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, 1997 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 5, 1997, there were
22,293,479 shares of Common Stock, $5 par value, outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $54,368 $45,268 $104,417 $ 87,861
Securities:
Taxable 24,400 25,310 48,194 50,954
Tax-exempt 68 81 165 163
------- ------- -------- --------
Total Securities 24,468 25,391 48,359 51,117
Federal funds sold 2,806 1,472 5,208 3,413
------- ------- -------- --------
Total Interest Income 81,642 72,131 157,984 142,391
INTEREST EXPENSE
Deposits 28,498 25,808 55,185 51,063
Federal funds purchased and securities
sold under repurchase agreements 1,327 1,728 2,725 3,833
Long-term notes payable and other borrowings 2,462 221 4,053 453
------- ------- -------- --------
Total Interest Expense 32,287 27,757 61,963 55,349
------- ------- -------- --------
Net Interest Income 49,355 44,374 96,021 87,042
Provision for possible loan losses 2,275 1,325 3,900 3,200
------- ------- -------- --------
Net Interest Income After Provision
For Possible Loan Losses 47,080 43,049 92,121 83,842
NON-INTEREST INCOME
Trust fees 9,716 8,384 19,359 16,716
Service charges on deposit accounts 10,911 9,656 21,201 18,441
Other service charges, collection and
exchange charges, commissions and fees 2,627 2,154 4,756 4,782
Net gain (loss) on securities transactions 20 (903) 20 (998)
Other 4,467 5,350 7,841 8,426
------- ------- -------- --------
Total Non-Interest Income 27,741 24,641 53,177 47,367
NON-INTEREST EXPENSE
Salaries and wages 20,200 18,350 39,434 34,987
Pension and other employee benefits 4,332 4,498 8,725 7,956
Net occupancy of banking premises 4,680 4,665 9,438 9,526
Furniture and equipment 3,060 2,811 5,926 5,692
Intangible amortization 3,119 2,903 5,829 5,518
Other 14,985 13,368 28,016 26,061
------- ------- -------- --------
Total Non-Interest Expense 50,376 46,595 97,368 89,740
------- ------- -------- --------
Income Before Income Taxes 24,445 21,095 47,930 41,469
Income Taxes 8,814 7,577 17,236 14,876
------- ------- -------- --------
Net Income $15,631 $13,518 $ 30,694 $ 26,593
======= ======= ======== ========
Net Income per common share:
Primary $ .68 $ .59 $ 1.33 $ 1.16
Fully Diluted .67 .59 1.32 1.16
Dividends per share .25 .21 .46 .39
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
June 30 December 31 June 30
1997 1996 1996
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 454,648 $ 872,028 $ 481,666
Time deposits 16
Securities held to maturity 163,016 177,139 191,714
Securities available for sale 1,351,757 1,299,285 1,366,676
Federal funds sold 153,823 52,850 157,175
Loans, net of unearned discount of $3,108 at
June 30, 1997; $1,154 at December 31, 1996
and $1,803 at June 30, 1996 2,513,053 2,253,468 2,108,902
Less: Allowance for possible loan losses (41,080) (37,626) (36,353)
---------- ---------- ----------
Net Loans 2,471,973 2,215,842 2,072,549
Banking premises and equipment 107,709 101,625 101,076
Accrued interest and other assets 221,446 169,615 178,995
---------- ---------- ----------
Total Assets $4,924,372 $4,888,384 $4,549,867
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 986,826 $ 941,991 $ 898,874
Correspondent banks 147,626 337,996 168,248
Public funds 41,508 51,228 91,979
---------- ---------- ----------
Total demand deposits 1,175,960 1,331,215 1,159,101
Time Deposits:
Savings and Interest-on-Checking 737,603 726,700 712,541
Money market deposit accounts 981,597 876,382 789,253
Time accounts 1,093,277 1,026,547 1,066,455
Public funds 258,222 281,750 232,951
---------- ---------- ----------
Total time deposits 3,070,699 2,911,379 2,801,200
---------- ---------- ----------
Total deposits 4,246,659 4,242,594 3,960,301
Federal funds purchased and securities
sold under repurchase agreements 81,047 174,107 114,387
Accrued interest and other liabilities 101,817 92,740 127,329
Guaranteed Preferred Beneficial Interest in
Corporation's Junior Subordinated Deferrable
Interest Debentures 98,376
---------- ---------- ----------
Total Liabilities 4,527,899 4,509,441 4,202,017
Shareholders' Equity
Common stock, par value $5 per share 112,599 112,410 112,197
Shares authorized: 60,000,000
Shares issued: 22,519,879;
22,482,113; and 22,439,398
Surplus 64,224 63,480 62,804
Retained earnings 215,426 195,451 176,499
Unrealized gain (loss) on securities available
for sale, net of tax 7,538 7,602 (3,650)
Treasury stock at cost (84,000 shares) (3,314)
---------- ---------- ----------
Total Shareholders' Equity 396,473 378,943 347,850
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,924,372 $4,888,384 $4,549,867
========== ========== ==========
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 Treasury
Stock Surplus Earnings for Sale Stock Total
-------- -------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 55,997 $118,418 $158,563 $8,486 $341,464
Net income for the year ended
December 31, 1996 54,978 54,978
Exercise of employee stock
options and related tax benefit 300 1,095 (409) 986
Issuance of restricted stock 15 65 80
Restricted stock plan deferred
compensation expense, net 392 392
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax (884) (884)
Cash dividend (18,073) (18,073)
Two-for-one stock split 56,098 (56,098)
------- -------- -------- ------- ------- --------
Balance at December 31, 1996 112,410 63,480 195,451 7,602 378,943
Net income for the six months
ended June 30, 1997 30,694 30,694
Exercise of employee stock
options and related tax benefit 189 744 (610) $1,111 1,434
Purchase of treasury stock (4,425) (4,425)
Restricted stock plan deferred
compensation expense 240 240
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax (64) (64)
Cash dividend (10,349) (10,349)
--------- -------- -------- ------- ------- --------
Balance at June 30, 1997 $112,599 $64,224 $215,426 $7,538 $(3,314) $396,473
========= ======== ======== ======= ======= ========
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
------------------
1997 1996
------- -------
<S> <C> <C>
Operating Activities
Net income $ 30,694 $ 26,593
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 3,900 3,200
Credit for deferred taxes (1,917) (2,206)
Accretion of discounts on loans (588) (1,079)
Accretion of securities' discounts (6,914) (8,242)
Amortization of securities' premiums 1,391 1,504
Net (gain) loss on securities transactions (20) 998
Net gain on sale of assets (168) (1,264)
Depreciation and amortization 11,454 11,195
Increase in interest receivable (2,815) (3,565)
Increase in interest payable 3,928 401
Net change in other assets and liabilities (31,494) 34,922
--------- --------
Net cash provided by operating activities 7,451 62,457
Investing Activities
Proceeds from maturities of securities held to maturity 14,035 18,867
Proceeds from sales of securities available for sale 173,918 54,406
Proceeds from maturities of securities available for sale 173,283 352,843
Purchases of securities available for sale (349,813) (384,862)
Net increase in loans (155,508) (83,922)
Net increase in bank premises and equipment (7,163) (6,129)
Proceeds from sales of repossessed properties 694 607
Net cash and cash equivalents received from acquisitions 14,277 19,198
--------- ---------
Net cash used by investing activities (136,277) (28,992)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts (168,083) 119,072
Net decrease in certificates of deposits (11,474) (142,159)
Net increase (decrease) in short-term borrowings (93,060) 2,992
Proceeds from issuance of guaranteed preferred beneficial
interest in Corporation's subordinated debentures 98,376
Proceeds from employee stock purchase
plan and options 1,434 177
Purchase of treasury stock (4,425)
Dividends paid (10,349) (8,637)
--------- --------
Net cash used by financing activities (187,581) (28,555)
--------- --------
Increase (decrease) in cash and cash equivalents (316,407) 4,910
Cash and cash equivalents at beginning of year 924,878 633,947
--------- --------
Cash and cash equivalents at the end
of the period $608,471 $638,857
========= ========
Supplemental information:
Interest paid $ 58,758 $ 54,948
Loans originated to facilitate the sale
of repossessed properties 612
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, 1996. The balance sheet at December 31, 1996 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. Certain
reclassifications have been made to make prior periods comparable.
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) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $37,626 $32,268
Provision for possible loan losses 3,900 3,200
Loan loss reserve of acquired institutions 2,105 627
Net charge-offs:
Losses charged to the allowance (4,444) (4,297)
Recoveries 1,893 4,555
------- -------
Net (charge-offs) recoveries (2,551) 258
------- -------
Balance at the end of period $41,080 $36,353
======= =======
</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, 1997, 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. Interest revenue recognized on impaired loans
as of June 30, 1997 and 1996 was $95,000 and $106,000, respectively. 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) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $3,248 $5,124
Impaired loans with a valuation reserve 3,542 2,657
------ ------
Total recorded investment in impaired loans $6,790 $7,781
====== ======
Average recorded investment in impaired loans $5,562 $8,625
Valuation reserve 1,886 612
</TABLE>
Earnings Per Common Share
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
----------------------- -----------------------
1997 1996 1997 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
Primary 23,107,678 22,859,954 23,101,502 22,844,729
Fully Diluted 23,174,669 22,906,104 23,192,873 22,906,370
</TABLE>
Repurchases of common stock were made during the second quarter of 1997 in
connection with the Company's stock repurchase program approved in the second
quarter of 1996 which allowed for the repurchase of up to 500,000 shares. The
repurchased shares are being accounted for under the cost method where the
gross cost of the shares reacquired is debited to a treasury shares account.
As of June 30, 1997, 84,000 shares had been repurchased at an average price of
$39.46 per share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Corporation will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an immaterial increase in primary earnings per share for
the second quarter ended June 30, 1997 and June 30, 1996 and for the six months
ended June 30, 1997 and 1996. Statement 128 is not expected to have an impact
on the calculation of fully diluted earnings per share for these quarters.
Capital
The table below reflects various measures of regulatory capital at June
30, 1997 and 1996. As a result of the issuance of the $100,000,000 Trust
Preferred Capital Securities discussed in the "Capital and Liquidity" section
found on page 17, all the regulatory capital ratios are up when compared to the
second quarter of 1996.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 409,246 14.14% $ 277,135 11.35%
Tier 1 Capital Minimum requirement 115,760 4.00 97,671 4.00
Total Capital $ 445,482 15.39% $ 307,713 12.60%
Total Capital Minimum requirement 231,521 8.00 195,342 8.00
Risk-adjusted assets, net of goodwill $2,894,010 $2,441,773
Leverage ratio 8.45% 6.24%
Average equity as a percentage
of average assets 7.95 7.83
</TABLE>
<PAGE>
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, 1997 and 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.
The Corporation is subject to the regulatory capital requirements
administered by the Federal Reserve Bank. Regulators can initiate certain
mandatory actions, if the Corporation fails to meet the minimum requirements,
that could have a direct material effect on the Corporation's financial
statements. The Corporation and its subsidiary banks currently exceed all
minimum capital requirements.
Cullen/Frost Capital Trust I, a Delaware statutory business trust (the
"Issuer Trust") and wholly-owned subsidiary of the Corporation, issued on
February 6, 1997 $100,000,000 of its 8.42 percent Capital Securities, Series A
(the "Capital Securities"), which represent beneficial interests in the Issuer
Trust, in an offering exempt from registration under the Securities Act of 1933
pursuant to Rule 144A. The Capital Securities will mature on February 1, 2027
and are redeemable in whole or in part at the option of the Corporation at any
time after February 1, 2007 with the approval of the Federal Reserve and in
whole at any time upon the occurrence of certain events affecting their tax or
regulatory capital treatment. The Issuer Trust used the proceeds of the
offering of the Capital Securities to purchase Junior Subordinated Debentures
of the Corporation which constitute its only assets and which have terms
substantially similar to the Capital Securities. Payments of distributions on
the Capital Securities and payments on liquidation or redemption of the Capital
Securities are guaranteed by the Corporation on a limited basis pursuant to a
Guarantee. The Corporation has also entered into an Agreement as to Expenses
and Liabilities with the Issuer Trust pursuant to which it has agreed on a
subordinated basis to pay any costs, expenses or liabilities of the Issuer
Trust other than those arising under the Capital Securities. The obligations
of the Corporation under the Junior Subordinated Debentures, the related
Indenture, the trust agreement establishing the Issuer Trust, the Guarantee and
the Agreement as to Expenses and Liabilities, in the aggregate, constitute a
full and unconditional guarantee by the Corporation of the Issuer Trust's
obligations under the Capital Securities.
The Corporation will use the proceeds of the sale of the Junior
Subordinated Debentures for general corporate purposes, which may include the
reduction of short-term indebtedness, investments at the holding company level,
investments in the capital of, or extensions of credit to, the Corporation's
subsidiaries, acquisitions and the repurchase of the Corporation's common
stock. The Capital Securities are included in the Tier 1 capital of the
Corporation for regulatory capital purposes and are reported as debt on the
balance sheet. The Corporation records distributions payable on the Capital
Securities as interest expense. The Corporation has the right to defer
payments of interest on the Junior Subordinated Debentures at any time or from
time to time for a period of up to ten consecutive semi-annual periods with
respect to each deferral period. Under the terms of the Junior Subordinated
Debentures, in the event that under certain circumstances there is an event of
default under the Junior Subordinated Debentures or the Corporation has elected
to defer interest on the Junior Subordinated Debentures, the Corporation may
not, with certain exceptions, declare or pay any dividends or distributions on
its capital stock or purchase or acquire any of its capital stock.
On March 13, 1997, the Corporation and the Issuer Trust, filed a
Registration Statement on Form S-4 with the Securities and Exchange Commission
to register under the Securities Act of 1933 the exchange of up to $100,000,000
aggregate Liquidation Amount of "new" 8.42 percent Capital Securities, Series A
for the then outstanding Capital Securities. On April 25, 1997, the
Corporation exchanged all of the outstanding Capital Securities for registered
Capital Securities. The "new" Capital Securities have the same terms as the
"old" Capital Securities. This exchange enhanced the transferability of the
Capital Securities and will have no impact on redemption of the Capital
Securities, the Junior subordinated Debentures issued by the Company, the
Company's guarantee of the Capital Securities, or other matters described
above.
<PAGE>
Income Taxes
The tax expense for the second quarter of 1997 was $8,814,000. This
amount consisted of current tax expense of $9,726,000 and deferred tax benefit
of $912,000. Year-to-date tax expense is $17,236,000, consisting of current
tax expense of $19,153,000 and deferred tax benefit of $1,917,000. Net
deferred tax assets were $8,226,000 with no valuation allowance. The deferred
tax assets were supported by taxes paid in prior years. The tax expense for
the second quarter of 1996 was $7,577,000. Income tax payments for the first
six months of 1997 and 1996 were $17,450,000 and $13,603,000, respectively.
Acquisitions
On March 7, 1997, the Corporation paid approximately $32.2 million to
acquire Corpus Christi Bancshares, Inc., including its subsidiary, Citizens
State Bank in Corpus Christi, Texas. The purchase price has been allocated to
the underlying assets and liabilities based on estimated fair value at the date
of acquisition. Such estimates may be subsequently revised. Total intangible
assets associated with the transaction amounted to approximately $21.4 million.
The Corporation acquired loans of approximately $108 million and deposits of
approximately $184 million. The acquisition did not have a material impact on
the second quarter net income and is not expected to have a material impact on
the Corporation's 1997 net income.
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.
Other Accounting Changes
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The statement provides that all items that are required to be
recognized under accounting standards as comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The provisions of SFAS No. 130 are effective for fiscal
years beginning after December 15, 1997. Management has not completed its
review of SFAS No. 130, and has not determined the impact, if any, that
adoption of this statement will have on the Corporation.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The statement establishes standards
for the method that public entities use to report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographical areas and major
customers. The provisions of SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. Management has not completed its review of
SFAS No. 131, but does not anticipate that the adoption of this statement will
have a significant effect on the Corporation.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
The results of operations are included in the material that follows. The
Corporation completed one acquisition during the first quarter of 1997 and two
for the entire year of 1996. These acquisitions, which are outlined in the
footnotes to the financial statements on page nine, 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 periods 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 1997 1996
----------------- ------------------ -------
1997 1996 June 30 March 31 June 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $96,561 $87,538 $49,627 $46,934 $44,624
Taxable-equivalent adjustment 540 496 272 268 250
------- ------- ------- ------- -------
Net interest income 96,021 87,042 49,355 46,666 44,374
Provision for possible loan losses 3,900 3,200 2,275 1,625 1,325
Non-Interest income:
Net gain (loss) on securities
transactions 20 (998) 20 (903)
Other 53,157 48,365 27,721 25,436 25,544
------- ------- ------- ------- -------
Total non-interest income 53,177 47,367 27,741 25,436 24,641
Non-Interest expense:
Intangible amortization 5,829 5,518 3,119 2,710 2,903
Other 91,539 84,222 47,257 44,282 43,692
------- ------- ------- ------- -------
Total non-interest expense 97,368 89,740 50,376 46,992 46,595
------- ------- ------- ------- -------
Income before income taxes 47,930 41,469 24,445 23,485 21,095
Income Taxes 17,236 14,876 8,814 8,422 7,577
------- ------- ------- ------- -------
Net Income $30,694 $26,593 $15,631 $15,063 $13,518
======= ======= ======= ======= =======
Cash Earnings* $34,880 $30,530 $17,857 $17,023 $15,602
Net income per common share:
Primary $ 1.33 $ 1.16 $ .68 $ .65 $ .59
Fully diluted 1.32 1.16 .67 .65 .59
Cash earnings per common share 1.51 1.34 .77 .74 .68
Return on Average Assets 1.28% 1.20% 1.27% 1.28% 1.21%
Cash earnings ROA 1.45 1.38 1.45 1.45 1.39
Return on Average Equity 15.91 15.21 16.02 15.80 15.41
Cash earnings ROE 18.08 17.46 18.30 17.86 17.78
* Net income before intangible amortization (including goodwill and core deposit
intangibles, net of tax).
</TABLE>
Cullen/Frost Bankers, Inc. reported net income of $15,631,000 or $.68 per
common share for the quarter ended June 30, 1997 compared to $13,518,000 or
$.59 per common share for the second quarter of 1996 and net income of
$15,063,000 or $.65 per common share for the first quarter of 1997. Net income
for the six months ended June 30, 1997 was $30,694,000 or $1.33 per common
share compared to $26,593,000 or $1.16 per common share for the same period of
<PAGE>
1996. Return on average assets and average equity increased to 1.27 percent
and 16.02 percent for the second quarter of 1997. This compares to 1.21
percent and 15.41 percent for the second quarter of 1996. Return on average
assets and average equity for the six months ended June 30, 1997 increased to
1.28 percent and 15.91 percent compared to 1.20 percent and 15.21 percent for
1996.
The Corporation has historically paid cash and used the purchase method of
accounting for its acquisitions which has resulted in the creation of
intangible assets. These intangible assets are deducted from capital in the
determination of regulatory capital. Thus, "cash" or "tangible" earnings
represents regulatory capital generated during the year and can be viewed as
net income excluding intangible amortization, net of tax. While the definition
of "cash" or "tangible" earnings may vary by company, we believe this
definition is appropriate as it measures the per share growth of regulatory
capital, which impacts the amount available for dividends, stock repurchases
and acquisitions. The following table reconciles reported earnings to net
income excluding intangible amortization ("cash" earnings):
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------------------------
June 1997 June 1996
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $47,930 $ 5,829 $53,759 $41,469 $5,518 $46,987
Income taxes 17,236 1,643 18,879 14,876 1,581 16,457
------- ------- ------- ------- ------ -------
Net income $30,694 $ 4,186 $34,880 $26,593 $3,937 $30,530
======= ======= ======= ======= ====== =======
Net income per common
share $ 1.33 $ .18 $ 1.51 $ 1.16 $ .18 $ 1.34
Return on assets 1.28% 1.45%* 1.20% 1.38%*
Return on equity 15.91 18.08 ** 15.21 17.46**
* Calculated as A/B
** Calculated as A/C June 1997 June 1996
----------------- ---------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 34,880 $ 30,530
(B) Total average assets 4,838,535 4,443,999
(C) Average shareholders' equity 389,045 351,566
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
June 1997 March 1997
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $24,445 $ 3,119 $27,564 $23,485 $2,710 $26,195
Income taxes 8,814 893 9,707 8,422 750 9,172
------- ------- ------- ------- ------ -------
Net income $15,631 $ 2,226 $17,857 $15,063 $1,960 $17,023
======= ======= ======= ======= ====== =======
Net income per common
share $ .68 $ .09 $ .77 $ .65 $ .09 $ .74
Return on assets 1.27% 1.45%* 1.28% 1.45%*
Return on equity 16.02 18.30 ** 15.80 17.86**
* Calculated as A/B
** Calculated as A/C June 1997 March 1997
----------------- ---------- -----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 17,857 $ 17,023
(B) Total average assets 4,922,916 4,756,209
(C) Average shareholders' equity 391,439 386,626
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
June 1996
- --------------------------------------------------------------
Reported Intangible "Cash"
earnings Amortization earnings
- --------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $21,095 $2,903 $23,998
Income taxes 7,577 819 8,396
------- ------ -------
Net income $13,518 $2,084 $15,602
======= ====== =======
Net income per common share $ .59 $ .09 $ .68
Return on assets 1.21% 1.39%*
Return on equity 15.41 17.78 **
* Calculated as A/B
** Calculated as A/C
June 1996
----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 15,602
(B) Total average assets 4,509,455
(C) Average shareholders' equity 352,867
</TABLE>
Net Interest Income
Net interest margin was 4.75 percent for the second quarter of 1997
compared to 4.73 percent and 4.74 percent for the first quarter of 1997 and
second quarter of 1996, respectively. The increase in net interest income and
net interest margin from the first quarter of 1997 and second quarter of last
year is reflective of the favorable impact of the acquisitions and higher loan
volumes offset by higher deposit costs and interest expense related to the $100
million Trust Preferred Capital Securities, see "Capital and Liquidity" on page
17. Net interest spread of 3.91 percent decreased three basis points from the
first quarter of 1997 and six basis points from the second quarter of 1996.
The net interest spread decreased from the previous quarters primarily because
of the increase in deposit costs and interest expense related to the Trust
Preferred Capital Securities.
<TABLE>
<CAPTION>
Change in Net Interest Income
-------------------------------------------------------------------
Second Quarter Second Quarter Year-to-Date
1997 1997 1997
vs. vs. vs.
Second Quarter First Quarter Year-to-Date
1996 1997 1996
-------------------------------------------------------------------
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 $10,256 66.13% $ 6,027 64.38% $16,360 69.04%
Due to interest rate
spread (5,253) 33.87 (3,334) 35.62 (7,337) 30.96
------- ------- ------- ------- ------- -------
$ 5,003 100.00% $ 2,693 100.00% $ 9,023 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1997 1996
------------------ -------------------- -------
Non-Interest Income 1997 1996 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $19,359 $16,716 $ 9,716 $ 9,643 $ 8,384
Service charges on deposit accounts 21,201 18,441 10,911 10,290 9,656
Other service charges, collection
and exchange charges, commissions
and fees 4,756 4,782 2,627 2,129 2,154
Net gain (loss) on securities
transactions 20 (998) 20 (903)
Other 7,841 8,426 4,467 3,374 5,350
------- ------- ------- ------- -------
Total $53,177 $47,367 $27,741 $25,436 $24,641
======= ======= ======= ======= =======
</TABLE>
For the second quarter 1997...
Total non-interest income was up $2.3 million, an increase of 9.1 percent,
compared to the first quarter of 1997 and up $3.1 million, an increase of 12.6
percent compared to the second quarter of 1996. The increase from the first
quarter is primarily due to a refund of franchise taxes and the increase from
the second quarter of 1996 is the result of higher trust fee and service charge
income.
Trust fee income increased slightly compared to last quarter and increased
15.9 percent from the second quarter of 1996. The increase from the second
quarter of 1996 is attributable to the increase in the number of accounts held
and trust asset growth resulting from improvement in the stock market.
Service charges on deposit accounts increased 6.0 percent from the first
quarter of this year and 13.0 percent from the second quarter of 1996. The
majority of the increase from the previous quarter and second quarter a year
ago is primarily a result of higher service charges related to commercial
deposits, volumes processed for correspondent banks and overdraft charges.
Other service charges were up 23.4 percent and 22.0 percent compared to the
first quarter of 1997 and the second quarter of 1996, respectively. The
increase from both quarters is primarily due to higher loan prepayment penalty
fees and higher volumes as well as higher mutual fund fees compared to the
second quarter of 1996.
An immaterial gain on securities transactions was realized in the second
quarter of 1997 compared to a loss in the second quarter 1996. In the second
quarter of 1996, the Corporation restructured a portion of its available for
sale investment portfolio resulting in losses.
Other non-interest income increased $1.1 million or 32.4 percent from the
first quarter of this year and decreased $883,000 or 16.5 percent compared to
the second quarter of 1996. The increase from the first quarter is mostly due
to a refund of franchise taxes. Most of the decrease from the second quarter
of 1996 is due to gains on the disposition of certain loans and foreclosed
assets of approximately $2.7 million recorded in 1996, and a reduction in
income on bankcard due to the outsourcing of the Corporation's processing
operations in the second quarter of 1996.
For the six months ended June 30, 1997...
Non-interest income rose $5.8 million or 12.3 percent compared to the same
period last year. Trust income increased $2.6 million and is attributable to
the increase in the number of accounts held and trust asset growth resulting
from improvement in the stock market. Service charges on deposit accounts
increased $2.8 million compared to the same period one year ago. The increase
is mainly due to higher service charges related to commercial deposits, volumes
processed for correspondent banks and overdraft charges. Other income is down
$585,000 or 6.9 percent compared to the same period last year primarily related
to gains on the disposition of certain loans recorded in 1996.
<PAGE>
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1997 1996
------------------ ------------------- -------
Non-Interest Expense 1997 1996 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $39,434 $34,987 $20,200 $19,234 $18,350
Pension and other employee benefits 8,725 7,956 4,332 4,393 4,498
Net occupancy of banking premises 9,438 9,526 4,680 4,758 4,665
Furniture and equipment 5,926 5,692 3,060 2,866 2,811
Intangible amortization 5,829 5,518 3,119 2,710 2,903
Other 28,016 26,061 14,985 13,031 13,368
------- ------- ------- ------- -------
Total $97,368 $89,740 $50,376 $46,992 $46,595
======= ======= ======= ======= =======
</TABLE>
For the second quarter 1997...
Non-interest expense was up $3.4 million or 7.2 percent compared to last
quarter and increased $3.8 million or 8.1 percent compared to the second
quarter of 1996. The increase from the first quarter of 1997 is due to the
acquisition and higher operating costs. The increase from the second quarter
of 1996 results primarily from higher salaries expense related to acquisitions
and normal merit increases and higher operating expenses, including acquisition
related costs.
Salaries and wages increased 5.0 percent from the first quarter of 1997
and 10.1 percent from the second quarter of 1996 primarily as a result of the
acquisitions and normal merit increases. Pension and employee benefits
decreased 1.4 percent compared to last quarter and 3.7 percent compared to the
second quarter of 1996. The decrease from a year ago reflects the early
retirement charge recorded in the second quarter of 1996.
Net occupancy of banking premises expense decreased 1.6 percent from the
first quarter of 1997 and remained constant from the second quarter of 1996.
Furniture and equipment expense increased 6.8 percent compared to the first
quarter of 1997 and increased 8.9 percent from the same quarter last year
mostly due to equipment rental and software amortization.
Amortization of intangibles increased 15.1 percent from the first quarter
of 1997 and 7.4 percent from the second quarter of 1996 due to the acquisition.
Other non-interest expenses increased 15.0 percent and 12.1 percent from the
first and second quarter, respectively, mainly due to higher operating
expenses, including acquisition related costs.
For the six months ended June 30, 1997...
Total non-interest expense was up $7.6 million or 8.5 percent compared to
the same period one year ago. Salaries and wages were up $4.4 million or 12.7
percent compared to the same period one year ago primarily because of the
acquisitions and normal merit increases. Pension and other benefits increased
$769,000 from the same period last year due to higher payroll tax and
contributions to the employee related stock plan. Net occupancy of banking
premises was down slightly compared to a year ago. Furniture and equipment
expense increased $234,000, or 4.1 percent due to higher equipment rental cost.
Intangible amortization increased $311,000 or 5.6 percent from the same period
one year ago due to acquisitions. Other non-interest expenses increased $2.0
million or 7.5 percent, primarily due to higher operating expenses, including
acquisition related costs. The efficiency ratio measures what percentage of
bank revenue is absorbed by non-interest expense. The Corporation's year-to-
date efficiency ratio was 65.0 percent compared to 66.0 percent in 1996.
Income Taxes
The Corporation's effective tax rate for the first and second quarters of
1997 and 1996 approximated the statutory rate of 35 percent.
Balance Sheet
Average assets of $4,922,916,000 increased 3.5 percent and 9.2 percent
from the first quarter of 1997 and the second quarter of 1996, respectively,
principally because of the acquisitions. Total deposits averaged
$4,241,432,000 for the current quarter, up 3.8 percent from the previous
quarter and up 8.5 percent when compared to the second quarter of 1996.
Average loans for the second quarter of 1997 were $2,458,990,000. This
represents an increase in average loans of 6.8 percent from the first quarter
of 1997 and an increase in average loans of 19.5 percent from the second
quarter of last year.
<PAGE>
Loans
<TABLE>
<CAPTION>
1997 1996
---------------------- -------------------------
Loan Portfolio Percentage
Period-End Balances June 30 of Total December 31 June 30
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 769,703 30.6% $ 650,114 $ 602,823
Consumer 558,880 22.2 491,086 439,972
Real estate 1,113,266 44.3 1,044,391 996,655
Other 74,312 3.0 69,031 71,255
Unearned discount (3,108) (.1) (1,154) (1,803)
---------- ----- ---------- ----------
Total Loans $2,513,053 100.0% $2,253,468 $2,108,902
========== ===== ========== ==========
</TABLE>
At June 30, 1997, period-end loans totaled $2,513,053,000 up 4.1 percent
from the previous quarter and up 19.2 percent from the same period last year.
Approximately 73 percent of the increase in loans from a year ago resulted from
internally generated growth.
Real Estate Loans
Real estate loans at June 30, 1997, were $1,113,266,000 or 44.3 percent of
period-end loans compared to 47.3 percent a year ago. Residential permanent
mortgage loans at June 30, 1997, were $443,914,000 compared to $435,124,000 at
March 31, 1997, and $403,687,000 at June 30, 1996. 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, 1997, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $2,038,000, compared with $3,072,000 at
March 31, 1997, and $3,461,000 at June 30, 1996.
<TABLE>
<CAPTION>
1997 1996
------------------------ --------
Real Estate Loans Percentage
Period-End Balances June 30 of Total June 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 100,998 9.1% $ 57,977
Land 58,660 5.2 48,274
Permanent mortgages:
Commercial 243,857 21.9 209,523
Residential 443,914 39.9 403,687
Other 265,837 23.9 277,194
---------- ----- --------
$1,113,266 100.0% $996,655
========== ===== ========
Non-accrual and restructured $ 8,996 .8% $ 11,177
</TABLE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$21,381,000 in loans secured by assets held in the United States, totaled
$34,426,000 at June 30, 1997, or 1.4 percent of total loans down from
$39,722,000 at March 31, 1997 and up compared to $25,345,000 last year. Most
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 73.5 percent
are related to companies exporting from Mexico. As of June 30, 1997, none of
the Mexican related loans were on non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
-----------------------
Percentage of
June 30, 1997 Amount Total Loans
- ----------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $26,426 1.1%
Loans to private firms or individuals 8,000 .3
------- ---
$34,426 1.4%
======= ===
</TABLE>
<PAGE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
June 30, 1997 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 8,996 $4,483 $13,479
Foreclosed assets 1,571 874 2,445
------- ------ -------
Total $10,567 $5,357 $15,924
======= ====== =======
As a percentage of total
non-performing assets 66.4% 33.6% 100.0%
</TABLE>
Non-performing assets totaled $15,924,000 at June 30, 1997 up 3.5 percent
and down 3.4 percent, respectively, from $15,382,000 at June 30, 1996 and
$16,490,000 at March 31, 1997. Non-performing assets as a percentage of total
loans and foreclosed assets decreased to .63 percent at June 30, 1997 from .73
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 $225,000 or $.01 per common share for
the second quarter of 1997, compared to approximately $231,000 or $.01 per
common share for the second quarter of 1996 and $180,000 or $.01 per common
share for the first quarter of 1997. For the six months ended June 30, 1997,
the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $405,000 or $.02 per common share, compared with approximately
$470,000 or $.02 per common share for the comparable period last year. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$5,589,000 at June 30, 1997, compared to $5,693,000 at June 30, 1996, and
$7,703,000 at March 31, 1997.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $41,080,000 or 1.63 percent of
period-end loans at June 30, 1997, compared to $36,353,000 or 1.72 percent at
June 30, 1996 and $40,047,000 or 1.66 percent at March 31, 1997. The allowance
for possible loan losses as a percentage of non-accrual and restructured loans
was 304.8 percent at June 30, 1997, compared to 259.8 percent at June 30, 1996
and 281.5 percent at the end of the first quarter of 1997.
The Corporation recorded a $2,275,000 provision for possible loan losses
during the second quarter of 1997. This compares to $1,325,000 provision for
possible loan losses during the second quarter of 1996 and $1,625,000 for the
first quarter of 1997. Net charge-offs in the second quarter of 1997 totaled
$1,242,000, compared to a net recoveries of $481,000 for the second quarter of
1996 and net charge-offs of $1,309,000 for the first quarter of 1997.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
----------------------------
1997 1996
------------------ -------
Second First Second
Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real estate $ (294) $ 26 $(1,306)
Commercial and industrial 387 159 401
Consumer 1,051 1,039 424
Other, including foreign 98 85
------- ------- -------
$ 1,242 $ 1,309 $ (481)
======= ======= =======
Provision for possible loan losses $ 2,275 $ 1,625 $ 1,325
Allowance for possible loan losses 41,080 40,047 36,353
</TABLE>
<PAGE>
Capital and Liquidity
At June 30, 1997, shareholders' equity was $396,473,000 compared to
$347,850,000 at June 30, 1996 and $383,701,000 at March 31, 1997. The
Corporation had an unrealized gain on securities available for sale, net of
deferred taxes, of $7.5 million as of June 30, 1997 compared to a $3.7 million
unrealized loss as of June 30, 1996, reflecting a change of $11.2 million. The
unrealized gain is primarily due to the decrease in market interest rates in
1997. Under regulatory requirements, the unrealized gain or loss on securities
available for sale is not included in the calculation of risk-based capital and
leverage ratios.
The Corporation raised its cash dividend 19 percent for the second quarter
of 1997 to $.25 per common share compared to $.21 per common share in the first
quarter of 1997 and fourth quarter of 1996. This equates to a dividend payout
ratio of 36.0 percent, 31.4 percent and 34.9 percent for the second and first
quarters of 1997 and the second quarter of 1996, respectively.
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, 1997.
During February 1997, Cullen/Frost Capital Trust I, a Delaware statutory
business trust and wholly-owned subsidiary of the Corporation (The Trust),
issued $100,000,000 of its 8.42 percent Capital Securities, Series A which
represents a beneficial interest in The Trust. For additional information
regarding the foregoing see the footnotes to the financial statements on page
8.
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.
NYSE Listing
On July 30, 1997, the Corporation filed a formal application to list its
common stock on the New York Stock Exchange (NYSE). The Corporation expects to
begin trading on the NYSE by mid-August.
<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, 1997 June 30, 1996
--------------------------- ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
---------- -------- ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 24 $ 1 3.50%
Securities:
U.S. Treasury $ 269,517 $ 7,104 5.32% 294,463 7,728 5.28
U.S. Government agencies
and corporations 1,227,809 40,875 6.66 1,299,447 43,021 6.62
States and political subdivisions 5,472 260 9.49 5,488 259 9.45
Other 7,245 209 5.76 6,910 197 5.70
--------- -------- --------- --------
Total securities 1,510,043 48,448 6.42 1,606,308 51,205 6.38
Federal funds sold 201,061 5,208 5.15 130,470 3,413 5.17
Loans, net of unearned discount 2,381,585 104,868 8.88 1,996,660 88,268 8.89
--------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 4,092,689 158,524 7.79 3,733,462 142,887 7.68
Cash and due from banks 494,251 470,039
Allowance for possible loan losses (36,677) (33,729)
Banking premises and equipment 105,041 98,819
Accrued interest and other assets 183,231 175,408
--------- ----------
Total Assets $4,838,535 $4,443,999
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 895,854 $ 808,264
Correspondent banks 221,273 180,440
Public funds 43,148 42,459
--------- ---------
Total demand deposits 1,160,275 1,031,163
Time deposits:
Savings and Interest-on-Checking 732,849 4,600 1.27 738,049 5,127 1.40
Money market deposit accounts 928,137 18,515 4.02 777,361 14,872 3.85
Time accounts 1,069,045 25,986 4.90 1,044,809 25,549 4.92
Public funds 274,119 6,084 4.48 250,725 5,515 4.42
--------- -------- --------- --------
Total time deposits 3,004,150 55,185 3.70 2,810,944 51,063 3.65
--------- ---------
Total Deposits 4,164,425 3,842,107
Federal funds purchased and securities
sold under resale agreements 122,183 2,725 4.44 155,250 3,833 4.88
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 78,943 3,414 8.72
Other borrowings 23,482 639 5.48 17,554 453 5.19
--------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 3,228,758 61,963 3.87 2,983,748 55,349 3.73
--------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 60,457 77,522
--------- ----------
Total Liabilities 4,449,490 4,092,433
SHAREHOLDERS' EQUITY 389,045 351,566
--------- ----------
Total Liabilities and
Shareholders' Equity $4,838,535 $4,443,999
========== ==========
Net interest income $ 96,561 $ 87,538
======== ========
Net interest spread 3.92% 3.95%
==== ====
Net interest income to total average earning assets 4.74% 4.70%
==== ====
*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, 1997 March 31, 1997
---------------------------- ------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
---------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits
Securities:
U.S. Treasury $ 283,467 $ 3,778 5.35% $ 255,412 $ 3,326 5.28%
U.S. Government agencies
and corporations 1,229,527 20,510 6.67 1,226,336 20,365 6.64
States and political subdivisions 4,599 106 9.21 6,356 154 9.68
Other 7,760 111 5.70 6,459 98 6.08
---------- ------- ---------- -------
Total securities 1,525,353 24,505 6.43 1,494,563 23,943 6.42
Federal funds sold 200,752 2,806 5.53 201,373 2,402 4.77
Loans, net of unearned discount 2,458,990 54,603 8.91 2,303,330 50,265 8.85
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 4,185,095 81,914 7.84 3,999,266 76,610 7.74
Cash and due from banks 471,513 517,232
Allowance for possible loan losses (36,256) (37,103)
Banking premises and equipment 106,908 103,153
Accrued interest and other assets 195,656 173,661
---------- ----------
Total Assets $4,922,916 $4,756,209
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 927,391 $ 863,967
Correspondent banks 210,002 232,669
Public funds 41,294 45,021
---------- ----------
Total demand deposits 1,178,687 1,141,657
Time deposits:
Savings and Interest-on-Checking 746,782 2,321 1.25 718,760 2,279 1.29
Money market deposit accounts 961,751 9,755 4.07 894,150 8,761 3.97
Time accounts 1,092,292 13,406 4.92 1,045,539 12,580 4.88
Public funds 261,920 3,016 4.62 286,454 3,067 4.34
---------- ------- ---------- -------
Total time deposits 3,062,745 28,498 3.73 2,944,903 26,687 3.68
---------- ------- ---------- -------
Total Deposits 4,241,432 4,086,560
Federal funds purchased and securities
sold under resale agreements 109,140 1,327 4.81 135,371 1,398 4.13
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,372 2,144 8.74 59,299 1,271 8.69
Other borrowings 22,657 318 5.64 24,316 320 5.34
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,292,914 32,287 3.93 3,163,889 29,676 3.80
---------- ------- ----- ---------- ------- ----
Accrued interest and other liabilities 59,876 64,037
---------- ----------
Total Liabilities 4,531,477 4,369,583
SHAREHOLDERS' EQUITY 391,439 386,626
---------- ----------
Total Liabilities and
Shareholders' Equity $4,922,916 $4,756,209
========== ==========
Net interest income $49,627 $46,934
======= =======
Net interest spread 3.91% 3.94%
==== ====
Net interest income to total average earning assets 4.75% 4.73%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
[CAPTION]
<TABLE>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
December 31, 1996 September 30, 1996
---------------------------- ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
----------- -------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits
Securities:
U.S. Treasury $ 268,794 $ 3,629 5.37% $ 273,301 $ 3,692 5.37
U.S. Government agencies
and corporations 1,203,835 20,102 6.68 1,235,556 20,660 6.69
States and political subdivisions 5,447 128 9.44 5,457 129 9.45
Other 6,405 97 6.05 6,672 95 5.67
---------- ------ ---------- -------
Total securities 1,484,481 23,956 6.45 1,520,986 24,576 6.46
Federal funds sold 186,933 2,338 4.90 107,189 1,475 5.38
Loans, net of unearned discount 2,209,951 48,855 8.80 2,142,038 47,423 8.81
---------- ------ ---------- ------
Total Earning Assets and
Average Rate Earned 3,881,365 75,149 7.71 3,770,213 73,474 7.76
Cash and due from banks 500,288 486,938
Allowance for possible loan losses (36,883) (35,541)
Banking premises and equipment 102,466 101,290
Accrued interest and other assets 170,443 171,417
---------- ----------
Total Assets $4,617,679 $4,494,317
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 867,955 $ 844,418
Correspondent banks 225,671 208,050
Public funds 47,770 46,949
---------- ----------
Total demand deposits 1,141,396 1,099,417
Time deposits:
Savings and Interest-on-Checking 702,749 2,293 1.30 711,562 2,373 1.33
Money market deposit accounts 862,455 8,625 3.98 824,565 8,321 4.01
Time accounts 1,034,977 12,692 4.88 1,062,842 12,938 4.84
Public funds 272,639 2,840 4.14 207,093 2,330 4.48
---------- ------ ---------- -------
Total time Deposits 2,872,820 26,450 3.66 2,806,062 25,962 3.68
---------- ------ ---------- -------
Total Deposits 4,014,216 3,905,479
Federal funds purchased and securities
sold under repurchase agreements 141,654 1,587 4.38 127,292 1,517 4.66
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures
Other borrowings 19,031 259 5.41 23,376 307 5.23
---------- ------ ---------- ------
Total Interest-Bearing Funds
and Average Rate Paid 3,033,505 28,296 3.71 2,956,730 27,786 3.73
---------- ------ ---- ---------- ------- ----
Accrued interest and other liabilities 68,461 80,427
---------- ----------
Total Liabilities 4,243,362 4,136,574
SHAREHOLDERS' EQUITY 374,317 357,743
---------- ----------
Total Liabilities and
Shareholders' Equity $4,617,679 $4,494,317
========== ==========
Net interest income $46,853 $ 45,688
======= ========
Net interest spread 4.00% 4.03%
==== ====
Net interest income to total average earning assets 4.81% 4.83%
==== ====
* 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
---------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------- ------- -----
<S> <C> <C> <C>
ASSETS
Time deposits $ 21 $ 1 3.50%
Securities:
U.S. Treasury 301,233 3,899 5.21
U.S. Government agencies
and corporations 1,287,518 21,316 6.62
States and political subdivisions 5,480 129 9.45
Other 6,235 91 5.86
---------- -------
Total securities 1,600,466 25,435 6.36
Federal funds sold 122,940 1,472 4.73
Loans, net of unearned discount 2,057,029 45,473 8.89
---------- -------
Total Earning Assets and
Average Rate Earned 3,780,456 72,381 7.68
Cash and due from banks 486,828
Allowance for possible loan losses (35,067)
Banking premises and equipment 99,984
Accrued interest and other assets 177,254
----------
Total Assets $4,509,455
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 839,300
Correspondent banks 193,535
Public funds 40,138
----------
Total demand deposits 1,072,973
Time deposits:
Savings and Interest-on-Checking 732,882 2,499 1.37
Money market deposit accounts 796,624 7,787 3.93
Time accounts 1,055,894 12,696 4.84
Public funds 252,071 2,826 4.51
---------- -------
Total time deposits 2,837,471 25,808 3.66
---------- -------
Total Deposits 3,910,444
Federal funds purchased and securities
sold under resale agreements 150,965 1,728 4.53
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures
Other borrowings 16,936 221 5.25
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,005,372 27,757 3.71
---------- -------
Accrued interest and other liabilities 78,243
----------
Total Liabilities 4,156,588
SHAREHOLDERS' EQUITY 352,867
----------
Total Liabilities and
Shareholders' Equity $4,509,455
==========
Net interest income $44,624
=======
Net interest spread 3.97%
====
Net interest income to total average earning assets 4.74%
====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Corporation was held on
May 28, 1997. The following matters were submitted to a vote of the
Corporation's shareholders.
1. Election of Directors:
Election of all ten director nominees into three classes with Class I
term expiring in 2000 and Class II and III terms expiring in 1998 and 1999,
respectively, was approved with no nominee receiving less than 16.4 million
votes.
Nominee Total Votes For Total Votes Withheld
- ------- --------------- --------------------
Class I:
Isaac Arnold, Jr. 18,570,665 316,949
Harry H. Cullen 17,113,713 1,773,901
Roy H. Cullen 18,029,120 858,494
Patrick B. Frost 18,471,139 416,475
James L. Hayne 18,571,299 316,315
Robert S. McClane 18,560,414 327,200
Mary Beth Williamson 16,470,750 2,416,864
Class II:
Horace Wilkins, Jr. 18,565,209 322,405
Class III:
Bob W. Coleman 18,570,109 317,505
Joe R. Fulton 18,570,159 317,455
2. Increase authorized shares
Total Votes For 17,230,574
Total Votes Against 1,557,125
3. Amend 1992 Stock Plan
Total Votes For 14,958,061
Total Votes Against 2,137,724
4. Director's Stock Plan
Total Votes For 15,451,466
Total Votes Against 1,634,534
5. Selection of Independent Auditors
Total Votes For 18,839,573
Total Votes Against 18,850
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: August 8, 1997 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
Exhibit 11
Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
Primary and Fully Diluted (Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
Primary Earnings per Share 1997 1996 1997 1996
- -------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income applicable to common stock $30,694 $26,593 $15,631 $13,518
======= ======= ======= =======
Weighted average shares outstanding 22,492 22,427 22,483 22,433
Addition from assumed exercise of
stock options 610 418 625 427
------- ------- ------- -------
Weighted average number of common
shares outstanding 23,102 22,845 23,108 22,860
======= ======= ======= =======
Primary earnings per common share $ 1.33 $ 1.16 $ .68 $ .59
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
Fully Diluted Earnings per Share 1997 1996 1997 1996
- -------------------------------- ------- ------- ------- -------
Net income applicable to common stock $30,694 $26,593 $15,631 $13,518
======= ======= ======= =======
Weighted average shares outstanding 22,491 22,427 22,483 22,433
Addition from assumed exercise of
stock options 702 479 692 473
------- ------- ------- -------
Weighted average number of common
shares outstanding 23,193 22,906 23,175 22,906
======= ======= ======= =======
Fully diluted earnings per common share $ 1.32 $ 1.16 $ .67 $ .59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 454,648
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 153,823
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,351,757
<INVESTMENTS-CARRYING> 163,016
<INVESTMENTS-MARKET> 168,230
<LOANS> 2,513,053
<ALLOWANCE> 41,080
<TOTAL-ASSETS> 4,924,372
<DEPOSITS> 4,246,659
<SHORT-TERM> 81,047
<LIABILITIES-OTHER> 101,817
<LONG-TERM> 98,376
0
0
<COMMON> 112,599
<OTHER-SE> 283,874
<TOTAL-LIABILITIES-AND-EQUITY> 4,924,372
<INTEREST-LOAN> 104,417
<INTEREST-INVEST> 48,359
<INTEREST-OTHER> 5,208
<INTEREST-TOTAL> 157,984
<INTEREST-DEPOSIT> 55,185
<INTEREST-EXPENSE> 61,963
<INTEREST-INCOME-NET> 96,021
<LOAN-LOSSES> 3,900
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 97,368
<INCOME-PRETAX> 47,930
<INCOME-PRE-EXTRAORDINARY> 47,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,694
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 7.79
<LOANS-NON> 13,479
<LOANS-PAST> 5,589
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,627
<ALLOWANCE-OPEN> 37,626
<CHARGE-OFFS> (4,444)
<RECOVERIES> 1,893
<ALLOWANCE-CLOSE> 41,080
<ALLOWANCE-DOMESTIC> 40,889
<ALLOWANCE-FOREIGN> 191
<ALLOWANCE-UNALLOCATED> 6,441
</TABLE>
