Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 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 May 2, 1996 there were
11,214,315 shares of Common Stock, $5 par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts) Three Months Ended
March 31
---------------------
1996 1995
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $42,586 $33,075
Securities:
Taxable 25,644 24,336
Tax-exempt 82 84
------- -------
Total Securities 25,726 24,420
Time Deposits 7
Federal funds sold and securities purchased under resale agreements 1,941 1,493
------- -------
Total Interest Income 70,260 58,988
INTEREST EXPENSE
Deposits 25,255 18,385
Federal funds purchased and securities sold under repurchase
agreements 2,105 4,391
Long-term notes payable and other borrowings 232
------- -------
Total Interest Expense 27,592 22,776
------- -------
Net Interest Income 42,668 36,212
Provision for possible loan losses 1,875 500
------- -------
Net Interest Income After Provision
For Possible Loan Losses 40,793 35,712
NON-INTEREST INCOME
Trust department 8,332 8,051
Service charges on deposit accounts 8,785 7,054
Other service charges, collection and exchange charges,
commissions and fees 2,628 2,356
Net gain (loss) on securities transactions (95) 93
Other 3,076 2,863
------- -------
Total Non-Interest Income 22,726 20,417
NON-INTEREST EXPENSE
Salaries and wages 16,637 13,537
Pension and other employee benefits 3,458 2,806
Net occupancy of banking premises 4,861 4,583
Furniture and equipment 2,881 2,560
Provision for real estate losses 500
Restructuring costs 400
Other 15,308 15,384
------- -------
Total Non-Interest Expense 43,145 39,770
------- -------
Income Before Income Taxes 20,374 16,359
Income Taxes 7,299 5,720
------- -------
Net Income $13,075 $10,639
======= =======
Net Income per common share $ 1.15 $ .94
Dividends per share .35 .22
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
March 31 December 31 March 31
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 419,953 $ 533,333 $ 325,334
Time deposits 18 64 21
Securities held to maturity 201,748 210,731 1,030,071
Securities available for sale 1,433,347 1,325,836 529,366
Federal funds sold and securities
purchased under resale agreements 172,589 100,550 98,300
Loans, net of unearned discount of $1,753 at
March 31, 1996 $1,337 at December 31, 1995
and $ 2,780 at March 31, 1995 2,023,910 1,816,762 1,547,898
Less: Allowance for possible loan losses (33,229) (31,577) (26,885)
---------- ---------- ----------
Net Loans 1,990,681 1,785,185 1,521,013
Banking premises and equipment 99,899 89,493 86,844
Accrued interest and other assets 164,729 155,019 133,480
---------- ---------- ----------
Total Assets $4,482,964 $4,200,211 $3,724,429
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 816,018 $ 792,879 $ 665,901
Correspondent banks 158,646 127,549 70,468
Public funds 40,796 71,581 32,504
---------- ---------- ----------
Total demand deposits 1,015,460 992,009 768,873
Time Deposits:
Savings and Interest-on-Checking 755,872 718,582 722,352
Money market deposit accounts 782,645 711,865 549,418
Time accounts 1,047,607 998,738 886,239
Public funds 277,587 224,539 76,261
---------- ---------- ----------
Total time deposits 2,863,711 2,653,724 2,234,270
---------- ---------- ----------
Total deposits 3,879,171 3,645,733 3,003,143
Federal funds purchased and securities
sold under repurchase agreements 152,344 111,395 344,743
Accrued interest and other liabilities 104,275 101,619 66,604
---------- ---------- ----------
Total Liabilities 4,135,790 3,858,747 3,414,490
Shareholders' Equity
Common stock, par value $5 per share 56,071 55,997 55,685
Shares authorized: 30,000,000
Shares outstanding: 11,214,116;
11,199,450; and 11,136,987
Surplus 118,769 118,418 116,518
Retained earnings 167,648 158,563 134,258
Unrealized gain on securities available
for sale 4,686 8,486 3,478
---------- ---------- ----------
Total Shareholders' Equity 347,174 341,464 309,939
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,482,964 $4,200,211 $3,724,429
========== ========== ==========
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 three months
ended March 31, 1996 13,075 13,075
Exercise of employee stock
options and related tax benefit 74 351 (181) 244
Restricted stock plan deferred
compensation expense 116 116
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax (3,800) (3,800)
Cash dividend (3,925) (3,925)
------- -------- -------- ------- --------
Balance at March 31, 1996 $56,071 $118,769 $167,648 $ 4,686 $347,174
======= ======== ======== ======= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Three Months Ended
March 31
--------------------
1996 1995
--------- --------
<S> <C> <C>
Operating Activities
Net income $ 13,075 $ 10,639
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 1,875 500
Provision for real estate losses 500
(Provision) credit for deferred taxes (311) 227
Accretion of discounts on loans (239) (571)
Accretion of securities' discounts (4,188) (4,004)
Amortization of securities' premiums 675 516
Net (gain) loss on securities transactions 95 (93)
Net gain on sale of assets (175) (250)
Depreciation and amortization 5,489 4,513
Increase in interest receivable (2,996) (997)
Increase in interest payable 332 268
Net change in other assets and liabilities 21,623 8,258
--------- --------
Net cash provided by operating activities 35,255 19,506
Investing Activities
Proceeds from maturities of securities held to maturity 8,936 21,608
Purchases of securities held to maturity (833)
Proceeds from sales of securities available for sale 34,766 10,610
Proceeds from maturities of securities available for sale 125,760 129,513
Purchases of securities available for sale (194,376) (113,390)
Net increase in loans (1,980) (63,039)
Net increase in bank premises and equipment (2,288) (1,215)
Proceeds from sales of repossessed properties 392 161
Net cash and cash equivalents received from acquisitions 19,198
--------- --------
Net cash used by investing activities (9,592) (16,585)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 56,790 (128,538)
Net increase (decrease) in certificates of deposits (161,007) 43,719
Net increase (decrease) in short-term borrowings 40,949 (25,492)
Proceeds from employee stock purchase
plan and options 143 140
Dividends paid (3,925) (2,449)
--------- --------
Net cash used by financing activities (67,050) (112,620)
--------- --------
Decrease in cash and cash equivalents (41,387) (109,699)
Cash and cash equivalents at beginning of year 633,947 533,354
--------- --------
Cash and cash equivalents at the end
of the period $592,560 $423,655
========= ========
Supplemental information:
Interest paid $ 27,027 $ 22,508
Loans originated to facilitate the sale
of repossessed properties 35 351
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in 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>
Three Months Ended
March 31
-------------------
(in thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $31,577 $25,741
Provision for possible loan losses 1,875 500
Net charge-offs:
Losses charged to the allowance (1,483) (813)
Recoveries 1,260 1,457
------- -------
Net (charge-offs)recoveries (223) 644
------- -------
Balance at the end of period $33,229 $26,885
======= =======
</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 March
31, 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 first quarter of 1996 or 1995. The total allowance for
possible loans 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.
<PAGE>
The following is a summary of loans considered to be impaired:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $4,841 $5,451
Impaired loans with a valuation reserve 3,988 2,435
------ ------
Total recorded investment in impaired loans $8,829 $7,886
====== ======
Average recorded investment in impaired loans $9,149 $8,696
Valuation reserve 662 512
</TABLE>
Earnings Per Common Share
The weighted average numbers of shares used to compute per common share
earnings, including common stock equivalents where applicable, were:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Primary 11,414,410 11,275,918
</TABLE>
Income Taxes
The tax expense for the first quarter of 1996 was $7,299,000. This amount
consisted of current tax expense of $7,610,000 and deferred tax benefit of
$311,000. Net deferred tax assets were $7,844,000 with no valuation allowance.
The tax expense for the first quarter of 1995 was $5,720,000. This amount
consisted of current tax expense of $5,493,000 and deferred tax expense of
$227,000. Net deferred tax assets were $15,732,000 with no valuation
allowance. The deferred tax assets were supported by taxes paid in prior
years, the future reversal of existing taxable temporary differences and future
income. No income tax payments were made during the first three months of 1996
or 1995.
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 first 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 paid approximately $9.2 million to
acquire 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
paid approximately $24.2 million to acquire 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.
<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 except per share amounts)
Results of Operations
Cullen/Frost Bankers, Inc. reported net income of $13,075,000 or $1.15 per
common share for the quarter ended March 31, 1996. This compares with
$12,464,000 or $1.09 per common share and $10,639,000 or $.94 per common share
for the fourth and first quarters of 1995, respectively. Return on average
assets and average equity increased to 1.20 percent and 15.01 percent,
respectively, for the first quarter of 1996. This compares to 1.15 percent and
14.09 percent, respectively, for the first quarter of 1995.
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. 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
--------------------------------------
1996 1995
----------- ------------------------
March 31 December 31 March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net
interest income $42,914 $39,804 $36,390
Taxable-equivalent adjustment 246 250 178
------- ------- -------
Net interest income 42,668 39,554 36,212
Provision for possible
loan losses 1,875 1,500 500
Non-Interest income:
Net gain (loss) on securities
transactions (95) (1,489) 93
Other 22,821 25,007 20,324
------- ------- -------
Total non-interest income 22,726 23,518 20,417
Non-Interest expense:
Restructuring costs 400
Provision for real estate losses 10 500
Other 43,145 42,428 38,870
------- ------- -------
Total non-interest expenses 43,145 42,438 39,770
------- ------- -------
Income before income taxes 20,374 19,134 16,359
Income Taxes 7,299 6,670 5,720
------- ------- -------
Net Income $13,075 $12,464 $10,639
======= ======= =======
Net Income per common share $ 1.15 $ 1.09 $ .94
Return on Average Assets 1.20% 1.20% 1.15%
Return on Average Equity 15.01 14.64 14.09
</TABLE>
<PAGE>
Net Interest Income
Net interest margin was 4.67 percent for the first quarter of 1996
compared to 4.58 percent for the fourth and first quarters of 1995. The
increase in net interest income and net interest margin from the fourth and
first quarters of 1995 is reflective of the favorable impact of the
acquisitions, higher loan volumes, reinvestment of proceeds from the sale of
securities and lower deposit costs. Net interest spread of 3.93 percent
increased ten basis points from the fourth quarter of 1995. Net interest
spread was 3.85 percent for the first quarter of 1995. The net interest spread
increased from the previous quarter primarily because of the decrease in
deposit costs.
<TABLE>
<CAPTION>
Change in Net Interest Income
--------------------------------------
First Quarter First Quarter
1996 1996
vs. vs.
First Quarter Fourth Quarter
1995 1995
--------------------------------------
Percentage of Percentage of
Amount Total Change Amount Total Change
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due to volume $ 6,142 94.14% $ 2,886 92.80%
Due to interest rate spread 382 5.86 224 7.20
------- ------- ------- -------
$ 6,524 100.00% $ 3,110 100.00%
======= ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
1996 1995
-------- ---------------------
Non-Interest Income March 31 December 31 March 31
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trust department $ 8,332 $ 7,921 $ 8,051
Service charges on deposit accounts 8,785 8,296 7,054
Other service charges, collection
and exchange charges, commissions
and fees 2,628 2,959 2,356
Net gain (loss) on securities transactions (95) (1,489) 93
Other 3,076 5,831 2,863
-------- ------- -------
Total $22,726 $23,518 $20,417
======== ======= =======
</TABLE>
Total non-interest income was down $792,000 or 3.4 percent compared to the
fourth quarter of 1995 and was up $2.3 million or 11.3 percent from the first
quarter of 1995. The fourth quarter includes part of the gain on the transfer
of the Corporation's municipal bond administration business to The Bank of New
York, while the increase from the first quarter of 1995 is mostly due to higher
service charges, primarily as a result of the acquisitions and increased
volumes processed for correspondent banks.
Trust income increased 5.2 percent and 3.5 percent from the fourth and
first quarters of 1995, respectively. Higher investment, employee benefit
trust and personal trust fees helped offset the impact of lower trust revenue
resulting from the second quarter of 1995 sale of the Corporation's municipal
bond administration business and were primarily responsible for the increase
from both quarters.
Service charges on deposit accounts were up 5.9 percent compared to the
previous quarter and up 24.5 percent from the same quarter one year ago
primarily as a result of the acquisitions and increased volumes processed for
correspondent banks. Other service charges were down 11.2 percent compared to
the fourth quarter of 1995 and increased 11.5 percent from the first quarter of
1995. The decrease from the fourth quarter is mostly due to lower income from
bankcard discounts as a result of the Corporation beginning to outsource its
bankcard processing in January. The increase from the first quarter last year
is primarily due to fees from the sale of mutual funds and loan prepayment
fees, which helped offset lower bankcard discount income.
<PAGE>
The first quarter included a net loss on security transactions of $95,000,
compared to a net loss of $1.5 million in the fourth quarter of 1995 and a net
gain of $93,000 in the first quarter of 1995. In December 1995, the
Corporation sold $79,075,000 in securities available for sale which resulted
from a portfolio restructuring of replacing lower-yielding securities with
higher-yielding securities which should have a favorable impact on net interest
income in the future.
Other non-interest income was 47.2 percent lower than the fourth quarter
of 1995 primarily because the fourth quarter was favorably impacted by the
recognition of part of the gain on the transfer of the Corporation's municipal
bond administration business. Compared to the same quarter a year ago, other
non-interest income was up 7.4 percent primarily due to the gain on disposition
of certain loans.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
1996 1995
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and wages $16,637 $15,151 $13,537
Pension and other employee benefits 3,458 3,119 2,806
Net occupancy of banking premises 4,861 4,554 4,583
Furniture and equipment 2,881 3,369 2,560
Restructuring costs 400
Other 15,308 16,235 15,384
------- ------- -------
43,145 42,428 39,270
Provision for real estate losses 10 500
------- ------- -------
Total $43,145 $42,438 $39,770
======= ======= =======
</TABLE>
Non-interest expense increased 1.7 percent from the fourth quarter and
$3.4 million or 8.5 percent from the same quarter last year. Operating
expenses related to the acquisitions were the primary reason for the increase.
Salaries and wages were up 9.8 percent from the fourth quarter of 1995 and
were up 22.9 percent from the first quarter of 1995 primarily as a result of
the acquisitions. Pension and employee benefits were up 10.9 percent from the
fourth quarter and 23.2 percent from the first quarter of 1995 because of
higher payroll taxes and medical insurance costs related to the acquisitions.
In addition, retirement plan expense also contributed to the increase from the
first quarter of 1995. Net occupancy of banking premises expense increased 6.7
percent and 6.1 percent from the fourth and first quarters of 1995,
respectively. Most of the increase from both periods is due to an occupancy
charge of $175,000 in the first quarter of 1996 related to a loss on a sublease
of excess space.
Furniture and equipment expense decreased 14.5 percent from the fourth
quarter, primarily due to lower service contracts expense, and was up 12.5
percent compared to the same quarter last year due to higher depreciation and
services contract expense associated with the acquisitions.
Other non-interest expense was down 5.7 percent compared to last quarter
and flat compared to the same quarter last year. The decrease from last
quarter is due to lower bankcard interchange expenses as a result of the
Corporation beginning to outsource its bankcard processing during the first
quarter of 1996 and lower FDIC insurance premiums.
Income Taxes
The Corporation's effective tax rate for the first quarter of 1996 and
the fourth and first quarters of 1995 approximated the statutory rate of 35
percent.
Balance Sheet
Average assets of $4,370,952,000 for the first quarter of 1996 were up
6.4 percent compared with the fourth quarter of 1995 and reflected an increase
of 16.8 percent from the first quarter of 1995 because of the acquisitions.
Total deposits averaged $3,773,770,000 for the current quarter, up 6.0 percent
when compared to the previous quarter and up 24.2 percent from the first
quarter of 1995.
<PAGE>
Loans
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 534,233 26.4% $ 508,990 $ 433,436
Consumer 430,080 21.3 402,169 346,840
Real estate 982,065 48.5 837,905 713,759
Other 79,285 3.9 69,035 56,643
Unearned discount (1,753) (.1) (1,337) (2,780)
---------- ------ ---------- ----------
Total Loans $2,023,910 100.0% $1,816,762 $1,547,898
========== ====== ========== ==========
</TABLE>
Average loans for the first quarter of 1996 were $1,936,289,000. This
represents an increase in average loans of 8.8 percent and 26.7 percent from
the fourth and first quarters of 1995, respectively. At March 31, 1996,
period-end loans totaled $2,023,910,000 up 11.4 percent from the previous
quarter and up 30.8 percent from the same period last year. Most of the
increase from the fourth quarter is attributable to the acquisitions in the
first quarter of 1996. Approximately 70 percent of the increase in loans from
a year ago resulted from acquisitions.
Real Estate Loans
Real estate loans at March 31, 1996, were $982,065,000 or 48.5 percent of
loans, compared to 46.1 percent a year ago. Residential permanent mortgage
loans at March 31, 1996, were $395,616,000 compared to $339,576,000 at December
31, 1995, and $281,052,000 at March 31, 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 March 31, 1996, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $3,999,000, compared with $3,022,000 at
December 31, 1995, and $1,137,000 at March 31, 1995.
<TABLE>
<CAPTION>
1996 1995
---------------------- --------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 71,173 7.2% $ 39,613
Land 50,838 5.2 34,654
Permanent mortgages:
Commercial 207,498 21.1 194,474
Residential 395,616 40.3 281,052
Other 256,940 26.2 163,966
-------- ------ --------
$982,065 100.0% $713,759
======== ====== ========
Non-accrual and restructured $ 10,956 1.1% $ 13,107
</TABLE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$12,723,000 in loans secured by assets held in the United States, totaled
$31,462,000 at March 31, 1996, or 1.6 percent of total loans up from
$25,314,000 last year. This growth reflects expansion in trade-related debt in
connection with increased commerce with Mexico. All of the Corporation's
Mexican loans are either secured by liquid U.S. assets or are unsecured loans
to major financial institutions to finance international trade transactions.
Of the trade-related credits, approximately 93 percent are related to companies
exporting from Mexico. As of March 31, 1996, none of the Mexican related loans
were on non-performing status.
<PAGE>
<TABLE>
<CAPTION>
MEXICAN LOANS
----------------------------------------
March 31, 1996 Amount Percentage of Total Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $31,460 1.6%
Loans to private firms or individuals 2
------- ----
$31,462 1.6%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 1996 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $10,956 $3,826 $14,782
Foreclosed assets 1,672 344 2,016
------- ------ -------
$12,628 $4,170 $16,798
======== ====== =======
As a percentage of total
non-performing assets 75.2% 24.8% 100.0%
</TABLE>
Non-performing assets totaled $16,798,000 at March 31, 1996, compared with
$16,155,000 at December 31, 1995, and $16,888,000 at March 31, 1995. Non-
performing assets as a percentage of total loans and foreclosed assets
decreased to .8 percent at March 31, 1996 from 1.1 percent one year ago. The
first quarter acquisitions added approximately $797,000 to non-performing
assets.
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 $239,000 or $.02 per common share for
the first quarter of 1996, flat compared to the fourth quarter of 1995 and down
from $296,000 or $.03 per common share for the first quarter of 1995. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$6,761,000 at March 31, 1996, compared to $5,188,000 at December 31, 1995, and
$3,266,000 at March 31, 1995.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $33,229,000 or 1.64 percent of
period-end loans at March 31, 1996, compared to $31,577,000 or 1.74 percent for
the fourth quarter of 1995 and $26,885,000 or 1.74 percent at March 31, 1995.
The allowance for possible loan losses as a percentage of non-accrual and
restructured loans was 224.8 percent at March 31, 1996, compared to 215.6
percent and 185.6 percent at the end of the fourth and first quarters of 1995,
respectively.
The Corporation recorded a $1,875,000 provision for possible loan losses
during the first quarter of 1996, compared to a $500,000 provision for possible
loan losses recorded a year ago. The provision is reflective of the growth in
the loan portfolio. Net charge-offs in the first quarter totaled $223,000,
compared to $523,000 for the fourth quarter of 1995 and net recoveries of
$644,000 for the first quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
-------------------------------
1996 1995
---------- ------------------
First Fourth First
Quarter Quarter Quarter
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ (7) $ (15) $ (671)
Commercial and industrial (487) 98 (347)
Consumer 716 440 412
Other, including foreign 1 (38)
------- ------- -------
$ 223 $ 523 $ (644)
======= ======= =======
Provision for possible loan losses $ 1,875 $ 1,500 $ 500
Allowance for possible loan losses 33,229 31,577 26,885
</TABLE>
Capital and Liquidity
At March 31, 1996, shareholders' equity was $347,174,000 compared to
$341,464,000 at December 31, 1995, and $309,939,000 at March 31, 1995. The
Corporation paid a cash dividend of $.35 per common share in the first quarter
of 1996 and fourth quarter of 1995 compared to $.22 per common share for the
first quarter of 1995. This equates to dividend payout ratios of 30.0 percent,
31.4 percent and 23.0 percent for the first quarter of 1996 and the fourth and
first quarters 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 March 31, 1996, and 1995. As a result of the acquisitions,
all the regulatory capital ratios are down when compared to the first quarter
of 1995.
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 266,275 11.30% $ 266,687 14.56%
Tier 1 Capital Minimum requirement 94,260 4.00 73,262 4.00
Total Capital $ 295,778 12.55% $ 289,630 15.81%
Total Capital Minimum requirement 188,520 8.00 148,523 8.00
Risk-adjusted assets, net of goodwill $2,356,503 $1,831,542
Leverage ratio 6.21% 7.20%
Average equity as a percentage
of average assets 8.01 8.18
</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 March 31, 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 March 31, 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>
Recent Announcement
On April 30, 1996, the Corporation announced an increase in its quarterly
cash dividend to $.42 per common share and a two-for-one stock split both
payable to shareholders of record as of June 3, 1996. In addition, a stock
repurchase program in which up to 250,000 pre-split shares of its outstanding
common stock may be repurchased over a two-year period was also announced.
<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 June 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 $ 15 $ 3.52% $ 21 $ 3.81%
Securities:
U.S. Treasury 255,079 3,848 5.99 227,406 3,489 6.15
U.S. Government agencies
and corporations 1,301,094 21,001 6.46 1,307,456 20,917 6.40
States and political subdivisions 5,647 134 9.49 6,551 144 8.77
Other 6,447 97 6.03 7,238 115 6.37
--------- ------- --------- -------
Total securities 1,568,267 25,080 6.39 1,548,651 24,665 6.37
Federal funds sold and securities
purchased under resale agreements 114,483 1,660 5.67 111,611 1,628 5.77
Loans, net of unearned discount 1,747,810 39,939 9.07 1,671,840 37,811 9.07
--------- ------- --------- -------
Total Earning Assets and
Average Rate Earned 3,430,575 66,679 7.73 3,332,123 64,104 7.71
Cash and due from banks 392,513 359,029
Allowance for possible loan losses (29,708) (27,176)
Banking premises and equipment 92,132 91,634
Accrued interest and other assets 146,414 137,257
--------- ---------
Total Assets $4,031,926 $3,892,867
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 705,914 $ 685,220
Correspondent banks 134,085 121,666
Public funds 37,277 32,193
---------- ----------
Total demand deposits 877,276 839,079
Time deposits:
Savings and Interest-on-Checking 720,160 2,908 1.60 727,039 3,562 1.97
Money market deposit accounts 638,351 6,238 3.88 564,081 5,408 3.85
Time accounts 1,006,887 13,061 5.15 992,628 12,737 5.15
Public funds 113,599 1 269 4.43 84,904 916 4.33
---------- ------- ---------- -------
Total time deposits 2,478,997 23,476 3.76 2,368,652 22,623 3.83
---------- ------- ---------- -------
Total Deposits 3,356,273 3,207,731
Federal funds purchased and securities
sold under repurchase agreements 258,409 3,506 5.31 290,927 3,834 5.21
Other borrowings 21,818 296 5.38 7,906 107 5.44
Total Interest-Bearing Funds
and Average Rate Paid 2,759,224 27,278 3.92 2,667,485 26,564 3.99
---------- ------- ----- ---------- ------- -----
Accrued interest and other liabilities 66,878 66,070
---------- ----------
Total Liabilities 3,703,378 3,572,634
SHAREHOLDERS' EQUITY 328,548 320,233
---------- ----------
Total Liabilities and
Shareholders' Equity $4,031,926 $3,892,867
========== ==========
Net interest income $39,401 $37,540
======= =======
Net interest spread 3.81% 3.72%
==== ====
Net interest income to total average earning assets 4.58% 4.52%
==== ====
*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, 1995
--------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
-------- ------- -----
<S> <C> <C> <C>
ASSETS
Time deposits $ 15 $ 3.77%
Securities:
U.S. Treasury 224,345 3,246 5.87
U.S. Government agencies
and corporations 1,317,465 20,793 6.31
States and political subdivisions 5,659 134 9.48
Other 17,763 292 6.65
---------- -------
Total securities 1,565,232 24,465 6.26
Federal funds sold and securities
purchased under resale agreements 104,418 1,493 5.72
Loans, net of unearned discount 1,527,663 33,208 8.82
---------- -------
Total Earning Assets and
Average Rate Earned 3,197,328 59,166 7.47
Cash and due from banks 343,861
Allowance for possible loan losses (25,880)
Banking premises and equipment 88,149
Accrued interest and other assets 139,338
----------
Total Assets $3,742,796
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 675,170
Correspondent banks 118,016
Public funds 36,423
----------
Total demand deposits 829,609
Time deposits:
Savings and Interest-on-Checking 734,161 3,461 1.91
Money market deposit accounts 560,032 5,057 3.66
Time accounts 833,435 9,090 4.42
Public funds 82,242 777 3.83
---------- -------
Total time deposits 2,209,870 18,385 3.37
---------- -------
Total Deposits 3,039,479
Federal funds purchased and securities
sold under repurchase agreements 335,436 4,391 5.24
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,545,306 22,776 3.62
---------- ------- -----
Accrued interest and other liabilities 61,667
----------
Total Liabilities 3,436,582
SHAREHOLDERS' EQUITY 306,214
----------
Total Liabilities and
Shareholders' Equity $3,742,796
==========
Net interest income $36,390
=======
Net interest spread 3.85%
====
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
(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: May 7, 1996 By:/s/Phillip D. Green
-----------------------
Phillip D. Green
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Accounting Officer)
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------------------------------------------
11 Statement re: Computation of Earnings per Share
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings per Common Share
(in thousands, except per share amounts)
Three Months Ended
March 31
------------------
Primary Earnings per Common Share 1996 1995
- ------------------------------------------------------------------ -------- --------
<S> <C> <C>
Net income applicable to common stock $13,075 $10,639
======== ========
Weighted average shares outstanding 11,210 11,130
Addition from assumed exercise of stock options 204 146
-------- --------
Weighted average number of common shares outstanding 11,414 11,276
======== ========
Primary earnings per common share: $ 1.15 $ .94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 419,953
<INT-BEARING-DEPOSITS> 18
<FED-FUNDS-SOLD> 172,589
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,433,347
<INVESTMENTS-CARRYING> 201,748
<INVESTMENTS-MARKET> 205,557
<LOANS> 2,023,910
<ALLOWANCE> (33,229)
<TOTAL-ASSETS> 4,482,964
<DEPOSITS> 3,879,171
<SHORT-TERM> 152,344
<LIABILITIES-OTHER> 104,275
<LONG-TERM> 0
0
0
<COMMON> 56,071
<OTHER-SE> 291,103
<TOTAL-LIABILITIES-AND-EQUITY> 4,482,964
<INTEREST-LOAN> 42,586
<INTEREST-INVEST> 25,726
<INTEREST-OTHER> 1,948
<INTEREST-TOTAL> 70,260
<INTEREST-DEPOSIT> 25,255
<INTEREST-EXPENSE> 27,592
<INTEREST-INCOME-NET> 42,668
<LOAN-LOSSES> 1,875
<SECURITIES-GAINS> (95)
<EXPENSE-OTHER> 43,145
<INCOME-PRETAX> 20,374
<INCOME-PRE-EXTRAORDINARY> 20,374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,075
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 7.67
<LOANS-NON> 14,782
<LOANS-PAST> 6,761
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,029
<ALLOWANCE-OPEN> 31,577
<CHARGE-OFFS> (1,483)
<RECOVERIES> 1,260
<ALLOWANCE-CLOSE> 33,229
<ALLOWANCE-DOMESTIC> 33,088
<ALLOWANCE-FOREIGN> 141
<ALLOWANCE-UNALLOCATED> 3,502
</TABLE>
