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, 1998 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 10, 1998 there were
22,266,189 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
(in thousands, except per share amounts) Three Months Ended
March 31
---------------------
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $60,416 $50,049
Securities:
Taxable 25,490 23,794
Tax-exempt 72 97
------- -------
Total Securities 25,562 23,891
Federal funds sold and securities purchased under resale agreements 1,882 2,402
------- -------
Total Interest Income 87,860 76,342
INTEREST EXPENSE
Deposits 29,815 26,687
Federal funds purchased and securities sold under repurchase
agreements 1,885 1,398
Guaranteed preferred beneficial interest in the Corporation's
subordinated debentures 2,119 1,271
Other borrowings 309 320
------- -------
Total Interest Expense 34,128 29,676
------- -------
Net Interest Income 53,732 46,666
Provision for possible loan losses 2,250 1,625
------- -------
Net Interest Income After Provision
for Possible Loan Losses 51,482 45,041
NON-INTEREST INCOME
Trust fees 10,921 9,643
Service charges on deposit accounts 11,420 10,290
Other service charges, collection and exchange charges,
commissions and fees 3,250 2,129
Net loss on securities transactions (3)
Other 4,312 3,374
------- -------
Total Non-Interest Income 29,900 25,436
NON-INTEREST EXPENSE
Salaries and wages 22,562 19,234
Pension and other employee benefits 4,839 4,393
Net occupancy of banking premises 5,187 4,758
Furniture and equipment 3,433 2,866
Intangible amortization 3,348 2,710
Other 15,824 13,031
------- -------
Total Non-Interest Expense 55,193 46,992
------- -------
Income Before Income Taxes 26,189 23,485
Income Taxes 9,444 8,422
------- -------
Net Income $16,745 $15,063
======= =======
Net income per common share
Basic $ .75 $ .67
Diluted .73 .65
Dividends per common share .25 .21
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
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 746,458 $ 604,227 $ 457,894
Securities held to maturity 140,764 148,759 171,011
Securities available for sale 1,479,787 1,342,759 1,374,554
Federal funds sold 115,200 190,000 255,375
Loans, net of unearned discount of $3,298 at
March 31, 1998; $2,318 at December 31, 1997
and $3,768 at March 31, 1997 2,849,031 2,643,522 2,414,639
Less: Allowance for possible loan losses (43,107) (41,846) (40,047)
---------- ---------- ----------
Net Loans 2,805,924 2,601,676 2,374,592
Banking premises and equipment 116,344 109,654 105,969
Accrued interest and other assets 249,350 233,513 193,845
---------- ---------- ----------
Total Assets $5,653,827 $5,230,588 $4,933,240
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,144,876 $1,101,862 $ 931,506
Correspondent banks 375,485 185,228 177,554
Public funds 40,195 51,733 52,340
---------- ---------- ----------
Total demand deposits 1,560,556 1,338,823 1,161,400
Time Deposits:
Savings and Interest-on-Checking 823,480 766,416 753,203
Money market deposit accounts 1,054,481 996,110 932,541
Time accounts 1,165,582 1,102,184 1,095,196
Public funds 242,755 280,378 286,799
---------- ---------- ----------
Total time deposits 3,286,298 3,145,088 3,067,739
---------- ---------- ----------
Total deposits 4,846,854 4,483,911 4,229,139
Federal funds purchased and securities
sold under repurchase agreements 188,715 132,112 130,384
Accrued interest and other liabilities 101,952 107,757 91,650
Guaranteed Preferred Beneficial Interest in the
Corporation's Junior Subordinated Deferrable
Interest Debentures, net 98,417 98,403 98,366
---------- ---------- ----------
Total Liabilities 5,235,938 4,822,183 4,549,539
Shareholders' Equity
Common stock, par value $5 per share 112,710 112,710 112,539
Shares authorized:60,000,000; 60,000,000; 30,000,000
Shares issued: 22,541,991; 22,541,991; 22,507,928
Surplus 66,491 65,931 64,073
Retained earnings 243,844 233,412 205,330
Accumulated other comprehensive income,
net of tax 7,777 8,668 1,759
Treasury stock at cost (277,502; 276,721) (12,933) (12,316)
---------- ---------- ----------
Total Shareholders' Equity 417,889 408,405 383,701
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $5,653,827 $5,230,588 $4,933,240
========== ========== ==========
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)
Accumulated
Other
Comprehesive
Common Retained Income, Treasury
Stock Surplus Earnings net of tax Stock Total
--------- ------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $112,410 $63,480 $195,451 $7,602 $378,943
Net income for the year ended
December 31, 1997 63,485 63,485
Unrealized gain on securities
AFS, net of tax and
reclassification adjustment 1,066 1,066
-------
Total Comprehensive income 64,551
-------
Proceeds from employee stock
purchase plan and options 300 437 (1,949) $ 3,201 1,989
Tax benefit related to
exercise of stock options 1,492 1,492
Purchase of treasury stock (17,814) (17,814)
Issuance of restricted stock 522 2,297 2,819
Restricted stock plan deferred
Compensation, net (2,112) (2,112)
Cash dividend (21,463) (21,463)
-------- ------- -------- ------ ------- -------
Balance at December 31, 1997 112,710 65,931 233,412 8,668 (12,316) 408,405
Net income for the three months
ended March 31, 1998 16,745 16,745
Unrealized loss on securitites
AFS, net of tax and
reclassification adjustment
(see disclosure) (891) (891)
------
Total Comprehensive income 15,854
------
Proceeds from employee stock
purchase plan and options (913) 1,102 189
Tax benefit related to
exercise of stock options 497 497
Purchase of treasury stock (1,866) (1,866)
Issuance of restricted stock 63 147 210
Restricted stock plan deferred
Compensation, net 164 164
Cash dividend (5,564) (5,564)
-------- ------- -------- ------ -------- --------
Balance at March 31, 1998 $112,710 $66,491 $243,844 $7,777 $(12,933) $417,889
======== ======= ======== ====== ======== ========
Disclosure of reclassification amount:
Unrealized loss on securities AFS for three month period ended 3/31/98 $(893)
Less: reclassification adjustment for loss included in income (2)
------
Net unrealized loss on securities AFS, net of tax $(891)
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
-------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities
Net income $ 16,745 $ 15,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,250 1,625
Credit for deferred taxes (1,190) (1,005)
Accretion of discounts on loans (134) (64)
Accretion of securities' discounts (634) (3,279)
Amortization of securities' premiums 1,458 680
Net loss on securities transactions 3
Net gain on sale of assets (69) (78)
Depreciation and amortization 6,564 5,441
Increase in interest receivable (1,991) (2,199)
(Decrease) increase in interest payable (2,206) 1,561
Net change in other assets and liabilities 16,227 (6,824)
--------- --------
Net cash provided by operating activities 37,023 10,921
Investing Activities
Proceeds from maturities of securities held to maturity 7,930 6,091
Purchases of investment securities (566)
Proceeds from sales of securities available for sale 95,515 86,766
Proceeds from maturities of securities available for sale 194,660 97,745
Purchases of securities available for sale (345,053) (221,805)
Net increase in loans (84,667) (56,173)
Net increase in bank premises and equipment (3,363) (2,580)
Proceeds from sales of repossessed properties 177 298
Net cash and cash equivalents (paid) received from acquisitions (8,899) 14,277
--------- --------
Net cash used by investing activities (144,266) (75,381)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 237,260 (187,522)
Net decrease in certificates of deposits (96,519) (9,555)
Net increase (decrease) in short-term borrowings 41,174 (43,723)
Proceeds from issuance of guaranteed preferred beneficial
interest in Corporation's subordinated debentures 98,353
Proceeds from employee stock purchase
plan and options 189 24
Purchase of treasury stock (1,866)
Dividends paid (5,564) (4,726)
--------- --------
Net cash provided (used) by financing activities 174,674 (147,149)
--------- --------
Increase (decrease) in cash and cash equivalents 67,431 (211,609)
Cash and cash equivalents at beginning of year 794,227 924,878
--------- --------
Cash and cash equivalents at the end
of the period $861,658 $713,269
========= ========
Supplemental information:
Interest paid $ 36,334 $ 28,115
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, 1997. The balance sheet at December 31, 1997, has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Allowance for Possible Loan Losses
An analysis of the transactions in the allowance for possible loan losses
is presented below. The amount charged to operating expense is based on
management's assessment of the adequacy of the allowance to absorb future
possible loan losses.
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
(in thousands) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $41,846 $37,626
Provision for possible loan losses 2,250 1,625
Loan loss reserve of acquired institution 1,250 2,105
Net charge-offs:
Losses charged to the allowance (3,291) (2,042)
Recoveries 1,052 733
------- -------
Net charge-offs (2,239) (1,309)
------- -------
Balance at the end of period $43,107 $40,047
======= =======
</TABLE>
Impaired Loans
A loan within the scope of SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," (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, 1998 and 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
for the first quarter of 1998 and 1997 was $7,000 and $90,000, 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) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $2,851 $3,739
Impaired loans with a valuation reserve 2,483 2,306
------ ------
Total recorded investment in impaired loans $5,334 $6,045
====== ======
Average recorded investment in impaired loans $5,270 $5,189
Valuation reserve 1,708 909
</TABLE>
Earnings Per Common Share
In accordance with SFAS 128, the reconciliation of earnings per share
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Numerators for both basic and diluted earnings
per share, net income $16,745,000 $15,063,000
=========== ===========
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 22,266,239 22,499,481
Dilutive effect of stock options 795,811 594,002
----------- -----------
Denominator for diluted earnings per share 23,062,050 23,093,483
=========== ===========
Earnings per share:
Basic $ .75 $ .67
Diluted .73 .65
</TABLE>
Capital
The table below reflects various measures of regulatory capital at March
31, 1998 and 1997. As a result of the Harrisburg Bancshares, Inc. acquisition
and the Corporation's stock repurchase program, all the regulatory capital
ratios are down when compared to the first quarter of 1997.
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 408,246 12.13% $ 400,000 14.52%
Tier 1 Capital Minimum requirement 134,654 4.00 110,201 4.00
Total Capital $ 450,338 13.38% $ 434,464 15.77%
Total Capital Minimum requirement 269,309 8.00 220,402 8.00
Risk-adjusted assets, net of goodwill $3,366,360 $2,755,023
Leverage ratio 7.62% 8.56%
Average equity as a percentage
of average assets 7.59 8.13
</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
<PAGE>
banking agencies. At March 31, 1998 and 1997, 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.
Income Taxes
The tax expense for the first quarter of 1998 was $9,444,000. This amount
consisted of current tax expense of $10,634,000 and deferred tax benefit of
$1,190,000. As of March 31, 1998, net deferred tax assets were $7,624,000 with
no valuation allowance. The deferred tax assets were supported by taxes paid
in prior years. The tax expense for the first quarter of 1997 was $8,422,000.
Income tax payments made in the first three months of 1998 were $1,600,000. No
income tax payments were made in the first three months of 1997.
Acquisitions
On January 2, 1998, the Corporation paid approximately $55.3 million to
acquire Harrisburg Bancshares, Inc., including its subsidiary Harrisburg Bank
in Houston, Texas. This transaction has been accounted for as a purchase with
total cash consideration being funded through currently available funds,
including funds provided by the issuance of the $100 million Trust Preferred
Capital Securities. 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. The Corporation
acquired loans of approximately $125 million and deposits of approximately $222
million. Total intangibles associated with the acquisition amounted to
approximately $34.2 million. This acquisition is not expected to have a
material impact on the Corporation's 1998 net income.
On March 7, 1997, the Corporation paid approximately $32.2 million to
acquire Corpus Christi Bancshares, Inc., including its subsidiary Citizens
State Bank, based in Corpus Christi, Texas. Total intangibles associated with
the acquisition were approximately $20.9 million. The Corporation acquired
loans of approximately $108 million and deposits of approximately $184 million.
This acquisition did not have a material impact on the Corporation's 1997 net
income.
Definitive Agreement to Merge
Overton Bancshares, Inc., - Fort Worth
On February 15, 1998, the Corporation signed a definitive agreement
providing for the merger of Overton Bancshares, Inc., in Fort Worth, Texas,
which owns Overton Bank and Trust N.A., ("Overton"), into the Corporation. The
merger, which will be accounted for as a pooling-of-interests transaction, will
be the Corporation's first entry into the Fort Worth market and is expected to
be consummated in the second quarter of this year. The merger is subject to
approval by shareholders of Overton Bancshares, Inc. The Corporation will
issue approximately 4.38 million common shares as part of this transaction. At
December 31, 1997, Overton had $732 million in deposits, loans of $468 million,
total assets of $863 million and had the sixth largest deposit share in the
Fort Worth MSA.
<PAGE>
Accounting Changes
As of January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this statement had no impact on the Corporation's net income or
shareholders' equity. SFAS No. 130 requires unrealized gains and losses on the
Corporation's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130. Comprehensive income was
$15,854,000 for the first quarter of 1998 (See Statement of Changes in
Shareholder's Equity on page 4). This compares to $9,220,000 for the first
quarter of 1997 which was composed of net income of $15,063,000 and unrealized
losses on securities available-for-sale of $5,843,000, net of tax and
reclassification adjustment. For the first quarter of 1998, the unrealized
loss on securities available-for-sale before tax was $1,374,000 resulting in an
after tax amount of $893,000.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131). 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. Adoption in
interim financial statements is not required until the year after initial
adoption; however, comparative prior year information is required. The
Corporation is currently evaluating the impact of this statement on the
disclosures included in its annual and interim period financial statements.
Financial Derivatives
Derivatives are used to hedge interest rate exposure by modifying the
interest rate characteristics of related balance sheet instruments. The
specific criteria required for derivatives used for these purposes are
described below. Derivatives that do not meet these criteria are carried at
market value with changes in value recognized currently in earnings.
Derivatives used as hedges must be effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the derivative contract. Derivatives currently used for
hedging purposes include swaps and purchased floors. These swap transactions
allow management to structure the interest rate sensitivity of the asset side
of the Corporation's balance sheet to more closely match its view of the
interest rate sensitivity of the Corporation's funding sources. The fair value
of derivative contracts are carried off-balance sheet and the unrealized gains
and losses on derivative contracts are generally deferred. The interest
component associated with derivatives used as hedges or to modify the interest
rate characteristics of assets and liabilities is recognized over the life of
the contract in net interest income. Upon contract settlement or early
termination, the cumulative change in the market value of such derivatives is
recorded as an adjustment to the carrying value of the underlying asset or
liability and recognized in net interest income over the expected remaining
life of the related asset or liability. In instances where the underlying
instrument is repaid, the cumulative change in the value of the associated
derivative is recognized immediately in earnings.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands except per share amounts)
Results of Operations
Cullen/Frost reported net income of $16,745,000 or $.73 per diluted common
share for the quarter ended March 31, 1998. This compares with $16,645,000 or
$.72 per diluted common share and $15,063,000 or $.65 per diluted common share
for the fourth and first quarters of 1997, respectively. Return on average
equity and average assets were 16.37 percent and 1.24 percent, respectively,
for the first quarter of 1998 compared to average equity and average assets of
15.80 percent and 1.28 percent respectively, for the first quarter of 1997.
The results of operations are included in the material that follows. The
Corporation completed an acquisition during the first quarter of 1998 and one
in 1997. 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.
<TABLE>
<CAPTION>
Summary of Operations
--------------------------------------
Three Months Ended
--------------------------------------
1998 1997
---------- ------------------------
March 31 December 31 March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net
interest income $54,009 $51,500 $46,934
Taxable-equivalent adjustment 277 290 268
------- ------- -------
Net interest income 53,732 51,210 46,666
Provision for possible
loan losses 2,250 2,000 1,625
Non-Interest income:
Net (loss) gain on securities
transactions (3) 476
Other 29,903 27,885 25,436
------- ------- -------
Total non-interest income 29,900 28,361 25,436
Non-Interest expense:
Intangible amortization 3,348 3,029 2,710
Other 51,845 48,787 44,282
------- ------- -------
Total non-interest expense 55,193 51,816 46,992
------- ------- -------
Income before income taxes 26,189 25,755 23,485
Income Taxes 9,444 9,110 8,422
------- ------- -------
Net Income $16,745 $16,645 $15,063
======= ======= =======
Net income per diluted common share: $ .73 $ .72 $ .65
Return on Average Assets 1.24% 1.29% 1.28%
Return on Average Equity 16.37 16.31 15.80
</TABLE>
<PAGE>
Net Interest Income
Net interest margin was 4.78 percent for the first quarter of 1998
compared to 4.74 percent and 4.73 percent for the fourth and first quarters of
1997, respectively. The increase in net interest margin from the fourth
quarter of 1997 is due to higher loan volumes and a redeployment of investable
funds out of Federal funds sold and into investment securities. The increase
in net interest income from the fourth and first quarters of 1997 is reflective
of the favorable impact of the acquisitions and higher loan volumes offset by
higher deposit costs. Net interest spread of 3.96 percent increased six basis
points from the fourth quarter of 1997. Net interest spread was 3.94 percent
for the first quarter of 1997. The net interest spread increased from the
previous quarter primarily because of the increase in securities and loan
volumes.
<TABLE>
<CAPTION>
Change in Taxable-Equivalent
Net Interest Income
------------------------------------
First Quarter First Quarter
1998 1998
vs. vs.
First Quarter Fourth Quarter
1997 1997
-------------------------------------
Amount Amount
- ----------------------------------------------------------------------
<S> <C> <C>
Due to volume $7,462 $3,110
Due to interest rate spread (387) (601)
------ ------
$7,075 $2,509
====== ======
</TABLE>
Non-Interest Income
Total non-interest income was up $1.5 million or 5.4 percent compared to
the fourth quarter of 1997 and was up $4.5 million or 17.5 percent from the
first quarter of 1997. The non-interest income growth was favorably impacted
by the acquisitions of Harrisburg Bancshares, Inc., and Corpus Christi
Bancshares, Inc., in the first quarters of 1998 and 1997, respectively. The
increase from the fourth and first quarter of 1997 is mostly due to higher
service charge income and trust fees.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
1998 1997
-------- ---------------------
Non-Interest Income March 31 December 31 March 31
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trust fees $10,921 $ 9,980 $ 9,643
Service charges on deposit accounts 11,420 11,374 10,290
Other service charges, collection
and exchange charges, commissions
and fees 3,250 2,663 2,129
Net (loss) gain on securities transactions (3) 476
Other 4,312 3,868 3,374
------- ------- -------
Total $29,900 $28,361 $25,436
======= ======= =======
</TABLE>
Trust fee income increased 9.4 percent and 13.2 percent from the fourth
and first quarters of 1997, respectively. The increase from the fourth and
first quarters of 1997 is attributable to the increase in the number of
accounts held and trust asset growth resulting from the continued improvement
in the stock and bond market.
<PAGE>
Service charges on deposit accounts were flat compared to the previous
quarter and up 11.0 percent from the same quarter one year ago primarily as a
result of higher service charges related to commercial deposits and overdraft
charges. Other service charges were up 22.0 percent compared to the fourth
quarter of 1997 and up 52.7 percent from the first quarter of 1997. These
increases are primarily due to higher volumes and mutual fund fees.
Other non-interest income was up 11.5 percent compared to the fourth
quarter of 1997 and up 27.8 percent from the first quarter a year ago. The
increase is primarily related to proceeds from an asset previously written-off
and higher Visa check card fees.
Non-Interest Expense
Non-interest expense increased $3.4 million or 6.5 percent from the fourth
quarter and $8.2 million or 17.5 percent from the same quarter last year. The
acquisitions of Harrisburg Bancshares, Inc., and Corpus Christi Bancshares,
Inc., in the first quarters of 1998 and 1997, respectively, impacted the growth
in expenses. Higher personnel and operating expenses in response to higher
volumes were the primary reasons for the increase.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
1998 1997
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and wages $22,562 $21,183 $19,234
Pension and other employee benefits 4,839 4,102 4,393
Net occupancy of banking premises 5,187 5,131 4,758
Furniture and equipment 3,433 3,457 2,866
Intangible amortization 3,348 3,029 2,710
Other 15,824 14,914 13,031
------- ------- -------
Total $55,193 $51,816 $46,992
======= ======= =======
</TABLE>
Salaries and wages were up 6.5 percent from the fourth quarter of 1997 and
were up 17.3 percent from the first quarter of 1997 as a result of higher
staffing levels and merit increases. Pension and employee benefits were up
18.0 percent from the fourth quarter and 10.2 percent from the first quarter of
1997 because of higher payroll taxes, medical insurance expense and higher
contributions to fund the employer match on the employee related stock plans.
Net occupancy of banking premises expense was flat compared to the fourth
quarter and increased 9.0 percent from the first quarter of 1997. This
increase is attributable to higher property taxes and depreciation expense on
buildings due to acquisitions and was partially offset by higher rental income.
Furniture and equipment expense was flat from the fourth quarter of 1997
and was up 19.8 percent compared to a year ago. This increase was due to
higher amortized software and service contracts. Intangible amortization
expense was up 10.5 percent compared to last quarter and increased 23.5 percent
compared to the same quarter last year due to the acquisitions.
Other non-interest expense was up 6.1 percent compared to last quarter and
increased 21.4 percent compared to the same quarter last year. The increase
was primarily due to professional expenses, Visa check card expenses, guard
services and outside computer services.
Income Taxes
The Corporation's effective tax rate for the first quarter of 1998 and the
fourth and first quarters of 1997 approximated the statutory rate of 35
percent.
<PAGE>
Cash Earnings
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 1998 December 1997
- --------------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings amortization earnings earnings amortization earnings
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $26,189 $ 3,348 $29,537 $25,755 $3,029 $28,784
Income taxes 9,444 844 10,288 9,110 783 9,893
------- ------ ------- ------- ------ -------
Net income $16,745 $ 2,504 $19,249 $16,645 $2,246 $18,891
======= ====== ======= ======= ====== =======
Net income per diluted
common share $ .73 $ .10 $ .83 $ .72 $ .10 $ .82
Return on assets 1.24% 1.43%* 1.29% 1.46%*
Return on equity 16.37 18.82 ** 16.31 18.51**
* Calculated as A/B
** Calculated as A/C March 1998 December 1997
----------------- ---------- -------------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 19,249 $ 18,891
(B) Total average assets 5,464,432 5,127,173
(C) Average shareholders' equity 414,733 404,851
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 1997
- ---------------------------------------------------------------
Reported Intangible "Cash"
earnings amortization earnings
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $23,485 $2,710 $26,195
Income taxes 8,422 750 9,172
------- ------ -------
Net income $15,063 $1,960 $17,023
======= ====== =======
Net income per diluted
common share $ .65 $ .09 $ .74
Return on assets 1.28% 1.45%*
Return on equity 15.80 17.86 **
* Calculated as A/B
** Calculated as A/C
March 1998
----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 17,023
(B) Total average assets 4,756,209
(C) Average shareholders' equity 386,626
</TABLE>
<PAGE>
Balance Sheet
Average assets of $5,464,432,000 for the first quarter of 1998 were up 6.6
percent and 14.9 percent when compared with the fourth and first quarters of
1997, respectively, primarily because of the acquisitions. Total deposits
averaged $4,686,365,000 for the current quarter, up 6.3 percent when compared
to the previous quarter and up 14.7 percent from the first quarter of 1997.
Average loans for the first quarter of 1998 were $2,799,923,000. This
represents an increase in average loans of 7.6 percent and 21.6 percent from
the fourth and first quarters of 1997, respectively.
Loans
<TABLE>
<CAPTION>
1998 1997
------------------------ -----------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 878,774 30.8% $ 804,257 $ 692,057
Consumer 649,445 22.8 602,415 550,896
Real estate 1,245,713 43.7 1,134,417 1,104,983
Other 78,397 2.8 104,751 70,471
Unearned discount (3,298) (.1) (2,318) (3,768)
---------- ------ ---------- ----------
Total Loans $2,849,031 100.0% $2,643,522 $2,414,639
========== ====== ========== ==========
</TABLE>
At March 31, 1998, period-end loans totaled $2,849,031,000 up 7.8 percent
from the previous quarter and up 18.0 percent from the same period last year.
Approximately 71 percent of the increase in loans from a year ago resulted from
internally generated growth.
Real Estate Loans
Real estate loans at March 31, 1998, were $1,245,713,000 or 43.7 percent
of total loans, compared to 45.8 percent a year ago. Construction loans were
$170,269,000 up 85 percent from levels a year ago primarily resulting from the
acquisition and increased levels of retail construction. Residential permanent
mortgage loans at March 31, 1998, were $484,215,000 compared to $461,635,000 at
December 31, 1997, and $435,122,000 at March 31, 1997. 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, 1998, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $2,855,000, compared with $1,993,000 at
December 31, 1997, and $3,072,000 at March 31, 1997.
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 170,269 13.6% $ 92,185
Land 57,316 4.6 54,918
Permanent mortgages:
Commercial 266,439 21.4 247,166
Residential 484,215 38.9 435,122
Other 267,474 21.5 275,592
---------- ----- ----------
$1,245,713 100.0% $1,104,983
========== ===== ==========
Non-accrual and restructured $ 7,213 .6% $ 8,970
</TABLE>
<PAGE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$16,471,000 in loans secured by assets held in the United States, totaled
$51,824,000 or 1.8 percent of total loans up from $48,597,000 and $39,722,000
at December 31, 1997 and March 31,1997, respectively. The increase represents
the additional usage of lines of credit extended to Mexican firms to support
trade related transactions. Of the trade-related credits, approximately 96
percent are related to companies exporting from Mexico. In addition, loans
insured by the Export Import Bank were made to Mexican businesses to purchase
goods of the United States. As of March 31, 1998, none of the Mexican related
loans were on non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
---------------------------------------
March 31, 1998 Amount Percentage of Total Loans
- -----------------------------------------------------------------------------
<S> <C> <C>
Financial institutions $33,889 1.2%
Commercial and industrial 17,935 .6
------- ----
$51,824 1.8%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 1998 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 7,213 $5,188 $12,401
Foreclosed assets 3,788 1,548 5,336
------- ------ -------
$11,001 $6,736 $17,737
======= ====== =======
As a percentage of total
non-performing assets 62% 38% 100%
</TABLE>
Non-performing assets totaled $17,737,000 at March 31, 1998, compared with
$17,213,000 at December 31, 1997, and $14,632,000 at March 31, 1997. Non-
performing assets as a percentage of total loans and foreclosed assets
decreased to .62 percent at March 31, 1998 from .68 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 $255,000 or $.01 per diluted common
share for the first quarter of 1998. This compares to $240,000 or $.01 per
diluted common share and $180,000 or $.01 per diluted common share for the
fourth and first quarters of 1997, respectively. Total loans 90 days past due
(excluding non-accrual and restructured loans) were $6,116,000 at March 31,
1998, compared to $6,651,000 at December 31, 1997, and $7,703,000 at March 31,
1997.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $43,107,000 or 1.51 percent of
period-end loans at March 31, 1998, compared to $41,846,000 or 1.58 percent for
the fourth quarter of 1997 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 347.6 percent at March 31, 1998, compared to 329.4
percent and 281.4 percent at the end of the fourth and first quarters of 1997,
respectively.
<PAGE>
The Corporation recorded a $2,250,000 provision for possible loan losses
during the first quarter of 1998, compared to $2,000,000 and $1,625,000
recorded during the fourth and first quarters of 1997. Net charge-offs in the
first quarter totaled $2,239,000, compared to $1,870,000 and $1,309,000 for the
fourth and first quarters of 1997, respectively. The increase from the first
quarter a year ago is principally due to indirect consumer charge-offs, which
are down from the fourth quarter of last year.
<TABLE>
<CAPTION>
NET CHARGE-OFFS
-------------------------------
1998 1997
------- ------------------
First Fourth First
Quarter Quarter Quarter
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate $ 43 $ (60) $ 26
Commercial and industrial 698 221 159
Consumer 1,497 1,731 1,039
Other, including foreign 1 (22) 85
------- ------- -------
$ 2,239 $ 1,870 $ 1,309
======= ======= =======
Provision for possible loan losses $ 2,250 $ 2,000 $ 1,625
Allowance for possible loan losses 43,107 41,846 40,047
</TABLE>
Capital and Liquidity
At March 31, 1998, shareholders' equity was $417,889,000 compared to
$408,405,000 at December 31, 1997, and $383,701,000 at March 31, 1997. The
increase in 1998 was due primarily to earnings growth partially offset by $5.6
million of dividends paid and $1.9 million paid for the repurchase of shares of
the Corporation. The Corporation had an unrealized gain on securities
available for sale, net of deferred taxes, of $7.8 million as of March 31, 1998
compared to $8.7 million unrealized gain as of December 31, 1997, reflecting a
decrease of $.9 million. This decrease is primarily due to the decrease in
market interest rates causing the adjustable-rate mortgage backed securities
portfolio to experience a market loss. 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 $.25 per common share in the first
quarter of 1998 and fourth quarter of 1997 compared to $.21 per common share
for the first quarter of 1997. This equates to dividend payout ratios of 33.2
percent, 33.4 percent and 31.4 percent for the first quarter of 1998 and the
fourth and first quarters of 1997, 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, 1998.
Asset liquidity is provided by cash and assets which are readily
marketable, pledgeable or which will mature in the near future. These include
cash, short-term 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>
Year 2000
The Corporation's Year 2000 compliance program includes modifying or
replacing appropriate hardware and software utilized by the Corporation.
Currently, the Corporation estimates that the dollar amount to be spent on
incremental outside costs to remediate its Year 2000 issues will be
approximately $3 million over a three year period beginning in 1997, funded out
of its earnings. These costs are being expensed as incurred and were
approximately $310,000 for the first quarter of 1998. The cost of compliance
and expected completion dates are based upon management's best estimates which
were derived utilizing assumptions of future events including the continued
availability of certain resources, third party vendor remediation plans and
other factors. Management expects all mission critical systems to be installed
and certified by November 1998 and believes that its program is producing the
appropriate level of preparedness.
Regardless of the Year 2000 compliance of the Corporation's systems, there
is no complete assurance that the Corporation will not be adversely affected
to the extent other entities not affiliated with the Corporation are
unsuccessful in properly addressing this issue. In an effort to minimize this
possibility, active communication has been on-going between the Corporation and
its external service providers and intermediaries. In addition, a risk
reduction program was initiated in 1997 that addresses potential Year 2000
exposure in the loan portfolio. Public awareness sessions have been hosted by
the Corporation for customers and suppliers in our marketplace during 1997, and
such communication is planned to continue throughout 1998.
Forward-Looking Statements
The Corporation may from time to time make forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995)
with respect to earnings per share, credit quality, expected Year 2000
compliance program, corporate objectives and other financial and business
matters. The Corporation cautions the reader that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties,
including economic conditions; actions taken by the Federal Reserve Board;
legislative and regulatory actions and reforms; competition; as well as other
reasons, all of which change over time. Actual results may differ materially
from forward-looking statements.
<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, 1998 December 31, 1997
-----------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 304,817 $ 4,167 5.54% $ 269,415 $ 3,737 5.50%
U.S. Government agencies
and corporations 1,303,051 21,189 6.50 1,200,420 19,632 6.54
States and political subdivisions 5,060 116 9.13 5,035 115 9.13
Other 8,294 129 6.24 7,354 110 6.02
---------- ------- ---------- -------
Total securities 1,621,222 25,601 6.33 1,482,224 23,594 6.36
Federal funds sold and securities
purchased under resale agreements 133,312 1,882 5.65 237,202 3,357 5.54
Loans, net of unearned discount 2,799,923 60,654 8.78 2,602,340 57,572 8.78
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 4,554,457 88,137 7.82 4,321,766 84,523 7.77
Cash and due from banks 582,067 532,637
Allowance for possible loan losses (43,023) (41,793)
Banking premises and equipment 115,978 108,386
Accrued interest and other assets 254,953 206,177
---------- ----------
Total Assets $5,464,432 $5,127,173
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,084,640 $ 991,401
Correspondent banks 256,642 232,245
Public funds 40,247 43,739
---------- ----------
Total demand deposits 1,381,529 1,267,385
Time deposits:
Savings and Interest-on-Checking 805,455 2,383 1.20 750,099 2,184 1.16
Money market deposit accounts 1,028,662 9,733 3.84 1,023,501 10,235 3.97
Time accounts 1,162,040 14,614 5.10 1,103,212 13,813 4.97
Public funds 308,679 3,085 4.05 264,239 2,949 4.43
---------- ------- ---------- -------
Total time deposits 3,304,836 29,815 3.66 3,141,051 29,181 3.69
---------- ------- ---------- -------
Total Deposits 4,686,365 4,408,436
Federal funds purchased and securities
sold under repurchase agreements 159,801 1,885 4.72 120,176 1,424 4.64
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,409 2,119 8.61 98,395 2,119 8.61
Other borrowings 22,607 309 5.55 22,173 299 5.36
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,585,653 34,128 3.86 3,381,795 33,023 3.87
---------- ------- ----- ---------- ------- -----
Accrued interest and other liabilities 82,517 73,142
---------- ----------
Total Liabilities 5,049,699 4,722,322
SHAREHOLDERS' EQUITY 414,733 404,851
---------- ----------
Total Liabilities and
Shareholders' Equity $5,464,432 $5,127,173
========== ==========
Net interest income $54,009 $51,500
======= =======
Net interest spread 3.96% 3.90%
==== ====
Net interest income to total average earning assets 4.78% 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*)
September 30, 1997 June 30, 1997
--------------------------- ------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
--------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 273,215 $ 3,727 5.41% $ 283,467 $ 3,778 5.35%
U.S. Government agencies
and corporations 1,187,824 19,625 6.61 1,229,527 20,510 6.67
States and political subdivisions 4,171 99 9.50 4,599 106 9.21
Other 7,354 110 5.99 7,760 111 5.70
---------- ------- ---------- -------
Total securities 1,472,564 23,561 6.39 1,525,353 24,505 6.43
Federal funds sold 231,214 3,274 5.54 200,752 2,806 5.53
Loans, net of unearned discount 2,514,945 55,954 8.83 2,458,990 54,603 8.91
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 4,218,723 82,789 7.80 4,185,095 81,914 7.84
Cash and due from banks 488,397 471,513
Allowance for possible loan losses (41,191) (36,256)
Banking premises and equipment 108,565 106,908
Accrued interest and other assets 193,900 195,656
---------- ----------
Total Assets $4,968,394 $4,922,916
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $ 958,705 $ 927,391
Correspondent banks 219,614 210,002
Public funds 42,673 41,294
---------- ----------
Total demand deposits 1,220,992 1,178,687
Time deposits:
Savings and Interest-on-Checking 728,792 2,229 1.21 746,782 2,321 1.25
Money market deposit accounts 1,016,082 10,256 4.00 961,751 9,755 4.07
Time accounts 1,098,291 13,698 4.95 1,092,292 13,406 4.92
Public funds 216,833 2,564 4.69 261,920 3,016 4.62
---------- ------- ---------- -------
Total time deposits 3,059,998 28,747 3.73 3,062,745 28,498 3.73
---------- ------- ---------- -------
Total Deposits 4,280,990 4,241,432
Federal funds purchased and securities
sold under repurchase agreements 106,069 1,262 4.65 109,140 1,327 4.81
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,381 2,118 8.54 98,372 2,144 8.74
Other borrowings 24,997 356 5.65 22,657 318 5.64
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,289,445 32,483 3.92 3,292,914 32,287 3.93
---------- ------- ----- ---------- ------- ----
Accrued interest and other liabilities 59,890 59,876
---------- ----------
Total Liabilities 4,570,327 4,531,477
SHAREHOLDERS' EQUITY 398,067 391,439
---------- ----------
Total Liabilities and
Shareholders' Equity $4,968,394 $4,922,916
========== ==========
Net interest income $50,306 $49,627
======= =======
Net interest spread 3.88% 3.91%
===== =====
Net interest income to total average earning assets 4.74% 4.75%
===== =====
*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, 1997
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 255,412 $ 3,326 5.28%
U.S. Government agencies
and corporations 1,226,336 20,365 6.64
States and political subdivisions 6,356 154 9.68
Other 6,459 98 6.08
---------- -------
Total securities 1,494,563 23,943 6.42
Federal funds sold 201,373 2,402 4.77
Loans, net of unearned discount 2,303,330 50,265 8.85
---------- -------
Total Earning Assets and
Average Rate Earned 3,999,266 76,610 7.74
Cash and due from banks 517,232
Allowance for possible loan losses (37,103)
Banking premises and equipment 103,153
Accrued interest and other assets 173,661
----------
Total Assets $4,756,209
==========
LIABILITIES
Demand deposits:
Commercial and individual $ 863,967
Correspondent banks 232,669
Public funds 45,021
-----------
Total demand deposits 1,141,657
Time deposits:
Savings and Interest-on-Checking 718,760 2,279 1.29
Money market deposit accounts 894,150 8,761 3.97
Time accounts 1,045,539 12,580 4.88
Public funds 286,454 3,067 4.34
---------- -------
Total time deposits 2,944,903 26,687 3.68
---------- -------
Total Deposits 4,086,560
Federal funds purchased and securities
sold under repurchase agreements 135,371 1,398 4.13
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 59,299 1,271 8.69
Other borrowings 24,316 320 5.34
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,163,889 29,676 3.80
---------- ------- ----
Accrued interest and other
liabilities 64,037
----------
Total Liabilities 4,369,583
SHAREHOLDERS' EQUITY 386,626
----------
Total Liabilities and
Shareholders' Equity $4,756,209
==========
Net interest income $46,934
=======
Net interest spread 3.94%
=====
Net interest income to total average earning assets 4.73%
=====
* 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
27 Statement regarding Financial Data Schedule (EDGAR Version)
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, a Current Report on Form 8-K,
dated February 26, 1998, 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 15, 1998 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
27 Statement re: Financial Data Schedule - 3/31/98 (EDGAR Version)
27.1 Statement re: Financial Data Schedule - 3/31/97 (EDGAR Version)
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings per Common Share
Basic and Diluted
(in thousands, except per share amounts)
Three Months Ended
March 31
------------------
Basic Earnings per Share 1998 1997
- ------------------------------------------------------------------ -------- --------
<S> <C> <C>
Net income $16,745 $15,063
======== ========
Weighted average number of common shares outstanding 22,266 22,499
======== ========
Basic earnings per common share $ .75 $ .67
Three Months Ended
March 31
------------------
Diluted Earnings per Share 1998 1997
- ------------------------------------------------------------------ -------- --------
<S> <C> <C>
Net income $16,745 $15,063
======== ========
Weighted average number of common shares outstanding 22,266 22,499
Addition from assumed exercise of stock options 796 594
-------- --------
Weighted average number of common shares,
outstanding, including dilutive effect of stock options 23,062 23,093
======== ========
Diluted earnings per common share: $ .73 $ .65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURES.
</LEGEND>
<CIK> 0000039263
<NAME> CULLEN/FROST BANKERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 746,458
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 115,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,479,787
<INVESTMENTS-CARRYING> 140,764
<INVESTMENTS-MARKET> 144,777
<LOANS> 2,849,031
<ALLOWANCE> 43,107
<TOTAL-ASSETS> 5,653,827
<DEPOSITS> 4,846,854
<SHORT-TERM> 188,715
<LIABILITIES-OTHER> 101,952
<LONG-TERM> 98,417
0
0
<COMMON> 112,710
<OTHER-SE> 305,179
<TOTAL-LIABILITIES-AND-EQUITY> 5,653,827
<INTEREST-LOAN> 60,416
<INTEREST-INVEST> 25,562
<INTEREST-OTHER> 1,882
<INTEREST-TOTAL> 87,860
<INTEREST-DEPOSIT> 29,815
<INTEREST-EXPENSE> 34,128
<INTEREST-INCOME-NET> 53,732
<LOAN-LOSSES> 2,250
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 55,193
<INCOME-PRETAX> 26,189
<INCOME-PRE-EXTRAORDINARY> 26,189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,745
<EPS-PRIMARY> .75
<EPS-DILUTED> .73
<YIELD-ACTUAL> 7.82
<LOANS-NON> 12,401
<LOANS-PAST> 6,116
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,545
<ALLOWANCE-OPEN> 41,846
<CHARGE-OFFS> (3,291)
<RECOVERIES> 1,052
<ALLOWANCE-CLOSE> 43,107
<ALLOWANCE-DOMESTIC> 38,320
<ALLOWANCE-FOREIGN> 206
<ALLOWANCE-UNALLOCATED> 4,581
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
ACCOMPANYING DISCLOSURES.
</LEGEND>
<CIK> 0000039263
<NAME> CULLEN/FROST BANKERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<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> 2,414,639
<ALLOWANCE> 40,047
<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> .67
<EPS-DILUTED> .65
<YIELD-ACTUAL> 7.74
<LOANS-NON> 14,227
<LOANS-PAST> 7,703
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,809
<ALLOWANCE-OPEN> 37,626
<CHARGE-OFFS> (2,042)
<RECOVERIES> 733
<ALLOWANCE-CLOSE> 40,047
<ALLOWANCE-DOMESTIC> 36,602
<ALLOWANCE-FOREIGN> 184
<ALLOWANCE-UNALLOCATED> 3,261
</TABLE>
