Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 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 August 12, 1998, there
were 26,650,265 shares of Common Stock, $.01 par value, outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Consolidated Statements of Income
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $74,562 $65,185 $146,705 $125,600
Securities:
Taxable 29,138 27,540 58,670 54,604
Tax-exempt 677 449 1,057 905
------- ------- -------- --------
Total Securities 29,815 27,989 59,727 55,509
Federal funds sold 1,863 2,828 3,880 5,231
------- ------- -------- --------
Total Interest Income 106,240 96,002 210,312 186,340
INTEREST EXPENSE
Deposits 34,653 32,770 69,436 63,589
Federal funds purchased and securities
sold under repurchase agreements 2,827 2,160 5,574 4,458
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 2,119 2,143 4,238 3,414
Long-term notes payable and other borrowings 419 352 784 705
------- ------- -------- --------
Total Interest Expense 40,018 37,425 80,032 72,166
------- ------- -------- --------
Net Interest Income 66,222 58,577 130,280 114,174
Provision for possible loan losses 2,600 2,599 5,179 4,566
------- ------- -------- --------
Net Interest Income After Provision
For Possible Loan Losses 63,622 55,978 125,101 109,608
NON-INTEREST INCOME
Trust fees 11,625 10,537 23,661 20,954
Service charges on deposit accounts 13,118 11,908 25,573 23,063
Other service charges, collection and
exchange charges, commissions and fees 3,948 2,922 7,533 5,300
Net gain on securities transactions 71 15 144 16
Other 6,242 5,516 11,555 9,720
------- ------- -------- --------
Total Non-Interest Income 35,004 30,898 68,466 59,053
NON-INTEREST EXPENSE
Salaries and wages 27,757 24,037 54,964 46,981
Pension and other employee benefits 5,462 5,056 11,060 10,142
Net occupancy of banking premises 6,112 5,489 12,220 11,065
Furniture and equipment 4,647 3,980 9,088 7,712
Intangible amortization 3,360 3,119 6,708 5,829
Merger related charges 12,244 12,244
Other 19,446 17,034 37,597 32,497
------- ------- -------- --------
Total Non-Interest Expense 79,028 58,715 143,881 114,226
------- ------- -------- --------
Income Before Income Taxes 19,598 28,161 49,686 54,435
Income Taxes 8,142 10,033 18,817 19,310
------- ------- -------- --------
Net Income $11,456 $18,128 $ 30,869 $ 35,125
======= ======= ======== ========
Net income per common share:
Basic $ .43 $ .68 $ 1.17 $ 1.32
Diluted .42 .66 1.13 1.28
Dividends per common share (CFR) .30 .25 .55 .46
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
June 30 December 31 June 30
1998 1997 1997
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 754,017 $ 637,613 $ 476,888
Securities held to maturity 129,819 255,428 247,992
Securities available for sale 1,683,040 1,514,050 1,489,386
Securities trading 587 1,940 1,007
Federal funds sold 61,400 190,000 153,823
Loans, net of unearned discount of $3,602 at
June 30, 1998; $3,194 at December 31, 1997
and $3,996 at June 30, 1997 3,447,353 3,116,895 2,958,873
Less: Allowance for possible loan losses (51,115) (48,073) (46,797)
---------- ---------- ----------
Net Loans 3,396,238 3,068,822 2,912,076
Banking premises and equipment 133,815 128,710 126,373
Accrued interest and other assets 266,476 249,010 232,955
---------- ---------- ----------
Total Assets $6,425,392 $6,045,573 $5,640,500
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,465,420 $1,353,242 $1,200,841
Correspondent banks 289,460 140,443 99,113
Public funds 42,830 54,880 42,224
---------- ---------- ----------
Total demand deposits 1,797,710 1,548,565 1,342,178
Time Deposits:
Savings and Interest-on-Checking 874,239 855,783 819,684
Money market deposit accounts 1,354,368 1,255,237 1,192,341
Time accounts 1,299,283 1,216,145 1,218,161
Public funds 215,576 293,360 270,043
---------- ---------- ----------
Total time deposits 3,743,466 3,620,525 3,500,229
---------- ---------- ----------
Total deposits 5,541,176 5,169,090 4,842,407
Federal funds purchased and securities
sold under repurchase agreements 177,842 200,774 147,902
Accrued interest and other liabilities 124,619 114,377 106,432
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 98,431 98,403 98,376
---------- ---------- ----------
Total Liabilities 5,942,068 5,582,644 5,195,117
Shareholders' Equity
Common stock, par value per share: $.01; $5; $5 266 133,775 133,664
Shares authorized:90,000,000;60,000,000;60,000,000
Shares issued: 26,648,465;
26,470,073; and 26,640,682
Surplus 179,110 53,647 51,876
Retained earnings 295,131 278,994 255,814
Unrealized gain on securities available
for sale, net of tax 8,817 8,917 7,431
Treasury Stock (0; 284,887; 92,166) (12,404) (3,402)
---------- ---------- ----------
Total Shareholders' Equity 483,324 462,929 445,383
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $6,425,392 $6,045,573 $5,640,500
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Unrealized
Gain (Loss)
on
Securities
Common Retained Available Treasury
Stock Surplus Earnings for Sale Stock Total
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 as
previously reported $112,410 $ 63,480 $195,451 $7,602 $378,943
Adjustment to retroactively restate
for the 1998 business combination
accounted for as a pooling of
interests 21,065 (12,348) 36,750 512 $ (136) 45,843
-------------------------------------------------------------
Balance at January 1, 1997,
as restated 133,475 51,132 232,201 8,114 (136) 424,786
Net income for the year ended
December 31, 1997 72,968 72,968
Unrealized gain on
securities AFS, net of tax
and reclassification adjustment 803 803
--------
Total comprehensive income 73,771
--------
Proceeds from employee stock
purchase plan and options 300 437 (1,950) 3,201 1,988
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)
Pre-merger transaction of
pooled company:
Release of unearned
ESOP shares 64 143 207
Cash Dividend (793) (793)
Purchase of treasury stock (20) (20)
Sale of treasury stock 68 68
------- -------- -------- ------- -------- --------
Balance at December 31, 1997 133,775 53,647 278,994 8,917 (12,404) 462,929
Net income for the six months
ended June 30, 1998 30,869 30,869
Unrealized gain (loss) on
securities AFS, net of tax
and reclassification adjustment (100) (100)
--------
Total comprehensive income 30,769
--------
Proceeds from employee stock
purchase plan and options (940) 1,173 233
Tax benefit related to
exercise of stock options 516 516
Purchase of treasury stock (1,866) (1,866)
Issuance of restricted stock 54 126 180
Restricted stock plan deferred
compensation, net 557 557
Cash dividend (13,559) (13,559)
ESOP shares committed to be released 2,259 658 2,917
Constructive retirement of
treasury stock issued in connection
with a business combination (1,382) (11,023) 12,883 478
Pre-merger transactions of
pooled company:
Proceeds from employee stock
purchase plan and options 847 683 (539) 88 1,079
Cash dividend (909) (909)
Change in par value (132,974) 132,974
--------- -------- -------- ------- -------- --------
Balance at June 30, 1998 $ 266 $179,110 $295,131 $8,817 $483,324
========= ======== ======== ======= ======== ========
Disclosure of reclassification amount:
Unrealized loss on securities AFS for six month period ended 6/30/98 $ (7)
Less: reclassification adjustment for gain included in income 93
------
Net unrealized loss on securities AFS, net of tax (100)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Six Months Ended
June 30
------------------
1998 1997
------- -------
<S> <C> <C>
Operating Activities
Net income $ 30,869 $ 35,125
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 5,179 4,566
Credit for deferred taxes (2,124) (1,952)
Accretion of discounts on loans (631) (602)
Accretion of securities' discounts (1,213) (7,007)
Amortization of securities' premiums 2,732 1,601
Net (increase)decrease in trading securities 1,353 (220)
Net gain on securities transactions (144) (16)
Net gain on sale of assets (33) (234)
Depreciation and amortization 14,911 12,943
Increase in interest receivable (3,224) (1,673)
Increase in interest payable 130 3,230
Net change in other assets and liabilities 30,406 (33,407)
--------- --------
Net cash provided by operating activities 78,211 12,354
Investing Activities
Proceeds from maturities of securities held to maturity 18,822 20,770
Purchases of investment securities (9,650) (4,662)
Proceeds from sales of securities available for sale 260,158 177,452
Proceeds from maturities of securities available for sale 473,793 192,476
Purchases of securities available for sale (703,783) (362,433)
Net increase in loans (211,340) (181,612)
Net increase in bank premises and equipment (6,747) (8,289)
Proceeds from sales of repossessed properties 738 1,508
Net cash and cash equivalents (paid) received from acquisitions (8,899) 14,277
--------- ---------
Net cash used by investing activities (186,908) (150,513)
Financing Activities
Net increase (decrease) in demand deposits,
IOC accounts, and savings accounts 226,663 (215,119)
Net decrease in certificates of deposits (76,779) (14,516)
Net increase (decrease) in short-term borrowings (38,361) (84,788)
Proceeds from issuance of guaranteed preferred beneficial
interest in the Corporation's junior subordinated
deferrable interest debentures 98,353
Proceeds from employee stock purchase
plan and options 1,312 948
Purchase of treasury stock (1,866) (4,445)
Dividends paid (14,468) (11,142)
--------- --------
Net cash provided (used) by financing activities 96,501 (230,709)
--------- --------
Decrease in cash and cash equivalents (12,196) (368,868)
Cash and cash equivalents at beginning of year 827,613 999,579
--------- --------
Cash and cash equivalents at the end of the period $815,417 $630,711
========= ========
Supplemental information:
Interest Paid $ 39,888 $ 68,936
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have not been audited by independent
accountants, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations. All such adjustments were of a normal and recurring nature. Prior
period financial information has been restated for the merger with Overton
Bancshares, Inc. ("Overton") which was consummated in the second quarter of
1998 and accounted for as a "pooling-of-interests" transaction. Certain
reclassifications have been made to make prior periods comparable. 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 of the Corporation and Overton 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.
Six Months Ended
June 30
--------------------
(in thousands) 1998 1997
- -----------------------------------------------------------------------
Balance at beginning of the period $48,073 $42,821
Provision for possible loan losses 5,179 4,566
Loan loss reserve of acquired institutions 1,250 2,105
Net charge-offs:
Losses charged to the allowance (5,847) (4,619)
Recoveries 2,460 1,924
------- -------
Net (charge-offs) (3,387) (2,695)
------- -------
Balance at the end of period $51,115 $46,797
======= =======
Impaired Loans
A loan within the scope of SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan" is considered impaired when, based on current information
and events, it is probable that the Corporation will be unable to collect all
amounts due according to the contractual terms of the loan agreement, including
scheduled principal and interest payments. At June 30, 1998, the majority of
the impaired loans were real estate loans and collectibility was measured based
on the fair value of the collateral. Interest payments on impaired loans are
typically applied to principal unless collectibility of the principal amount is
fully assured, in which case interest is recognized on the cash basis.
Interest revenue recognized on impaired loans as of June 30, 1998 and 1997 was
$52,000 and $95,000, respectively. The total allowance for possible loan
losses includes activity related to allowances calculated in accordance with
SFAS No. 114 and activity related to other loan loss allowances determined in
accordance with SFAS No. 5.
<PAGE>
The following is a summary of loans considered to be impaired:
June 30
-------------------
(in thousands) 1998 1997
- --------------------------------------------------------------------------
Impaired loans with no valuation reserve $3,039 $3,248
Impaired loans with a valuation reserve 4,137 3,542
------ ------
Total recorded investment in impaired loans $7,176 $6,790
====== ======
Average recorded investment in impaired loans $6,358 $5,562
Valuation reserve 2,273 1,886
Earnings Per Common Share
In accordance with SFAS 128, the reconciliation of earnings per share
follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------------------------ ------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerators for both basic and diluted
earnings per share, net income $30,869,000 $35,125,000 $11,456,000 $18,128,000
=========== =========== =========== ===========
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 26,470,347 26,621,700 26,519,738 26,613,723
Dilutive effect of stock options 795,233 790,134 784,065 804,398
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 27,265,580 27,411,834 27,303,803 27,418,121
=========== =========== =========== ===========
Earnings per share:
Basic $ 1.17 $ 1.32 $ .43 $ .68
Diluted 1.13 1.28 .42 .66
</TABLE>
Capital
The table below reflects various measures of regulatory capital at June
30, 1998 and 1997. As a result of the Harrisburg Bancshares, Inc. acquisition
in January 1998 and the Corporation's stock repurchase program, which expired
during the second quarter of 1998, all the regulatory capital ratios are down
when compared to the second quarter of 1997.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 474,933 11.87% $ 457,751 13.51%
Tier 1 Capital Minimum requirement 160,049 4.00 135,510 4.00
Total Capital $ 524,962 13.12% $ 500,153 14.76%
Total Capital Minimum requirement 320,098 8.00 271,020 8.00
Risk-adjusted assets, net of goodwill $4,001,229 $3,387,751
Leverage ratio 7.64% 8.25%
Average equity as a percentage
of average assets 7.57 7.86
</TABLE>
The FDIC Improvement Act of 1991 ("FDICIA") established five capital tiers
for depository institutions and final rules relating to these tiers were
adopted by the federal banking agencies. At June 30, 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
<PAGE>
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.
During the second quarter of 1998, the shareholders of the Corporation
voted to increase authorized common shares to 90 million from 60 million and to
reduce the par value of the Corporation's common stock from $5 to $.01 per
share.
Income Taxes
The tax expense for the second quarter of 1998 was $8,142,000. This
amount consisted of current tax expense of $8,980,000 and deferred tax benefit
of $838,000. Year-to-date tax expense is $18,817,000, consisting of current
tax expense of $20,941,000 and deferred tax benefit of $2,124,000. Net
deferred tax assets were $9,814,000 with no valuation allowance. The deferred
tax assets were supported by taxes paid in prior years. The tax expense for
the second quarter of 1997 was $10,033,000. Income tax payments for the first
six months of 1998 and 1997 were $22,898,000 and $18,850,000, respectively.
The effective tax rate for the second quarter of 1998 is impacted by the merger
related charge related to the merger with Overton and approximated 42 percent.
Merger and Acquisitions
On May 29, 1998, the Corporation completed the merger of Overton
Bancshares, Inc., in Fort Worth, Texas, and its wholly-owned subsidiary Overton
Bank & Trust, N.A., into the Corporation. The merger, which was accounted for
as a "pooling-of-interests" transaction, is the Corporation's first entry into
the Fort Worth market. With the merger, the Corporation has twelve locations in
Fort Worth/Arlington and two in Dallas. The Corporation issued approximately
4.38 million common shares as part of this transaction. As a result of the
transaction, the Corporation recorded a merger related charge of $12.2 million
primarily consisting of severance payments and investment banking fees. In
addition, shortly after the merger was consummated the Corporation reclassified
approximately $116 million of held to maturity securities of Overton
Bancshares, Inc., to available for sale securities.
Net interest income and net income of the separate companies for the three
months ended March 31, 1998 were as follows:
Three Months Ended
March 31
--------------------
1998
--------------------
Net interest Income:
Cullen/Frost Bankers, Inc. $53,732
Overton Bancshares, Inc. 10,326
-------
Total net interest income $64,058
Net income:
Cullen/Frost Bankers, Inc. $16,745
Overton Bancshares, Inc. 2,668
-------
Total net income $19,413
There has been no changes made to conform accounting policies related to this
merger.
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 was accounted for as a purchase with total
cash consideration being funded through currently available funds. 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.
<PAGE>
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.
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
(including the merger related charge) was $11,959,000 for the second quarter of
1998 compared to $24,145,000 for the second quarter of 1997. For the second
quarter of 1998 and 1997, comprehensive income was composed of net income and
unrealized gain on securities available-for-sale of $503,000 and $6,017,000,
respectively, net of tax and reclassification adjustment. For the second
quarter of 1998, the unrealized loss on securities available-for-sale before
tax was $845,000 resulting in an after tax amount of $549,000. Comprehensive
income was $30,769,000 for the first six months of 1998 (See Statement of
Changes in Shareholder's Equity on page 4). This compares to $34,441,000 for
the first six months of 1997 which was composed of net income of $35,125,000
and unrealized losses on securities available-for-sale of $684,000, net of tax
and reclassification adjustment. For the first six months of 1998, the
unrealized loss on securities available-for-sale before tax was $11,000
resulting in an after tax amount of $7,000.
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.
In February 1998, the FASB issued SFAS No.132, "Employer's Disclosures
about Pensions and Other Post Retirement Benefits." This statement revises
employer's disclosures about pension and other post retirement benefit plans
but does not change the measure of recognition of those plans. The statement
standardizes the disclosure requirements to the extent practicable, requires
additional information on changes in the benefit obligation and the fair value
of plan assets that will aid financial analysis, and eliminates certain
disclosures that are no longer useful. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. Interim period application in the
year of adoption is not required. The Corporation is currently evaluating the
impact of this statement on the disclosures included in its annual financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be marked-to-market on an on going basis. Along with the
derivatives, the underlying hedged items are also to be marked-to-market on an
ongoing basis. These market value adjustments are to be included either in the
income statement or stockholders' equity, depending on the nature of the
transaction. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Management has not completed its review of SFAS No. 133, and has not
determined the impact, if any, that adoption of this statement will have on the
Corporation.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc. and Subsidiaries
(taxable-equivalent basis - tables in thousands)
Results of Operations
The results of operations are included in the material that follows.
During the second quarter of 1998 the Corporation completed the merger with
Overton Bancshares, Inc., ("Overton") which was accounted for using the
"pooling-of-interests" accounting method. Historical amounts have been
restated to reflect the merger. In addition, the Corporation completed an
acquisition during the first quarter of 1998 and one in 1997. These
acquisitions 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. The merger and acquisitions are outlined
in the footnotes to the financial statements on page eight. All balance sheet
figures are presented in averages unless otherwise noted.
Cullen/Frost Bankers, Inc. reported net income of $11.5 million or $.42
per diluted common share, and $30.9 million or $1.13 per diluted common share
for the second quarter of 1998 and six months ending June 30, 1998,
respectively. Included in second quarter earnings is a merger related charge
of $12.2 million before tax. These charges were associated with the merger of
Overton.
<TABLE>
<CAPTION>
Summary of Operations
-------------------------------------------------
Three Months Ended
Six Months Ended ---------------------------
June 30 1998 1997
----------------- ------------------ -------
1998 1997 June 30 March 31 June 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $131,327 $115,113 $66,827 $64,501 $59,056
Taxable-equivalent adjustment 1,047 939 605 443 479
------- ------- ------- ------- -------
Net interest income 130,280 114,174 66,222 64,058 58,577
Provision for possible loan losses 5,179 4,566 2,600 2,576 2,599
Non-Interest income:
Net gain on securities
transactions 144 16 71 73 15
Other 68,322 59,037 34,933 33,389 30,883
------- ------- ------- ------- -------
Total non-interest income 68,466 59,053 35,004 33,462 30,898
Non-Interest expense:
Intangible amortization 6,708 5,829 3,360 3,348 3,119
Merger related charges 12,244 12,244
Other 124,929 108,397 63,424 61,505 55,596
------- ------- ------- ------- -------
Total non-interest expense 143,881 114,226 79,028 64,853 58,715
------- ------- ------- ------- -------
Income before income taxes 49,686 54,435 19,598 30,091 28,161
Income Taxes 18,817 19,310 8,142 10,675 10,033
------- ------- ------- ------- -------
Net Income $30,869 $35,125 $11,456 $19,416 $18,128
======= ======= ======= ======= =======
Net income per diluted common share:$ 1.13 $ 1.28 $ .42 $ .71 $ .66
Return on Average Assets .99% 1.28% .73% 1.22% 1.29%
Return on Average Equity 13.04 16.25 9.49 16.36 16.56
</TABLE>
Operating earnings exclude the after-tax impact of the charge. After tax
operating earnings were $21.0 million or $.77 per diluted common share for the
quarter ended June 30, 1998 compared to $18.1 million or $.66 per diluted
common share for the second quarter of 1997 and $19.4 million or $.71 per
diluted common share for the first quarter of 1998. Operating return on
average assets and average equity increased to 1.33 percent and 17.37 percent
for the second quarter of 1998. After-tax operating earnings for the six
months ended June 30, 1998 were $40.4 million or $1.48 per diluted common share
compared to $35.1 million or $1.28 per diluted common share for the same period
of 1997. Operating return on average assets and average equity for the six
months ended June 30, 1998 increased to 1.29 percent and 17.05 percent compared
to 1.28 percent and 16.25 percent for 1997
<PAGE>
Net Interest Income
Net interest margin was 4.96 percent for the second quarter of 1998
compared to 4.89 percent and 4.88 percent for the first quarter of 1998 and
second quarter of 1997, respectively. The net interest spread of 4.06 percent
increased 4 basis points from the first quarter of 1998 and 5 basis points from
the second quarter of 1997. The increases in net interest margin and spread
from the first quarter of 1998 and the second quarter of 1997 were due to
strong loan growth and a redeployment of investable funds out of Federal funds
sold and into investment securities as well as a restructuring of the
investment portfolio.
<TABLE>
<CAPTION>
Change in Net Interest Income (Taxable Equivalent)
-------------------------------------------------------------------
Second Quarter Second Quarter Year-to-Date
1998 1998 1998
vs. vs. vs.
Second Quarter First Quarter Year-to-Date
1997 1998 1997
-------------------------------------------------------------------
Amount Amount Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due to volume $ 8,953 $ 2,150 $17,991
Due to interest rate
spread (1,182) 176 (1,777)
------- ------- -------
$ 7,771 $ 2,326 $16,214
======= ======= =======
</TABLE>
Non-Interest Income
Growth in non-interest income was favorably impacted by the acquisitions
of Harrisburg Bancshares, Inc. and Corpus Christi Bancshares, Inc. in the first
quarters of 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1998 1997
------------------ -------------------- -------
Non-Interest Income 1998 1997 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $23,661 $20,954 $11,625 $12,036 $10,537
Service charges on deposit accounts 25,573 23,063 13,118 12,455 11,908
Other service charges, collection
and exchange charges, commissions
and fees 7,533 5,300 3,948 3,585 2,922
Net gain on securities transactions 144 16 71 73 15
Other 11,555 9,720 6,242 5,313 5,516
------- ------- ------- ------- -------
Total $68,466 $59,053 $35,004 $33,462 $30,898
======= ======= ======= ======= =======
</TABLE>
For the second quarter 1998...
Total non-interest income was up $1.5 million, an increase of 4.6 percent,
compared to the first quarter of 1998 and up $4.1 million, an increase of 13.3
percent compared to the second quarter of 1997.
The decline in trust fees from the first quarter of 1998 is due in part to
the initial set-up fees in the first quarter for employee benefit accounts.
Trust fees increased $1.1 million or 10.3 percent when compared to the same
quarter a year ago. Most of this growth was attributable to the growth in the
stock and bond markets, supported by growth in the number of new accounts as
well. The market value of trust assets at the end of the second quarter of
1998 was $11.9 billion compared to $10.0 a year ago.
Service charges on deposit accounts for the second quarter of 1998
increased $663,000 from the first quarter of this year and $1.2 million or 10.2
percent from the second quarter of 1997. Most of this increase occurred as the
result of broad based deposit growth that generated increases in overdraft
charges, cash management fees on commercial deposits, as well as increases in
ATM income. Other service charges were up $363,000 for the second
<PAGE>
quarter of 1998 compared to the first quarter of 1998 and $1 million or 35
percent from the same quarter a year ago. Mutual fund fees as well as growth
in the cash accelerator product (accounts receivable factoring) led the way in
growth in this category of non-interest income.
Compared to the first quarter of 1998, other non-interest income increased
$929,000. This resulted primarily from a non-recurring recovery of $936,000 on
a loan that was carried at a discount. This was also the most significant
impact when compared to the increase of $726,000 or 13.2 percent from the same
quarter a year ago.
For the six months ended June 30, 1998...
Non-interest income was up $9.4 million or 15.9 percent compared to the
same period last year. Trust income increased $2.7 million or 12.9 percent
from the same period a year ago. Contributing to most of this growth were
improvements in the stock and bond markets as evidenced by the growth in the
market value of trust assets from $10.0 at June 30, 1997 to $11.9 billion at
June 30, 1998. The growth in market assets was supported by growth in the
number of accounts as well. Service charges on deposits increased $2.5 million
or 10.9 percent compared to the same period one year ago. Broad based deposit
growth generated increases in overdraft charges, cash management fees on
commercial deposits, as well as increases in ATM income. Other service charge
income increased $2.2 million or 42.1 percent from the same period last year.
Primary contributors to this growth were mutual fund fees as well as fees
generated from accounts receivable factoring. Also having an impact were pre-
payment penalties received from payoffs in asset based lending. Other income
was up $1.8 million or 18.9 percent relative to the same period last year.
Main contributors were the $936,000 non-recurring recovery discussed previously
as well as mineral interest income of $631,000.
Non-Interest Expense
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.
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1998 1997
------------------ ------------------- -------
Non-Interest Expense 1998 1997 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $ 54,964 $ 46,981 $27,757 $27,207 $24,037
Pension and other employee benefits 11,060 10,142 5,462 5,598 5,056
Net occupancy of banking premises 12,220 11,065 6,112 6,108 5,489
Furniture and equipment 9,088 7,712 4,647 4,441 3,980
Intangible amortization 6,708 5,829 3,360 3,348 3,119
Merger related charge 12,244 12,244
Other 37,597 32,497 19,446 18,151 17,034
-------- -------- ------- ------- -------
Total $143,881 $114,226 $79,028 $64,853 $58,715
======== ======== ======= ======= =======
</TABLE>
For the second quarter 1998...
Excluding the merger-related charge associated with the merger of Overton,
non-interest expense was up $1.9 million or 3.0 percent compared to last
quarter and increased $8.1 million or 13.7 percent compared to the second
quarter of 1997.
Salaries and wages remained steady with the first quarter of 1998 and were
up $3.7 million or 15.5 percent from the second quarter of 1997 as a result of
higher staffing levels and merit increases. Pension and employee benefits were
flat compared to last quarter and up 8.0 percent compared to the second quarter
of 1997. The increase from a year ago reflects 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 remained constant from the first
quarter of 1998 and increased $623,000 or 11.3 percent from the second quarter
of 1997. This increase is attributable to higher property taxes and
depreciation and lease expense on buildings. Furniture and equipment expense
increased 4.6 percent compared to the first quarter of 1998 and increased
$667,000 or 16.8 percent from the same quarter last year mostly due to higher
amortized software and service contracts.
<PAGE>
Also included in the second quarter of 1998 was a $12.2 million merger
related charge associated with the merger of Overton Bancshares, Inc. Of the
$12.2 million charge approximately 39 percent related to severance payments and
29 percent related to investment banking fees.
Other non-interest expenses increased $1.3 million or 7.1 percent and $2.4
million or 14.2 percent from the first quarter of 1998 and second quarter of
1997, respectively, mainly due to professional expenses, Visa check card
expenses, guard services and outside computer services.
For the six months ended June 30, 1998...
Excluding the merger-related charge, total non-interest expense was up
$17.4 million or 15.2 percent compared to the same period one year ago.
Salaries and wages were up $8.0 million or 17.0 percent compared to the same
period one year ago primarily because of the higher staffing levels and merit
increases. Pension and other benefits increased $918,000 or 9.1 percent from
the same period last year due to 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 was up $1.2 million or
10.4 percent compared to a year ago. This increase is attributable to higher
property taxes and depreciation and lease expense on buildings. Furniture and
equipment expense increased $1.4 million or 17.8 percent due to higher
amortized software and service contracts. Intangible amortization increased
$879,000 or 15.1 percent from the same period a year ago due to acquisitions.
Other non-interest expenses increased $5.1 million or 15.7 percent, primarily
due to growth in the number of banking locations (guard service) and other
technology initiatives designed to enhance and support growth.
Income Taxes
The Corporation's effective tax rate for the first quarter of 1998 and the
first and second quarters of 1997 approximated the statutory rate of 35
percent. The effective tax rate for the second quarter of 1998 is impacted by
the merger related charge associated with the acquisition of Overton and
approximated 42 percent.
Cash Earnings
The Corporation has historically paid cash and used the purchase method of
accounting for the majority of its acquisitions which has resulted in the
creation of intangible assets. These intangible assets are deducted from
capital in the determination of regulatory capital. Thus, "cash" or "tangible"
earnings represents regulatory capital generated during the year and can be
viewed as net income excluding intangible amortization, net of tax. While the
definition of "cash" or "tangible" earnings may vary by company, we believe
this definition is appropriate as it measures the per share growth of
regulatory capital, which impacts the amount available for dividends and
acquisitions.
<PAGE>
The following table reconciles reported earnings to net income excluding
intangible amortization ("cash" earnings):
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------------------------
June 1998 June 1997
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $49,686 $ 6,708 $56,394 $54,435 $5,829 $60,264
Income taxes 18,817 1,656 20,473 19,310 1,556 20,866
------- ------- ------- ------- ------ -------
Net income $30,869 $ 5,052 $35,921 $35,125 $4,273 $39,398
======= ======= ======= ======= ====== =======
Net income per diluted
common share $ 1.13 $ .19 $ 1.32 $ 1.28 $ .16 $ 1.44
Return on assets .99% 1.15%* 1.28% 1.43%*
Return on equity 13.04 15.17 ** 16.25 18.23**
* Calculated as A/B
** Calculated as A/C June 1998 June 1997
----------------- ---------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 35,921 $ 39,398
(B) Total average assets 6,307,061 5,549,942
(C) Average shareholders' equity 476,805 436,402
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
June 1998 March 1998
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $19,598 $ 3,360 $22,958 $30,088 $3,348 $33,436
Income taxes 8,142 812 8,954 10,675 844 11,519
------- ------- ------- ------- ------ -------
Net income $11,456 $ 2,548 $14,004 $19,413 $2,504 $21,917
======= ======= ======= ======= ====== =======
Net income per common
share $ .42 $ .09 $ .51 $ .71 $ .09 $ .80
Return on assets .73% .89%* 1.22% 1.38%*
Return on equity 9.49 11.60 ** 16.36 18.47**
* Calculated as A/B
** Calculated as A/C June 1998 March 1998
----------------- ---------- -----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 14,004 $ 21,917
(B) Total average assets 6,318,942 6,290,734
(C) Average shareholders' equity 483,334 471,281
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
June 1997
- --------------------------------------------------------------
Reported Intangible "Cash"
earnings Amortization earnings
- --------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $28,161 $3,119 $31,280
Income taxes 10,033 816 10,849
------- ------ -------
Net income $18,128 $2,303 $20,431
======= ====== =======
Net income per common share $ .66 $ .09 $ .75
Return on assets 1.29% 1.45%*
Return on equity 16.56 18.67 **
* Calculated as A/B
** Calculated as A/C
June 1997
----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 20,431
(B) Total average assets 5,635,781
(C) Average shareholders' equity 439,512
</TABLE>
<PAGE>
Excluding the merger related charge, the Corporation's cash earnings for
the six months ending June 30, 1998 were $45.4 million or $1.67 per diluted
common share compared with $1.44 per diluted common share for the same period
last. For the second quarter of 1998 cash earnings excluding the merger
related charge were $23.5 million or $.86 per diluted common share compared
with $.75 per diluted common share for the second quarter of 1997. Cash
earnings (excluding the merger related charge) return on assets and return on
equity were 1.49 percent and 19.48 percent, respectively.
Balance Sheet
Average assets of $6.3 billion were flat and up 12.1 percent from the
first quarter of 1998 and the second quarter of 1997 respectively, primarily
because of the acquisition. Total deposits averaged $5.4 billion for the
current quarter, flat from the previous quarter and up 11.3 percent when
compared to the second quarter of 1997. Average loans for the second quarter
of 1997 were $3.4 billion. This represents an increase in average loans of
13.2 percent on an annualized basis from the first quarter of 1998 and 17.1
percent from the second quarter of last year.
Loans
<TABLE>
<CAPTION>
1998 1997
---------------------- -------------------------
Loan Portfolio Percentage
Period-End Balances June 30 of Total December 31 June 30
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,105,949 32.1% $ 989,355 $ 959,707
Consumer 695,563 20.2 645,988 598,051
Real estate 1,553,566 45.1 1,370,680 1,322,478
Other 95,877 2.7 114,066 82,633
Unearned discount (3,602) (.1) (3,194) (3,996)
---------- ------ ---------- ----------
Total Loans $3,447,353 100.0% $3,116,895 $2,958,873
========== ====== ========== ==========
</TABLE>
At June 30, 1998 period-end loans totaled $3.4 billion up 13.2 percent
annualized from the previous quarter and up 16.5 percent from the same period
last year. Approximately 74 percent of the increase in loans from a year ago
resulted from internally generated growth. Compared to a year ago, all loan
categories have increased.
Real Estate Loans
Real estate loans at June 30, 1998, were $1,553,566,000 or 45.1 percent of
period-end loans compared to 44.7 percent a year ago. Residential permanent
mortgage loans at June 30, 1998, were $559,548,000 compared to $541,513,000 at
March 31, 1998, and $492,067,000 at June 30, 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. The
majority of all commercial real estate loans are owner occupied or have a major
tenant (National or Regional company). Historically these type of loans have
resulted in lower risk, provided financial stability and are less susceptible
to economic swings.
At June 30, 1998, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $2,649,000, compared with $3,239,000 at
March 31, 1998, and $2,038,000 at June 30, 1997.
<TABLE>
<CAPTION>
1998 1997
------------------------ --------
Real Estate Loans Percentage
Period-End Balances June 30 of Total June 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 259,236 16.7% $ 152,644
Land 61,163 3.9 62,836
Permanent mortgages:
Commercial 414,468 26.7 248,189
Residential 559,548 36.0 492,067
Other 259,151 16.7 366,742
---------- ------ --------
$1,553,566 100.0% $1,322,478
========== ====== ==========
Non-accrual and restructured $ 8,857 .6% $ 9,308
</TABLE>
<PAGE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$24,984,000 in loans secured by assets held in the United States, totaled
$51,378,000 at June 30, 1998, or 1.5 percent of total loans flat with
$51,824,000 at March 31, 1998 and up compared to $34,426,000 last year. The
increase from a year ago represents the additional usage of lines of credit
extended to Mexican firms to support trade related transactions. Of the trade-
related credits, approximately 94 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 from the United States. As of June 30,
1998, none of the Mexican related loans were on non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
-----------------------
Percentage of
June 30, 1998 Amount Total Loans
- ----------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $38,077 1.1%
Loans to private firms or individuals 13,301 .4
------- ----
$51,378 1.5%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
June 30, 1998 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 8,857 $5,651 $14,508
Foreclosed assets 3,598 1,604 5,202
------- ------ -------
Total $12,455 $7,255 $19,710
======= ====== =======
As a percentage of total
non-performing assets 63.2% 36.8% 100.0%
</TABLE>
Non-performing assets totaled $19,710,000 at June 30, 1998 up 16.3 percent
from $16,951,000 at June 30, 1997 and down slightly from $19,837,000 at March
31, 1998. Non-performing assets as a percentage of total loans and foreclosed
assets remained the same at .57 percent at June 30, 1998 and 1997.
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 foreclosure 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 $297,000 or $.01 per common share for
the second quarter of 1998, compared to approximately $242,000 or $.01 per
common share for the second quarter of 1997 and $275,000 or $.01 per common
share for the first quarter of 1998. For the six months ended June 30, 1998,
the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $573,000 or $.02 per common share, compared with approximately
$444,000 or $.02 per common share for the comparable period last year. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$7,012,000 at June 30, 1998, compared to $5,789,000 at June 30, 1997, and
$6,662,000 at March 31, 1998.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $51,115,000 or 1.48 percent of
period-end loans at June 30, 1998, compared to $46,797,000 or 1.58 percent at
June 30, 1997 and $49,698,000 or 1.49 percent at March 31, 1998. The allowance
for possible loan losses as a percentage of non-accrual and restructured loans
was 352.3 percent at June 30, 1998, compared to 334.3 percent at June 30, 1997
and 356.3 percent at the end of the first quarter of 1998.
<PAGE>
The Corporation recorded a $2,600,000 provision for possible loan losses
during the second quarter of 1998. This compares to $2,599,000 provision for
possible loan losses during the second quarter of 1997 and $2,579,000 for the
first quarter of 1998. Net charge-offs in the second quarter of 1998 totaled
$1,183,000, compared to net charge-offs of $1,234,000 and $2,204,000 for the
second quarter of 1997 and for the first quarter of 1998, respectively.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
----------------------------
1998 1997
------------------ -------
Second First Second
Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real estate $ (303) $ 29 $ (297)
Commercial and industrial (100) 660 380
Consumer 1,600 1,514 1,184
Other, including foreign (14) 1 (33)
------- ------- -------
$ 1,183 $ 2,204 $ 1,234
======= ======= =======
Provision for possible loan losses $ 2,600 $ 2,579 $ 2,599
Allowance for possible loan losses 51,115 49,698 46,797
</TABLE>
Capital and Liquidity
At June 30, 1998, shareholders' equity was $483,325,000 compared to
$445,383,000 at June 30, 1997 and $474,957,000 at March 31, 1998. The
Corporation had an unrealized gain on securities available for sale, net of
deferred taxes, of $8.8 million as of June 30, 1998 compared to a $7.4 million
unrealized gain as of June 30, 1997, reflecting a change of $1.4 million. This
increase is primarily due to the decrease in market interest rates. Currently,
under regulatory requirements, the unrealized gain or loss on securities
available for sale is not included in the calculation of risk-based capital and
leverage ratios. See page seven for a discussion of the Corporation's
regulatory capital ratios.
The Corporation raised its cash dividend 20 percent for the second quarter
of 1998 to $.30 per common share compared to $.25 per common share in the first
quarter of 1998 and second quarter of 1997. Excluding the merger related
charge this equates to a dividend payout ratio of 33.7 percent, 33.2 percent
and 36.0 percent for the second and first quarters of 1998 and the second
quarter 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 June 30, 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.
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 $3.5 million over a three year period beginning in 1997, funded
out of its earnings. These costs are being expensed as incurred and were
approximately $524,000 and $310,000 for the second and first quarters of 1998,
respectively. 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.
<PAGE>
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-Year-to-Date
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
June 30, 1998 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 $ 295,857 $ 8,268 5.64% $ 300,060 $ 8,129 5.46%
U.S. Government agencies
and corporations 1,512,706 49,177 6.50 1,388,547 46,049 6.63
States and political subdivisions 45,266 1,778 7.86 38,195 1,539 8.06
Other 33,950 1,055 6.21 10,703 281 5.25
--------- -------- --------- --------
Total securities 1,887,779 60,278 6.39 1,737,505 55,998 6.45
Federal funds sold 139,702 3,880 5.52 201,891 5,230 5.15
Loans, net of unearned discount 3,336,701 147,202 8.90 2,815,000 126,052 9.03
--------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,364,182 211,360 7.93 4,754,396 187,280 7.92
Cash and due from banks 592,705 518,582
Allowance for possible loan losses (49,884) (42,130)
Banking premises and equipment 134,797 122,078
Accrued interest and other assets 265,261 197,016
--------- ----------
Total Assets $6,307,061 $5,549,942
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,347,314 $1,090,632
Correspondent banks 207,802 193,203
Public funds 39,540 44,356
--------- ---------
Total demand deposits 1,594,656 1,328,191
Time deposits:
Savings and Interest-on-Checking 905,247 5,671 1.26 814,947 5,269 1.30
Money market deposit accounts 1,316,894 26,000 3.98 1,128,446 22,799 4.07
Time accounts 1,281,803 32,313 5.08 1,190,201 29,168 4.94
Public funds 274,613 5,452 4.00 286,819 6,354 4.47
--------- -------- --------- --------
Total time deposits 3,778,557 69,436 3.71 3,420,413 63,590 3.75
--------- ---------
Total Deposits 5,373,213 4,748,604
Federal funds purchased and securities
sold under resale agreements 239,090 5,574 4.64 196,778 4,458 4.51
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,416 4,238 8.68 78,943 3,414 8.72
Other borrowings 30,248 785 5.23 25,644 705 5.54
--------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,146,311 80,033 3.89 3,721,778 72,167 3.91
--------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 89,289 63,571
--------- ----------
Total Liabilities 5,830,256 5,113,540
SHAREHOLDERS' EQUITY 476,805 436,402
--------- ----------
Total Liabilities and
Shareholders' Equity $6,307,061 $5,549,942
========== ==========
Net interest income $131,327 $115,113
======== ========
Net interest spread 4.04% 4.02%
===== =====
Net interest income to total average earning assets 4.92% 4.87%
===== =====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
June 30, 1998 March 31, 1998
---------------------------- ------------------------
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 $ 256,937 $ 3,620 5.65% $ 335,210 $ 4,649 5.62
U.S. Government agencies
and corporations 1,523,283 24,766 6.50 1,502,010 24,410 6.50
States and political subdivisions 47,608 992 8.33 44,459 786 7.07
Other 49,154 783 6.37 17,017 271 6.38
---------- ------- ---------- -------
Total securities 1,876,982 30,161 6.43 1,898,696 30,116 6.36
Federal funds sold 136,194 1,863 5.41 143,248 2,017 5.63
Loans, net of unearned discount 3,389,797 74,821 8.85 3,283,016 72,383 8.94
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 5,402,973 106,845 7.93 5,324,960 104,516 7.93
Cash and due from banks 573,970 611,648
Allowance for possible loan losses (50,307) (49,457)
Banking premises and equipment 134,742 135,002
Accrued interest and other assets 257,564 268,581
---------- ----------
Total Assets $6,318,942 $6,290,734
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,369,079 $1,325,315
Correspondent banks 195,762 219,975
Public funds 38,059 41,036
---------- ----------
Total demand deposits 1,602,900 1,586,326
Time deposits:
Savings and Interest-on-Checking 916,899 2,921 1.28 893,466 2,750 1.25
Money market deposit accounts 1,337,586 13,258 3.98 1,295,973 12,742 3.99
Time accounts 1,291,537 16,279 5.06 1,271,962 16,034 5.11
Public funds 224,173 2,194 3.93 325,613 3,258 4.06
---------- ------- ---------- -------
Total time deposits 3,770,195 34,652 3.69 3,787,014 34,784 3.73
---------- ------- ---------- -------
Total Deposits 5,373,095 5,373,340
Federal funds purchased and securities
sold under resale agreements 243,033 2,828 4.60 235,104 2,747 4.67
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,422 2,119 8.61 98,409 2,119 8.61
Other borrowings 33,929 419 4.96 26,527 365 5.58
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,145,579 40,018 3.87 4,147,054 40,015 3.91
---------- ------- ----- ---------- ------- ----
Accrued interest and other liabilities 87,129 86,073
---------- ----------
Total Liabilities 5,835,608 5,819,453
SHAREHOLDERS' EQUITY 483,334 471,281
---------- ----------
Total Liabilities and
Shareholders' Equity $6,318,942 $6,290,734
========== ==========
Net interest income $66,827 $64,501
======= =======
Net interest spread 4.06% 4.02%
==== ====
Net interest income to total average earning assets 4.96% 4.89%
==== ====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
December 31, 1997 September 30, 1997
---------------------------- ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
----------- -------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 300,841 $ 4,233 5.58 $ 303,537 $ 4,234 5.53
U.S. Government agencies
and corporations 1,378,048 22,484 6.53 1,342,132 22,155 6.60
States and political subdivisions 43,351 795 7.33 38,496 748 7.77
Other 15,216 244 6.42 10,620 161 6.07
---------- ------ ---------- -------
Total securities 1,737,456 27,756 6.38 1,694,785 27,298 6.43
Federal funds sold 261,363 3,696 5.53 246,977 3,496 5.54
Loans, net of unearned discount 3,069,060 69,169 8.94 2,967,085 67,349 9.01
---------- ------ ---------- ------
Total Earning Assets and
Average Rate Earned 5,067,879 100,621 7.89 4,908,847 98,143 7.94
Cash and due from banks 560,317 513,907
Allowance for possible loan losses (47,916) (47,084)
Banking premises and equipment 127,135 127,143
Accrued interest and other assets 219,881 207,152
---------- ----------
Total Assets $5,927,296 $5,709,965
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,223,542 $1,168,771
Correspondent banks 196,901 185,650
Public funds 44,684 43,340
---------- ----------
Total demand deposits 1,465,127 1,397,761
Time deposits:
Savings and Interest-on-Checking 832,452 2,528 1.21 810,411 2,565 1.26
Money market deposit accounts 1,282,661 13,219 4.09 1,241,342 12,798 4.09
Time accounts 1,217,492 15,325 4.99 1,222,661 15,374 4.99
Public funds 275,659 3,056 4.40 227,393 2,685 4.68
---------- ------ ---------- -------
Total time Deposits 3,608,264 34,128 3.75 3,501,807 33,422 3.79
---------- ------ ---------- -------
Total Deposits 5,073,391 4,899,568
Federal funds purchased and securities
sold under repurchase agreements 193,495 2,272 4.59 171,058 2,009 4.60
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,395 2,119 8.61 98,381 2,119 8.61
Other borrowings 24,679 339 5.44 27,203 391 5.70
---------- ------ ---------- ------
Total Interest-Bearing Funds
and Average Rate Paid 3,924,833 38,858 3.93 3,798,449 37,941 3.96
---------- ------ ---- ---------- ------- ----
Accrued interest and other liabilities 78,060 64,333
---------- ----------
Total Liabilities 5,468,020 5,260,543
SHAREHOLDERS' EQUITY 459,276 449,422
---------- ----------
Total Liabilities and
Shareholders' Equity $5,927,296 $5,709,965
========== ==========
Net interest income $61,763 $ 60,202
======= ========
Net interest spread 3.96% 3.98%
===== =====
Net interest income to total average earning assets 4.85% 4.88%
===== =====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
June 30, 1997
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------- ------- -----
<S> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 314,122 $ 4,297 5.49%
U.S. Government agencies
and corporations 1,386,467 23,027 6.64
States and political subdivisions 38,783 758 7.82
Other 10,374 150 5.78
---------- -------
Total securities 1,749,746 28,232 6.46
Federal funds sold 202,345 2,828 5.53
Loans, net of unearned discount 2,895,298 65,421 9.06
---------- -------
Total Earning Assets and
Average Rate Earned 4,847,389 96,481 7.97
Cash and due from banks 496,420
Allowance for possible loan losses (41,832)
Banking premises and equipment 124,605
Accrued interest and other assets 209,199
----------
Total Assets $5,635,781
==========
LIABILITIES
Demand deposits:
Commercial and individual $1,124,883
Correspondent banks 180,946
Public funds 42,274
----------
Total demand deposits 1,348,103
Time deposits:
Savings and Interest-on-Checking 830,282 2,665 1.29
Money market deposit accounts 1,162,979 11,951 4.12
Time accounts 1,212,815 15,002 4.96
Public funds 274,668 3,152 4.60
---------- -------
Total time deposits 3,480,744 32,770 3.78
---------- -------
Total Deposits 4,828,847
Federal funds purchased and securities
sold under resale agreements 180,777 2,161 4.73
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,372 2,143 8.72
Other borrowings 24,806 351 5.68
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,784,699 37,425 3.96
---------- ------- -----
Accrued interest and other liabilities 63,467
----------
Total Liabilities 5,196,269
SHAREHOLDERS' EQUITY 439,512
----------
Total Liabilities and
Shareholders' Equity $5,635,781
==========
Net interest income $59,056
=======
Net interest spread 4.01%
====
Net interest income to total average earning assets 4.88%
====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Corporation was held on May 28,
1998. The following matters were submitted to a vote of the Corporation's
shareholders.
1. Election of Directors:
Election of all seven director nominees into Class II with terms expiring
in 2001 was approved with no nominee receiving less than . million votes.
Nominee Total Votes For Total Votes Withheld
- ------- --------------- --------------------
Class II:
Royce S.Caldwell. 18,959,995 149,900
Ruben R. Cardenas 18,957,243 152,652
Henry E. Catto 18,968,577 141,318
Richard W. Evans, Jr. 18,969,119 140,776
James W. Gorman, Jr. 18,968,022 141,873
Richard M. Kleberg, III 18,968,859 141,036
Horace Wilkins, Jr. 18,703,152 406,743
2. Increase authorized shares
Total Votes For 17,880,153
Total Votes Against 1,229,742
3. Reduce par value of Common Stock
Total Votes For 17,893,571
Total Votes Against 1,216,324
4. Selection of Independent Auditors
Total Votes For 19,059,298
Total Votes Against 50,597
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 June 30, 1998, a Current Report on Form 8-K,
dated
April 21, 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: August 14, 1998 By:/s/Phillip D. Green
-----------------------
Phillip D. Green
Senior 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 6-30-98 (EDGAR VERSION)
27.1 Statement re: Financial Data Schedule restated for the merger
of Overton Bancshares, Inc. (EDGAR VERSION)
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Cullen/Frost Bankers, Inc.
Computation of Earnings Per Common Share
Basic and Diluted (Unaudited)
(in thousands, except per share amounts)
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
Basic Earnings per Share 1998 1997 1998 1997
- -------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $30,869 $35,125 $11,456 $18,128
======= ======= ======= =======
Weighted average number of common
shares outstanding 26,470 26,622 26,520 26,614
======= ======= ======= =======
Basic earnings per common share $ 1.17 $ 1.32 $ .43 $ .68
Six Months Ended Three Months Ended
June 30 June 30
------------------- -------------------
Diluted Earnings per Share 1998 1997 1998 1997
- -------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $30,869 $35,125 $11,456 $18,128
======= ======= ======= =======
Weighted average number of
common shares outstanding 26,470 26,622 26,520 26,614
Addition from assumed exercise of
stock options 795 790 784 804
------- ------- ------- -------
Weighted average number of common
shares outstanding, including
dilutive effect of stock options 27,266 27,412 27,304 27,418
======= ======= ======= =======
Diluted earnings per common share $ 1.13 $ 1.28 $ .42 $ .66
</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 JUNE 30, 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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 754,017
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 61,400
<TRADING-ASSETS> 587
<INVESTMENTS-HELD-FOR-SALE> 1,683,040
<INVESTMENTS-CARRYING> 129,819
<INVESTMENTS-MARKET> 133,583
<LOANS> 3,447,353
<ALLOWANCE> 51,115
<TOTAL-ASSETS> 6,425,392
<DEPOSITS> 5,541,176
<SHORT-TERM> 177,842
<LIABILITIES-OTHER> 124,619
<LONG-TERM> 98,431
0
0
<COMMON> 266
<OTHER-SE> 483,058
<TOTAL-LIABILITIES-AND-EQUITY> 6,425,392
<INTEREST-LOAN> 146,705
<INTEREST-INVEST> 59,727
<INTEREST-OTHER> 3,880
<INTEREST-TOTAL> 210,312
<INTEREST-DEPOSIT> 69,436
<INTEREST-EXPENSE> 80,032
<INTEREST-INCOME-NET> 130,280
<LOAN-LOSSES> 5,179
<SECURITIES-GAINS> 144
<EXPENSE-OTHER> 143,881
<INCOME-PRETAX> 49,686
<INCOME-PRE-EXTRAORDINARY> 30,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,869
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 7.93
<LOANS-NON> 14,508
<LOANS-PAST> 7,012
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,582
<ALLOWANCE-OPEN> 48,073
<CHARGE-OFFS> (5,847)
<RECOVERIES> 2,460
<ALLOWANCE-CLOSE> 51,115
<ALLOWANCE-DOMESTIC> 44,414
<ALLOWANCE-FOREIGN> 206
<ALLOWANCE-UNALLOCATED> 6,495
</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 JUNE 30, 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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 476,888
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 153,823
<TRADING-ASSETS> 1,007
<INVESTMENTS-HELD-FOR-SALE> 1,489,386
<INVESTMENTS-CARRYING> 247,992
<INVESTMENTS-MARKET> 253,136
<LOANS> 2,958,873
<ALLOWANCE> 46,797
<TOTAL-ASSETS> 5,640,500
<DEPOSITS> 4,842,407
<SHORT-TERM> 147,902
<LIABILITIES-OTHER> 106,433
<LONG-TERM> 98,376
0
0
<COMMON> 133,664
<OTHER-SE> 311,719
<TOTAL-LIABILITIES-AND-EQUITY> 5,639,988
<INTEREST-LOAN> 125,600
<INTEREST-INVEST> 55,509
<INTEREST-OTHER> 5,231
<INTEREST-TOTAL> 186,340
<INTEREST-DEPOSIT> 63,589
<INTEREST-EXPENSE> 72,166
<INTEREST-INCOME-NET> 114,174
<LOAN-LOSSES> 4,566
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 114,226
<INCOME-PRETAX> 54,435
<INCOME-PRE-EXTRAORDINARY> 35,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,125
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 7.92
<LOANS-NON> 13,997
<LOANS-PAST> 5,789
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,627
<ALLOWANCE-OPEN> 41,503
<CHARGE-OFFS> (4,619)
<RECOVERIES> 1,924
<ALLOWANCE-CLOSE> 46,797
<ALLOWANCE-DOMESTIC> 40,165
<ALLOWANCE-FOREIGN> 191
<ALLOWANCE-UNALLOCATED> 6,441
</TABLE>
