to own beneficially more than five percent of the outstanding
shares of Cullen/Frost Common Stock were:
<TABLE>
<CAPTION>
AMOUNT, NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
--------------------------------------------------------- -------------- --------------
<S> <C> <C>
Cullen/Frost Bankers, Inc.
P. O. Box 1600
San Antonio, Texas 78296................................. 1,142,976(1) 10.21%
GeoCapital Corporation
655 Madison Avenue
New York, New York 10021................................. 638,030(2) 5.70%
</TABLE>
- ---------------
(1) On December 31, 1995, Cullen/Frost owned no securities of Cullen/Frost for
its own account. However, Frost National Bank and United States National
Bank held of record in various fiduciary capacities an aggregate of
1,142,976 shares. Frost National Bank and United States National Bank had
sole voting power for 81,963 shares and 64,639 shares, respectively, and
shared voting power for 779,277 shares and 1,492 shares, respectively. Frost
National Bank and United States National Bank had sole investment power for
69,101 shares and 65,639 shares, respectively, and shared investment power
for 22,162 shares and 1,992 shares, respectively. Frost National Bank and
United States National Bank had both sole voting and investment power for
59,801 shares and 63,919 shares, respectively. All of the shares are held by
Cullen/Frost subsidiary banks, each of which has reported that the
securities, registered in its name as fiduciary or in the names of various
of its nominees, are owned by many separate accounts, each of which is
governed by a separate instrument which sets forth the powers of the
fiduciary with regard to the securities held.
(2) On December 31, 1995, GeoCapital Corporation held of record an aggregate of
638,030 shares of Cullen/Frost Common Stock with no voting power for any
shares and sole investment power for all the shares. GeoCapital has reported
that all the securities are held on behalf of its clients who are the actual
owners of the shares. (GeoCapital also has reported that, by virtue of their
ownership interest in GeoCapital, Messrs. Jonathan Lieber, Barry Fingerhut,
and Jeanne Flaherty, Officers of GeoCapital, may be deemed to be indirect
beneficial owners of the shares which GeoCapital is deemed to own
beneficially).
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Since January 1, 1995, some of the executive officers and directors of
Cullen/Frost, and some of their associates, are and have been customers of one
or more of the Cullen/Frost subsidiary banks and have had transactions with
these banks in the ordinary course of business. Transactions involving Messrs.
Roy Cullen and Vaughan are described on page 9, "Compensation and Benefits
Committee Interlocks and Insider Participation in Compensation Decisions." Other
transactions have included, in addition to borrowings from the subsidiary banks,
the following:
1. The principal offices of Frost National Bank's Cullen Center branch
are leased on a long-term basis from Cullen Center, Inc., and its motor
bank and convenience center are leased on a long-term basis from
Dresser-Cullen Venture, a Texas joint venture. During 1995, lease payments
of $1,449,880 and $184,256 were made to Cullen Center, Inc. and
Dresser-Cullen Venture, respectively. Cullen Center, Inc. is a 50 percent
participant in Dresser-Cullen Venture. Mr. Arnold and Mr. Harry Cullen,
Cullen/Frost directors, owned capital stock, approximately 4 and 9 percent
respectively, through June 23, 1995.
- --------------------------------------------------------------------------------
15
<PAGE> 18
- --------------------------------------------------------------------------------
2. Cullen/Frost and some of its subsidiaries have policies of
insurance written through Catto & Catto, an insurance agency of which Mr.
Catto and Mr. Hayne, Cullen/Frost directors, are partners. Fees paid by
Cullen/Frost and its subsidiaries aggregated less than five percent of the
total gross revenues of Catto & Catto for its fiscal year ended December
31, 1995.
3. Mr. Eugene Dawson, Sr., owns 28.35% of Jesse A. Baker Investments,
Inc. (JAB). JAB has a $770,000 line of credit with Frost National Bank.
During 1995, JAB had draws of $860,000 and repayments of $595,000. The
balance of the line at December 31, 1995 was $665.000. In addition, JAB has
borrowed an additional $1,069,171 for land development purposes during
1995. Principal payments on this loan totaled $108,800. Interest payments
during 1995 totaled $102,933. The principal and interest payments required
by the terms of the Notes for 1996 are anticipated to exceed 5% of JAB's
gross revenues.
4. During 1995, United States National Bank paid to Kempner Capital
Management, Inc., an aggregate of $939,103 for investment advisory service.
Mr. Kempner, Jr., a Cullen/Frost director during 1995, is President of
Kempner Capital Management, Inc. and Chairman Emeritus and Advisor to the
Board of United States National Bank.
5. Frost Bank leases its principal office building, known as Frost
Bank Tower, from Tower Investors, Ltd., the general partner of which is
controlled by Mr. Steve Lee. Also, Frost Bank leases office space in a
related parking garage from LSK Partners, Ltd., which is wholly-owned and
controlled by Mr. Steve Lee and his associates. During 1995, lease payments
of $3,951,598 including subleased space, and $452,429 were made to Tower
Investors, Ltd. and LSK Partners, Ltd. respectively. Mr. Steve Lee is the
son of Mr. Quincy Lee, who served as a Cullen/Frost director during 1995
and has no financial interest in the transactions.
6. Frost Bank's North Frost Center leases its banking premises from
North Frost Center, a joint venture of which Mr. Osborn, a Cullen/Frost
director, and members of his family are co-venturers. The lease is for a
15-year term and the bank has options to extend the lease for up to three
additional five-year periods and options to lease additional space. During
1995, lease payments of $527,337 were made to North Frost Center.
All of the foregoing transactions were on substantially the same terms,
including interest rates and collateral to the extent applicable, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than normal risk of collectibility or present other unfavorable
features. Additional transactions in the future may be expected to take place
with the subsidiary banks in the ordinary course of business.
Also, a loan originally established in the ordinary course of business with
a subsidiary bank and related to a director has subsequently been reclassified
as other assets. This transaction is described on page 9, "Compensation and
Benefits Committee Interlocks and Insider Participation in Compensation
Decisions."
In the opinion of management all of the above described transactions were
effected on terms comparable to those available to unaffiliated parties.
- --------------------------------------------------------------------------------
16
<PAGE> 19
- --------------------------------------------------------------------------------
SELECTION OF AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors desires to obtain from the shareholders an
indication of their approval of the selection of Ernst & Young LLP, certified
public accountants, as independent auditors of Cullen/Frost. Accordingly, upon
the affirmative vote of a majority of the shares of Cullen/Frost Common Stock
present at the meeting, the Board of Directors will adopt a resolution naming
Ernst & Young LLP as independent auditors of Cullen/Frost for the fiscal year
which commenced January 1, 1996. Ernst & Young LLP has audited the financial
statements of Cullen/Frost since 1969.
In the opinion of Cullen/Frost management, the presence of Ernst & Young
LLP at the meeting is not necessary to present properly the results of
operations of Cullen/Frost. However, if any shareholder desires to submit a
question to the independent auditors, management will ensure that the question
is transmitted to them and that an appropriate response is made directly to the
shareholder.
SHAREHOLDER PROPOSALS
With respect to the 1997 Annual Meeting of Shareholders, any shareholder's
proposal for inclusion in the Proxy Statement for that meeting must be received
by Cullen/Frost at its principal offices not later than December 28, 1996.
OTHER MATTERS
Management of Cullen/Frost knows of no other business to be presented at
the meeting, but if other matters do properly come before the meeting, unless
otherwise instructed, it is intended that the persons named in the proxy will
vote shares according to their best judgment.
By Order of the Board of Directors
/s/ DIANE JACK
DIANE JACK
Corporate Secretary
Dated: April 26, 1996
A copy of Cullen/Frost's 1995 Annual Report on Form 10-K is available
without charge (except for exhibits) upon written request to Cullen/Frost
Bankers, Inc., 100 West Houston Street, San Antonio, Texas 78205.
- --------------------------------------------------------------------------------
17
<PAGE> 20
/ /
(1) ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY to vote
listed below / / for any nominees listed below / / *EXCEPTIONS / /
Class I: I. Arnold, Jr., H. H. Cullen, R. H. Cullen, J. L. Hayne,
R. S. McClane, M.B. Williamson
Class II: R. S. Caldwell, R. R. Cardenas, H. E. Catto, R. W. Evans, Jr.,
J. W. Gorman, Jr., Richard M. Kleberg III
Class III: E. H. Dawson, Sr., R. M. Escobedo, W. N. Finnegan III,
T. C. Frost, I. C. Steen, C. Vaughan, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
MARK THE "EXCEPTIONS" BOX, AND WRITE THE NOMINEE'S NAME IN THE SPACE
BELOW.
*Exceptions _____________________________________________________________
(2) The approval of the selection of Ernst & Young as independent auditors of
Cullen/Frost for the fiscal year that commenced January 1, 1996.
FOR / / AGAINST / / ABSTAIN / /
Address Change
and/or Comments Mark Here / /
Signature should correspond with
the printed name appearing hereon.
When signing in a fiduciary or
representative capacity, give full
title as such, or when more than
one owner, each should sign.
Dated: _______________________, 1996
____________________________________
(Signature of Shareholder)
____________________________________
(Signature of Shareholder)
Vote must be indicated
(x) In Black or Blue Ink. / /
PLEASE BE CERTAIN THAT YOU HAVE DATED AND SIGNED THIS PROXY.
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF CULLEN/FROST BANKERS, INC.
The undersigned hereby revoking all proxies previously granted, appoints ROY
H. CULLEN, T.C. FROST and Richard W. Evans, Jr., and each of them, with power of
substitution, as proxy of the undersigned, to attend the Annual Meeting of
Shareholders of Cullen/Frost Bankers, Inc. on May 29, 1996, and any
adjournments thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as designated on the reverse.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND IN
THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
(Continued and to be dated and signed on the reverse.)
CULLEN/FROST BANKERS, INC.
P.O. BOX 11100
NEW YORK, N.Y. 10203-0100
