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 June 30, 1996 Commission file number 0-7275
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-1751768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. Houston Street, San Antonio, Texas 78205
(Address of principal executive offices) (Zip code)
(210) 220-4011
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At August 8, 1996, there were
22,450,060 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 Six Months Ended
June 30 June 30
-------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $45,265 $37,671 $ 87,851 $70,746
Securities:
Taxable 25,310 24,526 50,954 48,862
Tax-exempt 81 90 163 174
------- ------- ------- -------
Total Securities 25,391 24,616 51,117 49,036
Time Deposits 3 10
Federal funds sold and securities
purchased under resale agreements 1,472 1,628 3,413 3,121
------- ------- ------- -------
Total Interest Income 72,131 63,915 142,391 122,903
INTEREST EXPENSE
Deposits 25,808 22,623 51,063 41,008
Federal funds purchased and securities
sold under repurchase agreements 1,728 3,834 3,833 8,225
Long-term notes payable and other borrowings 221 107 453 107
------- ------- ------- -------
Total Interest Expense 27,757 26,564 55,349 49,340
------- ------- ------- -------
Net Interest Income 44,374 37,351 87,042 73,563
Provision for possible loan losses 1,325 2,772 3,200 3,272
------- ------- ------- -------
Net Interest Income After Provision
For Possible Loan Losses 43,049 34,579 83,842 70,291
NON-INTEREST INCOME
Trust fees 8,384 8,070 16,716 16,121
Service charges on deposit accounts 9,656 7,484 18,441 14,538
Other service charges, collection and
exchange charges, commissions and fees 2,154 2,840 4,782 5,196
Net gain (loss) on securities transactions (903) (998) 93
Other 5,350 4,349 8,426 7,212
------- ------- ------- -------
Total Non-Interest Income 24,641 22,743 47,367 43,160
NON-INTEREST EXPENSE
Salaries and wages 18,350 14,395 34,987 27,932
Pension and other employee benefits 4,498 2,371 7,956 5,177
Net occupancy of banking premises 4,665 4,323 9,526 8,906
Furniture and equipment 2,811 2,550 5,692 5,110
Provision for real estate losses 500
Intangible amortization 2,903 1,952 5,518 3,828
Other 13,368 14,341 26,061 28,249
------- ------- ------- -------
Total Non-Interest Expense 46,595 39,932 89,740 79,702
------- ------- ------- -------
Income Before Income Taxes 21,095 17,390 41,469 33,749
Income Taxes 7,577 6,167 14,876 11,887
------- ------- ------- -------
Net Income $13,518 $11,223 $26,593 $21,862
======= ======= ======= =======
Net Income per common share:
Primary $ .59 $ .50 $ 1.16 $ .97
Dividends per share .21 .11 .39 .22
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
June 30 December 31 June 30
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 481,666 $ 533,333 $ 378,131
Time deposits 16 64 20
Securities held to maturity 191,714 210,731 1,003,663
Securities available for sale 1,366,676 1,325,836 569,357
Federal funds sold and securities
purchased under resale agreements 157,175 100,550 111,425
Loans, net of unearned discount of $1,803 at
June 30, 1996; $1,337 at December 31, 1995
and $2,401 at June 30, 1995 2,107,584 1,816,762 1,742,644
Less: Allowance for possible loan losses (35,035) (31,577) (28,886)
---------- ---------- ----------
Net Loans 2,072,549 1,785,185 1,713,758
Banking premises and equipment 101,076 89,493 91,891
Accrued interest and other assets 178,995 155,019 136,497
---------- ---------- ----------
Total Assets $4,549,867 $4,200,211 $4,004,742
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 898,874 $ 792,879 $ 720,789
Correspondent banks 168,248 127,549 95,390
Public funds 91,979 71,581 43,619
---------- ---------- ----------
Total demand deposits 1,159,101 992,009 859,798
Time Deposits:
Savings and Interest-on-Checking 712,541 718,582 712,972
Money market deposit accounts 789,253 711,865 590,752
Time accounts 1,066,455 998,738 998,850
Public funds 232,951 224,539 90,646
---------- ---------- ----------
Total time deposits 2,801,200 2,653,724 2,393,220
---------- ---------- ----------
Total deposits 3,960,301 3,645,733 3,253,018
Federal funds purchased and securities
sold under repurchase agreements 114,387 111,395 348,922
Accrued interest and other liabilities 127,329 101,619 81,142
---------- ---------- ----------
Total Liabilities 4,202,017 3,858,747 3,683,082
Shareholders' Equity
Common stock, par value $5 per share 112,197 55,997 55,744
Shares authorized: 30,000,000
Shares outstanding: 22,439,398;
22,398,900; and 22,297,608
Surplus 62,804 118,418 116,711
Retained earnings 176,499 158,563 143,060
Unrealized gain (loss) on securities available
for sale (3,650) 8,486 6,145
---------- ---------- ----------
Total Shareholders' Equity 347,850 341,464 321,660
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,549,867 $4,200,211 $4,004,742
========== ========== ==========
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 six months
ended June 30, 1996 26,593 26,593
Exercise of employee stock
options and related tax benefit 102 484 (252) 334
Restricted stock plan deferred
compensation expense 232 232
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax (12,136) (12,136)
Cash dividend (8,637) (8,637)
Two for one stock split 56,098 (56,098)
-------- -------- -------- ------- --------
Balance at June 30, 1996 $112,197 $ 62,804 $176,499 $(3,650) $347,850
======== ======== ======== ======= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Six Months Ended
June 30
------------------
1996 1995
------- -------
<S> <C> <C>
Operating Activities
Net income $ 26,593 $ 21,862
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 3,200 3,272
Provision for real estate losses 500
(Credit) provision for deferred taxes (2,206) 23
Accretion of discounts on loans (1,079) (946)
Accretion of securities' discounts (8,242) (8,240)
Amortization of securities' premiums 1,504 1,047
Net (gain) loss on securities transactions 998 (93)
Net gain on sale of assets (1,264) (2,334)
Depreciation and amortization 11,195 8,961
Increase in interest receivable (3,565) (1,889)
Increase in interest payable 401 1,886
Net change in other assets and liabilities 34,922 34,659
--------- --------
Net cash provided by operating activities 62,457 58,708
Investing Activities
Proceeds from maturities of securities held to maturity 18,867 47,619
Purchases of securities held to maturity (833)
Proceeds from sales of securities available for sale 54,406 28,309
Proceeds from maturities of securities available for sale 352,843 292,471
Purchases of securities available for sale (384,862) (289,466)
Net increase in loans (83,922) (137,441)
Net increase in bank premises and equipment (6,129) (2,255)
Proceeds from sales of repossessed properties 607 938
Net cash and cash equivalents received (paid) from
bank acquisitions/exchange 19,198 (22,010)
--------- ---------
Net cash used by investing activities (28,992) (82,668)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 119,072 (60,975)
Net increase (decrease) in certificates of deposits (142,159) 75,820
Net increase (decrease) in short-term borrowings 2,992 (30,038)
Proceeds from employee stock purchase
plan and options 177 275
Dividends paid (8,637) (4,900)
--------- --------
Net cash used by financing activities (28,555) (19,818)
--------- --------
Increase (decrease) in cash and cash equivalents 4,910 (43,778)
Cash and cash equivalents at beginning of year 633,947 533,354
--------- --------
Cash and cash equivalents at the end
of the period $638,857 $489,576
========= ========
Supplemental information:
Interest paid $ 54,948 $ 47,454
Loans originated to facilitate the sale
of repossessed properties 612 351
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been audited by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K for
the year ended December 31, 1995. The balance sheet at December 31, 1995 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan losses
is presented below. The amount charged to operating expense is based on
management's assessment of the adequacy of the allowance to absorb future
possible loan losses.
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
(in thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $31,577 $25,741
Provision for possible loan losses 3,200 3,272
Net charge-offs:
Losses charged to the allowance (4,297) (2,522)
Recoveries 4,555 2,395
------- -------
Net (charge-offs) recoveries 258 (127)
------- -------
Balance at the end of period $35,035 $28,886
======= =======
</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 June
30, 1996, the majority of the impaired loans were real estate loans and
collectibility was measured based on the fair value of the collateral.
Interest payments on impaired loans are typically applied to principal unless
collectibility of the principal amount is fully assured, in which case interest
is recognized on the cash basis. No interest revenue was recognized on
impaired loans for the second quarter of 1996 or 1995. The total allowance for
possible loan losses includes activity related to allowances calculated in
accordance with SFAS No. 114 and activity related to other loan loss allowances
determined in accordance with SFAS No. 5.
<PAGE>
The following is a summary of loans considered to be impaired:
<TABLE>
<CAPTION>
June 30
-----------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $5,124 $5,712
Impaired loans with a valuation reserve 2,657 2,428
------ ------
Total recorded investment in impaired loans $7,781 $8,140
====== ======
Average recorded investment in impaired loans $8,625 $8,825
Valuation reserve 612 512
</TABLE>
Earnings Per Common Share
On June 21, 1996, the Corporation completed the previously announced two-
for-one stock split. As a result of the split, $56,098,000 was transferred
from surplus to common stock. All related "share" amounts have been restated
to make prior periods comparable. The weighted average number of shares used
to compute per common share earnings, including common stock equivalents where
applicable, were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Primary 22,859,954 22,624,008 22,844,729 22,574,170
Fully Diluted 22,906,104 22,654,138 22,906,370 22,651,034
</TABLE>
Income Taxes
The tax expense for the second quarter of 1996 was $7,577,000. This
amount consisted of current tax expense of $9,472,000 and deferred tax benefit
of $1,895,000. Year-to-date tax expense is $14,876,000, consisting of current
tax expense of $17,082,000 and deferred tax benefit of $2,206,000. Net
deferred tax assets were $15,576,000 with no valuation allowance. The deferred
tax assets were supported by taxes paid in prior years and the future reversal
of existing taxable temporary differences. The tax expense for the second
quarter of 1995 was $6,167,000. Income tax payments for the first six months
of 1996 and 1995 were $13,603,000 and $10,174,000, respectively.
Acquisitions
On January 5, 1996, the Corporation paid approximately $17.7 million to
acquire S.B.T. Bancshares, Inc., including its subsidiary, State Bank and Trust
Company in San Marcos, Texas. The Corporation acquired loans of approximately
$51 million and deposits of approximately $112 million. On February 15, 1996,
the Corporation paid approximately $33.5 million to acquire Park National Bank
in Houston, Texas. The Corporation acquired loans of approximately $157
million and deposits of approximately $225 million. The acquisitions did not
have a material impact on the second quarter net income and are not expected to
have a material impact on the Corporation's 1996 net income.
On April 4, 1995, the Corporation acquired Valley Bancshares, Inc.,
including its subsidiary, Valley National Bank in McAllen, Texas. The
Corporation acquired loans of approximately $28 million and deposits of
approximately $49 million. On May 19, 1995, the Corporation acquired National
Commerce Bank in Houston, Texas. The Corporation acquired loans of
approximately $95 million and deposits of approximately $101 million. On July
21, 1995, the Corporation acquired the two San Antonio branches of Comerica
Bank Texas. The Corporation acquired loans of approximately $2 million and
deposits of approximately $34 million.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
Cullen/Frost Bankers, Inc. reported net income of $13,518,000 or $.59 per
common share for the quarter ended June 30, 1996 compared to $11,223,000 or
$.50 per common share for the second quarter of 1995 and net income of
$13,075,000 or $.57 per common share for the first quarter of 1996. Net income
for the six months ended June 30, 1996 was $26,593,000 or $1.16 per common
share compared to $21,862,000 or $.97 per common share for the same period 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.
During the second quarter of 1996, the board of directors declared and
paid a two for one stock split. Previous quarters have been restated to give
effect to the split. Certain reclassifications have been made to make prior
quarters comparable. All balance sheet figures are presented in averages
unless otherwise noted.
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------------------
Three Months Ended
Six Months Ended ----------------------------
June 30 1996 1995
------------------ ------------------ -------
1996 1995 June 30 March 31 June 30
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $87,538 $73,931 $44,624 $42,914 $37,540
Taxable-equivalent adjustment 496 368 250 246 189
------- ------- ------- ------- -------
Net interest income 87,042 73,563 44,374 42,668 37,351
Provision for possible
loan losses 3,200 3,272 1,325 1,875 2,772
Non-Interest income:
Net gain (loss) on securities
transactions (998) 93 (903) (95)
Other 48,365 43,067 25,544 22,821 22,743
------- ------- ------- ------- -------
Total non-interest income 47,367 43,160 24,641 22,726 22,743
Non-Interest expense:
Provision for real estate losses 500
Other 89,740 79,202 46,595 43,145 39,932
------- ------- ------- ------- -------
Total non-interest expense 89,740 79,702 46,595 43,145 39,932
------- ------- ------- ------- -------
Income before income taxes 41,469 33,749 21,095 20,374 17,390
Income Taxes 14,876 11,887 7,577 7,299 6,167
------- ------- ------- ------- -------
Net Income $26,593 $21,862 $13,518 $13,075 $11,223
======= ======= ======= ======= =======
Net Income per common share $ 1.16 $ .97 $ .59 $ .57 $ .50
Return on Average Assets 1.20% 1.16% 1.21% 1.20% 1.16%
Return on Average Equity 15.21 14.07 15.41 15.01 14.06
</TABLE>
<PAGE>
Net Interest Income
Net interest margin, which represents the average net effective yield on
earning assets calculated as net interest income on a taxable-equivalent basis
expressed as a percentage of average total earning assets, was 4.74 percent for
the second quarter of 1996 compared to 4.67 percent and 4.52 percent for the
first quarter of 1996 and second quarter of 1995, respectively. The increase
in net interest income and net interest margin from the first quarter of 1996
is reflective of the favorable impact of the acquisitions, higher loan volumes
and higher interest recoveries. These items, the reinvestment of proceeds from
the sale of securities, and lower deposit costs were responsible for the
increase from the second quarter last year. Net interest spread of 3.97
percent increased four basis points from the first quarter of 1996 and 25 basis
points from the second quarter of 1995. The net interest spread increased
primarily because the Corporation was able to maintain its earnings on funds
with higher loan volumes and the favorable impact of the acquisitions, while
deposit costs decreased.
<TABLE>
<CAPTION>
Change in Net Interest Income
----------------------------------------------------------------
Second Quarter Second Quarter Year-to-Date
1996 1996 1996
vs. vs. vs.
Second Quarter First Quarter Year-to-Date
1995 1996 1995
----------------------------------------------------------------
Percentage of Percentage of Percentage of
Amount Total Change Amount Total Change Amount Total Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due to volume $5,916 83.51% $1,724 99.19% $11,920 87.60%
Due to interest rate
spread 1,168 16.49 (14) .81 1,687 12.40
------- ------- ------- ------- ------- -------
$7,084 100.00% $1,710 100.00% $13,607 100.00%
======= ======= ====== ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 ------------------------------
------------------ 1996 1995
-------------------- -------
Non-Interest Income 1996 1995 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $16,716 $16,121 $ 8,384 $ 8,332 $ 8,070
Service charges on deposit accounts 18,441 14,538 9,656 8,785 7,484
Other service charges, collection
and exchange charges, commissions
and fees 4,782 5,196 2,154 2,628 2,840
Net gain (loss) on securities
transactions (998) 93 (903) (95)
Other 8,426 7,212 5,350 3,076 4,349
------- ------- -------- ------- -------
Total $47,367 $43,160 $24,641 $22,726 $22,743
======= ======= ======== ======= =======
</TABLE>
For the second quarter 1996...
Total non-interest income was up $1.9 million, an increase of over eight
percent, compared to the first quarter of 1996 and second quarter of 1995.
Trust fee income remained constant compared to last quarter and increased
3.9 percent from the second quarter of 1995. The increase can be attributed to
higher investment, personal, and employee benefit trust fees, which offset the
impact of lower trust revenue resulting from the second quarter of 1995 sale of
the Corporation's municipal bond administration business.
<PAGE>
Service charges on deposit accounts increased 9.9 percent from the first
quarter of this year and 29.0 percent from the second quarter of 1995. The
majority of the increase from the first quarter is due to higher volumes and,
to a lesser extent, the impact of the Park National Bank acquisition for a full
quarter. Most of the increase from the second quarter last year results from
increased volumes processed for correspondent banks and the impact of
acquisitions. Service charges from acquisitions represented approximately 25
percent of the increase from the first quarter and approximately 40 percent of
the increase compared to the same quarter one year ago.
Other service charges were down 18.0 percent and 24.2 percent compared to
the first quarter of 1996 and the second quarter of 1995, respectively. The
decrease from both quarters is primarily due to lower income from bankcard
discounts as a result of the Corporation's outsourcing of its bankcard
processing operations, which was completed in May 1996.
The Corporation restructured a portion of its available for sale
investment portfolio resulting in losses of $903,000. This portfolio
restructuring of replacing lower-yielding securities with higher-yielding
securities should have a favorable impact on net interest income in the future.
Other non-interest income increased $2.3 million or 73.9 percent from the
first quarter of this year and increased $1.0 million or 23.0 percent compared
to the second quarter of 1995. The increase from the first quarter is mostly
due to gains on the disposition of certain loans and foreclosed assets of
approximately $2.7 million, and a gain recognized from the outsourcing of the
Corporation's bankcard processing operations. Most of the increase from the
second quarter of 1995 is due to gains on the disposition of certain loans.
For the six months ended June 30, 1996...
Non-interest income rose $4.2 million or 9.7 percent compared to the same
period last year. Trust income increased $595,000 due to higher investment,
employee benefit trust, and personal trust fees which offset lower corporate
trust income. Service charges on deposit accounts increased $3.9 million
compared to the same period one year ago. The increase is mainly due to higher
volumes, primarily processing for correspondent banks, and acquisitions, which
account for almost half of the increase. Other service charges and fees
decreased $414,000 mostly due to lower income from bankcard discounts as a
result of the Corporation's outsourcing of its bankcard processing operations
which was completed in May 1996. Other income is up $1.2 million compared to
the same period last year primarily as a result of gains on the disposition of
certain loans and acquisitions.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1996 1995
------------------ -------------------- -------
Non-Interest Expense 1996 1995 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $34,987 $27,932 $18,350 $16,637 $14,395
Pension and other employee benefits 7,956 5,177 4,498 3,458 2,371
Net occupancy of banking premises 9,526 8,906 4,665 4,861 4,323
Furniture and equipment 5,692 5,110 2,811 2,881 2,550
Intangible amortization 5,518 3,828 2,903 2,615 1,952
Other 26,061 28,249 13,368 12,693 14,341
------- ------- ------- ------- -------
89,740 79,202 46,595 43,145 39,932
Provision for real estate losses 500
------- ------- ------- ------- -------
Total $89,740 $79,702 $46,595 $43,145 $39,932
======= ======= ======= ======= =======
</TABLE>
For the second quarter 1996..
Non-interest expense was up $3.5 million or 8.0 percent compared to last
quarter and increased $6.7 million or 16.7 percent compared to the second
quarter of 1995. Operating expenses related to the acquisitions were the
primary reason for the increase from both periods, with a $1.6 million early
retirement charge recorded in the second quarter of 1996 also contributing to
the increase.
Salaries and wages increased 10.3 percent from the first quarter of 1996
and 27.5 percent from the second quarter of 1995 primarily as a result of the
acquisitions. The early retirement charge was responsible for approximately
<PAGE>
one-half of the increase from the previous quarter. Pension and employee
benefits increased 30.1 percent compared to last quarter and 89.7 percent
compared to the second quarter of 1995 mostly because of acquisitions and the
early retirement charge. Also contributing to the increase from the second
quarter of 1995 is a refund on workers' compensation insurance received in the
second quarter of 1995 and higher payroll tax and medical insurance expense.
Net occupancy of banking premises expense decreased 4.0 percent from the
first quarter of 1996 and increased 7.9 percent from the second quarter of
1995. The increase from the second quarter of 1995 primarily results from
higher lease, building maintenance, and property tax expenses related to the
acquisitions.
Furniture and equipment expense was down slightly compared to the first
quarter of 1996 and increased 10.2 percent from the same quarter last year
mostly due to higher depreciation expense associated with the acquisitions and
higher service contracts expense.
Amortization of intangibles increased 11.0 percent from the first quarter
of 1996 and 48.7 percent from the second quarter of 1995 due to the
acquisitions.
Other non-interest expenses increased 5.3 percent from the first quarter
mainly due to sundry losses and other professional expenses. Other non-
interest expenses were down 6.8 percent compared to the second quarter of 1995,
primarily due to decreases in FDIC insurance, franchise taxes, and federal
reserve service charges.
For the six months ended June 30, 1996
Total non-interest expense was up $10.0 million or 12.6 percent compared
to the same period one year ago. Salaries and wages were up $7.1 million or
25.3 percent compared to the same period one year ago primarily because of the
acquisitions. Pension and other benefits increased $2.8 million from the same
period last year due to higher retirement plan expense, payroll tax, and
medical insurance expense related to the acquisitions and the impact of the
early retirement charge. In addition, the second quarter of 1995 includes a
refund on workers' compensation insurance, adding to the increase from the same
period one year ago. Net occupancy of banking premises increased $620,000, or
7.0 percent, primarily due to higher lease, building maintenance, and property
tax expense related to the acquisitions. Furniture and equipment expense
increased $582,000, or 11.4 percent, mostly due to higher depreciation expense
associated with the acquisitions. Intangible amortization increased $1.7
million or 44.1 percent from the same period one year ago due to acquisitions.
Other non-interest expenses decreased $2.2 million or 7.7 percent, primarily
due to decreases in FDIC insurance, franchise taxes, and federal reserve
service charges. The efficiency ratio measures what percentage of bank revenue
is absorbed by non-interest expense. The Corporation's year-to-date efficiency
ratio was 66.0 percent compared to 67.7 percent in 1995.
Income Taxes
The Corporation's effective tax rate for the first and second quarters of
1996 and 1995 approximated the statutory rate of 35 percent.
Balance Sheet
Average assets of $4,509,455,000 increased 3.2 percent and 15.8 percent
from the first quarter of 1996 and the second quarter of 1995, respectively,
principally because of the acquisitions. Total deposits averaged
$3,910,444,000 for the current quarter, up 3.6 percent from the previous
quarter and up 21.9 percent when compared to the second quarter of 1995.
Loans
<TABLE>
<CAPTION>
1996 1995
--------------------- -----------------------
Loan Portfolio Percentage
Period-End Balances June 30 of Total December 31 June 30
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 602,430 28.6% $ 508,990 $ 495,087
Consumer 439,958 20.9 402,169 362,574
Real estate 995,798 47.2 837,905 823,212
Other 71,201 3.4 69,035 64,172
Unearned discount (1,803) (.1) (1,337) (2,401)
---------- ------ ---------- ----------
Total Loans $2,107,584 100.0% $1,816,762 $1,742,644
========== ====== ========== ==========
</TABLE>
<PAGE>
Average loans for the second quarter of 1996 were $2,057,029,000. This
represents an increase in average loans of 6.2 percent from the first quarter
of 1996 and an increase in average loans of 23.0 percent from the second
quarter of last year. At June 30, 1996, period-end loans totaled
$2,107,584,000 up 4.1 percent from the previous quarter and up 20.9 percent
from the same period last year. Approximately, 58 percent of the increase in
loans from a year ago resulted from acquisitions.
Real Estate Loans
Real estate loans at June 30, 1996, were $995,798,000 or 47.2 percent of
period-end loans, the same percentage level of a year ago. Residential
permanent mortgage loans at June 30, 1996, were $403,489,000 compared to
$395,616,000 at March 31, 1996, and $326,213,000 at June 30, 1995. Real estate
loans classified as "other" are essentially amortizing commercial and
industrial loans with maturities of less than five years secured by real
property.
At June 30, 1996, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $3,461,000, compared with $3,999,000 at
March 31, 1996, and $5,179,000 at June 30, 1995.
<TABLE>
<CAPTION>
1996 1995
--------------------- --------
Real Estate Loans Percentage
Period-End Balances June 30 of Total June 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 57,922 5.8% $ 53,336
Land 48,274 4.8 39,939
Permanent mortgages:
Commercial 209,523 21.1 201,048
Residential 403,489 40.5 326,213
Other 276,590 27.8 202,676
-------- ------ --------
$995,798 100.0% $823,212
======== ====== ========
Non-accrual and restructured $ 10,772 1.1% $ 12,951
</TABLE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$18,649,000 in loans secured by assets held in the United States, totaled
$25,345,000 at June 30, 1996, or 1.2 percent of total loans down from
$31,462,000 at March 31, 1996 and flat compared to $25,232,000 last year. All
of the Corporation's Mexican loans are either secured by liquid U.S. assets or
are unsecured loans to major financial institutions to finance international
trade transactions. Of the trade-related credits, approximately 88 percent are
related to companies exporting from Mexico. As of June 30, 1996, none of the
Mexican related loans were on non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
--------------------------
Percentage of
June 30, 1996 Amount Total Loans
- --------------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $25,344 1.2%
Loans to private firms or individuals 1
------- ----
$25,345 1.2%
======= ====
</TABLE>
<PAGE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
June 30, 1996 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $10,772 $2,818 $13,590
Foreclosed assets 1,174 213 1,387
------- ------ -------
Total $11,946 $3,031 $14,977
======= ====== =======
As a percentage of total
non-performing assets 79.8% 20.2% 100.0%
</TABLE>
Non-performing assets totaled $14,977,000 at June 30, 1996 down 15.7
percent and 10.8 percent, respectively, from $17,768,000 at June 30, 1995 and
$16,798,000 at March 31, 1996. Non-performing assets as a percentage of total
loans and foreclosed assets decreased to .71 percent at June 30, 1996 from 1.02
percent one year ago.
Foreclosed assets consist of property which has been formally repossessed.
Foreclosed assets are valued at the lower of the loan balance or estimated fair
value, less estimated selling costs, at the time of foreclosure. Write-downs
occurring at acquisition are charged against the allowance for possible loan
losses. On an ongoing basis, properties are appraised as required by market
indications and applicable regulations. Write-downs are provided for
subsequent declines in value. Expenses related to maintaining foreclosed
properties are included in other non-interest expense.
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $231,000 or $.01 per common share for
the second quarter of 1996, compared to approximately $287,000 or $.01 per
common share for the second quarter of 1995 and $239,000 or $.01 per common
share for the first quarter of 1996. For the six months ended June 30, 1996,
the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $470,000 or $.02 per common share, compared with approximately
$584,000 or $.03 per common share for the comparable period last year. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$5,693,000 at June 30, 1996, compared to $6,440,000 at June 30, 1995, and
$6,761,000 at March 31, 1996.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $35,035,000 or 1.66 percent of
period-end loans at June 30, 1996, compared to $28,886,000 or 1.66 percent at
June 30, 1995 and $33,229,000 or 1.64 percent at March 31, 1996. The allowance
for possible loan losses as a percentage of non-accrual and restructured loans
was 257.8 percent at June 30, 1996, compared to 204.4 percent at June 30, 1995
and 224.8 percent at the end of the first quarter of 1996.
The Corporation recorded a $1,325,000 provision for possible loan losses
during the second quarter of 1996. This compares to $2,772,000 provision for
possible loan losses during the second quarter of 1995 and $1,875,000 for the
first quarter of 1996. The provision is reflective of the continued growth in
the loan portfolio. Net recoveries in the second quarter of 1996 totaled
$481,000, compared to a net charge-off of $771,000 for the second quarter of
1995 and $223,000 for the first quarter of 1996.
<PAGE>
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
---------------------------
1996 1995
----------------- -------
Second First Second
Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $(1,306) $ (7) $ (227)
Commercial and industrial 401 (487) (129)
Consumer 424 716 1,127
Other, including foreign 1
------- ------- ------
$ (481) $ 223 $ 771
======= ======= =======
Provision for possible loan losses $ 1,325 $ 1,875 $ 2,772
Allowance for possible loan losses 35,035 33,229 28,886
</TABLE>
Capital and Liquidity
At June 30, 1996, shareholders' equity was $347,850,000 compared to
$321,660,000 at June 30, 1995 and $347,174,000 at March 31, 1996. The
Corporation had an unrealized loss on securities available for sale, net of
deferred taxes, of $3.7 million as of June 30, 1996 compared to a $6.1 million
unrealized gain as of June 30, 1995, reflecting a change of $9.8 million. The
unrealized loss is primarily due to the increase in market interest rates in
1996. Currently, under regulatory requirements, the unrealized gain or loss on
securities available for sale is not included in the calculation of risk-based
capital and leverage ratios.
During the second quarter of 1996, the board of directors declared and
paid a two for one stock split. In addition, the Corporation raised its cash
dividend 20 percent in the second quarter of 1996 to $.21 per common share
(post-split) compared to $.175 per common share in the first quarter of 1996
and 91 percent when compared to the $.11 per common share for the second
quarter a year ago. This equates to a dividend payout ratio of 34.9 percent,
30.0 percent and 21.8 percent for the second and first quarters of 1996 and the
second quarter of 1995, respectively.
The Federal Reserve Board (the "Board") utilizes capital guidelines
designed to measure Tier 1 and Total Capital and take into consideration the
risk inherent in both on-balance sheet and off-balance sheet items.
The following table summarizes Tier 1 and Total Capital information for
the Corporation at June 30, 1996 and 1995. As a result of the acquisitions,
all the regulatory capital ratios are down when compared to the second quarter
of 1995.
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 277,135 11.35% $ 260,589 12.79%
Tier 1 Capital Minimum requirement 97,671 4.00 81,518 4.00
Total Capital $ 307,713 12.60% $ 286,105 14.04%
Total Capital Minimum requirement 195,342 8.00 163,037 8.00
Risk-adjusted assets, net of goodwill $2,441,773 $2,037,960
Leverage ratio 6.24% 6.80%
Average equity as a percentage
of average assets 7.83 8.21
</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 June 30, 1996, the Corporation's
subsidiary banks were considered "well capitalized" as defined by FDICIA, the
highest rating, and the Corporation's capital ratios were in excess of "well
capitalized" levels. A financial institution is deemed to be well capitalized
<PAGE>
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 June 30, 1996.
Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. These include cash, time
deposits in banks, securities available for sale, maturities and cash flow from
securities held to maturity, and Federal funds sold and securities purchased
under resale agreements. Liability liquidity is provided by access to funding
sources, principally core deposits and Federal funds purchased. Additional
sources of liability liquidity include brokered deposits and securities sold
under agreement to repurchase. The liquidity position of the Corporation is
continuously monitored and adjustments are made to the balance between sources
and uses of funds as deemed appropriate.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-Year-to-Date
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
June 30, 1996 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 $ 24 $ 1 3.50% $ 18 2.34%
Securities:
U.S. Treasury 294,463 7,728 5.28 225,884 $ 6,735 6.01
U.S. Government agencies
and corporations 1,299,447 43,021 6.62 1,312,433 41,710 6.36
States and political subdivisions 5,488 259 9.45 6,107 278 9.10
Other 6,910 197 5.70 12,471 407 6.52
--------- ------- --------- ------
Total securities 1,606,308 51,205 6.38 1,556,895 49,130 6.32
Federal funds sold and securities
purchased under resale agreements 130,470 3,413 5.17 108,035 3,121 5.75
Loans, net of unearned discount 1,996,660 88,268 8.89 1,600,150 71,020 8.95
--------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 3,733,462 142,887 7.68 3,265,098 123,271 7.59
Cash and due from banks 470,039 351,487
Allowance for possible loan losses (33,729) (26,531)
Banking premises and equipment 98,819 89,901
Accrued interest and other assets 175,408 136,109
--------- ----------
Total Assets $4,443,999 $3,816,064
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 808,264 $ 680,222
Correspondent banks 180,440 119,851
Public funds 42,459 34,296
--------- ---------
Total demand deposits 1,031,163 834,369
Time deposits:
Savings and Interest-on-Checking 738,049 5,127 1.40 730,580 7,023 1.94
Money market deposit accounts 777,361 14,872 3.85 562,068 10,465 3.75
Time accounts 1,044,809 25,549 4.92 913,472 21,827 4.82
Public funds 250,725 5,515 4.42 83,580 1,693 4.08
--------- ------- --------- -------
Total Time deposits 2,810,944 51,063 3.65 2,289,700 41,008 3.61
--------- ---------
Total Deposits 3,842,107 3,124,069
Federal funds purchased and securities
sold under resale agreements 155,250 3,833 4.88 313,058 8,225 5.23
Other borrowings 17,554 453 5.19 3,975 107 5.44
--------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,983,748 55,349 3.73 2,606,733 49,340 3.81
--------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 77,522 61,700
--------- ----------
Total Liabilities 4,092,433 3,502,802
SHAREHOLDERS' EQUITY 351,566 313,262
--------- ----------
Total Liabilities and
Shareholders' Equity $4,443,999 $3,816,064
========== ==========
Net interest income $87,538 $73,931
======= =======
Net interest spread 3.95% 3.78%
===== =====
Net interest income to total average earning assets 4.70% 4.55%
===== =====
*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*)
June 30, 1996 March 31, 1996
-----------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 21 $ 1 3.50% $ 27 3.50%
Securities:
U.S. Treasury 301,233 3,899 5.21 287,694 $ 3,829 5.35
U.S. Government agencies
and corporations 1,287,518 21,316 6.62 1,311,374 21,705 6.62
States and political subdivisions 5,480 129 9.45 5,497 130 9.45
Other 6,235 91 5.86 7,585 106 5.57
--------- ------- --------- -------
Total securities 1,600,466 25,435 6.36 1,612,150 25,770 6.40
Federal funds sold and securities
purchased under resale agreements 122,940 1,472 4.73 138,001 1,941 5.57
Loans, net of unearned discount 2,057,029 45,473 8.89 1,936,289 42,795 8.89
--------- ------- --------- -------
Total Earning Assets and
Average Rate Earned 3,780,456 72,381 7.68 3,686,467 70,506 7.67
Cash and due from banks 486,828 453,391
Allowance for possible loan losses (35,067) (32,390)
Banking premises and equipment 99,984 97,654
Accrued interest and other assets 177,254 165,830
--------- ---------
Total Assets $4,509,455 $4,370,952
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 839,300 $ 777,229
Correspondent banks 193,535 167,345
Public funds 40,138 44,780
---------- ----------
Total demand deposits 1,072,973 989,354
Time deposits:
Savings and Interest-on-Checking 732,882 2,499 1.37 743,216 2,628 1.42
Money market deposit accounts 796,624 7,787 3.93 758,097 7,085 3.76
Time accounts 1,055,894 12,696 4.84 1,033,725 12,853 5.00
Public funds 252,071 2,826 4.51 249,378 2,689 4.34
---------- ------- ---------- -------
Total time deposits 2,837,471 25,808 3.66 2,784,416 25,255 3.65
---------- ------- ---------- -------
Total Deposits 3,910,444 3,773,770
Federal funds purchased and securities
sold under resale agreements 150,965 1,728 4.53 159,535 2,105 5.22
Other borrowings 16,936 221 5.25 18,173 232 5.14
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,005,372 27,757 3.71 2,962,124 27,592 3.74
---------- ------- ----- ---------- ------- ----
Accrued interest and other liabilities 78,243 69,209
---------- ----------
Total Liabilities 4,156,588 4,020,687
SHAREHOLDERS' EQUITY 352,867 350,265
---------- ----------
Total Liabilities and
Shareholders' Equity $4,509,455 $4,370,952
========== ==========
Net interest income $44,624 $42,914
======= =======
Net interest spread 3.97% 3.93%
==== ====
Net interest income to total average earning assets 4.74% 4.67%
==== ====
*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*)
December 31, 1995 September 30, 1995
-------------------------- -------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
--------- -------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 20 $ 2 3.51% $ 15 3.52%
Securities:
U.S. Treasury 248,598 3,559 5.68 255,079 $ 3,848 5.99
U.S. Government agencies
and corporations 1,287,154 21,054 6.54 1,301,094 21,001 6.46
States and political subdivisions 5,603 131 9.40 5,647 134 9.49
Other 5,971 89 6.01 6,447 97 6.03
--------- ------ ---------- -------
Total securities 1,547,326 24,833 6.41 1,568,267 25,080 6.39
Federal funds sold and securities
purchased under resale agreements 137,784 1,951 5.54 114,483 1,660 5.67
Loans, net of unearned discount 1,779,371 40,238 8.97 1,747,810 39,939 9.07
--------- ------ --------- ------
Total Earning Assets and
Average Rate Earned 3,464,501 67,024 7.69 3,430,575 66,679 7.73
Cash and due from banks 430,154 392,513
Allowance for possible loan losses (31,040) (29,708)
Banking premises and equipment 90,738 92,132
Accrued interest and other assets 154,668 146,414
--------- ---------
Total Assets $4,109,021 $4,031,926
========= =========
LIABILITIES
Demand deposits:
Commercial and individual $ 719,105 $ 705,914
Correspondent banks 151,021 134,085
Public funds 41,139 37,277
--------- ---------
Total demand deposits 911,265 877,276
Time deposits:
Savings and Interest-on-Checking 700,966 2,729 1.54 720,160 2,908 1.60
Money market deposit accounts 703,450 6,971 3.93 638,351 6,238 3.88
Time accounts 1,024,321 13,136 5.09 1,006,887 13,061 5.15
Public funds 221,741 2,489 4.45 113,599 1,269 4.43
--------- ------ --------- -------
Total Time Deposits 2,650,478 25,325 3.79 2,478,997 23,476 3.76
--------- ------ --------- -------
Total Deposits 3,561,743 3,356,273
Federal funds purchased and securities
sold under repurchase agreements 123,052 1,565 4.98 258,409 3,506 5.31
Other borrowings 20,010 330 6.55 21,818 296 5.38
--------- ------ --------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,793,540 27,220 3.86 2,759,224 27,278 3.92
--------- ------ ---- --------- ------- ----
Accrued interest and other liabilities 66,463 66,878
--------- ---------
Total Liabilities 3,771,268 3,703,378
SHAREHOLDERS' EQUITY 337,753 328,548
--------- ---------
Total Liabilities and
Shareholders' Equity $4,109,021 $4,031,926
========= =========
Net interest income $39,804 $ 39,401
======= ========
Net interest spread 3.83% 3.81%
===== =====
Net interest income to total average earning assets 4.58% 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*)
June 30, 1995
---------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
-------- ------- -----
<S> <C> <C> <C>
ASSETS
Time deposits $ 21 3.81%
Securities:
U.S. Treasury 227,406 $ 3,489 6.15
U.S. Government agencies
and corporations 1,307,456 20,917 6.40
States and political subdivisions 6,551 144 8.77
Other 7,238 115 6.37
--------- -------
Total securities 1,548,651 24,665 6.37
Federal funds sold and securities
purchased under resale agreements 111,611 1,628 5.77
Loans, net of unearned discount 1,671,840 37,811 9.07
--------- -------
Total Earning Assets and
Average Rate Earned 3,332,123 64,104 7.71
Cash and due from banks 359,029
Allowance for possible loan losses (27,176)
Banking premises and equipment 91,634
Accrued interest and other assets 137,257
---------
Total Assets $3,892,867
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 685,220
Correspondent banks 121,666
Public funds 32,193
----------
Total demand deposits 839,079
Time deposits:
Savings and Interest-on-Checking 727,039 3,562 1.97
Money market deposit accounts 564,081 5,408 3.85
Time accounts 992,628 12,737 5.15
Public funds 84,904 916 4.33
---------- -------
Total time deposits 2,368,652 22,623 3.83
---------- -------
Total Deposits 3,207,731
Federal funds purchased and securities
sold under resale agreements 290,927 3,834 5.21
Other borrowings 7,906 107 5.44
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,667,485 26,564 3.99
---------- ------- ----
Accrued interest and other liabilities 66,070
----------
Total Liabilities 3,572,634
SHAREHOLDERS' EQUITY 320,233
----------
Total Liabilities and
Shareholders' Equity $3,892,867
==========
Net interest income $37,540
=======
Net interest spread 3.72%
====
Net interest income to total average earning assets 4.52%
====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
Part II: Other Information
Item 2. Changes in Securities
On July 25, 1989, the Board of Directors of Cullen/Frost Bankers, Inc., a
Texas corporation (the "Company"), declared a dividend of one preferred share
purchase right (a "Right") for each share of common stock, par value $5.00 per
share ("Common Stock"), of the Company held of record at the close of business
on August 1, 1989 (the "Record Date"), or issued thereafter and prior to the
Separation Time (as defined in the Original Rights Agreement described below).
The Rights were issued pursuant to a Rights Agreement, dated as of July 25,
1989, between the Company and The Bank of New York, as rights agent (the
"Original Rights Agreement"). On July 30, 1996, the Company amended and
restated the Original Rights Agreement in its entirety (the "Restated Rights
Agreement") and appointed The Frost National Bank to replace The Bank of New
York, as Rights Agent. In the Restated Rights Agreement, among other things,
the threshold at which a shareholder becomes an "Acquiring Person" (as defined
in the Restated Rights Agreement), thereby entitling other holders of Rights to
acquire the Company's Common Stock at half price, was changed from 15 percent
to ten percent, and the exercise price for the Rights was raised from $27.27 to
$100, the effect of which entitles the holders of Rights, other than an
Acquiring Person, to acquire a greater number of shares of Common Stock at half
price when the Rights are triggered.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Corporation was held on May 29,
1996. The following matters were submitted to a vote of the Corporation's
shareholders.
1. Election of Directors:
Election of all eighteen director nominees into three classes with terms
expiring in 1997, 1998, and 1999, respectively, was approved with no nominee
receiving less than 9.7 million votes.
Nominee Total Votes For Total Votes Withheld
- ------- --------------- --------------------
Class I:
Isaac Arnold, Jr. 9,825,324 87,336
Harry H. Cullen 9,741,715 170,445
Roy H. Cullen 9,741,380 170,780
James L. Hayne 9,826,200 85,960
Robert S. McClane 9,826,562 85,598
Mary Beth Williamson 9,832,140 80,020
Class II:
Royce S. Caldwell 9,827,595 84,565
Ruben R. Cardenas 9,827,295 84,865
Henry E. Catto 9,826,165 85,995
Richard W. Evans, Jr. 9,825,964 86,196
James W. Gorman, Jr. 9,741,270 170,890
Richard M. Kleberg III 9,837,200 74,960
Class III:
Eugene H. Dawson, Sr. 9,727,570 184,590
Ruben M. Escobedo 9,827,115 85,045
W.N. Finnegan, III 9,836,300 75,860
T.C. Frost 9,728,894 183,266
Ida Clement Steen 9,827,055 85,105
Curtis Vaughan, Jr. 9,825,870 86,290
2. Selection of Independent Auditors
Total Votes For 9,886,994
Total Votes Against 10,841
Total Abstentions 14,325
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 Amended and Restated Shareholder Protection Rights Agreement, dated
as of July 30, 1996, which includes Form of Rights Certificate and
of Election to Exercise, included as Exhibit A to the Rights
Agreement. (1996 Form 8-A12G/A)(1)
11 Statement regarding Computation of Earnings per Share
(b) Reports on Form 8-K
None
____________________________
(1) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Report on Form 8-A12G/A filed August 2, 1996.
<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: August 13, 1996 By:/s/Phillip D. Green
-----------------------
Phillip D. Green
Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Accounting Officer)
<PAGE>
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
11 Statement re: Computation of Earnings per Share
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands, except per share amounts)
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
1996 1995 1996 1995
- -------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary Earnings per Share
Net income applicable to common stock $26,593 $21,862 $13,518 $11,223
======= ======= ======= =======
Weighted average shares outstanding 22,427 22,270 22,433 22,282
Addition from assumed exercise of
stock options 418 304 427 342
------- ------- ------- -------
Weighted average number of common
shares outstanding 22,845 22,574 22,860 22,624
======= ======= ======= =======
Primary earnings per common share $ 1.16 $ .97 $ .59 $ .50
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
1996 1995 1996 1995
- -------------------------------- ------- ------- ------- -------
Fully Diluted Earnings per Share
Net income applicable to common stock $26,593 $21,862 $13,518 $11,223
======= ======= ======= =======
Weighted average shares outstanding 22,427 22,272 22,433 22,282
Addition from assumed exercise of
stock options 479 380 473 372
------- ------- ------- ------
Weighted average number of common
shares outstanding 22,906 22,652 22,906 22,654
======= ======= ======= ======
Fully diluted earnings per common share $ 1.16 $ .97 $ .59 $ .50
</TABLE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 481666
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<SHORT-TERM> 114387
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<LONG-TERM> 0
0
0
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<SECURITIES-GAINS> (998)
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<INCOME-PRETAX> 41469
<INCOME-PRE-EXTRAORDINARY> 41469
<EXTRAORDINARY> 0
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