Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 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 May 8, 1997 there were
22,519,273 shares of Common Stock, $5 par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(in thousands, except per share amounts) Three Months Ended
March 31
---------------------
1997 1996
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $50,049 $42,593
Securities:
Taxable 23,794 25,644
Tax-exempt 97 82
------- -------
Total Securities 23,891 25,726
Federal funds sold 2,402 1,941
------- -------
Total Interest Income 76,342 70,260
INTEREST EXPENSE
Deposits 26,687 25,255
Federal funds purchased and securities sold under repurchase
agreements 1,398 2,105
Long-term notes payable and other borrowings 1,591 232
------- -------
Total Interest Expense 29,676 27,592
------- -------
Net Interest Income 46,666 42,668
Provision for possible loan losses 1,625 1,875
------- -------
Net Interest Income After Provision
For Possible Loan Losses 45,041 40,793
NON-INTEREST INCOME
Trust fees 9,643 8,332
Service charges on deposit accounts 10,290 8,785
Other service charges, collection and exchange charges,
commissions and fees 2,129 2,628
Net loss on securities transactions (95)
Other 3,374 3,076
------- -------
Total Non-Interest Income 25,436 22,726
NON-INTEREST EXPENSE
Salaries and wages 19,234 16,637
Pension and other employee benefits 4,393 3,458
Net occupancy of banking premises 4,758 4,861
Furniture and equipment 2,866 2,881
Intangible amortization 2,710 2,615
Other 13,031 12,693
------- -------
Total Non-Interest Expense 46,992 43,145
------- -------
Income Before Income Taxes 23,485 20,374
Income Taxes 8,422 7,299
------- -------
Net Income $15,063 $13,075
======= =======
Net Income per common share $ .65 $ .57
Dividends per common share .21 .18
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
March 31 December 31 March 31
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 457,894 $ 872,028 $ 419,953
Time deposits 18
Securities held to maturity 171,011 177,139 201,748
Securities available for sale 1,374,554 1,299,285 1,433,347
Federal funds sold 255,375 52,850 172,589
Loans, net of unearned discount of $3,768 at
March 31, 1997 $1,154 at December 31, 1996
and $ 1,753 at March 31, 1996 2,411,216 2,252,150 2,023,910
Less: Allowance for possible loan losses (36,624) (36,308) (33,229)
---------- ---------- ----------
Net Loans 2,374,592 2,215,842 1,990,681
Banking premises and equipment 105,969 101,625 99,899
Accrued interest and other assets 193,845 169,615 164,729
---------- ---------- ----------
Total Assets $4,933,240 $4,888,384 $4,482,964
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $ 931,506 $ 941,991 $ 816,018
Correspondent banks 177,554 337,996 158,646
Public funds 52,340 51,228 40,796
---------- ---------- ----------
Total demand deposits 1,161,400 1,331,215 1,015,460
Time Deposits:
Savings and Interest-on-Checking 753,203 726,700 755,872
Money market deposit accounts 932,541 876,382 782,645
Time accounts 1,095,196 1,026,547 1,047,607
Public funds 286,799 281,750 277,587
---------- ---------- ----------
Total time deposits 3,067,739 2,911,379 2,863,711
---------- ---------- ----------
Total deposits 4,229,139 4,242,594 3,879,171
Federal funds purchased and securities
sold under repurchase agreements 130,384 174,107 152,344
Accrued interest and other liabilities 91,650 92,740 104,275
Guaranteed Preferred Beneficial Interest in
Corporation's Junior Subordinated Deferrable
Interest Debentures 98,366
---------- ---------- ----------
Total Liabilities 4,549,539 4,509,441 4,135,790
Shareholders' Equity
Common stock, par value $5 per share 112,539 112,410 56,071
Shares authorized: 30,000,000
Shares outstanding: 22,507,928;
22,482,113; and 22,428,232
Surplus 64,073 63,480 118,769
Retained earnings 205,330 195,451 167,648
Unrealized gain on securities available
for sale, net of tax 1,759 7,602 4,686
---------- ---------- ----------
Total Shareholders' Equity 383,701 378,943 347,174
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,933,240 $4,888,384 $4,482,964
========== ========== ==========
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, 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 three months
ended March 31, 1997 15,063 15,063
Exercise of employee stock
options and related tax benefit 129 593 (578) 144
Restricted stock plan deferred
compensation expense 120 120
Adjustment to unrealized gain
(loss) on securities available
for sale, net of tax (5,843) (5,843)
Cash dividend (4,726) (4,726)
------- -------- -------- ------- --------
Balance at March 31, 1997 $112,539 $ 64,073 $205,330 $ 1,759 $383,701
======== ======== ======== ======= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Three Months Ended
March 31
--------------------
1997 1996
--------- --------
<S> <C> <C>
Operating Activities
Net income $ 15,063 $ 13,075
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 1,625 1,875
Credit for deferred taxes (1,005) (311)
Accretion of discounts on loans (64) (239)
Accretion of securities' discounts (3,279) (4,188)
Amortization of securities' premiums 680 675
Net loss on securities transactions 95
Net gain on sale of assets (78) (175)
Depreciation and amortization 5,441 5,489
Increase in interest receivable (2,199) (2,996)
Increase in interest payable 1,561 332
Net change in other assets and liabilities (6,837) 21,623
--------- --------
Net cash provided by operating activities 10,908 35,255
Investing Activities
Proceeds from maturities of securities held to maturity 6,091 8,936
Proceeds from sales of securities available for sale 86,766 34,766
Proceeds from maturities of securities available for sale 97,745 125,760
Purchases of securities available for sale (221,805) (194,376)
Net increase in loans (56,173) (1,980)
Net increase in bank premises and equipment (2,580) (2,288)
Proceeds from sales of repossessed properties 298 392
Net cash and cash equivalents received from acquisitions 14,277 19,198
--------- --------
Net cash used by investing activities (75,381) (9,592)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts (187,522) 56,790
Net decrease in certificates of deposits (9,555) (161,007)
Net increase (decrease) in short-term borrowings (43,723) 40,949
Proceeds from issuance of guaranteed preferred beneficial
interest in Corporation's subordinated debentures 98,366
Proceeds from employee stock purchase
plan and options 24 143
Dividends paid (4,726) (3,925)
--------- --------
Net cash used by financing activities (147,136) (67,050)
--------- --------
Decrease in cash and cash equivalents (211,609) (41,387)
Cash and cash equivalents at beginning of year 924,878 633,947
--------- --------
Cash and cash equivalents at the end
of the period $713,269 $592,560
========= ========
Supplemental information:
Interest paid $ 28,115 $ 27,027
Loans originated to facilitate the sale
of repossessed properties 35
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been audited by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K for
the year ended December 31, 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. During the second
quarter of 1996, the board of directors declared and distributed a two-for-one
stock split. Previous quarters have been restated to give effect to the split.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan losses
is presented below. The amount charged to operating expense is based on
management's assessment of the adequacy of the allowance to absorb future
possible loan losses.
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
(in thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $36,308 $31,577
Provision for possible loan losses 1,625 1,875
Net charge-offs:
Losses charged to the allowance (2,042) (1,483)
Recoveries 733 1,260
------- -------
Net charge-offs (1,309) (223)
------- -------
Balance at the end of period $36,624 $33,229
======= =======
</TABLE>
Impaired Loans
A loan within the scope of SFAS No. 114 is considered impaired when, based
on current information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the
loan agreement, including scheduled principal and interest payments. At March
31, 1997 and 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. Interest revenue recognized on impaired loans
for the first quarter of 1997 and 1996 was $90,000 and $35,000, respectively.
The total allowance for possible loans losses includes activity related to
allowances calculated in accordance with SFAS No. 114 and activity related to
other loan loss allowances determined in accordance with SFAS No. 5.
<PAGE>
The following is a summary of loans considered to be impaired:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $5,136 $4,841
Impaired loans with a valuation reserve 3,988
------ ------
Total recorded investment in impaired loans $5,136 $8,829
====== ======
Average recorded investment in impaired loans $4,735 $9,149
Valuation reserve 662
</TABLE>
Earnings Per Common Share
The weighted average numbers of shares used to compute per common share
earnings, including common stock equivalents where applicable, were:
Three Months Ended
March 31
-----------------------
1997 1996
-----------------------
Primary 23,093,483 22,828,820
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 first quarter ended March 31, 1997 and March 31, 1996 of $.02 and $.01 per
share, respectively. 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 March
31, 1997 and 1996. As a result of the issuance of the $100,000,000 Trust
Preferred Capital Securities discussed in "Capital and Liquidity" section found
on page 15, all the regulatory capital ratios are up when compared to the first
quarter of 1996.
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 400,000 14.52% $ 266,275 11.30%
Tier 1 Capital Minimum requirement 110,201 4.00 94,260 4.00
Total Capital $ 434,464 15.77% $ 295,778 12.55%
Total Capital Minimum requirement 220,402 8.00 188,520 8.00
Risk-adjusted assets, net of goodwill $2,755,023 $2,356,503
Leverage ratio 8.56% 6.21%
Average equity as a percentage
of average assets 8.13 8.01
</TABLE>
The FDIC Improvement Act of 1991 ("FDICIA") established five capital tiers
for depository institutions and final rules relating to these tiers were
adopted by the federal banking agencies. At March 31, 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
<PAGE>
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. The Capital Securities are
guaranteed on a subordinated basis in certain limited respects by the
Corporation 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 offering 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 will be included in the Tier 1 capital of the
Corporation for regulatory capital purposes and will be reported as debt on the
balance sheet. The Corporation will record 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 Cullen/Frost Capital Trust I, filed
a Registration Statement (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. Under the S-4, the "old" Capital Securities, Series A described above may
be tendered for exchange in whole or in part in a liquidation amount of
$100,000 or any integral multiple of $1,000 in excess thereof for "new" Capital
Securities, Series A. The "new" Capital Securities, Series A will have the
same terms as the "old" Capital Securities, Series A. This exchange will
enhance 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.
Income Taxes
The tax expense for the first quarter of 1997 was $8,422,000. This amount
consisted of current tax expense of $9,427,000 and deferred tax benefit of
$1,005,000. Net deferred tax assets were $11,218,000 with no valuation
allowance. The tax expense for the first quarter of 1996 was $7,299,000. This
amount consisted of current tax expense of $7,610,000 and deferred tax benefit
of $311,000. Net deferred tax assets were $7,844,000 with no valuation
allowance. The deferred tax assets are supported by taxes paid in prior years.
No income tax payments were made during the first three months of 1997 or 1996.
<PAGE>
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 first quarter 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 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings
based on a control-oriented "financial-components" approach. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. The provisions of SFAS No. 125
were adopted by the Corporation prospectively as of January 1, 1997. Those
provisions relating to repurchase agreements, securities lending, and other
similar transactions and pledged collateral, were deferred for one year by SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125, an amendment of FASB Statement No. 125" and will be adopted
prospectively on January 1, 1998. The adoption of these statements is not
expected to have a material impact on financial position or results of
operations.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands except per share amounts)
Results of Operations
The results of operations are included in the material that follows. The
Corporation completed an 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 eight, were accounted for as
purchase transactions, and as such, their related results of operations are
included in the financial information that follows from the date of
acquisition. Certain reclassifications have been made to make prior quarters
comparable. All balance sheet figures are presented in averages unless
otherwise noted.
During the second quarter of 1996, the board of directors declared and
distributed a two-for-one stock split. Previous quarters have been restated to
give effect to the split. All balance sheet figures are presented in averages
unless otherwise noted.
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------
Three Months Ended
--------------------------------------
1997 1996
----------- ------------------------
March 31 December 31 March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net
interest income $46,934 $46,853 $42,914
Taxable-equivalent adjustment 268 263 246
------- ------- -------
Net interest income 46,666 46,590 42,668
Provision for possible
loan losses 1,625 1,800 1,875
Non-Interest income:
Net gain (loss) on securities
transactions 17 (95)
Other 25,436 23,972 22,821
------- ------- -------
Total non-interest income 25,436 23,989 22,726
Non-Interest expense:
Intangible amortization 2,710 2,931 2,615
Other 44,282 43,292 40,530
------- ------- -------
Total non-interest expense 46,992 46,223 43,145
------- ------- -------
Income before income taxes 23,485 22,556 20,374
Income Taxes 8,422 8,156 7,299
------- ------- -------
Net Income $15,063 $14,400 $13,075
======= ======= =======
Cash Earnings* $17,023 $16,448 $14,928
Net Income per common share $ .65 $ .63 $ .57
Cash Earnings per common share .74 .72 .66
Return on Average Assets 1.28% 1.24% 1.20%
Cash earnings ROA 1.45 1.42 1.37
Return on Average Equity 15.80 15.30 15.01
Cash earnings ROE 17.86 17.48 17.14
* Net income before intangible amortization (including goodwill and core deposit
intangibles, net of tax)
</TABLE>
<PAGE>
Cullen/Frost reported net income of $15,063,000 or $.65 per common share
for the quarter ended March 31, 1997. This compares with $14,400,000 or $.63
per common share and $13,075,000 or $.57 per common share for the fourth and
first quarters of 1996, respectively. Return on average assets and average
equity increased to 1.28 percent and 15.80 percent, respectively, for the first
quarter of 1997. This compares to 1.20 percent and 15.01 percent,
respectively, for the first quarter of 1996.
The Corporation has historically paid cash and used the purchase method in
accounting for its acquisitions which has resulted in the creation of
intangible assets. These intangible assets are deducted from capital in the
determination of regulatory capital. Thus, "cash" or "tangible" earnings
represents the regulatory capital generated during the 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>
Three Months Ended
---------------------------------------------------------------
March 1997 December 1996
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $23,485 $ 2,710 $26,195 $22,556 $2,931 $25,487
Income taxes 8,422 750 9,172 8,156 883 9,039
------- ------ ------- ------- ------ -------
Net income $15,063 $ 1,960 $17,023 $14,400 $2,048 $16,448
======= ====== ======= ======= ====== =======
Net income per common
share $ .65 .09 $ .74 $ .63 $ .09 $ .72
Return on assets 1.28% 1.45%* 1.24% 1.42%*
Return on equity 15.80 17.86 ** 15.30 17.48**
* Calculated as A/B
** Calculated as A/C March 1997 December 1996
----------------- ----------- -------------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 17,023 $ 16,448
(B) Total average assets 4,756,209 4,617,679
(C) Average shareholders' equity 386,626 374,317
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 1996
- ---------------------------------------------------------------
Reported Intangible "Cash"
earnings Amortization earnings
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $20,374 $2,615 $22,989
Income taxes 7,299 762 8,061
------- ------ -------
Net income $13,075 $1,853 $14,928
======= ====== =======
Net income per common share $ .57 $ .09 $ .66
Return on assets 1.20% 1.37%*
Return on equity 15.01 17.14 **
* Calculated as A/B
** Calculated as A/C
March 1996
-----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 14,928
(B) Total average assets 4,370,952
(C) Average shareholders' equity 350,265
</TABLE>
<PAGE>
Net Interest Income
Net interest margin was 4.73 percent for the first quarter of 1997
compared to 4.81 percent and 4.67 percent for the fourth and first quarters of
1996, respectively. The decrease in net interest margin from the fourth
quarter of 1996 is due to the issuance of the $100 million Trust Preferred
Capital Securities, see "Capital and Liquidity" on page 15. The increase in
net interest income from the fourth and first quarters of 1996 is reflective of
the favorable impact of the acquisitions and higher loan volumes offset by
higher deposit costs and interest expense related to the Trust Preferred
Capital Securities. Net interest spread of 3.94 percent decreased six basis
points from the fourth quarter of 1996. Net interest spread was 3.93 percent
for the first quarter of 1996. The net interest spread decreased from the
previous quarter 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
------------------------------------
First Quarter First Quarter
1997 1997
vs. vs.
First Quarter Fourth Quarter
1996 1996
------------------------------------
Percentage of Percentage of
Amount Total Change Amount Total Change
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due to volume $ 6,103 74.55% $ 1,460 51.43%
Due to interest rate spread (2,083) 25.45 (1,379) 48.57
------- ------- ------- -------
$ 4,020 100.00% $ 81 100.00%
======= ======= ======= =======
</TABLE>
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
1997 1996
-------- ---------------------
Non-Interest Income March 31 December 31 March 31
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trust fees $ 9,643 $ 8,663 $ 8,332
Service charges on deposit accounts 10,290 10,028 8,785
Other service charges, collection
and exchange charges, commissions
and fees 2,129 1,929 2,628
Net gain (loss) on securities transactions 17 (95)
Other 3,374 3,352 3,076
-------- ------- -------
Total $25,436 $23,989 $22,726
======== ======= =======
</TABLE>
Total non-interest income was up $1.4 million or 6.0 percent compared to
the fourth quarter of 1996 and was up $2.7 million or 11.9 percent from the
first quarter of 1996. The increase from the fourth and first quarter of 1996
is mostly due to higher trust fee and service charge income.
Trust fee income increased 11.3 percent and 15.7 percent from the fourth
and first quarters of 1996, respectively. The increase from the fourth and
first quarters 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 were up 2.6 percent compared to the
previous quarter and up 17.1 percent from the same quarter one year ago
primarily as a result of higher service charges related to commercial deposits,
volumes processed for correspondent banks and overdraft charges. Other service
charges were up 10.4 percent compared to the fourth quarter of 1996 and down
19.0 percent from the first quarter of 1996. The decrease from the first
quarter last year is primarily due to lower income from bankcard discount as a
result of the Corporation's outsourcing of its bankcard processing operation,
which was completed in second quarter of 1996. The increase from the fourth
quarter of 1996 is due to higher mutual fund fees.
<PAGE>
Other non-interest income was flat compared to the fourth quarter of 1996
and up 9.7 percent from the first quarter a year ago. Most of the increase
from the first quarter of 1996 is due to gains on the disposition of certain
loans.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
1997 1996
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and wages $19,234 $18,715 $16,637
Pension and other employee benefits 4,393 3,631 3,458
Net occupancy of banking premises 4,758 4,520 4,861
Furniture and equipment 2,866 3,202 2,881
Intangible amortization 2,710 2,931 2,615
Other 13,031 13,224 12,693
------- ------- -------
Total $46,992 $46,223 $43,145
======= ======= =======
</TABLE>
Non-interest expense increased 1.7 percent from the fourth quarter and
$3.8 million or 8.9 percent from the same quarter last year. Operating
expenses related to the acquisitions, in addition to higher salaries and
benefit expense were the primary reasons for the increase.
Salaries and wages were up 2.8 percent from the fourth quarter of 1996 and
were up 15.6 percent from the first quarter of 1996 as a result of the
acquisitions and higher staffing levels. Pension and employee benefits were up
21.0 percent from the fourth quarter and 27.0 percent from the first quarter of
1996 because of higher payroll taxes. In addition, higher retirement plan
expense contributed to the increase from the first quarter of 1996. Net
occupancy of banking premises expense increased 5.3 percent from the fourth
quarter and decreased 2.1 percent from the first quarter of 1996.
Furniture and equipment expense decreased 10.5 percent from the fourth
quarter of 1996 and was flat compared to a year ago. The decrease from the
fourth quarter is primarily due to lower service contract expense. Compared to
the same quarter a year ago intangible amortization increased 3.6 percent due
to acquisitions.
Other non-interest expense was down 1.5 percent compared to last quarter
and increased 2.7 percent compared to the same quarter last year. The increase
from a year ago is due to higher service charges from maintaining lower reserve
balances with correspondent banks, other professional expenses and sundry
losses offset by lower bankcard operations and outside computer services
expense. The efficiency ratio measures what percentage of bank revenue is
absorbed by non-interest expense. The Corporation's efficiency ratio for the
first quarter was 64.9 percent compared to 65.6 percent a year ago.
Income Taxes
The Corporation's effective tax rate for the first quarter of 1996 and
the fourth and first quarters of 1995 approximated the statutory rate of 35
percent.
Balance Sheet
Average assets of $4,756,209,000 for the first quarter of 1997 were up
3.0 percent compared with the fourth quarter of 1996 and reflected an increase
of 8.8 percent from the first quarter of 1996 because of the acquisitions.
Total deposits averaged $4,086,560,000 for the current quarter, up 1.8 percent
when compared to the previous quarter and up 8.3 percent from the first quarter
of 1996. Average loans for the first quarter of 1997 were $2,303,330,000.
This represents an increase in average loans of 4.2 percent and 19.0 percent
from the fourth and first quarters of 1996, respectively.
<PAGE>
Loans
<TABLE>
<CAPTION>
1997 1996
--------------------- -----------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 689,940 28.6% $ 649,721 $ 534,233
Consumer 550,881 22.9 491,072 430,080
Real estate 1,103,838 45.8 1,043,534 982,065
Other 70,325 2.9 68,977 79,285
Unearned discount (3,768) (.2) (1,154) (1,753)
---------- ------ ---------- ----------
Total Loans $2,411,216 100.0% $2,252,150 $2,023,910
========== ====== ========== ==========
</TABLE>
At March 31, 1997, period-end loans totaled $2,411,216,000 up 7.1 percent
from the previous quarter and up 19.1 percent from the same period last year.
Most of the increase from the fourth quarter is attributable to the acquisition
in the first quarter of 1997. Approximately 72 percent of the increase in
loans from a year ago resulted from internally generated growth.
Real Estate Loans
Real estate loans at March 31, 1997, were $1,103,838,000 or 45.8 percent
of loans, compared to 48.5 percent a year ago. Residential permanent mortgage
loans at March 31, 1997, were $434,904,000 compared to $422,787,000 at December
31, 1996, and $395,616,000 at March 31, 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 March 31, 1997, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $3,072,000, compared with $2,604,000 at
December 31, 1996, and $3,999,000 at March 31, 1996.
<TABLE>
<CAPTION>
1997 1996
--------------------- --------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 92,130 8.3% $ 71,173
Land 54,918 5.0 50,838
Permanent mortgages:
Commercial 247,166 22.4 207,498
Residential 434,904 39.4 395,616
Other 274,720 24.9 256,940
---------- ------ --------
$1,103,838 100.0% $982,065
========== ====== ========
Non-accrual and restructured $ 8,970 .8% $ 10,956
</TABLE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$15,029,000 in loans secured by assets held in the United States, totaled
$39,722,000 at March 31, 1997, or 1.7 percent of total loans up from
$29,932,000 and $31,462,000 at December 31, 1996 and March 31,1996,
respectively. 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 78.9 percent are related to companies exporting from Mexico. As
of March 31, 1997, none of the Mexican related loans were on non-performing
status.
<PAGE>
<TABLE>
<CAPTION>
MEXICAN LOANS
----------------------------------------
March 31, 1997 Amount Percentage of Total Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $34,704 1.5%
Loans to private firms or individuals 5,018 .2
------- ----
$39,722 1.7%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 1997 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 8,970 $3,399 $12,369
Foreclosed assets 1,560 703 2,263
------- ------ -------
$10,530 $4,102 $14,632
======== ====== =======
As a percentage of total
non-performing assets 72.0% 28.0% 100.0%
</TABLE>
Non-performing assets totaled $14,632,000 at March 31, 1997, compared with
$11,966,000 at December 31, 1996, and $16,798,000 at March 31, 1996. Non-
performing assets as a percentage of total loans and foreclosed assets
decreased to .61 percent at March 31, 1997 from .83 percent one year ago. The
first quarter acquisition accounted for approximately 77 percent of the
increase in non-performing assets.
Foreclosed assets consist of property which has been formally repossessed.
Foreclosed assets are valued at the lower of the loan balance or estimated fair
value, less estimated selling costs, at the time of foreclosure. Write-downs
occurring at acquisition are charged against the allowance for possible loan
losses. On an ongoing basis, properties are appraised as required by market
indications and applicable regulations. Write-downs are provided for
subsequent declines in value. Expenses related to maintaining foreclosed
properties are included in other non-interest expense.
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $180,000 or $.01 per common share for
the first quarter of 1997, compared to the fourth quarter of 1996 and down from
$239,000 or $.02 per common share for the first quarter of 1996. Total loans
90 days past due (excluding non-accrual and restructured loans) were $7,703,000
at March 31, 1997, compared to $5,911,000 at December 31, 1996, and $6,761,000
at March 31, 1996.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $36,624,000 or 1.52 percent of
period-end loans at March 31, 1997, compared to $36,308,000 or 1.61 percent for
the fourth quarter of 1996 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 296.1 percent at March 31, 1997, compared to 247.9
percent and 224.8 percent at the end of the fourth and first quarters of 1996,
respectively.
The Corporation recorded a $1,625,000 provision for possible loan losses
during the first quarter of 1997, compared to $1,800,000 and $1,875,000
provision for possible loan losses recorded during the fourth and first quarter
of 1996. Net charge-offs in the first quarter totaled $1,309,000, compared to
$1,722,000 and $223,000 for the fourth and first quarters of 1996,
respectively. The increase from the first quarter a year ago is principally
attributable to a rise in consumer and small business loan charge-offs.
<PAGE>
<TABLE>
<CAPTION>
NET CHARGE-OFFS
--------------------------------
1997 1996
---------- -----------------
First Fourth First
Quarter Quarter Quarter
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ 26 $ (389) $ (7)
Commercial and industrial 159 1,251 (487)
Consumer 1,039 865 716
Other, including foreign 85 (5) 1
------- ------- -------
$ 1,309 $ 1,722 $ 223
======= ======= =======
Provision for possible loan losses $ 1,625 $ 1,800 $ 1,875
Allowance for possible loan losses 36,624 36,308 33,229
</TABLE>
Capital and Liquidity
At March 31, 1997, shareholders' equity was $383,701,000 compared to
$378,943,000 at December 31, 1996, and $347,174,000 at March 31, 1996. The
increase in 1997 was due primarily to earnings growth partially offset by $4.7
million of dividends paid. The Corporation had an unrealized gain on
securities available for sale, net of deferred taxes, of $1.8 million as of
March 31, 1997 compared to $7.6 million unrealized gain as of December 31,
1996, reflecting a decrease of $5.8 million. This decrease is primarily due to
the increase in market interest rates. Currently, under regulatory
requirements, the unrealized gain or loss on securities available for sale in
not included in the calculation of risk-based capital and leverage ratios. See
page seven for a discussion of the Corporation's regulatory capital ratios.
The Corporation paid a cash dividend of $.21 per common share in the first
quarter of 1997 and fourth quarter of 1996 compared to $.18 per common share
for the first quarter of 1996. This equates to dividend payout ratios of 31.4
percent, 32.8 percent and 30.0 percent for the first quarter of 1997 and the
fourth and first quarters 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 March 31, 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. The Trust used the proceeds of
the offering of the Capital Securities to purchase Junior Subordinated
Debentures of Cullen/Frost, which are the sole assets of The Trust. The
Corporation has fully and unconditionally guaranteed all the Trust's
obligations under the Capital Securities. The Corporation will use the
proceeds of the offering 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 Cullen/Frost for regulatory capital purposes
and are reported as debt on the consolidated balance sheet.
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-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1997 December 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
Securities:
U.S. Treasury $ 255,412 $ 3,326 5.28% $ 268,794 $ 3,629 5.37%
U.S. Government agencies
and corporations 1,226,336 20,365 6.64 1,203,835 20,102 6.68
States and political subdivisions 6,356 154 9.68 5,447 128 9.44
Other 6,459 98 6.08 6,405 97 6.05
---------- ------- ---------- -------
Total securities 1,494,563 23,943 6.42 1,484,481 23,956 6.45
Federal funds sold and securities
purchased under resale agreements 201,373 2,402 4.77 186,933 2,338 4.90
Loans, net of unearned discount 2,303,330 50,265 8.85 2,209,951 48,855 8.80
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 3,999,266 76,610 7.74 3,881,365 75,149 7.71
Cash and due from banks 517,232 500,288
Allowance for possible loan losses (37,103) (36,883)
Banking premises and equipment 103,153 102,466
Accrued interest and other assets 173,661 170,443
---------- ----------
Total Assets $4,756,209 $4,617,679
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 863,967 $ 867,955
Correspondent banks 232,669 225,671
Public funds 45,021 47,770
---------- ----------
Total demand deposits 1,141,657 1,141,396
Time deposits:
Savings and Interest-on-Checking 718,760 2,279 1.29 702,749 2,293 1.30
Money market deposit accounts 894,150 8,761 3.97 862,455 8,625 3.98
Time accounts 1,045,539 12,580 4.88 1,034,977 12,692 4.88
Public funds 286,454 3,067 4.34 272,639 2,840 4.14
---------- ------- ---------- -------
Total time deposits 2,944,903 26,687 3.68 2,872,820 26,450 3.66
---------- ------- ---------- -------
Total Deposits 4,086,560 4,014,216
Federal funds purchased and securities
sold under repurchase agreements 135,371 1,398 4.13 141,654 1,587 4.38
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 59,299 1,271 8.69
Other borrowings 24,316 320 5.34 19,031 259 5.41
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,163,889 29,676 3.80 3,033,505 28,296 3.71
---------- ------- ----- ---------- ------- -----
Accrued interest and other liabilities 64,037 68,461
---------- ----------
Total Liabilities 4,369,583 4,243,362
SHAREHOLDERS' EQUITY 386,626 374,317
---------- ----------
Total Liabilities and
Shareholders' Equity $4,756,209 $4,617,679
========== ==========
Net interest income $46,934 $46,853
======= =======
Net interest spread 3.94% 4.00%
==== ====
Net interest income to total average earning assets 4.73% 4.81%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
September 30, 1996 June 30, 1996
-----------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 21 $ 1 3.50%
Securities:
U.S. Treasury $ 273,301 $ 3,692 5.37% 301,233 3,899 5.21
U.S. Government agencies
and corporations 1,235,556 20,660 6.69 1,287,518 21,316 6.62
States and political subdivisions 5,457 129 9.45 5,480 129 9.45
Other 6,672 95 5.67 6,235 91 5.86
--------- ------- --------- -------
Total securities 1,520,986 24,576 6.46 1,600,466 25,435 6.36
Federal funds sold and securities
purchased under resale agreements 107,189 1,475 5.38 122,940 1,472 4.73
Loans, net of unearned discount 2,142,038 47,423 8.81 2,057,029 45,473 8.89
--------- ------- --------- -------
Total Earning Assets and
Average Rate Earned 3,770,213 73,474 7.76 3,780,456 72,381 7.68
Cash and due from banks 486,938 486,828
Allowance for possible loan losses (35,541) (35,067)
Banking premises and equipment 101,290 99,984
Accrued interest and other assets 171,417 177,254
--------- ---------
Total Assets $4,494,317 $4,509,455
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 844,418 $ 839,300
Correspondent banks 208,050 193,535
Public funds 46,949 40,138
---------- ----------
Total demand deposits 1,099,417 1,072,973
Time deposits:
Savings and Interest-on-Checking 711,562 2,373 1.33 732,882 2,499 1.37
Money market deposit accounts 824,565 8,321 4.01 796,624 7,787 3.93
Time accounts 1,062,842 12,938 4.84 1,055,894 12,696 4.84
Public funds 207,093 2,330 4.48 252,071 2,826 4.51
---------- ------- ---------- -------
Total time deposits 2,806,062 25,962 3.68 2,837,471 25,808 3.66
---------- ------- ---------- -------
Total deposits 3,905,479 3,910,444
Federal funds purchased and securities
sold under repurchase agreements 127,292 1,517 4.66 150,965 1,728 4.53
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures
Other borrowings 23,376 307 5.23 16,936 221 5.25
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 2,956,730 27,786 3.73 3,005,372 27,757 3.71
---------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 80,427 78,243
---------- ----------
Total Liabilities 4,136,574 4,156,588
SHAREHOLDERS' EQUITY 357,743 352,867
---------- ----------
Total Liabilities and
Shareholders' Equity $4,494,317 $4,509,455
========== ==========
Net interest income $45,688 $44,624
======= =======
Net interest spread 4.03% 3.97%
==== ====
Net interest income to total average earning assets 4.83% 4.74%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
March 31, 1996
--------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
--------- -------- -----
<S> <C> <C> <C>
ASSETS
Time deposits $ 27 3.50%
Securities:
U.S. Treasury 287,694 $ 3,829 5.35
U.S. Government agencies
and corporations 1,311,374 21,705 6.62
States and political subdivisions 5,497 130 9.45
Other 7,585 106 5.57
--------- ------
Total securities 1,612,150 25,770 6.40
Federal funds sold and securities
purchased under resale agreements 138,001 1,941 5.57
Loans, net of unearned discount 1,936,289 42,795 8.89
--------- ------
Total Earning Assets and
Average Rate Earned 3,686,467 70,506 7.67
Cash and due from banks 453,391
Allowance for possible loan losses (32,390)
Banking premises and equipment 97,654
Accrued interest and other assets 165,830
---------
Total Assets $4,370,952
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 777,229
Correspondent banks 167,345
Public funds 44,780
---------
Total demand deposits 989,354
Time deposits:
Savings and Interest-on-Checking 743,216 2,628 1.42
Money market deposit accounts 758,097 7,085 3.76
Time accounts 1,033,725 12,853 5.00
Public funds 249,378 2,689 4.34
--------- ------
Total time deposits 2,784,416 25,255 3.65
--------- ------
Total deposits 3,773,770
Federal funds purchased and securities
sold under repurchase agreements 159,535 2,105 5.22
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures
Other borrowings 18,173 232 5.14
--------- ------
Total Interest-Bearing Funds
and Average Rate Paid 2,962,124 27,592 3.74
--------- ------ ----
Accrued interest and other liabilities 69,209
---------
Total Liabilities 4,020,687
SHAREHOLDERS' EQUITY 350,265
---------
Total Liabilities and
Shareholders' Equity $4,370,952
==========
Net interest income $42,914
=======
Net interest spread 3.93%
=====
Net interest income to total average earning assets 4.67%
=====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding Computation of Earnings per Share
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, Current Report on Form 8-K,
dated February 3, 1997, was filed with the Commission by the
Corporation.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cullen/Frost Bankers, Inc.
(Registrant)
Date: May 12, 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
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings per Common Share
(in thousands, except per share amounts)
Three Months Ended
March 31
------------------
Primary Earnings per Common Share 1997 1996
- ------------------------------------------------------------------ -------- --------
<S> <C> <C>
Net income applicable to common stock $15,063 $13,075
======== ========
Weighted average shares outstanding 22,499 22,421
Addition from assumed exercise of stock options 594 408
-------- --------
Weighted average number of common shares outstanding 23,093 22,829
======== ========
Primary earnings per common share: $ .65 $ .57
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 457,894
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 255,375
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,374,554
<INVESTMENTS-CARRYING> 171,011
<INVESTMENTS-MARKET> 175,114
<LOANS> 2,411,216
<ALLOWANCE> 36,624
<TOTAL-ASSETS> 4,933,240
<DEPOSITS> 4,229,139
<SHORT-TERM> 130,384
<LIABILITIES-OTHER> 91,650
<LONG-TERM> 98,366
0
0
<COMMON> 112,539
<OTHER-SE> 271,162
<TOTAL-LIABILITIES-AND-EQUITY> 4,933,240
<INTEREST-LOAN> 50,049
<INTEREST-INVEST> 23,891
<INTEREST-OTHER> 2,402
<INTEREST-TOTAL> 76,342
<INTEREST-DEPOSIT> 26,687
<INTEREST-EXPENSE> 29,676
<INTEREST-INCOME-NET> 46,666
<LOAN-LOSSES> 1,625
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 46,992
<INCOME-PRETAX> 23,485
<INCOME-PRE-EXTRAORDINARY> 23,485
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,063
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 7.74
<LOANS-NON> 12,365
<LOANS-PAST> 7,703
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,809
<ALLOWANCE-OPEN> 36,308
<CHARGE-OFFS> (2,042)
<RECOVERIES> 733
<ALLOWANCE-CLOSE> 36,624
<ALLOWANCE-DOMESTIC> 33,179
<ALLOWANCE-FOREIGN> 184
<ALLOWANCE-UNALLOCATED> 3,261
</TABLE>
